Friday, 12 December 2014

Thriftiness Now a Way of Life for Today's Food Shopper

Anyone who thought that shoppers would give up buying habits acquired during the recession may want to read the Waitrose Food and DrinkReport for 2014. Even those who visit this most upmarket of food retailers keep a close watch on what they spend. As Mark Price, Waitrose CEO says “Britain has become alot thriftier ...and that trend is here to stay”.

Budget consciousness, and its sister waste reduction are now ingrained across all ages and incomes. It means fewer trips to the supermarket, more buying only what is needed for that night’s evening meal, a constant eye on price, and more spending in discount stores like Aldi and Lidl.

Which  is not to say that consumers shun premium products buying only the cheapest, rather that in making a buying decision they want to be sure that they are not over paying, that the price charged is a fair reflection of quality, and that they could not buy similar products somewhere else more cheaply.
So we see that Sainsbury’s Taste the Difference premium range growing sales by 4% in the last 6 months when total sales were down 0.3% , and discounters cottoning on to the interest in premium products, offering expensive wines, lobster, free range Bronze turkeys, and luxury versions of standard favourites like puddings and mince pies. Waitrose’s own growth illustrates shopper willingness to buy the exotic, even if only occasionally, and the company says that 2015 will see further “premiumisation” with more luxury versions of standard foods like “uber special cupcakes”, new fancy doughnuts and ready to drink cocktails.

Amidst all the hype it is worth remembering that the vast majority of food spend goes on the basics - “sustenance and survival” in Waitrose’s words, and it is day to day expenditure that will receive greatest shopper scrutiny. The “Big 4” supermarkets have not fully recognised this, but are slowly seeing that budget consciousness is now a way of life for shoppers, and is here to stay. Asda has stated their commitment to closing the price gap with the discounters, and in a letter which will spoil Christmas for many, Tesco’s new CEO has indicated to his suppliers that as they are benefitting from falling commodity prices they may have to reduce their prices in January, as the company tries to compete against the discounters.

It is difficult to see anything but continued pressure on suppliers and ultimately primary producers, especially where products are heavily commodity reliant and have limited added value.

Monday, 17 November 2014

“A Market in Unprecedented Distress” – Says ASDA About the Grocery Trade

The words come from Andy Clarke, ASDA’s head man, as he reported like for like sales down 1.6% in the 13 weeks to end September, and thereby joined the other three major grocers in a club characterised by sliding sales and plummeting profits.

There is an air of helplessness coming from all four companies with much talk of shoppers changing the way they shop but little sign of game changing action. Yet the changes over which the grocers are wringing their hands have been evident for years. Who in the industry could have missed the rise of Aldi and Lidl, the trend towards convenience shopping and its knock on effect of buying fewer items, and the realisation by shoppers that with a little effort they can trim grocery bills. Arguably too, a return to more normal levels of food inflation was inevitable, and that relying on rising prices to keep sales and profits up was a risky strategy.

Grocers may have secretly thought that a better economy would encourage shoppers to return to pre recession buying behaviour, when little thought was given by many to the size of their grocery bill.
This has not happened. Whilst premium food sellers like Marks and Spencer and Waitrose may be doing better than most, and shoppers are still prepared to buy premium products like Sainsbury’s Taste the Difference which grew by 4% in the last 6 months, the overwhelming evidence is that shoppers are still very careful with their grocery spending.

The Institute of Grocery Distribution has found that the top three priorities of shoppers today are –
To save money on food and groceries (64%)
To reduce food waste (47%)
To stick to a budget (47%)

All the signs are that to remain competitive and hold on to their customers,  supermarkets will need to rebase prices to a significantly lower level than currently.  Asda has recognised this. As the CEO said “We have more to do on the discounters, but we continue to close the gap on price”. Sainsbury by contrast has not, offering only a £150m price reduction. Morrisons know that pricing is key, and suggested that they will reduce by £1billion. Tesco has yet to pronounce.

Tough times for retailers - very tough times for all players in the food chain from producers upwards.

Monday, 13 October 2014

Supermarket Price Promises – Mostly Smoke and Mirrors

Shoppers’ continued search for value, and the onslaught of discount grocers has led to the Big 4 supermarkets are tying themselves in knots trying to assure their shoppers that they offer the same prices as their competitors.

All claim that the shopper can be confident that their purchases will be no more expensive than if they had bought elsewhere, but close examination suggests that the initiatives being run by the supermarkets are mostly smoke and mirrors designed to give the illusion of value but in reality offering little of substance.

No store hands back hard cash if they are found to be more expensive. Instead Tesco, Sainsbury and Asda hand over vouchers and Morrisons has a complicated scheme where a card has to be obtained, points are added to the card when purchase at another store would have been cheaper, and the points are eventually traded in for a voucher. Voucher schemes benefit the supermarket because many will have been lost or forgotten about before they expire.
There are other wheezes designed to limit supermarket exposure. Sainsbury only compares with Asda, dropping the comparison with Tesco in a recent change designed to save money. Asda makes the shopper do the comparison work. It guarantees to be 10% cheaper than the other three major supermarkets but the shopper has to go online, enter till receipt details to find if their shop could have been cheaper elsewhere, and then claim their voucher.
There are a myriad of exclusions and exceptions to the various price promises. To be fair, Tesco’s Price Match covers all shops big and small, and fresh and own label products as well as branded. Morrisons compares with Lidl and Aldi as well as the majors across branded and own label. But Sainsbury does not offer its Brand Match in convenience stores, neither does Morrisons, and Sainsbury only compares branded prices.  All the supermarkets stipulate a minimum spend. No store gives out a voucher worth more than £10. Many everyday items are excluded such as baby formula.
There will be shoppers who have the time to go into the detail and work out how to make these pricing initiatives work in their favour. Many though will quickly conclude that the only thing that counts when shopping is the size of the bill week in and week out.
Which takes us back to Lidl and Aldi.
Despite the flurry of reduced prices and price promises among the “Big 4” both discount stores continue to flourish. Add to this Aldi’s recent commitment to keep the price differential between themselves and conventional supermarkets at a minimum of 15%, and it is difficult to see how the majors can hold their position without concrete and continued price reductions across their whole range of goods. So far, they are only playing at delivering competitive prices.

Monday, 22 September 2014

Looking at Online Grocery Shopping From the Supplier' Viewpoint

Life is not easy for suppliers selling their products through a supermarket’s online channel. The tried and tested tactics which work in the physical supermarket are of minimal use.

Online offers no opportunities for eye catching secondary displays designed to capture shopper attention should the brand be missed on shelf. There is no way to sample something new and delicious. Promotions which are visible when the shopper casts his or her eye along a 20 metre shelf are easily missed when confined to a screen measuring 15 inches x 6 or less.  The challenge is particularly acute for impulse products like confectionery, or soft drinks, lines which are probably not on the shopping list but are tempting when spied in store.

Whilst there may be some debate about how big the online channel might become, there is no doubt that it is more buoyant than traditional supermarket shopping, and suppliers are slowly waking up to the fact that this channel needs dedicated resources if they are to get the best out of it. 43% of major multinational suppliers interviewed by the IGD (Institute ofGrocery Distribution) have staff assigned to the online channel at least as part of their role. However just 24% have dedicated people to the channel on a full time basis, and only 10% have tailored the way they sell their products on line.

Without imagination and focus many suppliers resort to money off mechanics to promote their products, which can be expensive, and is at best a short term solution.

The key of course is to understand how shoppers approach online grocery buying and then work out how best to capture their attention. Research company Evolution has found that online shoppers tend to be very single minded and this not surprising given that the main reason to use online is to save time. Only 4% start their shop by browsing various categories, and just 1% start by looking for meal and recipe suggestions. 19% start with the special offers page (although 53% get round to it at some point). 25% shop by keyword (milk, eggs etc) and tend to work from a shopping list. Suppliers may want to explore opportunities on the “favourites” page. This is the first page visited by 44% of shoppers, and around 56% refer to this page at some stage during their shop.

It is becoming clear that a one size fits all approach is unlikely to work online, and that personalisation will become increasingly important. To get the best out of a marketing activity it must be relevant to the needs of individual shoppers, whether they might be one of the 35% who do their weekly shop online, or more likely, one of the 53% who only use online infrequently to do a big shop. Equally, there is little point in featuring a pet food initiative to a non pet owner, or a beer blitz to someone who only drinks wine and spirits. 

Having good shopper research data helps address the challenge of selling on line where space is limited and competition to get noticed is fierce.  It is also critical when negotiating with retailers who will have the last say about the strength, depth and promotional support demanded to feature a particular supplier’s products. 

Friday, 12 September 2014

Discount Grocers - Growing Now But Will it Last?

With Morrisons announcing a halving of their profits and a 7.4% like for like sales decline, and Waitrose facing profits down 9.4%, despite delivering a bit of growth (up 1.3% in like for like sales) it seems timely to examine reasons for the seemingly unstoppable rise of discount grocers.

New store openings are a big contributor to their growth. Aldi opened 42 stores in 2013, and will add a further 54 new stores this year.

Another key factor is their ever-widening appeal. Discount grocers can no longer be seen as a specialised shopping experience favoured by the financially hard pressed. Recent IGD (Institute of Grocery Distribution) data suggests that 26% of shoppers visiting discount grocers fall into the affluent AB category compared with 27% for traditional supermarkets. Conversely 26% of DE shoppers visit discounters compared with 25% visiting supermarkets. In August 2014, 54% of all shoppers in the UK claimed to have  visited a discount store in the past month, up from 45% in August 2013, and the average spend per visit has increased by 15%.

Despite the growth, discounters rely heavily on top up shopping. They have not captured a big share of the main grocery shop. Just 15% say that a discounter is their main store. If discounters want to continue growing they need to get more shoppers spending more per visit.

In theory they seem ready and willing to do so. A third of them agree strongly that they would use discounters more if they could get their main shop there.

But before they make an Aldi or Lidl a main shop, customers want to see more products. They want more fruit and veg , and they want to buy food for their evening meal. They want to be able to buy products for special occasions, and they want a range of staples.

So basically what they are asking for is supermarket variety at discounter prices. That is a challenge for discounters as they try to fit customer demand for more products into a business model which until now has relied on a small, high volume range manufactured at rock bottom prices. Discounters also need to address the march of technology. They are a long way behind mainstream grocers in producing smartphone and tablet friendly apps designed to make shopping quicker and easier.

It is probably safe to predict further years of fast growth. Aldi is committed to a near doubling of stores by 2021, up from the current 531 to 1000. The number of shoppers visiting a discounter will rise from the current 54%, and the emergence of Netto as a Sainsbury partner will mean even more opportunities for shoppers to visit a discount store.

Thereafter the going might get tougher as mainstream grocers start fighting back with competitive pricing strategies, intelligent use of variety and choice, and customer friendly technology.

Tuesday, 26 August 2014

How do Mainstream Grocers Deal With the Quagmire of Low Market Growth, Rampant Discounters and Budget Minded Shoppers?

Food sales in the 12 weeks to 20th July grew attheir slowest rate for 10 years, up just 0.9% in value. 

Despite the uptick in the economy, and in consumer confidence, people are reluctant to give up their thrifty food buying habits acquired during the depths of the recession. They are helped of course by being able to shop at discount supermarkets. Aldi and Lidl have raised their quality game, kept rock bottom prices, and been rewarded with rocketing growth rates.

What then is the best way to deal with lacklustre growth rates, budget conscious consumers and rampant discounters?

Suggested action is falling into two camps. One says that mainstream grocers must reduce their prices by meaningful amounts, and soon. The other says go where the growth is and invest in online grocery shopping and convenience stores.

The IGD continues to back its online growth forecasts saying that sales will more than double in 5 years.  It points out that online grocery shopping is still in its infancy. Just 27% of shoppers use on line, and only 10% do their major shop online. The IGD reckons that the convenience of shopping online, providing as it does the ability to shop anytime, anywhere, combined with new initiatives being developed by retailers, and the added ease provided by mobile technology, means that more and more shoppers will gravitate to online buying.

Certainly some retailer initiatives look attractive. The boom in click and collect outlets avoids the need to wait in at home for the order to arrive, and even at home it is possible to select one hour slots leaving the rest of the day free. Retailers are also working on apps to make shopping easier. Instead of trawling through every category, Ocado’s app provides personalised guides to what is usually bought, what was bought last time, and ready prepared lists of what might be needed. Ocado is a leader in mobile shopping and says that 45% of its shoppers check out on a mobile gadget.

Retailers are also working on the opportunity to build volume over and above a standard shop by linking products in a way that is not possible in store – pizza and beer for example.

IGD points out that further growth will come from the advent of new players like Morrisons, the Coop, and Iceland who are all testing online shopping methods.

The above initiatives should encourage more online shopping, but there are two snags. First they are a double hit financially being costly in terms of investment and considerably less profitable than regular in store shopping. And second, they do not solve the knotty problem of uncompetitive pricing compared with the discounters.

Sainsbury’s tie up with discounter Netto starts to address the pricing issue, and there is a suggestion that Tesco could manage its stores like it does its product range, with three tiers of shops – value, to provide rock bottom prices, middle, and Finest as a Waitrose look alike to keep the profit margins up.

It is difficult to see how mainstream supermarkets will be able to afford a big drop in prices and the huge investment in online without radical restructuring, a dip in profits, and the usual squeeze on suppliers.

Competitive pricing has to be the priority, and with it an acceptance that online may not grow as fast as many predict. 

Thursday, 7 August 2014

NSA Vision for Sheep Farming Says Domestic Market Growth is Vital - But Who Will Lead the Charge?

The National Sheep Association/NFU’s recently published vision for UK sheep farming identifies domestic market growth as critical to a healthy future.

Quite right too. The Vision paper says that domestic lamb consumption has plummeted by nearly two thirds since 1990, and that relying on a buoyant export market, dependent as it is on currency values, will not save us.

What is required, says the paper, is that “we” have to persuade UK consumers, particularly younger ones, that lamb is a tasty nutritious source of food. They suggest that innovative cuts, more branding, and new products will help. (More ready meals would be good too as lamb is woefully underrepresented in this huge, fast growing and youth appealing market segment.)

Th paper also points out that price is key. It is no accident that after years of decline the volume of lamb bought from supermarkets grew by 14% in 2013 due to an average 5% drop in price.  But prices are volatile, retailers are fickle, and the price of lamb could accelerate once again.

Lower prices if achievable, and new brands and products will help, but they will not be enough, and the Vision paper ducks two major challenges.

 For starters, who are the “we” who will lead the charge to grow the domestic market? Who precisely is accountable for growing an industry? Is it the Association, the NFU, retailers, processors, levy bodies, or perhaps farmers? Unless there is clear accountability for setting and delivering the growth agenda then nothing will happen and this critical contributor to achieving the Vision will drown in a sea of many words, much opinion, but little action.

The second challenge is what should be done.

The investigation needs to go deeper than price reductions and innovation. Whoever is going to lead the industry growth charge needs address the biggest problem with lamb, and that is fattiness. According to work done by EBLEX, 57% of people say that lamb tends to be fatty compared with 28% for beef, and that number may well be higher among the young.

All players in the food chain have a role to play in understanding what makes lamb fatty, and then working to address the problem.

Why, for example, does New Zealand lamb as presented in the shops contain around half the fat of British lamb. Is it the NZ lamb diet, or overly fat lambs being so heavily penalised that the farmer will not submit them to the NZ abattoir, or perhaps carcasses arrive in the UK with much of the fat trimmed off.

Processors and retailers need to be much stricter about removing excess fat from the product. Consumers buy with their eyes and will shun a product where they can see superfluous fat, or even worse buy and once home realise that much of the product will be consigned to the bin. It is flabbergasting to note from Tesco’s website that they quote fat content as bought, and then with the fat cut off by the consumer. Why should the consumer have to pay for something they will not eat!

Thirdly, more attention needs to be paid to offering lower fat alternatives just as they do in the beef market where it is possible to buy mince with fat levels ranging from 5% to 20%.

The NSA and the Vision paper’s co authors the NFU are confident that sheep farming can expand, but without a clear champion focused on understanding and delivering what the consumer wants domestic sales will continue to drift downwards, taking the livelihoods of many in the sheep meat food chain with it.