UK Milk Market – Examining Opportunities for Growth

Tetra Pak, multi billion pound maker of drinks cartons, has just published a review of the UK liquid milk market, setting out where growth opportunities might lie.

The company estimates the total market, retail and catering together, to be around 6 billion litres, with sales down 1% year on year. Growth in retail sales is partly offsetting a decline in catering. (For comparison, DairyCo’s latest numbers for retail show the market to total 5 billion litres, up 0.4%).

According to Tetra Pak, functional products with added health benefits are the biggest growth opportunity. They point out that products like Unilever’s Flora Pro Activ which promises lower cholesterol, and Lactofree from Arla are growing strongly, and increasing health consciousness will drive growth still further. This has apparently happened in America where products with added health benefits are booming.

Whilst Tetra Pak are correct to say that keeping healthy is a worry in the UK, launching successful products will not be easy. Health benefits do not trump a poor tasting product, so much research and development will be needed to ensure that the products not only deliver their claims but also taste great, and vast marketing budgets are needed to explain a benefit to a public generally mistrustful of anything which smacks of being modified.

A more straight-forward opportunity identified by Tetra Pak lies in the flavoured milks market, where, helped by the launch of exotic varieties, the market has grown to 200 million litres in 2009. An EU ruling that subsidies for milk now apply to secondary as well as primary schools may encourage teenage consumption. And at the youngest end of the age scale, Tetra Pak has noted a rise in sales of baby and toddler milks.

One of the quirkier facts in the review is that goat’s milk is the fastest growing sector of all.

And so to brands and innovation. The Tetra Pak review shows that the share of branded milks has grown to over 20%. EU regulations whereby milks of varying fat levels can be labelled as milk, rather than milk drink, allowed a new sector to emerge, led by Wiseman’s “The One %". Cravendale filtered milk from Arla with its longer shelf life has been a shining example of innovation. The product is sold at a premium and the sector has come from nowhere to be now worth £229million. Lactofree is another branded success. All demonstrate that premiums and innovation are possible even in a so called commodity market.

Anders Olsson of Tetra Pak reckons that more creative thinking and better consumer understanding would lead to a more dynamic milk market. He says that “The current state of mind is auto-pilot”. It may sound harsh but he has a point. Liquid milk is a huge but static market, and there is a crying need for innovation to reduce dependence on sales of low margin standard milk to major retailers, to get the value of milk sales up, and to return some of the higher value margin to milk producers.

Notes from DairyCo’s consumer sales audit for the 12 months to 1st November 2009
- the liquid milk market is up 0.4% in volume and 6.7% in value
- filtered milks grew by 10%
- organic milk sales are down 2%
- Jersey and Guernsey are doing well off a small base, up 13%
- UHT milk is down 2%, but a new sector, sterilised milk, is growing rapidly albeit is still very small. DairyCo thinks this is because it offers a longer shelf life.
- soya milk sales are down 5%

Prices Down, Consolidation and Cooperation Up – Key Messages from Royal Agricultural College Conference

At the Cirencester annual conference, Christine Tacon of Co-operative Farms and John Shropshire of G’s Marketing addressed the theme of “Business strategies for the next decade”. With a turnover of £50million, and running 60,000 acres of their own and partner companies’ land, the Coop is the largest arable, vegetable and fruit farmer in Britain. It supplies the Coop Group, as well as other customers. G’s is a £230million turnover company, supplying major supermarkets, independent outlets and the catering trade with vegetables and salad crops.

Their businesses are different but their messages similar.

Message 1 – Producers profits will be further squeezed

Whilst neither speaker put it quite as baldly as that, Christine said that “these are tough times for growers”. The Farms unit is prepared to take a lower price for produce from its Coop parent in return for security of supply, and acknowledges that Coop buyers would rather not be tied to buying from the Farms but to chase lowest prices by dealing with a number of suppliers. John Shropshire was categoric – “Price is everything”- and cited celery where half of the crop this year was sold on promotion. He says growers are finding it difficult to make money even now, and forecasts that prices will drop in real terms. Perhaps controversially, he does not favour contract prices, believing that producers tend to contract at below the market average, and also that contracts mean businesses lose touch with what is happening in the market place.

Message 2 – Big is beautiful

The notion that producers’ profits are under pressure is not a surprise, but the emphasis these industry speakers put on the need for accelerated and radical consolidation might be.

Christine mentioned Thanet Earth, a veg and salad crop venture in Kent owned by a 4 business consortium, whose website proclaims that the unit has enough glass to cover 80 football pitches. She also said that UK meat and dairy industries are too fragmented and inefficient to compete with overseas companies. John was clear that further consolidation in the supply chain was urgently needed to reduce costs and offset pricing pressure. John, with G’s having farms in Spain as well as the UK, also forecast a “Europeanisation” of the supply chain in an effort to get economies of scale.

Message 3 – Cooperation will be key

Coop Farms either own land or run farms for private landowners so are well used to dealing with farmers directly. G’s is a cooperative of 20 farmers with each farmer having one vote regardless of size. Both are committed to close working relationships, and feel that the more integrated the supply chain the more chance there is to examine costs from end to end and reduce them to offset price pressure. John Shropshire particularly stressed the need for close partnerships where information flowed, and supply chains could react with speed and accuracy.

Perhaps as a reaction to the extremely difficult economic climate, there was less talk of growth producing as opposed to cost cutting strategies. However speakers commented on the need for good customer understanding, and a continued attempt to try new things even when money is tight.

What Will Marc Bolland Do To Revive M&S Food Business?

Marc Bolland’s move to Marks & Spencer has sparked excitement in the City and attracted acres of coverage in mainstream news. The interest reflects M&S’s position as jewel of the High Street, leading purveyor of the nation’s underwear, and reliable backstop when looking for clothing basics - and Bolland’s success at supermarket giant Morrisons.

Marks badly needs someone who can revive it's £4.2bn turnover food business. Performance has been nothing short of dismal with falling margins and severe loss of market share, and the decline cannot be put down to difficult economic times. The problems arose well before the credit crunch, and continue despite a slight loosening of consumer purse strings, and recovery in its rival Waitrose.

Mr. Bolland's experience at Morrisons equips him well for the challenge. So what might he do?

First he has to understand what the problem is. Current management seems to think it is all about price, and has responded with hundreds of offers and deals such as “Dine in for £10”. This might help in the short term as Marks' food is expensive, but it is not a long term fix. Neither is the plan to introduce branded products such as Coca Cola, for Marks has neither the expertise nor the buying power to be a general grocery shop. What Marc Bolland must do is solve the basic problem which is this - as of today there is no compelling reason either to visit M&S on a regular basis, or to spend much when you get there.

How different it was a few years ago. M&S's initial success came because it offered outstanding quality which was unavailable from anywhere else. Then in a brilliant piece of market understanding and pioneering innovation it developed its range of ready meals, offering culinary delights which an increasingly widely travelled public encountered when abroad but had no idea how to replicate at home. Ready meal sales went from strength to strength as time pressed but affluent consumers bought a no-preparation evening meal, not giving too much thought to nutritional content or having to double up because portion sizes were tiny. M&S sandwiches were a leading development too, offering fresh and delicious lunchtime fodder at a time when the only takeaway food was a sausage roll and packet of crisps.

But then the world caught up with Marks. Supermarkets matched them on quality by introducing premium ranges, consumers shunned ready meals preferring instead to do some actual cooking at half the price and twice the goodness, and lunchtime options became available everywhere from the likes of Gregg’s the bakers, or coffee outlets such as Costa and Starbucks.

So Mr. Bolland, what is needed here is a return to the historical ability of Marks and Spencer to see the future with crystal clarity, to anticipate consumer trends, and give us what we want before we even realise we want it.

Supplier Relationships
On the supplier relationship side, we know that Morrisons supported British farmers under Bolland’s leadership, committing to stocking only British beef and lamb. Also that they set up Morrisons Farm, a 700 acre holding on the Dumfries house estate in Scotland where the objective is to be a “leading centre of excellence in applied farming research”. It is to be hoped that he will continue Marks’ constructive approach to farming relationships, and commitment to stocking only British beef, salmon, chicken, pork and turkey. He might even go all British on lamb. Whether he will bring a tougher negotiating stance generally to suppliers remains to be seen, but with slipping margins some changes are likely.

The 10 Most Motivating Advertisements on TV Now – And Why They Work

Businesses spend thousands and sometimes millions of pounds developing and making adverts, yet few ads actually do what they are supposed to – namely persuade people to part with cash to buy the product in question. So its interesting to see some research carried out by Mercury, an arm of TNS WorldPanel which names the top 10 most motivating ads of 2009 so far.

The top 10 are:
1. Dettol Antibacterial Spray
2. Walkers Crisps with Gary Lineker and Cat Deeley on the bike
3. Kelloggs free cornflakes
4. iPhone new version
5. Tesco where Fay Ripley is picked up by her husband in a hot air balloon
6. Premier Inn’s take off of classic film Psycho, starring Lenny Henry
7. Morrisons supermarket fresh fish
8. Compare the Market with the meerkats Alexander and Sergei
9. Currys fridge freezer recycling
10. Jacob’s Cream Crackers

Now why would these adverts work better than the other 190 tested?

The company who did the research say that the top 10 adverts work because “It’s one thing to have an ad that people enjoy, but if you are not addressing a need or feeling it is less likely that they will turn that enjoyment into a purchase”. Or, in other words, there has to be a strong reason in the ad for people to part with their cash. This is particularly true for a business which has limited money to spend on promoting their products.

After a happy half hour watching these ads, I’d offer some more thoughts about why they are especially effective.

Dettol heads the list. It’s an example of “problem/solution” advertising, and in Dettol’s case the problem is both big and topical, namely how to protect your family against swine flu. The advert not only solves a problem, it does so in a very vivid way, showing brightly coloured germs lurking in unexpected places, waiting to pounce on the vulnerable.

Curry’s advert for their fridge freezer disposal service uses problem/solution advertising too, illustrating the sheer hassle of carting the old appliance to the recycling centre, as does Premier Inns who remind viewers of the nasty surprises that can be found in some cheap hotels. Which leads to the next reason why these adverts work – both Currys and Premier Inns commercials get attention because they are funny. Very funny, in the Premier Inn case where Lenny Henry acts out all the parts with enormous enthusiasm.

Walkers Crisps raises a smile as Gary Lineker (a smug but seemingly likeable character) gets his come uppance at showing off. The Tesco advert also raises a smile and is a clever twist, but both of these, alongside Morrisons fish, and Compare the Market .com probably succeed through the sheer amount of money spent showing them on our screens.

It helps to have a big name. Lenny, Gary, Fay Ripley in the Tesco ad and Nick Hancock in the Morrisons ad are all very well known stars. Stars don't come cheap though - Richard Hammond of Top Gear is reportedly being paid £750,000 for his appearance in Morrison’s Xmas advertising. Fortunately stars are not mandatory, as Dettol have shown, and too often are used by advertising agencies as a lazy substitute for good creative thinking.

The last type of advertising represented in the top 10 is informational. This works best when the message is simple. Kelloggs is telling the world that just by collecting three tokens they can get free cornflakes forever, and iPhone is announcing the launch of its new version.

All businesses have to consider how they will tell customers about their products, and not many can afford multi million pound TV campaigns. Whether putting up a flyer in the local newsagents, advertising in the parish magazine, getting a mention in the town newspaper, or deciding what to say on a website, the rules are the same. Grab peoples’ attention, give them a concrete reason why they should buy, and make it as easy as possible to purchase the product.

My Shameful Secret - I'm a Meat Eater

So the hoo-ha about meat eaters destroying the planet has surfaced again, this time via a Times interview with Lord Stern, noted scientist and author of the 2006 review of the cost of tackling climate change. The Times front page headline announced "Climate Chief: give up meat to save the planet", and in the body of the interview Stern reckoned that people's attitudes would evolve until meat eating became unacceptable.

So, is meat eating about to become a shameful secret, admitted, like listening to Country and Western music, only to one's most trusted friends,and undertaken behind closed doors. Will meat eaters, driven underground by public opinion suddenly feel the need to burst out of the closet, shout about their meat eating, and join "Meat Pride" marches through the streets of London? Will, heaven's above, the nanny state actually ban meat eating?

To be fair, on BBC's Today programme Lord Stern started by saying that the Times headline was "unfortunate", and that his message is about global leaders needing to take climate change seriously with meat eating being just one of many factors which need consideration. Too late. The headline writers have roared into action.

The voice of reason needs to speak up.

For starters, sheep and cattle are vital to preserving the character and biodiversity of the British countryside. They graze on moors, hills and coastlines, keeping land that cannot be cultivated for grains or vegetables from becoming brown stretches of dead bracken incapable of supporting plants or wildlife. The National Trust understand this, as does Natural England. Both have been active in reintroducing cattle to ungrazed stretches of the countryside, resulting in more rare plants and bird life. Perhaps they could speak up.

Meat, as the Food Standards Agency on its website and Times nutritionist Amanda Ursell both point out, contains essential nutrients in an easily absorbable form. The FSA says " Meat is a good source of protein and vitamins and minerals such as iron, selenium, zinc and B vitamins".

There's also the very practical issue that if there are no cows then there are no milk and dairy products.


And farming is a voice which needs to shout very much louder, communicating their plan (assuming there is one) to minimise farming's environmental impact.

Tough Times for Butchers

It’s a hard time to be a butcher. TNS* figures for the 52 weeks to August show butchers sales down by 5.2%, which compares to an increase of 5.7% for meat sales through all shops. Whilst the turnover figures are bad, tonnage sales are horrific. Butchers are selling 20% less pork than last year, 18% less lamb, 12% less beef, and 15% less sausages. And year on year declines are getting worse. Tonnage sales in the last 12 weeks show a 24% drop in sausage sales, 18% drop in beef, 16% in lamb and 18% in pork.

Meat sales generally have been struggling, but butchers seem to be suffering especially badly. The comparable numbers for the total meat market in the last twelve weeks are sausages +2%, beef -2%, pork -1%, and lamb -16%.

Price is likely to one of the problems, with many people thinking that butchers are expensive. The price difference between the average butcher and the top 4 multiples is about £1 per kilo dearer on lamb, 54p per kilo on pork, and 26p a kilo on beef.

Another issue might be that you never know when buying from the butcher quite what the bill will be. And it’s a brave person who, confronted with more cost than expected, asks for the piece to be cut smaller. Contrast this with supermarkets where everything is price marked, you know exactly what the cost will be, and can be confident of sticking to your budget.

The meat trade needs strong butchers as they are a way to avoid total domination by supermarkets, and some butchers are a beacon of hope in a generally gloomy picture. The reasons seem to be firstly, a refusal to compromise on quality, secondly a willingness to embrace consumer trends such as selling locally produced fully traceable meat, and thirdly, being prepared to experiment with supermarket type tactics like prepriced joints and promotional offers, all of which helps keep their customers loyal in difficult economic times.

*TNS is Taylor Nelson Sofres.

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.

Why is ASDA Putting Webcams into Food Factories?

Andy Bond of ASDA was in the media yesterday talking about his new strategy, which he calls “Democratic consumerism”. The idea is to let consumers see for themselves via webcams where ASDA’s food comes from. Already there is a camera in a carrot factory, and in a milking parlour somewhere in Scotland.

According to Bond, the move taps into a growing trend. More and more consumers want to be reassured about the practices behind the food they eat, and Bond is saying that cows and carrots are just the start - “The ambition is to reach a point where customers can trace the journey of each ASDA product, from farm to fork or warehouse to wardrobe”.

It is true that consumers want to know more about the products they buy, but there is more to the move than that. It signals a recognition that price promotions and a value message alone are not enough to keep customers loyal to a store. After all anybody can cut prices – and they all do. TNS (Taylor Nelson Sofres the research company) has found that the amount of store turnover from promotions has gone up from 28% in 2007 to 32% in 2009. More worryingly for retailers, the economic squeeze has meant consumers doing much more shopping around to get the best deals, and it seems that this is not so much a chore as a rewarding adventure. As one shopper in a piece of IGD (Institute of Grocery Distribution) research put it “I quite like shopping for less using promotions. It’s a challenge, and I feel quite chuffed having saved some money.”

Which leaves each retailer searching for reasons over and above price based offers to secure loyal customers. Tesco offers extra points on their Clubcard. Sainsbury combines value and quality by advertising their own label products – apparently just as good as the branded equivalent but at least 20% cheaper. Morrisons talks about fresh food available from their “Market Street”. And now ASDA is being reassuring on where their food comes from.

The general feeling among those who study the grocery industry is that ASDA’s initiative will give them an edge over competition. But they and their suppliers have some thinking to do. In this search to understand the origins of their food, will consumers expect webcams in abattoirs, and on farms which rear animals intensively. How will ASDA deal with difficult issues such as lameness in dairy cows? Or will they be selective in what they show, and expose a worthy idea as mere PR fluff.

Does Waitrose Sales Growth and Deal with Duchy Signal Return to Premium Food Buying?

Market research company Taylor Nelson Sofres tells us that in the last three months, Waitrose sales grew by 10.2% versus 5.6% for the whole grocery market.

So what prompted the spurt?

Contrary to popular belief the powerhouse has not been Essential Waitrose. This range was never meant to a budget offer competing with value ranges from other supermarkets. In fact most of the products in the range remained as they always had been, and were sold at the same price as previously. The difference was that the range was pulled together under one distinctive brand name.

Essential Waitrose was a rebranding of mostly existing lines, but the vast publicity surrounding its launch seems to have encouraged shoppers back into the stores to re-evaluate what Waitrose had to offer. Once back inside, and helped many more price promotions than hitherto, shoppers liked what they saw and started buying again across the whole Waitrose range. Indeed, Richard Hodgson Commercial Director told the Grocer “Essential Waitrose has played a role at the bottom end but most of our growth is coming at the top end”.

The other factor behind growth may well have been the froth coming off discount shopping. Many of the shoppers who were lured to Aldi and Lidl tried them once, and never came back. The discounters have not converted triers into regular shoppers and growth has slowed from north of 20% per annum to a still respectable but not earth shattering 8% for Aldi and 6% for Lidl.

So does the growth in Waitrose sales and the bloom coming off the discount rose signal the end of the recession and a return to premium food shopping? Well in truth, premium food shopping never went away provided the product in question justified the price charged. What shoppers were not prepared to do was buy premium merely because the label said premium. This is where many organic foods struggled.


Which leads to the Duchy deal. This does seem to be a good thing for both parties. Duchy Originals is a well known and respected brand which should benefit from Waitrose support, and Waitrose commitment to donate to the Prince of Wales Charities can only be beneficial.

It will be interesting to see what Waitrose does with Duchy. The brand is apparently being positioned as super premium, and Mark Price Waitrose Managing Director reckons that it will grow to about 2.5% of Waitrose sales, equating to a turnover of some £100million. The challenge will be to ensure that shoppers are given a clear justification of the super premium positioning. We know that just saying organic on its own will not be enough. One thing is certain. Unless the quality of Duchy products is absolutely superb, and better than anything else available for a similar price, the brand will not blossom.

Finally, can we say that the growth in Waitrose sales, their optimism about Duchy, and the slow down in growth for discounters means a return to pre credit crunch ways of shopping?

Not completely. Shoppers now have a much better handle on what is and is not worth paying for. They have got the taste for chasing bargains. And lurking at the back of most people’s minds is a worry about what the economic climate will be like over the next few years. They won’t be throwing their money away in a hurry.

UK Lamb Market - Farmgate Prices Strong, Yet Amount Eaten Plummeting. Should We Be Worried?

To the relief of farmers across the land, farmgate prices for lamb remain firm. Eblex (the English Beef and Lamb Executive) attributes this to the strong euro boosting exports, and a reduction in UK sheep numbers. Eblex forecasts that the euro will continue relatively strong, lamb numbers will fall in the UK, Ireland and France, and good prices will probably continue.

The one cloud on this bright horizon is the effect high lamb prices are having on the amount people eat. Farmgate prices for lamb over the twelve weeks to end July rose by around 12% compared with last year, the average price in the shops rose by 17% and the amount that people bought fell by 15%. This compares with a fall of 5% for beef and level sales for pork, both of which have been hit by higher prices and consumer cutbacks because of the recession, although not nearly to the same extent.

The drop in lamb sales is startling, although not surprising. The shopper is now paying an average of £7.15p per kilo for lamb versus £6.22p for beef, £5.10p for pork and £4.02p for chicken. No wonder that fewer people are choosing lamb. All cuts are affected particularly roasting joints.

The question is where it will all end? What happens if the euro falls back, flock numbers increase as farmers, attracted by higher prices dip a toe in the water again, yet consumers lose the lamb buying habit, and there is little demand for lamb either at home or abroad.

The obvious solution is for supermarkets to slash the price when farmgate prices fall, and get people buying again. History would say though, that prices in supermarkets do not come down nearly as quickly as they go up, as we saw during the foot and mouth crisis.

If supermarkets don’t support the market who might? This could be an opportunity for butchers to become very price competitive, and attract customers with a banner comparing their prices to the local supermarket. It’s also an opportunity for the catering trade who sell disproportionately more lamb than supermarkets, and for direct sellers. The trouble as always is that supermarkets are so big they do dictate market trends.

The easy conclusion is that we should be worried about people eating much less lamb, as it is bound to have an effect on prices, perhaps not next year but soon enough. The harder bit will be working out how to reignite the lamb buying habit.

Note: Farm gate prices based on Farmers Weekly data, and consumption on Taylor Nelson Sofres data, published by BPEX.

Assessing Hilary Benn's Call for UK Farming to Produce Alot More

Excited by Hilary Benn’s call last week for farmers to safeguard food security by “producing a lot more”, and keen to understand what we are all supposed to do, I read the back up papers issued by Defra.

Nothing in those papers looks radical enough to provide a step change in output. And its clear that Defra, whether consciously or unconsciously, is prioritising the environment over productivity.

For the first time Government has produced a set of performance related indicators, or in plain English, a list of things they want to measure. This is important as what gets measured tends to get done. The Sustainable Food and Farming performance indicators show that Government wants to measure 9 areas.

Of the 9, just one, Market Focused Farming, measures farming productivity. The target is for UK farmers to deliver 50% more Gross Value Added than the EU average of 14 pre enlargement countries. Currently the figure is 32%.

The things that Government feels will help achieve the target include more diversification, more collaboration, more membership of farm assurance schemes, more benchmarking, higher levels of training, more organic farming, and more use of risk management tools, particularly in the arable area. Government is working on how to measure farming’s response to climate change, and the cost to farming of regulation.

Whilst all of those indicators are useful, none will deliver big increases in output.

Also specifically farming related is an indicator called The Burden on the Taxpayer, where two sets of figures will be produced, the value of direct CAP payments, and the cost of animal disease and the level of cost sharing. As yet no target has been set for the cost to the taxpayer, either up or down, but it can probably be assumed that the aim is to reduce it.

Of the other 7 performance indicators, three are directly environment related. The Environmental Cost of the Food Chain indicator will measure river water quality, pesticide and fertiliser use,good agricultural and environment condition,pollution incidents, and membership of the Entry level Stewardship Scheme.

Better Use of Natural Resources has a target of halting the decline in soil organic matter. Landscape and Biodiversity has a target of halting the decline in farmland birds by 2014, and then seeing an increase, and also improving the condition of Sites of Special Scientific Interest. It specifically mentions farmer entry to the Higher Level Stewardship Scheme as a way of achieving the objectives.

Animal Health and Welfare targets have yet to be developed.

The final two areas are Public Health, which targets more fruit and veg consumption, and there will be a target for Rural Productivity.

Overall, the indicators are heavily environment related, and suggest that Government actions prioritise environment over productivity.

No one is denying that in the words of Peter Kendall, farmers “must produce more and at the same time impact on the environment less”. And certainly there should be no return to production linked subsidies as this leads to poor quality products, and a complete disconnection from what the market wants.

But there are actions which can make a radical difference to productivity levels, yet contribute to a better environment.

The number one priority has to Research and Development. As yet there is no target for the amount of money to be devoted to agriculture, and current R&D expenditure stands at just £164m. The obvious area for focus is developing disease resistant fruit, veg, cereal and grass species which require minimal water and fertilisers to grow. More has to be done to understand and eradicate animal disease, including animal husbandry and stock management techniques which concentrate on disease prevention and avoid the need for routine treatment.

There are other areas to target. There must be a measure for bovine TB levels. There should be a target for public procurement of British produce. There should be a time frame for sorting out labelling to make clear what is and is not British. And the Rural Development agencies should have a target for direct farm initiatives.

But enough of the whingeing. What can be done? Well, there is a consultation going on, and it is an opportunity for every farmer in the land to make their views known.

All in all, the talk from Benn is disconnected from the walk. Hopefully though, it will be just a short time before his call is turned into practical, prioritised, and funded government action plans.

FSA Research Furore Shows Organic Movement Must Get Back to its Roots

The FSA’s pronouncement that organic food is no healthier than that farmed conventionally has generated acres of headlines, hundreds of comments, and thrown the organic world into disarray.

It’s interesting to reflect on why the reaction has been so vocal. After all, the FSA was very specific in its research. It stated that its remit was only to look at nutrient content of organic versus conventionally produced products, and it also stated that conclusions were drawn from 55 fully defensible, peer reviewed scientific studies. Its findings echo those of the pro-organic, scientifically based EU project QualityLowInputFood who at the conclusion of 5 years of research said - “Health claims for organic foods are not yet substantiated.”

So why the furore?

One of the problems with the rise and rise of the organic market is that its recent explosion has been due more to hype than substance, fuelled by uncritical affluence.

Any publication over the last few years about organic food implies that it is better for you. Celebrity chefs, food writers in the broadsheets, and bodies such as the Soil Association have all insisted that organic food is the only sensible thing to eat, but they have rarely backed this up with scientific facts. Indeed even after the FSA report was published, a writer in a middle class paper was saying that there are certain food purchases that should always be organic, but yet again gave no reason why, and a Sunday paper had a full page article headlined “We dig out the facts from the manure”, but still filled the page with opinionated claim and counterclaim rather than facts. So one reason for the uproar could be that food writers and chefs may well be feeling very silly about supporting something unfounded, and possibly worried about their credibility.

The Soil Association and other organic supporters will understandably be concerned that their carefully built market will collapse down round their ears, especially in the current difficult economic climate.

So how should the organic world respond?

Instead of rushing to damn the FSA’s findings, organic practitioners should be re-evaluating in a calm, fact based and non spun way, the reasons why people might consider buying organic food.

They are fortunate in that already there is a highly committed core of organic devotees. A look at the reams of comments which newspaper articles generated from the general public gives a good steer on what they value. These people suggest that the main reason for purchase is not what is in organic food but what isn’t. The vast majority say that the reason they buy organic is to avoid pesticides. A few said they just have a belief that the whole system with its focus on the soil onwards is the right way to farm, some feel it is better for the environment, and some feel it promotes higher standards of animal welfare. (Few mentioned taste, although in a health story this is perhaps not surprising).

The organic movement needs to slow down, concentrate on what is true and factually supported about this approach to farming, tell the public and allow them to make an educated choice. Any supporting facts need to be backed by rigorous and defensible research.

This is not a strategy which will support fast growth. Recent IGD research shows that the number of people actively interested in avoiding pesticides for health reasons is relatively small . Far higher is the number seeking to promote good animal welfare, but many issues have been addressed by conventional farming such as free range eggs, and higher welfare pork and chicken. Those interested in animal welfare can choose to buy locally produced meat, and see for themselves whether the animal welfare standards behind their meat is what they want.

So whilst massive market growth will not come from a slower approach, and there may even be a sales decline in the short term, the movement can be sure that their integrity will be protected, the public will be reassured, and longer term, the organic movement will achieve the sustainability and public confidence that it seeks.

What is striking about the organic movement is that its current high powered, fast talking, heavy spinning marketing focus, with its frequent denigration of conventional agriculture, is the complete antithesis of what organic farming is all about. Organic agriculture is a slow maturing way of farming which aims to work in harmony with the natural world to ensure long term sustainability. There is little about it which is unnatural or false. It would be good if organic marketing and organic production were more closely aligned.

How Market Research Can be Misleading – New Report on the Lamb Sector Overstates Sales Growth, and Opposed Views about Ethical and Premium Products

We are continually advised to do research to connect with the market place, improve performance, or check out whether an idea has a good chance of working.

Market research is indeed critical, but the information gathered needs to be interpreted with care.

Two examples of how market research can be misleading appeared in the last few days.

We heard from Cohn and Wolfe, a subsidiary of WPP the biggest advertising company in the world. Headlined “Recession spells the end of ethical shopping”, their most recent research says that UK shoppers are turning away from organic, Fairtrade and eco friendly products in favour of cheaper versions. More importantly, they also found that in future, recession or not, 73% of shoppers will try and pay less for premium lines such as Tesco’s Finest and Sainsbury’s Taste the Difference, 69% will buy less organic food, and 61% will pay less for Fairtrade. At which point anyone either in, or thinking about going in to premium or ethical foods might give up.

But the Cohn and Wolfe survey was followed about a week later by a press release from Tesco headlined “More confident consumers boost sales of premium and ethical foods”. They report that Finest, organics and Fairtrade products are all returning to growth. In the last 8 weeks their sales of organic mince are up 60%, organic cheddar up 70% and organic blueberries up 79%. In the upmarket Finest range, Cumberland Sausage has grown sales by 159%, and Wiltshire Cured Ham by 51%. Tesco specifically says that the news flies in the face of the Cohn and Wolfe survey, and attributes the growth to their policy of “offering customers great value for money”.

To be fair to Cohn and Wolfe they do say that the challenge for higher priced food producers and retailers is to make their products more affordable, but you have to get into the fine print of their release to catch this.

The other recent example of misleading market research comes in the shape of a new report called “Fresh Lamb - A Local Opportunity”, prepared specifically for sheep farmers by Kent University. The report is sponsored by the NFU, and the Institute of Grocery Distribution.

The report says that lamb sales have been steadily increasing, and that last year they grew by 15%. This rosy picture is in direct contrast to figures from Taylor Nelson Sofres, the market research firm, published every couple of months on the BPEX/EBLEX websites. These figures show that in the year to April, lamb sales have in fact dropped by 5% year on year, and have been dropping for nearly two years as retail prices have increased.

So what’s going on?

It turns out that the Kent University report is based on sales of lamb through Tesco, not sales in the total market which is what the levy board numbers are based on. The levy board numbers are of course more representative of what is really happening to lamb sales. It would have been helpful if the Kent report mentioned that its numbers are based on Tesco shoppers.

Accurate interpretation of market research matters. Just glancing at the Kent University report might lead sheep farmers to conclude that demand is rising and so prices for their stock might well rise too. They might even think that the recent buoyancy in stock prices is all due to British consumers wanting lots of lamb when in fact they are due mostly to the strength of the Euro, and may well fall back sharply if the Euro declines, and there is no home demand to offset exports.

Threading a true path through all the information available can be difficult, but there are a few actions which can help avoid wrong conclusions.

First, examine the fine print of any research report, and don’t rely on headlines. Second, try and collate information from various sources to check for consistency, and investigate anything that does not make sense. Third, gather data over time rather than rely on a snapshot. And fourth, don’t rely entirely on what the public say they will do, but check out what they actually do when faced with a buying decision in the shop.

Ps. Farmers Weekly and the IGD have both been alerted to the lamb figures issue, although no response has yet been received.

Milk Drinking on the Up Despite Price Hikes

DairyCo has just published liquid milk consumption figures for the 12 months to 14th June 2009, and they show some striking trends.

All those concerned about the effect of price rises on consumers’ fresh milk buying habits need not have worried. Despite an average 11% increase in prices in the last twelve months, from 62p to 69p, the total market has kept on growing and has now reached just over 5 billion litres. Which says something about the importance of milk to the British diet, much about a complete lack of awareness by the average consumer of how much they are paying for their daily pinta, and is a tribute to some of the innovative products launched into the market. It also illustrates how nonsensical it is for major retailers to slash milk prices - this is a product which does not need price promoting.

On the innovation point, the figures show that milk is not just a big undifferentiated commodity market. A careful look at what’s important to consumers results in successful new products. Filtered milk is a good example. Pioneered by Cravendale, premium priced, and sold with the consumer benefit of staying fresh for longer, filtered milk continues to grow its volume and now accounts for about 6% of all milk sales. Another innovation is milk with 1% fat which has found a niche between skimmed with no fat at all, and semi skimmed with 2% fat.

Equally, not listening to consumers results in problems. A case in point is modified milk which lost half its sales in the last 12 months and is about to expire completely. Consumers just don’t want a fresh and natural product like milk interfered with.

A couple of other interesting trends emerge. The organic milk market has dropped by just 2 million litres to 167m, but is holding up reasonably well compared with other organic products. Part of this is due to less aggressive price increases. Whereas regular milk increased average price by 7p per litre, organic increased by 4p. Jersey and Guernsey which hardly increased price at all have held volume, albeit this is still a tiny sector.

Doorstep delivery sales continue to fall, down 11% year on year. With an average price of 98p per litre, this is perhaps not too surprising. But, it still accounts for 6% of all milk volume sold, and the independent milk producer might well be able to build a good business if they could bring the price nearer that of the supermarkets.

For some reason sales of soya milk have dropped by 8%, despite an average price reduction. Possibly at 90p a litre it is just too expensive when budgets are tight.

All in all though, liquid milk looks like a healthy market in all senses.

Discount Supermarket Growth Slows - Is It All Over for ALDI et al?

Discount supermarkets like Aldi and Lidl are making headlines again, but this time for sales slowing rather than growing.

Editor of The Grocer, Adam Neyland wrote a piece a couple of weeks ago entitled “Is the discount boom over?” This was followed a few days later by figures from market research company TNS Worldpanel, which showed that in the 12 weeks to June 14th Sainsbury and Morrison grew faster than Aldi and Lidl, with Asda growing at about the same rate. Actual figures were +6.5% for the total grocery market, Morrisons +9.3%, Sainsbury +8.9%, Aldi +8.7%, Lidl +7.5%, and Asda 8.2%. It’s a marked change. In the previous months the discounters were growing at anything up to 3 times the rate of their main stream competitors.

Why the change?

As Neyland points out some slowdown in growth was inevitable as competitors fought back with price promotions, million £ advertising budgets, and a focus on the quality and value of their fresh food. Which is a lesson to all of us to never underestimate the competition, particularly in UK grocery.

I think there is more to it.

It is interesting to reflect on what caused the discounter boom in the first place. Of course some of it was due to consumers on a strict budget searching for value as food prices rocketed. Much responsibility though must be laid at the door of the media. Not a day went by without headlines about the middle classes turning to Aldi, that it was now more chic to be seen with an Aldi bag than a Waitrose one, and that discount car parks were full of Range Rovers and Mercedes. No wonder many read the hype, worried about missing out, and nipped along to see what all the fuss was about. The monetary value of all that media coverage must have run into millions.

The big question is, of those who made the visit, how many tried, were disappointed and never came back versus how many changed their shopping habits and returned every week. Market research company Him! (yes, new to me too, but they are a genuine outfit despite the odd name), does regular research with discount shoppers. They say that shoppers are less satisfied with discounters this year than they were in 2008. Also that recent shoppers, and more upmarket shoppers expected more from the stores and were disappointed by what they found when they got there.

There is a lesson here too, which is that a business cannot be built on people buying just the once, rather, long term growth will come from having a solid base of loyal fans who buy again and again.

So what of the future?

Discounters have many devoted customers, but it is not a way of shopping that appeals to all. If it were, the market share for all three discounters would be far higher than its current 5.9%, which compares with a share of 11.6% for Morrisons, 16.1% for Sainsbury, 16.8% for Asda, and 30.8% for Tesco.

Adam Neyland rightly concluded that discounters will not go away. Largely privately owned so without shareholder pressure for fast returns, they have cash and big ambitions. Aldi is committed to opening a store a week until they have 1500 in total. It also recently won best supermarket award from Which?, the consumer organisation. Lidl is supporting consumer trends with the addition of Fairtrade products, and a commitment to sourcing British beef, chicken and pork.

Whether they will make a major breakthrough is questionable. Already some research by Him! shows the numbers shopping at discounters dropping from 15% to 13% of the population, which compares with 79% visiting a mainstream supermarket. And if you look at shares held by all discounters, it has not moved much from the days when Kwiksave was operating. Indeed Edward Garner of TNS has consistently argued that the growth seen in discounters is merely a mopping up of market share held by the now defunct Kwiksave.

The future for discounters is likely to be one where the total sector will hold its market share, and within that there will be winners and losers with Aldi consolidating its position as the main player.

What Irish Farmers, Free Range Cows and Johnny Rotten Tell Us About Butter Eaters

Butter advertising. There’s a lot of it about at the moment.

Advertising is expensive. The costs can run into millions, so companies want to get their advertising right. This they try and do by talking to consumers about butter in general, and their brand compared with competitors’ brands. Armed with all this market research, companies come up with the messages and slogans they think will persuade us that their butter is best.

So a look at what each of the brands is saying in their advertising gives us a good steer on what is important to consumers when it comes to butter.

Three of the four biggest brands are foreign owned – Lurpak from ARLA, Kerrygold from the Irish Dairy Board, and Anchor from Fonterra. Only Countrylife owned by Dairy Crest is British.

Here’s what each is saying.



Lurpak, the brand leader, sells on taste. Their slogan is “ Good food deserves Lurpak”, and it reminds us that taste is all important when it comes to a food product.

More interesting is the Kerrygold advert. Aware of growing respect on the part of the public for farmers, a group of healthy looking Irish dairy farmers explain that they are part of a cooperative which means they get a fair price for their milk. The advert shows that they love their cows, implying that they will be well cared for. They say the cows are grass fed, and this, plus showing acres of lush green fields, puts across a feeling that Kerrygold is a natural, wholesome product. Whilst a very complicated set of messages, the overall tone reassures those consumers worried about farmers being fairly rewarded, those worried about animal welfare, and those who want to be sure their butter comes from cows fed naturally on grass.

Anchor with their slogan “The free range butter company”, emphasises that their cows are free to roam outside all year. To the strains of the theme tune from the Great Escape, a cartoon cow astride a motor bike leaps the fence to freedom. By using the words free range with their overtones of a better life, the clear implication is that Anchor cows have a better life than those who cannot get out. Again it’s an animal welfare story, but with a natural slant too, for a cow free to roam will by implication only eat good fresh grass.

And so to Countrylife featuring Johnny Rotten, or John Lydon as he is now known. Unashamedly jingoistic, it trumpets the brand’s Britishness, picking up on the consumer trend to support British brands. It also has a quality message too, with Lydon saying at the end that he buys because of the butter’s great taste.

What do these advertising messages suggest about consumers, butter and British dairying?

The thorniest issue has to be indoor housed cows with the twin implications of a life cooped up in a small space, and a questionable diet that does not include fresh grass . According to the NFU, only 1% of British cows are kept in this way. Nevertheless, two big, foreign owned brands feel they can use the fact that their cows are able to go outside as a reason to buy their products. Such advertising might raise a doubt in consumers' minds about exactly what sort of a life the British cow has, and what precisely is going into the butter product.

More straightforwardly, it is clear that food products have to taste great to succeed, and that the main reason to buy butter as opposed to margarine is that it is an all natural food.

Finally, the Kerrygold advertising reminds us that not only Irish farmers enjoy a good reputation with the public. There is a warmth now towards farmers and farming which should be

cherished.

From the Farmer's Mouth - Diversification in a Downturn

Despite the downturn it seems the appetite for diversification continues. Among the businesses showcased in the farming press in the last 6 months are a goats cheese maker, sheep milking, a seller of Herefordshire apples and pears, a couple of farm shops, Welsh lamb and traditional breed meat being sold to smart London chefs, beef pastries, premium sausages, dairy product processors, and an arable farmer who produces woad dye.

Although the products sold are different there are commonalities in the way that the farmers approach their businesses. All emphasise the importance of listening to what the customer wants. James Manning, the Herefordshire grower selling his fruit direct has built his business by offering a bespoke service where he is prepared to sell just one or two boxes if that is what the customer wants, and won’t push for higher volumes because he feels it breaks the bond of trust between him and his customers.

William and Daphne Tilley and sons John and David sell Elwy Valley Welsh Lamb to high end catering customers, and attribute success to listening closely to what customers want, and being prepared to alter flock management to achieve it. They are now prepared to spend £1000 on a tup to get the good back ends but also loin with a big eye and good meat cover from neck to tail that chefs demand.

Ian Howard, the Woad grower, will not compromise the quality of his dyes by adding chemicals, even though it would be many times cheaper, because “that is what my customers want”.

Graham Kirkham of Beesley Farm near Preston, selling Mrs. Kirkham’s Lancashire Cheese, uses up all the milk from his 100 cows in his cheese making and says “The biggest lesson I learnt from the (farmers) markets is to listen to customers”.

There is consensus about the importance of selling a top quality product, and when it comes to food, the best way to get customers to buy the product is to let them taste it first. Graham Kirkham says “Taste is everything”. Richard Vaughan who with wife Rosamund sells Longhorn Beef, Middle White Pork, and Ryeland Lamb under the Pedigree Meats brand says “ We rely on our customers being our ambassadors as it is only by tasting it you realise it is different”. James Manning does tasting sessions for his fruit, William and Daphne Tilley believed firmly that “taste must be outstanding” and were so confident that they built their business by challenging chefs to compare their lamb with that of their current supplier.

On pricing, the tone coming through the features is that you have to be realistic, and acknowledge that consumers are being very careful about where and how they spend their money. Alan, John and Brian Philby farm in Felbrigg East Anglia and sell beef, fruit, veg and turkeys through their farm shop as well as local stores and some wholesalers. They believe that the public still wants to buy fresh and local food, but that the secret is to keep prices keen so that customers come back again and again. Alan says that last Christmas they priced their turkeys competitively and not only sold the whole 800 very quickly, but benefited from many customers purchasing vegetables in addition.

Heather Parry who manages Fodder, a new food hall at the Great Yorkshire Showground, intends to source at least 85% of the stores food from within Yorkshire, but says “I’m very definite that local food shouldn’t mean more expensive”.

Neville and Mary Kemp who with 230 suckler cows keep one of the biggest Angus herds in the country sell their Absolute Angus Beef Pastries through 16 Tesco’s, and a local independent supermarket. Neville recognises that he is competing with big national brands, and says that “the market place is very competitive at the moment”.

On the other hand, Richard Guy who runs the Real Meat Company says “If they (customers) say they can’t afford to eat our meat I tell them they can, but do they want to”.

Whilst there are still many examples of diversifying farmers controlling the whole process from production on their own farm to selling to the end consumer, The Real Meat Company is an example of a trend to divorcing ownership of the brand name from the production side of things. Real Meat is mainly a franchise business with Richard owning the brand name “Real Meat” and managing the sales, marketing, and production standards for 16 independently run shops and their various farmer suppliers.

The divide between those who embrace dealing with supermarkets because of the volumes they can sell, and those who won’t have anything to do with them continues. There is no right or wrong here, but good advice comes from Janet and Mick Forsham who are turning their milk into yogurt and fromage frais in the Forest of Bowland. They say the key is not to rely too heavily on one particular customer.

Despite the downturn, farmers are showing creativity, energy, and success in their diversified enterprises. Diversification remains a time consuming activity which is not without risk, particularly in the current climate. But it can also be financially rewarding, particularly for farmers who can build a good brand name, and manage costs along the supply chain. As Richard Vaughan from Pedigree Meats says “ Selling 100 cattle direct is financially a better business than when we were selling 1000 to supermarkets”. Importantly, diversification can give farmers a control over their destiny often lost when selling unbranded goods into the mass market.

Countryfile, Cows and Bluetongue - Its What Consumers Think that Counts

BBC’s Countryfile programmes shown on the last two Sundays should be leaving livestock farmers with a deep sense of unease about farming’s reputation with the general public.

The programme about Holstein cows gave statistics that up to 40% of cows are lame and a big proportion suffer from mastitis, and said that these numbers are among the highest in the world. It also claimed, erroneously as it happens, that most cows never see a blade of grass in their lives. Although the indoor cows shown were clearly in good health, the average viewer would have taken away a message that dairy cow welfare standards are low. Those moving on to the RSPCA website were presented with the thought that inbreeding in Holsteins is worse than pedigree dogs, a topic which has commanded bad headlines of late. All in all, between Countryfile and the RSPCA there was enough to make consumers question, at least fleetingly, whether British dairy farmers deserve unqualified admiration.

The programme about bluetongue was a far less overt attack on farming standards. There were no words criticising a decision not to vaccinate. But by showing graphic footage of very sick animals with bluetongue in conjunction with an explanation that the costs were too high for most farmers, the implied message was clear – most English and Welsh farmers are too penny pinching to vaccinate and ensure their animals do not suffer.

Why the unease. Well, part of it is a personal belief on the part of many farmers that animal welfare practices should be exemplary.

Regardless of personal concerns, programmes about cows in pain from lameness or mastitis, and pictures of shaking sheep too ill to lift their heads because they are not vaccinated will shock consumers. They reinforce old stereotypes about uncaring farmers just at a time when the general public had come to view British farming in a much better light - to the extent that the big supermarkets are having to procure more and more British produce, because that’s what their shoppers want, and big companies like Dairy Crest are using Johnny Rotten to advertise that their Countrylife butter is British, upsetting the Kiwis in the process.

Its not just about reputation. Economics come into it too. If the public feels no empathy with British farming then the retailers are off the hook, and can buy wherever they want, probably cheaper. And farmgate prices drop further.

It’s ironic that the Countryfile/ RSPCA onslaught has come at a time when many dairy farmers are thinking of leaving the industry, with the result that milk may need to be imported. Not much of a threat if the public feels that British farmers have no better standards than the rest, and so won’t care where their daily pinta comes from.

Whilst the dairy industry went into defence overdrive regarding dairy cow welfare, academic and practical literature on the subjects reveal the sad facts that mastitis rates regularly reach 30% and often much higher, and lameness hovers around the 30% level.These figures might be better than they were but they are still grim. So far the broader press have not picked up either the dairy or the bluetongue issues, but it is only a matter of time. Indeed Hugh Fearnley Whittingstall is rumoured to be preparing a programmme on dairy cattle.

At the end of the day, the farming industry has to realise that an increased interest by consumers in where their food comes from comes with increased demand for the highest standards. Couple this with a vocal media, and access to detailed information about everything via the internet, and there is no place to hide sub standard performance.

Farmgate Milk Prices - the Elephant in the Milking Parlour

So once again farmgate milk prices have been cut, farmers are saying they cannot go on, protests have taken place about the unfairness of it all, and a Dairy Summit will be held in Scotland in three weeks time with representatives from across the supply chain seeing what can be done.

And there’s the rub. What can be done? Have we not been at this square before?

It’s interesting to read the various analyses about why prices are so low. Many blame the power of the retailers, most call for the supply chain to work together in a more sustainable fashion, some say the answer is better supply contracts, some have recognised that insufficient investment has been made in the industry generally.

The one thing no one speaks about, yet looms large like the proverbial elephant, is that there are too many dairy processors in the UK. This means that many are too small to work effectively in a market where good returns to shareholders, including farmer shareholders, depend increasingly on investment in low cost technology, added value brands, and a bit of clout when it comes to selling products into the market place. As the Oxford University Milk Chain Supply Project reported baldly last year - “The more processors there are the more options the supermarkets have and the lower the price the supermarkets negotiate.”

Which leads on to the seeming refusal of UK dairy cooperatives to recognise that individually they, and their farmer shareholders, face a difficult future. No one speaks about the drain on profits caused by having three cooperatives each turning over just £600m, yet each with big overheads. The cost of their 3 chairmen, 3 chief executives, 3 financial directors and 21 non executive directors alone is over £3million, according to company reports. Put the three businesses together and the huge savings generated could be invested in developing higher value brands, lower costs of production, and a more productive dialogue with major customers. The result would be better profits, which would translate into the improved returns that farmers are crying out for.

What is especially frustrating is that other cooperative companies have seen the issues, understood the benefits and overcome the obstacles. Friesland have just completed their merger with Campina, to build a company with a turnover of 9.5bn euros. In 2007 Sodiaal of France led the merger of 7 cooperative entities into 1, and has a turnover of 2bn euros. Why are UK cooperatives so blinkered that they cannot act too?

The odd thing is that the one area where farmers do have influence is through their coops. They own them for heaven’s sake. So the final question has to be - what is stopping the farmers themselves from putting pressure on their cooperative boards?

The Rise and Rise of the Packed Lunch, and a Chilling Comment from Tesco

In another example of people rapidly changing behaviour to save money, we learn from TNS, the market research company, that 28million of us ate a total of 4.2 billion packed lunches in the last twelve months. That's a growth of 6%, or 226 million more lunches.

Making your own sarnies is definitely a lower cost option, with an average spend per lunch box of £1.30p. Each box contains an average of 3.4 items, being the sandwiches, and a combination of a drink, packet of crisps and a sweet treat. Sometimes a piece of fruit is added, but usually alongside the treat as opposed to a replacement for it.

Packed lunches are now a way of life for those in the workplace, particularly young adults, as well as for schoolchildren. But we are generally quite conservative about what goes into the sandwiches. 69% of us stick to the same two types of filling, and cheese and ham remain the most popular.

There are two other lunch box trends which reflect the drive to cut costs. Alot more leftovers are being used, like pasta, and rice to make the lunch more filling. And there is less of a drive to include healthy products, which tend to be more expensive and less substantial.

TNS does not say this but the fact that so many more packed lunches were eaten during the coldest winter for decades when most bodies would be crying out for warm nourishment, highlights the efforts people will make to balance budgets.

TESCO

Much has been written about Tesco's annual results with most commentators rightly finding much to admire, despite the business losing market share. However, analysts will soon knock the company if share loss continues, and Tesco itself will be smarting from being second best to competitors. The following statement from Sir Terry Leahy should produce a chill in the heart of every Tesco supplier:-

"In the coming year we expect to trade the business harder.....investing more in cutting prices, sharpening promotions, and putting even more affordable products on our shelves".

So the question is who will pay for the price reductions, and who is monitoring that Tesco trades fairly with all its suppliers as it delivers the promised price cuts. Another reason to support appointment of a supermarket watchdog with teeth.

Internet Grocery Shopping - How Big Will it Get?

This week saw another salvo in the internet grocery shopping war with Waitrose scrapping its delivery fee on orders over £50. MD of Waitrose Mark Price, interviewed on Sky News, reckons that online grocery shopping it could be worth £13bn, or 10% of food bought, and he is planning to grow Waitrose’s online sales from a current £70m to £300m in the next 4 years.

Mr. Price is not alone in planning a big future for online. Sainsbury’s delivers 90,000 online orders per week , has seen sales grow by 40% year on year, and has marked the area out as a development priority. Tesco in their 2008 annual report said sales had grown by 31%. ASDA recently revamped their website. Ocado, who are an online venture only, part owned by Waitrose, have committed to matching Tesco on the price of its prepacked products, meaning it often undercuts Waitrose in store prices. The bullish views about the future are supported by the IGD, who estimate that the market was worth £3.5bn in 2008 and will double in size to £7.1bn by 2013.

So what do we know about online grocery shopping now, and why might it grow?

At £3.5bn the market is still small, despite being available for at least 8 years. According to TNS the market research company, speaking at a recent Meat Outlook conference, online sales account for 2% of Tesco’s till roll, about 0.6% of ASDA’s, and about 0.5% of Sainsbury and Ocado.

TNS also tells us that the heaviest on line shoppers are those with children 0-4 years old, 6.5% of this age group shop online. The lightest shoppers are retirees, of whom just over 1% shop online. High earners, of whom 7% shop online, are over 4 times more likely to shop this way than lower income groups.

Again, these are small numbers, so in an age of increasing technological savvy, the presence in other sectors of tried and tested models such as Amazon, and the faster times that broadband presents, what might be stopping people from using the internet to grocery shop?

Well, its got a bit of a bad reputation for reliability of delivery service, and quality of products delivered. Consumer magazine “Which” did a small but widely reported survey at the end of 2007 which said that online groceries arrived with very short shelf lives, less than those to be found in store. More recently, Mumsnet, the social site for mothers with young children, gives real life examples of the issues, showing a thread from last month where mums talked about banana yoghurts being substituted for bananas, wilting fruit and veg, and deliveries not turning up when promised. These mums concluded that the quality of experience varied a lot not just between different supermarkets, but from different stores within the same supermarket.


At the other end of the scale, IGD did some research with over 60’s and found that they would use the internet more if the sites were easier to navigate around, security could be guaranteed, quality would be consistent, prices were equal to those in store, delivery charges reduced, and the sites made easier to navigate around.

On the subject of growth potential, it is clear that supermarkets are working to address the issues, particularly making the sites more user friendly. Tesco’s idea of drawing attention to a cheaper version of what might first be selected is a great one, and far easier than walking up and down the shelves looking for the best buy. Sainsbury’s offers hundreds of recipes and allows you to buy all the necessary ingredients with just a click. The supermarkets are also making sure that there is no price disadvantage to shopping on line.

One key challenge for them all is to communicate more clearly and consistently the benefits of online shopping, particularly to key target groups such as mothers who must find it a struggle to organise all the paraphernalia needed to go shopping with a young child, and to older groups who may welcome the benefits such as having heavy shopping delivered to the door. Interestingly many of the Mumsnet mums were so committed to the benefits of online that they were prepared to shop around until they found a store they could rely on. But not everybody will be prepared to do this, so the other key challenge for supermarkets is to ensure total consistency, making every online shopping experience a good one.

Solve both of these and online could easily achieve 10% of all food buying.

Consumers and the Credit Crunch - Latest Views on Food Buying Behaviour

In the words of Justin King of Sainsbury, speaking during a business performance update last week - “the consumer is in a bad place just now”. Which is not really surprising, given the amount of depressing economic news.

Nevertheless, both Sainsbury and Morrisons, who also gave a business update last week, feel that food is one of the last things where consumers are prepared to trade down. A view echoed by the IGD (Institute of Grocery Distribution) who say their research indicates that “Economising is not the same as down trading”. Sainsbury’s “Basics” range is indeed up 60% year on year, but it still accounts for only 3% of total sales. Sales of their premium “Taste the Difference” range are “off the pace”, which is corporate speak for falling, but the range is still 2.5x as big as Basics, and the sales decline is attributed to a drop in the market for ready meals, rather than a flight from quality. Morrisons “The Best” premium range is up by 5.3%
So there is still a search for good food, and a Times Populus survey (26th March) put quality as equal to value for money when it comes to choosing a store. But its not quality at any price. Instead, people are far pickier about what they buy and energetic about finding the best deals.

The search for good deals is leading to much shopping around. The days of convenient one stop shopping have given way to two and even three stop shopping and both Morrisons and Sainsbury claim an increase in numbers of shoppers in their stores. What this suggests is that the traditional way of categorising stores is dead. No longer can we say Sainsbury and Waitrose upmarket, ASDA and Morrisons downmarket, and Tesco in the middle. Its much more individual than that now with each shopper asking whether the quality /value equation at a particular store at a particular time is right for them. Looking at the crystal ball I’d say that the next big strategic challenge from supermarkets will be how to build loyalty. Meanwhile value offers will become increasingly innovative.

Once in the store, what the shopper buys is changing. The aforementioned ready meals market is plummeting, and TNS (Taylor Nelson Sofres) the market research company tells us that frozen foods are growing by over 9% year on year, enjoying a change in status from poor relation to a wise choice due to cheaper prices and far less waste.

The IGD as well as the supermarkets tell us that there’s a lot more cooking from scratch going on, apparently herbs and fresh pasta are flying off the shelves in Morrisons. And there is a return to families eating together.

There are mixed views about whether ethical purchasing is taking a back seat. The decline in the organic market has been reported to death (sales down 15% in the last three months, bread down 31%, vegetables down 10% according to TNS), but as is being acknowledged even by the Soil Association, the issue here is that consumers can’t get their heads around why organics in general are worth a premium. Animal welfare issues though remain important to consumers. Sainsbury stressed again last week that this is something shoppers search for, and IGD research confirms it. The question of course is where this welcome concern about animal welfare will go next and there are reports that Hugh Fearnley Whittingstall is turning his attention to dairy cattle.

So in summary, the recession is leading to changes in what and how shoppers buy. They are not prepared though to sacrifice quality, and will shop around to get it at the right price. Equally they are prepared to support ethical products where they clearly understand what it is that they are paying for.

The Changing Shape of Meat Eating

The British Pig Executive (BPEX) has published data about meat consumption comparing the year ending 25th January 2009 with the previous 12 months, and the figures give an interesting insight into how consumers are coping with the twin challenges of rising prices and recessionary nervousness.

Faced with some whopping price rises on red meat*, and a conscience led move towards buying more welfare friendly chicken, I thought that consumers would just cut back on the amount of meat, fish and poultry they bought. In fact total consumption of these foods has remained the same as last year at just under 3 million tonnes.

There are though quite big changes in the types of protein bought.

Up are sales of burgers (+6%), sausages (+3%), frozen fish (+4%), pastry based meats (+2%) and fresh fish (+1%).

Down are sales of canned meats (-5%), lamb (-4%), beef (-3%), pork (-2%), and chilled ready meals (-5%).

Poultry is still by far the biggest meat bought, and sales are level with last year.

Within the red meat sector there has been a well documented trend towards buying cheaper cuts. Lamb mince has seen the biggest rise in sales followed by pork loin, stewing lamb, beef mince and stewing beef. The biggest falls have been in roasting cuts of lamb, beef and pork shoulder, and also in beef steaks. What seems to be happening is that people are buying red meat less often, and when they do buy, they buy less at any one time.

The trends make sense. Consumers are managing their budgets carefully. They have turned to meats such as bacon, sausages, and burgers which are not just cheaper but allow for stricter portion control, and so less waste. They are prepared to spend time at home now, cooking those cheaper cuts, rather than go out and pay restaurant prices. The trend towards frozen foods is being seen generally, not just in fish, again because of price. And the move away from ready meals reflects unwillingness to pay high prices, but also the rise in home cooking.

Perhaps the most surprising thing is that these shifts in consumer behaviour are large, and have happened very quickly. They can have a dramatic effect on profitability, for example in red meat where demand for expensive cuts has plummeted and best cuts are either being minced or sold off at vastly reduced prices. They forcibly illustrate the need to keep a very close eye on trends, and to be prepared to change tack to meet consumer needs.

* Notes on price rises

The data shows that in the last year prices per kilo have risen as follows: beef +11%, lamb +9%, pork +10%, bacon +11%, sausages +7% and sliced meats +8%. These rises are averages and reflect the trend to cheaper cuts. Like for like comparisons on each cut will show much higher increases. Price increases are accelerating, for example in the last 12 weeks, beef has gone up by 16%, and lamb by 11%, compared with the same period a year ago. Further changes in the patterns of consumption are therefore likely.

Essential Waitrose - All a Bit Confusing

To Waitrose, keen to see what the new “essential Waitrose” range is all about.

Billed by the Waitrose press office as “designed to make shopping for staple groceries easier for shoppers”, I found it all rather confusing.
Perhaps the problem was expectation. I had expected to find a new range, displayed alongside existing products, but with a cheaper price and an easy to understand reason about why it is cheaper. Similar to Tesco’s Value, Sainsbury’s Basic and ASDA’s Smartprice.

Not so. Much of the new range is being sold at the same price as existing products. This is true of meat, where the new range and the old were being sold side by side, and fruit. What makes it more difficult to understand is a sign above the meat and fruit shelves saying “all the quality you would expect from Waitrose at prices you wouldn’t.” Which means the price conscious shopper will probably feel put out because prices have not been reduced, and the quality conscious consumer fret that the product is not as good as it used to be.

And then there is that word “essential”. On shelf today were blackberries from Mexico, blueberries from Chile and raspberries from Morocco. Hardly essentials. Essential branding on the meat shelf is being used on rump and sirloin steak, not just on cheaper cuts like mince and braising beef. And I see from the press photo that there will be an essential farfalle. It’s a pasta apparently, but to most people probably not an essential purchase.

On a less critical note, it is easy to see an opening for a bog standard yoghurt, because at the moment all you can buy are speciality flavours and ranges like Seriously Fruity or Probiotics. Also, an offering of free range eggs that do not come from a specific breed like the currently sold Columbian Blacktail could be cheaper, and understandably so. The milk, jam, and biscuits are not yet on shelf so we do not know what sort of products they will be.

Waitrose is a great business, to be wholeheartedly admired for its commitment to quality, and its exemplary animal welfare standards and reputation for fair dealings with its farmers. Clearly it does need to tune its strategy, along with every other retail operator, to manage through the current economic challenges.

But to work, an initiative needs to have a clear and simple message easily picked up by consumers. I think the issue Waitrose faces is that they tried to combine two elements – a pack design change with the introduction of cheaper products. And its hard enough to communicate one new message to shoppers, let alone two.

I really hope it’s just me who finds the offer confusing.