Thursday, 19 August 2010

Sales Fall Again at ASDA - Cheap Prices are not Compensating for Poor Quality

Here’s another confirmation that consumers do not just buy food purely on the basis of price. the price comparison website says that ASDA is the cheapest of the “Big Four” (ASDA,Tesco, Sainsbury, Morrisons), yet ASDA yesterday announced that like for like sales fell by 0.4% in the three months to July 31st, after a 0.3% fall in the three months before that. At the same time Kantar Worldpanel, the research company which reports on how supermarkets are faring, said that ASDA continues to lose market share, whilst Morrisons and Sainsbury motor ahead.
Commenting on the company’s performance, Andy Clarke, ASDA’s new chief executive was vocal on the subject of price being different from value. Saying “We have got to be the best value. What we have been is the best price”, he promised that in future customers would see a “step change” in quality - “We are not as well known for the quality of our food as we could be”.
Despite this commitment to better products, Clarke also said that UK consumers are facing difficult times, that ASDA would respond by offering everyday low prices, and that as a first step towards this goal, ASDA would cut the price of staples such as bread, milk, and eggs.

He is not alone in recognising that as well as offering great quality, supermarkets have to offer sharp prices to ensure that shoppers walk through their doors as opposed to competitors. Even Waitrose, store of choice for the affluent, recognises this and anyone venturing in to a Waitrose will see aisle ends featuring promotional offers. In fact all supermarkets with the exception of ASDA are heavily price promoting with Kantar reporting that nearly 35% of all products are bought on promotion compared with 31% a year ago.

The focus on price is unlikely to ease any time soon. Consumer confidence has taken a bit of a dive recently as the scale of government cutbacks is becoming clearer, and they seem less willing to spend. Whilst this has yet to happen in supermarkets where sales in the last 12 weeks grew by 4.5%, supermarket supremos will be turning their attention to driving growth against a background of consumer thrift.

So how will they make money when heavy promotions lead to lower profits, and shoppers demand good quality? Harder bargains will be struck with suppliers of course. But a more productive answer might lie in developing a new “super premium” market segment with even higher cash margins than current premium ranges, and with a quality so irresistible that shoppers are happy to buy. We know that even in the depths of recession, consumers were prepared to spend on top quality goods if they felt they were worth the money.

Innovative suppliers who can deliver superb quality products at an acceptable return to themselves and their supermarket stockists could do well. Not easy though.

Tuesday, 10 August 2010

How Do You Solve a Problem Like Falling Lamb Consumption - Thoughts from Sheep 2010

There was standing room only for the session on marketing at last week's NSA event where farmer Geoffrey Probert, May Hill representative Henry Dunn, Remi Fourrier from EBLEX, and Steve McClean of Marks and Spencer discussed a variety of issues.

The problem of plummeting lamb eating in the home market was addressed, and the general concensus was that quality is fine, its all about price.

For Remi Fourrier, who is responsible for growing British lamb sales to France from it current one in 5 lambs produced, the main issue is encouraging younger people to eat lamb, and that ways had to be found to make lamb more convenient to cook.

Henry Dunn, representing May Hill who sell to Sainsbury, pointed to the success of Cotswold Lamb which he feels works because it has a strong provenance story. Consumers like the idea of knowing where their lamb has come from and how it was produced. Steve McClean agreed. Marks and Spencer shoppers are interested in provenance too, and increasingly in the impact of products on the environment. M&S are planning to add more environmental compliance measures into the standards it requires from producers.

All mentioned that consumers of ethnic origin eat large quantities of sheep meat - a figure of 27% was quoted, but all recognised the sensitivity of slaughter procedures required by some.

Returning to the quality issue, there were a couple of comments about grass fed lamb producing a top quality product. This was considered to be one of the reasons behind New Zealand lamb's good and consistent quality. Marks and Spencer source from NZ in our winter, and aim for grass fed lamb in summer for this reason. As Mr. McClean said "It's all about ensuring consumers have a good eating experience when they buy lamb".

So no silver bullets emerged from the debate.

As a firm believer that, whatever the product, price is a problem if the quality does not match up, I was surprised that quality and consistency of lamb did not get more of an airing.

A look at WorldPanel numbers supplied by BPEX shows that in the 12 weeks to July 11th, lamb sales dropped by a further 8%. So the problem of what to do about falling lamb sales is not going away.