Understanding the Consumer - How Pork Producer Cranswick is Responding to Food Trends

Cranswick, mostly known for its pork products, was once a farmer owned cooperative and is now a public limited company with a turnover of £875m. It has just announced full year pre tax profits up 8%, and sales up 5% (on a like for like basis).

Any company which operates with a heavy dependence on commodities is liable to have a roller coaster ride, and none more so than in the pig sector where prices fluctuate wildly and cheaper imports from countries like Denmark pose a constant threat. Indeed at least 65% of pork products eaten in the UK come from imported pig meat compared with around 36% for lamb and 33% for beef. (Source: EBLEX, BPEX)

Additional risk for a company like Cranswick comes from the structure of the UK grocery trade. Like many food suppliers it is reliant on a few major customers, and a change in trading relationships can mean a significant drop in sales and profits.

Cranswick has coped with this volatility through investment to help keep costs down, but also through innovation.  The company is committed to operating in the quality end of the market, and has been able to develop premium foods which command premium prices. It was one of the pioneers of the gourmet sausages sector and it claims to be the first company to sell air dried hams from UK bred pigs.

The acquisition in April of East Anglian Pigs illustrates the company’s consumer awareness. Cranswick now has end to end control of it’s supply chain – a move that is becoming more relevant to consumers who are seeking British produce in the wake of the horsemeat scandal, and to retailers who are quick to respond to consumer demands. East Anglian Pigs operates to RSPCA higher welfare standards, and has a major outdoor reared pork enterprise – both fast growing sectors in tune with consumer trends.

The drive to be consumer focussed is admirable, but as the business expands into areas outside of traditional expertise, and particularly in light of the EAP acquisition, Cranswick will need to be vigilant in ensuring that it does indeed have full control of all that goes on in its supply chain, whether this be product safety, quality of taste and ingredients, and animal welfare standards.

Advertising Provides Clues to Consumer Trends

What companies say in their advertisements can be a good guide to what matters to consumers.

The holy grail of a good advert is to be eye-catching, relevant, and persuasive. It has to stand out amidst the hundreds of advertising messages with which we are bombarded every day, it needs to address an issue that matters to consumers, and it has to affect behaviour, either by reinforcing the rightness of a decision made,  or encouraging a change in what or where a product is bought.

It is therefore interesting and instructive to see what the big advertisers are saying. That is not to suggest that they always get it right – frequently they do not, but, most advertisements are the result of thousands of hours spent listening to consumers and crafting messages which will appeal.

Many supermarkets have jumped on the British bandwagon in the wake of the horsemeat scandal. The IGD (Institute of Grocery Distribution)  tells us that trust in food manufacturers and retailers was dented by the issue, and their most recent research shows increased consumer interest in buying British with the proportion of people saying that “it is not important to me to buy British” dropping from 45% in 2007 to 22% in 2013.

Morrisons, as indicated by the advert above, have clearly decided, in the wake of the scandal that their unique position of buying direct from the farm and owning their meat processors, and their commitment to buying British beef, lamb and pork gives them a one up on competitors. They are undoubtedly right. So their message is relevant. Where it starts to fall down is that the way they say it is complicated. Consumers might ask themselves what exactly is meant by. Morrisons headline is “All the fresh meat we prepare in store is 100% British, 100% of the time”, but consumers might ask themselves questions like how much and what meat exactly  is not prepared in store, and they will be none the wiser if they take the time to read all of the words in the advert.

Morrisons also advertise the quality of their fresh food, as indeed they have done for some years.

The Coop takes a simpler approach to buying British with the headline – “All of our fresh beef is reared on British farms”.

And the Coop combines buying British with animal welfare in an advert saying that “All our fresh chicken is reared by British farmers to higher welfare standards”. Again, though, consumers might ask themselves what exactly is meant by higher welfare.

Which is not to say that price is unimportant. ASDA take the no holds barred approach – “We are 10% cheaper or your money back.”

Sainsbury by contrast go for the softer sell. Their message combines quality with a price, hence the beautifully photographed pictures with a teeny tiny reference to the price, so small it could easily be missed. It is difficult to criticise Sainsbury, their track record of growing sales and profits is sound. But perhaps here they are overly subtle.

What can we conclude?

Price will remain important to consumers but so, increasingly, will quality and provenance.

McDonalds Move to Freedom Food Pork - Understanding What matters to Consumers

A look at food sourcing policies of major companies provides useful clues about what matters to consumers.

Such companies spend tens if not hundreds of thousands of pounds tracking consumer trends and are keen to adopt those which they think will make a difference to the way they are supported by the public. It is therefore interesting to see that McDonalds have committed to serving only RSPCA Freedom Food pork. A call to the McDonalds helpline confirmed that by pork they mean their bacon and sausages.

Whether or not you happen to be a supporter of the RSPCA, particularly their recent overtly political moves on hunting prosecutions and stance on badger culling, there is no doubt that the Freedom Foods logo and standards appeal to the public, and are becoming more widely used. Sainsbury for example is a huge supporter of Freedom Foods chicken and pork based products, and charges a premium for them.

Sainsbury though is positioned as one of the more upscale supermarkets, selling pricey food. McDonalds aims at the value end of the market, yet they have sufficient belief in the appeal of higher welfare to incorporate such foods on their menu, despite the added cost this presents along the chain.

We do not know who bears the cost, and whether consumer prices have nudged up, or McDonalds take a hit on margin, or indeed the producers and processors are squeezed.

What we do know is that this commitment to providing more than basically produced food is a thread that has been running through McDonalds for some time. They still use only organic milk and eggs. They came out very well in the recent horsemeat scandal because they only use beef from UK or Irish farms. 

Their move to Freedom Food pork will mean that they see animal welfare as of sufficient interest to their customer base to make the change worthwhile in business terms.

The McDonalds move does not necessarily signal that consumer demand will lead to an upgrade of pig welfare standards across the whole food industry. But it does suggest that concern for animal welfare is no longer a niche issue.

Note to McDonalds's marketing department - the advert would have been much stronger if it referred to bacon and sausages, not pork which tends to mean chops or a roast.

Organic Sales Still Dropping - What Will Restore Growth?

The Soil Association’s recently published Organic Market Report shows that sales of organic products fell by 1.5% in 2012.

There are pockets of strength, particularly where brands are well known and promoted. Combined sales of specialist retailers Ocado, Abel and Cole and Riverford Organics grew their sales by 10%.  Rachel’s Dairy, noted for its yoghurts, grew by 15% and Yeo Valley who sell a range of dairy products grew by 6.6%.

 Under 35’s spent more on organic products than ever before. Sales to catering outlets are up.

But some core markets still struggle. Supermarket sales of pork, eggs, and poultry dropped by 30%, horticulture products (fruit and veg) dropped by 8%, milk sales are down 4%, lamb down 2%, and beef down 1%.

So what of the future. The Soil Association admits that difficult economic circumstances have hindered organic sales and we know that money will be short for a few years yet.  And herein lies the problem. Whilst many consumers like the idea of buying organic, they struggle to convince themselves that the organic premium is worth paying on a regular basis.

This nettle has to be grasped if supporters of organic produce want to see sustained growth.

It is not enough for the Soil Association to chastise government for not doing enough and lambast the big multiple retailers for turning their back on organics.

The government cannot address the fundamental issue of consumer demand. Scotland’s Organic Action Plan, cited by the Soil Association as a template that the English government should follow, is helpful in that it provides support for farmers to convert to organic and makes funds available for businesses to promote their products. But the Scottish plan acknowledges that at the end of the day it is consumers who are key to success.

Multiple retailers are close to consumers but in a low growth, highly competitive environment they will not offer up precious shelf space to products whose sales don’t justify it.

There are just two ways to overcome the consumer issue. Either, communicate a compelling reason to justify the organic premium –or - reduce the premium.

The first route is difficult. The organic story is a complicated one to tell, and getting across the idea that organic is an integrated way of producing food is difficult when funds are limited and consumers are used to picking up messages in sound bites or in 140 characters on Twitter.

So is there any mileage in the second route, namely reduce the price premium. This would be ideal because many consumers like the idea of buying organic. Indeed some 80% do so, but too infrequently to affect growth.

Reducing the price premium requires increasing yields.  And to increase yields requires solid science, and science needs funding. At the moment there appears to be just one project tackling production issues – a Duchy Originals sponsored initiative led by the Soil Association with the help of the Organic Research Centre at Elm Farm. Whilst welcome, its progress will be slow. Starting May 2012, it is not due to complete its initial findings until May 2015. Only at this point will it decide on research priorities.

Here is the question. Would the considerable funds currently available across British governments, the EU, the Soil Association itself, the industry groups Organic UK and the Organic trade Board be better spent on broadening and speeding up scientific work.

This is not to overlook the task of communicating with consumers.This is probably most effective when done by strong, trusted brands. The success of Rachel's, Yeo Valley, and Riverford shows that when done well the organic story translates into solid sales growth.

Online Grocery Shopping - Supermarket Giant Morrisons View on the Challenges

Dalton Phillips, CEO of Morrisons, speaking on Radio 4 about his company’s future prospects, has given a clear analysis of the challenges food retailers face when considering going into online grocery shopping.

The basic problem, he says, is that when it comes to online, the mechanics involved in the cost of shopping transfer from the shopper to the supermarket.

The shopper going to a supermarket pays the time cost of going round the aisles loading products into the trolley, the time cost of wheeling the goods out to out to the car and loading up, and  the time and transport costs of getting the product home. Should the shopper arrive home with the wrong products they have to lump it – no getting on the phone or computer to complain that what they wanted has not arrived, no “goodwill” compensatory money changes hands to soothe disgruntlement.

Once the shopper orders on line all of those costs pass to the supermarket. The supermarket has to have the staff to process the order, pick the goods, load them onto the van, deliver to the customer’s house, deal with complaints. They have to buy or lease the vans, and bear the petrol and insurance costs of going around the country to deliver. We know from various industry studies that the cost of processing an on line order is about £15. Yet the shopper pays about £5, less if placing a big order.

Dalton Phillips point is that someone has to pick up the tab for all this additional cost, and none of the options is palatable. The competitive jungle that is the grocery sector means that costs cannot be passed back to shoppers in the form of higher prices. Equally, a hit to profit margins is unlikely to please investors.

What Dalton Phillips perhaps has not accepted is that embracing online grocery shopping means a structural and permanent change to the way profits are made by the grocery trade. At the moment online is a small part of supermarket sales, and so the profit drain is largely disguised, but this will change if the sector grows as predicted.

 Morrisons may not have much choice in whether or not they offer an online service. On line is something that today’s food shoppers want and to ignore the trend is to risk being sidelined, perhaps not today or tomorrow but certainly in the longer term. British retailing history is littered with examples of big businesses which ignored trends, got stuck in the past and collapsed. Comet, Jessops and Blockbuster spring to mind.

The challenge for Morrisons and any other business developing an online facility is to work out how to adjust business performance to take account of the reduced profit margin which comes from an online presence.

Horsemeat Scandal - Catering Trade Getting Off Too Lightly

It is the major retailers who have had the most opprobrium heaped on them in the horsemeat scandal. And this is fair enough given that most food bought comes from supermarkets. The adverse publicity has had an effect. The furore has led to a shift in sourcing policy from Tesco who have committed to closer working relationships with farmers. If Tesco delivers on their promises this can only be good for all in the food chain from farmer to consumers, and where they lead others will follow.

By contrast catering suppliers, those hundreds of thousands of premises who feed us outside of the home, have got off lightly . Even news of local authorities withdrawing meat fed to children has caused barely a ripple, yet up and down the country from fast food outlets like Burger King, through up market caterers like Sodexho who ironically supply Royal Ascot, Compass, one of the biggest catering companies in the world, IKEA with their restaurants claiming to provide family friendly meals, multi- national giant Whitbread who owns Brewer’s Fayre, Beefeater and Premier Inns,  and local authorities from Scotland to South west England, and across Wales have all had to change what they provide to customers because they were failing in their duty of care to those they are feeding

.

Every one of these companies and the local authorities has blamed their suppliers. No one has searched their consciences to see whether demands to save money or increase profits might have been a factor in things going so wrong.

Few will be punished. Assiduous followers of the scandal might defect from Burger King to McDonalds, who despite providing food at the lower price end of the spectrum seem to have emerged with their sourcing integrity intact. Families might avoid the meat balls in IKEA restaurants, for a day or two.

The rest of the catering trade will experience no adverse comeback because, with over 420,000 outlets, it is highly fragmented  and  largely uncontrolled. It is also has few recognised consumer brands so there is little for the media to get its teeth into and inflict reputational damage, as in the case of supermarkets.

So what can be done to ensure that caterers are serving what they purport to serve?

They could for starters be obliged to tell consumers at point of eating where the food comes from. People might think twice if the beef, bacon, or ham comes from anywhere but Britain.

The Food Standards Agency could focus their analyses on the catering trade, on the grounds that in the short term at least supermarkets will be bending over backwards to ensure that their supply chain is scandal free.

Local authorities could actually be local when it comes to sourcing the food they supply, much of which goes to the vulnerable – the very young or the old and sick.

Crusading foodie types could focus attention on the catering trade with as much vigour as they do the supermarkets.

And as for us , the general populace, we too could play a part as opposed to leaving it up to everyone else – and actually ask those supplying food when we eat out to give a full account of what they are serving to us.

What is served up in catering establishments does matter. We spend £48 billion on food and non alcoholic drinks consumed outside the home. £2.5bn is spent on food procurement by the public sector, most going to those who have little choice of eating establishment. The number of times we eat out is growing despite the recession.

Yet we have little reassurance if any as to the quality and provenance of the vast majority of the food we eat when away from home.

Horsemeat Scandal – Consumers Won’t pay More to Avoid Horse, Are Unlikely to Change Buying or Eating Habits

In the most illuminating piece of research yet done on the horsemeat scandal, a survey carried out between 11^th and 13^th February for respected industry journal The Grocer found that half of the consumers questioned are not prepared to pay any more for their meat to ensure it does not contain horse. Of the other half of the population, 35% were prepared to pay a bit more (around 10%) and 15% answered “don’t know”.

And while the specific question about who is to blame for the mess was not asked, we can probably conclude that the average person feels that it is retailers and their suppliers who caused the problem, and they should not expect the general public to pay to help them sort it out.

Further, the survey will disappoint those expecting a sudden big change in meat buying as a result of the scandal. Yes, 29% agreed they would buy more British meat, and 30% agreed they would shop more at the local butcher. But 41% said that the episode would not change their shopping or buying habits at all, and only 4 % thought they would change supermarkets as a result.

Despite screaming headlines and blanket media coverage, just 31% professed to be shocked by the horsemeat scandal, and 33% are “quite worried”. On the other hand 42% said they were not surprised by the news and only 18% felt that the food industry would get on top of the situation.

It takes alot to alarm British consumers and horsemeat being passed off as beef seems not to be causing much of a stir among the general public. It may have been different if horsemeat caused a health problem, but even at the height of the BSE scare where health was at risk, 30% of people made no change to their eating habits, according to Tim Lang, professor of food policy at City University.