Tuesday, 25 November 2008

What Tesco Think About Local Foods

Boy, do Tesco tell it like it is.

Alistair Robinson,Senior Buying Manager buyer for the North of England, addressed the Institute of Agricultural Managers conference last week. His topic was "Local Foods Opportunities with Supermarkets".

Here's what Alistair said.

First up, consumers are still hugely enthusiastic about buying local foods, seeing them as fresher, of better quality, and helping to support local businesses and farmers. Tesco's customers want to buy local foods so Tesco is providing them.

Alistair explained what local means to the public. Although more consumers like to buy British, a British label on its own does not mean local. In Scotland and Wales, local means "from my country". In England, local means "from my county". It seems that the more specific a product is about its origin, the more the consumer feels that it will be top quality.

And people want a local option in most of the products they buy. Locally sourced fresh meat and veg, milk and cheeses, cakes and bread, and even ales and beers are all welcomed.

Tesco has seen some stunning local success stories."Black Country Pork Scratchings" from the Midlands outsells the national equivalent by 2 to 1. Yorkshire carrots sell 30% more than standard carrots, Cornish potatoes 12% more, and Warwickshire Spring Onions 5% more than an ordinary spring onion.

But here's the rub.

There's no premium in local foods, according to Tesco. Those great sales figures have been achieved by selling local food at a similar price to the standard variant. Basically, Tesco are looking to make the best use of every inch of shelf space, so all products have to sell at the highest possible volume,so this means in Tesco that they have to be on shelf at a competitive price, AND they have to deliver the same profit margin to Tesco as a standard version.

A brave soul at the conference asked whether, if consumers were so keen to buy local, Tesco should consider taking a lower margin, particularly as the whole point of local is that producers are small and so without economies of scale. Absolutely not said Alistair, for to sell something at a lower margin was a flawed business model, was totally unsustainable, and would only result in lost profit to Tesco, which is just not acceptable.

So there you have it. Tesco are very happy to support local foods as long as their customers want them, and as long as they make as much money for Tesco as anything else. At the first hint that consumers might be less enthusiastic about local foods, Tesco will walk away from them.

All this raises the question of whether its just Tesco local foods that cannot command a premium or the local foods sector in general.

According to a recent note from the IGD, consumers do see local foods as high priced. 61% say that price is a barrier to buying local and 43% think local food is too expensive. The IGD's advice is that local food producers and suppliers should review their promotional strategies, and offer competitively priced products in sectors that offer potential for growth.

If the objective is big volumes, then it seems Tesco have got their local food pricing policy right. The alternative strategy for producers is to stay away from the supermarkets, and target a smaller, niche market, possibly with a "local plus" message, in other words local with an extra consumer benefit.

As for the margin issue, Tesco will squeeze hard, and possibly harder than others. The key is for producers to walk into any deal with their eyes wide open.

Monday, 17 November 2008

Trends at Sainsbury - Justin King Speaks of Consumers, Farmers and Buying British

The conference and lecture season is in full swing and a few days ago Justin King, Chief Executive of Sainsbury spoke at the Royal Agriculture College's annual Bledisloe lecture. Smooth shaven, hair slicked back, immaculately suited and lightly tanned even in November, King could not have presented a greater contrast to last week's profiled speaker, John Torode. But in common with John he delivered an excellent session.

Justin King's main messages were these:

Value is increasingly important to Sainsbury shoppers. Own brand sales are booming due, he feels, to offering outstanding quality at a price well below the branded equivalent. Own brand now account for 51% of all the products they sell. The Basics range is also growing fast. People are cooking more from scratch. In an interesting twinning of the two, he said that free recipe cards, which have been around for three years, had really taken off when they had a value message like "Feed your family for a fiver" and "Love your leftovers".

Despite tough times though, consumers are not prepared to go back on their principles, rather they want "value, but not at the expense of values". King cited Sainsbury sales of higher welfare chicken, which now account for 33% of all chicken sold compared with 14% in 2006. And sales have accelerated, even as the credit crunch bites harder. Free range egg sales also continue to grow. Apparently animal welfare issues are the second highest in his postbag, the top issue being palm oil and concerns about destruction of the rain forests and the creatures who dwell there.

The premium market continues to grow, but not all bits of it. Fair Trade still sells well, as does food with higher quality ingredients, and higher welfare products. But organic is struggling, in King's view because consumers are increasingly questioning whether the premium charged is justified, and because the sector has "lost sight of its roots", straying away from core basic foods into fringe activities.

Mindful of his audience and its farming connections, Justin King devoted a section of his speech to British farming.

Justin King had a blunt message to farmers. Basically, there are still too many substandard operators who drag the returns down for everyone else. On the plus side, Sainsbury are prepared to pay a premium to farmers who deliver certain standards, this is the case on milk now, and they are working on a similar scheme for beef and sheep.

He feels British farmers are still too production focussed, and not concerned enough about consumers and what they want. Whilst consumers do like to buy British when it represents the best in quality and freshness, they are very happy to buy from abroad, especially from the developing world. In a nutshell, Sainsbury has no intention of confining itself to purchasing only British food.

A few days after the lecture, Sainsbury posted a good set of financial results for the first half of 2008. Recent TNS market research data showed their market share to be holding up pretty well against the onslaught from the cheaper end of the grocery trade, and doing better than Tesco. Sainsbury seems to be steering a sound course through difficult times.

Monday, 3 November 2008

Masterchef's John Torode Talks about Chefs and Farmers

John Torode, restaurant owner, president of the Royal Agricultural Society of England, and co-presenter of BBC's Masterchef, strode on to the stage at last week's English Food and Farming Partnerships conference to deliver a speech entitled "Why chefs care about farmers."

Sporting half an inch of stubble, a black velvet jacket, and scuffed brown boots he came across as the self-proclaimed opinionated Aussie he clearly is. But he's got some interesting comments to make, not least because insight into what makes the catering trade tick is so much more difficult to find compared with grocery where the big players update performance at least twice a year.

Torode runs Smiths of Smithfield in the city of London, and remains convinced that the main reason for his restaurant's success is that he really understands what is important to his customers. He reckons that, despite financial pressures, consumers still care about where their food comes from and how it has been produced, and that this is true for eating out as much as eating at home. In his view animal welfare and food miles come top of the ethical worry list, but that there is also a growing wish to eat more healthily and more simply.

However, he stressed that consumers are no longer prepared to spend silly money on eating out, rather they are searching ever more intensively for quality and consistency, and want to feel that their meal was good value for the price charged.

He talked about the importance of strong brands and building trust in whatever is being offered, feeling that consumers will return time and again to brands they can trust. He also mentioned the importance of telling people about why a particular product is different and special.

Torode talked about his own relationships with farmers. He said he knows them all, having personally scoured the length and breadth of Britain to get farmers willing to supply the quality he requires, and that the farmer's name is printed on the menu.

His one surprise as he set up Smiths was how few farmers could be bothered to work with him, but acknowledges that many can be put off by how complicated and costly it can be to get products to restaurants in the right quantities at the right time, and that one solution is to build a network of several farmers supplying the same area so that costs can be shared.

Perhaps the most striking thing about John Torode's talk is how similar the issues and opportunities are, whichever business you might be in. In the end, success comes from understanding what customers want, strong brands, great quality and asking a fair price for the product on offer.