Consumer Opinion and its Influence on Monsanto and Arla Decisions

Last week Monsanto announced that it is stopping efforts to persuade the EU to allow Genetically Modified crops to be grown in Europe. And Arla announced that it is introducing its own farm assurance scheme because, they say, the Red Tractor no longer satisfies the needs of retailers or consumers. Both stories illustrate the importance of understanding consumers, and the impact they have on the business climate in which farming operates.

In the case of GM crops, those who supported their introduction failed to realise that there was no compelling reason for consumers to embrace the technology. GM was not going to make food cheaper, or more nutritious, health giving or delicious. This lack of a clear benefit means that whilst 13% of the population are strongly opposed to GM, and 3% strongly in favour, over 50% do not have a view either way, a figure that has remained the same for the last 10 years. (Source: IGD research). And such is the lack of interest or concern that, according to Food Standards Agency research undertaken last year, 76% of the population have never sought information on the topic, and 63% have never talked about it with anybody.

Add to this inertia the vocal lobbying done by anti GM campaigners, and the lurid stories put out by the tabloid press (example - the Daily Mail’s headline following Monsanto’s announcement was “Frankenstein food firm quits Europe”) then it is unsurprising that Monsanto felt it sensible to put their efforts elsewhere.

In the case of the Red Tractor, those in charge have failed to recognise that a growing number of consumers these days want more than bare minimum standards, particularly when it comes to animal health and welfare.

Whilst just 16% of people put animal welfare as a key driver of their food buying behaviour compared with 74% for price and value and 76% freshness and quality, almost 80% state that animal welfare matters to them. These numbers are sufficiently sizeable for retailers to take note and act. (Source: Labelling Matters Project by RSPCA, Soil Association, WorldSociety for the Protection of Animals, Compassion in World Farming).

The Red Tractor people are now starting to rethink their approach, and now seem prepared to move forward. Commenting on the Arla announcement the Red Tractor response was to say that they would work with Arla to ensure that the scheme meets the needs of buyers, consumers and farmers.

Farming faces a number of major issues as it strives to balance food production and environmental management, whilst remaining competitive in a global fight. Consumers will have a view on all of them, from TB management to large scale pig and dairy farms, crops for biofuels to animal cloning.

Farming leaders need to ensure that consumer opinion forms the backcloth to deciding the issues upon which the industry feels it must stand its ground.

Today's Top Priorities for Retailers and Their Suppliers

The IGD (Institute of Grocery Distribution) does an annual survey which looks at the areas where retailers and their suppliers are placing most of their effort. This year the top priorities are new products, deeper understanding of what goes through shoppers minds as they decide what to buy, and how best to manage the various channels through which they choose to buy whether online, or in convenience stores, discounters or the traditional supermarket.

The emphasis on shopper behaviour is not new. Continued pressure on finances means that consumers now have a very different mindset when it comes to shopping than they did when money was freer. They work to tight budgets, even to the extent of handing a product back to the cashier at the till if the bill goes over the amount they are prepared to pay. They look for money saving offers, meaning that over 40% of grocery items are bought on promotion. They compare prices on line before setting foot in a shop. Yet they are prepared to splash out on special occasions, or on top quality, as shown the 10% growth in sales of their premium “Taste the Difference” brand announced by Sainsbury a couple of weeks ago.

The emphasis on different channels is not new either. The efforts of Morrisons to get into convenience stores and online shopping are well documented, as is the contribution to growth made by these channels as well as discounters Aldi and Lidl.

The most interesting finding from the IGD’s research is resurgence of interest in new product development. The most likely reason for its move up the agenda is that overall the grocery market is showing little sign of growth, margins are under pressure because consumers are so cost conscious and retailers and suppliers are now very keen to find products which are sufficiently different and exciting to persuade shoppers to spend a little more than would otherwise have been the case.

For a new product to receive a favourable response from retailers it will need to be genuinely value adding. Not only will it need to be different from anything else currently available, it will need to chime with what consumers see as important, and will probably need to command a premium price.

New products can take several forms – the product itself could be innovative, the way it is grown or reared or processed could be new, or the format in which it is sold could be new.

New product development can be risky . What must not be underestimated is the time it takes to come up with something new,  the level of investment required in time and money, and the chance that after all that effort it does not work. Careful thought therefore needs to be put in to how to de-risk a venture.

But it is an exciting opportunity for the food industry. 

Retail Sales of Fairtrade Products Now £1.5bn. Is Success Due to Consumer Demand or Manufacturer and Retailer Push?

The issue of whether Fairtrade’s success is due to consumers or to manufacturers and retailers is worth some thought. All products should be traded in a way that provides a fair price for the farmer, whether that farmer resides in Ghana or Gloucestershire, Caracas or Cumbria and any learning that can make farmer returns fairer merits consideration.

A look at Fairtrade figures shows that 90% of the £1.5 billion retail turnover of Fairtrade products is accounted for by sugar, chocolate, coffee, tea and bananas, and by big food manufacturers and major supermarkets.  Every banana sold in Sainsbury's and Waitrose is Fairtrade, as is every bar of Cadbury’s Dairy Milk Chocolate, every bar of Nestle’s Kit Kat, and Mars Maltesers. All of Tate and Lyle’s sugar products are sold under the Fairtrade banner. All the big supermarkets have a range of Fairtrade teas and coffees.

 Indeed it is hard to avoid buying a Fairtrade product at some point in the weekly shop.

Not only have big companies pushed Fairtrade, they have done so in a way that requires little sacrifice on the part of the shopper, for no major player has added a price premium to their Fairtrade products, electing instead to sell at the same price as they did prior to adopting the logo.

There is a lesson here – big companies are prepared to swallow a hit to their margins if they see a benefit, and in Fairtrade they saw a way to polish their ethical credentials at relatively little cost.

Mostly therefore the success of Fairtrade has little to do with consumers demanding fairness for third world farmers. What the Fairtrade people have done well though is to build a recognisable brand with a simple message that appeals to consumers and allows them to feel good when they purchase a Fairtrade product. Ten years ago few had heard of Fairtrade, but now, according to the IGD, four out of five shoppers recognise the logo, and just over a third say they have specifically chosen to purchase a Fair Trade product

 And it is this undoubted consumer appeal that companies are harnessing when they adopt Fairtrade accreditation.

So what about fair trading for British farmers? The tide does seem to be turning. Scarred by the horsemeat scandal, and conscious that the British public views farmers and home produced food in an increasingly favourable light, manufacturers and retailers are slowly embracing closer, more transparent relationships with producers. This is vital for as the Fairtrade story shows, the lead has to come from players with clout and the ability to make big, transformational decisions.

The Fairtrade story also illustrates the value of strong branding, and here is where British farming could help itself and make a real difference to the way in which the industry is perceived by consumers and retailers alike. Replacing the Red Tractor with a recognised logo and brand which stood for exceptional production standards, not just the bare legal minimum would be a good start, as would tough policing of the standards.

The twin aims should be to move consumers from a vague feeling that they should be buying British into state of mind where they understand exactly why they should support British farming; and to build a system that retailers feel they must be part of to be credible with their customers.

A Look at Lidl - The "Other" Discount Store

Despite running more stores than fellow discounter Aldi, (nearly 600 versus Aldi’s 400)  Lidl remain smaller in market share, and have not managed to achieve Aldi rates of growth. In the last quarter Aldi’s market share was 3.6% and its sales grew 30% year on year. Lidl’s share was 3%, and it grew by 9%.

Why might there be this disparity in performance? I visited the Lidl store in Penicuik in the Scottish borders to find clues.

Both Aldi and Lidl sell products at prices far lower than available in mainstream supermarkets.( The dark chocolate pictured sells at 79p versus the branded equvalent at £1.85p).   Lidl follows many of the practices embraced by Aldi, designed to make the cost of operating the stores very low, and passing the benefits of the low cost base on to shoppers. Both sell a small range of products under brand names that few have heard of, many of which are imported. The small range means smaller stores which are cheaper to run. Products are displayed in their outer cases as opposed to being unpacked and placed on the shelf, saving staff costs. Costs are also saved by having fewer checkouts, and employing super fast till checkout operators. Both stores encourage those with alot of shopping to pack away from the till, again speeding up the process.

Lidl differs from Aldi in that it offers more big name brands and it is difficult to judge whether this deviation from the standard discount model results in increased sales by attracting shoppers who like to buy known brands or whether the added cost means that prices are possibly not quite as low as Aldi.

Lidl’s fresh food offer seems more attractive than Aldi’s. Many breads are baked on the premises, and attractively displayed in wicker baskets. Most of the meat on offer was produced in Scotland, well displayed in stand alone  chiller cabinets, and accompanied by an explanation of Lidl’s animal welfare standards. Some ham was imported but British product was available. Certainly the Scottish produced pork chops purchased at the Penicuik store were excellent.

The fruit and vegetables looked fresh enough, but do not display a sell by date (another cost saving action employed by both discounters as once a sell by date is reached product has to be sold at a heavy discount.) It was therefore disappointing that my Jersey Royal potatoes, albeit  costing 18p per kilo less that Sainsburys, had turned green by the day after purchase.

Overall though, the combination of availability of major brands and generally good quality fresh food made the  shopping experience in Lidl Penicuik  more like that in a major supermarket than does Aldi  and the company embraces more consumer trends like attention to animal welfare and supporting local produce.

So why would Lidl be growing more slowly than Aldi?

One answer could be that Aldi are opening more stores than Lidl.

It could be that prices are not as sharp, or product quality in general not as good. Aldi seems to do particularly well when it comes to food awards.

My guess is that Lidl’s marketing is not as good as Aldi’s.  Aldi generates more publicity in the papers than Lidl - it is always Aldi that journalists write about when doing a feature on discount stores.  And Aldi has promoted and advertised its products more heavily.

This could be why Lidl have embarked on two advertising campaigns, one talking about the quality of its fresh food, the other highlighting packaged products that consumers rate as highly as major brands, but which cost considerably less.

If Lidl wants to grow faster it needs to make sure its activities are squeaky clean.

Lidl, like Aldi, was caught up in the horsemeat scandal. There has been a recent allegation that Lidl only pays UK tax of around £12,000 on a business with a £3 billion turnover. Lidl of course claims that it complies completely with UK tax laws. Whilst unlikely to have impacted on sales growth to date, such an allegation will do little to enhance the company’s reputation. 

Which is unfortunate as it seems to have much to offer its customers, particularly in difficult economic times.

ALDI - Winning Awards but Misleading Consumers

Discount supermarket Aldi is in the news again. It scooped 16 gold awards at the supermarket industry magazine “The Grocer” s taste tests of various own label brands. And it has been criticised for misleading consumers by putting a Scottish flag on packs of beef and turkey from South America and the EU.

The awards story is impressive. Aldi came first, Tesco came in second with 12 golds, Asda scored 11, Marks and Spencer 8, Waitrose 3, and fellow discount supermarket Lidl achieved 4 golds. The awards come on top of Aldi’s Oliver Cromwell  gin winning silver in the International Spirits Challenge, beating  Bombay Sapphire which sells at twice the price, and collecting a silver award for champagne.

The Scottish flag story is shameful, and only came to light through the vigilance of NFU Scotland.  Aldi’s limp response was to say that no laws were broken but they recognised that featuring a Scottish flag could make shoppers think the products were wholly Scottish, and they have promised to re-label. At best their action was naive, at worst deliberately misleading.

Low prices combined with a growing reputation for quality mean that Aldi is showing the fastest growth of all supermarkets in the UK, up by 31% in the last twelve weeks according to Kantar Worldpanel, the company which monitors grocery sales. Fellow discounter Lidl grew by 9%. The only other grocer showing significant growth is Waitrose, which operates at the premium end of food shopping. The big four are stumbling along with growth in the low single digits.

The combined share of Aldi and Lidl now stands at a record 7.9%, and industry watchers are asking how far it can go. Conventional wisdom says that the strength of UK competition means that discounters will never touch the heady heights achieved in home country Germany where they enjoy a combined share of just under 30%.

But both Aldi and Lidl are raising their game. Aldi had just launched a trial convenience store in Kilburn, tapping int0 the growing tendency of shoppers to visit local stores to save petrol costs and  ensure they buy only what they need and not be tempted by the plethora of stuff available at bigger shops.

Lidl has just announced that it is increasing the shelf space it devotes to fresh meat and poultry by 50%.

Across the water in Ireland Aldi and Lidl together command a share of 13.6% of the grocery market, up from 11.6% last year. Their growth is coming from new customers as well as regular shoppers, which has not to date been the case in the UK.

There seems to be room for further discounter growth, but to achieve it requires continued rock bottom prices, whilst improving quality.

It also requires consumer trust, especially when it comes to buying fresh food. And here is where the discounters have stumbled. The Scottish flag issue reflects badly on Aldi, and both Aldi and Lidl were caught up in the horse meat scandal. Aldi and Lidl will be painfully aware of the need to take a firm grip on supply chain issues, and stop any erosion of consumer trust in its tracks.

More Evidence That Food Retailers Need an Online Operation

Hardly a day passes without reference to the rise of on line shopping and how it will affect the retail landscape.

Last week we heard that Morrisons supermarket are paying £170m to Ocado for their depot in Warwickshire, a further £30m to license their technology, plus 1% of any Morrisons online sales and 25% of any cash profits. They also threw in £46m to expand the Warwick depot, and a contribution to Research and Development costs.

Whether one thinks that Morrisons are out of their minds to get involved with Ocado, whose business model is far from a successful example of how to compete in online grocery retailing, or whether your view might be that this is an excellent  move for all concerned, what is unarguable is that Morrisons felt so pressurised about the adverse impact of not being on line that they were prepared to pay handsomely for a way in.

Today the Centre for Retailing Research heaped on the pressure by publishing a report claiming that the percentage of sales made on line will rise from 12.7% in 2012 to 21.5% sometime between 2018 and the end of the decade.

They make the chilling prediction that the rise will result in a loss of some 316,000 jobs,  that total store numbers will fall by 22% from 281,930 today to 220,000, and that a further 164 major or medium sized companies will go into administration.

As ever it is the consumer who is driving the change.  Shoppers’ way of buying has changed out of all recognition in just a few years. Nowadays, having read up all the reviews about a potential product on line, they can choose to visit a store and buy then and there, (having just checked on their smartphone that the prices on offer cannot be beaten by a competing store).Or they can use the store to see what a product looks and feels like and then go home and buy online. Even then they have a choice – to have the product delivered to their home or, rather than wait in, to collect at a convenient specified outlet.

As to food, the Centre concedes that purchasing food online has not exploded on the same way as other sectors, but predicts that online food sales will rise from 3.7% today to 9.5% by 2018, largely driven by the supermarkets investing heavily in this way of shopping.

There are substantial obstacles to overcome. There are reasons why shoppers have not enthusiastically embraced the internet to buy food.

The IGD tells us that consumers are still worried about the quality of fresh food bought on line, and that this remains one of the biggest barriers. 2 in 5 shoppers want longer shelf lives on products but this alone will not solve it. The taste and look of fresh products bought online continues to be highly variable.

Reliable delivery times are also critical, as is confidence that what is ordered will be what arrives on the doorstep. 90% of online shoppers report that a reliable delivery service is a major factor in deciding which supermarket to buy from.

And of course, prices and promotions must at least match what is happening in the store itself.

Buying groceries on line is not yet the ingrained behaviour that is evident in other categories. Most people shop online every now and then. Others have a more regular approach. But very few buy weekly, and the number doing so is dropping.

There are many problems to solve, not least that online as a way of retailing groceries is much less profitable than via the store.

It would seem though that all involved in selling food need to factor in the online issues when they review their business strategies.

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.