“A Market in Unprecedented Distress” – Says ASDA About the Grocery Trade

The words come from Andy Clarke, ASDA’s head man, as he reported like for like sales down 1.6% in the 13 weeks to end September, and thereby joined the other three major grocers in a club characterised by sliding sales and plummeting profits.

There is an air of helplessness coming from all four companies with much talk of shoppers changing the way they shop but little sign of game changing action. Yet the changes over which the grocers are wringing their hands have been evident for years. Who in the industry could have missed the rise of Aldi and Lidl, the trend towards convenience shopping and its knock on effect of buying fewer items, and the realisation by shoppers that with a little effort they can trim grocery bills. Arguably too, a return to more normal levels of food inflation was inevitable, and that relying on rising prices to keep sales and profits up was a risky strategy.

Grocers may have secretly thought that a better economy would encourage shoppers to return to pre recession buying behaviour, when little thought was given by many to the size of their grocery bill.

This has not happened. Whilst premium food sellers like Marks and Spencer and Waitrose may be doing better than most, and shoppers are still prepared to buy premium products like Sainsbury’s Taste the Difference which grew by 4% in the last 6 months, the overwhelming evidence is that shoppers are still very careful with their grocery spending.

The Institute of Grocery Distribution has found that the top three priorities of shoppers today are –

To save money on food and groceries (64%)

To reduce food waste (47%)

To stick to a budget (47%)

All the signs are that to remain competitive and hold on to their customers,  supermarkets will need to rebase prices to a significantly lower level than currently.  Asda has recognised this. As the CEO said “We have more to do on the discounters, but we continue to close the gap on price”. Sainsbury by contrast has not, offering only a £150m price reduction. Morrisons know that pricing is key, and suggested that they will reduce by £1billion. Tesco has yet to pronounce.

Tough times for retailers - very tough times for all players in the food chain from producers upwards.

A Look Inside the Grocery Shopper's Head

According to researchers Kantar Worldpanel the average shopper spends around £3,800 per annum on groceries, and spends the equivalent of 16 working days in store. 

Unsurprisingly, given the time and money involved, shoppers are choosy about where they buy their groceries.

It is clear now that quality and value are non negotiable when it comes to shoppers deciding where to shop.

So if quality and value are a given, what else matters?

Kantar asked shoppers on a recent shopping trip in the Big 4* supermarkets which statement best described their mind set.

42% chose budget management, focussing on getting the items they wanted without spending too much. 25% chose time pressure, aiming to get in and out of the store as quickly as possible. 15% were happy to browse. Just 9% felt that searching for special offers was the best description of them on the trip in question.

However, Kantar have found that shoppers’ mind sets differ depending on the type of product being bought.

“Fast Find” covers pre planned purchases like bread and milk, and here the shopper’s main aim is to buy what they want without spending too much, and get in and out of the store in double quick time. They spend little time looking for special offers. Which does raise the question of why retailers feel the need to sell milk at silly prices as was the case a couple of years ago.

“Restock and save” items are less frequently bought products like tea, coffee or washing powder. Such products do not perish so this is the category where 39% of shoppers look hard for special offers. Again, a finding such as this makes one wonder why manufacturers run promotional deals such as BOGOFS – the sensible consumer does not buy any more over the long term, instead preferring to stock up until the next time the product in question is on promotion.

“Classic restock” covers items such as fruit juice and cereals, and health and diet considerations are second only to budget management.

In the “Meal solver” the shopper’s prime focus, outweighing even budgetary considerations, is to find convenient meal solutions. This suggests that the more help that  retailers can give about easy to prepare meal ideas the more likely a shopper is to return.

The final category is treat where shoppers buy on impulse and all other considerations come second.

Kantar’s key message from the research is that price and quality are a “must”, and now it is the shopping experience both within category and overall that matters to consumers. They say that whilst their research focuses on the Big 4, the findings are relevant to smaller shops.

*Big 4 supermarkets are ASDA, Morrisons, Tesco and Sainsbury

Understanding the Consumer - How Pork Producer Cranswick is Responding to Food Trends

Cranswick, mostly known for its pork products, was once a farmer owned cooperative and is now a public limited company with a turnover of £875m. It has just announced full year pre tax profits up 8%, and sales up 5% (on a like for like basis).

Any company which operates with a heavy dependence on commodities is liable to have a roller coaster ride, and none more so than in the pig sector where prices fluctuate wildly and cheaper imports from countries like Denmark pose a constant threat. Indeed at least 65% of pork products eaten in the UK come from imported pig meat compared with around 36% for lamb and 33% for beef. (Source: EBLEX, BPEX)

Additional risk for a company like Cranswick comes from the structure of the UK grocery trade. Like many food suppliers it is reliant on a few major customers, and a change in trading relationships can mean a significant drop in sales and profits.

Cranswick has coped with this volatility through investment to help keep costs down, but also through innovation.  The company is committed to operating in the quality end of the market, and has been able to develop premium foods which command premium prices. It was one of the pioneers of the gourmet sausages sector and it claims to be the first company to sell air dried hams from UK bred pigs.

The acquisition in April of East Anglian Pigs illustrates the company’s consumer awareness. Cranswick now has end to end control of it’s supply chain – a move that is becoming more relevant to consumers who are seeking British produce in the wake of the horsemeat scandal, and to retailers who are quick to respond to consumer demands. East Anglian Pigs operates to RSPCA higher welfare standards, and has a major outdoor reared pork enterprise – both fast growing sectors in tune with consumer trends.

The drive to be consumer focussed is admirable, but as the business expands into areas outside of traditional expertise, and particularly in light of the EAP acquisition, Cranswick will need to be vigilant in ensuring that it does indeed have full control of all that goes on in its supply chain, whether this be product safety, quality of taste and ingredients, and animal welfare standards.

Local Food Gains Ground as Consumers Support Those Closest to Home

The move towards buying local food has been around for several years now and the economic downturn seems to have made consumers even more inclined to support nearby producers.

According to the Institute of Grocery Distribution, the number of shoppers buying locally produced food has grown from 39% in September last year to 43% in September this year. As to future intentions, 41% say they will buy more local food compared with 39% who said the same thing at the start of 2011. This number compares with 31% who intend to buy more welfare friendly food, and 17% who intend to buy more organic.

Supermarkets are responding to the trend by stocking bigger local food ranges. Sainsbury now sells 3000 locally produced foods, and grew their sales by 15% in the last year.

Tesco says that “many customers want to buy locally sourced foods to support their local communities”. In response they have built alo special local foods website, where you can type in your postcode, find the nearest Tesco store and a list of the local foods they stock. In 2010/2011 compared with the previous year Tesco grew their local food sales from £850m to £1billion.

Asda, who can justly claim to be the first supermarket to spot the trend has 6000 local products on sale from 600 suppliers. They are aiming to turnover £500m in local food sales, a 15% increase on where they are now.

A trip north of the border to Scotland illustrates the trend well with a Scotland-produced variant of virtually every fresh food like eggs, milk bread, cheese fruit and vegetables available on the shelves. Imagine if that degree of localness spread to English counties or regions.

The urge to buy local is definitely a trend rather than a fad.  As has been the case for a while it is the 65+ age group who are most supportive of local foods, but the IGD tells us that the 55+ group seems to be the keenest to increase their local food purchase, and if the trend spreads to a younger age group then robust sales growth seems to lie ahead.

Connecting with Consumers on Smartphones - Now Key to Business Success

“A nation addicted to smartphones” is how Ofcom summarises its findings from a recent piece of research, saying that 27% of all adults and almost half of teenagers now own a smartphone (a mobile which connects to the internet). Smartphone owning numbers have exploded in the past year, and are set to rise further as annual sales of smartphones are now higher than those for the standard version.

More internet users connect to the web via their mobile than a laptop (45% versus 38%), and the number is even higher among 16-24 yearold where 71% access the internet via phone.

Smartphone usage is definitely here to stay and businesses are thinking through how they tap into the trend, whether it be for advertising their products, providing information, or directly selling goods online.

At the very least, websites must be simple enough to be quickly accessed. Consumers will rapidly lose patience if they have to wait for information to be downloaded. This means either having a site tailored to mobile usage, which automatically comes up when searched via phone, or having a link redirecting users from the main site to a mobile friendly one. Amazon and Tesco are good examples of a speedy tailored link. Asda’s site take an age to download.

The other option is to provide an app, or application, which sits permanently on the phone for easy access to a specific activity.

Although most usage is still for socialising, downloading music,  gaming, and searching for information,  the IGD reckons that smartphones are starting to change the way groceries are bought online. According to their research, 1 in 10 online shoppers are using smartphones to shop. Ocado claims that 15% of customer checkouts during the first half of the year came via their smartphone app. Tesco has a handy app which allows shoppers to scan the barcode of a product on their phone whereupon it is automatically added to their online shopping basket.

As to future developments, the IGD predicts that tailored apps which build a relationship with individual consumers are the way to go.

The time has probably come to view selling and marketing via the mobile phone as a crucial part of any business plan.  The research finds that 81% of smartphone users never switch them off, even when they go to bed, and that huge numbers are happy to use the phone whilst socialising, at the meal table, and even in the bathroom.

Smartphone usage is now a part of life. Those businesses without a smartphone presence may find themselves competitively disadvantaged.  

 

Canny Consumers - Cutting Food Costs Without Cutting Quality or Amount Consumed

Peter Marks of the Coop, trying to explain a 4.6% reduction his first half year food sales, said that “People are spending less on food – that’s a first.”  Kantar Worldpanel confirms the cutback, explaining that in the last three months grocery sales were up 3.8% in value, compared with inflation up 5.2%.

But behind the scary sound bites lies a story of canny consumers shopping and cooking more wisely, cutting expenditure but not sacrificing standards.

Take waste. Consumers recognise that waste is a big issue. In a recent Institute of Grocery Distribution survey, waste was cited by consumers as their major environmental concern. Whilst they raged against food companies for not selling smaller packs, and using cut price promotions to encourage buying too much, consumers acknowledged that they themselves cause much waste through lack of planning, and not paying enough attention to using leftovers.

And there is considerable scope to reduce waste. According to WRAP, in 2009 UK households generated £12 billion of avoidable food and drink waste, or about £480 per year for the average household. To put into context, DEFRA estimates that households spend around £125 billion each year on food and drink, so if WRAP figures are anything like accurate we waste about 10% of what we buy.

As to what is being wasted, WRAP estimates that £6.7bn goes on food and drink thrown away untouched or started but not finished. Examples are fresh fruit and vegetables (£1.4bn), bread and bakery products (£1.1bn), milk (£280m), yoghurts past their sell by date, and unused slices of bacon. A further £4.8bn is wasted on food and drink where too much has been prepared, cooked or served.

Still on the waste theme, there is evidence of shoppers spending less merely by refusing to shop impulsively and throw something into the trolley just because they like the idea.

Shopping at discounters is seen another way of spending less, and according to Kantar sales of ALDI and LIDL continue to grow at a clip, the former recording a growth of 24% in the last three months compared with the previous year. And sensible use of promotional offers is another well tried method of reducing spend.

Interestingly though, as Kantar points out, consumers’ food choices are not only about price. In the last 3 months sales of budget own label lines grew by just 2%, compared with an 8% growth in sales of premium own label products. So premium foods are by no means dead, but they do have to offer that elusive combination of quality and value to justify their price.

Shoppers have the scope to reduce spend and in the current economic climate will continue to do so. We can expect more years of cutbacks, especially on what could be described as poor value, over processed or not strictly necessary.

By contrast, spend on staples should continue to hold up. Despite the pressures, sales of beef, pork, bacon, sausages, milk and cheese have all shown volume growth in the last year. Consumers clearly see them as necessary, and, critically, fairly priced.

27% of People Cutting Back on Food

Consumers are prioritising expenditure on their mobile phone contract and subscription to satellite TV ahead of food, says research published by insurance company AXA. Apparently 27% of us are cutting back what we spend on food, but only 5% are cancelling their TV subscriptions, and just 1% cancelling their mobile phone contract.

The findings could bring on despair that Brits put so little value on having a good sustaining diet, but according to the Institute of Grocery Distribution it may be more about consumers being efficient in their food buiyng behaviour.

The IGD calls 2011 the year of economising. It has found that buying habits which started to emerge during the recession of 2008 are now being embraced by more people. Their research shows shoppers to be chasing value by balancing price and quality. This they do by buying more on promotion, using the internet to compare prices, and being prepared to use different shopping channels to get the best deal. Thus they might buy online, or spend more at discount channels like ALDI, or stick with the traditional supermarket, all depending on what is available at what price.

Economising is not just about deals. People are planning meals better to avoid waste. They are doing more cooking from scratch because it tends to be cheaper, and are considering growing their own food.

Whilst many of these changes have been noted before one newer trend is a preoccupation with sticking to a budget. This is particularly true of 18-44 year olds, 46% of whom say they are budgetting. And 34% of all shoppers say they cut back at the end of the month rather than overspend before payday.

Supermarkets have forseen many of the trends. Most are extending budget and own label ranges. All offer recipe ideas, and some tie the recipes to a price such as Sainsbury's promotion suggesting how to feed a family of four for £50 per week. All, even those catering for the more affluent customer, run myriad price cutting promotions in an effort to woo shoppers into their stores.

The Food Buying Consumer – More Focused on Price Today Than in the Depths of Recession

Whether the recession has permanently changed food buying behaviour remains a favourite topic among industry observers, with some commentators are saying that purse strings are loosening, trading up is becoming more prevalent, and the worst is behind us. It would seem though that this optimism is misplaced.

The big issue is confidence, and, despite a slow crawl out of recession, consumer confidence is dropping. The latest Nationwide Consumer Confidence tracked by TNS Worldpanel shows a fall in consumer confidence driven by concerns about employment prospects, worry about the state of the economy, and a view that earnings are likely to fall in the next few months.

The Institute of Grocery Distribution says Britain is out of recession, but that things will continue to be volatile. They predict that the return to buying quality products will continue, provided of course that they justify the price, and that sales in discount stores like Aldi have peaked. They highlight the increased demand for local food and think it will continue to grow. They suggest that Fairtrade products will continue to grow too.

However, their generally upbeat take is tempered by a couple of sobering realities. They have found that shoppers are even more focused on price today than they were either when the recession was at its deepest, or when food inflation roared away in 2008.

And they expect promotional activity, which in blunt terms means cutting prices, to continue because shoppers are now specifically choosing to buy in stores which feature promotions and loyalty schemes. Whilst strong brands will continue to be important, they say a “famous name alone is no longer enough to command loyalty”.

The other thing to bear in mind when trying to assess what consumers might do is that the recession so far may have been grim for many but millions have hardly been impacted. This will change as unpleasant economic medicine is administered by which ever party wins on Thursday.

The fall in consumer confidence illustrates that whilst technically Britain may be emerging from recession, psychologically it certainly is not. If economic conditions get tighter, and it is difficult to believe that they won’t, we can expect shoppers to focus even more heavily on price and promotions. Already grocery sales growth is slowing, to 3% in the latest twelve weeks from 3.6% previously.

Where the shopper goes, the big supermarkets will not be far behind. Expect price competition to be savage, profit margins to be slashed, and demand to be sluggish.

Food Buying Behaviour – Distinguishing Between a Fad and a Trend

There is a lot of change just now in consumer food buying behaviour, and being able to distinguish between which of these changes are fads and which are trends saves time, money and heartache.

Well documented changes include more buying of local and British, a drop in organic sales, more interest in welfare friendly products and Fair Trade, a shift back to upmarket Waitrose and away from discounters, a boom in buying premium foods over Xmas but increased amounts of products sold on promotion, a massive rise over Xmas in online food buying, and frantic attempts by retailers to stop what Laurie McIlwee of Tesco called “promiscuous” customers shopping around for the best deals. Other reported changes are more people growing their own vegetables, more scratch cooking and less ready meal purchase, and an upsurge in sales of unfashionable cuts such as pigs trotters and skirt of beef.

What in all that might be a fad to be avoided or a trend to be embraced?

The text books tell us that a trend is something that reflects broader society and what it values. Often a trend will cut across various industries, usually emerges slowly and builds over time, and is a development of an already existing trend . A fad appears from nowhere, is taken up with exaggerated enthusiasm for a short time, and is often fed by media hype. It is not fuelled by consumers needs.

So, which are fads and which trends in all the changes mentioned earlier?

Predictable fads are oddballs like pigs trotters. The rush to grow your own is also likely to be a fad, dying down as all but the most dedicated realise how backbreaking and expensive home vegetable growing can be.

More controversially I’d say that the big rise in organic sales between 2005 and 2007 was a fad, as was the flocking in 2008 to discount supermarkets. Purchasing organic for a short while became the fashionable thing to do, fuelled by the media who liberally advised organic purchase without saying why. Equally, the discount rush quickly subsided as many who felt they had to go and see what all the fuss was about decided that they could get more choice at the value they wanted in conventional supermarkets. This is not to dismiss the loyal core of consumers who won’t buy anything but organic, or who find exactly what they need at Aldi or Lidl. Rather it is to stress that explosive growth is rarely sustainable,unless it results from a solid reason to buy.

The jury is out on whether Fair Trade is a trend. On the one hand the British support fair play, but on the other I’m not sure whether there would be a huge outcry of protest if it disappeared from the shelves.

On line food shopping is definitely a trend. It started in other industries and fulfils a consumer need for convenience. Buying British and local are trends as is the increased interest in welfare friendly products. Both tap into a deep rooted albeit often latent- until- prodded British wish to fly the flag, support community, and care about animal welfare. The move towards premium food is also a trend. People are interested in high quality ingredients and good tasting food. The only reason for a hiccup in premium buying was that a lot of products labelled premium did not justify the price asked.

One definite trend is the cutthroat competition among supermarkets. This will only accelerate as they try to lap what have been high growth years. Despite all having good sales over Christmas the price cutting promotions have already begun with Tesco and ASDA leading the way. Where they go, others will follow.