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.