Monday, 24 March 2014

The Nightmare Scenario - Could Morrisons be Broken up and Sold Off, Leaving Just Three Big Supermarkets?

It was just a small piece in the Times this morning but it should send a chill through every one who supplies supermarkets.

The piece suggested that troubled Morrisons was being closely examined by private equity firms with a view to being bought and broken up, thereby generating mountains of quick, easy cash.

The writer went on to say that Sainsbury would love to get their hands on the 100 convenience stores that Morrisons have developed, because it would help them better compete with Tesco, and that ASDA might like to buy the superstores.

It is just speculation of course. There would probably be competition issues, given that the combined share of Morrisons and ASDA would be around 27%.

But the thought of there being only three big players in the UK grocery marketplace is alarming to put it mildly. Pressure on suppliers is tough enough with 4 major companies vying for sales and profit.

And Morrisons, the latest decision to stock New Zealand lamb during the winter apart, is a strong supporter of British farming, especially livestock.  Speaking as a farmer supplier to Morrisons I can say that they are fair and efficient too.

Morrisons will survive if they concentrate on what made them successful in the first place - selling top quality fresh food at prices cheaper than the competition. They are uniquely placed to do this because they own their own abattoirs, fruit and veg packing houses, and  bakery. Their commitment to reducing prices by £1billion is a first step towards a recovery, but given that their competitors will follow them down in price, it is to be hoped that the cost benefit of vertical integration means that Morrisons ultimately will win a pricing war.

Less easy to call is whether their new emphasis on convenience and online shopping risks taking their eye off the main ball which is getting core customers back into the stores.

Anyway, such decisions are down to Dalton Phillips, the man in charge of Morrisons. Every supplier to supermarkets should be keeping everything crossed that he sorts out a recovery strategy soon, and sees off any attempt from private equity firms to buy the business.

Thursday, 20 March 2014

The Increasingly Complex Consumer

It is becoming harder to work out what is going through the consumers mind as they do their food shopping.

On the one hand we could conclude that all roads lead to lower prices.

The growth of  discounters ALDI and Lidl with sales up 30% and 13% respectively versus prior year, has forced the big 4 retailers to re-evaluate their strategies. Morrisons who are the worst hit of all have led the way, declaring that they will drop prices by £1 billion over the next three years to help them compete. Where Morrisons led, others were swift to follow particularly Tesco and ASDA, the former also struggling to grow sales, and the latter keen to preserve their position of always being 10% cheaper. Indeed, like lemmings hurling themselves over the cliff, the race to the bottom has started with all the major retailers dropping the price of milk, bread and eggs.
It is not just the Aldi Lidl phenomenon that is leading to change. The last few years have seen the rise of the disciplined shopper who sticks rigorously to a pre-planned list. 48% did so in 2008, the figure is 67% in 2013.(Bord Bia) As a result, the amount that the shopper spends per trip has dropped. Retailers have responded with  heavy, value orientated promotions, but have not found the magic growth formula. Indeed, in the last 12 weeks, grocery growth was 2.2%, just 0.3% ahead of inflation.(Kantar worldpanel)

As to the future, work done by IGD suggests that consumer confidence is increasing, but feeling better is not encouraging people to slacken the purse strings. When asked about their priorities for 2014, 64% said it was about saving money, 47% wanted to reduce food waste to save money, and 47% were determined to stick to a budget.

So maybe the lemming rush to slash prices is indeed the right answer.

And yet.....

We hear that premium food ranges are growing faster than value ranges. Tesco’s Finest range is growing by 12%, and Sainsbury’s Taste the Difference by 9%. (Worldpanel/NFU conference)

Waitrose, not known for being cheap, is showing year on year growth and now has 5% of the total market, its highest ever share.

Sales of organic produce have returned to growth, up 2.8%.(Soil Association). Organic milk is enjoying a mini boom, up 9% in value and 7% in litres. (Dairycodatum).

RSPCA Freedom Food higher welfare products have been bought by 52% of shoppers.

So what are we to conclude?

First, the price issue cannot be ducked. Not only are consumers committed to finding low prices, they have, in their phones, tablets and computes an easy way of checking that they are indeed buying a particular item at the lowest price. However, with all the grocers selling products at the same price, it is becoming less of a reason to choose one store over another.

However, people are prepared to spend on what they value – that hard to define combination of what benefits a product offers and a feeling in the consumers mind that these benefits are worth paying for.

Knowing what the consumer wants and providing it effectively remains at the heart of a successful business strategy.

Monday, 10 March 2014

Coop Farms Deemed Non Core - A Strange Conclusion in a Food Business

How disappointing to hear that the Coop has decided to sell its 15 farms after owning them since 1896. As their web site says –“nothing makes better sense than for the Co-operative to produce our own food for our own stores.” And there will have been many consumers who believed this and saw it as a reason to shop at the Coop.

Yet, dig a bit deeper and it is clear that the farms business, like every other aspect of the Coop has been run in an ad hoc, un-strategic and ultimately disastrous fashion.

It turns out that of the 49,000 acres under Coop management, just one third is owned, and the remainder is on let land or contract farming arrangements.

And, far from fulfilling the promise on the Coop website to use Coop produce in Coop stores, it turns out, according to Chief Executive Euan Sutherland, that only 2-3% of production goes to its own stores, mainly potatoes. Some 70% of production is in cereals, mostly sold to other companies.

Despite ownership of such vast quantities of land, the Coop farms none of its own livestock. It was in dairying but came out in 2003 to concentrate on arable products.

The trends towards buying local, worrying about provenance and buying British has been evident since the early 2000’s. The Coop was clearly aware of this, hence the blurb on the website, yet lacked the will or the sense to utilise their precious farming asset to take advantage of the trends. Indeed, the Coop could be accused of blatantly misleading consumers.

Anyway, the farms will go. Apparently they will raise about £140m which will help to pay down debt.

So what of the Coop food business now? It has been losing market share for years. The new head of food, ex Tesco executive Steve Murrells said in an interview last week “Our stores were, frankly, awful”. His answer is to streamline the range of goods offered, open more smaller stores to take advantage of the growth in convenience shopping, and test out selling online.

That will not in itself be enough to save the business. Tesco and Sainsbury have been investing in convenience and online for years, and Morrisons is running hard to catch up. The Coop has no obvious point of difference in their offer to attract consumers from the big players.

Yet in the farms it could have had a powerful differentiator. In today’s climate of increasing worry about where food comes from, animal welfare and ethical production considerations, what could be more compelling than knowing that the place you shop at has managed the production of the food it sells all the way from farm to shop shelf.

But of course it is too late now. It looks like the Coop is throwing away what could have been a competitive point of difference in an increasingly cut throat grocery world.

Wednesday, 5 February 2014

A Look Inside the Grocery Shopper's Head

According to researchers Kantar Worldpanel the average shopper spends around £3,800 per annum on groceries, and spends the equivalent of 16 working days in store. 

Unsurprisingly, given the time and money involved, shoppers are choosy about where they buy their groceries.

It is clear now that quality and value are non negotiable when it comes to shoppers deciding where to shop.

So if quality and value are a given, what else matters?

Kantar asked shoppers on a recent shopping trip in the Big 4* supermarkets which statement best described their mind set.

42% chose budget management, focussing on getting the items they wanted without spending too much. 25% chose time pressure, aiming to get in and out of the store as quickly as possible. 15% were happy to browse. Just 9% felt that searching for special offers was the best description of them on the trip in question.

However, Kantar have found that shoppers’ mind sets differ depending on the type of product being bought.

“Fast Find” covers pre planned purchases like bread and milk, and here the shopper’s main aim is to buy what they want without spending too much, and get in and out of the store in double quick time. They spend little time looking for special offers. Which does raise the question of why retailers feel the need to sell milk at silly prices as was the case a couple of years ago.

“Restock and save” items are less frequently bought products like tea, coffee or washing powder. Such products do not perish so this is the category where 39% of shoppers look hard for special offers. Again, a finding such as this makes one wonder why manufacturers run promotional deals such as BOGOFS – the sensible consumer does not buy any more over the long term, instead preferring to stock up until the next time the product in question is on promotion.

“Classic restock” covers items such as fruit juice and cereals, and health and diet considerations are second only to budget management.

In the “Meal solver” the shopper’s prime focus, outweighing even budgetary considerations, is to find convenient meal solutions. This suggests that the more help that  retailers can give about easy to prepare meal ideas the more likely a shopper is to return.

The final category is treat where shoppers buy on impulse and all other considerations come second.

Kantar’s key message from the research is that price and quality are a “must”, and now it is the shopping experience both within category and overall that matters to consumers. They say that whilst their research focuses on the Big 4, the findings are relevant to smaller shops.

*Big 4 supermarkets are ASDA, Morrisons, Tesco and Sainsbury

Friday, 24 January 2014

Rapid Changes in Meat Eating - All Down to Price and Horsegate.

 From BPEX and EBLEX comes interesting data about the nation’s meat eating trends. BPEX’s quarterly category report shows that fresh meat consumption in the year to mid October 2013 is down in tonnage by 2%, although up in value by 5%.

It is the differences in species consumption which are most fascinating, and they show that consumers are quick to change their buying patterns according to price.

For the first time for years the amount of fresh chicken eaten has gone down. The 3.5% drop is significant when considering that in the previous year consumption grew by 7%. The change is driven by prices which on average went up by almost 10%.

On the other side of the coin an average reduction in prices of 4% has seen lamb consumption grow by a whopping 12.5%. Again, this is a huge change in buying habits for the lamb market had been dropping year on year since 2008. BPEX tells us that pork, where volume sales have dropped by 4%, has been the biggest loser with leg and shoulder joint sales falling as consumers switch to lamb for their Sunday roast.

Over the same period beef consumption dropped by 1% as prices rose by an average of 6%.

 Horsegate fits into the picture because, EBLEX tells us, consumer concerns about exactly what it was they were eating drove retailers to buy more British produced meat. As a result supplies of beef, chicken and pork were tight and prices rose.

There are signs though that the pendulum may be swinging again. Stories are appearing about sizeable increases in imports of Polish and Irish beef, which if sold at a low enough price may trump shopper worries about how the meat was produced.

BPEX also publishes details of which supermarkets over or under trade in fresh meat relative to their market share for all groceries.

Tesco, ASDA, and the Coop under trade. Sainsbury, Waitrose, discounters ALDI and LIDL and beleaguered Morrison’s overtrade. Price alone is therefore not a guide to how well a supermarket might do on fresh meat sales. The overtraders are a mixture of the upmarket and pricey (Waitrose and Sainsbury) and the “noted for low prices” discounters and Morrisons. Conversely Asda and Tesco might be said to be operating at the lower end of the price spectrum yet under trade.

Doing well in meat demands a tricky balance of good value, good quality, provenance and trust. Get it wrong and shoppers will vote with their feet and take their meat buying elsewhere. The challenge is made more difficult by shoppers' increasing tendency to change their buying behaviour with lightning speed. 

Monday, 13 January 2014

Spotlight on Morrisons – Why is it Struggling and What Can be Done to Stop the Rot

Supermarkets, apart from ASDA, have now reported their Christmas trading results. “Patchy” might be a good description with Aldi, Lidl and Waitrose booming, Marks and Spencer doing well, but Tesco and Morrisons down on the previous year. Even Sainsbury only managed 0.2% growth.

It was Morrisons who shocked most with a 5.6% drop in sales versus the previous year, and this at a time when the economy is generally agreed to be picking up.

Their performance highlights both long and short term issues. Their long term problems are well documented. Until last week they had no online presence at a time when more consumers are turning to the internet for grocery shopping: and they have few convenience stores which puts them at a disadvantage as people move away from mid week top up shopping in bigger stores, preferring to avoid temptation and buy just the essentials at their local convenience store.
Yet, neither Aldi nor Lidl offer online, and have few convenience shops, and Tesco offers both but is struggling.

Morrisons problems must therefore be more deep rooted than lagging behind in two growth areas.

Perhaps their biggest issue is that shoppers cannot see a compelling reason to shop at Morrisons. They are uncompetitive on price versus the discounters, and lack the quality reputation of Waitrose or Sainsbury. This lack of clarity about what the brand stands for is obvious when viewing the Morrisons Christmas advert, where the four points made about Morrison’s offer (service, wide variety, having their own chefs and “putting on a show for little dough”) were eclipsed by the undoubted star quality of Ant and Dec. Four messages were three too many,  and money would have been better spent on articulating one reason to shop at Morrisons rather than waste hundreds of thousands on personalities who drown out the message.

So Morrisons must get back to its roots and the core values that made it into a success. The company will have reams of consumer research to guide them, but price and value for money are likely to figure strongly.

Morrisons are too small to be able to match the discounters on the price of packaged goods. Both Aldi and Lidl are huge internationally and can use their buying clout to keep prices rock bottom. Rather, Morrisons should be focussing on the one thing that all of their competitors will find difficult to match, which is that Morrisons, by owning their own abattoirs, bakeries and fresh fruit and veg packing houses can offer fresh food at unbeatable prices.

They need also to be true to their values. It did not receive much publicity but at the back end of 2012 they started to stock an imported red meat brand called Helmsley. This was followed in November 2013 by imported chicken. Such stepping away from their stated policy of selling only UK produced meat does little to boost consumer confidence, and is the sign of a muddled thinking business.

It is to be hoped that Morrisons swiftly get back on track. The supermarket sector needs competition. The more successful supermarkets there are to choose from

the better for all in the food chain.

Wednesday, 18 December 2013

Genetically Modified Food Labelling - On It's Way to the UK?

The UK observes American trends but usually queries their relevance. There is one trend though that could have massive implications for food businesses over here and that is the drive to label all foods that contain genetically modified ingredients.

To date, here and in the US, the emphasis has been on claiming that foods do not contain GMO’s.

Now the debate has moved on and a head of steam is building up to say that consumers need to know exactly what is in their food, not just what might not be in it, and that means declaring if food has a GM content.

The implications are huge. USDA, (the American DEFRA) estimates that in 2013 some 90% of the corn crop and 93% of the soybean crop were planted with genetically modified seed. 90% of rapeseed is genetically modified. Corn based products go into a wide array of foods, including soft drinks, cereals, and  breads. Rapeseed oil is widely used as are soy bean based products, most notably in animal feed. Consumers doing their grocery shop will find it difficult to avoid buying GM containing food. They may not like this and start demanding non GM versions. 

The implications are huge. 
Should this happen then every player in the food chain will be affected. As Karen Batra of the Biotechnology Industry Organization says “Farmers, food producers, grocers and retailers would have to implement separate and distinct systems to grow, handle, record, process, transport and sell products”. There will be many players in the food chain who simply cannot make a change to non-GMO products for cost reasons.
Many will say that it won’t happen here.
 There is though an interesting straw in the wind. Wholefoods Market, an American premium food retailer with 9 stores in the UK, has committed to labelling all its GM containing foods by 2018, with many labelled before then. Currently the move is confined to the US and Canada, but if it proves a business builder then they may decide to adopt a similar stance in the UK. From there it is but a short hop to the big retailers here implementing a similar policy.
The debate about whether GM products should be allowed in the UK ebbs and flows. It may become obsolete if consumers are forced, through labelling, to confront the issue and decide that GM foods are something they are not prepared to buy.