Friday, 21 August 2015

ASDA - A Strategic Mess

ASDA have reported a 4.7% drop in like for like sales in the most recent quarter, and have slipped from second to third place in the supermarket pecking order, behind Tesco and Sainsbury.

A once sure footed and far sighted competitor with a crystal clear strategy now finds itself floundering in a strategic mess.

Here’s why.

ASDA identified the danger posed by discounters as long ago as 2013, and immediately announced that it would invest £1billion in reducing prices. At the same time it decided not to run promotions but to stick with an “everyday low price “(EDLP)strategy, which is what the discounters do.

The rest of the supermarket players eventually woke up to the discounter threat and have responded by a combination of selective price reductions, regular heavy promotions such as buy one get one free, and a promise to match ASDA’s prices on branded goods.

So ASDA is stuck in the middle. It was never as cheap as the discounters and is unlikely to ever be, so its EDLP approach cuts little ice with the dedicated discount shopper. And it offers little benefit over the other mainstream players who have managed to reassure their customers that they cannot buy more cheaply elsewhere, and in addition offered a raft of extremely good deals. ASDA does have its "Price Guarantee" of being 10% cheaper than its major competitors, but this only comes in the form of a coupon after waiting three hours, going on line, and entering the bar code on the receipt. Too much of a hassle for most. 

As a result shoppers cannot see the point of going to ASDA, and have drifted away in droves.

Andy Clarke, ASDA Chief Executive Officer, reckons that sales have now stabilised, and the only way is up. He has mentioned the need to improve ASDA’s online shopping service, and to address the quality of its food, however, both would only bring ASDAin line with what competitors are offering. There is mention of further cuts to get closer to discount prices, and of moving into petrol forecourts to capture the convenience shopper.
These are necessary moves but do not sound like a game changer. Without anwers to the fundamental issue of why shop at ASDA as opposed to other supermarkets, the sales decline is likely to continue.

Friday, 7 August 2015

Why Lamb Eating Quality Must Improve

It is a bad time to be a sheep farmer. The price for each lamb sold is nearly 20% lower than this time last year. Few businesses in any sector can stand such a severe drop in their income.

The reasons for the price fall are well known. On the demand side, a strong £ versus the euro means fewer exports to continental Europe, the Chinese and Russian markets are weakening, and China is reducing tanning capacity so wants fewer hides.  Most worryingly of all UK domestic consumption continues its downward trend.  And at this time of weak demand, supply is rocketing as New Zealand extends its season and the highest volume of home produced lambs since 2008 are forecast to hit the market this year.

Of all the factors contributing to the price drop, the only one within the industry’s control is domestic consumption. There have been recent calls for retailers to pass the lower price they are paying on to their customers, thereby stimulating sales, and calls for some retailers, who should be thoroughly ashamed of themselves, to stop stocking New Zealand lamb at this time when UK lamb is at its best and the NZ version out of season.

Both would help, but they are merely a short term sticking plaster over the long term gaping wound of plummeting domestic consumption. The National Sheep Association in its “Vision for Sheep Farming” says that consumption has decreased by two thirds since 1990, from 7.5 kg per person per year to 1.9kg today.

The problem is this - consumers buying lamb are too often faced with a poor quality product, yet are expected to pay a premium price for it. And no one in the industry has grasped the quality nettle.

So what is “poor quality”?

The picture above, which is typical of what is sold in all of the supermarkets, illustrates the main problem which is fattiness. According to EBLEX 57% of consumers say that lamb tends to be fatty, and I would bet that the figure is higher among younger people.  The problem is compounded by retailers selling product where too much fat has been left on.  Indeed, Tesco has the gall to quote fat levels “when the product is trimmed of fat”. Often too, the bit of the product visible in the pack looks lean but turn it over at home and the underside is more fat than lean.

So put yourself in the position of the consumer who has shelled out for the most expensively priced meat on the supermarket shelf, and yet has to throw away as much as half of the product they bought. No wonder that 45% of people say that lamb is too expensive.

Lamb eating quality is also variable.  It is well known that the older the lamb, the tougher the meat. Ram lambs left entire develop odd flavours after about 30 weeks of age. Lambs fed on concentrates tend to become fattier, and their fat tends to be yellower which some consumers do not like.

So lamb is fatty, expensive and variable in quality. No wonder that the domestic market is declining at such a rapid rate.

The depressing thing is that all of this is well known, and has been for at least 20 years. The old MLC did a study in 1994 identifying the same issues.

Where will it end? It is not over dramatic to suggest that lamb will become a sideline product in UK supermarkets, only picked up by consumers when it is sold at a knock down price.  Already the amount of shelf space given to it is shrinking every season. It does not receive the same innovation push as other meats. Out of sight it will soon become out of mind to the average consumer.

With a small domestic market the industry infrastructure behind it will crack. Farmers will cease farming. There will be less abattoirs because volumes are too low for viability. Auction marts and hauliers will suffer.

The landscape will change too as sheep cease to graze the hills and moorlands.

Yes, there may well be an opportunity for niche lamb production, but the large scale lamb industry as we know it today will be no more.

Yet no one in the UK has shown the necessary leadership to galvanise the industry and get the problems solved.