Supermarket Price Promises – Mostly Smoke and Mirrors

Shoppers’ continued search for value, and the onslaught of discount grocers has led to the Big 4 supermarkets are tying themselves in knots trying to assure their shoppers that they offer the same prices as their competitors.

All claim that the shopper can be confident that their purchases will be no more expensive than if they had bought elsewhere, but close examination suggests that the initiatives being run by the supermarkets are mostly smoke and mirrors designed to give the illusion of value but in reality offering little of substance.

No store hands back hard cash if they are found to be more expensive. Instead Tesco, Sainsbury and Asda hand over vouchers and Morrisons has a complicated scheme where a card has to be obtained, points are added to the card when purchase at another store would have been cheaper, and the points are eventually traded in for a voucher. Voucher schemes benefit the supermarket because many will have been lost or forgotten about before they expire.

There are other wheezes designed to limit supermarket exposure. Sainsbury only compares with Asda, dropping the comparison with Tesco in a recent change designed to save money. Asda makes the shopper do the comparison work. It guarantees to be 10% cheaper than the other three major supermarkets but the shopper has to go online, enter till receipt details to find if their shop could have been cheaper elsewhere, and then claim their voucher.

There are a myriad of exclusions and exceptions to the various price promises. To be fair, Tesco’s Price Match covers all shops big and small, and fresh and own label products as well as branded. Morrisons compares with Lidl and Aldi as well as the majors across branded and own label. But Sainsbury does not offer its Brand Match in convenience stores, neither does Morrisons, and Sainsbury only compares branded prices.  All the supermarkets stipulate a minimum spend. No store gives out a voucher worth more than £10. Many everyday items are excluded such as baby formula.

There will be shoppers who have the time to go into the detail and work out how to make these pricing initiatives work in their favour. Many though will quickly conclude that the only thing that counts when shopping is the size of the bill week in and week out.

Which takes us back to Lidl and Aldi.

Despite the flurry of reduced prices and price promises among the “Big 4” both discount stores continue to flourish. Add to this Aldi’s recent commitment to keep the price differential between themselves and conventional supermarkets at a minimum of 15%, and it is difficult to see how the majors can hold their position without concrete and continued price reductions across their whole range of goods. So far, they are only playing at delivering competitive prices.

The Sainsbury Take on What makes Consumers Tick

Sainsbury’s half year results were announced this week and showed good growth in sales and profits. The company has now increased its sales for 35 quarters in a row, something that none of the other “big four” players have done and so when CEO Justin King speaks about what consumers want it is worth a listen.

 When presenting the results King said that the better economic mood in the country has yet to be felt by consumers in their pockets and so Sainsbury’s business plan assumes that household incomes will remain flat to declining over the next two to three years.

Equally striking is his overwhelming belief that, despite the economic pressure, British consumers are driven as much by ethical values as by price. He sincerely believes that Sainsbury’s success can be put down to fairness in dealing with suppliers, high standards of food quality and traceability, (interestingly Sainsbury was not tainted by the horsemeat scandal), and attention to animal welfare, (where they have for years supported RSPCA Freedom Foods, Fair Trade bananas, free range eggs, and Marine stewardship Council fish).

King is convinced that British consumers stand right behind him on this. Which explains why, despite being knocked back twice in the challenge on Tesco’s price promise, Sainsbury are again going to the courts to claim that when comparing prices, issues such as animal welfare and Fair Trade have to be taken into the equation. 84% of consumers apparently agree with him.

According to King this commitment to values applies to supplier relationships. Speaking on the day when Prince Charles took a swipe at rapacious retailers who deal unfairly with farmers, King stated categorically that Sainsbury’s supplier relationships are totally fair.

The commitment to ethical values is an overarching strategy, and it is accompanied by a commitment to financial value in the shape of Brand Match, the scheme whereby consumers get a coupon if their branded purchase would have cost less in one of the other big four retailers. Beyond this, the Sainsbury route to winning consumer spend lies in investment in convenience stores, online shopping, and Sainsbury’s own brand where of course they can display their values credentials to best effect. In the last 6 months sales through convenience stores have grown by 20%, online by 15% and sales of mid range By Sainsbury and Taste the Difference food brands are growing at twice the rate of national brands. They will continue to invest in their Nectar card which they believe allows tailor made promotional activity directed at individual shoppers and is thus more relevant than competitors who use loyalty cards to promote to groups of people.

Cynics might say that there is no such thing as a major retailer who is fair to suppliers. Cynics might also say that it is price alone that matters to consumers and Sainsbury just happen to be on a winning streak because Tesco, Morrisons and ASDA are going through a difficult time.

But, 34 consecutive quarters of growth mean that Sainsbury must be doing something right – something that resonates with consumers sufficiently strongly to make them shop there on as regular basis.

Advertising Provides Clues to Consumer Trends

What companies say in their advertisements can be a good guide to what matters to consumers.

The holy grail of a good advert is to be eye-catching, relevant, and persuasive. It has to stand out amidst the hundreds of advertising messages with which we are bombarded every day, it needs to address an issue that matters to consumers, and it has to affect behaviour, either by reinforcing the rightness of a decision made,  or encouraging a change in what or where a product is bought.

It is therefore interesting and instructive to see what the big advertisers are saying. That is not to suggest that they always get it right – frequently they do not, but, most advertisements are the result of thousands of hours spent listening to consumers and crafting messages which will appeal.

Many supermarkets have jumped on the British bandwagon in the wake of the horsemeat scandal. The IGD (Institute of Grocery Distribution)  tells us that trust in food manufacturers and retailers was dented by the issue, and their most recent research shows increased consumer interest in buying British with the proportion of people saying that “it is not important to me to buy British” dropping from 45% in 2007 to 22% in 2013.

Morrisons, as indicated by the advert above, have clearly decided, in the wake of the scandal that their unique position of buying direct from the farm and owning their meat processors, and their commitment to buying British beef, lamb and pork gives them a one up on competitors. They are undoubtedly right. So their message is relevant. Where it starts to fall down is that the way they say it is complicated. Consumers might ask themselves what exactly is meant by. Morrisons headline is “All the fresh meat we prepare in store is 100% British, 100% of the time”, but consumers might ask themselves questions like how much and what meat exactly  is not prepared in store, and they will be none the wiser if they take the time to read all of the words in the advert.

Morrisons also advertise the quality of their fresh food, as indeed they have done for some years.

The Coop takes a simpler approach to buying British with the headline – “All of our fresh beef is reared on British farms”.

And the Coop combines buying British with animal welfare in an advert saying that “All our fresh chicken is reared by British farmers to higher welfare standards”. Again, though, consumers might ask themselves what exactly is meant by higher welfare.

Which is not to say that price is unimportant. ASDA take the no holds barred approach – “We are 10% cheaper or your money back.”

Sainsbury by contrast go for the softer sell. Their message combines quality with a price, hence the beautifully photographed pictures with a teeny tiny reference to the price, so small it could easily be missed. It is difficult to criticise Sainsbury, their track record of growing sales and profits is sound. But perhaps here they are overly subtle.

What can we conclude?

Price will remain important to consumers but so, increasingly, will quality and provenance.

The Real Reasons Why Sainsbury's Dumped the Red Tractor

The Farmers Weekly poll last week asked the question “What do you think of Sainsbury’s ditching the Red Tractor”. 69%of respondents answered that they were disgusted, against 14% saying they are right to do so and 17% not caring one way or the other.

We cannot read too much into this piece of research. The question is designed to be provocative, only 874 people responded, and they probably did not think overly hard about their choice of answer.

This piece of research apart, the outraged response from many in the farming community does make you wonder about how much in touch they are with consumer trends and the way the big retailers think.

Sainsbury’s stated rationale for abandoning the Red Tractor symbol is that it clutters up the label, the EU is about to pronounce on food labelling, and too many labels lead to consumer confusion.

But, if Sainsbury’s valued the symbol, or thought that their customers valued it, a way would have been found to keep it. Why for example, is the RSPCA Freedom Foods label staying on, and, reportedly, the Irish assurance logo.

Sainsbury’s thinking may have gone something like this.

The company sets itself up as a champion of high welfare, hence its support for Freedom Food chicken and pork. As a business it feels that consumers care deeply about the issue, and that commitment to high welfare gives them an edge versus competitors, a point that chief executive Justin King pushes home at every opportunity.

They have committed by 2020 to selling all meat, poultry, eggs game and poultry products supplied by farmers who adhere to independent higher welfare standards.

The reality is that Red Tractor does not deliver the image that Sainsbury wants to portray because the Red Tractor only means that farmers have adhered to minimum legal standards. Add to this the adverse publicity experienced by Red Tractor of late including the Advertising Standards Authority judging a recent pork advertisement to be misleading, the shocking case of cruelty at a Red Tractor audited farm in Norfolk, and extensive media coverage of what the different food labels stand for with Red Tractor coming out bottom, and the value of the logo to Sainsbury suddenly looks suspect.

What about other retailers? Tesco has committed to continue with the logo. But this could change. Whilst there is still huge confusion among the majority about the facts behind the different labels, consumers are becoming more sophisticated and knowledgeable by the day, prompted by campaigning groups and enabled by technology which allows instant access to the internet for research and verification.

And  as consumers become ever more aware of food labels and what they stand for, the other supermarkets will review their animal welfare policies too. It is not hard to see that the Red Tractor stamp in its current form could become meaningless to them also.

A change in ethical food buying - consumers now "want value for their values"

Joanne Denney Finch of the Institute of Grocery Distribution in her keynote speech to the Consumer Goods Forum stated that consumers now "want value for their values". The conclusion is based on research they carried out in Britain, France ,Spain and Germany, and its interesting because it indicates that consumers are once again raising the bar on what they expect when they buy food.

Cynics would say that consumers have always wanted more than they are prepared to pay for, but I think there is a subtle shift of emphasis here. Yes, in the past a sizeable minority have been prepared to pay for what they believe in, but what seems to be happening now is that people expect higher standards but don't expect to have to pay for them. As Mary Vizosa of Waitrose said in the Times, consumers expect their retailers and suppliers to act ethically and sustainably, and not present ethics as an extra which commands a premium.

We can therefore expect a change in consumer behaviour, as they shop around to find the outlets that offer both value and values for a given product. Those who fail to deliver will lose custom.

This could be why Sainsbury took full page advertisements in today's papers to say that they have been named as "Best large supermarket 2010" by Compassion in World Farming, and put a value offer in the advert too ( 2 packs of sausages for £4, and 20% off Freedom Food chicken). Waitrose stopped short of adding a value twist to their communications but the front page of this weekend's newsletter features a very handsome beast with the caption "Farming with Compassion - Waitrose wins award for putting animal welfare first".

It would seem that ethical foods are just another example of what was niche gradually becoming the norm.

With the move to mainstream comes the loss of any price premium. The best example is Fair Trade, where volumes have rocketed but price stayed the same as the standard version, witness Sainsbury's Fair Trade bananas, and Cadbury's Dairy Milk.

Ms. Denney Finch argued that ethical products now offer competitive advantage, and that British business, which generally has a good ethical reputation, can use them as a springboard for growth internationally.

The notion that British business should raise the ethical bar is very welcome. The challenge of course to raise the bar without raising the price, and ensure in the process that all players in the food chain are treated ethically and sustainably.

Shopper Buying Behaviour - Insights from the NFU Conference

Edward Garner of Kantar Worldpanel ( previously called TNS) spoke yesterday about whether recent events like the move away from discounters, a decline in sales of value ranges, the resurgence of Waitrose and a swing to buying premium food over Christmas heralded the end of recessionary food buying behaviour. He did not offer a conclusion but en route to a fence sitting finale he did offer interesting nuggets about shoppers and the way they buy from the major supermarkets.

ASDA
The main message here is that ASDA is all about lowest price. When questioned, the overwhelming reason consumers give for shopping at ASDA is low prices., and it is ASDA who has gained most from the trend away from discounters. ASDA’s most recent price wheeze is to sell at a “round pound” price point, and in the last 12 weeks items priced at £1 have accounted for 14% of all sales. The round pound price point extends to £2, £3, £4 etc, and in total accounted for 22% of sales. Suppliers are being encouraged to tailor their products to sell at these particular prices.

The other side of the coin is that ASDA are not rated highly on quality. They undertrade on fresh and chilled foods, meaning their share of these is less than their total share, sales of their premium range are falling, and their organic sales are down 25% in the last twelve weeks, the worst performance of all supermarkets. (Note that ASDA would argue that they have upgraded quality and won lots of awards, but the Worldpanel figures suggest shoppers are not on the same page.)

Edward Garner did not say, but this obsession with price, coupled with a slight share decline over Christmas, may explain why Andy Bond who runs ASDA took the odd step of doing a public video in which he lambasted suppliers for not reducing prices when costs fell back , preferring instead to offer promotions which he termed “Weapons of Mass Distraction”. Bond declared that ASDA would “return with force” to its “Every day Low Price Strategy”, which he believes is best for customers, suppliers and shareholders. Other supermarkets might disagree.

Morrisons
Morrisons tends to be lumped with ASDA as a low price store, and certainly is seen by customers as offering good value, but it is changing its image and performing well. Morrisons overtrades by 3% in fresh and chilled foods, and by a huge 14% in fresh meat. As Garner says, something for farmers to be aware of. Also Morrisons is growing its number of wealthier customers, classed AB’s, who generally have more spending power.

Tesco
The news here is that their premium range is growing, and their discount range, introduced to fight Aldi and Lidl, only accounts for 1% of sales. Apparently the claim to be Britain’s biggest discounter backfired as we shoppers do not like to be told that we are buying cheap goods.

Waitrose
Waitrose has been doing well as shoppers get over the shock of inflationary price rises. Essentials, which Garner stressed is not a value range, but rather a communication exercise designed to make shoppers re- evaluate the store, has helped.

Marks and Spencer
Still a big problem, due to a lack of regular customers.

Fair Trade, Organics, Local Foods, and High Welfare
Sainsbury remains the biggest seller of Fair Trade products, and Waitrose sells 4.5 times more organic produce than its market share. However organic food has still not regained its position and Garner feels that the term organic will become a statement of production rather than a prime reason to buy.

Local Food sales are booming, and supermarkets are increasing the shelf space devoted to them.

High welfare products also continue to grow. 60% of all eggs sold in retail are now free range, despite costing about 30% more to buy, and free range chicken sales are also growing albeit at a slower rate.

Garner ended by saying that many industry watchers feel recessionary food buying habits may not have gone away because tax rises and spending cuts will breed uncertainty. On the other hand, he said, food only accounts for about 8% of overall consumer spend and so may not be the first port of call for consumer cutbacks.

If asked to come down on one side or the other, I’d say that there will be no return to unthinking spending any time soon, that people will pay for what they value whether it be premium ingredients or ethical beliefs, and not just follow lowest price, and that poor quality will not be tolerated.

What Do Recent Results and Comments From the Big Four Supermarkets Tell Us About the Consumer?

Few know more about consumers than bosses of the big four supermarkets. Each day they scan data from the checkouts to see what is selling and what isn’t. Those with loyalty cards analyse how different types of consumer are spending their money. Tesco alone tracks the shopping behaviour of 16 million Clubcard holders. So, when the bosses speak its worth listening to how they see consumer trends.

The last twelve weeks saw Morrisons grow fastest at + 7.4%, hotly followed by ASDA at +7.2%. Sainsbury grew by 5.4%, and Tesco by 3.1%. However Tesco reckons that in recent weeks it has grown faster than the others due to offering double points on its Clubcard. (A point dismissed by Sainsbury as a “throwaway remark” not backed by figures.)

Where all four supermarket bosses are agreed is that food inflation has receded, growth rates are slowing, the battle for market share will intensify, and the focus will be on building customer loyalty.

There is agreement too that consumers are loosening their purse strings, albeit slightly. Both Tesco and Sainsbury reported higher sales of organic food and premium produce like Sainsbury’s Taste The Difference range and Tesco’s Finest. They said sales of ready meals are up after a long period of decline. Sainsbury said that sales of welfare friendly Freedom Foods have grown by 130%. At the other end of the scale, both said their lower price ranges were doing well, with Tesco very pleased with sales of their discount range, and Sainsbury’s Basics range having grown by 30%.

There is less concensus among the bosses about consumer confidence over the next few months. Terry Leahy of Tesco has called the bottom of the recession “We are past the low point and things are getting better in the UK. People feel their finances are under control”.

Justin King of Sainsbury is more gloomy. He sees increased VAT, increased taxes, interest rate rises and continued fear of unemployment as likely to put a damper on consumer spending, and that the current rate of promotions, which account for a third of sales compared with around a quarter historically, will need to continue. Andy bond of ASDA agrees - “Many of our customers are still cautious”, and will continue to search for the everyday low prices offered by ASDA.

King and Bond may be closer to the truth than Leahy. The National Consumer Confidence Index, published monthly by TNS (the market research company) does indeed confirm that consumers are a bit more positive about the economy. The improvement is marginal though. Whilst 72% of those interviewed think their household income next year will stay about the same as now, 71% think there will be less jobs available over the next 6 months, and 72% feel bad about the economy generally. Only 34% think the economy will be better in 6 months.

Its encouraging to see even tiny tips of green shoots. But there is no sign yet of a wholesale abandonment of thrift from the majority of consumers.

Internet Grocery Shopping - How Big Will it Get?

This week saw another salvo in the internet grocery shopping war with Waitrose scrapping its delivery fee on orders over £50. MD of Waitrose Mark Price, interviewed on Sky News, reckons that online grocery shopping it could be worth £13bn, or 10% of food bought, and he is planning to grow Waitrose’s online sales from a current £70m to £300m in the next 4 years.

Mr. Price is not alone in planning a big future for online. Sainsbury’s delivers 90,000 online orders per week , has seen sales grow by 40% year on year, and has marked the area out as a development priority. Tesco in their 2008 annual report said sales had grown by 31%. ASDA recently revamped their website. Ocado, who are an online venture only, part owned by Waitrose, have committed to matching Tesco on the price of its prepacked products, meaning it often undercuts Waitrose in store prices. The bullish views about the future are supported by the IGD, who estimate that the market was worth £3.5bn in 2008 and will double in size to £7.1bn by 2013.

So what do we know about online grocery shopping now, and why might it grow?

At £3.5bn the market is still small, despite being available for at least 8 years. According to TNS the market research company, speaking at a recent Meat Outlook conference, online sales account for 2% of Tesco’s till roll, about 0.6% of ASDA’s, and about 0.5% of Sainsbury and Ocado.

TNS also tells us that the heaviest on line shoppers are those with children 0-4 years old, 6.5% of this age group shop online. The lightest shoppers are retirees, of whom just over 1% shop online. High earners, of whom 7% shop online, are over 4 times more likely to shop this way than lower income groups.

Again, these are small numbers, so in an age of increasing technological savvy, the presence in other sectors of tried and tested models such as Amazon, and the faster times that broadband presents, what might be stopping people from using the internet to grocery shop?

Well, its got a bit of a bad reputation for reliability of delivery service, and quality of products delivered. Consumer magazine “Which” did a small but widely reported survey at the end of 2007 which said that online groceries arrived with very short shelf lives, less than those to be found in store. More recently, Mumsnet, the social site for mothers with young children, gives real life examples of the issues, showing a thread from last month where mums talked about banana yoghurts being substituted for bananas, wilting fruit and veg, and deliveries not turning up when promised. These mums concluded that the quality of experience varied a lot not just between different supermarkets, but from different stores within the same supermarket.


At the other end of the scale, IGD did some research with over 60’s and found that they would use the internet more if the sites were easier to navigate around, security could be guaranteed, quality would be consistent, prices were equal to those in store, delivery charges reduced, and the sites made easier to navigate around.

On the subject of growth potential, it is clear that supermarkets are working to address the issues, particularly making the sites more user friendly. Tesco’s idea of drawing attention to a cheaper version of what might first be selected is a great one, and far easier than walking up and down the shelves looking for the best buy. Sainsbury’s offers hundreds of recipes and allows you to buy all the necessary ingredients with just a click. The supermarkets are also making sure that there is no price disadvantage to shopping on line.

One key challenge for them all is to communicate more clearly and consistently the benefits of online shopping, particularly to key target groups such as mothers who must find it a struggle to organise all the paraphernalia needed to go shopping with a young child, and to older groups who may welcome the benefits such as having heavy shopping delivered to the door. Interestingly many of the Mumsnet mums were so committed to the benefits of online that they were prepared to shop around until they found a store they could rely on. But not everybody will be prepared to do this, so the other key challenge for supermarkets is to ensure total consistency, making every online shopping experience a good one.

Solve both of these and online could easily achieve 10% of all food buying.

Consumers and the Credit Crunch - Latest Views on Food Buying Behaviour

In the words of Justin King of Sainsbury, speaking during a business performance update last week - “the consumer is in a bad place just now”. Which is not really surprising, given the amount of depressing economic news.

Nevertheless, both Sainsbury and Morrisons, who also gave a business update last week, feel that food is one of the last things where consumers are prepared to trade down. A view echoed by the IGD (Institute of Grocery Distribution) who say their research indicates that “Economising is not the same as down trading”. Sainsbury’s “Basics” range is indeed up 60% year on year, but it still accounts for only 3% of total sales. Sales of their premium “Taste the Difference” range are “off the pace”, which is corporate speak for falling, but the range is still 2.5x as big as Basics, and the sales decline is attributed to a drop in the market for ready meals, rather than a flight from quality. Morrisons “The Best” premium range is up by 5.3%
So there is still a search for good food, and a Times Populus survey (26th March) put quality as equal to value for money when it comes to choosing a store. But its not quality at any price. Instead, people are far pickier about what they buy and energetic about finding the best deals.

The search for good deals is leading to much shopping around. The days of convenient one stop shopping have given way to two and even three stop shopping and both Morrisons and Sainsbury claim an increase in numbers of shoppers in their stores. What this suggests is that the traditional way of categorising stores is dead. No longer can we say Sainsbury and Waitrose upmarket, ASDA and Morrisons downmarket, and Tesco in the middle. Its much more individual than that now with each shopper asking whether the quality /value equation at a particular store at a particular time is right for them. Looking at the crystal ball I’d say that the next big strategic challenge from supermarkets will be how to build loyalty. Meanwhile value offers will become increasingly innovative.

Once in the store, what the shopper buys is changing. The aforementioned ready meals market is plummeting, and TNS (Taylor Nelson Sofres) the market research company tells us that frozen foods are growing by over 9% year on year, enjoying a change in status from poor relation to a wise choice due to cheaper prices and far less waste.

The IGD as well as the supermarkets tell us that there’s a lot more cooking from scratch going on, apparently herbs and fresh pasta are flying off the shelves in Morrisons. And there is a return to families eating together.

There are mixed views about whether ethical purchasing is taking a back seat. The decline in the organic market has been reported to death (sales down 15% in the last three months, bread down 31%, vegetables down 10% according to TNS), but as is being acknowledged even by the Soil Association, the issue here is that consumers can’t get their heads around why organics in general are worth a premium. Animal welfare issues though remain important to consumers. Sainsbury stressed again last week that this is something shoppers search for, and IGD research confirms it. The question of course is where this welcome concern about animal welfare will go next and there are reports that Hugh Fearnley Whittingstall is turning his attention to dairy cattle.

So in summary, the recession is leading to changes in what and how shoppers buy. They are not prepared though to sacrifice quality, and will shop around to get it at the right price. Equally they are prepared to support ethical products where they clearly understand what it is that they are paying for.

Tesco Outgunned by the Competition - Some Reasons Why

So Tesco is getting outgunned by the competition. Third quarter results show their sales up by a miserable 2% compared with Sainsbury up 4.3%, ASDA up 6.9% and Morrisons up 8.1%.

The root cause is customer defection. An analysis by TNS the market research company, shows that in the 12 weeks to November, Tesco lost about £22 million of business to ASDA, a further £10million ALDI and just under £10million to Morrisons . Clearly "every little helps" is not helping enough. Why might this be?

There seem to be three reasons.

First, Tesco has a muddled consumer message compared with competitors. ASDA and Morrisons are known as value supermarkets. ALDI screams rock bottom prices. Sainsbury have stuck with a quality message. Tesco by contrast have responded to the economic downturn by adding a number of discount type products similar to those sold by ALDI and the like, but done little with their main ranges. So in the shopper's mind they are offering neither the cheap prices of an ALDI, or consistent value across everything in store like ASDA and Morrisons. And a slogan like "every little helps" means little to cash strapped consumers keen to hit a budget but reluctant to buy rubbish.

Tesco's prices are too high, and their quality too low. How do we know this? Just read the comments left by shoppers on newspaper articles about Tesco's performance. They tell of huge price hikes, inconsistent prices from week to week, promotions advertised but no product available in store to buy, and inferior fresh products such as bakery and fruit and veg.

And most telling of all, Tesco seems to have forgotten about putting customers first. Customers are outraged at Tesco's arrogant attitude and lack of service.

I'd also add that resentment about the way they treat suppliers is reaching boiling point. At the moment lack of facts means their alleged practices tend not to hit the headlines. This will change if Tesco is demonstrated to cross the line between tough negotiation and outright intimidation, and the publicity will do them little good.

There are lessons for all businesses from the Tesco story.

Successful businesses have a very clear marketing message, and they stick with it. Their actual product offer is often fine tuned, but they do not stray from their basic core principles. And they never, ever, take their customers for granted.

No one would bet against Tesco which is one of the most succesful businesses in Britain. Despite a slowdown in sales they remain almost twice as big as their nearest competitor, and their discount range is turning over about £1billion, which is nearly the same as ALDI's total sales. But they are not invincible, and if they don't learn the lessons then their performance will struggle.

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.

Unthinking Consumerism - R.I.P

It looks as if the days of "I want what I want when I want it" are over, even for the relatively affluent, and even when it comes to food which still only accounts for about 10% of UK consumer expenditure. Shoppers are planning more carefully, shopping more wisely, and weighing up the quality/price equation more thoughtfully.

Consider what we know.

Latest research from the Institute of Grocery Distribution (The Credit Crunch-Adapting to Change) shows that 16% more of us are planning meals, 13% more are cooking smaller portions, and 6% more are cooking with leftovers. Indeed the research found that 59% are actively economising.

We also know that shoppers are seeking bargains. The ALDI phenomenon is well documented, as is the growth in shoppers visiting Morrisons and ASDA. Tesco is now promoting itself as the UK's biggest discounter, which makes sense given that it is still 10 times the size of ALDI. Sainsbury claims a growth of 30% in their Basics range and a big uptake in their own label products which sell about 20% cheaper than the equivalent brand. Waitrose says that 30% more products are being bought on promotion. Certainly in the red meat market there is ample evidence of careful buying, with less being bought on each shopping trip, and much more thought being given to the relative price of the various meats. For example lamb, which has seen a huge drop in sales this year, has suddenly bounced back because it has become much closer in price to beef.

It does look though as if consumers have not turned their backs completely on premium tier foods. Sainsbury's Taste the Difference range is growing, albeit modestly, and is still 3 to 4 times the size of its Basics range. Waitrose says that it As Good as Eating Out products have grown by 40%, and that it is "still selling alot of organic".

Which leads to the often raised question of whether ethics have gone out of the window in favour of cheapness. Joanne Denney Finch of IGD, presenting their research findings said ethical purchasing is still important, and that that 79% of people are "still engaged in purchasing some type of ethical product", be it organic, Fair Trade or local produce. And it seems as if as many people as ever are visiting farmers markets. My guess would be that there is still a core of committed people who feel strongly about a particular issue, and continue to buy, but that fringe purchasers who were perhaps following a trend rather than a principle have dropped out completely.

What all this points to is that consumers are being much more thoughtful about how they buy food. Now it's "two stop shopping" for value instead of one stop for convenience. Its being much more canny about promotional offers. And its being much more marketing savvy. Consumers are twigging that the salmon in a store's best range is actually the same as in the basic product, but it's just uniformly presented, and so costs up to 50% more. The label on the premium mince might be classier, but it's still mince. The cooking apples, carrots and parsnips in the cheaper range might be all sorts of odd sizes, but they still taste the same as the more expensive version.

I can't see people reverting to unthinking consumerism any time soon. Yesterday's worry about petrol prices might have abated now that it's below a £ a litre, and the banks seem a bit less wobbly, but today the spectre of unemployment looms, and tomorrow it will be something else.

In this more discerning climate the winners will be those who truly understand what is important to consumers, and offer great quality at a price which consumers think is worth paying.

Food Buying Habits - How, When, and Why Did It All Change?

Food shopping habits have changed. Consumers are changing where they shop, how they shop, and what they buy.

Morrisons, home of low prices, and Waitrose at the premium end of the scale, both published half year results a couple of days ago. Morrisons grew like for like sales by 7.6%, (like for like meaning sales in stores open at least a year), and profits by 19%. Waitrose grew sales by 2.5%, a third of the rate of Morrisons, were forced to cut some prices to compete and hold market share, and saw profits fall by 8%. ALDI, viewed as having the cheapest prices of the lot, is now said to be growing sales at about 30% versus last year. A confident statement from ASDA a few weeks ago indicated that they are doing just fine because they offer really low prices. And Sainsbury and the once the once invulnerable Tesco are losing out.

Consumers are changing what they buy. We know that organic sales are struggling, reportedly down 20% in August versus last year, that meat consumption is down 5% according to the latest figures published on the British Pig Executive website, and DairyCo says that milk consumption is down. Consumers are also buying more products in retailer's Value ranges. Morrisons showed a chart at their results presentation illustrating that across the whole of the grocery trade Value ranges were growing at about 8% in the spring, but have now rocketed to a growth of nearly 30%. By contrast Premium ranges growth has fallen from a high of 15% in March 08 to around 3% in August.

Other startling changes are happening. Sainsbury tell us that between July and August sales of tupperware containers have grown by 36%, and sandwich bags by 35%, as more people take sandwiches to work instead of buying ready made.

All in all, it seems that beleaguered Brits are leaving no stone unturned in an effort to spend less. The interesting thing though, is that although the credit crunch started almost a year ago with the Northern Rock wobble, the big changes in what and where people buy only started in the spring. Going back to Waitrose as an example, they were sailing along quite nicely until early summer.

Why the drop since then? Because that's when consumer confidence started to plummet,worn away by headlines about food price inflation, spikes in oil prices, mortgage worries, and warnings of rising energy bills Another chart from Morrisons shows that in March, consumers confidence levels were down by 18%, in August they were down by 40%. Or to put it another way, nearly half the country thinks things are going to get worse, much worse. If they are that worried, it's no wonder people are changing behaviour, battening down the hatches, and bracing themselves for what might be around the next corner.

What is clear though, is that doom mongers who say they always knew that all people want is cheap food are wrong. Despite the belt tightening, Premium sales are still growing albeit at a slower rate than previously. It does not look either as if shoppers are ditching ethical principles altogether. Waitrose says that consumers are still supporting welfare friendly food but choosing free range rather than organic to save some money. ASDA says its sales of organic produce have grown by 25%, and Morrisons reported that their sales of both Fair Trade and organic sales are growing.

As ever, it does seem as if those who offer good quality combined with good value (which is not the same thing as price) will ride out the storm, ready for an upturn in confidence.

Organic Market Outlook

The media's fascination with the organics market continues but this time with the focus on how it is faring during the credit crunch.
The question of how a sector which is still less than two percent of total food sales can command so many column inches will be tackled another day. The more pressing issue is whether organic farmers will find a ready market for their produce or will it have to be offloaded at conventional prices.
Here's a round up of the latest news on the state of the market.
Sky News commissioned a special piece of research, and found that total sales of organic produce had been growing until April when for the first time sales dropped below the previous year.
The Telegraph reported that sales of fruit and veg box schemes have fallen sharply. One supplier said that 10% of his customers had cancelled their order, and he reckoned that 20% would have cancelled by the year end. One firm has gone into administration.
Up at the Royal Highland Show, Andrew Gibson of Two Sisters Food Group said that sales of organic chicken had virtually disappeared, and that free range was not growing as fast as it had. The British Poultry Council says that sales of organic eggs are showing no growth year on year, although free range sales were still up.
DairyCo's latest data on the milk market shows flat organic milk sales.
No consumer sales figures have been reported for beef or lamb.
The reason for the slowdown/declines in sales seem firmly to do with price. One Abel and Cole box scheme customer, interviewed in the Telegraph said "I'm afraid the organic box is a bit of an unaffordable luxury"; and another said "It was a luxury, but we never used it up each week. I have no regrets at all that we cancelled." A new mother interviewed by Sky also said that it was price which had made her turn away from organics, especially packaged food.
All of which looks a bit gloomy.
By contrast though ASDA reckons that organics are one of their fastest growing areas, and they plan to add new organic lines this year, Tesco reported that the growth rate for total organic sales had slowed to about 10%, which is not bad, even though it compares with about 30% in previous years, and Sainsbury that organic sales were one of their major growth areas. Grampian Country Foods have said they want to increase organic chicken production from 15,000 birds annnually to 20,000 (and double free range production to 90,000 birds). The Soil Association is projecting sales growth of 10% in 2008, and Nic Lampkin, an academic expert on Welsh organics said in the Western Mail that " There is still room for some growth".
It does look as if the rate of sales growth for organic food will slow whilst the current financial climate continues, which is what we predicted at the start of the year.
Could sales actually decline? Lampkin points out that 80% of organic sales are made to just 20% of all those who buy organic, and he thinks those customers will stay loyal because they buy for reasons of principle. However, should there be a wholesale walking away by the other 80% of consumers then clearly sales will fall substantially. Trying to decide if organics are worth the money is made more tricky by groups such as Which saying that their taste tests showed no difference between standard and organic products, strawberries being cited.
The overall conclusion though is that sales growth will continue in the major supermarkets who want to promote higher priced food like organics, but who will work hard to reduce the differential between organic and conventional food to ensure that consumers will trade up and not be put off by an overly big organic premium.
The outlook for those outside of the supermarket food chain looks bleaker unless they too can reduce the difference in price. At the moment some of the price differences are steep to put it mildly. The Telegraph quotes prices from an Abel and Cole box versus the same items bought from Tesco's organic section. Jersey Royal potatoes are £7.00 a kilo from Abel and Cole compared with £1.99 from Tesco, cherry tomatoes £10 a kilo versus £2.46, Little Gem lettuce £2.18 versus 50p, and even the humble onion at £1.66 a kilo compared with 84p. There's got to alot of added value to justify those differences, and for many thay value just is not there.
As far as action is concerned, organic farmers will of course need to watch costs carefully. Those contemplating a move to organic farming should take a very close look indeed at the overall cost of organic production versus conventional, and be absolutely sure that are still better off even if current premiums are reduced. They should also investigate what is happening to the market for their particular product, as not all organic sectors will perform in the same way.

Supermarket Sales Show Strong Growth, No Sign of Consumer Cutbacks

Taylor Nelson Sofres (TNS) has published grocery sales growth and market share figures for the 12 weeks to May 16th. They show no signs of a consumer cutback. Total sales are up 6.6%, with big share gains for Morrisons (sales up 8.7%) and ASDA (up 7.6%) at the expense of Sainsbury (up 4.6%) and Tesco (up 6%). Somerfield and the Coop continue to lose share, and independent stores are holding up well.

The much talked about growth in sales through cheaper priced discount stores seems to be more about shoppers at the now defunct Kwiksave seeking a similar type of store rather than a consumer flight to cheaper shopping. The total market share held by discounters last year was 5.7% and it is still 5.7% . At the other end of the scale, up market Waitrose held a 3.9% share both last year and this, indicating that consumers are still buying premium food. Overall, the only hint of a change is a small share growth for Iceland which sells lower priced frozen food.
The actual share numbers for 2008, with 2007 in brackets, are as follows:
%
Tesco 31.1 (31.3)

Asda 16.9 (16.7)

Sainsbury 16.0 (16.3)

Morrisons 11.4 (11.2)

Somerfield 3.7 (3.8)

Kwiksave 0.0 (0.2)

Waitrose 3.9 (3.9)

Iceland 1.7 (1.6)

Netto 0.6 (0.7)

Lidl 2.3 (2.3)

Aldi 2.8 (2.3)

Co-ops 4.5 4.3

Other Multiples 1.6 1.7

Independents 2.8 2.8

Food Inflation - Consumer Behaviour, Supermarket Reaction, Farm Gate Price Fights Ahead

There's been a raft of data published in the last few days covering April's inflation numbers, consumer research from the levy boards, and supermarket performance in the first quarter of the year. Four messages come singing out and these are:

1. Annual food inflation at 6.6% (Retail Price Index) is indeed higher than consumers have been used to recently, but despite the increases food remains a small proportion of household spend.
2. There is little sign of consumers spending less, or of any flight from premium quality food.
3. Supermarkets are keeping price inflation well below published figures because of heavy price promotions.
4. There's an almighty battle ahead on farmgate prices as supermarkets fight ferociously to keep prices low and stop consumer defections to a rival store.

Food Inflation
The rate of inflation varies by sector. Bread and cereal suppliers continue to rack up prices, as do egg producers. By contrast, after a run of monthly increases dairy prices are now dropping compared with March. The biggest change is red meat pricing which has shown price rises in April of 7.2% for pork, 4.2% for beef, and 5% for home produced lamb. All connected to the industry need to remember that until the last couple of months beef and lamb prices were dropping, and that these rises are a much needed correction to help farmers recover their input costs.

Consumer purchases
There is no evidence of a downturn in consumer purchasing of basic products. As reported in May 5th's blog, liquid milk sales have dropped very slightly, but Taylor Nelson Sofres data, published by the British Pig Executive (BPEX), shows volume sales of beef for January to March up 3%, lamb up 4%, and pork up 10%. Neither are consumers trading down to cheaper cuts of meat.
Indeed, the trend to buying top quality food is not just continuing but actually accelerating. Morrisons have said that sales of their value range are up 13%, but it's premium ranges have grown by 22%. ASDA have said their total food range grew by 6.4% in the first three months of 2008, but their premium lines are up 30%. Sainsbury's have said they reckon that quality food is resilient in when the economy is sluggish, in their view because people eat out of home less often. Latest figures show that Waitrose, purveyor of top quality and fairly expensive food is holding market share. The only sign of slowing down is organics, according to the Guardian, where growth is 10% year on year compared with about 30% recently. But 10% is still healthy.
The only sign of consumers being price conscious is that discount stores who sell at rock bottom prices, such as Netto, Lidl, and Aldi are gaining market share, which could signal more willingness on consumers part to seek the best price for basics, but on the other hand, the share gain could be due to consumers who used to shop in the now defunct Kwiksave turning to a similar type of shopping outlet.

The big issue
The big issue is not whether food inflation will stop consumers buying. Rather, its the declared intent of the major supermarkets to keep prices low. Tesco last week announced 1000 price related promotions. Justin King of Sainsbury yesterday said he reckoned inflation was nearer 2% because of the steps big grocers have taken to keep prices down. King saw this fight for low prices continuing because of the competition between them. Andy Bond of ASDA is at this square also. His results statement yesterday ended with the words "We have a duty to lock down inflation by working with our suppliers to cut costs to ensure that our customers are always getting the best possible deal on their weekly shopping."

A pricing battle seems inevitable, and its difficult to see how farmer producers can remain unaffected. Three things need to be regularly and widely communicated, particularly as prices to livestock and dairy farmers are on the rise. The first point is that prices might be rising now but they have been unprecedentedly low for years. Secondly, input prices are rocketing and must be recovered, and thirdly, farm incomes still remain too low to be viable at a time when the country should be producing more to ensure food security.

Free Range Chicken Sales Still Flying

The boom in free range chicken sales continues.


The Sunday Telegraph interviewed chicken buyers from ASDA, Tesco and Sainsbury, and they all report the same thing - rocketing demand following the Fearnley Whittingstall/ Jamie Oliver programmes which highlighted the conditions in which intensively reared chickens are raised. Sales increases in free range and higher welfare chickens have soared by between 50% and 70%, and this might be an underestimate as shelves are often empty because supermarkets can't keep up with consumer demand.


ASDA has seen free range sales increase by 50%, and reckons that it will be August before they are able to keep up with demand from their shoppers. Sainsbury has seen sales of free range and higher welfare chicken grow by 53% in January to March this year, and think it might be close to the end of the year before they are able to keep up with demand. Tesco has seen sales of free range and higher welfare chickens grow by 70%, and these ranges now account for 30% of their total chicken sales.


Eggs are affected too. Executives from the UK's biggest egg packer are reportedly touring the country trying to persuade farmers to convert to free range.


What does this tell us about consumers? Clearly animal welfare is important to them, and they are prepared to pay for it. But the chicken welfare issue has been around for decades, so what has suddenly happened to achieve this transformation in shopping habits? Perhaps the answer lies along these lines....
Animal welfare is something consumers care about but don't want to consider too closely. But all of a sudden the issue is in their living rooms, and so hard to ignore. Further, the issue is clear and simple (are these farming conditions acceptable?). And the solution equally clear and simple (buy free range/ better welfare chicken). Finally, the message is conveyed by trusted people.

Rebels with a cause, seeking change, might learn from the chicken experience.