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.

Masterchef's John Torode Talks about Chefs and Farmers

John Torode, restaurant owner, president of the Royal Agricultural Society of England, and co-presenter of BBC's Masterchef, strode on to the stage at last week's English Food and Farming Partnerships conference to deliver a speech entitled "Why chefs care about farmers."

Sporting half an inch of stubble, a black velvet jacket, and scuffed brown boots he came across as the self-proclaimed opinionated Aussie he clearly is. But he's got some interesting comments to make, not least because insight into what makes the catering trade tick is so much more difficult to find compared with grocery where the big players update performance at least twice a year.

Torode runs Smiths of Smithfield in the city of London, and remains convinced that the main reason for his restaurant's success is that he really understands what is important to his customers. He reckons that, despite financial pressures, consumers still care about where their food comes from and how it has been produced, and that this is true for eating out as much as eating at home. In his view animal welfare and food miles come top of the ethical worry list, but that there is also a growing wish to eat more healthily and more simply.

However, he stressed that consumers are no longer prepared to spend silly money on eating out, rather they are searching ever more intensively for quality and consistency, and want to feel that their meal was good value for the price charged.

He talked about the importance of strong brands and building trust in whatever is being offered, feeling that consumers will return time and again to brands they can trust. He also mentioned the importance of telling people about why a particular product is different and special.

Torode talked about his own relationships with farmers. He said he knows them all, having personally scoured the length and breadth of Britain to get farmers willing to supply the quality he requires, and that the farmer's name is printed on the menu.

His one surprise as he set up Smiths was how few farmers could be bothered to work with him, but acknowledges that many can be put off by how complicated and costly it can be to get products to restaurants in the right quantities at the right time, and that one solution is to build a network of several farmers supplying the same area so that costs can be shared.

Perhaps the most striking thing about John Torode's talk is how similar the issues and opportunities are, whichever business you might be in. In the end, success comes from understanding what customers want, strong brands, great quality and asking a fair price for the product on offer.

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.

Why Do EU Consumers Reject Cloned Food?

The recent European Commission report about consumers giving the thumbs down to cloned food has been widely reported. What has received less coverage are the reasons for concerns, and whether the UK feels any differently from other EU countries.
Overall, 58% of EU consumers felt that cloning animals for food was never justifiable. Austria, Sweden, Germany, Latvia, Lithuania and Luxembourg were most opposed. Italy, France ,the Netherlands and Finland came next with over 60% saying that cloning for food was never justifiable. The equivalent UK figure was 45%. Generally women were more opposed than men, as were older people and country dwellers.
Regardless of country, the biggest issue in consumers minds is that not enough is known about the long term health and safety aspects of cloned food. 84% of EU consumers agreed with this statement, with the UK, possibly scarred by memories of BSE and CJD, coming in a bit higher with 87% agreeing.
There is also strong agreement that animal cloning for food is not just a technical issue, rather that it could be seen as unacceptable on ethical grounds. The EU average here was 75%, the same figure as for the UK.
67% of EU consumers agree that that cloning for food production is not acceptable because it treats animals as commodities rather than creatures with feelings. The figure for the UK was slightly lower with 62% agreeing.
Another problem with cloned food is that consumers cannot see how it would benefit them. Rather they felt that the food industry would be the main beneficiary (86% agreeing in the EU, 90% in the UK), and that farmers would also benefit (45% across the EU, 60% in the UK). This echoes what happened on GM foods where there was an underlying unease which was never offset by consumers being given a really good reason why GM was a good thing. The best benefit that consumers could see for cloned food was if it was demonstrated that cloning might be a solution to world hunger. Few saw health/nutrition as a benefit that would justify cloning, and even fewer an economic benefit.
The acid test of course is whether consumers are prepared to buy cloned food. Whilst marginally more prepared to buy food from an animal where just one parent is a clone, there is still a great deal of resistance, even if a trusted source says cloned food is fine. Across the 27 EU countries, 41% said they were not likely to buy cloned food at all, and 21% were somewhat unlikely to buy. The corresponding figures for the UK were 34% and 19%.
Regardless of whether they were pro or anti cloned food, a huge majority (83% EU average, 81% in the UK) said that cloned food would need to be clearly labelled.
Overall, therefore, this huge study of over 25,000 people across 27 countries indicates that EU consumers are very worried about the idea of cloned food. The findings echo other research both in the UK and abroad, and show pretty conclusively, regardless of where people might stand on cloning from ethical, health or safety perspectives, that as of today cloning for food is not a commercial runner.
Good.

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.

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.