Tuesday, 26 August 2014

How do Mainstream Grocers Deal With the Quagmire of Low Market Growth, Rampant Discounters and Budget Minded Shoppers?

Food sales in the 12 weeks to 20th July grew attheir slowest rate for 10 years, up just 0.9% in value. 

Despite the uptick in the economy, and in consumer confidence, people are reluctant to give up their thrifty food buying habits acquired during the depths of the recession. They are helped of course by being able to shop at discount supermarkets. Aldi and Lidl have raised their quality game, kept rock bottom prices, and been rewarded with rocketing growth rates.

What then is the best way to deal with lacklustre growth rates, budget conscious consumers and rampant discounters?

Suggested action is falling into two camps. One says that mainstream grocers must reduce their prices by meaningful amounts, and soon. The other says go where the growth is and invest in online grocery shopping and convenience stores.

The IGD continues to back its online growth forecasts saying that sales will more than double in 5 years.  It points out that online grocery shopping is still in its infancy. Just 27% of shoppers use on line, and only 10% do their major shop online. The IGD reckons that the convenience of shopping online, providing as it does the ability to shop anytime, anywhere, combined with new initiatives being developed by retailers, and the added ease provided by mobile technology, means that more and more shoppers will gravitate to online buying.

Certainly some retailer initiatives look attractive. The boom in click and collect outlets avoids the need to wait in at home for the order to arrive, and even at home it is possible to select one hour slots leaving the rest of the day free. Retailers are also working on apps to make shopping easier. Instead of trawling through every category, Ocado’s app provides personalised guides to what is usually bought, what was bought last time, and ready prepared lists of what might be needed. Ocado is a leader in mobile shopping and says that 45% of its shoppers check out on a mobile gadget.

Retailers are also working on the opportunity to build volume over and above a standard shop by linking products in a way that is not possible in store – pizza and beer for example.

IGD points out that further growth will come from the advent of new players like Morrisons, the Coop, and Iceland who are all testing online shopping methods.

The above initiatives should encourage more online shopping, but there are two snags. First they are a double hit financially being costly in terms of investment and considerably less profitable than regular in store shopping. And second, they do not solve the knotty problem of uncompetitive pricing compared with the discounters.

Sainsbury’s tie up with discounter Netto starts to address the pricing issue, and there is a suggestion that Tesco could manage its stores like it does its product range, with three tiers of shops – value, to provide rock bottom prices, middle, and Finest as a Waitrose look alike to keep the profit margins up.

It is difficult to see how mainstream supermarkets will be able to afford a big drop in prices and the huge investment in online without radical restructuring, a dip in profits, and the usual squeeze on suppliers.

Competitive pricing has to be the priority, and with it an acceptance that online may not grow as fast as many predict. 

Thursday, 7 August 2014

NSA Vision for Sheep Farming Says Domestic Market Growth is Vital - But Who Will Lead the Charge?

The National Sheep Association/NFU’s recently published vision for UK sheep farming identifies domestic market growth as critical to a healthy future.

Quite right too. The Vision paper says that domestic lamb consumption has plummeted by nearly two thirds since 1990, and that relying on a buoyant export market, dependent as it is on currency values, will not save us.

What is required, says the paper, is that “we” have to persuade UK consumers, particularly younger ones, that lamb is a tasty nutritious source of food. They suggest that innovative cuts, more branding, and new products will help. (More ready meals would be good too as lamb is woefully underrepresented in this huge, fast growing and youth appealing market segment.)

Th paper also points out that price is key. It is no accident that after years of decline the volume of lamb bought from supermarkets grew by 14% in 2013 due to an average 5% drop in price.  But prices are volatile, retailers are fickle, and the price of lamb could accelerate once again.

Lower prices if achievable, and new brands and products will help, but they will not be enough, and the Vision paper ducks two major challenges.

 For starters, who are the “we” who will lead the charge to grow the domestic market? Who precisely is accountable for growing an industry? Is it the Association, the NFU, retailers, processors, levy bodies, or perhaps farmers? Unless there is clear accountability for setting and delivering the growth agenda then nothing will happen and this critical contributor to achieving the Vision will drown in a sea of many words, much opinion, but little action.

The second challenge is what should be done.

The investigation needs to go deeper than price reductions and innovation. Whoever is going to lead the industry growth charge needs address the biggest problem with lamb, and that is fattiness. According to work done by EBLEX, 57% of people say that lamb tends to be fatty compared with 28% for beef, and that number may well be higher among the young.

All players in the food chain have a role to play in understanding what makes lamb fatty, and then working to address the problem.

Why, for example, does New Zealand lamb as presented in the shops contain around half the fat of British lamb. Is it the NZ lamb diet, or overly fat lambs being so heavily penalised that the farmer will not submit them to the NZ abattoir, or perhaps carcasses arrive in the UK with much of the fat trimmed off.

Processors and retailers need to be much stricter about removing excess fat from the product. Consumers buy with their eyes and will shun a product where they can see superfluous fat, or even worse buy and once home realise that much of the product will be consigned to the bin. It is flabbergasting to note from Tesco’s website that they quote fat content as bought, and then with the fat cut off by the consumer. Why should the consumer have to pay for something they will not eat!

Thirdly, more attention needs to be paid to offering lower fat alternatives just as they do in the beef market where it is possible to buy mince with fat levels ranging from 5% to 20%.

The NSA and the Vision paper’s co authors the NFU are confident that sheep farming can expand, but without a clear champion focused on understanding and delivering what the consumer wants domestic sales will continue to drift downwards, taking the livelihoods of many in the sheep meat food chain with it.