Monday, 28 January 2008

Trendspotting 2008

As economic gloom rises, access to cheap credit evaporates, nervousness sets in about spending the money we've got, and rising food costs have registered even on the affluent, it is timely to ask whether a hunt for lowest possible food prices is set to obliterate any other considerations in consumers' minds. Applying some tried and tested lessons about consumer behaviour when the going gets tougher may help answer the question. So, somewhat bravely, here are predictions about food market trends in 2008.

Value not price

At times of economic pressure people search harder for value, which is different from just looking at sticker price. Value is a combination of price, quality, and feeling good about a purchase. Its perhaps best summed up as answering yes to the question "is this worth it?". Top quality, fairly priced products will continue to sell well. Anything seen as pricey for what it is will not, and supermarket top tier product staples such as meat, fruit, veg and dairy may struggle unless they are clearly better than alternatives.

Environmental concern

This is here to stay largely due to the high level of publicity it receives. Products and services seen to be beneficial to the environment will continue to see sales growth.

Provenance/Ethical purchasing/Health

These trends have been combined as they are closely related in consumers' minds. Provenance may be described as "can I trust the source of this food and how it got here". The link with health comes because consumers are worried for health reasons about what goes into their food and how it is processed. They worry for ethical reasons about where it has come from and how far, how the animals have been treated, and have the producers been fairly rewarded. All these concerns have combined to power sales of local food, organics, fair trade, and special animal welfare schemes, even though the sticker price is usually higher than for other options. The forecast for all these sectors is continued growth, albeit at a lower rate than historically. Those who are truly committed will not change buying habits, but occasional purchasers if pushed for cash may buy less often.

Channels of purchase

The places people buy from and the way they buy are also likely to change. People drawing in their purchasing horns may choose to eat out less, or trade down in the amount they are spending on a night out. So sales through catering channels will slow or even decline. One channel which could grow is internet grocery shopping which saves petrol costs, and food miles, and is more convenient.

So in the end....

Though conditions may be tough, and overall growth may slow, there is unlikely to be a major reverse in the encouraging trend towards consumers caring more about their food, and being prepared to pay that bit extra for top quality, fairly priced products that help them live lives that they can feel good about.

Friday, 25 January 2008

Chef Power

The power of celebrity chefs to change the eating habits of the nation have been proved yet again. The Telegraph on Wednesday reported that following the Jamie Oliver and Hugh Fearnley Whittingstall programmes drawing attention to intensive poultry farming, sales of free range, organic and RSPCA Freedom Foods birds have soared.Sainsbury said that sales of the three types of chicken had grown by 50%; Waitrose reported an increase of 31% in organic sales and 24% in free range. And a small organic farmer in the West Country has seen demand grow by between 40 and 50%. Last week's Farmers Weekly quoted Morrisons as seeing a rise in Freedom Food sales, and Tesco saying that free range sales grew as a proportion of the total, as did their Willow Farm chickens which offer a higher standard of welfare at a price between the regular product and free range.

Wednesday, 23 January 2008

Government Sees Farming as Problem Not Solution

A 113 page document from the Cabinet Office, "Food - An Analysis of the Issues", was published a couple of weeks ago. What does give pause for thought is the document's perspective on farming related issues. Of the 8 conclusions it draws, (see page 15) three impact directly on farming, and all three could affect consumption, production and prices paid.

The first farming conclusion is that "the full climate related impact of farming, and especially livestock and dairy, warrants much more attention". This is based on a DEFRA finding that agriculture contributes 7% of greenhouse gas emissions compared with total food at 18%, livestock being the worst culprit. No answers are provided, but already some concerning straws are blowing in the outside wind.The Soil Association, Sustain pressure group and a few eco writers are advocating eating less meat. A consultancy firm hired by a major supermarket is recommending that cows are pushed harder to calve younger, and to give more milk daily, which sounds no fun for the cows. These sorts of suggestions highlight the need for farming leaders to work with government and urgently formulate a strategy for farming in an environmentally beneficial way. Equally, farmers themselves should start thinking about their own strategy if demand for meat drops.

The second conclusion is that biofuels may not be the way forward because of their impact on food prices for developing countries. An unsurprising finding and one which is being increasingly picked up, for example by the all party MP committee which reported recently.

The third conclusion is that self sufficiency in food is not important, rather what is required is good contingency planning in the event of a problem. The document sees the level of self sufficiency as relating more to how competitive UK producer prices are versus imports, and how much consumers are demanding foods which cannot be produced here, not with a need to ensure its citizens are fed. So, no return to a CAP type system which pays for production.

Buried in the body of the document are statements that could influence consumer demand. There is a claim that local food is not necessarily environmentally better. But it is based on just one report, and is hotly contested by the Soil Association who feel the base data is flawed. Another concern is the way data is presented, possibly leading to unfavourable consumer impressions of farming. An example is the statement that whilst agriculture, and livestock in particular, is responsible for 7% of greenhouse gas emissions it delivers only 0.7% of GDP. Difficult to see the relevance of linking these, particularly when another chart shows that meat, eggs and dairy account for over 30% of consumers expenditure on food. Quite important then to the economy. The report acknowledges the debate about farm gate prices dropping as a percentage of retail, but dismisses the issue saying that a reduction is only to be expected as more value is added downstream. No figures are provided to support their view, yet common sense would say that the processing value added on core staples such as meat and dairy is relatively small.

Lest paranoia set in, the report does point out that livestock farming can contribute to preserving the nature of the landscape and biodiversity, and recognises that the outlook for some farming sectors such as livestock is gloomy.

All thinking people will recognise that the farming industry is no more entitled to favourable financial treatment than any other, and the report is another reminder that a farmer's future lies mostly in the farmer's hands. But after reading the report, one is left with a nagging worry that government sees farming as a series of problems, and that generating positive energy to help deal with the issues will be a challenge.

Sunday, 20 January 2008

Supermarket Xmas Trading Shows Food Sales Resilient

The major supermarkets have posted their Xmas trading results, and its worth a burrow through the detail to see what they tell us about consumer spending, given the current economic gloom. People have to eat and indeed total food sales were well up v Xmas 2006 compared with all retail (everything from frocks to fridges) which was up just 1.4%. The question is whether belt tightening means a change in the type of food people buy.
Conventional wisdom, echoed by Justin King of Sainsbury's, says that at a time of tightened purse strings consumers will treat themselves to luxury food whilst cutting back on big ticket items, and it would appear that conventional wisdom is right.
With total food inflation for the period estimated at 1%, the league table of growth is led by Aldi at a whopping +12%. Whilst normally associated with low price food they said it was their premium range which drove the high sales. Morrisons was the clear winner among the "big four" supermarkets, coming in at + 9.5 %. Morrisons said the growth came from heavy advertising spend, and an emphasis on fresh food. Certainly they seemed to spend far more on advertising than other supermarkets, and much of the spend was behind their premium "The Best" lines. Next up was Waitrose, home of top quality, premium price products, with a 4.1% growth. Sainsbury reported figures for the 12 weeks to 5th January, and sales were up 3.7%. Their premium "Taste the Difference" range recorded its best ever quarterly sales growth. Luxury seemed to be the order of the day here with TTD Sherry Trifles up 154%, Courvoisier Butter up 232%, Salmon Fillets up 116%, and even Stilton up 43%. Sale of organic food was said to be strong, but no figures were given. By contrast, the basics range of low price food also grew, leading King to observe that growth came from "both ends of the basket". (Might explain the Aldi growth too). Somerfield grew by 4.7%, and Tesco by 3.1%. The one cloud on the generally strong story for food sales in general and premium food in particular was Marks and Spencer where sales were down by 1.5%. Sir Stuart Rose hinted that the type of food offered was out of line with consumer trends, and that he was planning radical changes, the first of which is the introduction of more specialised cooking ingredients such as smoked paprika and cinammon sticks. Which sounds pretty premium.
All supermarkets cut the price of many lines pre Xmas, particularly alcohol, and all warned that consumer spending would slow in 2008. Competition between supermarkets is likely to intensify which means a redoubled effort from the farming industry to ensure fair treatment for producers.

Sunday, 13 January 2008

Organic v Local Food - Head to Head or Room for Both?

One of the questions facing those interested in marketing and branding is whether the rise of local foods means that sales of organic produce might suffer. A trawl through latest data suggests that there is room for both to grow, as the main reasons for purchase are different.

Local Foods
The FSA did a consumer survey in March last year which showed that the prime reasons for buying local foods are "Supports local business" (57% agreeing) and "Supports the local economy" (51%). 18% bought because they "know where the producers are", 12% because local foods mean less air miles, and 11% because the food tastes fresher.

The age group most likely to buy local food is older, and purchasers are wealthier, from social class ABC1.

Consumers in this survey have a strict definition of what constitutes a local food. 40% feel that local means produced within 10 miles of where the product is sold. A further 20% feel it should come from their county, and 15% from either their own county or one next door. 20% feel that local means "from my region", but that number is heavily skewed by consumers in Northern Ireland, 63% of whom say that "local" means from their country.

The FSA findings about support for local producers being a big reason for buying local foods are similar to a survey done by the Institute of Grocery Distribution in March 2006 which showed that 31% of consumers buy local for this reason. In this survey consumers were less strict in their definition of what constitutes local food with the majority (52%) saying that it should be produced within 30 miles of where it was sold, or where the consumer lived. The IGD survey also suggests that the main purchasers of local food are older and more affluent. The major difference between the two surveys is that IGD found that "freshness" was the biggest reason for buying local (64% agreeing). My own market research, carried out in January 2007, suggests that supporting local businesses in general and farmers in particular is the major reason for buying local, with freshness, better animal welfare and less food miles all cited as important to consumers.

Organic Food

The reasons why people buy organic food are more varied, and, according to the Condor Organic project (EU wide study with the UK piece carried out by Surrey University), seem to result from a belief that its just better - for health, a longer life, taste, the environment, animal welfare. This view is supported by market research agency TNS who are reporting that environmental benefits of organic food are now becoming more important to consumers alongside health benefits. My own research indicates that it is a bundle of beliefs about organic food that encourages purchase, not one single benefit. Certainly the big share of market held by organic baby food (44% according to the Soil Association) seems to indicate a belief in the health and safety of organic food, at least for tiny bodies. Organic purchasers tend to be social class AB (Soil Association). The biggest barrier to organic food purchase remains expense, as all studies point out.

Future prospects
It does appear that local food and organics are bought for different reasons. Local food purchase seems to stem first from a wish to support local businesses, and despite the odd finding from the FSA, from a belief that local will be fresher. Organic purchase is much more complicated. There is no reason why local food should not also be organic, which may help sales in the organic sector.Equally, the local foods sector will expand whether organic or not, because of a growing wish among consumers to support their local producers, and who are prepared to pay a bit more for local, but perhaps not the premium often required for organic food.
Undoubtedly there will be competition between the two sectors, but there does appear to be room for both.
One last thought. Strong brands based on quality products will still be important in both sectors to differentiate between producers - think of a farmers market where there are often several stalls selling the same thing.

Sunday, 6 January 2008

Animal Welfare - Supermarkets Respond to Consumer Pressure

Just a quick update on animal welfare for chickens. The consumer voice has now got so loud that Sainsbury, Morrisons and the Coop have announced this weekend that they will ban or phase out sales of eggs from caged hens, thus joining Marks and Spencer and Waitrose who have already removed them from sale. ASDA and Tesco are still dragging their feet, but are likely to come under pressure to act soon. The news comes just as Jamie Oliver and Hugh Fearnley Whittingstall start their campaign against intensively farmed chickens. (See blog "Animal Welfare Action" posted here on 6th December).

Thursday, 3 January 2008

Healthy, Natural and Branded Means Growth in Dairy Products

The Grocer magazine has just published its annual look at what's hot and what's not in the grocery trade. The piece on dairy products shows a trend towards healthy, natural products with brands by and large doing better than own label. Here are a few facts and figures.

Butter and Spreads
Lurpak butter is now the biggest brand having overtaken Flora. Anchor and Kerrygold have also boomed. Sadly none of these big growth brands is British which should be a source of great shame to British owned companies. At least Country Life from Dairy Crest is having a go with the introduction of Spreadable, but overall its sales are flat. On a much smaller scale, Yeo Valley have also increased sales.
Dairy Crest do redeem themselves somewhat in the cheese market, with Cathedral City far and away the biggest brand, helped by the launch of a 30% less fat version. Somerset based Wyke Farms is also doing well, with a turnover of £21m, up 37% in sales since last year, as is Seriously Strong from Scottish Lactalis McLelland (£52m). This shows that smaller private businesses can succeed in the dairy market providing they have strong local brands. Once again its the pure products which are doing best with processed cheeses like Dairylea and Philadelphia struggling for sales. It would be good to see more brands from the milk coops, and to be fair Lake District cheese has been launched by First Milk and Tickler by Milk Link. However, there are many brands in this market and it may be difficult for the coops to see a financial return unless they come up with something genuinely new and different.
The cheese market is one where branded products are growing faster than own label with the total category up 2% and own label up less that 1%.

It used to be said that milk is a commodity and can't be branded. But Cravendale (sales £93m), Yeo Valley Organic Milk (sales £12.5m) and St.Helen's Milk from its namesake farm (sales £10m) are all proving this wrong. Flavoured milk sales are growing by 8%. Total milk sales are up 7% and own label up 5%.

Yoghurt sales continue to grow, again with brands outstripping own label. Muller is still the leader but Activia with its "healthy gut" message is now second with sales of £117m. An amazing success story and evidence of consumers worries about healthy eating. Its in this sector that organic sales are strongest, led by Yeo Valley and Rachel's with combined turnover of nearly £100m, or 6% of the total market.

One other branding thought is the way a brand name can be stretched across a number of different sectors as long as the basic message is relevant to all of them. Yeo Valley now has products in butter, milk, and yogurt. Rachels Organic has launched yoghurt drinks alongside its standard product. Flora does yoghurt drinks as well as spread. The benefit of course is that advertising and promotional money is spread across a number of items, and becomes more economical.

More info required?
If you need more figures please contact me via the comments section.