Monday, 31 March 2008

Premium Food - Sainsbury Says Still Growing

One of the trends we're tracking is whether current financial gloom is affecting sales of premium food. No, says Sainsbury who have just announced 12 week sales to March 22nd. Asked specifically about this, Justin King their CEO said that there is no evidence that consumers are trading down to save money, and that their research says consumers will continue to spend more in areas where quality is important to them. According to King, the biggest sales growth was in their premium "Taste the Difference" range, and at the other end of the scale in their basics range.
The other interesting trend he highlighted was that ready meals sales have stopped growing, but what is booming are foods where one stage of preparation has been done, like meat with a sauce on the side, or veg which has been peeled and diced. King put this down to a wish to eat more naturally and healthily, but save a bit of time where possible.

Thursday, 27 March 2008

Making Money from Meat

A recent report from the NFU/MLC about the meat market in the top 4 retailers helpfully outlines market sizes, growth rates, volume and value sales by cut, and how much of each cut can be got from the animal. Analysis of the data gives two clues about how to improve profits.

1. Sell all the meat from the animal, not just the premium cuts

Most relevant to direct sellers, carcass balance as it is called makes the difference between profit and loss. It is easy enough to sell fillet or sirloin steaks or legs of lamb, but trickier to find an outlet for slow cook cuts of beef or shoulders of lamb. The problem is magnified by seasonality, with roasting joints or casserole meat struggling for sale in the summer. Direct sellers might want to identify possible customers for the cheaper cuts, be realistic about the price which will be achieved for them, and ensure that any financial analysis includes these lower prices.

2. Target premium/ added value market segments.

This applies to all producers, not just direct sellers. The idea is to identify the market segments which consumers are prepared to pay a bit more for, and sell product into those segments. The NFU/MLC report explains how retailers divide the market up into different segments or tiers, and gives the relative sizes of each segment. Most retailers have a basic segmentation of value (or cheapest), standard, and premium. But there is a trend to "standard plus" and "super premium" products in an effort to encourage consumers to pay a higher price. These new products are backed by marketing claims such as healthy (meaning with less fat), outdoor reared, welfare friendly, a specific breed, free range, increased hanging time, special butchery techniques, and of course organic.

The amount sold in these added value sectors is still small, sausages being the exception:
Premium 4%
Organic 1.2%
Health 4.6%
Premium 1%
Organic 1.4%
Health 1.2%
Premium 1.5%
Organic 1.0%
Health 2.3%
Premium 29.5%
Health 5.1%
Organic no figures
Premium 2.1%
Organic 0.2%
Health 1.3%

The size of the added value premium sector may be small currently but it is the holy grail for retailers and it will continue to grow. More to the point, the difference in prices paid by consumers is huge. On average, value beef sells at 57% less than standard, premium sells at 61% more than standard, organic 47% more, and healthy 8% more. In lamb, premium is also sold at 61% more than standard, organic 55% more, and healthy 104% more.
A good look at what consumers are prepared to pay more for could be useful for farmers with the opportunity to better match their system to consumer trends.

Wednesday, 12 March 2008

Milk Market Trends 2007

Milk market data for 2007 has landed in the in tray, courtesy of the Milk Development Council (MDC Datum).

Many of the trends are as expected. Pasteurised liquid milk sales grew by 2% to 4.1bn litres despite a 9% price rise, confirming industry views that consumers are either not aware of the price of milk, or not concerned about having to pay more. Semi skimmed and skimmed grew again whilst whole milk declined. Plastic containers now account for 80% of milk sold in grocers. Two litre remains the most popular size.

There are some surprises though. The organic market remains small at 169m litres, and growth slowed to +4% compared with +60% in 2005, and +13% in 2006. The reason seems to be price.Once the price difference between organic and standard milk crossed two price points, with standard costing 50 something pence a litre versus organic at 70 something, growth slowed to a halt. It started to pick up at the back end of 2007, when the standard price crossed 60p. Organic prices are now close to 80p, and if they jump over that barrier, without a corresponding increase in standard, sales will probably slow again.

Sales of modified milk have plummeted, down by 35% year on year. "Modified" means with added benefits such as omega 3, and it looks as if consumers don't want manufacturers adding stuff to something valued for being pure and natural, even if the additive is supposed to be good for you. The modified milk market is now just 17m litres.

Also noteworthy is a +22% growth in filtered milk with its selling point of staying fresher for longer. Filtered milk sales have gone from 142 million litres in 2004 to 247 million in 2007, and the category is now 50% bigger than organic in litreage. Whilst growth has levelled off in the last 3 months, the rise of the category, pioneered by Cravendale, shows that it is possible to add value in a so called commodity market when a unique selling point marries a strong brand. Filtered milk sells at a 2p premium to standard which helps pay for promotional support.

The fourth surprise is the up and down nature of Channel Islands milk.The market has always been small, but for some reason it fell from 12m litres in 2004 to 7m in 2006, but turned the corner in 2007, up to 8m litres. The MDC puts this down to a promotional campaign highlighting the benefits of Jersey and Guernsey milk, and giving recipe ideas.

And finally, reading the papers you would think that lactose intolerance is a huge problem, but soya milk remains a very small market at just 81m litres, and showing 3% growth.

Monday, 10 March 2008

Whither Ethical Purchasing - Update

Last week's post about ethical purchasing ended with my view that strong brands with a clear message are needed to help consumers navigate their way through an increasingly complicated set of ethical purchase decisions. Free range, Fairtrade and British were cited as examples of good brands. Organic was not because only 32% of consumers said they would be interested in organic products, compared with 59% for free range, 48% for Fairtrade, and 49% for British.

I may have been wrong to omit organics. It is after all a nearly £2billion market. And then along comes an article in the Sunday Telegraph. They reported a fund raising event in London this Thursday, sponsored by the Soil Association, to help children visit an organic farm. Organisers include minor glitterati such as model Sophie Dahl, actor Richard E Grant, Jemima Khan. Annie Lennox will be performing. Four hundred guests will attend.Tickets cost £1000 each. (No, not a typo!).

So the organic brand does have power for some. There can't be many branches of agriculture that would persuade people to pay £1000 for dinner. It would be nice if there were.

Friday, 7 March 2008

Whither Ethical Purchasing?

One of the questions of the day is whether rising food prices and a financially squeezed consumer will result in ethical purchase considerations taking second place to price. Not so far said the Institute of Grocery Distribution yesterday. Certainly the recent flight to free range/organic chicken seems to support their view, and it will be interesting to examine further data on ethical purchasing as it emerges.

It does seem as if food ethics are becoming top of mind for consumers.
The IGD has just done some research, and published figures on the interest levels which consumers have in various ethical product types.
Animal welfare (net) 69
Free range 59
Not tested on animals 35
High standards of animal welfare 34
Local/British (net) 55
British 49
Local regional 40
Environmentally friendly (net) 53
Minimum packaging 36
Recycled/biodegradable packaging 36
Sustainably managed sources 21
Committed to reducing carbon footprint 20
Not transported by air 11
Fair traded products 48
Organic products 32

The figures confirm the range of ethical worries facing the consumer. As the IGD points out, consumers also worry about the health implications of a purchase, and remain unprepared to accept low quality. Finally, these are interest levels, not what is actually purchased, which gets back to the need to translate interest into hard purchase.

But the most striking thing of all about these figures is how issues which are strongly branded, ie which stand for a clear simple message, receive the highest levels of purchase interest. Just look at free range, Fairtrade, and British. This need for a strong brand which captures the essence of an ethical issue is becoming vital. Consumers are definitely more interested in ethical products but along with the interest comes a whole new set of worries. Consumers are asking themselves whether it is ok to buy, say, string beans from Africa because they are Fairtrade, despite the food miles that might have been clocked up, and even though it means less veg bought from a local farmer. The dilemma is made worse as sophisticated marketing types fight to put ethical claims on to their products, and consumers try and decide which claim best fits their own view of what is right.

So. Should local foods be strongly branded, with a clear standards for what "local" means? Could the British brand be made stronger with standards that are more than just a baseline? What does environmentally friendly actually mean?

Food for thought perhaps.