Spectacular Increase in Lamb Eating as Supermarkets Cut Prices - But Still a Premium Meat Needing Premium Marketing

Lamb eating in the UK has grown for the first time in over three years. 

According to KantarWorldPanel data for the 12 weeks ending 10^th June volume sales of lamb grew by 16%. This reverses a severe downward trend, with sales at one time looking as if they were in free fall. Indeed, annual sales of fresh and frozen lamb through supermarkets have dropped from around 101,000 tonnes in 2008 to 70,000 tonnes today. (Source: World panel/EBLEX).

Renewed growth is welcome news to sheep farmers for the halcyon days of high lamb prices caused by the weakness of the £ versus the euro are behind us at least for the foreseeable future, and a strong domestic demand is needed to ensure that prices do not fall to unsustainable levels.

Predictably, the main reason for higher consumption is a drop in retail price. In the 12 weeks under review the average price of a kilo of lamb reduced from £8.22p to £8.08p as supermarkets promoted the product over Easter and in the run up to the Jubilee. Sales were also helped by the rocketing price of beef in the shops. The gap between the average price of a kilo of beef versus lamb has narrowed to around £1 a kilo versus £1.92 a year ago.

£8 a kilo is not cheap. Lamb remains a premium priced product out of the reach of many. And there has been sobering news on the premium food front. According to Kantar World panel, sales of supermarket own brand premium ranges, like Sainsbury’s Taste the Difference or Tesco’s Finest, have declined for the first time since 2008. It had seemed that consumers were willing, despite the general price of food rising, to keep buying premium food as long as they felt the quality justified the price. Now they are thinking twice, and in the last 12 weeks sales of premium own brand ranges have dropped by 6%. By contrast, sales of value ranges have soared, up 13%.

Further signs of belt tightening come in the form of below inflation sales through supermarkets – down 0.7% in June 2012 compared with June 2011, and the well documented performance of discounters Aldi and Lidl who continue to grow, up 26% and 11% respectively.

The increase in lamb eating is good news, and it is hoped but not expected that supermarkets will keep the price of lamb at these lower levels to encourage consumption.

What is urgently needed is a total rethink about the way lamb is marketed so that product quality is consistently superb, the type of cuts offered and advice about how to cook them are imaginative and relevant, and lamb becomes a worthwhile buy in the eyes of more consumers.

Shoppers Further Batten Down Hatches in Face of Economic Gloom

According to the IGD’s latest research, 59% of shoppers say that their most important concern just now how much they spend. Not surprising given that since 2007 prices have grown by 14% compared with wages at 9%, the spectre of unemployment  looms and every day brings a fresh story of economic woe.

As Giles Quick of Kantar Worldpanel pointed out in a recent presentationto dairy and red meat levy boards, in the search for spending control, shoppers have two options - either buy less or pay less.

It is clear that they are following both routes.

Both IGD and Sainsbury in its recent results presentation confirmed that consumers are indeed buying less. Justin King of Sainsbury told us that shoppers are putting less items in their shopping trolleys, and he and the IGD pointed out that shoppers are making more trips per week in an effort to cut down on total spend by buying only what they really need, and minimising waste as less products are thrown out due to being past sell by dates or starting to shrivel in the fridge. IGD data shows that the percentage of people making 3 or more shopping trips a week has gone up from 39% to 49 % in just two years.

Shoppers try hard to pay less. For the first time since late 2009 sales of supermarket value lines are growing faster than their premium ranges. The amount of product sold on promotion shows no sign of decreasing and 40p in every £ is spent on deals. Supermarkets have recognised this trend to shopping around and responded. ASDA promises to be 10% cheaper than everyone else, Sainsbury have countered this by giving their shoppers a coupon at the till which refunds the price difference if a branded product could be bought more cheaply that day in Tesco or ASDA, and Waitrose have now pledged to match Tesco on all branded items except when these are on promotion.

Pricing at a “round pound” is another tactic being pursued to attract shoppers. ASDA first started the trend towards pricing goods at £1, £2 or £3, and such goods now account for 40% of their sales in categories where the tactic operates. Tesco and Sainsbury are responding by stepping up the number of goods they sell in this way.

Paying less encompasses reductions in fringe shopping costs. The effort to reduce fuel consumption has led to a rise in on line shopping, and buying from the local convenience store. Sainsbury recorded a 20% increase in online grocery sales in the past twelve months, and IGD tell us that 17% of people currently shop for groceries on line.

All in all it’s a story of hard pressed consumers who think that they will be even harder pressed in the coming months. 46% say their future spending will decrease a little or alot compared with just 15% who think their spending will increase a little or alot. And it’s a story of highly competitive retailers changing strategies, and coming up with innovative ways of fighting for every tenth of a point of market share.

Premium Food Sales Growing Despite Economic Gloom

Despite the gloomy economic news, and reports of plummeting consumer confidence, people still seem ready to spend on premium quality food.

Kantar Worldpanel, the market data company, tells us that overall grocery sales grew by 5% in the 12 weeks to 26th December 2010, but that sales of premium own label across the 4 big supermarkets grew by 11%, over twice as fast. The Kantar data also shows us that the so called upmarket grocers are doing best, with Sainsbury, Waitrose and Marks and Spencer gaining share whilst low priced ASDA and Morrisons lost share and Tesco only managed to stand still.

Reporting on their performance Sainsbury, who spent nearly £1 billion revamping their premium Taste the Difference Range, said sales of higher priced and ethically sourced products were growing fast, citing free range turkey sales up 30% and smoked salmon up 16%.

Marks and Spencer also mentioned booming sales of turkeys and smoked salmon, whilst Tesco confirmed the trend towards premium food, with sales of “Finest” ham on the bone up 50%, “Finest” party foods up 90% and “Finest” wines up 100%.

Less spectacular, but nevertheless welcome, beef sales in the 12 weeks to end December grew by 4% in both volume and value after months of virtually static sales.

Undoubtedly there will be a Christmas effect in these numbers. Shoppers traditionally splash out during the festive season. But these are comparable figures with Christmas last year, and presumably people were feeling festive then, so the big growth in premium sales does seem to be a trend rather than a one off.

Whether the trend will continue is another question, as the effects of government cuts put further pressure on disposable incomes.

The difference between now and a couple of years ago when the credit crunch first happened and shoppers flocked to discount supermarkets and grocery value ranges is that then, the worry of economic hardship was greater than the reality. The reality now is that money will become tighter, and we may yet see down trading in food. On the other hand it could be that people have tried the value route and it does not meet their needs, at least all of the time.

The Institute of Grocery Distribution is of the view that shoppers will not trade down if it means compromising on quality or values. Rather, people will be more careful about how they shop and prepare food. 36% of us are already trying to reduce food and packaging waste, say the IGD, and 22% are going back to a simpler diet, cooking uncomplicated meals and cutting out unnecessary add ons. This perhaps means higher sales of top quality staple foods.

One high priced staple that shows no sign of growing is lamb. In the 12 weeks to end December 2010, lamb consumption dropped by 17% in volume and 6% in value. It is no good arguing that Christmas is not a big lamb eating time. The point is that these figures are compared with the same period in 2009, The only conclusion to be drawn is that the lamb eating experience does not justify its high price, and that lamb is becoming less and less relevant to the meat eating public.

Food for Thought from Marks and Spencer

Last week, after years of lacklustre performance, Marks and Spencer announced that in the last 16 weeks food sales have grown by 5.2% on a like for like basis. This is a better result than Sainsbury, or Tesco, or Asda. With a 3.7% market share Marks is still tiny, but what makes them worth watching is that historically they have set the pace in food innovation. What Marks started others followed, and food buying has been transformed as a result. They were, for example, pioneers in ready meals, leaders in getting exotic fruits and vegetables in the shopping bag, and the company that made a sandwich lunch something special.

They then lost their creative edge, and competitors not just copied but improved on what they had done.

Does the recent food performance mean they have got their edge back?

Marc Bolland their new chief executive said that growth was down to a combination of aggressive price cutting offers and innovation, with 370 new lines being launched in the last three months.

Certainly they are promoting heavily. A wall of special offers greets the shopper. In the meat area, there were bacon, chicken, sausages, small beef joints, and the ever present mince all priced at 3 for £10. There were offers in fruit and veg, fish, ready meals, desserts and wine. In this they are no different from any other supermarket.

What about the innovation? The offer is certainly more exciting than it was, with ever more exotic combinations of flavours in a ready meal, and even more indulgent biscuits and cakes. There were also some new ideas such as “One Pot Casserole” where diced beef, ready peeled and chopped vegetables, and a cook in sauce could all be purchased for a fiver, thus encouraging shoppers to try something other than mince, with minimum hassle.

Importantly, the merchandising was good, with green coloured “new” stickers highlighting every new product.

The question is whether enough has been done for Marks to regain its position as leader in food, and the answer just now, is probably not. What is on offer is a variation on a theme rather than a genuine breakthrough. There is a limit to the amount of exotic and indulgent food that people will buy, either through monetary constraints or the inability to stomach yet another fancy meal.

It will be interesting to hear in November how Mr. Bolland intends to take the business forward. Premium indulgence leavened with price cuts is fine, but more will be needed to keep M&S food sales moving ahead.

Reviving Organic Food - The Waitrose Way

We can now see how Waitrose will handle Duchy Originals, the brand pioneered by the Prince of Wales, and moved into partnership with Waitrose 12 months ago. And the plans show impressive commitment to the organic market and the ideal of supporting sustainable food from small family farms which motivated the Prince when he started the company 20 years ago.

Basically, Waitrose is using Duchy as their organic brand, featured on a raft of products, from staples such as milk, eggs and frozen foods, to fancier products like Handmade Organic Hafod Welsh Cheddar. According to Waitrose there are plans to increase the range to 400 products.
The launch of “Duchy Originals by Waitrose” has been heralded by advertisements in the papers, a TV spot featuring Heston Blumenthal, and a 25% introductory price cut to tempt shoppers to buy. None of this comes cheap and it shows that Waitrose are deadly serious about the potential of organic food.

It’s not just the commitment to organics which is interesting (and should give producers soldiering on with the sector despite a big drop in consumer demand some cause for optimism). It’s the way that Waitrose have approached the market. Clearly the company has decided that calling a product organic is not in itself a sufficient reason for consumers to pay the organic premium. Consumers want something more, and Waitrose feel that by adding the prestigious Duchy name, and explaining the values which lie behind it, they are giving people that extra bit of reassurance and motivation to choose the more expensive option.

There may be another reason for Waitrose’s organic commitment. In a previous blog I suggested that supermarkets might be turning their attention to super- premium foods again to offset the costs of heavy price cutting on everyday items, a problem which is only going to get worse as food inflation strikes once more. Organic food is an obvious premium market for Waitrose to develop as they already hold a 21% share of the sector, but only a 4% share of the total grocery market.

Whatever the reasons, it would be great if the Waitrose move works. Many Duchy suppliers are small, and a foothold in the company will help grow sales. With the Prince keeping a close eye on things, they should get a fair return too.

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.

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.

What Tesco Think About Local Foods

Boy, do Tesco tell it like it is.

Alistair Robinson,Senior Buying Manager buyer for the North of England, addressed the Institute of Agricultural Managers conference last week. His topic was "Local Foods Opportunities with Supermarkets".

Here's what Alistair said.

First up, consumers are still hugely enthusiastic about buying local foods, seeing them as fresher, of better quality, and helping to support local businesses and farmers. Tesco's customers want to buy local foods so Tesco is providing them.

Alistair explained what local means to the public. Although more consumers like to buy British, a British label on its own does not mean local. In Scotland and Wales, local means "from my country". In England, local means "from my county". It seems that the more specific a product is about its origin, the more the consumer feels that it will be top quality.

And people want a local option in most of the products they buy. Locally sourced fresh meat and veg, milk and cheeses, cakes and bread, and even ales and beers are all welcomed.

Tesco has seen some stunning local success stories."Black Country Pork Scratchings" from the Midlands outsells the national equivalent by 2 to 1. Yorkshire carrots sell 30% more than standard carrots, Cornish potatoes 12% more, and Warwickshire Spring Onions 5% more than an ordinary spring onion.

But here's the rub.

There's no premium in local foods, according to Tesco. Those great sales figures have been achieved by selling local food at a similar price to the standard variant. Basically, Tesco are looking to make the best use of every inch of shelf space, so all products have to sell at the highest possible volume,so this means in Tesco that they have to be on shelf at a competitive price, AND they have to deliver the same profit margin to Tesco as a standard version.

A brave soul at the conference asked whether, if consumers were so keen to buy local, Tesco should consider taking a lower margin, particularly as the whole point of local is that producers are small and so without economies of scale. Absolutely not said Alistair, for to sell something at a lower margin was a flawed business model, was totally unsustainable, and would only result in lost profit to Tesco, which is just not acceptable.

So there you have it. Tesco are very happy to support local foods as long as their customers want them, and as long as they make as much money for Tesco as anything else. At the first hint that consumers might be less enthusiastic about local foods, Tesco will walk away from them.

All this raises the question of whether its just Tesco local foods that cannot command a premium or the local foods sector in general.

According to a recent note from the IGD, consumers do see local foods as high priced. 61% say that price is a barrier to buying local and 43% think local food is too expensive. The IGD's advice is that local food producers and suppliers should review their promotional strategies, and offer competitively priced products in sectors that offer potential for growth.

If the objective is big volumes, then it seems Tesco have got their local food pricing policy right. The alternative strategy for producers is to stay away from the supermarkets, and target a smaller, niche market, possibly with a "local plus" message, in other words local with an extra consumer benefit.

As for the margin issue, Tesco will squeeze hard, and possibly harder than others. The key is for producers to walk into any deal with their eyes wide open.

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.

What Makes a Brand? The Aberdeen-Angus Experience

Two news clippings caught my eye last week. One, in the Times, told us that French gastronomes have selected Aberdeen-Angus beef for La Bocuse d'Or, apparently the world's most prestigious cooking competition. The director of the competition said "We need to have very great quality for our competitors and Aberdeen-Angus is a dream product". It's difficult to imagine a higher accolade. The other clipping announced that the Aberdeen-Angus Cattle Society has appointed a brand development manager whose task is to "enhance the society's current press, pr, and marketing programme", and grow brand awareness and market share.

Marketing textbooks define a brand as a distinctive product offering, differentiated from its competitors. And what is so good about strong brands is that their specialness means they generally command premium prices, which in turn leads to higher profits.

Aberdeen-Angus is a great example of branding. It is a recognised, top quality, premium priced product from farm to fork.

Headlines such as "Record 30,000 guineas hit for AA female at Perth" (October 2007), and an even more eye popping 32,000 guineas paid for Penguin Mr. Elevate in February indicate that fine AA breeding stock regularly commands very high prices in the auction ring.

When it comes to selling the finished animal, beef processors are willing pay a premium, and at the final, and probably most important stage in the chain, those shops and restaurants who sell Aberdeen-Angus always charge more for it because consumers feel that when they buy Aberdeen-Angus they are buying the best.


There are many branding lessons to be learnt from the Aberdeen-Angus story. If branding is all about distinctiveness, then Aberdeen-Angus gets off to a flying start with its instantly recognisable black-coated cattle.

To that can be added its distinctive marbled meat, it's taste and tender texture. The meat's excellent eating qualities are not just in the imagination but have been confirmed in blind product taste tests. (See DEFRA report Is0102)

Branding is also about having a good reputation, and Aberdeen-Angus meat enjoys a reputation which has been built over decades, and is still being reinforced by stores such as Waitrose and Marks and Spencer who feature it in their shops, and restaurants such as Burger King with their heavily advertised Angus burger.

Finally, the strength of the brand means that it can be sold for that bit more. Both Marks and Waitrose sell their Aberdeen-Angus meat at a premium to the rest of their range, and the Angus sells at 50p more than the standard Whopper. And premiums are always useful.

Footnote

There are of course some downsides to farming the Aberdeen-Angus breed. They tend to finish lighter than continental cattle, and can run to fat. Both can reduce the return that finishing farmers get for their stock. A trade off has to be made between these issues and any price premiums achieved.

Premium Food - Sainsbury Says Still Growing

One of the trends we're tracking is whether current financial gloom is affecting sales of premium food. No, says Sainsbury who have just announced 12 week sales to March 22nd. Asked specifically about this, Justin King their CEO said that there is no evidence that consumers are trading down to save money, and that their research says consumers will continue to spend more in areas where quality is important to them. According to King, the biggest sales growth was in their premium "Taste the Difference" range, and at the other end of the scale in their basics range.
The other interesting trend he highlighted was that ready meals sales have stopped growing, but what is booming are foods where one stage of preparation has been done, like meat with a sauce on the side, or veg which has been peeled and diced. King put this down to a wish to eat more naturally and healthily, but save a bit of time where possible.

Making Money from Meat

A recent report from the NFU/MLC about the meat market in the top 4 retailers helpfully outlines market sizes, growth rates, volume and value sales by cut, and how much of each cut can be got from the animal. Analysis of the data gives two clues about how to improve profits.


1. Sell all the meat from the animal, not just the premium cuts

Most relevant to direct sellers, carcass balance as it is called makes the difference between profit and loss. It is easy enough to sell fillet or sirloin steaks or legs of lamb, but trickier to find an outlet for slow cook cuts of beef or shoulders of lamb. The problem is magnified by seasonality, with roasting joints or casserole meat struggling for sale in the summer. Direct sellers might want to identify possible customers for the cheaper cuts, be realistic about the price which will be achieved for them, and ensure that any financial analysis includes these lower prices.


2. Target premium/ added value market segments.

This applies to all producers, not just direct sellers. The idea is to identify the market segments which consumers are prepared to pay a bit more for, and sell product into those segments. The NFU/MLC report explains how retailers divide the market up into different segments or tiers, and gives the relative sizes of each segment. Most retailers have a basic segmentation of value (or cheapest), standard, and premium. But there is a trend to "standard plus" and "super premium" products in an effort to encourage consumers to pay a higher price. These new products are backed by marketing claims such as healthy (meaning with less fat), outdoor reared, welfare friendly, a specific breed, free range, increased hanging time, special butchery techniques, and of course organic.

The amount sold in these added value sectors is still small, sausages being the exception:
Beef
Premium 4%
Organic 1.2%
Health 4.6%
Lamb
Premium 1%
Organic 1.4%
Health 1.2%
Pork
Premium 1.5%
Organic 1.0%
Health 2.3%
Sausages
Premium 29.5%
Health 5.1%
Organic no figures
Bacon
Premium 2.1%
Organic 0.2%
Health 1.3%

The size of the added value premium sector may be small currently but it is the holy grail for retailers and it will continue to grow. More to the point, the difference in prices paid by consumers is huge. On average, value beef sells at 57% less than standard, premium sells at 61% more than standard, organic 47% more, and healthy 8% more. In lamb, premium is also sold at 61% more than standard, organic 55% more, and healthy 104% more.
A good look at what consumers are prepared to pay more for could be useful for farmers with the opportunity to better match their system to consumer trends.

Trendspotting 2008

As economic gloom rises, access to cheap credit evaporates, nervousness sets in about spending the money we've got, and rising food costs have registered even on the affluent, it is timely to ask whether a hunt for lowest possible food prices is set to obliterate any other considerations in consumers' minds. Applying some tried and tested lessons about consumer behaviour when the going gets tougher may help answer the question. So, somewhat bravely, here are predictions about food market trends in 2008.

Value not price

At times of economic pressure people search harder for value, which is different from just looking at sticker price. Value is a combination of price, quality, and feeling good about a purchase. Its perhaps best summed up as answering yes to the question "is this worth it?". Top quality, fairly priced products will continue to sell well. Anything seen as pricey for what it is will not, and supermarket top tier product staples such as meat, fruit, veg and dairy may struggle unless they are clearly better than alternatives.

Environmental concern

This is here to stay largely due to the high level of publicity it receives. Products and services seen to be beneficial to the environment will continue to see sales growth.

Provenance/Ethical purchasing/Health

These trends have been combined as they are closely related in consumers' minds. Provenance may be described as "can I trust the source of this food and how it got here". The link with health comes because consumers are worried for health reasons about what goes into their food and how it is processed. They worry for ethical reasons about where it has come from and how far, how the animals have been treated, and have the producers been fairly rewarded. All these concerns have combined to power sales of local food, organics, fair trade, and special animal welfare schemes, even though the sticker price is usually higher than for other options. The forecast for all these sectors is continued growth, albeit at a lower rate than historically. Those who are truly committed will not change buying habits, but occasional purchasers if pushed for cash may buy less often.

Channels of purchase

The places people buy from and the way they buy are also likely to change. People drawing in their purchasing horns may choose to eat out less, or trade down in the amount they are spending on a night out. So sales through catering channels will slow or even decline. One channel which could grow is internet grocery shopping which saves petrol costs, and food miles, and is more convenient.

So in the end....

Though conditions may be tough, and overall growth may slow, there is unlikely to be a major reverse in the encouraging trend towards consumers caring more about their food, and being prepared to pay that bit extra for top quality, fairly priced products that help them live lives that they can feel good about.

Supermarket Xmas Trading Shows Food Sales Resilient

The major supermarkets have posted their Xmas trading results, and its worth a burrow through the detail to see what they tell us about consumer spending, given the current economic gloom. People have to eat and indeed total food sales were well up v Xmas 2006 compared with all retail (everything from frocks to fridges) which was up just 1.4%. The question is whether belt tightening means a change in the type of food people buy.
Conventional wisdom, echoed by Justin King of Sainsbury's, says that at a time of tightened purse strings consumers will treat themselves to luxury food whilst cutting back on big ticket items, and it would appear that conventional wisdom is right.
With total food inflation for the period estimated at 1%, the league table of growth is led by Aldi at a whopping +12%. Whilst normally associated with low price food they said it was their premium range which drove the high sales. Morrisons was the clear winner among the "big four" supermarkets, coming in at + 9.5 %. Morrisons said the growth came from heavy advertising spend, and an emphasis on fresh food. Certainly they seemed to spend far more on advertising than other supermarkets, and much of the spend was behind their premium "The Best" lines. Next up was Waitrose, home of top quality, premium price products, with a 4.1% growth. Sainsbury reported figures for the 12 weeks to 5th January, and sales were up 3.7%. Their premium "Taste the Difference" range recorded its best ever quarterly sales growth. Luxury seemed to be the order of the day here with TTD Sherry Trifles up 154%, Courvoisier Butter up 232%, Salmon Fillets up 116%, and even Stilton up 43%. Sale of organic food was said to be strong, but no figures were given. By contrast, the basics range of low price food also grew, leading King to observe that growth came from "both ends of the basket". (Might explain the Aldi growth too). Somerfield grew by 4.7%, and Tesco by 3.1%. The one cloud on the generally strong story for food sales in general and premium food in particular was Marks and Spencer where sales were down by 1.5%. Sir Stuart Rose hinted that the type of food offered was out of line with consumer trends, and that he was planning radical changes, the first of which is the introduction of more specialised cooking ingredients such as smoked paprika and cinammon sticks. Which sounds pretty premium.
All supermarkets cut the price of many lines pre Xmas, particularly alcohol, and all warned that consumer spending would slow in 2008. Competition between supermarkets is likely to intensify which means a redoubled effort from the farming industry to ensure fair treatment for producers.

Quality Critical

More figures today, this time in the shape of a survey undertaken by the Times about what's important to consumers when it comes to choosing where to eat and drink away from home.

In response to the question "On a scale of 1 to 5, what are the key factors when deciding where to eat and drink on the high street?", people rated quality as far and away the most important reason for their choice, with ethical issues and availability of organic/fairtrade options coming fourth and seventh respectively. The actual numbers are:

Quality - 4.54
Customer service - 4.33
Healthiness - 4.30
Price - 3.95
Ethical issues - 3.95
Restaurant environment - 3.79
Availability of organic/fairtrade options - 3.67
Speed - 3.37

Once more we have a reminder that no one can get away with inferior quality.

Will pressure on disposable income hit premium food prospects?

The media seems full of gloomy news affecting consumers willingness to spend on luxury goods, what with high interest rates, falling house prices, and petrol at over £1 a gallon. Many food prices are also on the rise, for reasons well known to farmers. So the question is whether the trend towards buying premium food will falter as consumers face pressure on disposable income, and become more cost conscious.

Justin King of Sainsbury does not think so. In his view, consumers needing to cut back on bigger ticket items treat themselves by spending more on inexpensive luxuries such as food. He is backing this view with advertisements stressing Sainsbury quality food, and Waitrose and Marks and Spencer are also majoring on quality. Possibly more surprisingly, Morrisons attributed good third quarter results to a boom in their premium "The Best" range and they are advertising this range in the run up to Christmas. Tesco too are advertising top of the range products including one poultry advert for goose, pheasant and duck.

Yes, there will always be a proportion of consumers who have to work to a budget, but according to Tesco, only 16% of people are in this position. Even if difficult times mean that this number doubles, it still leaves 68% prepared to spend more on products they really feel are worth it.

The Institute of Grocery Distribution estimates that the Premium sector will be worth £14.6 billion in 2007, about 9% of the total market, and is growing at 7% versus the total market at 4%. It defines premium as local foods, supermarkets own brand expensive ranges, fair trade, organic, and brands sold with top quality indulgent ingredients. It suggests that the two sectors with most growth potential are locally sourced foods and organics, the former because they reassure about where the food comes from, down to a particular farm or field, and the latter because of media attention.

What Makes a Food Premium?

There is much talk of consumers buying more premium food.

Producing a premium, added value product can deliver bigger profit simply because the higher amount that consumers pay means more money to be distributed through the food chain. Research published by the Institute of Grocery Distribution (http://www.igd.com/) in spring this year provides useful data for farmers wrestling with the problem of how to add value to their produce. So what makes a food premium? Here are some figures.

% consumers saying what makes a premium product:

High quality ingredients used - 41%

Well known brand - 33%

Free range - 23%

Organic - 21%

Locally produced - 19%

Fair trade - 17%

Added health benefits - 17%

Packaging looks good - 13%

Environmentally friendly - 12%

Retailers best own brand - 10%

Quality assurance standards - 10%

High animal welfare - 8%

The figures highlight that many consumers feel that ethical standards also mean premium, whether high animal welfare, environmentally friendly, free range or fair trade. It is also clear that locally produced and organic also equate to premium, and it is likely that ethical considerations influence this also. Other research indicates that consumers buy local because it is better for the environment (less food miles), and they can check for themselves that the farmer is committed to high welfare standards. Organic research also indicates that people buy for ethical reasons.

However two factors stand out as reasons that consumers see a food as premium. First, the product has to be made from high quality ingredients. This means that however ethical the product is it will not be seen as premium unless it is top quality. And second, the product has to be strongly branded, and stand for something consumers can trust. Which means a consistently good eating experience, wrapped up in good looking packaging, with a crisp name and a persuasive reason for the consumer to buy again and again.