Thursday, 23 July 2009

How Market Research Can be Misleading – New Report on the Lamb Sector Overstates Sales Growth, and Opposed Views about Ethical and Premium Products

We are continually advised to do research to connect with the market place, improve performance, or check out whether an idea has a good chance of working.

Market research is indeed critical, but the information gathered needs to be interpreted with care.

Two examples of how market research can be misleading appeared in the last few days.

We heard from Cohn and Wolfe, a subsidiary of WPP the biggest advertising company in the world. Headlined “Recession spells the end of ethical shopping”, their most recent research says that UK shoppers are turning away from organic, Fairtrade and eco friendly products in favour of cheaper versions. More importantly, they also found that in future, recession or not, 73% of shoppers will try and pay less for premium lines such as Tesco’s Finest and Sainsbury’s Taste the Difference, 69% will buy less organic food, and 61% will pay less for Fairtrade. At which point anyone either in, or thinking about going in to premium or ethical foods might give up.

But the Cohn and Wolfe survey was followed about a week later by a press release from Tesco headlined “More confident consumers boost sales of premium and ethical foods”. They report that Finest, organics and Fairtrade products are all returning to growth. In the last 8 weeks their sales of organic mince are up 60%, organic cheddar up 70% and organic blueberries up 79%. In the upmarket Finest range, Cumberland Sausage has grown sales by 159%, and Wiltshire Cured Ham by 51%. Tesco specifically says that the news flies in the face of the Cohn and Wolfe survey, and attributes the growth to their policy of “offering customers great value for money”.

To be fair to Cohn and Wolfe they do say that the challenge for higher priced food producers and retailers is to make their products more affordable, but you have to get into the fine print of their release to catch this.

The other recent example of misleading market research comes in the shape of a new report called “Fresh Lamb - A Local Opportunity”, prepared specifically for sheep farmers by Kent University. The report is sponsored by the NFU, and the Institute of Grocery Distribution.

The report says that lamb sales have been steadily increasing, and that last year they grew by 15%. This rosy picture is in direct contrast to figures from Taylor Nelson Sofres, the market research firm, published every couple of months on the BPEX/EBLEX websites. These figures show that in the year to April, lamb sales have in fact dropped by 5% year on year, and have been dropping for nearly two years as retail prices have increased.

So what’s going on?

It turns out that the Kent University report is based on sales of lamb through Tesco, not sales in the total market which is what the levy board numbers are based on. The levy board numbers are of course more representative of what is really happening to lamb sales. It would have been helpful if the Kent report mentioned that its numbers are based on Tesco shoppers.

Accurate interpretation of market research matters. Just glancing at the Kent University report might lead sheep farmers to conclude that demand is rising and so prices for their stock might well rise too. They might even think that the recent buoyancy in stock prices is all due to British consumers wanting lots of lamb when in fact they are due mostly to the strength of the Euro, and may well fall back sharply if the Euro declines, and there is no home demand to offset exports.

Threading a true path through all the information available can be difficult, but there are a few actions which can help avoid wrong conclusions.

First, examine the fine print of any research report, and don’t rely on headlines. Second, try and collate information from various sources to check for consistency, and investigate anything that does not make sense. Third, gather data over time rather than rely on a snapshot. And fourth, don’t rely entirely on what the public say they will do, but check out what they actually do when faced with a buying decision in the shop.

Ps. Farmers Weekly and the IGD have both been alerted to the lamb figures issue, although no response has yet been received.

Friday, 10 July 2009

Milk Drinking on the Up Despite Price Hikes

DairyCo has just published liquid milk consumption figures for the 12 months to 14th June 2009, and they show some striking trends.

All those concerned about the effect of price rises on consumers’ fresh milk buying habits need not have worried. Despite an average 11% increase in prices in the last twelve months, from 62p to 69p, the total market has kept on growing and has now reached just over 5 billion litres. Which says something about the importance of milk to the British diet, much about a complete lack of awareness by the average consumer of how much they are paying for their daily pinta, and is a tribute to some of the innovative products launched into the market. It also illustrates how nonsensical it is for major retailers to slash milk prices - this is a product which does not need price promoting.

On the innovation point, the figures show that milk is not just a big undifferentiated commodity market. A careful look at what’s important to consumers results in successful new products. Filtered milk is a good example. Pioneered by Cravendale, premium priced, and sold with the consumer benefit of staying fresh for longer, filtered milk continues to grow its volume and now accounts for about 6% of all milk sales. Another innovation is milk with 1% fat which has found a niche between skimmed with no fat at all, and semi skimmed with 2% fat.

Equally, not listening to consumers results in problems. A case in point is modified milk which lost half its sales in the last 12 months and is about to expire completely. Consumers just don’t want a fresh and natural product like milk interfered with.

A couple of other interesting trends emerge. The organic milk market has dropped by just 2 million litres to 167m, but is holding up reasonably well compared with other organic products. Part of this is due to less aggressive price increases. Whereas regular milk increased average price by 7p per litre, organic increased by 4p. Jersey and Guernsey which hardly increased price at all have held volume, albeit this is still a tiny sector.

Doorstep delivery sales continue to fall, down 11% year on year. With an average price of 98p per litre, this is perhaps not too surprising. But, it still accounts for 6% of all milk volume sold, and the independent milk producer might well be able to build a good business if they could bring the price nearer that of the supermarkets.

For some reason sales of soya milk have dropped by 8%, despite an average price reduction. Possibly at 90p a litre it is just too expensive when budgets are tight.

All in all though, liquid milk looks like a healthy market in all senses.

Monday, 6 July 2009

Discount Supermarket Growth Slows - Is It All Over for ALDI et al?

Discount supermarkets like Aldi and Lidl are making headlines again, but this time for sales slowing rather than growing.

Editor of The Grocer, Adam Neyland wrote a piece a couple of weeks ago entitled “Is the discount boom over?” This was followed a few days later by figures from market research company TNS Worldpanel, which showed that in the 12 weeks to June 14th Sainsbury and Morrison grew faster than Aldi and Lidl, with Asda growing at about the same rate. Actual figures were +6.5% for the total grocery market, Morrisons +9.3%, Sainsbury +8.9%, Aldi +8.7%, Lidl +7.5%, and Asda 8.2%. It’s a marked change. In the previous months the discounters were growing at anything up to 3 times the rate of their main stream competitors.

Why the change?

As Neyland points out some slowdown in growth was inevitable as competitors fought back with price promotions, million £ advertising budgets, and a focus on the quality and value of their fresh food. Which is a lesson to all of us to never underestimate the competition, particularly in UK grocery.

I think there is more to it.

It is interesting to reflect on what caused the discounter boom in the first place. Of course some of it was due to consumers on a strict budget searching for value as food prices rocketed. Much responsibility though must be laid at the door of the media. Not a day went by without headlines about the middle classes turning to Aldi, that it was now more chic to be seen with an Aldi bag than a Waitrose one, and that discount car parks were full of Range Rovers and Mercedes. No wonder many read the hype, worried about missing out, and nipped along to see what all the fuss was about. The monetary value of all that media coverage must have run into millions.

The big question is, of those who made the visit, how many tried, were disappointed and never came back versus how many changed their shopping habits and returned every week. Market research company Him! (yes, new to me too, but they are a genuine outfit despite the odd name), does regular research with discount shoppers. They say that shoppers are less satisfied with discounters this year than they were in 2008. Also that recent shoppers, and more upmarket shoppers expected more from the stores and were disappointed by what they found when they got there.

There is a lesson here too, which is that a business cannot be built on people buying just the once, rather, long term growth will come from having a solid base of loyal fans who buy again and again.

So what of the future?

Discounters have many devoted customers, but it is not a way of shopping that appeals to all. If it were, the market share for all three discounters would be far higher than its current 5.9%, which compares with a share of 11.6% for Morrisons, 16.1% for Sainsbury, 16.8% for Asda, and 30.8% for Tesco.

Adam Neyland rightly concluded that discounters will not go away. Largely privately owned so without shareholder pressure for fast returns, they have cash and big ambitions. Aldi is committed to opening a store a week until they have 1500 in total. It also recently won best supermarket award from Which?, the consumer organisation. Lidl is supporting consumer trends with the addition of Fairtrade products, and a commitment to sourcing British beef, chicken and pork.

Whether they will make a major breakthrough is questionable. Already some research by Him! shows the numbers shopping at discounters dropping from 15% to 13% of the population, which compares with 79% visiting a mainstream supermarket. And if you look at shares held by all discounters, it has not moved much from the days when Kwiksave was operating. Indeed Edward Garner of TNS has consistently argued that the growth seen in discounters is merely a mopping up of market share held by the now defunct Kwiksave.

The future for discounters is likely to be one where the total sector will hold its market share, and within that there will be winners and losers with Aldi consolidating its position as the main player.