Land Strategies Farming Blog

Shaking Up the Milk Market - Why Muller Might Want to Buy Wiseman

2012-01-17T14:15:00.000Z

At first blush it seems very odd that Muller Dairy, a very successful branded yoghurt and desserts company, would shell out £279m to buy Wiseman – a one product, one distribution channel company who are totally reliant on selling a commodity to fickle, hard negotiating supermarkets and regularly issue profit warnings as a result.

Indeed, the Wiseman team saw the strategic writing on the wall nearly two years ago, in summer 2010, and appointed a financial advisor Greenhill to get themselves acquired. Muller apparently was the top contender. So Wiseman will be delighted with the outcome and as all the papers have pointed out the eponymous brothers have benefitted handsomely.

The rational for Muller is more difficult to pinpoint. Muller has a reputation for being secretive, and being privately owned is under no obligation to tell us the thinking behind their purchase. Their UK MD has confined comments to a bland statement about the two companies uniting to become a leading dairy player which can offer “exceptional products” to their customers. Investment analysts seem baffled. Peel Hunt reckoned that there is no strategic logic to the move. Clive Black of Shore Capital could not see much benefit except in the area of milk procurement, collection and utilisation which he felt could be substantial.

Further mystery has been added by reports saying that the reason for purchase is not so called “hard savings”, ie the costs that can be shaken out of a merged business through streamlining back office functions like accounts, IT, purchasing, logistics, and administration. Apparently Wiseman will be left to run itself as it did – at least for now.

So we must look further afield for enlightenment. The clues could come from Mullers business in Germany. In Germany Muller sells not just yoghurts and desserts but cheese, butter, and fresh and UHT milk. It also has a big private label unit dedicated to providing brand and product development , packaging and logistics services to major European grocery players. Perhaps access to Wiseman’s milk supply would pave the way for some of their European products and expertise to be brought to the UK.

The one thing we do know about Muller is that it is highly innovative. Their entry into the UK yogurt market transformed the way it operated, improving quality, adding innovative products with the corner concept, and packaging innovation with the square container which is logistically more efficient than the round pots which previously prevailed .
Muller must see the acquisition of Wiseman as platform for new product introduction which will wake up the hitherto rather sleepy UK dairy market.

Players such as Dairy Crest and the milk cooperatives should standby for a milk shake up.

Tesco Pays the Price for Ignoring its Customers

2012-01-13T14:41:00.000Z

It’s been a dramatic week for supermarket watchers.

First, Morrisons who had been the clear leaders in the grocery war of late announced that their sales over Xmas period had grown by a tiny 0.7%. Dalton Phillips their Canadian chief executive said it was because cash strapped Brits were unwilling to splash out over the festive season.

Somewhat contrary to this picture of austerity consciousness, Waitrose announced sales growth of +3.8%. Now as anyone who has ventured through the doors of a Waitrose will know their food is not cheap, even following much publicised activities such as a price match with Tesco on 1000 lines. Next came Marks and Spencer, also not a cheap place to shop, with sales growth of 3%. According to ex Morrisons chief executive Marc Bolland this was due to the introduction of 600 new products, and keen pricing on some lines. Indeed M&S customers seem to be gregarious types, powering sales of party packs of food to by 8% and fresh turkey by 25%.

Then we heard from Sainsbury with sales up 2.1%. According to their head man Justin King, their premium Taste the Difference range grew by 10%, but he did concede that at the other end of the scale their cheaper value range grew by 7%.

We have not heard from ASDA yet but they are reported by market researchers Nielsen to have had a good Christmas sales performance also.

And what can we say about Tesco whose Christmas trading performance was nothing short of dire, with sales down 2.3%. It is not just a short term issue either. According to their chief executive Philip Clarke, Tesco’s “entire shopping experience” is not as good as it should be and he indicated that Tesco has failed for years to deliver on product availability, service and food quality.

And thereby hangs the clue as to what makes the difference between winners and losers. Yes, indeed British consumers are feeling the pinch, scrutinising all costs, budgeting, cutting down on waste. But, they are prepared to spend their money with grocers who offer the combination of price, quality, and specialness which makes them feel as if their money has been well spent.

The “upmarket” grocers between them have about 25% of the market and despite cash strapped times were rewarded because they offered that critical concept of value for money that consumers seek, especially when money is tight.

Those who keep close to their customers and listen to them generally do well. Tesco has not been listening, and has not done so for years, resulting in lost customers and falling market share.

Turning a deaf ear to customer needs leads to problems.

Riverford and Abel and Cole - The Contrasting Styles of Guy Watson and Keith Abel

2011-12-19T16:20:00.000Z

The two big names in organic veg boxes have been in the news recently, but their messages could not be more different.

Guy Watson has been explaining that the price of Riverford’s produce is typically 20% less than the supermarket equivalent and that whilst this means low margins (typically 3-4%), he is not overly bothered because this pricing strategy fits with his values of good food, good farming and good business at affordable prices.

Keith Abel’s coverage was all about Keith and how since his return to Abel and Cole two years after he sold it to private equity firm Phoenix netting about £20 million in the process, the business has grown and profitability been restored.

Both companies are of a similar size. Riverford claims to deliver about 47,000 boxes a week, and grew sales by 2.4% to £39.5m in the year to April 2011. Abel and Cole, according to the Sunday Times article of 12^th December, claims to deliver to over 50,000 households a week. It had reported sales of £36m in the year to August 2011, up from £28.7m, and made an operating profit of £1.5m.

The two companies might operate in the same market and be similar in size but the philosophies of their founders are very different.

Keith Abel would probably take great offence if accused of being cash driven despite his windfall from the sale to Phoenix, and despite admitting to the Ecologist in June 2011 that one of the reasons he came back to Abel and Cole was because “they offered me a great package”. Even his barrister friend Jeremy Hall quoted in the Sunday Times said that “Keith likes making money”, although he did qualify the comment adding that he possesses a “strong moral compass”.

Nevertheless, the sudden burst of publicity seems tied into the wish of Lloyds bank, current backers of Abel and Cole in which Keith Abel still owns a 20% stake, to sell the business in the next twelve months on the back of an improved company performance.

By contrast, Guy Watson, in a piece posted on the Riverford website just a day after the Sunday Times Abel interview, says that he would never sell his company to venture capitalists, that he is uncomfortable about "unbridled capitalism", and that whatever the future shape of Riverford it must involve people "who are intimately involved in determining its success”.

Does it matter whether one founder of a business is driven more by wealth and another more by values? Possibly not. In the case of veg boxes customers perhaps only worry about the quality of the food and reassurance that produce is appropriately farmed or grown.

I would guess though that any customer who trades the convenience of shopping for what they want when they want it for downsides of veg boxes like being tied to a delivery day, never being quite sure what they will contain, and having to polish up cooking skills because something unfamiliar has turned up, might be deeply interested in the whole ethos of a company and those who work in it.

Local Food Gains Ground as Consumers Support Those Closest to Home

2011-12-09T12:01:00.000Z

The move towards buying local food has been around for several years now and the economic downturn seems to have made consumers even more inclined to support nearby producers.

According to the Institute of Grocery Distribution, the number of shoppers buying locally produced food has grown from 39% in September last year to 43% in September this year. As to future intentions, 41% say they will buy more local food compared with 39% who said the same thing at the start of 2011. This number compares with 31% who intend to buy more welfare friendly food, and 17% who intend to buy more organic.

Supermarkets are responding to the trend by stocking bigger local food ranges. Sainsbury now sells 3000 locally produced foods, and grew their sales by 15% in the last year.

Tesco says that “many customers want to buy locally sourced foods to support their local communities”. In response they have built alo special local foods website, where you can type in your postcode, find the nearest Tesco store and a list of the local foods they stock. In 2010/2011 compared with the previous year Tesco grew their local food sales from £850m to £1billion.

Asda, who can justly claim to be the first supermarket to spot the trend has 6000 local products on sale from 600 suppliers. They are aiming to turnover £500m in local food sales, a 15% increase on where they are now.

A trip north of the border to Scotland illustrates the trend well with a Scotland-produced variant of virtually every fresh food like eggs, milk bread, cheese fruit and vegetables available on the shelves. Imagine if that degree of localness spread to English counties or regions.

The urge to buy local is definitely a trend rather than a fad. As has been the case for a while it is the 65+ age group who are most supportive of local foods, but the IGD tells us that the 55+ group seems to be the keenest to increase their local food purchase, and if the trend spreads to a younger age group then robust sales growth seems to lie ahead.

Strong Brands Win Again - Dairy Crest Outperforms Robert Wiseman

2011-11-18T14:36:00.000Z

Half year profit results from Robert Wiseman and Dairy Crest once again show the perils of being a one product, one sales channel company operating in a commodity market.

Wiseman’s who sell only fresh milk saw pre tax profits drop by 42%, from £20.2m last year to £11.8m, on a turnover which climbed by 1%. The profit problems arose because the price they paid to farmers rose three times this year, and energy bills rocketed, but supermarkets, on whom Wiseman depends for nearly all their sales, refused to pass these costs on to consumers. Indeed many will recall that retail prices have been slashed of late.

By contrast, Dairy Crest who sell big brands such as Country Life butter and Cathedral City cheese alongside fresh milk reported a profits rise of 9% on a revenue increase of 2%.

Its just as well that Dairy Crest has these brands. Profits in their dairy division which sells the milk saw profits plummet by 89%, from £10.9m to £1.2m, a shocking performance which puts the fresh milk supply problem into sharp relief.

By contrast profits in the cheese division jumped by 32% due to higher selling prices, and butters and spreads profits grew by 16.5%.

For whatever reason, Wiseman seems to have held a the difficult milk situation together better than Dairy Crest, possibly because of scale (Wiseman supplies about a third of all fresh milk). But as previous blogposts have indicated, the Wiseman story continues to be a tale of erratic performance, and it is difficult to see how their current business model of one product and one sales channel can be made reliable and sustainable.

Some investors point to their strong cash position, and much has been made of their new venture with New Zealand company A2 which may deliver innovative products such as a more easily digested milk for those who think they have a lactose intolerance. Then again though, Arla seems to have solved this issue with Lactofree.

Dairy Crest with its brands, its presence in cheese, butter, and spreads as well as raw milk, and its sales through more than just supermarkets seems better able to deliver the steady, predictable performance that suppliers, customers and investors like to see.

Warning Call From EBLEX - More Must be Done to Boost Red Meat Consumption

2011-11-10T14:59:00.000Z

Hard work is needed to keep consumers buying beef and lamb. That is the message coming from EBLEX’s recent conference, and it is an important one. Farm gate prices are strong just now, helped by a reduction in supply from UK farms, a reduction in imports, and a solid export trade due to the weak pound.

UK consumption though is just about stable for beef and dropping like a stone for lamb. Kantar Worldpanel figures show that in the 52 weeks to October 2^nd, people ate 21% less lamb than in the previous year.

So what are the problems? Price is the big one of course. When asked why they do not eat more beef 32% say it is too expensive, and 27% say they cannot afford to. The comparable figures for lamb are 45% and 33%.

We know from other research that price in general has become more of an issue. %. In 2008 34% of consumers claimed to make a shopping list and stick to it. In 2010 this had risen to 44%. In 2008 28% said they worked to a strict budget when buying groceries. That figure now is 40%.

The other main problem on beef is that 17% of consumers think it is not very good for you.

Lamb has its own issues. 57% of consumers agree that lamb can be fatty, and 14% say that too much fat is left on the plate after eating. 15% say there is not enough meat and too much bone to offer value for money.

What can be done to boost red meat consumption?

No one thinks that consumers will become any less price and value conscious in the foreseeable future.

So as Richard Phelps, now of ABP, pointed out at the EBLEX conference, consumers must be given reasons to eat red meat. He believes that, despite continuing pressures on spend, consumers are becoming more adventurous with ingredients and recipes. They are staying in more rather than eating out, and are prepared to buy premium products, mixing these with value lines as budgets allow. So red meat marketers must respond with new cuts and new products.

Phelps says that quality has to improve. He specifically focussed on age of herds, but as anyone who has forked out for a joint of beef and found it tough and tasteless, or left most of their lamb because it was too fatty, much more attention has to be paid to the eating qualities and presentation of red meat. Nick Allen of EBLEX made the quality point also, particularly on lamb where he feels product must improve to combat consumer perceptions of fattiness and poor value.

The final question therefore is who has to take the lead in this. I would suggest it is the processor, ideally with the backing of the supermarket they supply. It is the processor who has the opportunity to set production standards, to reject the over fatty animal, and to ensure that good butchering means consumers get a product they feel is good value for the money spent.

Connecting with Consumers on Smartphones - Now Key to Business Success

2011-10-28T09:58:00.000+01:00

“A nation addicted to smartphones” is how Ofcom summarises its findings from a recent piece of research, saying that 27% of all adults and almost half of teenagers now own a smartphone (a mobile which connects to the internet). Smartphone owning numbers have exploded in the past year, and are set to rise further as annual sales of smartphones are now higher than those for the standard version.

More internet users connect to the web via their mobile than a laptop (45% versus 38%), and the number is even higher among 16-24 yearold where 71% access the internet via phone.

Smartphone usage is definitely here to stay and businesses are thinking through how they tap into the trend, whether it be for advertising their products, providing information, or directly selling goods online.

At the very least, websites must be simple enough to be quickly accessed. Consumers will rapidly lose patience if they have to wait for information to be downloaded. This means either having a site tailored to mobile usage, which automatically comes up when searched via phone, or having a link redirecting users from the main site to a mobile friendly one. Amazon and Tesco are good examples of a speedy tailored link. Asda’s site take an age to download.

The other option is to provide an app, or application, which sits permanently on the phone for easy access to a specific activity.

Although most usage is still for socialising, downloading music, gaming, and searching for information, the IGD reckons that smartphones are starting to change the way groceries are bought online. According to their research, 1 in 10 online shoppers are using smartphones to shop. Ocado claims that 15% of customer checkouts during the first half of the year came via their smartphone app. Tesco has a handy app which allows shoppers to scan the barcode of a product on their phone whereupon it is automatically added to their online shopping basket.

As to future developments, the IGD predicts that tailored apps which build a relationship with individual consumers are the way to go.

The time has probably come to view selling and marketing via the mobile phone as a crucial part of any business plan. The research finds that 81% of smartphone users never switch them off, even when they go to bed, and that huge numbers are happy to use the phone whilst socialising, at the meal table, and even in the bathroom.

Smartphone usage is now a part of life. Those businesses without a smartphone presence may find themselves competitively disadvantaged.

The Top Four Issues Worrying Food Shoppers Struggling with Austerity

2011-10-12T16:02:00.000+01:00

According to the Institute of Grocery Distribution’s Shopper Track research the top four areas where cash strapped consumers are seeking help are:

1. Sticking to a budget

2. Reducing waste

3. Making shopping a less tedious experience

4. Understanding enough about product provenance to make the ethical choice

Joanne Denney-Finch, from IGD, speaking at their annual convention went on to explain what the frustrations are.

What shoppers do not want to see as they grapple with budgets is tinkering around with a product to hit a price point. So reducing weights or quality is a no no.

They are not happy with offers which encourage multiple purchase such as 3 for the price of two, or two for a discounted price.

What they do want are straight price reductions, and more advance notice of offers to enable them to plan better. They would also like to be able to keep a running total of spend as they go round the store to avoid the shock that can often come when the final bill is presented at the checkout.

Shoppers also say that branded budget ranges would be welcome as an alternative to buying a retailer’s own brand.

On the subject of waste, shoppers would like to see re-sealable packs, and a longer shelf life on products, as well as a reduction in the number of multi buy offers which they feel encourage over-purchase and often result in product being thrown away.

Food shopping remains a harassing experience for most, with crowds and a bewildering choice being the main sources of angst. This should point to an opportunity for online shopping but it seems that a half of all online shoppers have stopped buying this way, with a third of those finding the whole experience too tedious.

And so to provenance. Denney-Smith does not actually say that consumers will walk away from a product if they do not understand where it has come from. Rather, that giving information about provenance is a vital way of encouraging brand loyalty. She cites the Patagonia clothing website as a good example of how to do this.

So how much of this shopper wish list are we likely to see during our forthcoming supermarket trips?

It would be a brave supermarket that stopped multi- buy promotions in favour of straight money off, because the multi-buy means that shoppers spend more money in the store which helps boost turnover. This in turn boosts market share, and makes a contribution to covering overheads. Equally, anything which means shoppers limit the number of trips they make to a store is bad news as once in, many shoppers are likely to be tempted to buy something which could be classed as unnecessary.

Shoppers’ requests for budget brands are admirably served by Aldi whose whole reason for being rests on just that, but it is unlikely that major branded manufacturers will move this way. It is too costly to build a separate brand, particularly one with a low price.

The ability to keep a running total of the bill whilst going round the store is already available through Waitrose.

So far no supermarket has cracked the code to a pleasurable food shopping experience despite much effort being put in. In fact Sainsbury and Tesco with their emphasis on self serve checkouts and consequent reduction in checkout operators are merely adding to the stress of shopping.

I have a feeling that communicating provenance will become more widespread. Certainly the technology is available for consumers to find out where there item has come from, whether through a company websites, or social media like Facebook, or an app on their smartphone, or even through good old fashioned wording on the pack.

The thrust of Joanne Denney-Finch’s speech was that in an age of austerity which shows signs of being around for years, the winners will be those who listen hard to their customers and who are brave enough to pursue radical innovation in response to their customers’ needs. Quite right.

Being Creative with a Commodity - How Meat Marketers are Adding Value

2011-10-04T14:28:00.000+01:00

These beefburgers, with their reference to breed and Britishness neatly capture some of the ways that marketers are adding value to meat. The British reference is important as consumers continue to seek reassurance about where their food comes from, and buying British becomes more of a consideration.

Breed is increasingly being used as a value adding tool. Aberdeen Angus has for a long time been seen by consumers as a quality breed. McDonalds sells an Angus burger costing more than the standard variant, and Waitrose emphasises meat from Angus as well as Hereford cattle. Now Morrisons are embracing breed differentiation, selling beef from Shorthorns (and paying producers a premium in the process).

At the other end of the breed spectrum Kobe beef from Waygu cattle is gaining a reputation for quality, so much so that at the request of a Japanese chef, an Australian farmer is feeding his Waygus a litre of wine every day.

Making meat meals more convenient to prepare and serve also adds value as many consumers are nervous about cooking meat, and, given its price they want to be reassured that the end product will taste great. Hence the rise of "foolproof" products such as Simply Cook where all ingredients are available in one pack, the size of portion is strictly controlled, and the food just has to be flung into the oven for the specified time.

These cook in the bag products from Maggi are a cheaper solution, but offer the same benefits.

Value can be added through packaging innovation. Some consumers do not like to handle meat, so Tesco's meatballs are packed individually, in a tray like an egg carton so that the product does not have to be touched, and Waitrose sells their roasting chickens in a hard case rather than film for the same reason. Note the saltire and reference to Scotch on the pack to reinforce where the meat came from.

All this innovation notwithstanding, price remains a key part of the value equation. It is no accident that all of the above featured products from Tesco came with a promotional offer - mostly two for a discounted price. It is a sobering reminder that people will not pay if they do not think a product is worth the money.

Speciality Farm Produce Available Online - Former Asda CEO's New Venture

2011-09-28T09:21:00.000+01:00

One of the more interesting news items from last weekend is that Andy Bond, former chief executive officer of ASDA is investing in Farmison.com, an online food retailer which aims to provide home cooks with speciality food ingredients produced by small British farmers and normally only found in restaurants.

The move is interesting on a number of counts. Bond clearly believes that online food retailing has a big future and that Farmison can sort out the problems that stop many from buying fresh food online such as variable quality, and irritating substitutions. He must also believe, despite harsh economic times that super premium food, with a provenance that traces back to the individual farmer has a future too. And he must believe that Farmison has something unique about its offer which will ensure it succeeds in an increasingly crowded market.

Farmison faces competition from other online retailers, and from grocery stores making increasing efforts to go super premium. Marc Bolland wants to take Marks and Spencer in this direction, Waitrose and Ocado makes strenuous efforts to be special, and all three are investing online, along side every other food retailer. There is also competition from the likes of Riverford Organics and Abel and Cole companies who sell local food from small farms.

Will Farmison be a good financial investment not just for Andy Bond, but for the small farmers who are paying for the privilege of being sold through it? Difficult to say at this early stage, but the business will face challenges. Ocado, after 10 years still has not made a profit, its sales are slowing, and investors are so spooked they have written the share price down to about half of its launch price. Although the supermarkets are happy to talk about growth rates in their online business, no one ever mentions profitability which probably means it is low. On the other hand, Andy Bond has a good track record and will have investigated Farmison’s potential in detail before parting with his money.

Going for Growth - How Marks and Spencer, Waitrose, Morrisons and Aldi are Tackling the Challenge

2011-09-14T14:02:00.000+01:00

Growth remains the holy grail for all supermarkets. Here we look at four different approaches - M&S and Waitrose at the premium end of the market, Morrisons in the mainstream, and Aldi the discount chain.

The discount sector remains an endless source of fascination for supermarket watchers because the business models are so different from the mainstream, but their growth rates are tremendous. In the 12 weeks to September 4^th, Aldi has grown by 26% and LIDL by 13%. This run of growth has been going on for months. Part of it is down to the demise of Netto, meaning that discount fans have had to transfer their allegiance, part of it is a response to rising food prices and shrinking disposable income. Interestingly though, the growth has come for the most part from loyal discount shoppers who previously would divide spend between discounters and say Tesco, but who now choose to spend an increasing proportion in the discount shop. The actual number of new discount shoppers is small.

So the Aldi challenge is to persuade those shoppers who already like much of what they see in Aldi to spend an increasing amount of their grocery budget there. And the key to achieving the objective is to bring the quality of its fresh food up to that of its packaged goods, but maintaining value. Already work is underway and Aldi stand a very good chance of continuing the growth levels already experienced.

Morrisons is one of the “big four” supermarkets, and the only one growing faster than the market average. It is managing to combine growth with increased profits.

Their success so far is down to the quality and value of their fresh food, and they now want to extend this expertise to online shopping. To this end they purchased a stake in FreshDirect, the New York based company heralded as a leader in online. If Morrisons get this right they could be on to a winner as one of the main gripes about buying food on line is that fresh food is of variable quality, too near its sell by date and often the first choice is substituted for something less acceptable.

Waitrose today published its half year results, and whilst it is achieving sales growth of 9%, profits are down by 14%. Waitrose is chasing growth in a big way, by opening more stores, improving its online business, and promoting more heavily. Its challenge is to expand from its niche without losing the emphasis on quality and service that has made it successful, and the strategy is not without risk. As a privately owned company it has more time than most to get the model right, but at some stage it will need to restore profitability.

The M&S challenge is different. You cannot do your weekly shop there, so what CEO Marc Bolland and the team have to do is develop a food offer that cannot be bought in supermarkets. The answer according to Bolland is to make M&S even more special, putting delicatessens into bigger shops, upping the specialness of the bakery section, and featuring products little known in the UK but acknowledged as outstanding in other countries like Iberico ham and fresh burrata cheese (a mixture of mozzarella and cream apparently!).

These moves are unlikely to transform performance. Introducing such products is merely a difference of degree – another step along the rarity spectrum. It is not the radical, totally new meeting of a consumer need that has characterised M&S success in food in the past. In bygone days M&S was noted for pioneering, whether it was exotic sandwiches where previously only cheese and pickle was available, or ready meals which allowed a harassed meal provider to put something on the table which not only tasted great but was whipped up in half an hour, or previously unheard of fruit and veg.

Here we have four different companies all with different growth strategies. All will be convinced that their strategies will be successful. Time will tell who has got it right.

Canny Consumers - Cutting Food Costs Without Cutting Quality or Amount Consumed

2011-08-31T09:47:00.000+01:00

Peter Marks of the Coop, trying to explain a 4.6% reduction his first half year food sales, said that “People are spending less on food – that’s a first.” Kantar Worldpanel confirms the cutback, explaining that in the last three months grocery sales were up 3.8% in value, compared with inflation up 5.2%.

But behind the scary sound bites lies a story of canny consumers shopping and cooking more wisely, cutting expenditure but not sacrificing standards.

Take waste. Consumers recognise that waste is a big issue. In a recent Institute of Grocery Distribution survey, waste was cited by consumers as their major environmental concern. Whilst they raged against food companies for not selling smaller packs, and using cut price promotions to encourage buying too much, consumers acknowledged that they themselves cause much waste through lack of planning, and not paying enough attention to using leftovers.

And there is considerable scope to reduce waste. According to WRAP, in 2009 UK households generated £12 billion of avoidable food and drink waste, or about £480 per year for the average household. To put into context, DEFRA estimates that households spend around £125 billion each year on food and drink, so if WRAP figures are anything like accurate we waste about 10% of what we buy.

As to what is being wasted, WRAP estimates that £6.7bn goes on food and drink thrown away untouched or started but not finished. Examples are fresh fruit and vegetables (£1.4bn), bread and bakery products (£1.1bn), milk (£280m), yoghurts past their sell by date, and unused slices of bacon. A further £4.8bn is wasted on food and drink where too much has been prepared, cooked or served.

Still on the waste theme, there is evidence of shoppers spending less merely by refusing to shop impulsively and throw something into the trolley just because they like the idea.

Shopping at discounters is seen another way of spending less, and according to Kantar sales of ALDI and LIDL continue to grow at a clip, the former recording a growth of 24% in the last three months compared with the previous year. And sensible use of promotional offers is another well tried method of reducing spend.

Interestingly though, as Kantar points out, consumers’ food choices are not only about price. In the last 3 months sales of budget own label lines grew by just 2%, compared with an 8% growth in sales of premium own label products. So premium foods are by no means dead, but they do have to offer that elusive combination of quality and value to justify their price.

Shoppers have the scope to reduce spend and in the current economic climate will continue to do so. We can expect more years of cutbacks, especially on what could be described as poor value, over processed or not strictly necessary.

By contrast, spend on staples should continue to hold up. Despite the pressures, sales of beef, pork, bacon, sausages, milk and cheese have all shown volume growth in the last year. Consumers clearly see them as necessary, and, critically, fairly priced.

Red Meat Consumption Update - Beef and Pork Steady, Lamb Plummets

2011-08-16T17:04:00.000+01:00

Shoppers bought 19% less lamb in the 12 months to mid July 2011 than they did in the previous year. (Source: Kantar Worldpanel)

By contrast, volume sales of beef are up 1%, pork and sausages up 2%, sliced cooked meats up 3%, and bacon up 5%. Overall, purchases of red meat have remained level with last year, indicating perhaps that lamb buyers have migrated to alternative red meat options.

This is perhaps not surprising given that the average price of a kilo of pork is £4.71p, and beef £6.12p, both around what they were last year. The price of a kilo of lamb though has increased by 14%, and now stands at £7.94p, the knock on effect of higher prices being paid to farmers for their live lambs.

Consumers are walking away, put off by having to pay around £5 for a couple of chops, or £13 for a small leg of lamb. Only 22% of people buy lamb every 4 weeks compared with 37% buying pork and 55% buying beef, and when they do buy they buy less – 1kg of lamb compared with 1.5kg for pork, and 1.4kg for beef.

The figures should make those advocating higher retail prices for beef and pork pause for thought. So far, despite the difficult economic climate, sales of these meats have held up well. The question is whether they are sufficiently special to persuade people to buy despite price hikes. Or would demand just fall as it has with lamb? And will a fall in demand lead to oversupply of pigs and cattle, and reduce the price paid to farmers anyway?

Many factors influence prices paid to farmers, and it is difficult to find a clear link between retail prices and those paid at the farm gate. The lamb experience shows that domestic eating of lamb can fall dramatically yet prices paid for live lambs stay buoyant due to external factors like a strong euro, less imports and shrinking breeding flocks. By contrast, when farm gate prices for beef fell sharply last year due mostly to high quantities of dairy beef cattle, retail prices hardly moved at all, and consumption stayed about the same.

What is clear though is that a push too far on price will probably result in big falls in the amount of meat eaten, and that the fundamentals of supply and demand tend to hold true in the long term. So, if farmgate prices are to remain higher following an increase in retail price in the home market, additional outlets for British cattle and pigs need to be found urgently. Not an easy task.

Buying British - Catering Companies Letting the Side Down Badly

2011-08-05T09:13:00.000+01:00

Unlike supermarkets, catering companies are not obliged to tell the public where the food they sell every year actually comes from. So you and your family could be eating anything from anywhere, and produced to heaven knows what standards.

Quite apart from the standards question, it is depressing to see that so many catering companies, even the big ones, do not wholeheartedly support British farmers and growers.

Trawling through profiles of some of the larger businesses we find that:

Compass Group, the biggest catering suppliers in the world, use 100% British for their fresh beef, milk, and eggs. All their root veg comes from Britain “where seasonality and quality allow”. They do not claim that their chicken is British, but use the words “British Farm Assured”, which may mean it is produced in Britain. We do not know where they get their pork, bacon and ham from, or their dairy products apart from milk, or their lamb.

McDonalds’ goes for dual sourcing, buying milk (all organic), eggs, (all free range), beef, pork and oats from both Ireland and Britain, probably to benefit from the effects of currency exchange. 100 tonnes of the 440 tonnes of apples they use in their fruit bags are British. We do not know where their chicken comes from.

Wetherspoons the pub chain have 100% British beef in their burgers. All the pork in their sausages is British, as are their potatoes. Their eggs (all free range) “carry the British Lion quality mark”. Again, it is not clear whether the eggs are produced in Britain.

About 40% of KFC’s chicken is imported, with the rest coming from Britain. They have just put the Red Tractor logo on their on the bone chicken.

Gregg’s, noted for their pies and sausage rolls, provide no details of where their food is produced but have committed to issuing an ethical sourcing policy this year.

Subway, now said to be the biggest fast food chain in the world, also has nothing about sourcing in its literature, but is reported to get their turkey from Brazil, and their chicken from 5 different countries – Thailand, plus 4 in South America.

The most transparent company found is Pret a Manger, the £350million turnover purveyor of extremely high class sandwiches. On their website you can find details of where every ingredient they source comes from.

Their chicken is UK sourced, to higher welfare standards, as is their ham, bacon, organic milk, and free range eggs “if we can get them”. Their beef though comes from southern Ireland, as does their cheddar, and their butter from France!! But though it is possible to cavil at a company which for some reason won’t buy British beef, cheese or butter, at least we know a fair bit about what we are eating.

So some caterers make more of an effort than others, but clearly there is a lack of commitment by catering companies to buy British, and it is disappointing. The market for food and soft drinks eaten out is worth £43 billion. Supply to catering companies would be a welcome boost to demand at a time when consumers are cutting back on the amount of food they buy from the shops.

Supermarkets' Own Brands - An Increasingly Important Battleground

2011-07-27T15:01:00.000+01:00

For the first time in a long time supermarkets are struggling to grow food sales. Food inflation of around 5% plus economic uncertainty equals shoppers trading down, seeking promotions, cutting waste and sticking to a budget. All of which gives a headache to supermarket bosses.

They of course will be twisting their supplier thumbscrews ever tighter, but ultimately there is only so far that cost cutting will take a business. At some stage it needs to grow. And here is where a sound own brand strategy can make a difference.

Own brand is possibly the best weapon in a supermarket’s armoury, if it gets it right.

It is supremely flexible. The name can be applied to thousands of products at various price ranges. Tesco Finest operates at the top end, and Tesco Value at the bottom. Sainsbury has Taste the Difference and Basics, Asda has Extra Special, Chosen by You and Smart Price. Waitrose Essentials distinguishes their standard range from more expensive variants.

Done well own brands can enhance a retailers reputation, and provide a point of difference from competitors. Marks and Spencer has built a business on great quality, highly innovative food products.

Ultimately though, the reason why supermarkets make such an effort on own brands is that they are more profitable than national brands, because they deliver a higher margin.

A good own brand range is especially important just now. Lower margin national brands are promoting heavily, drawing sales from own label. And, supermarkets are desperate to provide reasons for people to choose their store rather than a competitor’s, so that they get the highest possible share of a shrinking market.

So, we hear that Morrisons, which has 45% of its sales in own brand, is planning its first own label revamp for four years. Sainsbury is relaunching its 6500 line mid tier range, renaming it “By Sainsbury”. Apparently around 25% of products across Sainsbury are new each year, so that customers don’t get bored and go elsewhere.

Waitrose is also working on improving its own label offer.

Reportedly Tesco is trying something completely different, registering a number of different brand names, but not displaying on the packaging that the brands in question belong to them. The products will be premium priced. Chokablok ice cream for example which is said to be one of the new Tesco brands, sells at the same price as Haagen Daz.

The consistent theme through all these upgrades is an emphasis on quality. Supermarkets realise that in order for their own label ranges to succeed competitively they have to offer a combination of quality, price, and something a bit out of the ordinary.

So supermarkets’ own brands are more profitable and a potential differentiator. There is also a new thread emerging. Shopping online has been earmarked as a growth area, and retailer labels can play a part in enhancing a supermarket’s on line shopping offer. The IGD points out that the web does not suffer the same space constraints as a shop, and so the full range of own label can be highlighted, reinforcing a stores reputation in whatever area they choose be it for innovation, price or quality, or ethical and environmental standards.

Renewed Growth of Discount Grocers Prompts Return Visit to Aldi

2011-07-20T16:05:00.000+01:00

Discount grocers sales are booming again, with growth levels not seen since the recession of 2008. Aldi is up 21% in the last three months and Lidl not far behind at plus 16%. Their combined market share has reached an all time high of 6.1%. Kantar Worldpanel who monitor this data, say that unlike 2008, the growth is coming mostly from existing customers buying more, rather than new shoppers.
So I went back to Aldi after an absence of three years to look again at what it is that generates such customer loyalty.

Well, the main attraction remains rock bottom prices. At Aldi you can buy a kilo of British beef mince for £2.40 ( at least £4 everywhere else unless very high fat content), a kilo of Jersey Royals for 49p (Tesco’s best price for new potatoes is 69p), and nectarines for less than 18p each compared with 25p at Tesco.

Packaged goods prices are low too, certainly in comparison to the leading brands, with coffee at £1.69p for 100g compared with Nescafe at £2.40p, and jaffa cakes at just over 3p each versus McVities at 8p. Interestingly their jaffa cakes contained 11% orange juice compared with 8% for McVities.

Aldi seems to have improved the feel of shopping in its stores. There are nods to food trends with free range chicken and eggs on sale, and they stock alot of British food. The store was clean and bright and the staff cheerful and helpful.

Aldi’s pursuit of low prices has downsides. Fresh food has to be carefully selected – the strawberries were mouldy today and there was no date code on the potatoes. It stocks few brands you will have heard of, and the range remains limited to essentials. Quality is not always great. The jaffa cakes were entirely acceptable, but the coffee tasteless.

There are irritations too. It is annoying to have to find a £1 coin to unlock the trolley, but the system ensures no one has to be paid to fetch trolleys back to the store. There are no baskets for doing a small shop, because that would require additional investment. There is no bag packing at the till because that would slow the cashier down. Instead the system requires the shopper to unload the trolley at one end of the belt, fling everything back into the trolley at the other end, and move to a different area to pack.

But having said all that, regular shoppers will have adapted to the system. They will know which products deliver the quality they want and which do not. We know that many people are budgeting more tightly than before, and thinking carefully about how much they spend and where.

Aldi seems to be offering what its loyal shoppers want.

Milk Drinking Bolstered by Retail Price Cuts of 5p Per Litre

2011-07-13T09:54:00.000+01:00

A dip into Dairyco’s data on the milk market shows that fresh milk volumes have grown by 2.5% in the year to June 2011, but the retail price paid per litre has dropped by 8% , due to the milk price war waged by supermarkets. So far, so not newsworthy.

What is surprising is just how long the price war has been going on. This is far from an occasional tactical practice to encourage people through the supermarket door. In the 12 months to June 2010 the average price per litre of milk was 66p. The average price in the 12 months to June 2011 was 61p.

And even though in the last few weeks some major retailers have put the price back up, ASDA still remains at the lower level, Tesco is selling its Creamfield whole milk at 44p a litre, and Morrisons have just announced that their 1% fat milk is on promotion at 50p for four pints.

All claim that promotional prices have not affected what they pay to farmers, but look at it another way. The fact that supermarkets can reduce prices by so much and for so long shows just how much they were making from fresh milk in the first place. Indeed Dairyco analysis tells us that for every litre of milk sold in 2008/2009 retailers took 18.8p, processors 20.4p, and farmers 25.8p. In the following year, retailers took 22.4p, processors 18.9p, and farmers 23.8p.

The price reduction has badly hurt sales of organic milk. In the 12 months to June 2011 volumes dropped by 7% as the retail price of organic stayed at 81p per litre, a 33% premium to conventional milk.

Sales of filtered milk,( Cravendale being the best known brand), have now levelled out at 338 million litres, possibly due to a price rise of 2p to 78p, a 28% premium to standard.

Award for best performance goes to the low fat sector, defined as milk containing 1% or .75% fat. Sales grew to 362 million litres,an increase of 24%.

And the one area defying a generally price conscious consumer response is Jersey and Guernsey which maintained its, admittedly tiny, sales level, despite costing nearly £1 per litre.

Inside Consumers' Heads - The Psychology of Dealing With Economic Difficulty

2011-06-30T16:17:00.000+01:00

Consumer confidence has fallen again according to GfK NOP the social research company, and is now lower than at any time in 2010. It is unlikely to bounce back any time soon. Indeed research done with British consumers by Bord Bia the Irish food board shows that most of us think that there will be no light at the end of the economic tunnel for at least 3 and possibly as much as 10 years.
The lack of confidence seems to stem as much from an overwhelming air of uncertainty as from the harsh reality of coping with rising prices and near static wages.
People are uncertain about whether their jobs are secure. They are rattled by an economic performance which is up one quarter and down the next, and which does not follow a comforting path of modest but predictable growth. They have lost the security blanket of rising house prices, and worse, are bracing themselves for an increase in mortgage rates which many feel unable to afford.
We know much about the way consumers are dealing with economic pressures - searching for money off promotions, comparing prices on the internet, working to a budget, cooking from scratch. The Bord Bia research indicates just how deeply this behaviour has become entrenched.
They point out that 62% of British consumers agree with the statement "I find myself thinking twice before making even the smallest purchase". Haggling has become a way of life for many. As one male put it "We're negotiating on absolutely everything now - gas, electricity, house insurance, Sky subscription. We didn't use to do that". The pursuit of the good deal has become a game, even among the better off.
In summary, as Bord Bia puts it, the consumer's relationship with time has fundamentally changed. Now people are prepared to put in time to get the peace of mind that they have secured the best deal.
Bord Bia also points out that this search for value is here to stay, even when the better times come round again.
In a nutshell, offering the best value, that elusive combination of quality, price and service, will be a prerequisite for business success in the years to come.

27% of People Cutting Back on Food

2011-06-12T09:12:00.000+01:00

Consumers are prioritising expenditure on their mobile phone contract and subscription to satellite TV ahead of food, says research published by insurance company AXA. Apparently 27% of us are cutting back what we spend on food, but only 5% are cancelling their TV subscriptions, and just 1% cancelling their mobile phone contract.

The findings could bring on despair that Brits put so little value on having a good sustaining diet, but according to the Institute of Grocery Distribution it may be more about consumers being efficient in their food buiyng behaviour.

The IGD calls 2011 the year of economising. It has found that buying habits which started to emerge during the recession of 2008 are now being embraced by more people. Their research shows shoppers to be chasing value by balancing price and quality. This they do by buying more on promotion, using the internet to compare prices, and being prepared to use different shopping channels to get the best deal. Thus they might buy online, or spend more at discount channels like ALDI, or stick with the traditional supermarket, all depending on what is available at what price.

Economising is not just about deals. People are planning meals better to avoid waste. They are doing more cooking from scratch because it tends to be cheaper, and are considering growing their own food.

Whilst many of these changes have been noted before one newer trend is a preoccupation with sticking to a budget. This is particularly true of 18-44 year olds, 46% of whom say they are budgetting. And 34% of all shoppers say they cut back at the end of the month rather than overspend before payday.

Supermarkets have forseen many of the trends. Most are extending budget and own label ranges. All offer recipe ideas, and some tie the recipes to a price such as Sainsbury's promotion suggesting how to feed a family of four for £50 per week. All, even those catering for the more affluent customer, run myriad price cutting promotions in an effort to woo shoppers into their stores.

Adding Value to Beef - Morrisons Traditional Breeds Venture

2011-06-02T14:14:00.001+01:00

The news that Morrisons supermarket has introduced a scheme paying farmers a premium for beef from traditional cattle breeds marks a new effort to prove that value can be added to a product which many dismiss as a commodity.
This is an attempt to brand both a breed, the beef Shorthorn, and in the case of the other traditional breeds, to brand a distinctive sector which is part of British farming heritage.

Why might Morrisons, one of the "Big Four" supermarkets, be doing this?

They will have noted that with branding comes as premium price, as proved by Waitrose who for years have sold Aberdeen Angus and Hereford beef alongside standard British. A store check today showed their Angus mince at £8.87p per kilo compared with £5.78p for standard, and Hereford rump steak at £15.99p versus £12.49p for standard.

Morrisons pursuit of premium products reflects another trend which is to introduce higher priced, higher margin products to help offset falling profits caused by cutthroat competition among supermarkets. Importantly, they have recognised that the product has to live up to the price charged, hence their wish for supplying farmers to stick to a specific feeding regime which will enhance product quality.

Clearly this is a commercial move. Morrisons would not be doing it unless they had identified interest among their shoppers.

They do though appear to have considered all aspects of the supply chain, showing flexibility in relaxing some of the grading grid requirements to accommodate the conformation and fat cover which can come with traditonal breeds, and allowing the breed to be determined by the dam as well as the bull.

It is to be hoped that the initiative works. Morrisons have high hopes, believing it will create demand for another 16,000 cattle, a 10% increase on current requirements. It will add value to beef. And, if the idea is well publicised it will allow the many millions who shop at Morrisons every week to understand more about where their meat comes from, and to recognise that meat is not just a commodity to be bought at the lowest possible price.

Online Grocery Shopping - Some Facts and Figures

2011-05-15T10:25:00.000+01:00

My search for hard data about trends in food buying continues with a look this week at online grocery shopping.

This is another topic receiving considerable media coverage, and attracting massive financial investment.
Morrisons supermarket paid £32million for a 10% stake in Fresh Direct, a new York based company, in return for detailed information about what makes their business successful. Ocado, which only sells on line, floated on the stock market to mixed reviews, but it is valued by some investors despite not having made a profit in the 10 years they have been going.

The optimism stems from huge growth in online sales. Recently Tesco said they were experiencing "double digit" growth (corporate speak for just above 10%). Sainsbury said they grew by "over 20%" in the last year, and Ocado reported sales up 21% in the last quarter.

So, how big is online now, and how big might it get?

The Institute of Grocery Distribution estimates that online grocery sales amounted to £4.8 billion in 2010, which sounds massive, but is just 3.2% of the total grocery market. As the IGD says, online is a small and infrequently used way of shopping, with just 6% of shoppers using online as their main way to buy groceries. Those that do use place an order less than once a month. Younger people with children are most likely to be online shoppers, and usage tails off with age.

With growth of 21% in 2010, and a predicted growth of 15% per year, online shopping is is indeed increasing at a faster rate than that for the market as a whole, and by 2015 will be bigger than the discount channel (Aldi and Lidl).

But, despite being relatively small, there is considerable optimism about the future for online. Mark Price of Waitrose reckons their online sales will grow by "40%, 50%, 60%" per annum. Certainly the rate of investment is not slowing down, as supermarkets address the issues which are getting in the way of growth like inflexible delivery times, high delivery costs, products with insufficient shelf life left, and frequently bizarre substitutes if a first choice item is not available.

Basically the big grocery chains will invest in any emerging trend which might give them the edge over competitors. They have decided that online is here to stay because it fits the needs of some people for convenient shopping any time and anywhere the shopping urge strikes. Not only are some shoppers this way inclined, but Smartphone technology provides the means of fulfilling the need. Consumers can now order their groceries in the middle of the night, in the office, on the sofa, and even, as a recent Tesco advert showed, emerging from the shower.

Consumer Purchases of "Ethical" Foods - Some Data from DEFRA

2011-05-08T15:21:00.001+01:00

It is difficult to get a factual grip on the difference between what consumers say they will do and what they actually do when buying food. DEFRA has had a stab at this as part of their effort to build a sustainable food chain.

Their research confirms that consumers are interested in the issues surrounding sustainable food production, but that actual purchase of some foods generally defined as ethical remains fairly low.

Free range eggs

This is the animal welfare issue that has gained most support. 50% of those who think animal welfare is important buy free range eggs - but only a third of them buy free range all the time, and at the other end of the spectrum, 31% buy free range less than 10% of the time.

Free range chicken

88% of households buy free range chicken less than 10% of the time, and 75% never buy free range at all. DEFRA does not report purchase of higher welfare chicken where sales have grown rapidly, and so the numbers may underplay consumer committment to welfare.

Fair Trade tea and coffee

This is another sector which has received wide publicity, but 93% of households buy fair trade coffee less than 10% of the time, with the equivalent figure for tea being 85%.

British apples in season

Despite growing enthusiasm for local produce, 62% of households buy British apples in season less than 10% of the time.

Green issues

The DEFRA research does not give buying figures for environmentally friendly products, but does give clues about peoples' feelings on the subject. In general, people are aware of the issues but stop short of agreeing with inconvenient or financially disadvantageous measures to limit environmental damage. So, whilst 82% agree that people have a duty to recycle, only 13% feel car owners should pay higher taxes to offset the environmental damage they do, and just 8% strongly agree that people who fly should bear the cost of environmental damage.

The DEFRA research paints a picture of informed consumers, who say they are actively seeking sustainable or ethical foods, but who are not yet wholly committed to buying them.

It serves as a timely reminder that, for most people, making the leap from being informed and interested to embracing a wholesale change in buying behaviour takes a very long time.

Shedding Some Light on the Organic Consumer

2011-04-27T08:58:00.006+01:00

Organic consumers are complicated souls. For a start, according to a thorough piece of research from Better Organic Business Links, on behalf of the Organic Centre Wales, there is no such thing as an “organic only” consumer. Not one of 1407 shoppers interviewed by BOBL bought organic from every category they shopped.

Neither is there any individual category which attracts a high degree of purchasing loyalty. Whatever the type of food, be it milk, meat or vegetables, a maximum of around 30% of organic buyers “almost or nearly always” bought from the category.

And yet, when prompted about the benefits of buying organic, around 70% agreed that organic production results in better standards of animal welfare and allows wildlife to flourish, around 60% feel it is healthier and 50% that it tastes better. The problem is that too often those benefits do not outweigh the price premium. Just over a quarter of those interviewed said that organic represents good value for money. And a worryingly cynical third said that an organic label was just an excuse to charge more.

When asked about future buying intentions, 3 out of 10 people said they would consider buying more organic food, but around 6 out of 10 people said that they did not intend to buy more organic produce, with price being the main stumbling block.

The BOBL research seems to indicate that many consumers are interested in organic food, but not sufficiently convinced to prioritise its purchase on a regular basis.

The stiff competition offered by local foods also inhibits organic purchase.
Consumers are increasingly interested in provenance, or where the food has come from, a trend which has been gathering momentum in recent years. About 60% of consumers agreed with the statement “I’m much more interested in where a product has come from than whether it is organic”. Asked to choose directly between a locally produced product and an organic one, 6 in 10 chose the local version versus 1 in 10 for the organic version.

Measured and accurate communication of what organic means will help consumers make up their minds, but it will be a long and slow process. The issues around communication remain as they always have been – currently there are several organic messages rather than one clear and compelling one, with the result that consumers remain ambivalent.

The Soil Association has published it market report for 2011 and sales have dropped again, by 5.9%, although the rate of decline is slowing. The Association says that sales have levelled out during the back months of the year, and they are hopeful of a return to growth before long. This is encouraging news for organic enthusiasts.

Brasher of Tesco and King of Sainsbury Confirm Changed Consumer Behaviour

2011-03-27T10:54:00.004+01:00

Figures from the ONS last week indicated that shoppers are buying less food, with volume sales in February down 2.2% compared with February 2010. There were reports that this is the biggest month on month drop since records began in 1988. According to Justin King of Sainsbury the February drop came as a bit of a shock. He said “there is a new reality. There has been a quite significant step down by customers”. Whilst a cutback in January is the norm it is unusual for the purse tightening to continue into February, and what Sainsbury is seeing is shoppers deliberately buying less when doing their main shop, and topping up mid week on essentials. Mr. King speculated that this could be in an effort to avoid waste. Shoppers are doing even more cooking from scratch and shunning ready meals in an effort to reduce the “cost per calorie”. They continue to seek out good promotional deals. He added “I don’t see sentiment changing in the foreseeable future”. Richard Brasher, new boss of Tesco, speaking at the Retail Week annual conference, confirmed that behaviour was changing, and also mentioned cooking from scratch and seeking the best offers. But, he said “there is no neat sound bite to sum up what the change is”. Overall, shoppers were being more careful. They were still prepared to buy premium goods but he added that “Value for money trumps being the cheapest.” In his view, consumers are just as keen as they ever were to achieve cherished goals such as a comfortable home, or a good holiday, and that shortage of money was driving consumers to be even better informed about where they could get the best deals. Hard data tends to support what the two retailers are saying. Figures published on the BPEX website show that meat consumption is holding steady, possibly as a result of more scratch cooking. The exception is lamb which continues its downward plunge in sales (minus 11% in expenditure and 21% in volume in the last twelve weeks). Dairyco data shows milk volumes holding up, but prices are well down as retailers continue to price promote.

More on Consumers Reaction to Rising Food Prices

2011-03-07T16:23:00.011Z

It looks as if the return of food inflation is leading consumers to rethink once again about the way they shop.

In my previous blog we saw that during the 2008 bout of inflation consumers responded by buying less food. They stuck to a budget. They tried to make the budget go further by shopping around, making use of promotions, and buying own label and cheaper “value” ranges, but the main way of coping was to buy less. When inflation eased in 2009 they returned to buying more, and in 2010 not only bought more but were prepared to spend on premium goods.

Research from IGD published in February showed that 91% of consumers think that food prices will rise over the next twelve months. More startlingly 33% think prices will be much higher in the next year compared with 19% who thought the same thing when surveyed in October. As a result, say the IGD, consumers are rethinking how they shop, but are more concerned about getting good value for money than merely chasing the lowest price.

Kantar Worldpanel who audit grocery sales report that in the 12 weeks to February 20th 2011 grocery sales grew by 3.9%, of which 3.7% was due to inflation and just 0.2% to volume growth. Their data shows the discounters gaining market share again with Aldi up to 3.1% from 2.8% and Lidl up to 2.4% from 2.2%. Unlike 2008 though, the increases are a result of existing shoppers spending more rather than new shoppers visiting the stores. At the other end of the spectrum Waitrose continues to boom, reaching their highest share ever at 4.4%.

These two extremes receive much media coverage, but are tiny in absolute terms, accounting for less than 10% of the market. It is what happens in the mainstream 90% which reflects what consumers are really doing. All we know so far is that about 40% of grocery products are bought on promotion and this number shows no sign of dropping. And, in another piece of IGD research we learn that consumers are wobbling a bit when it comes to trading quality and ethics for lower prices. When questioned recently, only 19% of British consumers said that the quality of food is more important than saving money, and just 17% said that environmental and ethical factors are important when deciding what to buy.

Much will be made over coming months about changes in consumer buying behaviour, particularly by supermarkets eager to demonstrate that they have their finger on the consumer pulse. Yes, we could see an occasional rise in premium food buying, probably connected to an event like Mothers Day or Easter. There might be a rev up in sales of value ranges, off their current very small base, and there will be a further rise in buying own brand goods.

But all the signs are that 2011 will see another drop in the amount of food bought as consumers once again deal with shrinking purses and growing uncertainty.

Food Inflation + Recession Worries = Less Food Bought

2011-02-24T10:34:00.014Z

DEFRA’s recently published Family Food Survey compares 2009 with 2006 and shows that people coped with rising prices and recession pessimism by buying less food. They did not, as might have been thought, buy the same quantities as before but pay less by searching out good deals, moving to value ranges, switching to own label products, or flocking to discount supermarkets.

So, in volume terms, 2009 saw grocery shoppers buying 11% less red meat than in 2006, 7% less fish, and even 4% less poultry which is usually the fall back protein when prices rise. Sales of vegetables have fallen by 3%, potatoes by 6%, fresh fruit by 11%, fresh milk by 3%, and butter and spreads by 2%. Even bread sales have fallen by 5%.

The only fresh foods bucking the downward trend are eggs, up 6%, cheese and yogurts which are level with 2006, and, bizarrely, cream where sales are up by 5%.

By contrast, flour sales are up 8% which could mean that people are baking more. Confectionery, which usually holds up when times are tough has seen purchase grow by 9%, and cereals are up 3%.

Overall, when food inflation soars shoppers seem to work to a budget, and accept that they will get less for their money.

The cutback does not mean that people are necessarily eating less. They could be reducing the amount of food they throw away. A DEFRA study published in July 2010 estimated that 15% of food is wasted, with bread waste reaching a shocking 40%.

As far as the catering sector is concerned, the DEFRA figures show that the amount of food eaten outside of the home in 2009 was 9% less than 2006, although expenditure, excluding alcoholic drinks was up by 3%.

Short term, the DEFRA figures show signs of growth in grocery food buying 2009 compared with 2008, and, given anecdotal evidence about a return to premium food purchasing and the excellent performance of more up market retailers, it would seem that 2010 saw a further increase. What consumers will do in 2011 though, is difficult to project. Food inflation is ramping up again, and signs of depressed consumer confidence are re-emerging.

So, how can profits grow if volumes are shrinking?

Food inflation can help when prices rise ahead of costs. Currently food inflation is running at about 4.6%, compared with wages at about 2%. Those businesses with clout will negotiate lower costs from suppliers.

Another strategy is to develop premium products so that maximum revenue is extracted from a smaller volume.

The third, albeit often costly avenue is to grow market share, stealing volume from competitors.

Examples of all three will no doubt be seen this year.

Appy Talk – Will Apps Change how Consumers Look at Food and Farming?

2011-02-18T14:18:00.008Z

Apps, (defined as computer programmes for a mobile phone, customised for the phone user) get acres of media coverage, and there are hundreds of thousands available to download. Are they another technology gimmick falling into the category of interesting but ultimately useless, or could they have a lasting impact on the way consumers buy food and on the way that food is produced?

To make real changes apps have to be widely available, which is not the case now. The vast majority of apps can only be accessed by users of Apple products such as the Iphone or Ipad, of whom there are not many. Other smartphone manufacturers will catch up but it will take time.

Let’s assume though that apps are available to every mobile phone owning consumer. Which in the UK means nearly 60million people. Are there any apps around which might change food buying habits?

Like any other product, an app will only succeed if it fulfils a consumer need. An app which makes food related life more convenient, or offers information quickly and clearly could well be taken up and used regularly. And here the potential for apps becomes quite exciting.

Supermarkets are well away on developing apps to make shopping more convenient. Tesco recently launched an app which allows shoppers to scan a product wherever they are and add it to their online shopping list. All by pressing a few buttons on a phone.

The apps with most power to change consumer food buying behaviour are those providing instant information.

Here are examples already up and running in America.

Seafood Watch allows shoppers to see at a glance which fish to buy if they want to support sustainability. The app provides three options – best choice, good alternatives, or avoid.

The Center for Food Safety, an organisation that supports organic farming has an app to help shoppers avoid GM containing foods. “Safe” foods are highlighted in green, and GM containing foods in red. The information is based on what manufacturers say, and also on general advice such as avoiding American corn and soy on the grounds, they claim, that most is genetically modified.

The Environmental Working Group has a guide to fruit and vegetables with the least and most pesticide residue, based on data collected by American regulatory bodies.

There is an app in development designed to support local sourcing. AUG/Living Goods allows shoppers to scan a barcode and get details of how far the product has travelled to reach the shop, the identity of the primary producer, and whether the ingredients are in season.

Several apps allow users to input the type of foods they want to eat or avoid, including allergens, and be warned if a product does not meet these requirements.

As the IGD points out there are obstacles to successful app take up. How for example to ensure accurate timely data. Who has the legal responsibility for inaccurate data? How do manufacturers complain if the data misrepresents them.

However the IGD concludes that the day of app impact is coming. And they are right.

Consumers are demanding ever more knowledge about what is in their food and how it was produced, all the way from farm to shop. As talk of gmo's and cloned animals gets louder in Europe, as more publicity surrrounds "mega farms", and more horror stories emerge about hunger or extreme weather, so increasing numbers of people will seek information about exactly what they are putting into their mouths. And the app developers will make it easy for them to get hold of the information.

Premium Food Sales Growing Despite Economic Gloom

2011-01-28T09:17:00.008Z

Despite the gloomy economic news, and reports of plummeting consumer confidence, people still seem ready to spend on premium quality food.

Kantar Worldpanel, the market data company, tells us that overall grocery sales grew by 5% in the 12 weeks to 26th December 2010, but that sales of premium own label across the 4 big supermarkets grew by 11%, over twice as fast. The Kantar data also shows us that the so called upmarket grocers are doing best, with Sainsbury, Waitrose and Marks and Spencer gaining share whilst low priced ASDA and Morrisons lost share and Tesco only managed to stand still.

Reporting on their performance Sainsbury, who spent nearly £1 billion revamping their premium Taste the Difference Range, said sales of higher priced and ethically sourced products were growing fast, citing free range turkey sales up 30% and smoked salmon up 16%.

Marks and Spencer also mentioned booming sales of turkeys and smoked salmon, whilst Tesco confirmed the trend towards premium food, with sales of “Finest” ham on the bone up 50%, “Finest” party foods up 90% and “Finest” wines up 100%.

Less spectacular, but nevertheless welcome, beef sales in the 12 weeks to end December grew by 4% in both volume and value after months of virtually static sales.

Undoubtedly there will be a Christmas effect in these numbers. Shoppers traditionally splash out during the festive season. But these are comparable figures with Christmas last year, and presumably people were feeling festive then, so the big growth in premium sales does seem to be a trend rather than a one off.

Whether the trend will continue is another question, as the effects of government cuts put further pressure on disposable incomes.

The difference between now and a couple of years ago when the credit crunch first happened and shoppers flocked to discount supermarkets and grocery value ranges is that then, the worry of economic hardship was greater than the reality. The reality now is that money will become tighter, and we may yet see down trading in food. On the other hand it could be that people have tried the value route and it does not meet their needs, at least all of the time.

The Institute of Grocery Distribution is of the view that shoppers will not trade down if it means compromising on quality or values. Rather, people will be more careful about how they shop and prepare food. 36% of us are already trying to reduce food and packaging waste, say the IGD, and 22% are going back to a simpler diet, cooking uncomplicated meals and cutting out unnecessary add ons. This perhaps means higher sales of top quality staple foods.

One high priced staple that shows no sign of growing is lamb. In the 12 weeks to end December 2010, lamb consumption dropped by 17% in volume and 6% in value. It is no good arguing that Christmas is not a big lamb eating time. The point is that these figures are compared with the same period in 2009, The only conclusion to be drawn is that the lamb eating experience does not justify its high price, and that lamb is becoming less and less relevant to the meat eating public.

£1.8m to be spent on advertising organic food - will it make any difference?

2011-01-14T15:39:00.019Z

The Organic Trade Board, a body representing over 90 companies, is spending nearly £2m to promote the benefits of organic food. Half of the money was put up by the companies involved and the other half came from the EU.In the OTB's words, they want to "democratise" organics, and to this end adverts will appear in magazines like OK and Heat.

Will it stop the drop in organic sales?

The organic optimist would say yes. All that is needed is a bit of consumer education. Hugh Bowles, chairman of the OTB says “The term organic is widely misunderstood, and through this campaign we want to help consumers to discover exactly what it means and why it is worth it.”

The organic sceptic might respond that it is wrong to blame the sales drop on confused consumers. They might point to the acres of newsprint and hours of television given over to supporting purchase of organic food but which has not helped maintain sales. They could argue that, despite much research, no consistent evidence has been found to prove that organic foods are better for you, and that those worried about animal welfare or environmental standards could buy local foods from a trusted farmer or even from one of the supermarkets with a good reputation for caring about such things. And so, why would consumers pay a hefty premium for organic, especially in a difficult financial climate.

But, there are consumers who like the idea of organic, and, regardless of logic, advertising is as much about appealing to the heart as to the head.

So has the new advertising got the “wow” factor that might persuade people to re-evaluate and think about spending a bit more to buy organic food?

Probably not.

The problem is this... The OTB has not come up with a strong, compelling and easy to understand reason to buy organic. Instead, they are trying to be all things to all people. One advertisement shows a father and son saying they like organic because “we care about animals”, a second shows a painter/decorator saying he loves organic because “it feels right for my family”. The special website developed to back up the adverts show several more reasons – “Better for nature”, “More natural”, and “Great tasting”.

This might not matter if the amount of money being spent was huge, but £1.8million spread over three years, whilst it sounds colossal, is small in terms of the amount of impact it will have on consumers.

As with all these generic campaigns which advertise a broad sector rather than a specific brand, we will never know whether the advertising worked. Should organic sales rise then the adverts will be claimed a success. But the fact is that growth is much more likely to be a result of big retailers promoting organics to bring the price closer to conventional products, or innovation in the way organics are sold, like Waitrose’s expansion of the Duchy Originals range.

Should sales not grow then the claim will probably be that things could have been much worse had the advertising not happened.

What cannot be faulted is the organic movement’s commitment to its cause. It is no mean feat to bring 90 stakeholders together and persuade them to part with hard cash for a speculative venture.

The Demanding Consumer - Wanting it All and Wanting it Now

2010-12-08T14:37:00.008Z

Consumers are fickle creatures. What they want changes all the time.

The Institute of Grocery Distribution signalled a change in consumer behaviour when they found that exemplary ethics are increasingly expected as the normal way of doing business. No longer, they say, are value seekers and ethical consumers two different groups. Rather, there is an increasing overlap between the two. Consumers are “seeking value for their values” and are not prepared to pay a big premium for high ethical standards.

Another example of change comes from consultants OC&C. They suggest that the days have gone of retailers being known for one particular attribute, like low prices, or great service, or widest choice. Instead, they say, consumers are no longer prepared to make tradeoffs, like swapping price for service, or service for choice, or sacrificing all for the cheapest price.

These changes are not limited to a few consumers. The demanding consumer is everywhere, and we see evidence of retailers rushing to satisfy these demands in store right now.

Waitrose is a great example. Known primarily for its good quality and service, but considered expensive, it has now matched Tesco’s price on 1000 lines, and regularly price promotes its products.

Sainsbury also listens hard to consumers. It too price promotes heavily, it has developed its own Sainsbury brand range to provide cheaper alternatives to major national brands, but it offers a premium range for quality seekers.

ASDA has recently said its food is not of good enough quality, and upped its game with the introduction of “Chosen by You”.

As to why consumers have become even fussier, OC&C reckon that the internet has been a factor, for, at the click of a mouse, consumers see huge choice, at the best possible price, backed by great service, like next day delivery and no hassle returns.

The economic downturn will have played a part too, with consumers understandably wanting to get the best possible value for money, meaning they will search for the combination of price, choice, quality and service that best suits their particular needs.

Probably the major reason for consumers wanting it all and wanting it now is the nature of UK retailing. Grocers in particular are intensely competitive. They are obsessed with not allowing rivals to steal market share and so are highly attuned to the slightest nuance of consumer behaviour change. Their eagerness to respond before their rivals means that even slight hints of consumer change are put into action, to make sure shoppers stay with them as opposed to taking their custom elsewhere. And so consumers get used to having their demands met and understandably keep pushing for more.

Whatever the reasons, we can expect the bar of consumer demand to get ever higher.

EBLEX Levy Hike Needs to be Challenged

2010-11-29T15:07:00.006Z

Good on Graham Dixon and his band of 30 Northumberland farmers for questioning EBLEX’s demand for an 18% increase in levy fees. A hike like this bears challenge even in boom times, much less when money is tight.

EBLEX which only covers England already has a big budget amounting to £13.5m, of which £12.7m comes from levy fees. This compares with a levy budget of £9.9m for Cereals and Oilseeds, which has a UK remit, and £6.8m for Dairyco which covers Great Britain.

The extra money raised amounts to £2m. £1.2m of this will be spent on promoting exports of beef, lamb, and the fifth quarter, and the rest on increasing domestic demand for beef and lamb. The current budget for export work is £2.4m, and the budget for domestic promotion is £4.5m.

Mounting a challenge is not easy, for it is difficult to pinpoint exactly who makes the decisions at EBLEX. There is a board, upon which sit a number of farmers and processors. The board seems to report to the AHDB board, and somewhere along the line DEFRA has a say. But if the decision makers could be found it would be helpful to get a view on the following issues.

1. Will not export performance be more a function of the strength of the Euro rather than anything EBLEX can do? If so, it seems odd that of the £2m extra raised by the new levy, £1.2m will go on export work.

2. With lamb consumption falling by 7% this year, and beef consumption just about static, what evidence is there that EBLEX marketing activities to date have made any difference at all to domestic consumption? It is not enough to cite awareness of promotional activities as evidence. Just knowing about something is not the same as being motivated to buy.

3. Given the substantial spend by retailers on advertising red meat on TV, in magazines and newspapers, promoting it on their websites with recipe ideas, and featuring it in store, where does EBLEX think it is adding value with its promotional spend?

4. If the increased funding does not come through, does EBLEX believe so firmly in the value of this new work that they are prepared to rejig budgets to carry it out?

The NFU is working to pull together responses from the industry about the proposed levy increase, and is right to request a business plan with clear and measurable targets. It should go further and insist upon a detailed analysis of effectiveness to date, to act as a basis for deciding whether an increase in the levy is justified, and to help judge whether the business plan is rooted in reality.

Why the consumer is buying less lamb – insight from EBLEX shows it’s not just about price

2010-11-11T15:10:00.005Z

This year consumers have bought 6% less lamb than last, and the decline seems to be speeding up. In the last 12 weeks consumers bought 11% less lamb than they did in the same period last year.

These are scary numbers and the pessimist might envisage a time not very far away when consumer demand for lamb is about half of its current level, with a similar fall in demand for livestock.

A recent EBLEX report gives clues about why lamb is out of favour, and what can be done to reverse the drop.

The 500 meat eating women interviewed each quarter by EBLEX say that the main reason they don’t buy lamb as much as other proteins like chicken, beef or pork is that lamb is too expensive.

So far so predictable many might think. But price is not the whole story. What makes people buy anything, even the very highest priced products, is their perception of whether the product in question is good value for money, and most cuts of lamb are seen as “not at all good”, or “not very good” value. The exception is lamb mince which is just about neutral – neither good nor bad.

All sorts of factors come into the value equation, and compared with other proteins lamb is rated worse on versatility, on ease of cooking, and especially on fat content. 57% of people say lamb “can be fatty” compared with 46% for pork, 28% for beef, and 5% for poultry.

Lamb falls down on other health aspects. Consumers feel that lamb is not as protein rich as beef, and do not realise it is as good a source of vitamins and minerals as beef.

The one positive point is that consumers view lamb as a tasty food.

So what should be done?

Lamb needs to be given an image makeover. EBLEX suggests that its versatility and health benefits need to be promoted. To this could be added using imagination to present unpopular cuts such as shoulder in a better way. One supermarket for example sells shoulder chops – butchered in a way that ensures they are just as tender as from the leg, but around half the price, and far less time consuming than cooking a roast.

Producers could focus even harder on reducing the number of over fat lambs sent into the food chain, and processors and producers together might find ways of ensuring that the product is consistently of high quality when it reaches the consumer, which is not always the case at the moment.

The EBLEX findings are important to all in the lamb supply chain. A strong home market forms the backbone of the sector, cushioning participants from the ups and downs of exports, and from the ebb and flow of lamb supply.It is critical to ensuring a consistently profitable future.

Addressing the Beef Pricing Problem

2010-10-27T14:21:00.011+01:00

The short answer to the problem of low farm gate prices is to get demand to outstrip supply.

The balance this year is particularly out of whack. Between April, when prices started to plummet, and August (latest published data), around 9% more cattle were slaughtered in Great Britain compared with the same time last year. Demand in the grocery trade over the same time grew by just 1%. So we cannot be surprised that prices have dropped.

The issue of oversupply might ease. According to the National Beef Association, dairy beef finishers will drop out of the market next year as profits suffer through low prices and high feed costs. Longer term, industry experts forecast that global demand for beef will outstrip supply.

Meanwhile, what can be done about demand.

There is no shortage of advice. We have heard the NBA call for supermarkets to follow America’s lead and be creative about developing high value cuts from the forequarter, and to stop selling mince at cheap prices because they cannot be bothered to think up other ways of selling meat from the front end.

Peter Allen, respected head of Midlands based catering butchers Aubrey Allen says the answer is to create a beef brand that will deliver guaranteed quality, and so command a higher price which can then be passed back along the chain.

John Cross, EBLEX chairman, reckons the answer is to export more, and that EBLEX is ideally placed to lead the charge across the channel and beyond. It’s true that exports are growing fast, up 20% this year, but at 56,000 tonnes compared with over 300,000 tonnes sold through supermarkets it will not solve the problem.

One thing is clear – raising the price of beef to consumers in the hope that some of the increase will be passed back to producers will merely dampen already fragile demand. We should be pleased that people are buying mince because at least that keeps them in the beef market rather than turn to cheaper pork or chicken.

What also needs to be recognised is that vague calls for “the industry” to grow demand will not work. Stimulating demand requires focus, funding, and clear accountability for performance.

Producers do not have this type of clout. Neither do industry bodies who can influence and campaign, but do not have the sales and profit responsibility that brings with it a hunger for results.

It is processors, who are best placed to drive demand and it is they who should shoulder the main responsibility for growing beef sales. A creative processor, who understands what consumers want, and has close relationships with the outlets they supply, should be able to develop products which build sales and profits for all in the supply chain.

Flashes of inspiration do exist, but mostly supermarket shelves and food service menus are filled with the same cuts that were available decades ago.

The role of the processor is rarely mentioned in the beef pricing debate. Processors need to come forward, raise their game and add some dynamism to a sluggish market.

Food for Thought from Marks and Spencer

2010-10-11T16:24:00.007+01:00

Last week, after years of lacklustre performance, Marks and Spencer announced that in the last 16 weeks food sales have grown by 5.2% on a like for like basis. This is a better result than Sainsbury, or Tesco, or Asda. With a 3.7% market share Marks is still tiny, but what makes them worth watching is that historically they have set the pace in food innovation. What Marks started others followed, and food buying has been transformed as a result. They were, for example, pioneers in ready meals, leaders in getting exotic fruits and vegetables in the shopping bag, and the company that made a sandwich lunch something special.

They then lost their creative edge, and competitors not just copied but improved on what they had done.

Does the recent food performance mean they have got their edge back?

Marc Bolland their new chief executive said that growth was down to a combination of aggressive price cutting offers and innovation, with 370 new lines being launched in the last three months.

Certainly they are promoting heavily. A wall of special offers greets the shopper. In the meat area, there were bacon, chicken, sausages, small beef joints, and the ever present mince all priced at 3 for £10. There were offers in fruit and veg, fish, ready meals, desserts and wine. In this they are no different from any other supermarket.

What about the innovation? The offer is certainly more exciting than it was, with ever more exotic combinations of flavours in a ready meal, and even more indulgent biscuits and cakes. There were also some new ideas such as “One Pot Casserole” where diced beef, ready peeled and chopped vegetables, and a cook in sauce could all be purchased for a fiver, thus encouraging shoppers to try something other than mince, with minimum hassle.

Importantly, the merchandising was good, with green coloured “new” stickers highlighting every new product.

The question is whether enough has been done for Marks to regain its position as leader in food, and the answer just now, is probably not. What is on offer is a variation on a theme rather than a genuine breakthrough. There is a limit to the amount of exotic and indulgent food that people will buy, either through monetary constraints or the inability to stomach yet another fancy meal.

It will be interesting to hear in November how Mr. Bolland intends to take the business forward. Premium indulgence leavened with price cuts is fine, but more will be needed to keep M&S food sales moving ahead.

Supermarket Watch - How Sainsbury and Waitrose Got it Right but ASDA Didn't

2010-09-29T15:00:00.003+01:00

Americans call it “The Big Mo” and it means that happy state when a business has momentum - the team is winning, confidence is brimming over, and whatever is being done is a huge success. Sainsbury, with 19 consecutive quarters of growth under their belts have it, Waitrose, currently the fastest growing supermarket have it, but ASDA whose sales have dropped month after month for nearly a year, most certainly do not have it.

Confidence about doing the right thing and doing it well is illustrated by the way these three supermarkets have executed their recent new initiatives. Sainsbury have revamped their premium “Taste the Difference” range with trading director Mike Coupe claiming that “this is the best range of premium food available in any supermarket”. At the other end of the scale Waitrose is trumpeting value credentials by saying they will match the Tesco’s price on 1000 major brands. In the middle, ASDA have announced the launch of “Chosen by You” which is a quality upgrade of their standard range, with products selected after talking to 40,000 people across the UK.
So here are three major activities, but it’s the way they have been executed which marks out Sainsbury and Waitrose as confident winners, and ASDA as an outfit that, temporarily at least, has lost its way.

Sainsbury’s have made sure that food shoppers across Britain know about the new range. They took out three and sometimes four page advertisements in the papers, are running a TV ad with Jamie Oliver, and are giving away glossy leaflets in store. Customers who shop on line get a message about the new range as soon as they click on to the website. Waitrose also took out three page advertisements, are advertising on TV, and have the price cut message when shoppers click on the website. They have put up big displays of the newly priced products in their shops, pinned up labels on the shelves, and just in case the message has still been missed, the dividers shoppers put on the checkout belt to signify the start of their shopping also mention the price cuts.

And what about ASDA? The range was launched on September 21st, but on a trip to the Leamington store today I saw only a couple of overhead posters talking about the range - easy to miss as few shoppers were walking around staring at the ceiling. There were no displays, no markers at the shelves, and no in store tasting sessions. There have been no advertisements, and when clicking on to the website the first message is that prices are low, the second that there is 15% off furniture, and only the third talks about “Chosen by You”.

Possibly ASDA don’t feel that the new launch is that big a deal, but this seems unlikely as their recently promoted MD has made a point of criticising the quality of its food, and in the press release that accompanied the launch he talks about ASDA now driving as hard on quality as it does on price. More probably, the launch smacks of a company that has lost its edge, cannot decide what its main message is, and forgotten the attention to detail that is vital. Retail is detail as someone once said. The ASDA approach It is a big contrast to the super- confident actions of Sainsbury and Waitrose.

Wiseman's Profits Warning - Deja Vu All Over Again

2010-09-19T16:41:00.007+01:00

Robert Wiseman’s profits warning shocked investors who promptly knocked 30% off the share price. The problem, says the company, is “intense competitive pressures across all sectors of the market”, and so they are reducing second half profit expectations by £7m, and 2011 by £16m.

The background has been well documented. Basically a price war has broken out on milk, with ASDA starting the fight, and Tesco promptly retaliating. The cost is being borne by processors, and the situation is seemingly exacerbated by smaller dairies being prepared to cut prices to gain more volume.

The most surprising thing about this announcement is that everyone is so surprised. Wiseman has a history of profit problems due to negotiations with the big supermarkets. In May 2005 the Group warned that profits had fallen by 15% versus the prior year due to losing a contract with ASDA. In May 2008, the company warned that profits would take a hit of £8.5m because it was taking longer than anticipated to get retailers to agree to price rises which were needed to cover escalating costs.

Here it all goes again, and with the firm’s current business model, profit performance will continue to be volatile.

The big issue with Wiseman is that it sells one product, fresh milk, and is reliant on one distribution channel, the major supermarkets. It has nowhere to go if things get difficult – no other product sectors, no major brands, and few other sales outlets. Unlike its competitors Arla, and Dairy Crest, the latter rushing out an announcement of their own saying that they expected full year profits to come in as forecast. They did admit though that the fresh milk market was proving challenging.

The optimist would point to Wiseman’s cash generating ability, and a good record on cost reduction. Unfortunately neither seems to be enough to protect against supermarket whims and power.

Reviving Organic Food - The Waitrose Way

2010-09-08T10:21:00.011+01:00

We can now see how Waitrose will handle Duchy Originals, the brand pioneered by the Prince of Wales, and moved into partnership with Waitrose 12 months ago. And the plans show impressive commitment to the organic market and the ideal of supporting sustainable food from small family farms which motivated the Prince when he started the company 20 years ago.

Basically, Waitrose is using Duchy as their organic brand, featured on a raft of products, from staples such as milk, eggs and frozen foods, to fancier products like Handmade Organic Hafod Welsh Cheddar. According to Waitrose there are plans to increase the range to 400 products.
The launch of “Duchy Originals by Waitrose” has been heralded by advertisements in the papers, a TV spot featuring Heston Blumenthal, and a 25% introductory price cut to tempt shoppers to buy. None of this comes cheap and it shows that Waitrose are deadly serious about the potential of organic food.

It’s not just the commitment to organics which is interesting (and should give producers soldiering on with the sector despite a big drop in consumer demand some cause for optimism). It’s the way that Waitrose have approached the market. Clearly the company has decided that calling a product organic is not in itself a sufficient reason for consumers to pay the organic premium. Consumers want something more, and Waitrose feel that by adding the prestigious Duchy name, and explaining the values which lie behind it, they are giving people that extra bit of reassurance and motivation to choose the more expensive option.

There may be another reason for Waitrose’s organic commitment. In a previous blog I suggested that supermarkets might be turning their attention to super- premium foods again to offset the costs of heavy price cutting on everyday items, a problem which is only going to get worse as food inflation strikes once more. Organic food is an obvious premium market for Waitrose to develop as they already hold a 21% share of the sector, but only a 4% share of the total grocery market.

Whatever the reasons, it would be great if the Waitrose move works. Many Duchy suppliers are small, and a foothold in the company will help grow sales. With the Prince keeping a close eye on things, they should get a fair return too.

Sales Fall Again at ASDA - Cheap Prices are not Compensating for Poor Quality

2010-08-19T14:27:00.007+01:00

Here’s another confirmation that consumers do not just buy food purely on the basis of price. Mysupermarket.com the price comparison website says that ASDA is the cheapest of the “Big Four” (ASDA,Tesco, Sainsbury, Morrisons), yet ASDA yesterday announced that like for like sales fell by 0.4% in the three months to July 31st, after a 0.3% fall in the three months before that. At the same time Kantar Worldpanel, the research company which reports on how supermarkets are faring, said that ASDA continues to lose market share, whilst Morrisons and Sainsbury motor ahead.

Commenting on the company’s performance, Andy Clarke, ASDA’s new chief executive was vocal on the subject of price being different from value. Saying “We have got to be the best value. What we have been is the best price”, he promised that in future customers would see a “step change” in quality - “We are not as well known for the quality of our food as we could be”.
Despite this commitment to better products, Clarke also said that UK consumers are facing difficult times, that ASDA would respond by offering everyday low prices, and that as a first step towards this goal, ASDA would cut the price of staples such as bread, milk, and eggs.

He is not alone in recognising that as well as offering great quality, supermarkets have to offer sharp prices to ensure that shoppers walk through their doors as opposed to competitors. Even Waitrose, store of choice for the affluent, recognises this and anyone venturing in to a Waitrose will see aisle ends featuring promotional offers. In fact all supermarkets with the exception of ASDA are heavily price promoting with Kantar reporting that nearly 35% of all products are bought on promotion compared with 31% a year ago.

The focus on price is unlikely to ease any time soon. Consumer confidence has taken a bit of a dive recently as the scale of government cutbacks is becoming clearer, and they seem less willing to spend. Whilst this has yet to happen in supermarkets where sales in the last 12 weeks grew by 4.5%, supermarket supremos will be turning their attention to driving growth against a background of consumer thrift.

So how will they make money when heavy promotions lead to lower profits, and shoppers demand good quality? Harder bargains will be struck with suppliers of course. But a more productive answer might lie in developing a new “super premium” market segment with even higher cash margins than current premium ranges, and with a quality so irresistible that shoppers are happy to buy. We know that even in the depths of recession, consumers were prepared to spend on top quality goods if they felt they were worth the money.

Innovative suppliers who can deliver superb quality products at an acceptable return to themselves and their supermarket stockists could do well. Not easy though.

How Do You Solve a Problem Like Falling Lamb Consumption - Thoughts from Sheep 2010

2010-08-10T14:38:00.011+01:00

There was standing room only for the session on marketing at last week's NSA event where farmer Geoffrey Probert, May Hill representative Henry Dunn, Remi Fourrier from EBLEX, and Steve McClean of Marks and Spencer discussed a variety of issues.

The problem of plummeting lamb eating in the home market was addressed, and the general concensus was that quality is fine, its all about price.

For Remi Fourrier, who is responsible for growing British lamb sales to France from it current one in 5 lambs produced, the main issue is encouraging younger people to eat lamb, and that ways had to be found to make lamb more convenient to cook.

Henry Dunn, representing May Hill who sell to Sainsbury, pointed to the success of Cotswold Lamb which he feels works because it has a strong provenance story. Consumers like the idea of knowing where their lamb has come from and how it was produced. Steve McClean agreed. Marks and Spencer shoppers are interested in provenance too, and increasingly in the impact of products on the environment. M&S are planning to add more environmental compliance measures into the standards it requires from producers.

All mentioned that consumers of ethnic origin eat large quantities of sheep meat - a figure of 27% was quoted, but all recognised the sensitivity of slaughter procedures required by some.

Returning to the quality issue, there were a couple of comments about grass fed lamb producing a top quality product. This was considered to be one of the reasons behind New Zealand lamb's good and consistent quality. Marks and Spencer source from NZ in our winter, and aim for grass fed lamb in summer for this reason. As Mr. McClean said "It's all about ensuring consumers have a good eating experience when they buy lamb".

So no silver bullets emerged from the debate.

As a firm believer that, whatever the product, price is a problem if the quality does not match up, I was surprised that quality and consistency of lamb did not get more of an airing.

A look at WorldPanel numbers supplied by BPEX shows that in the 12 weeks to July 11th, lamb sales dropped by a further 8%. So the problem of what to do about falling lamb sales is not going away.

Keeping the Farming Flag Flying

2010-07-29T14:37:00.023+01:00

Matthew Naylor in his Farmers Weekly Mouth of the Wash blog, is urging peace between environmental enthusiasts both in and out with farming, and it inspired me to tackle the British Trust for Ornithology who were quoted in an article in this week's Sunday Times which accused farmers of getting paid to allow bird numbers to decline. Usually I'd have dismissed such a report with a tut and a " typical" and turned the page.

But not this time. It was on to the BTO to request the survey information to which the article alluded, and to make the point that it would be far more productive if we all worked together to preserve the environment and avoid scoring cheap points in the press.

The BTO's response in the shape of Dr. Gavin Siriwardena could not have been more different from that of the RSPB in the previous week. Commenting on one part of the same survey which showed reductions in the number of kestrels, the RSPB engaged mouth before brain, blamed intensive farming practices, and overall could not have been much more hostile.

Dr. Siriwardena by contrast went to great lengths to explain the BTO's research, and forwarded the newsletter which had been produced, which to be fair was far more balanced than the Sunday Times' heavily spun take. Importantly he recognised that too often there is a "them and us" feeling between farming and non farming environmentalists, and stressed the BTO's committment to working in unity.

Things have moved on, and today DEFRA released the BTO's survey results. I see that the RSPB is taking a much more even handed tone, possibly reacting to a barrage of outrage from their previous comments.

And the moral of the story?

What cannot be denied is that the decline in farmland bird populations is worrying to put it mildly. It needs a concerted and unified approach to sorting out the problems, with energy put into solutions rather than sniping. Some, like the BTO, have recognised this.

There are many farmers working diligently to improve the environment. It is time consuming, often financially draining, and usually happens without acknowledgement. Their efforts need to be communicated, but the only people who can spread the farming message are farmers themselves. No one else is going to do it.

Matthew quotes Heather and Phil Gorringe who upon hearing of the RSPB's comments about kestrels orchestrated a Twitter campaign to show what farmers are doing for the environment. Twittering may not be every farmers cup of tea, but the idea of making an effort to communicate the good things being done, and to challenge unfair attacks, looks like a pretty sound one.

Ocado Looks Like NOcado, at Least for Now

2010-07-23T15:01:00.007+01:00

As of 3.00pm Friday 23rd July shares in Ocado, the online grocery delivery company, were trading at £1.55p. Well down on Wednesday's opening price of £1.80p and a country mile from the £2.72 - £2.00p that its ex Goldman Sachs owners touted as the company's value on Tuesday evening.

£1.55p still values Ocado at around £500 million, and the mystery is why anyone should think that a business which has never made a profit in its 8 years of trading, has an unproven business model, is competing with grocery giants like Tesco, and is fighting head to head with Waitrose who supply Ocado's products but who are also seeking to build an online offering, can be worth even that.

The optimists would point to Ocado's massive top line growth. They would cite projections that online grocery shopping will double in size to £7.2bn or about 5% of total grocery sales by 2014 (IGD research). And they would say that online retailers such as Amazon struggled to make a profit when they started out.

The Goldman Sachs founders would also add that they own world beating sophisticated technology, and that American investors who account for nearly 60% of shareholdings "get" this, whereas the Brits do not.

It should also be noted that, despite adverse comments in the press, Ocado's own customers were confident enough to invest between £5 and £10m of their own money in the company, and whilst customer investment was expected to be much higher (up to about £60million), this could say something about the quality of the Ocado offer versus competition. These customers have the chance to offload their shares at the original price of £1.80p and it will be interesting to see how many do so.

This blog was very sceptical about Ocado way back in March, and remains sceptical. It would be great to be proved wrong and find that a British business could succeed due to a genuinely different consumer offer backed by technological innovation.

We shall watch with interest.

A change in ethical food buying - consumers now "want value for their values"

2010-07-15T16:42:00.023+01:00

Joanne Denney Finch of the Institute of Grocery Distribution in her keynote speech to the Consumer Goods Forum stated that consumers now "want value for their values". The conclusion is based on research they carried out in Britain, France ,Spain and Germany, and its interesting because it indicates that consumers are once again raising the bar on what they expect when they buy food.

Cynics would say that consumers have always wanted more than they are prepared to pay for, but I think there is a subtle shift of emphasis here. Yes, in the past a sizeable minority have been prepared to pay for what they believe in, but what seems to be happening now is that people expect higher standards but don't expect to have to pay for them. As Mary Vizosa of Waitrose said in the Times, consumers expect their retailers and suppliers to act ethically and sustainably, and not present ethics as an extra which commands a premium.

We can therefore expect a change in consumer behaviour, as they shop around to find the outlets that offer both value and values for a given product. Those who fail to deliver will lose custom.

This could be why Sainsbury took full page advertisements in today's papers to say that they have been named as "Best large supermarket 2010" by Compassion in World Farming, and put a value offer in the advert too ( 2 packs of sausages for £4, and 20% off Freedom Food chicken). Waitrose stopped short of adding a value twist to their communications but the front page of this weekend's newsletter features a very handsome beast with the caption "Farming with Compassion - Waitrose wins award for putting animal welfare first".

It would seem that ethical foods are just another example of what was niche gradually becoming the norm.

With the move to mainstream comes the loss of any price premium. The best example is Fair Trade, where volumes have rocketed but price stayed the same as the standard version, witness Sainsbury's Fair Trade bananas, and Cadbury's Dairy Milk.

Ms. Denney Finch argued that ethical products now offer competitive advantage, and that British business, which generally has a good ethical reputation, can use them as a springboard for growth internationally.

The notion that British business should raise the ethical bar is very welcome. The challenge of course to raise the bar without raising the price, and ensure in the process that all players in the food chain are treated ethically and sustainably.

Protected Food Names - Useful Marketing Tool?

2010-07-05T15:22:00.017+01:00

References to protected food names are popping up all over the place, most recently last night on Countryfile where Julia Bradbury was reporting on West Country Farmhouse Cheddar, explaining that it can only be labelled "West Country" if the cheddar is made in Dorset, Somerset, Devon or Cornwall using the traditional mixing by hand or "cheddaring" process. A couple of weeks earlier the Gloucestershire Old Spot Breed achieved protected name status, becoming the first pigs in the world to be recognised for their distinctive taste. And there are another 40 British foods or beverages protected in one way or another.

The Protected Food Name scheme is an EU initiative which awards a quality stamp to authentic regional and traditional foods. There are three grades of stamp. The strongest is Protected Designation of Origin where the product must produced and processed and prepared in a geographical area, and have characteristics due to something special about the area. A red and yellow logo is available to reinforce the message. As well as the cheddar, Jersey Royal Potatoes, Yorkshire Forced Rhubarb, Orkney beef and lamb, Cornish Clotted Cream and Sardines, and Manx Loaghtan lamb are among the products falling into this category.

Protected Geographical Indication means the product has either been produced or processed or prepared in an area. Welsh beef and lamb, and Scotch beef and lamb are examples. Traditional Speciality Guaranteed means that the name must express the character of the food, like the Gloucester Old Spot. Both categories have a blue and yellow logo.

The process of authentication is a long haul, taking up to 21 months, and involving masses of paperwork.

So is the scheme a useful marketing tool? Well, a quality stamp is not a bad thing to have on a pack. Achievement of the stamp is usually reported by the press so the product gets publicity which in turn should help sales, and there is no doubt that people are increasingly interested in where their food comes from and keen to support local produce.

It also means that a manufacturer or retailer cannot say a product comes from an area if it does not, and this is important if years have been spent building up the quality and reputation of a product. To take extreme examples, Jersey Royals can't come from Spain, or Scotch beef from Argentina, which does offer some protection for farmers and growers.

In a world of many logos ( Red Tractor, EBLEX mark, LEAF mark, the new green organic leaf logo from the EU to name but a few), the usefulness of protected status as a marketing tool depends on the ability to communicate what it means, and also on the strength of the message behind the product. Having a protected food name is especially useful if the product in question has either a good reputation already or has a real, fact based point of difference that can be publicised, like the Gloucester Old Spot.

Given the importance of communication, it was disappointing not to find examples of products with protected name staus giving the award some prominence. The one exception is Manx Loaghtan lamb where the website makes much of the achievement. Hopefully it has helped contribute to better sales of their product.

Then Along Came the GM Salmon

2010-06-20T12:47:00.007+01:00

It started as a week of positive news for food, food labelling, and British farming. The MEP's in Brussels voted for clear country of origin labelling, sweeping aside the ambiguity which meant that food can be labelled British even though it was only packed in this country rather than actually born or grown here. Then the Red Tractor celebrated 10 years of existence and here too clarity is emerging with the symbol accompanied by the Union flag meaning that the product really did start life here. Yes there are still niggles and wooliness. The Tractor without the Union flag can be used on foods which come from abroad but adhere to British standards, and on foods where the main ingredient is only 65% of the finished product. Both could mislead, but progress has been made towards the transparency that today's consumers demand.

Then along comes the GM salmon, coinciding with the GM potato trials just starting, and the ruckus at the Food Standards Agency which stands accused of being less neutral than it should be. The salmon, which grows 2 to 3 times faster than normal, was pictured dwarfing its tiny, conventionally farmed sister, and at a stroke reinforced perceptions of Frankenstein foods.

The last piece of research on GM was done by the Institute of Grocery Distribution in September 2008. It showed that 15% of those questioned strongly opposed GM, and 20% tended to oppose. Just 3% strongly supported the technology and 10% tended to support it. The IGD points out that, despite much publicity, the picture had hardly changed since it's 2003 research where 17% were strongly opposed and 3% strongly supportive.

The issue of course is that consumers do not know what to think, as vested interests rush to defend their corner, and no one has come up with a compelling reason why GM is a good thing. The FSA is reportedly about to spend £500,000 of scarce taxpayers money on more research which will probably show yet again that British consumers don't like the idea of GM.

Indeed, however rational you are, and however much you support science, that salmon is just plain creepy, and will do nothing to further a very controversial cause.

At the very least, should by some combination of genuine benefits from GM and overwhelming pressure from lobbyists GM products appear on our supermarket shelves, the products need to be clearly and unambiguously labelled. No weasel words, no vague statements, and no arguments about the need to mention if the amount of GM falls below a certain percentage. As much effort needs to go into this as on pro farming initiatives like the Red Tractor or country of origin labels.

Like growing numbers of the British public, I want to know exactly what I'm eating.

Seeking White Knight to Rescue Rachel's Organic

2010-06-02T10:22:00.009+01:00

Actually, it's just “Rachel’s” now, the company having dropped the organic word from its brand name in April 2009, apparently because of the difficulties faced by the organic sector.

The company has been put up for sale by American giant Dean Foods with a price tag said to be around £20million. Whatever the reasons, this is sad news, putting a respected brand into play, with all the uncertainty and worry this brings to the 125 strong workforce.

Rachel’s is a small company with a turnover of £20million and a profit before tax of £2.3million according to accounts for the year to December 2008. For comparison, nearest rival in the organic dairy sector, Yeo Valley, has a turnover of around £175million of which 40% is organic.

So who might buy Rachel's? And what might they do with it?

At the brutal end of the spectrum, any of the existing dairy companies could buy, paying back the acquisition price by taking a hatchet to costs. They could close the Aberystwyth plant and either make themselves or contract manufacture, and fold all the administrative functions into their existing structure. The current sales and marketing strategies would continue,with Rachel’s sold alongside all the other brands in the acquirer’s portfolio.

There is an alternative and much more attractive strategy, one which would carve out a highly distinctive position in the market. Keep the plant open, continue to buy milk from the dairy farmers who currently supply, and market the brand as 100% Welsh, drawing heavily on Rachel’s Welsh heritage and history. Keep it organic, for this is what the brand is known for, and there is a market there, albeit small and going through a rocky patch, but make the brand the focus, not the organic tag. Instead of getting the product stocked sporadically nationwide, make sure that it is in every food store the length and breadth of Wales. And cut the price. Currently it sells at too high a premium over Yeo Valley, much less supermarket’s own brands

Is this a good enough strategy to pay back the acquisition cost?

It is not without risk. A pessimist would look at Rachel's declining sales,and its number two position in the wobbly organic dairy market and walk away.

The optimist might say here is a brand with potential,and it could be a strong number one in its homeland.

They would think through how to manage the business. Possibly the marketing budget could offer savings and be more effective if put in the hands of a Welsh company who understands marketing on a shoestring, and how to promote through the internet and social media.

They would accept that costs will have to be looked at, but pruned rather than axed.

They would take a forensic look at where the cash in the business is going. Is there for example too much tied up in stock and would a reduction in number of different lines release money. Are haulage costs overly high because of shipping products nationwide.

They would take a cautious but sensible look at increasing sales.

And then they would negotiate an appropriate price for the business.

Any of the dairy companies could follow this strategy, but consumers might feel warmer towards Rachel's if it went back to its privately run roots, rather than be yet another small company involved in a huge conglomerate.

Is there an entrepreneurial Welsh wizard out there who could really make something of this rather special brand?

Is Increasing Beef Retail Prices the Solution to Falling Producer Prices?

2010-05-27T18:38:00.018+01:00

The recent drop in finished cattle prices is causing understandable alarm.

The cause appears to be too much supply and not enough demand, as spring calved stock and more dairy bull beef arrive on the market yet beef consumption remains sluggish and exports less strong. Indeed the National Beef Association has recommended that farmers stagger supplies to avoid a spring peak.

Pressure on producer prices regularly ignites calls for retail prices to rise and the additional revenue shared across the supply chain, because, says conventional wisdom, beef consumption is inelastic, meaning that increased prices will have little effect on volumes.

But is the conventional wisdom true?

In 2007 Eblex modelled the effect of a 10% increase in the price paid to producers on the volume of each cut of meat. Adjusting for slippage as prices work through the supply chain, this meant an average increase of 5% at retail, and the findings by cut were as follows.

A 3.2% rise in the price of stewing steak resulted in a volume decline of 1.3%. A 5.9% rise on mince led to a volume drop of 1.7%, a 3.8% rise in the price of steak led to a drop of 2.7%, and a rise of 6% on top quality roasting joints led to a volume drop of 16.1%.

Real figures from the market place confirm that price rises lead to volume declines. In 2008 at the height of retail price inflation what was then TNS Worldpanel (now Kantar) recorded that average beef prices went up by 11% and volumes dropped by 3%. Shoppers shunned the more expensive cuts like steak and roasts in favour of mince and stewing steak, yet this behaviour change could not prevent beef market volumes from declining.

In the 12 months to April 2010 prices were up 2% on the previous year, and volumes were flat. There has been a slight pick up in the last twelve weeks but all the evidence seems to indicate that beef sales are respond to price changes.

Some have suggested that the price of mince should rise, but this needs to be handled with care.

Mince is the cheapest entry point to beef. It is versatile, quick and convenient, and acts as a regular reminder of beef’s excellent taste and nutritional values. Over aggressive pricing risks people dropping out of the beef market completely, for they will not gravitate to other cuts, none of which deliver mince’s unique combination of price and convenience, but instead turn to alternative proteins, the obvious one being chicken.

I do not think that a market where volumes drop year after year does any player in the beef supply chain any favours. And whereas the declines might be just two or three percent in the short term, there is every chance that they will accelerate as consumers get out of the habit of buying beef, and retailers shrink the space devoted to it. This is happening on lamb right now where volumes are still dropping - down 4 % 2008 v 2007 and down a further 9% in the twelve months to April 2010.

Dairy Crest v Wiseman – Where Would You Put Your Money?

2010-05-20T09:43:00.014+01:00

Dairy Crest and Robert Wiseman Dairies have just announced annual results. Both process huge quantities of milk (2.1 billion litres for Dairy Crest and 1.6 billion for Wiseman) but their business models could not be more different.

Wiseman supplies only fresh milk, sold mainly under a retailer’s own brand name. Dairy Crest is diversified, selling fresh milk, plus cheeses and spreads. It owns well known brands such as Cathedral City and Country Life, it also processes for retailers' own brands, and is present in France as well as the UK.

A glance at this years results might suggest backing Wiseman. Its sales were up 4.5%and profits up by nearly 60% although this is flattered by some one off benefits. It has very low debt, and strong cash flow.

Dairy Crest saw sales fall 1%, with profits before exceptional items up 5%. Debt is being paid down but is still £337m.

Investors responded by marking Wiseman’s shares down 1.8p to £481.5, Dairy Crest’s shares rose 8.9p to close at £362.5p. Those into share movements will know that Wiseman sells on a higher multiple than Dairy Crest, but even so, it’s an odd reaction.

Backing a company is not about the past though, it’s all to do with likely future performance.

So, if you like the sound of a diversified portfolio where poor performance in one segment can be offset by better news in another, or if you feel that brands are best, despite requiring huge advertising and promotional spend, because they give you more control than being at the whim of a retailer contract renegotiation, and debt does not scare, then Dairy Crest is for you.

If on the other hand you are confident that the company supplying retailers’ own brands is the lowest cost producer in the market place and so cannot be undercut on price, that it has the management talent to read the market place and anticipate where the major retailers are likely to want to introduce own label versions of a product, and the company has sufficient cash to invest in the new technology required, then Wiseman is the way to go.

Both companies have been successful with their chosen business model. Dairy Crest announced a 9% rise in sales of their 5 major brands, and chief executive Mark Allen, being interviewed about the results, made a point of stressing that diversification is good as the cheese division had a very difficult year whereas dairies performed well, conversely he reckons that over the next year cheese will recover but dairy struggle.

Wiseman competes effectively in the own label supply market, having increased share of liquid milk from 28% to 31%. It seems to be valued by retail partners, winning several “best supplier” awards, and chosen by Tesco to process its filtered milk competitor to Cravendale.

However, there are issues with both. Having already got 31% of a low growth market it is difficult to see how Wiseman will continue to expand its revenue, and Arla’s billion pound processing plant may mean that Wiseman loses it lowest cost supply status and struggles to defend what it already has. The company acknowledges the challenge of growth but feels the way through is to supply higher margin, more profitable products.

Dairy Crest’s 9% growth in sales for its key brands disguises the very heavy costs of advertising and promotion. The issue of costly promotions was addressed in my blog post in January, and work done by Bidwell’s Agribusiness on behalf of Dairyco shows that in the year to March 2009, 73% of Cathedral City was sold on promotion, 52% of Clover, and 60% of Country Life. They too face stiff competition from global dairy processors.

Despite the issues there is room for both business models in the short term, and longer term too, possibly helped by sensible pursuit of mergers and acquisitions.

Higher Welfare Products Grow Despite More Shopper Focus on Price

2010-05-12T16:25:00.009+01:00

Last week’s blog post mentioned Institute of Grocery Distribution research which found that price is becoming even more crucial as shoppers decide what and where to buy.

But rock bottom prices are not always the driving force. The IGD analysis pointed to some growth in premium ranges, provide they are seen to be worth paying for, support for fair Trade, and continued demand for local food.

Consumer interest in animal welfare can also be added to the list.

The RSPCA has published research supplied by Kantar Worldpanel, respected grocery trade auditor, which indicates that in the year to March 2010 sales of Freedom Food chicken more than quadrupled - from £16million to £72 million, whereas those for standard, intensively reared chicken dropped by £27million. Of course we need to see the figures in context. The total chicken market is worth just over £2bn, so the numbers are small. Part of the growth will be due to shoppers dropping down the hierarchy of better welfare products. We know for example that sales of organic chicken are down about 28% year on year as organic buyers switched to free range. And no doubt some free range buyers will have bought ranges like Freedom Foods where the birds although indoors have more room. But the fact that the standard range has dropped in sales even though total chicken sales have grown, does suggest a conscious consumer switch to improved welfare chicken, despite the price premium.

The other piece of data is that, according to the British Free Range Egg Producers Association, sales of free range eggs now account for 53% of the market compared with 47% 12 months ago. Again growth has come despite free range being more expensive.

Interest in animal welfare has always been a factor in the British psyche, and it does seem that for the humble chicken and her eggs, interest has been translated into shoppers' continuing willingness to vote with their purse.

The Food Buying Consumer – More Focused on Price Today Than in the Depths of Recession

2010-05-03T15:24:00.013+01:00

Whether the recession has permanently changed food buying behaviour remains a favourite topic among industry observers, with some commentators are saying that purse strings are loosening, trading up is becoming more prevalent, and the worst is behind us. It would seem though that this optimism is misplaced.

The big issue is confidence, and, despite a slow crawl out of recession, consumer confidence is dropping. The latest Nationwide Consumer Confidence tracked by TNS Worldpanel shows a fall in consumer confidence driven by concerns about employment prospects, worry about the state of the economy, and a view that earnings are likely to fall in the next few months.

The Institute of Grocery Distribution says Britain is out of recession, but that things will continue to be volatile. They predict that the return to buying quality products will continue, provided of course that they justify the price, and that sales in discount stores like Aldi have peaked. They highlight the increased demand for local food and think it will continue to grow. They suggest that Fairtrade products will continue to grow too.

However, their generally upbeat take is tempered by a couple of sobering realities. They have found that shoppers are even more focused on price today than they were either when the recession was at its deepest, or when food inflation roared away in 2008.

And they expect promotional activity, which in blunt terms means cutting prices, to continue because shoppers are now specifically choosing to buy in stores which feature promotions and loyalty schemes. Whilst strong brands will continue to be important, they say a “famous name alone is no longer enough to command loyalty”.

The other thing to bear in mind when trying to assess what consumers might do is that the recession so far may have been grim for many but millions have hardly been impacted. This will change as unpleasant economic medicine is administered by which ever party wins on Thursday.

The fall in consumer confidence illustrates that whilst technically Britain may be emerging from recession, psychologically it certainly is not. If economic conditions get tighter, and it is difficult to believe that they won’t, we can expect shoppers to focus even more heavily on price and promotions. Already grocery sales growth is slowing, to 3% in the latest twelve weeks from 3.6% previously.

Where the shopper goes, the big supermarkets will not be far behind. Expect price competition to be savage, profit margins to be slashed, and demand to be sluggish.

Putting the Organic Market into Perspective – Small and Likely to Remain So

2010-04-25T10:34:00.006+01:00

The Soil Association’s market report for 2010 has been published and as expected shows a big drop in sales over the last year. Equally to be expected it is full of enthusiasm about the sector’s future, and points to a slowing in the sales decline.

But before anyone considering investment in organics plunders the piggy bank it is worth remembering that the organic market always was tiny, even in its heyday, and no amount of zeal will lead it to being anything but tiny.

It is important to remember this, for the whole thrust of the Soil Association report is that the 2009 decline was a blip, that organic farming is the only way to go to minimise carbon emissions, and that by wise allocation of the amount we eat organic farming will be able to satisfy food demand in the future. All that is required, says Peter Melchett, policy director, is money – money from the government both to research the sector and to increase support for farmers converting to organics, preferential treatment for organic produce in the public sector procurement, and money from the EU to bolster consumer demand.

As we know though, money is in short supply now. Whichever government wins the next election there will be swingeing cuts to budgets, with DEFRA being no exception. The little money that is available needs to be spent on projects that benefit the whole of agriculture, not just a particular, noisy sector.

Just how tiny is the organic market?

Sales in 2009 were £1.84bn, and are now below what they were in 2006. This is less than 2% of total expenditure on food and drink.

Performance by individual market varies but even in yoghurts, which, due to splendid branding efforts by Yeo Valley and Rachel’s, have the highest share of organic to standard sales, the organic share is just under 7%.

Organic milk sells 171,000 litres a year compared with a total market of 5 billion. Around 30,000 head of organic beef are killed each year compared with a total of 2.2 million. The figure for lamb is around 174,000 compared with a total kill of 15.8 million.

Producers in the organic market face a roller coaster ride. Farmer premiums for organic meat are rarely high, and often erratic. In 2009, the farmgate price of beef dropped by 3.5%, and the premium dropped from 22% to 9%. The premium for lamb dropped from 8% to 4%. The premium for milk also dropped back even though demand held up fairly well.

We cannot look to other countries and say that in time organics will account for a meaningful percentage of total sales. Even in affluent Denmark, the country with the highest percent of organic to standard sales, organics only account for 6% of the total market (Soil Association 2009 Market report). Not to be sniffed at, but not mainstream either.

All this is not to decry that there is a core of consumers completely devoted to buying organic, and farmers who deeply believe in organic principles. The point is that careful thought should be given to allocation of scarce funds to a small sector when the needs of agriculture in general are extremely pressing, and money is tight.

Local Foods – From Niche to Mainstream in 5 Years

2010-04-04T14:47:00.012+01:00

In early 2005, the local food movement was mostly confined to farmers markets, a few intrepid souls selling by mail order or over the internet, one or two up market shops sufficiently different to flourish despite the supermarkets, and funnily enough, ASDA who had just begun to experiment with local foods in its Kendal store.

Now local foods are a feature of every supermarket’s business. ASDA has gone from strength to strength, and now asks its shoppers to write in with suggestions for local foods they want stocked. Tesco says they sold £624 million worth of local foods in 2009, around 2.2% of its sales, and a 30% increase since 2007. Morrisons make a big thing of sourcing local products such as pies, unusual cheeses and the monthly guest ale. Smaller stores are benefitting too, and shopper interest in local foods has played a part in encouraging specialised shops to return to the high street.

Recent IGD research has found that 30% of people purchased locally produced food in the last month, up from just 15% in 2006. This compares with 17% buying organic, also up from 15% in 2006.

This rapid growth comes about because people have a very clear idea about why they buy local food.

The number 1 reason for buying local is freshness. 57% of shoppers perceive local food to be fresher because it has not travelled very far. 54% buy because of a wish to support local producers. About a third buy local because they wish to support local retailers. Other reasons for buying local are environment, naturalness, and the security of knowing where the food has come from and how it has been produced.

The growth will continue. This is a trend, not a fad.

Consumers clearly like the idea of buying local. It is an easy purchase, particularly if prices are similar to a non local version, which is nearly always the case in supermarkets, and will probably need to be in smaller shops unless they are offering something very special.

One challenge is to pin down exactly what local means to consumers in terms of geography. IGD research tells us that in Scotland and Wales, “local” is seen to be from that country. In England, according to some work done by the Food Standards Agency, the definition tends to be based either on mileage (which can be anywhere from 10 miles if a country dweller, to 100 if living in London), or on counties around where the person lives. My view would be that whatever the definition, it is important that consumers don’t feel cheated by a local claim.

It is also important to avoid thinking that being local is either a substitute for strong branding or a passport to a premium price. This is especially true if selling to supermarkets.

The final comment would be that a move from niche to mainstream almost always means a move from high to lower prices.

Ocado Online Grocery Retailer – Profit is Sanity, Turnover Vanity?

2010-03-24T11:52:00.003Z

Ocado, the up market online grocery retailer, has just announced a 25% increase in sales to £402 million but an operating loss of £14.4 million. Which is worrisome as this is now the tenth year in a row that the company has lost money, and indeed it has not made a halfpenny profit since it was set up by three Goldman Sachs bankers in 2000.

However, its enthusiasm is undiminished, it is confident it will move into profit sometime soon, and it plans to float on to the stock market after the general election, at a rumoured value of £1 billion pounds.

Might a few shares in Ocado be a good investment?

Certainly it does not lack financial muscle. In addition to the founding bankers, it has appointed to its board a former Reuters chief financial officer and a former vice chairman of KPMG. Before parting with cash though the investor might want to consider the following.

Ocado competes directly with Waitrose who have just set up their own on line service, but its products come directly from Waitrose in a tie up due to end in 2013. Even if the tie up continues its hard to see what Ocado can do to persuade shoppers to buy from them rather than Waitrose other than drop the price or up the service, both of which will be costly.

If the tie up does not continue, then the question arises of how Ocado with a turnover of £400m will have the same buying clout as Tesco, Sainsbury or ASDA who all run online services. It won’t of course.

Then we get to the way Ocado operates. Competitors fill orders in store then deliver locally. Ocado has a huge central warehouse to which all products are shipped, packed and then delivered around the country. It sounds very costly both on day to day running, and paying back the enormous amounts of money borrowed to set up the warehouse. And not very green.

Finally, the management team. It would be much more confidence building if Ocado’s banking founders had attracted onto their board someone battle scarred through hands on experience of running a real business either in food manufacturing or retailing rather then individuals connected with service businesses.

Its true that investment analysts are divided about Ocado with some saying that it takes time to build an online business, quoting Amazon which struggled for years to be profitable, and saying that online grocery shopping is a growth market with room for a competitor like Ocado.

A very long term investor could feel that its worth buying into as one of the major supermarkets might want to purchase Ocado themselves to give a premium arm to their activities.

The bottom line though is that after ten years there is no bottom line, just a further big loss.

It might be best to sit this one out.

British Lamb – Premium Price But Not a Premium Eating Experience

2010-03-15T16:35:00.028Z

I’m still obsessed with the state of the lamb market.

The British are falling out of love with eating lamb, and sooner or later when the £ sterling gets stronger and exports fall off, it will have a knock on effect on producer lamb prices. In the last twelve months, according to figures published by the British Pig Executive (BPEX), people ate 8% less lamb than the year before, and whilst the pace of decline has slowed to a drop of 4% in the last twelve weeks, this contrasts with a growth of 4% for beef and 3% for pork. So whilst beef and pork are seeing consumers come back into the market there is no sign of the same for lamb.

So what is the problem?

Price is not helping of course. At £6.79 pence per kilo on average, lamb sells for about 80p a kilo more than beef and over £2 a kilo more than pork, and it would be easy to park it there and hope that somehow everything will come right again as consumers emerge from recessionary buying habits and start spending.

Apart from price, there is an issue of age. Lamb is bought primarily by the over 40’s, and Sam Pearl, chilled meat buyer from Tesco speaking to lamb producers in New Zealand, talked about the need to be innovative in the way lamb is presented to encourage younger buyers.

Certainly the supermarkets try to promote lamb. Sainsbury sells a range of lamb from different parts of the country. Tesco advertises in magazines. Booths, a small but very successful supermarket in the north and Sainsbury focus on breeds, Blackface in the case of Sainsbury and Herdwick in Booths.

Which leads us to the product itself and the biggest issue of all - lamb is a premium priced product but all too often it fails to deliver a premium eating experience. When shelling out £15 a kilo for chops or around £10 for a leg of lamb the product needs to be consistently superb otherwise people will be disappointed and refuse to buy again. Indeed, the BPEX data shows that less and less people are buying lamb.

Tracking down how best to improve lamb quality is not easy. Supermarkets send out mixed messages about lamb. Take seasonality. Except for a bit of Dorset lamb on their loose meat counter Waitrose holds fast to the principle of New Zealand in winter and UK sourced in summer. Tesco advertises that NZ is tenderest in spring, the south west and Wales in summer, and Northern England for Christmas, and Morrisons sticks to British all year round.

Then there’s age. EBLEX’s scientific work tells us that older, heavier lambs are tougher. Yet provided older carcasses are matured for at least 7 days, the lamb can be given the EBLEX quality mark. EBLEX also says that older ram lambs can develop off flavours. But over in NZ the Alliance farmers cooperative has done scientific work which concludes that this is not so.

Whilst there are some examples of growth in lamb sales, Tesco for example claiming that their sales have gone up by 12% because of promotions and encouraging new buyers, the main message is one of decline. So we must conclude that the issue with lamb goes deeper than an ageing consumer profile and a lack of excitement in its marketing.

One indisputable fact though is that consumers’ biggest complaint is about lamb is fattiness. Despite this, according to HCC, the Welsh meat executive, nearly 30% of lambs sold are fatter than R3L, and even after trimming by the processor, a lot of fat remains both around and within the meat. Could the time have come to tighten fat class standards further?

How irritated must consumers be, as I was, to buy two small chops for £5 yet find that nearly half is fat.

Whatever the answer, the total supply chain has to re-examine the issue of quality otherwise the market will move from niche to non existent.

Shopper Buying Behaviour - Insights from the NFU Conference

2010-02-25T15:09:00.004Z

Edward Garner of Kantar Worldpanel ( previously called TNS) spoke yesterday about whether recent events like the move away from discounters, a decline in sales of value ranges, the resurgence of Waitrose and a swing to buying premium food over Christmas heralded the end of recessionary food buying behaviour. He did not offer a conclusion but en route to a fence sitting finale he did offer interesting nuggets about shoppers and the way they buy from the major supermarkets.

ASDA
The main message here is that ASDA is all about lowest price. When questioned, the overwhelming reason consumers give for shopping at ASDA is low prices., and it is ASDA who has gained most from the trend away from discounters. ASDA’s most recent price wheeze is to sell at a “round pound” price point, and in the last 12 weeks items priced at £1 have accounted for 14% of all sales. The round pound price point extends to £2, £3, £4 etc, and in total accounted for 22% of sales. Suppliers are being encouraged to tailor their products to sell at these particular prices.

The other side of the coin is that ASDA are not rated highly on quality. They undertrade on fresh and chilled foods, meaning their share of these is less than their total share, sales of their premium range are falling, and their organic sales are down 25% in the last twelve weeks, the worst performance of all supermarkets. (Note that ASDA would argue that they have upgraded quality and won lots of awards, but the Worldpanel figures suggest shoppers are not on the same page.)

Edward Garner did not say, but this obsession with price, coupled with a slight share decline over Christmas, may explain why Andy Bond who runs ASDA took the odd step of doing a public video in which he lambasted suppliers for not reducing prices when costs fell back , preferring instead to offer promotions which he termed “Weapons of Mass Distraction”. Bond declared that ASDA would “return with force” to its “Every day Low Price Strategy”, which he believes is best for customers, suppliers and shareholders. Other supermarkets might disagree.

Morrisons
Morrisons tends to be lumped with ASDA as a low price store, and certainly is seen by customers as offering good value, but it is changing its image and performing well. Morrisons overtrades by 3% in fresh and chilled foods, and by a huge 14% in fresh meat. As Garner says, something for farmers to be aware of. Also Morrisons is growing its number of wealthier customers, classed AB’s, who generally have more spending power.

Tesco
The news here is that their premium range is growing, and their discount range, introduced to fight Aldi and Lidl, only accounts for 1% of sales. Apparently the claim to be Britain’s biggest discounter backfired as we shoppers do not like to be told that we are buying cheap goods.

Waitrose
Waitrose has been doing well as shoppers get over the shock of inflationary price rises. Essentials, which Garner stressed is not a value range, but rather a communication exercise designed to make shoppers re- evaluate the store, has helped.

Marks and Spencer
Still a big problem, due to a lack of regular customers.

Fair Trade, Organics, Local Foods, and High Welfare
Sainsbury remains the biggest seller of Fair Trade products, and Waitrose sells 4.5 times more organic produce than its market share. However organic food has still not regained its position and Garner feels that the term organic will become a statement of production rather than a prime reason to buy.

Local Food sales are booming, and supermarkets are increasing the shelf space devoted to them.

High welfare products also continue to grow. 60% of all eggs sold in retail are now free range, despite costing about 30% more to buy, and free range chicken sales are also growing albeit at a slower rate.

Garner ended by saying that many industry watchers feel recessionary food buying habits may not have gone away because tax rises and spending cuts will breed uncertainty. On the other hand, he said, food only accounts for about 8% of overall consumer spend and so may not be the first port of call for consumer cutbacks.

If asked to come down on one side or the other, I’d say that there will be no return to unthinking spending any time soon, that people will pay for what they value whether it be premium ingredients or ethical beliefs, and not just follow lowest price, and that poor quality will not be tolerated.

Consumers and Shoppers – The Importance of Understanding the Difference.

2010-02-14T16:08:00.015Z

From The Institute of Grocery Distribution comes a timely reminder of the difference between shoppers and consumers, consumers being the person who ultimately eats or uses a product and the shopper being the one who buys the product from the shop. Sometimes they are one and the same person, but not always. An example would be mothers buying food for the family where Mum is the shopper but the family eats what she buys (mostly!). Or in the case of a gift, the shopper buys but the consumer is the recipient. And when in the store, what someone feels as a consumer can be trumped by the immediacy of making a shopping choice.

The notion of differentiating the two has been around for years, but the point the IGD makes is that shopper understanding has become a multi million pound science. Retailers, engaged in a ferocious war for market share, are spending vast sums on understanding their shoppers in a climate where people are very picky about how they spend their money, and low inflation makes it doubly hard to get sales growth.

So, in this shopper is king (as IGD calls it) environment, suppliers approaching a retailer stands a better chance of getting heard if they bring deep knowledge about the way people shop for their particular product. Finding fresh insight is not easy given the enormous amount of data possessed by the retailers themselves. Tesco for example via their 83% owned subsidiary Dunnhumby reads the data of 22 million Clubcard holders every year.

Having said that, increasing sales is not just a matter of numbers, its also about psychology. IGD tells us that 70% of brand choices are made in store, and that 68% of product purchases are made on impulse. This seems a high number but it is not difficult to imagine products suddenly finding themselves in the shopping basket as a result of a stunning display, a slot alongside an obvious partner, or simply because it solves a shopper’s problem like what to dish up for dinner.

The snag with all this of course is that it stretches suppliers’ profits even more thinly. Not only do they have to be able to give retailers the margins they want, and cough up increasing sums for value based promotions, they now have to match retailers in shopper understanding, as well as spend money on marketing to build their brands with consumers.

This may give a clue as to why the big branded manufacturers want to get bigger. Size gives them the economies of scale they need to handle retailer demands both in the UK and globally, for the same retailer game is being played world wide. Such pressures may help explain moves like the Kraft bid for Cadbury.

It is clear though that anyone who supplies products under a retailers own brand name must be very conversant with shopper behaviour.

Which leads to an interesting dilemma for the levy boards - DairyCo, EBLEX, BPEX et al. Are they better spending money on broad messages to the consumer, as EBLEX have just started to do again, or would it be more productive to carry out forensic, in depth research on shoppers.

I'd vote for shopper research on the grounds that the findings would be valuable to all producers, large or small. No concrete case has been made about whether generic advertising works, yet a thorough understanding of how people shop a category could lead to fresh ideas and a much needed rise in sales.

Hard Cheese – The Baffling Behaviour of Branded Cheddar Sellers

2010-01-28T14:51:00.007Z

Dairyco have just published figures for cheese sales in the 52 weeks to end December 2009. The top line picture is that total cheese sales are up, by 4.2% in tonnage, helped, as Dairyco points out, by a very modest price rise of just 1p per kilo.

The detailed figures reveal one startling change, namely that the price of branded cheddar dropped by 29p per kilo or 5% whereas that of supermarkets’ own label increased by 1p. This means that branded cheddar is 7% cheaper than the supermarket equivalent, whereas all received wisdom would say that it ought to be at least 10% dearer to pay for the advertising and promotional costs that accompany a branded product. At the end of 2007, branded cheddar cheese sold at £5.63p a kilo versus own label at £5.21p, a premium of 8%. At the end of 2009, branded cheddar sold at £5.99p versus supermarket own label at £6.42p.

The branded guys will no doubt be celebrating spectacular sales. The price cut meant that their volumes grew by 21% in 2009 and their sales value by 16%. The own label people acted very differently. On their standard cheddar they took a modest price rise and achieved increases of just under 1% in volume and value.

So what might be the right strategy - to maintain price, volume and profit margin, as retailers did with their own brands, or to cut prices, get higher volume, but sacrifice margin.

We will never know exactly what the financial outcome of these heavy promotions is. All we will hear during investor presentations is that brands saw terrific growth. However, the chances are that the branded sellers made much less money than own label.

Here’s why. At a price of £5.99p per kilo, a 30% margin to retailers and a 50% cost of goods the volume increases achieved would deliver the same profit as holding the price at 2008 levels. If either the cost of goods or retailer margin is higher then the promotions lose money. Add to this a likely payment to the retailer to run the promotion, a possible demand for cash margins to be maintained even though prices are reduced, and overtime running at factories to produce the incremental volume then losses increase.

The supermarkets will be laughing their socks off. Their total cheese sales are up, and their profits will be too as all the expensive price cutting promotion costs will have been borne by the brands.

The branded processors behaviour is baffling. Deep price cuts are a zero sum game, for as soon as one company breaks ranks the others follow to avoid losing market share, and they are generally ruinous to profits.

We can speculate as to how any shortfall in profit might be made up. The reasons for declines in farmgate milk prices get lost in a terrific snow job from processors who blanket us with tales of unfavourable exchange rates and world commodity prices. But one is left wondering whether the drop in liquid milk prices went some way to funding all these cheese promotions.

Food Buying Behaviour – Distinguishing Between a Fad and a Trend

2010-01-20T14:26:00.016Z

There is a lot of change just now in consumer food buying behaviour, and being able to distinguish between which of these changes are fads and which are trends saves time, money and heartache.

Well documented changes include more buying of local and British, a drop in organic sales, more interest in welfare friendly products and Fair Trade, a shift back to upmarket Waitrose and away from discounters, a boom in buying premium foods over Xmas but increased amounts of products sold on promotion, a massive rise over Xmas in online food buying, and frantic attempts by retailers to stop what Laurie McIlwee of Tesco called “promiscuous” customers shopping around for the best deals. Other reported changes are more people growing their own vegetables, more scratch cooking and less ready meal purchase, and an upsurge in sales of unfashionable cuts such as pigs trotters and skirt of beef.

What in all that might be a fad to be avoided or a trend to be embraced?

The text books tell us that a trend is something that reflects broader society and what it values. Often a trend will cut across various industries, usually emerges slowly and builds over time, and is a development of an already existing trend . A fad appears from nowhere, is taken up with exaggerated enthusiasm for a short time, and is often fed by media hype. It is not fuelled by consumers needs.

So, which are fads and which trends in all the changes mentioned earlier?

Predictable fads are oddballs like pigs trotters. The rush to grow your own is also likely to be a fad, dying down as all but the most dedicated realise how backbreaking and expensive home vegetable growing can be.

More controversially I’d say that the big rise in organic sales between 2005 and 2007 was a fad, as was the flocking in 2008 to discount supermarkets. Purchasing organic for a short while became the fashionable thing to do, fuelled by the media who liberally advised organic purchase without saying why. Equally, the discount rush quickly subsided as many who felt they had to go and see what all the fuss was about decided that they could get more choice at the value they wanted in conventional supermarkets. This is not to dismiss the loyal core of consumers who won’t buy anything but organic, or who find exactly what they need at Aldi or Lidl. Rather it is to stress that explosive growth is rarely sustainable,unless it results from a solid reason to buy.

The jury is out on whether Fair Trade is a trend. On the one hand the British support fair play, but on the other I’m not sure whether there would be a huge outcry of protest if it disappeared from the shelves.

On line food shopping is definitely a trend. It started in other industries and fulfils a consumer need for convenience. Buying British and local are trends as is the increased interest in welfare friendly products. Both tap into a deep rooted albeit often latent- until- prodded British wish to fly the flag, support community, and care about animal welfare. The move towards premium food is also a trend. People are interested in high quality ingredients and good tasting food. The only reason for a hiccup in premium buying was that a lot of products labelled premium did not justify the price asked.

One definite trend is the cutthroat competition among supermarkets. This will only accelerate as they try to lap what have been high growth years. Despite all having good sales over Christmas the price cutting promotions have already begun with Tesco and ASDA leading the way. Where they go, others will follow.

Food 2030 – Can We Rely on the Consumer to Make Everything OK?

2010-01-12T14:18:00.011Z

One new thread in a document generally viewed as big on aspiration but light on action is the role of the consumer in driving change.

By 2030, according to the document, consumers will be “aware of the origins of their food and understand the environmental and social impact of their choices.” They will “choose and afford healthy and sustainable food”. They will play a major part in achieving a low carbon food system. They will “express environmental concerns in the market place” and by demanding environmentally friendly products they will prod producers and processors into climate friendly innovation and invention.
They will be sufficiently educated to stop their current practice of wasting a third of the food they buy.

Net net, consumers will use their influence and spending power to support those who produce environmentally sound, sustainable, animal welfare friendly, healthy food.

It’s a lovely idea. How super to think that in just 20 years time Britain will be a nation of slim, fit, concerned individuals dedicated to spending their money only on the right type of food, bought in the right quantities, produced in the right way, and with a fair reward for those who produce it.

This is a massive attitude change, and raises the question of just how do you change consumer behaviour so radically.

It helps to have a following wind, and it is true to say that consumers are becoming more interested in eating healthily, want to know where their food comes from and how it is produced, and like to buy local foods. But it’s still a minority, and its an even smaller minority who are interested in things like the carbon footprint of their food. The document acknowledges that the topic of a sustainable diet is a “niche interest”.

The strategy document talks about encouraging change by putting information on the “eat well” website and make labelling more explicit. This is nowhere near enough. Getting the wholesale change described will require enormous advertising and promotional budgets, commitment from major retailers to disproportionately stock and display so called healthy and sustainable foods, and a situation where the price of the “right” food” is the same as, or only a few pence more than the “wrong” equivalent.

How big might the marketing and advertising budget need to be? In the year to March 2009, the government spent £540 million pounds on communicating anti smoking, climate change, anti obesity and road safety messages. This is a 59% increase since 2005, yet 25% of the population still smoke, and obesity levels do not seem to be falling. Big budgets do not guarantee success, particularly when it is government talking, and its interesting to note that one of the major shifts in consumer buying, the shift to higher welfare chicken, came about not through government action but through the efforts of celebrity chefs Oliver and Fearnley-Whittingstall.

Major retailers with their 80%+ share of grocery shopping will be crucial to consumer change. They are past masters at running with even a hint of consumer demand, but they are unlikely to support anything they see as overpriced or giving them a lower margin.

And on the subject of price, the search for the "right" food is unlikely to be accompanied by a major loosening of consumer purse strings. We know that consumers will pay a bit extra for something they value, but baulk at overpaying, as the recent collapse in organic sales has shown. One of the reasons Fair Trade has been so successful is that many of its products are sold at the same price as equivalents, such as bananas, Cadbury’s Fair Trade Dairy Milk chocolate, and Tate and Lyle’s Fair Trade sugar.

It will take alot to reach the Nirvana described in Food 2030, and at the end of the day one is left wondering what difference the attitude change, were it achieved, would make to producers. It would probably impact the actual foods that were produced, and how they were produced. It would not help the issue of how to produce more, and it would not address the issue of profitability. Which leads us back to the failure of the strategy document in that it is a social and environmental treatise, not a production plan.

Ways to Grow the Beef Mince Market - A Report for Beef Producers

2010-01-05T14:38:00.014Z

Mince accounts for 52% of all beef sold, and it has come under the spotlight in a new report written by the Institute of Grocery Distribution with contributions from Dunhumby, who analyse Tesco data, and Taylor Nelson Sofres who monitor the total market. The report’s aim is to “help beef producers understand the challenges that the wider beef supply chain faces in maintaining and growing one of the most important and versatile meat products”. The report is endorsed by the NFU, EBLEX and the AHDB.

Some of the data in the report could be guessed, but some is really quite startling. Fairly predictable is the fact that mince beef sales, although down 1% in volume over the past year, have held up better than any other cut. Total beef sales are down around 3%. It’s also unsurprising that premium mince, sold under supermarkets expensive labels such as Tesco’s Finest and Sainsbury’s Taste the Difference, tends to be bought by the more affluent, whilst value mince is bought by the less well off. Smaller 250g packs are bought by pensioners and older families, and bigger packs by bigger families.

Other facts are less obvious. For example, nearly half of all mince is sold on some sort of price promotion, the most popular just now being “buy 2 packs for (say) £4”. This compares with about a third of sales on promotion a year ago. And mince is not just mince. In fact the market is divided up into 4 segments – premium, standard, value and healthy. These are categories defined by supermarkets themselves, and are designed to appeal to different types of consumers. Region wise, the Scots eat most premium mince, value sells best in the North East, and healthy mince appeals most in the south and east.

Most startlingly of all, value mince has grown very fast with sales doubling in the last year, but it still only accounts for a small proportion of mince sold. IGD shows that in Tesco, value mince in the biggest selling 500g pack size, is just 3.4% of sales of all its mince in the 250g to 500g sizes, compared with 4.5% for premium and 11% for healthy. So, contrary to most people’s expectations, consumer choices are not all about lowest possible price.

Looking forward, the report suggests that anyone seeking to grow the beef mince market should bear consumer trends in mind. Chief of these is health, with 57% of people thinking that they can make a difference to their health through the foods they eat. Interest in local foods continues, as does commitment to buying products with high animal welfare standards. And most encouraging of all, 89% of consumers feel that British farmers should be supported.

The last point made by the report is the need for carcase balance. And they are right to point this out. Clearly it makes little financial sense to grow the mince market yet in the process use up cuts which can be sold at a higher price. Although easier said than done, a marketing strategy is needed for the whole animal.

UK Milk Market – Examining Opportunities for Growth

2009-12-14T15:11:00.015Z

Tetra Pak, multi billion pound maker of drinks cartons, has just published a review of the UK liquid milk market, setting out where growth opportunities might lie.

The company estimates the total market, retail and catering together, to be around 6 billion litres, with sales down 1% year on year. Growth in retail sales is partly offsetting a decline in catering. (For comparison, DairyCo’s latest numbers for retail show the market to total 5 billion litres, up 0.4%).

According to Tetra Pak, functional products with added health benefits are the biggest growth opportunity. They point out that products like Unilever’s Flora Pro Activ which promises lower cholesterol, and Lactofree from Arla are growing strongly, and increasing health consciousness will drive growth still further. This has apparently happened in America where products with added health benefits are booming.

Whilst Tetra Pak are correct to say that keeping healthy is a worry in the UK, launching successful products will not be easy. Health benefits do not trump a poor tasting product, so much research and development will be needed to ensure that the products not only deliver their claims but also taste great, and vast marketing budgets are needed to explain a benefit to a public generally mistrustful of anything which smacks of being modified.

A more straight-forward opportunity identified by Tetra Pak lies in the flavoured milks market, where, helped by the launch of exotic varieties, the market has grown to 200 million litres in 2009. An EU ruling that subsidies for milk now apply to secondary as well as primary schools may encourage teenage consumption. And at the youngest end of the age scale, Tetra Pak has noted a rise in sales of baby and toddler milks.

One of the quirkier facts in the review is that goat’s milk is the fastest growing sector of all.

And so to brands and innovation. The Tetra Pak review shows that the share of branded milks has grown to over 20%. EU regulations whereby milks of varying fat levels can be labelled as milk, rather than milk drink, allowed a new sector to emerge, led by Wiseman’s “The One %". Cravendale filtered milk from Arla with its longer shelf life has been a shining example of innovation. The product is sold at a premium and the sector has come from nowhere to be now worth £229million. Lactofree is another branded success. All demonstrate that premiums and innovation are possible even in a so called commodity market.

Anders Olsson of Tetra Pak reckons that more creative thinking and better consumer understanding would lead to a more dynamic milk market. He says that “The current state of mind is auto-pilot”. It may sound harsh but he has a point. Liquid milk is a huge but static market, and there is a crying need for innovation to reduce dependence on sales of low margin standard milk to major retailers, to get the value of milk sales up, and to return some of the higher value margin to milk producers.

Notes from DairyCo’s consumer sales audit for the 12 months to 1st November 2009
- the liquid milk market is up 0.4% in volume and 6.7% in value
- filtered milks grew by 10%
- organic milk sales are down 2%
- Jersey and Guernsey are doing well off a small base, up 13%
- UHT milk is down 2%, but a new sector, sterilised milk, is growing rapidly albeit is still very small. DairyCo thinks this is because it offers a longer shelf life.
- soya milk sales are down 5%

Prices Down, Consolidation and Cooperation Up – Key Messages from Royal Agricultural College Conference

2009-12-07T14:37:00.010Z

At the Cirencester annual conference, Christine Tacon of Co-operative Farms and John Shropshire of G’s Marketing addressed the theme of “Business strategies for the next decade”. With a turnover of £50million, and running 60,000 acres of their own and partner companies’ land, the Coop is the largest arable, vegetable and fruit farmer in Britain. It supplies the Coop Group, as well as other customers. G’s is a £230million turnover company, supplying major supermarkets, independent outlets and the catering trade with vegetables and salad crops.

Their businesses are different but their messages similar.

Message 1 – Producers profits will be further squeezed

Whilst neither speaker put it quite as baldly as that, Christine said that “these are tough times for growers”. The Farms unit is prepared to take a lower price for produce from its Coop parent in return for security of supply, and acknowledges that Coop buyers would rather not be tied to buying from the Farms but to chase lowest prices by dealing with a number of suppliers. John Shropshire was categoric – “Price is everything”- and cited celery where half of the crop this year was sold on promotion. He says growers are finding it difficult to make money even now, and forecasts that prices will drop in real terms. Perhaps controversially, he does not favour contract prices, believing that producers tend to contract at below the market average, and also that contracts mean businesses lose touch with what is happening in the market place.

Message 2 – Big is beautiful

The notion that producers’ profits are under pressure is not a surprise, but the emphasis these industry speakers put on the need for accelerated and radical consolidation might be.

Christine mentioned Thanet Earth, a veg and salad crop venture in Kent owned by a 4 business consortium, whose website proclaims that the unit has enough glass to cover 80 football pitches. She also said that UK meat and dairy industries are too fragmented and inefficient to compete with overseas companies. John was clear that further consolidation in the supply chain was urgently needed to reduce costs and offset pricing pressure. John, with G’s having farms in Spain as well as the UK, also forecast a “Europeanisation” of the supply chain in an effort to get economies of scale.

Message 3 – Cooperation will be key

Coop Farms either own land or run farms for private landowners so are well used to dealing with farmers directly. G’s is a cooperative of 20 farmers with each farmer having one vote regardless of size. Both are committed to close working relationships, and feel that the more integrated the supply chain the more chance there is to examine costs from end to end and reduce them to offset price pressure. John Shropshire particularly stressed the need for close partnerships where information flowed, and supply chains could react with speed and accuracy.

Perhaps as a reaction to the extremely difficult economic climate, there was less talk of growth producing as opposed to cost cutting strategies. However speakers commented on the need for good customer understanding, and a continued attempt to try new things even when money is tight.

What Will Marc Bolland Do To Revive M&S Food Business?

2009-11-20T15:57:00.015Z

Marc Bolland’s move to Marks & Spencer has sparked excitement in the City and attracted acres of coverage in mainstream news. The interest reflects M&S’s position as jewel of the High Street, leading purveyor of the nation’s underwear, and reliable backstop when looking for clothing basics - and Bolland’s success at supermarket giant Morrisons.

Marks badly needs someone who can revive it's £4.2bn turnover food business. Performance has been nothing short of dismal with falling margins and severe loss of market share, and the decline cannot be put down to difficult economic times. The problems arose well before the credit crunch, and continue despite a slight loosening of consumer purse strings, and recovery in its rival Waitrose.

Mr. Bolland's experience at Morrisons equips him well for the challenge. So what might he do?

First he has to understand what the problem is. Current management seems to think it is all about price, and has responded with hundreds of offers and deals such as “Dine in for £10”. This might help in the short term as Marks' food is expensive, but it is not a long term fix. Neither is the plan to introduce branded products such as Coca Cola, for Marks has neither the expertise nor the buying power to be a general grocery shop. What Marc Bolland must do is solve the basic problem which is this - as of today there is no compelling reason either to visit M&S on a regular basis, or to spend much when you get there.

How different it was a few years ago. M&S's initial success came because it offered outstanding quality which was unavailable from anywhere else. Then in a brilliant piece of market understanding and pioneering innovation it developed its range of ready meals, offering culinary delights which an increasingly widely travelled public encountered when abroad but had no idea how to replicate at home. Ready meal sales went from strength to strength as time pressed but affluent consumers bought a no-preparation evening meal, not giving too much thought to nutritional content or having to double up because portion sizes were tiny. M&S sandwiches were a leading development too, offering fresh and delicious lunchtime fodder at a time when the only takeaway food was a sausage roll and packet of crisps.

But then the world caught up with Marks. Supermarkets matched them on quality by introducing premium ranges, consumers shunned ready meals preferring instead to do some actual cooking at half the price and twice the goodness, and lunchtime options became available everywhere from the likes of Gregg’s the bakers, or coffee outlets such as Costa and Starbucks.

So Mr. Bolland, what is needed here is a return to the historical ability of Marks and Spencer to see the future with crystal clarity, to anticipate consumer trends, and give us what we want before we even realise we want it.

Supplier Relationships
On the supplier relationship side, we know that Morrisons supported British farmers under Bolland’s leadership, committing to stocking only British beef and lamb. Also that they set up Morrisons Farm, a 700 acre holding on the Dumfries house estate in Scotland where the objective is to be a “leading centre of excellence in applied farming research”. It is to be hoped that he will continue Marks’ constructive approach to farming relationships, and commitment to stocking only British beef, salmon, chicken, pork and turkey. He might even go all British on lamb. Whether he will bring a tougher negotiating stance generally to suppliers remains to be seen, but with slipping margins some changes are likely.

The 10 Most Motivating Advertisements on TV Now – And Why They Work

2009-11-11T10:20:00.017Z

Businesses spend thousands and sometimes millions of pounds developing and making adverts, yet few ads actually do what they are supposed to – namely persuade people to part with cash to buy the product in question. So its interesting to see some research carried out by Mercury, an arm of TNS WorldPanel which names the top 10 most motivating ads of 2009 so far.

The top 10 are:
1. Dettol Antibacterial Spray
2. Walkers Crisps with Gary Lineker and Cat Deeley on the bike
3. Kelloggs free cornflakes
4. iPhone new version
5. Tesco where Fay Ripley is picked up by her husband in a hot air balloon
6. Premier Inn’s take off of classic film Psycho, starring Lenny Henry
7. Morrisons supermarket fresh fish
8. Compare the Market with the meerkats Alexander and Sergei
9. Currys fridge freezer recycling
10. Jacob’s Cream Crackers

Now why would these adverts work better than the other 190 tested?

The company who did the research say that the top 10 adverts work because “It’s one thing to have an ad that people enjoy, but if you are not addressing a need or feeling it is less likely that they will turn that enjoyment into a purchase”. Or, in other words, there has to be a strong reason in the ad for people to part with their cash. This is particularly true for a business which has limited money to spend on promoting their products.

After a happy half hour watching these ads, I’d offer some more thoughts about why they are especially effective.

Dettol heads the list. It’s an example of “problem/solution” advertising, and in Dettol’s case the problem is both big and topical, namely how to protect your family against swine flu. The advert not only solves a problem, it does so in a very vivid way, showing brightly coloured germs lurking in unexpected places, waiting to pounce on the vulnerable.

Curry’s advert for their fridge freezer disposal service uses problem/solution advertising too, illustrating the sheer hassle of carting the old appliance to the recycling centre, as does Premier Inns who remind viewers of the nasty surprises that can be found in some cheap hotels. Which leads to the next reason why these adverts work – both Currys and Premier Inns commercials get attention because they are funny. Very funny, in the Premier Inn case where Lenny Henry acts out all the parts with enormous enthusiasm.

Walkers Crisps raises a smile as Gary Lineker (a smug but seemingly likeable character) gets his come uppance at showing off. The Tesco advert also raises a smile and is a clever twist, but both of these, alongside Morrisons fish, and Compare the Market .com probably succeed through the sheer amount of money spent showing them on our screens.

It helps to have a big name. Lenny, Gary, Fay Ripley in the Tesco ad and Nick Hancock in the Morrisons ad are all very well known stars. Stars don't come cheap though - Richard Hammond of Top Gear is reportedly being paid £750,000 for his appearance in Morrison’s Xmas advertising. Fortunately stars are not mandatory, as Dettol have shown, and too often are used by advertising agencies as a lazy substitute for good creative thinking.

The last type of advertising represented in the top 10 is informational. This works best when the message is simple. Kelloggs is telling the world that just by collecting three tokens they can get free cornflakes forever, and iPhone is announcing the launch of its new version.

All businesses have to consider how they will tell customers about their products, and not many can afford multi million pound TV campaigns. Whether putting up a flyer in the local newsagents, advertising in the parish magazine, getting a mention in the town newspaper, or deciding what to say on a website, the rules are the same. Grab peoples’ attention, give them a concrete reason why they should buy, and make it as easy as possible to purchase the product.

My Shameful Secret - I'm a Meat Eater

2009-10-27T15:35:00.020Z

So the hoo-ha about meat eaters destroying the planet has surfaced again, this time via a Times interview with Lord Stern, noted scientist and author of the 2006 review of the cost of tackling climate change. The Times front page headline announced "Climate Chief: give up meat to save the planet", and in the body of the interview Stern reckoned that people's attitudes would evolve until meat eating became unacceptable.

So, is meat eating about to become a shameful secret, admitted, like listening to Country and Western music, only to one's most trusted friends,and undertaken behind closed doors. Will meat eaters, driven underground by public opinion suddenly feel the need to burst out of the closet, shout about their meat eating, and join "Meat Pride" marches through the streets of London? Will, heaven's above, the nanny state actually ban meat eating?

To be fair, on BBC's Today programme Lord Stern started by saying that the Times headline was "unfortunate", and that his message is about global leaders needing to take climate change seriously with meat eating being just one of many factors which need consideration. Too late. The headline writers have roared into action.

The voice of reason needs to speak up.

For starters, sheep and cattle are vital to preserving the character and biodiversity of the British countryside. They graze on moors, hills and coastlines, keeping land that cannot be cultivated for grains or vegetables from becoming brown stretches of dead bracken incapable of supporting plants or wildlife. The National Trust understand this, as does Natural England. Both have been active in reintroducing cattle to ungrazed stretches of the countryside, resulting in more rare plants and bird life. Perhaps they could speak up.

Meat, as the Food Standards Agency on its website and Times nutritionist Amanda Ursell both point out, contains essential nutrients in an easily absorbable form. The FSA says " Meat is a good source of protein and vitamins and minerals such as iron, selenium, zinc and B vitamins".

There's also the very practical issue that if there are no cows then there are no milk and dairy products.

And farming is a voice which needs to shout very much louder, communicating their plan (assuming there is one) to minimise farming's environmental impact.

Tough Times for Butchers

2009-10-20T19:06:00.010+01:00

It’s a hard time to be a butcher. TNS* figures for the 52 weeks to August show butchers sales down by 5.2%, which compares to an increase of 5.7% for meat sales through all shops. Whilst the turnover figures are bad, tonnage sales are horrific. Butchers are selling 20% less pork than last year, 18% less lamb, 12% less beef, and 15% less sausages. And year on year declines are getting worse. Tonnage sales in the last 12 weeks show a 24% drop in sausage sales, 18% drop in beef, 16% in lamb and 18% in pork.

Meat sales generally have been struggling, but butchers seem to be suffering especially badly. The comparable numbers for the total meat market in the last twelve weeks are sausages +2%, beef -2%, pork -1%, and lamb -16%.

Price is likely to one of the problems, with many people thinking that butchers are expensive. The price difference between the average butcher and the top 4 multiples is about £1 per kilo dearer on lamb, 54p per kilo on pork, and 26p a kilo on beef.

Another issue might be that you never know when buying from the butcher quite what the bill will be. And it’s a brave person who, confronted with more cost than expected, asks for the piece to be cut smaller. Contrast this with supermarkets where everything is price marked, you know exactly what the cost will be, and can be confident of sticking to your budget.

The meat trade needs strong butchers as they are a way to avoid total domination by supermarkets, and some butchers are a beacon of hope in a generally gloomy picture. The reasons seem to be firstly, a refusal to compromise on quality, secondly a willingness to embrace consumer trends such as selling locally produced fully traceable meat, and thirdly, being prepared to experiment with supermarket type tactics like prepriced joints and promotional offers, all of which helps keep their customers loyal in difficult economic times.

*TNS is Taylor Nelson Sofres.

What Do Recent Results and Comments From the Big Four Supermarkets Tell Us About the Consumer?

2009-10-08T11:44:00.010+01:00

Few know more about consumers than bosses of the big four supermarkets. Each day they scan data from the checkouts to see what is selling and what isn’t. Those with loyalty cards analyse how different types of consumer are spending their money. Tesco alone tracks the shopping behaviour of 16 million Clubcard holders. So, when the bosses speak its worth listening to how they see consumer trends.

The last twelve weeks saw Morrisons grow fastest at + 7.4%, hotly followed by ASDA at +7.2%. Sainsbury grew by 5.4%, and Tesco by 3.1%. However Tesco reckons that in recent weeks it has grown faster than the others due to offering double points on its Clubcard. (A point dismissed by Sainsbury as a “throwaway remark” not backed by figures.)

Where all four supermarket bosses are agreed is that food inflation has receded, growth rates are slowing, the battle for market share will intensify, and the focus will be on building customer loyalty.

There is agreement too that consumers are loosening their purse strings, albeit slightly. Both Tesco and Sainsbury reported higher sales of organic food and premium produce like Sainsbury’s Taste The Difference range and Tesco’s Finest. They said sales of ready meals are up after a long period of decline. Sainsbury said that sales of welfare friendly Freedom Foods have grown by 130%. At the other end of the scale, both said their lower price ranges were doing well, with Tesco very pleased with sales of their discount range, and Sainsbury’s Basics range having grown by 30%.

There is less concensus among the bosses about consumer confidence over the next few months. Terry Leahy of Tesco has called the bottom of the recession “We are past the low point and things are getting better in the UK. People feel their finances are under control”.

Justin King of Sainsbury is more gloomy. He sees increased VAT, increased taxes, interest rate rises and continued fear of unemployment as likely to put a damper on consumer spending, and that the current rate of promotions, which account for a third of sales compared with around a quarter historically, will need to continue. Andy bond of ASDA agrees - “Many of our customers are still cautious”, and will continue to search for the everyday low prices offered by ASDA.

King and Bond may be closer to the truth than Leahy. The National Consumer Confidence Index, published monthly by TNS (the market research company) does indeed confirm that consumers are a bit more positive about the economy. The improvement is marginal though. Whilst 72% of those interviewed think their household income next year will stay about the same as now, 71% think there will be less jobs available over the next 6 months, and 72% feel bad about the economy generally. Only 34% think the economy will be better in 6 months.

Its encouraging to see even tiny tips of green shoots. But there is no sign yet of a wholesale abandonment of thrift from the majority of consumers.

Why is ASDA Putting Webcams into Food Factories?

2009-10-02T15:43:00.007+01:00

Andy Bond of ASDA was in the media yesterday talking about his new strategy, which he calls “Democratic consumerism”. The idea is to let consumers see for themselves via webcams where ASDA’s food comes from. Already there is a camera in a carrot factory, and in a milking parlour somewhere in Scotland.

According to Bond, the move taps into a growing trend. More and more consumers want to be reassured about the practices behind the food they eat, and Bond is saying that cows and carrots are just the start - “The ambition is to reach a point where customers can trace the journey of each ASDA product, from farm to fork or warehouse to wardrobe”.

It is true that consumers want to know more about the products they buy, but there is more to the move than that. It signals a recognition that price promotions and a value message alone are not enough to keep customers loyal to a store. After all anybody can cut prices – and they all do. TNS (Taylor Nelson Sofres the research company) has found that the amount of store turnover from promotions has gone up from 28% in 2007 to 32% in 2009. More worryingly for retailers, the economic squeeze has meant consumers doing much more shopping around to get the best deals, and it seems that this is not so much a chore as a rewarding adventure. As one shopper in a piece of IGD (Institute of Grocery Distribution) research put it “I quite like shopping for less using promotions. It’s a challenge, and I feel quite chuffed having saved some money.”

Which leaves each retailer searching for reasons over and above price based offers to secure loyal customers. Tesco offers extra points on their Clubcard. Sainsbury combines value and quality by advertising their own label products – apparently just as good as the branded equivalent but at least 20% cheaper. Morrisons talks about fresh food available from their “Market Street”. And now ASDA is being reassuring on where their food comes from.

The general feeling among those who study the grocery industry is that ASDA’s initiative will give them an edge over competition. But they and their suppliers have some thinking to do. In this search to understand the origins of their food, will consumers expect webcams in abattoirs, and on farms which rear animals intensively. How will ASDA deal with difficult issues such as lameness in dairy cows? Or will they be selective in what they show, and expose a worthy idea as mere PR fluff.

Does Waitrose Sales Growth and Deal with Duchy Signal Return to Premium Food Buying?

2009-09-15T12:39:00.009+01:00

Market research company Taylor Nelson Sofres tells us that in the last three months, Waitrose sales grew by 10.2% versus 5.6% for the whole grocery market.

So what prompted the spurt?

Contrary to popular belief the powerhouse has not been Essential Waitrose. This range was never meant to a budget offer competing with value ranges from other supermarkets. In fact most of the products in the range remained as they always had been, and were sold at the same price as previously. The difference was that the range was pulled together under one distinctive brand name.

Essential Waitrose was a rebranding of mostly existing lines, but the vast publicity surrounding its launch seems to have encouraged shoppers back into the stores to re-evaluate what Waitrose had to offer. Once back inside, and helped many more price promotions than hitherto, shoppers liked what they saw and started buying again across the whole Waitrose range. Indeed, Richard Hodgson Commercial Director told the Grocer “Essential Waitrose has played a role at the bottom end but most of our growth is coming at the top end”.

The other factor behind growth may well have been the froth coming off discount shopping. Many of the shoppers who were lured to Aldi and Lidl tried them once, and never came back. The discounters have not converted triers into regular shoppers and growth has slowed from north of 20% per annum to a still respectable but not earth shattering 8% for Aldi and 6% for Lidl.

So does the growth in Waitrose sales and the bloom coming off the discount rose signal the end of the recession and a return to premium food shopping? Well in truth, premium food shopping never went away provided the product in question justified the price charged. What shoppers were not prepared to do was buy premium merely because the label said premium. This is where many organic foods struggled.

Which leads to the Duchy deal. This does seem to be a good thing for both parties. Duchy Originals is a well known and respected brand which should benefit from Waitrose support, and Waitrose commitment to donate to the Prince of Wales Charities can only be beneficial.

It will be interesting to see what Waitrose does with Duchy. The brand is apparently being positioned as super premium, and Mark Price Waitrose Managing Director reckons that it will grow to about 2.5% of Waitrose sales, equating to a turnover of some £100million. The challenge will be to ensure that shoppers are given a clear justification of the super premium positioning. We know that just saying organic on its own will not be enough. One thing is certain. Unless the quality of Duchy products is absolutely superb, and better than anything else available for a similar price, the brand will not blossom.

Finally, can we say that the growth in Waitrose sales, their optimism about Duchy, and the slow down in growth for discounters means a return to pre credit crunch ways of shopping?

Not completely. Shoppers now have a much better handle on what is and is not worth paying for. They have got the taste for chasing bargains. And lurking at the back of most people’s minds is a worry about what the economic climate will be like over the next few years. They won’t be throwing their money away in a hurry.

UK Lamb Market - Farmgate Prices Strong, Yet Amount Eaten Plummeting. Should We Be Worried?

2009-09-03T16:00:00.012+01:00

To the relief of farmers across the land, farmgate prices for lamb remain firm. Eblex (the English Beef and Lamb Executive) attributes this to the strong euro boosting exports, and a reduction in UK sheep numbers. Eblex forecasts that the euro will continue relatively strong, lamb numbers will fall in the UK, Ireland and France, and good prices will probably continue.

The one cloud on this bright horizon is the effect high lamb prices are having on the amount people eat. Farmgate prices for lamb over the twelve weeks to end July rose by around 12% compared with last year, the average price in the shops rose by 17% and the amount that people bought fell by 15%. This compares with a fall of 5% for beef and level sales for pork, both of which have been hit by higher prices and consumer cutbacks because of the recession, although not nearly to the same extent.

The drop in lamb sales is startling, although not surprising. The shopper is now paying an average of £7.15p per kilo for lamb versus £6.22p for beef, £5.10p for pork and £4.02p for chicken. No wonder that fewer people are choosing lamb. All cuts are affected particularly roasting joints.

The question is where it will all end? What happens if the euro falls back, flock numbers increase as farmers, attracted by higher prices dip a toe in the water again, yet consumers lose the lamb buying habit, and there is little demand for lamb either at home or abroad.

The obvious solution is for supermarkets to slash the price when farmgate prices fall, and get people buying again. History would say though, that prices in supermarkets do not come down nearly as quickly as they go up, as we saw during the foot and mouth crisis.

If supermarkets don’t support the market who might? This could be an opportunity for butchers to become very price competitive, and attract customers with a banner comparing their prices to the local supermarket. It’s also an opportunity for the catering trade who sell disproportionately more lamb than supermarkets, and for direct sellers. The trouble as always is that supermarkets are so big they do dictate market trends.

The easy conclusion is that we should be worried about people eating much less lamb, as it is bound to have an effect on prices, perhaps not next year but soon enough. The harder bit will be working out how to reignite the lamb buying habit.

Note: Farm gate prices based on Farmers Weekly data, and consumption on Taylor Nelson Sofres data, published by BPEX.

Assessing Hilary Benn's Call for UK Farming to Produce Alot More

2009-08-19T16:38:00.026+01:00

Excited by Hilary Benn’s call last week for farmers to safeguard food security by “producing a lot more”, and keen to understand what we are all supposed to do, I read the back up papers issued by Defra.

Nothing in those papers looks radical enough to provide a step change in output. And its clear that Defra, whether consciously or unconsciously, is prioritising the environment over productivity.

For the first time Government has produced a set of performance related indicators, or in plain English, a list of things they want to measure. This is important as what gets measured tends to get done. The Sustainable Food and Farming performance indicators show that Government wants to measure 9 areas.

Of the 9, just one, Market Focused Farming, measures farming productivity. The target is for UK farmers to deliver 50% more Gross Value Added than the EU average of 14 pre enlargement countries. Currently the figure is 32%.

The things that Government feels will help achieve the target include more diversification, more collaboration, more membership of farm assurance schemes, more benchmarking, higher levels of training, more organic farming, and more use of risk management tools, particularly in the arable area. Government is working on how to measure farming’s response to climate change, and the cost to farming of regulation.

Whilst all of those indicators are useful, none will deliver big increases in output.

Also specifically farming related is an indicator called The Burden on the Taxpayer, where two sets of figures will be produced, the value of direct CAP payments, and the cost of animal disease and the level of cost sharing. As yet no target has been set for the cost to the taxpayer, either up or down, but it can probably be assumed that the aim is to reduce it.

Of the other 7 performance indicators, three are directly environment related. The Environmental Cost of the Food Chain indicator will measure river water quality, pesticide and fertiliser use,good agricultural and environment condition,pollution incidents, and membership of the Entry level Stewardship Scheme.

Better Use of Natural Resources has a target of halting the decline in soil organic matter. Landscape and Biodiversity has a target of halting the decline in farmland birds by 2014, and then seeing an increase, and also improving the condition of Sites of Special Scientific Interest. It specifically mentions farmer entry to the Higher Level Stewardship Scheme as a way of achieving the objectives.

Animal Health and Welfare targets have yet to be developed.

The final two areas are Public Health, which targets more fruit and veg consumption, and there will be a target for Rural Productivity.

Overall, the indicators are heavily environment related, and suggest that Government actions prioritise environment over productivity.

No one is denying that in the words of Peter Kendall, farmers “must produce more and at the same time impact on the environment less”. And certainly there should be no return to production linked subsidies as this leads to poor quality products, and a complete disconnection from what the market wants.

But there are actions which can make a radical difference to productivity levels, yet contribute to a better environment.

The number one priority has to Research and Development. As yet there is no target for the amount of money to be devoted to agriculture, and current R&D expenditure stands at just £164m. The obvious area for focus is developing disease resistant fruit, veg, cereal and grass species which require minimal water and fertilisers to grow. More has to be done to understand and eradicate animal disease, including animal husbandry and stock management techniques which concentrate on disease prevention and avoid the need for routine treatment.

There are other areas to target. There must be a measure for bovine TB levels. There should be a target for public procurement of British produce. There should be a time frame for sorting out labelling to make clear what is and is not British. And the Rural Development agencies should have a target for direct farm initiatives.

But enough of the whingeing. What can be done? Well, there is a consultation going on, and it is an opportunity for every farmer in the land to make their views known.

All in all, the talk from Benn is disconnected from the walk. Hopefully though, it will be just a short time before his call is turned into practical, prioritised, and funded government action plans.

FSA Research Furore Shows Organic Movement Must Get Back to its Roots

2009-08-05T09:54:00.009+01:00

The FSA’s pronouncement that organic food is no healthier than that farmed conventionally has generated acres of headlines, hundreds of comments, and thrown the organic world into disarray.

It’s interesting to reflect on why the reaction has been so vocal. After all, the FSA was very specific in its research. It stated that its remit was only to look at nutrient content of organic versus conventionally produced products, and it also stated that conclusions were drawn from 55 fully defensible, peer reviewed scientific studies. Its findings echo those of the pro-organic, scientifically based EU project QualityLowInputFood who at the conclusion of 5 years of research said - “Health claims for organic foods are not yet substantiated.”

So why the furore?

One of the problems with the rise and rise of the organic market is that its recent explosion has been due more to hype than substance, fuelled by uncritical affluence.

Any publication over the last few years about organic food implies that it is better for you. Celebrity chefs, food writers in the broadsheets, and bodies such as the Soil Association have all insisted that organic food is the only sensible thing to eat, but they have rarely backed this up with scientific facts. Indeed even after the FSA report was published, a writer in a middle class paper was saying that there are certain food purchases that should always be organic, but yet again gave no reason why, and a Sunday paper had a full page article headlined “We dig out the facts from the manure”, but still filled the page with opinionated claim and counterclaim rather than facts. So one reason for the uproar could be that food writers and chefs may well be feeling very silly about supporting something unfounded, and possibly worried about their credibility.

The Soil Association and other organic supporters will understandably be concerned that their carefully built market will collapse down round their ears, especially in the current difficult economic climate.

So how should the organic world respond?

Instead of rushing to damn the FSA’s findings, organic practitioners should be re-evaluating in a calm, fact based and non spun way, the reasons why people might consider buying organic food.

They are fortunate in that already there is a highly committed core of organic devotees. A look at the reams of comments which newspaper articles generated from the general public gives a good steer on what they value. These people suggest that the main reason for purchase is not what is in organic food but what isn’t. The vast majority say that the reason they buy organic is to avoid pesticides. A few said they just have a belief that the whole system with its focus on the soil onwards is the right way to farm, some feel it is better for the environment, and some feel it promotes higher standards of animal welfare. (Few mentioned taste, although in a health story this is perhaps not surprising).

The organic movement needs to slow down, concentrate on what is true and factually supported about this approach to farming, tell the public and allow them to make an educated choice. Any supporting facts need to be backed by rigorous and defensible research.

This is not a strategy which will support fast growth. Recent IGD research shows that the number of people actively interested in avoiding pesticides for health reasons is relatively small . Far higher is the number seeking to promote good animal welfare, but many issues have been addressed by conventional farming such as free range eggs, and higher welfare pork and chicken. Those interested in animal welfare can choose to buy locally produced meat, and see for themselves whether the animal welfare standards behind their meat is what they want.

So whilst massive market growth will not come from a slower approach, and there may even be a sales decline in the short term, the movement can be sure that their integrity will be protected, the public will be reassured, and longer term, the organic movement will achieve the sustainability and public confidence that it seeks.

What is striking about the organic movement is that its current high powered, fast talking, heavy spinning marketing focus, with its frequent denigration of conventional agriculture, is the complete antithesis of what organic farming is all about. Organic agriculture is a slow maturing way of farming which aims to work in harmony with the natural world to ensure long term sustainability. There is little about it which is unnatural or false. It would be good if organic marketing and organic production were more closely aligned.

How Market Research Can be Misleading – New Report on the Lamb Sector Overstates Sales Growth, and Opposed Views about Ethical and Premium Products

2009-07-23T14:37:00.013+01:00

We are continually advised to do research to connect with the market place, improve performance, or check out whether an idea has a good chance of working.

Market research is indeed critical, but the information gathered needs to be interpreted with care.

Two examples of how market research can be misleading appeared in the last few days.

We heard from Cohn and Wolfe, a subsidiary of WPP the biggest advertising company in the world. Headlined “Recession spells the end of ethical shopping”, their most recent research says that UK shoppers are turning away from organic, Fairtrade and eco friendly products in favour of cheaper versions. More importantly, they also found that in future, recession or not, 73% of shoppers will try and pay less for premium lines such as Tesco’s Finest and Sainsbury’s Taste the Difference, 69% will buy less organic food, and 61% will pay less for Fairtrade. At which point anyone either in, or thinking about going in to premium or ethical foods might give up.

But the Cohn and Wolfe survey was followed about a week later by a press release from Tesco headlined “More confident consumers boost sales of premium and ethical foods”. They report that Finest, organics and Fairtrade products are all returning to growth. In the last 8 weeks their sales of organic mince are up 60%, organic cheddar up 70% and organic blueberries up 79%. In the upmarket Finest range, Cumberland Sausage has grown sales by 159%, and Wiltshire Cured Ham by 51%. Tesco specifically says that the news flies in the face of the Cohn and Wolfe survey, and attributes the growth to their policy of “offering customers great value for money”.

To be fair to Cohn and Wolfe they do say that the challenge for higher priced food producers and retailers is to make their products more affordable, but you have to get into the fine print of their release to catch this.

The other recent example of misleading market research comes in the shape of a new report called “Fresh Lamb - A Local Opportunity”, prepared specifically for sheep farmers by Kent University. The report is sponsored by the NFU, and the Institute of Grocery Distribution.

The report says that lamb sales have been steadily increasing, and that last year they grew by 15%. This rosy picture is in direct contrast to figures from Taylor Nelson Sofres, the market research firm, published every couple of months on the BPEX/EBLEX websites. These figures show that in the year to April, lamb sales have in fact dropped by 5% year on year, and have been dropping for nearly two years as retail prices have increased.

So what’s going on?

It turns out that the Kent University report is based on sales of lamb through Tesco, not sales in the total market which is what the levy board numbers are based on. The levy board numbers are of course more representative of what is really happening to lamb sales. It would have been helpful if the Kent report mentioned that its numbers are based on Tesco shoppers.

Accurate interpretation of market research matters. Just glancing at the Kent University report might lead sheep farmers to conclude that demand is rising and so prices for their stock might well rise too. They might even think that the recent buoyancy in stock prices is all due to British consumers wanting lots of lamb when in fact they are due mostly to the strength of the Euro, and may well fall back sharply if the Euro declines, and there is no home demand to offset exports.

Threading a true path through all the information available can be difficult, but there are a few actions which can help avoid wrong conclusions.

First, examine the fine print of any research report, and don’t rely on headlines. Second, try and collate information from various sources to check for consistency, and investigate anything that does not make sense. Third, gather data over time rather than rely on a snapshot. And fourth, don’t rely entirely on what the public say they will do, but check out what they actually do when faced with a buying decision in the shop.

Ps. Farmers Weekly and the IGD have both been alerted to the lamb figures issue, although no response has yet been received.

Milk Drinking on the Up Despite Price Hikes

2009-07-10T14:33:00.010+01:00

DairyCo has just published liquid milk consumption figures for the 12 months to 14th June 2009, and they show some striking trends.

All those concerned about the effect of price rises on consumers’ fresh milk buying habits need not have worried. Despite an average 11% increase in prices in the last twelve months, from 62p to 69p, the total market has kept on growing and has now reached just over 5 billion litres. Which says something about the importance of milk to the British diet, much about a complete lack of awareness by the average consumer of how much they are paying for their daily pinta, and is a tribute to some of the innovative products launched into the market. It also illustrates how nonsensical it is for major retailers to slash milk prices - this is a product which does not need price promoting.

On the innovation point, the figures show that milk is not just a big undifferentiated commodity market. A careful look at what’s important to consumers results in successful new products. Filtered milk is a good example. Pioneered by Cravendale, premium priced, and sold with the consumer benefit of staying fresh for longer, filtered milk continues to grow its volume and now accounts for about 6% of all milk sales. Another innovation is milk with 1% fat which has found a niche between skimmed with no fat at all, and semi skimmed with 2% fat.

Equally, not listening to consumers results in problems. A case in point is modified milk which lost half its sales in the last 12 months and is about to expire completely. Consumers just don’t want a fresh and natural product like milk interfered with.

A couple of other interesting trends emerge. The organic milk market has dropped by just 2 million litres to 167m, but is holding up reasonably well compared with other organic products. Part of this is due to less aggressive price increases. Whereas regular milk increased average price by 7p per litre, organic increased by 4p. Jersey and Guernsey which hardly increased price at all have held volume, albeit this is still a tiny sector.

Doorstep delivery sales continue to fall, down 11% year on year. With an average price of 98p per litre, this is perhaps not too surprising. But, it still accounts for 6% of all milk volume sold, and the independent milk producer might well be able to build a good business if they could bring the price nearer that of the supermarkets.

For some reason sales of soya milk have dropped by 8%, despite an average price reduction. Possibly at 90p a litre it is just too expensive when budgets are tight.

All in all though, liquid milk looks like a healthy market in all senses.

Discount Supermarket Growth Slows - Is It All Over for ALDI et al?

2009-07-06T10:37:00.012+01:00

Discount supermarkets like Aldi and Lidl are making headlines again, but this time for sales slowing rather than growing.

Editor of The Grocer, Adam Neyland wrote a piece a couple of weeks ago entitled “Is the discount boom over?” This was followed a few days later by figures from market research company TNS Worldpanel, which showed that in the 12 weeks to June 14th Sainsbury and Morrison grew faster than Aldi and Lidl, with Asda growing at about the same rate. Actual figures were +6.5% for the total grocery market, Morrisons +9.3%, Sainsbury +8.9%, Aldi +8.7%, Lidl +7.5%, and Asda 8.2%. It’s a marked change. In the previous months the discounters were growing at anything up to 3 times the rate of their main stream competitors.

Why the change?

As Neyland points out some slowdown in growth was inevitable as competitors fought back with price promotions, million £ advertising budgets, and a focus on the quality and value of their fresh food. Which is a lesson to all of us to never underestimate the competition, particularly in UK grocery.

I think there is more to it.

It is interesting to reflect on what caused the discounter boom in the first place. Of course some of it was due to consumers on a strict budget searching for value as food prices rocketed. Much responsibility though must be laid at the door of the media. Not a day went by without headlines about the middle classes turning to Aldi, that it was now more chic to be seen with an Aldi bag than a Waitrose one, and that discount car parks were full of Range Rovers and Mercedes. No wonder many read the hype, worried about missing out, and nipped along to see what all the fuss was about. The monetary value of all that media coverage must have run into millions.

The big question is, of those who made the visit, how many tried, were disappointed and never came back versus how many changed their shopping habits and returned every week. Market research company Him! (yes, new to me too, but they are a genuine outfit despite the odd name), does regular research with discount shoppers. They say that shoppers are less satisfied with discounters this year than they were in 2008. Also that recent shoppers, and more upmarket shoppers expected more from the stores and were disappointed by what they found when they got there.

There is a lesson here too, which is that a business cannot be built on people buying just the once, rather, long term growth will come from having a solid base of loyal fans who buy again and again.

So what of the future?

Discounters have many devoted customers, but it is not a way of shopping that appeals to all. If it were, the market share for all three discounters would be far higher than its current 5.9%, which compares with a share of 11.6% for Morrisons, 16.1% for Sainsbury, 16.8% for Asda, and 30.8% for Tesco.

Adam Neyland rightly concluded that discounters will not go away. Largely privately owned so without shareholder pressure for fast returns, they have cash and big ambitions. Aldi is committed to opening a store a week until they have 1500 in total. It also recently won best supermarket award from Which?, the consumer organisation. Lidl is supporting consumer trends with the addition of Fairtrade products, and a commitment to sourcing British beef, chicken and pork.

Whether they will make a major breakthrough is questionable. Already some research by Him! shows the numbers shopping at discounters dropping from 15% to 13% of the population, which compares with 79% visiting a mainstream supermarket. And if you look at shares held by all discounters, it has not moved much from the days when Kwiksave was operating. Indeed Edward Garner of TNS has consistently argued that the growth seen in discounters is merely a mopping up of market share held by the now defunct Kwiksave.

The future for discounters is likely to be one where the total sector will hold its market share, and within that there will be winners and losers with Aldi consolidating its position as the main player.

What Irish Farmers, Free Range Cows and Johnny Rotten Tell Us About Butter Eaters

2009-06-15T11:12:00.027+01:00

Butter advertising. There’s a lot of it about at the moment.

Advertising is expensive. The costs can run into millions, so companies want to get their advertising right. This they try and do by talking to consumers about butter in general, and their brand compared with competitors’ brands. Armed with all this market research, companies come up with the messages and slogans they think will persuade us that their butter is best.

So a look at what each of the brands is saying in their advertising gives us a good steer on what is important to consumers when it comes to butter.

Three of the four biggest brands are foreign owned – Lurpak from ARLA, Kerrygold from the Irish Dairy Board, and Anchor from Fonterra. Only Countrylife owned by Dairy Crest is British.

Here’s what each is saying.

Lurpak, the brand leader, sells on taste. Their slogan is “ Good food deserves Lurpak”, and it reminds us that taste is all important when it comes to a food product.

More interesting is the Kerrygold advert. Aware of growing respect on the part of the public for farmers, a group of healthy looking Irish dairy farmers explain that they are part of a cooperative which means they get a fair price for their milk. The advert shows that they love their cows, implying that they will be well cared for. They say the cows are grass fed, and this, plus showing acres of lush green fields, puts across a feeling that Kerrygold is a natural, wholesome product. Whilst a very complicated set of messages, the overall tone reassures those consumers worried about farmers being fairly rewarded, those worried about animal welfare, and those who want to be sure their butter comes from cows fed naturally on grass.

Anchor with their slogan “The free range butter company”, emphasises that their cows are free to roam outside all year. To the strains of the theme tune from the Great Escape, a cartoon cow astride a motor bike leaps the fence to freedom. By using the words free range with their overtones of a better life, the clear implication is that Anchor cows have a better life than those who cannot get out. Again it’s an animal welfare story, but with a natural slant too, for a cow free to roam will by implication only eat good fresh grass.

And so to Countrylife featuring Johnny Rotten, or John Lydon as he is now known. Unashamedly jingoistic, it trumpets the brand’s Britishness, picking up on the consumer trend to support British brands. It also has a quality message too, with Lydon saying at the end that he buys because of the butter’s great taste.

What do these advertising messages suggest about consumers, butter and British dairying?

The thorniest issue has to be indoor housed cows with the twin implications of a life cooped up in a small space, and a questionable diet that does not include fresh grass . According to the NFU, only 1% of British cows are kept in this way. Nevertheless, two big, foreign owned brands feel they can use the fact that their cows are able to go outside as a reason to buy their products. Such advertising might raise a doubt in consumers' minds about exactly what sort of a life the British cow has, and what precisely is going into the butter product.

More straightforwardly, it is clear that food products have to taste great to succeed, and that the main reason to buy butter as opposed to margarine is that it is an all natural food.

Finally, the Kerrygold advertising reminds us that not only Irish farmers enjoy a good reputation with the public. There is a warmth now towards farmers and farming which should be

cherished.

From the Farmer's Mouth - Diversification in a Downturn

2009-06-05T09:28:00.014+01:00

Despite the downturn it seems the appetite for diversification continues. Among the businesses showcased in the farming press in the last 6 months are a goats cheese maker, sheep milking, a seller of Herefordshire apples and pears, a couple of farm shops, Welsh lamb and traditional breed meat being sold to smart London chefs, beef pastries, premium sausages, dairy product processors, and an arable farmer who produces woad dye.

Although the products sold are different there are commonalities in the way that the farmers approach their businesses. All emphasise the importance of listening to what the customer wants. James Manning, the Herefordshire grower selling his fruit direct has built his business by offering a bespoke service where he is prepared to sell just one or two boxes if that is what the customer wants, and won’t push for higher volumes because he feels it breaks the bond of trust between him and his customers.

William and Daphne Tilley and sons John and David sell Elwy Valley Welsh Lamb to high end catering customers, and attribute success to listening closely to what customers want, and being prepared to alter flock management to achieve it. They are now prepared to spend £1000 on a tup to get the good back ends but also loin with a big eye and good meat cover from neck to tail that chefs demand.

Ian Howard, the Woad grower, will not compromise the quality of his dyes by adding chemicals, even though it would be many times cheaper, because “that is what my customers want”.

Graham Kirkham of Beesley Farm near Preston, selling Mrs. Kirkham’s Lancashire Cheese, uses up all the milk from his 100 cows in his cheese making and says “The biggest lesson I learnt from the (farmers) markets is to listen to customers”.

There is consensus about the importance of selling a top quality product, and when it comes to food, the best way to get customers to buy the product is to let them taste it first. Graham Kirkham says “Taste is everything”. Richard Vaughan who with wife Rosamund sells Longhorn Beef, Middle White Pork, and Ryeland Lamb under the Pedigree Meats brand says “ We rely on our customers being our ambassadors as it is only by tasting it you realise it is different”. James Manning does tasting sessions for his fruit, William and Daphne Tilley believed firmly that “taste must be outstanding” and were so confident that they built their business by challenging chefs to compare their lamb with that of their current supplier.

On pricing, the tone coming through the features is that you have to be realistic, and acknowledge that consumers are being very careful about where and how they spend their money. Alan, John and Brian Philby farm in Felbrigg East Anglia and sell beef, fruit, veg and turkeys through their farm shop as well as local stores and some wholesalers. They believe that the public still wants to buy fresh and local food, but that the secret is to keep prices keen so that customers come back again and again. Alan says that last Christmas they priced their turkeys competitively and not only sold the whole 800 very quickly, but benefited from many customers purchasing vegetables in addition.

Heather Parry who manages Fodder, a new food hall at the Great Yorkshire Showground, intends to source at least 85% of the stores food from within Yorkshire, but says “I’m very definite that local food shouldn’t mean more expensive”.

Neville and Mary Kemp who with 230 suckler cows keep one of the biggest Angus herds in the country sell their Absolute Angus Beef Pastries through 16 Tesco’s, and a local independent supermarket. Neville recognises that he is competing with big national brands, and says that “the market place is very competitive at the moment”.

On the other hand, Richard Guy who runs the Real Meat Company says “If they (customers) say they can’t afford to eat our meat I tell them they can, but do they want to”.

Whilst there are still many examples of diversifying farmers controlling the whole process from production on their own farm to selling to the end consumer, The Real Meat Company is an example of a trend to divorcing ownership of the brand name from the production side of things. Real Meat is mainly a franchise business with Richard owning the brand name “Real Meat” and managing the sales, marketing, and production standards for 16 independently run shops and their various farmer suppliers.

The divide between those who embrace dealing with supermarkets because of the volumes they can sell, and those who won’t have anything to do with them continues. There is no right or wrong here, but good advice comes from Janet and Mick Forsham who are turning their milk into yogurt and fromage frais in the Forest of Bowland. They say the key is not to rely too heavily on one particular customer.

Despite the downturn, farmers are showing creativity, energy, and success in their diversified enterprises. Diversification remains a time consuming activity which is not without risk, particularly in the current climate. But it can also be financially rewarding, particularly for farmers who can build a good brand name, and manage costs along the supply chain. As Richard Vaughan from Pedigree Meats says “ Selling 100 cattle direct is financially a better business than when we were selling 1000 to supermarkets”. Importantly, diversification can give farmers a control over their destiny often lost when selling unbranded goods into the mass market.

Countryfile, Cows and Bluetongue - Its What Consumers Think that Counts

2009-05-19T16:46:00.013+01:00

BBC’s Countryfile programmes shown on the last two Sundays should be leaving livestock farmers with a deep sense of unease about farming’s reputation with the general public.

The programme about Holstein cows gave statistics that up to 40% of cows are lame and a big proportion suffer from mastitis, and said that these numbers are among the highest in the world. It also claimed, erroneously as it happens, that most cows never see a blade of grass in their lives. Although the indoor cows shown were clearly in good health, the average viewer would have taken away a message that dairy cow welfare standards are low. Those moving on to the RSPCA website were presented with the thought that inbreeding in Holsteins is worse than pedigree dogs, a topic which has commanded bad headlines of late. All in all, between Countryfile and the RSPCA there was enough to make consumers question, at least fleetingly, whether British dairy farmers deserve unqualified admiration.

The programme about bluetongue was a far less overt attack on farming standards. There were no words criticising a decision not to vaccinate. But by showing graphic footage of very sick animals with bluetongue in conjunction with an explanation that the costs were too high for most farmers, the implied message was clear – most English and Welsh farmers are too penny pinching to vaccinate and ensure their animals do not suffer.

Why the unease. Well, part of it is a personal belief on the part of many farmers that animal welfare practices should be exemplary.

Regardless of personal concerns, programmes about cows in pain from lameness or mastitis, and pictures of shaking sheep too ill to lift their heads because they are not vaccinated will shock consumers. They reinforce old stereotypes about uncaring farmers just at a time when the general public had come to view British farming in a much better light - to the extent that the big supermarkets are having to procure more and more British produce, because that’s what their shoppers want, and big companies like Dairy Crest are using Johnny Rotten to advertise that their Countrylife butter is British, upsetting the Kiwis in the process.

Its not just about reputation. Economics come into it too. If the public feels no empathy with British farming then the retailers are off the hook, and can buy wherever they want, probably cheaper. And farmgate prices drop further.

It’s ironic that the Countryfile/ RSPCA onslaught has come at a time when many dairy farmers are thinking of leaving the industry, with the result that milk may need to be imported. Not much of a threat if the public feels that British farmers have no better standards than the rest, and so won’t care where their daily pinta comes from.

Whilst the dairy industry went into defence overdrive regarding dairy cow welfare, academic and practical literature on the subjects reveal the sad facts that mastitis rates regularly reach 30% and often much higher, and lameness hovers around the 30% level.These figures might be better than they were but they are still grim. So far the broader press have not picked up either the dairy or the bluetongue issues, but it is only a matter of time. Indeed Hugh Fearnley Whittingstall is rumoured to be preparing a programmme on dairy cattle.

At the end of the day, the farming industry has to realise that an increased interest by consumers in where their food comes from comes with increased demand for the highest standards. Couple this with a vocal media, and access to detailed information about everything via the internet, and there is no place to hide sub standard performance.

Farmgate Milk Prices - the Elephant in the Milking Parlour

2009-05-05T16:09:00.023+01:00

So once again farmgate milk prices have been cut, farmers are saying they cannot go on, protests have taken place about the unfairness of it all, and a Dairy Summit will be held in Scotland in three weeks time with representatives from across the supply chain seeing what can be done.

And there’s the rub. What can be done? Have we not been at this square before?

It’s interesting to read the various analyses about why prices are so low. Many blame the power of the retailers, most call for the supply chain to work together in a more sustainable fashion, some say the answer is better supply contracts, some have recognised that insufficient investment has been made in the industry generally.

The one thing no one speaks about, yet looms large like the proverbial elephant, is that there are too many dairy processors in the UK. This means that many are too small to work effectively in a market where good returns to shareholders, including farmer shareholders, depend increasingly on investment in low cost technology, added value brands, and a bit of clout when it comes to selling products into the market place. As the Oxford University Milk Chain Supply Project reported baldly last year - “The more processors there are the more options the supermarkets have and the lower the price the supermarkets negotiate.”

Which leads on to the seeming refusal of UK dairy cooperatives to recognise that individually they, and their farmer shareholders, face a difficult future. No one speaks about the drain on profits caused by having three cooperatives each turning over just £600m, yet each with big overheads. The cost of their 3 chairmen, 3 chief executives, 3 financial directors and 21 non executive directors alone is over £3million, according to company reports. Put the three businesses together and the huge savings generated could be invested in developing higher value brands, lower costs of production, and a more productive dialogue with major customers. The result would be better profits, which would translate into the improved returns that farmers are crying out for.

What is especially frustrating is that other cooperative companies have seen the issues, understood the benefits and overcome the obstacles. Friesland have just completed their merger with Campina, to build a company with a turnover of 9.5bn euros. In 2007 Sodiaal of France led the merger of 7 cooperative entities into 1, and has a turnover of 2bn euros. Why are UK cooperatives so blinkered that they cannot act too?

The odd thing is that the one area where farmers do have influence is through their coops. They own them for heaven’s sake. So the final question has to be - what is stopping the farmers themselves from putting pressure on their cooperative boards?

The Rise and Rise of the Packed Lunch, and a Chilling Comment from Tesco

2009-04-23T16:08:00.013+01:00

In another example of people rapidly changing behaviour to save money, we learn from TNS, the market research company, that 28million of us ate a total of 4.2 billion packed lunches in the last twelve months. That's a growth of 6%, or 226 million more lunches.

Making your own sarnies is definitely a lower cost option, with an average spend per lunch box of £1.30p. Each box contains an average of 3.4 items, being the sandwiches, and a combination of a drink, packet of crisps and a sweet treat. Sometimes a piece of fruit is added, but usually alongside the treat as opposed to a replacement for it.

Packed lunches are now a way of life for those in the workplace, particularly young adults, as well as for schoolchildren. But we are generally quite conservative about what goes into the sandwiches. 69% of us stick to the same two types of filling, and cheese and ham remain the most popular.

There are two other lunch box trends which reflect the drive to cut costs. Alot more leftovers are being used, like pasta, and rice to make the lunch more filling. And there is less of a drive to include healthy products, which tend to be more expensive and less substantial.

TNS does not say this but the fact that so many more packed lunches were eaten during the coldest winter for decades when most bodies would be crying out for warm nourishment, highlights the efforts people will make to balance budgets.

TESCO

Much has been written about Tesco's annual results with most commentators rightly finding much to admire, despite the business losing market share. However, analysts will soon knock the company if share loss continues, and Tesco itself will be smarting from being second best to competitors. The following statement from Sir Terry Leahy should produce a chill in the heart of every Tesco supplier:-

"In the coming year we expect to trade the business harder.....investing more in cutting prices, sharpening promotions, and putting even more affordable products on our shelves".

So the question is who will pay for the price reductions, and who is monitoring that Tesco trades fairly with all its suppliers as it delivers the promised price cuts. Another reason to support appointment of a supermarket watchdog with teeth.

Internet Grocery Shopping - How Big Will it Get?

2009-04-20T14:27:00.011+01:00

This week saw another salvo in the internet grocery shopping war with Waitrose scrapping its delivery fee on orders over £50. MD of Waitrose Mark Price, interviewed on Sky News, reckons that online grocery shopping it could be worth £13bn, or 10% of food bought, and he is planning to grow Waitrose’s online sales from a current £70m to £300m in the next 4 years.

Mr. Price is not alone in planning a big future for online. Sainsbury’s delivers 90,000 online orders per week , has seen sales grow by 40% year on year, and has marked the area out as a development priority. Tesco in their 2008 annual report said sales had grown by 31%. ASDA recently revamped their website. Ocado, who are an online venture only, part owned by Waitrose, have committed to matching Tesco on the price of its prepacked products, meaning it often undercuts Waitrose in store prices. The bullish views about the future are supported by the IGD, who estimate that the market was worth £3.5bn in 2008 and will double in size to £7.1bn by 2013.

So what do we know about online grocery shopping now, and why might it grow?

At £3.5bn the market is still small, despite being available for at least 8 years. According to TNS the market research company, speaking at a recent Meat Outlook conference, online sales account for 2% of Tesco’s till roll, about 0.6% of ASDA’s, and about 0.5% of Sainsbury and Ocado.

TNS also tells us that the heaviest on line shoppers are those with children 0-4 years old, 6.5% of this age group shop online. The lightest shoppers are retirees, of whom just over 1% shop online. High earners, of whom 7% shop online, are over 4 times more likely to shop this way than lower income groups.

Again, these are small numbers, so in an age of increasing technological savvy, the presence in other sectors of tried and tested models such as Amazon, and the faster times that broadband presents, what might be stopping people from using the internet to grocery shop?

Well, its got a bit of a bad reputation for reliability of delivery service, and quality of products delivered. Consumer magazine “Which” did a small but widely reported survey at the end of 2007 which said that online groceries arrived with very short shelf lives, less than those to be found in store. More recently, Mumsnet, the social site for mothers with young children, gives real life examples of the issues, showing a thread from last month where mums talked about banana yoghurts being substituted for bananas, wilting fruit and veg, and deliveries not turning up when promised. These mums concluded that the quality of experience varied a lot not just between different supermarkets, but from different stores within the same supermarket.

At the other end of the scale, IGD did some research with over 60’s and found that they would use the internet more if the sites were easier to navigate around, security could be guaranteed, quality would be consistent, prices were equal to those in store, delivery charges reduced, and the sites made easier to navigate around.

On the subject of growth potential, it is clear that supermarkets are working to address the issues, particularly making the sites more user friendly. Tesco’s idea of drawing attention to a cheaper version of what might first be selected is a great one, and far easier than walking up and down the shelves looking for the best buy. Sainsbury’s offers hundreds of recipes and allows you to buy all the necessary ingredients with just a click. The supermarkets are also making sure that there is no price disadvantage to shopping on line.

One key challenge for them all is to communicate more clearly and consistently the benefits of online shopping, particularly to key target groups such as mothers who must find it a struggle to organise all the paraphernalia needed to go shopping with a young child, and to older groups who may welcome the benefits such as having heavy shopping delivered to the door. Interestingly many of the Mumsnet mums were so committed to the benefits of online that they were prepared to shop around until they found a store they could rely on. But not everybody will be prepared to do this, so the other key challenge for supermarkets is to ensure total consistency, making every online shopping experience a good one.

Solve both of these and online could easily achieve 10% of all food buying.

Consumers and the Credit Crunch - Latest Views on Food Buying Behaviour

2009-04-06T13:53:00.005+01:00

In the words of Justin King of Sainsbury, speaking during a business performance update last week - “the consumer is in a bad place just now”. Which is not really surprising, given the amount of depressing economic news.

Nevertheless, both Sainsbury and Morrisons, who also gave a business update last week, feel that food is one of the last things where consumers are prepared to trade down. A view echoed by the IGD (Institute of Grocery Distribution) who say their research indicates that “Economising is not the same as down trading”. Sainsbury’s “Basics” range is indeed up 60% year on year, but it still accounts for only 3% of total sales. Sales of their premium “Taste the Difference” range are “off the pace”, which is corporate speak for falling, but the range is still 2.5x as big as Basics, and the sales decline is attributed to a drop in the market for ready meals, rather than a flight from quality. Morrisons “The Best” premium range is up by 5.3%
So there is still a search for good food, and a Times Populus survey (26th March) put quality as equal to value for money when it comes to choosing a store. But its not quality at any price. Instead, people are far pickier about what they buy and energetic about finding the best deals.

The search for good deals is leading to much shopping around. The days of convenient one stop shopping have given way to two and even three stop shopping and both Morrisons and Sainsbury claim an increase in numbers of shoppers in their stores. What this suggests is that the traditional way of categorising stores is dead. No longer can we say Sainsbury and Waitrose upmarket, ASDA and Morrisons downmarket, and Tesco in the middle. Its much more individual than that now with each shopper asking whether the quality /value equation at a particular store at a particular time is right for them. Looking at the crystal ball I’d say that the next big strategic challenge from supermarkets will be how to build loyalty. Meanwhile value offers will become increasingly innovative.

Once in the store, what the shopper buys is changing. The aforementioned ready meals market is plummeting, and TNS (Taylor Nelson Sofres) the market research company tells us that frozen foods are growing by over 9% year on year, enjoying a change in status from poor relation to a wise choice due to cheaper prices and far less waste.

The IGD as well as the supermarkets tell us that there’s a lot more cooking from scratch going on, apparently herbs and fresh pasta are flying off the shelves in Morrisons. And there is a return to families eating together.

There are mixed views about whether ethical purchasing is taking a back seat. The decline in the organic market has been reported to death (sales down 15% in the last three months, bread down 31%, vegetables down 10% according to TNS), but as is being acknowledged even by the Soil Association, the issue here is that consumers can’t get their heads around why organics in general are worth a premium. Animal welfare issues though remain important to consumers. Sainsbury stressed again last week that this is something shoppers search for, and IGD research confirms it. The question of course is where this welcome concern about animal welfare will go next and there are reports that Hugh Fearnley Whittingstall is turning his attention to dairy cattle.

So in summary, the recession is leading to changes in what and how shoppers buy. They are not prepared though to sacrifice quality, and will shop around to get it at the right price. Equally they are prepared to support ethical products where they clearly understand what it is that they are paying for.

The Changing Shape of Meat Eating

2009-03-25T12:24:00.013Z

The British Pig Executive (BPEX) has published data about meat consumption comparing the year ending 25th January 2009 with the previous 12 months, and the figures give an interesting insight into how consumers are coping with the twin challenges of rising prices and recessionary nervousness.

Faced with some whopping price rises on red meat*, and a conscience led move towards buying more welfare friendly chicken, I thought that consumers would just cut back on the amount of meat, fish and poultry they bought. In fact total consumption of these foods has remained the same as last year at just under 3 million tonnes.

There are though quite big changes in the types of protein bought.

Up are sales of burgers (+6%), sausages (+3%), frozen fish (+4%), pastry based meats (+2%) and fresh fish (+1%).

Down are sales of canned meats (-5%), lamb (-4%), beef (-3%), pork (-2%), and chilled ready meals (-5%).

Poultry is still by far the biggest meat bought, and sales are level with last year.

Within the red meat sector there has been a well documented trend towards buying cheaper cuts. Lamb mince has seen the biggest rise in sales followed by pork loin, stewing lamb, beef mince and stewing beef. The biggest falls have been in roasting cuts of lamb, beef and pork shoulder, and also in beef steaks. What seems to be happening is that people are buying red meat less often, and when they do buy, they buy less at any one time.

The trends make sense. Consumers are managing their budgets carefully. They have turned to meats such as bacon, sausages, and burgers which are not just cheaper but allow for stricter portion control, and so less waste. They are prepared to spend time at home now, cooking those cheaper cuts, rather than go out and pay restaurant prices. The trend towards frozen foods is being seen generally, not just in fish, again because of price. And the move away from ready meals reflects unwillingness to pay high prices, but also the rise in home cooking.

Perhaps the most surprising thing is that these shifts in consumer behaviour are large, and have happened very quickly. They can have a dramatic effect on profitability, for example in red meat where demand for expensive cuts has plummeted and best cuts are either being minced or sold off at vastly reduced prices. They forcibly illustrate the need to keep a very close eye on trends, and to be prepared to change tack to meet consumer needs.

* Notes on price rises

The data shows that in the last year prices per kilo have risen as follows: beef +11%, lamb +9%, pork +10%, bacon +11%, sausages +7% and sliced meats +8%. These rises are averages and reflect the trend to cheaper cuts. Like for like comparisons on each cut will show much higher increases. Price increases are accelerating, for example in the last 12 weeks, beef has gone up by 16%, and lamb by 11%, compared with the same period a year ago. Further changes in the patterns of consumption are therefore likely.

Essential Waitrose - All a Bit Confusing

2009-03-17T13:39:00.004Z

To Waitrose, keen to see what the new “essential Waitrose” range is all about.

Billed by the Waitrose press office as “designed to make shopping for staple groceries easier for shoppers”, I found it all rather confusing.
Perhaps the problem was expectation. I had expected to find a new range, displayed alongside existing products, but with a cheaper price and an easy to understand reason about why it is cheaper. Similar to Tesco’s Value, Sainsbury’s Basic and ASDA’s Smartprice.

Not so. Much of the new range is being sold at the same price as existing products. This is true of meat, where the new range and the old were being sold side by side, and fruit. What makes it more difficult to understand is a sign above the meat and fruit shelves saying “all the quality you would expect from Waitrose at prices you wouldn’t.” Which means the price conscious shopper will probably feel put out because prices have not been reduced, and the quality conscious consumer fret that the product is not as good as it used to be.

And then there is that word “essential”. On shelf today were blackberries from Mexico, blueberries from Chile and raspberries from Morocco. Hardly essentials. Essential branding on the meat shelf is being used on rump and sirloin steak, not just on cheaper cuts like mince and braising beef. And I see from the press photo that there will be an essential farfalle. It’s a pasta apparently, but to most people probably not an essential purchase.

On a less critical note, it is easy to see an opening for a bog standard yoghurt, because at the moment all you can buy are speciality flavours and ranges like Seriously Fruity or Probiotics. Also, an offering of free range eggs that do not come from a specific breed like the currently sold Columbian Blacktail could be cheaper, and understandably so. The milk, jam, and biscuits are not yet on shelf so we do not know what sort of products they will be.

Waitrose is a great business, to be wholeheartedly admired for its commitment to quality, and its exemplary animal welfare standards and reputation for fair dealings with its farmers. Clearly it does need to tune its strategy, along with every other retail operator, to manage through the current economic challenges.

But to work, an initiative needs to have a clear and simple message easily picked up by consumers. I think the issue Waitrose faces is that they tried to combine two elements – a pack design change with the introduction of cheaper products. And its hard enough to communicate one new message to shoppers, let alone two.

I really hope it’s just me who finds the offer confusing.

Diversification Trends - DEFRA Survey Shows More Farms Involved But Income Down

2009-03-04T10:15:00.025Z

DEFRA has just published its annual analysis of farmer diversification activities in England, and the income generated from them. (Diversification being defined as “The entrepreneurial use of farm resources for a non agricultural purpose for commercial gain.” )
The survey is peppered with statistics and makes for dry reading. But for those happy to delve into the detail there are some useful insights to be had.

Income from diversification fell sharply to £400m in the year to April 2008, compared with £430m in the year to April 2007, and dropped from 21% of total income to 15%. The fall is not due to less farms being involved in diversification. Indeed there were 29,600 diversified farms in 07/08, compared with 28,700 in 06/07. Rather, the drop is due to a fall in the amount of income generated per farm. In 06/07 the average income per farm was £14,500 compared with £13,700 in 07/08.
The survey figures are not sufficiently robust to draw hard and fast conclusions about the reasons for the drop, but anyone considering diversification might want to think about the following factors, which boil down to the size of the market opportunity, competitive conditions, and costs to operate.
For example, is there now so much competition that diversifiers are having to reduce prices to get business. Or, are the new businesses being established very small because most of the market has been mopped up by existing players. Or, have costs now risen sharply, but competitive conditions mean that prices cannot be put up to offset them, and so margins are squeezed.
Another factor is that the drop in diversified income coincided with a rise in income from core farming excluding subsidies, so it could be be that diversification loses focus once financial circumstances improve. This is in itself dangerous as business once lost will be difficult to recapture.

The survey also compares the number of new and discontinued enterprises, and shows that the number of new enterprises exceeded discontinued ones in all areas except food retailing and processing. 3,100 farms started diversification in 07/08, compared with 2,200 discontinuing. The biggest jump was in sport and recreation, and tourist accommodation and catering (although the survey says the sample size for tourism is small, and may not be totally accurate). By contrast, 1,100 food processing and retailing enterprises were discontinued, compared with 800 start ups.

Letting of farm buildings accounts for just over half of all diversification enterprises, and 68% of diversified income, and has the highest profit margin.
Letting buildings gives a margin of 83%, compared with 62% for sport/recreation activity, 58% for tourist enterprises, and 25% for processing/retailing. It is perhaps no wonder that letting of buildings is so attractive given the high margins and low hassle factor.
The average enterprise incomes per farm are as follows:
Letting of buildings = £13,000
Processing/retailing
of farm produce = £9,800
Sport/recreation = £4,700
Tourism = £10,300
These look like healthy returns, but they are average figures which disguise the fact that most diversified enterprises are small. 56% of all enterprises have an output (turnover) of less than £10,000 and 15% have an output of less than £1,000.

It is often thought that small farms are more likely to diversify than larger ones, but the opposite is true, with 66% of the very largest engaged in diversification compared with 42% of the smallest. Less surprising perhaps is the fact that the largest make considerably bigger profits than the smallest, averaging £25,100 per farm versus £10,900 for the smallest.

Reading through the survey results reminds us that diversification requires thorough research about the size and profitability of a market opportunity before proceeding, and constant attention to consumer trends and competitive activities once up and running. It also reminds us that most diversifications are small.

But encouragingly, the survey shows that just 2% of diversified businesses made a loss in 07/08, which indicates that diversification can be a very useful addition to farm income.

Catering Trade and the Credit Crunch - Value Winning Here Too

2009-02-23T16:18:00.002Z

Conventional wisdom says that the catering trade performs badly during recession, but just like every other sector this trade is seeing its winners and losers, and the broad message is that those who offer value for money are performing well.

Value for money does not mean cheap. Even the most expensive restaurant will be seen as good value provided food, service, bar bill and general “feel” justify the cost at the end of the meal.

Take Le Gavroche, one of London’s top eateries. According to legendary owner Albert Roux, the restaurant is a full as it has ever been. What has happened though is that instead of ordering wine costing hundreds and in some cases thousands of pounds, customers are trading down to more sensibly priced tipples, a pattern seen in many other up market restaurants, according to a piece in Bloomberg news published last week. The same piece interviewed several other expensive restaurant owners. Most are reporting that business is generally holding up, but all are heavily focussed on service and value for money, as well as keeping a very close eye on costs.

On the other hand, some celebrity chef ventures have not been able to keep going. Anthony Worrall Thompson, has just closed 4 of his 6 restaurants, Aldo Zilli has shut his Brighton café, Raymond Blanc has shut his Manchester restaurant, and Tom Aikens has gone bankrupt, although managed to reopen elsewhere, allegedly leaving a trail of unpaid suppliers in his wake. Even Gordon Ramsey has a reputed £10m overdraft, although he claims overall business is good.

Presumably all these names will be reviewing exactly what they are offering consumers to tempt them to spend when times are so difficult, and why in so many cases their business models have not worked as planned.

But moving out of celebrity chef territory, and into a world more familiar to the average diner, there are sectors of the catering trade performing well.

Fast food businesses are motoring. Domino’s Pizza has grown profits by almost a quarter, they plan to open 50 restaurants this year, and will be creating 1500 new roles. KFC is undergoing a £150million expansion, opening 250 new outlets and creating 9000 new jobs, Subway is adding 600 new stores and 7000 new staff. McDonalds added 2 million new customers a month in 2008, grew sales in the “low double digit” range, and is opening 20 new restaurants. What characterises all these firms is that they offer predictability in taste and price, and are seen as value for money.

Fast food’s performance contrasts alarmingly with what is going on in pubs. According to the British Beer and Pub Association 39 pubs are closing every week, due to a combination of tax hikes on beer prices, the smoking ban, and the recession. But here again, value for money wins out. Wetherspoons, with its focus on cheap food and beer, has grown sales by 2.6% in the quarter to 18th January 2009.

Mid market, mid priced, and middling quality outlets are also struggling. Its these outlets who are promoting heavily with offers more usually associated with Tesco like buy one meal get one free, or “eat early eat cheaper” and set price lunch deals. There has also apparently been a big rise in on line restaurant vouchers.

So in the catering trade, as in every other sector, its value for money which is winning out. If food or drinks are ludicrously priced, with average quality, tiny portions, and surly service, then customers will vote with their wallets, and take advantage of the “Eat in for a tenner” type offers promoted by the likes of Marks and Spencer.

Marcus Wareing who operates from the Berkeley Hotel in London’s Mayfair, summed it up well “The slowdown has made me more aware – conscious of waste, making sure margins are right, seeing what we can do to bring customers in. We are not offering lots of cheaper menus…..but we are ensuring that the customer receives value for money. This slowdown will shake up the industry. In some ways it is a good thing as it makes us all think more.” Wise words.

Livestock and the Environment - Where is the Voice of Farming?

2009-02-16T14:45:00.018Z

Livestock and the environment are in the spotlight again, and the frustrating thing for anyone involved in food or farming is the one sided nature of the debate. All the media coverage boils down to one message – “meat and dairy environmentally bad so eat less”. We hear little about the food value of the products, the role that livestock plays in keeping Britain’s countryside beautiful, or the steps that agriculture is taking to reduce its environmental impact. The headlines are worrying because a cut back in consumption will eventually affect the price paid to farmers for their products, and it is difficult to understand why the industry seems voiceless and invisible.

Capturing most headlines is the proposal by the NHS to cut back on the amount of meat it serves to patients. This, they say, will help reduce their carbon footprint, and will be beneficial to the long term health of patients. Whilst those with sick loved ones might worry about whether recovery will be as quick without the benefit of a balanced diet, and the cynic might wonder whether the driving force is to reduce NHS costs, nonetheless the fact is that the NHS serves up millions of meals and such a move will impact meat sales.

Less headline grabbing is the report “Food Futures” by think tank Chatham House.
Read the detail and you see a real anti meat and dairy bias. Meat and dairy are blamed for health issues. Global agriculture is said to be responsible for 14% of non carbon greenhouse gas emissions, and that a third of this is due to livestock. And they quote an EU report which says that meat and dairy are the main source of green house gas emissions in the food and drink sector. They trot out the old statistic that a kilo of grain fed beef requires 15 cubic metres of water versus cereals which require between 0.3 and 4 cubic metres, forgetting to mention that most livestock in the UK is pasture fed. Most alarming of all, the Chatham House solution is for government to dictate what we can and cannot eat, saying “The food system will need to reflect society’s choices as much as individual preferences”.

Then last week at the Meat and Livestock Commission’s Outlook conference a speaker from the Food Climate Research Network said that eating meat had to become more environmentally viable either by the industry reducing emissions or people eating less meat. She said that a meat tax might help and that there were moves to add the cost of emissions to the price of a food in order to encourage consumers to rethink what they are buying.

Fortunately a more balanced view of things emerged at the same conference in the shape of Mike Coupe, trading director of Sainsbury who said that cutting carbon emissions by limiting food choice is a “form of communism”, and that a tax would be unlikely to change people’s meat consumption unless it was huge.

The key point is that the issue of agriculture and climate change is not going to go away.

Few will dispute the need to take climate change seriously. But the debate is totally one-sided. Consumers not getting a balanced message about the value of meat and dairy products and the livestock which supply them.

So what should be done?

In a nutshell, simple fact backed messages must be communicated regularly and by independent, respected sources as well as the industry itself. A one off burst of activity just will not work.

There are three messages to convey

1. Meat and dairy are high protein foods, containing vitamins and minerals essential to good health. As the Food Standards Agency says "Meat is a good source of protein and vitamins and minerals, such as iron, selenium, zinc, and B vitamins. It is one of the main sources of vitamin B12, which is only found in foods from animals, such as meat and milk.”

The FSA also says “ Milk and dairy products such as cheese, yoghurt and fromage frais are great sources of protein and vitamins A and B 12 . They're also an important source of calcium, which helps to keep our bones strong. The calcium in dairy foods are easy for the body to absorb”.

2. Without cattle and sheep grazing the hills and moors our countryside would become overgrown in just a few years

3. Livestock farming has a plan to reduce greenhouse gases. (Assuming it does have a plan of course. A trawl through websites from the NFU, Dairyco, the NBA and the NSA does not turn up an easy to read summary of how the industry is tackling climate change. Contrast this with the National Cattlemens' Beef Association of America page on beef cattle and the environment.)

Funding for the information campaign can be found from any number of places. For a start I’d suggest ditching the Red Tractor and redirecting the levy funds, on the grounds that the Tractor means no more to the average consumer than a Union Jack.

Then, what about forensically examining the evidence that Meaty and Lamby are persuading people to buy more meat. Would the funds be better spent supporting a targeted campaign.

The big question is why the industry is not doing more about an issue which has been on the table for years, and which is growing in importance.