The Demanding Consumer - Wanting it All and Wanting it Now

Consumers are fickle creatures. What they want changes all the time.

The Institute of Grocery Distribution signalled a change in consumer behaviour when they found that exemplary ethics are increasingly expected as the normal way of doing business. No longer, they say, are value seekers and ethical consumers two different groups. Rather, there is an increasing overlap between the two. Consumers are “seeking value for their values” and are not prepared to pay a big premium for high ethical standards.

Another example of change comes from consultants OC&C. They suggest that the days have gone of retailers being known for one particular attribute, like low prices, or great service, or widest choice. Instead, they say, consumers are no longer prepared to make tradeoffs, like swapping price for service, or service for choice, or sacrificing all for the cheapest price.

These changes are not limited to a few consumers. The demanding consumer is everywhere, and we see evidence of retailers rushing to satisfy these demands in store right now.

Waitrose is a great example. Known primarily for its good quality and service, but considered expensive, it has now matched Tesco’s price on 1000 lines, and regularly price promotes its products.

Sainsbury also listens hard to consumers. It too price promotes heavily, it has developed its own Sainsbury brand range to provide cheaper alternatives to major national brands, but it offers a premium range for quality seekers.

ASDA has recently said its food is not of good enough quality, and upped its game with the introduction of “Chosen by You”.

As to why consumers have become even fussier, OC&C reckon that the internet has been a factor, for, at the click of a mouse, consumers see huge choice, at the best possible price, backed by great service, like next day delivery and no hassle returns.

The economic downturn will have played a part too, with consumers understandably wanting to get the best possible value for money, meaning they will search for the combination of price, choice, quality and service that best suits their particular needs.

Probably the major reason for consumers wanting it all and wanting it now is the nature of UK retailing. Grocers in particular are intensely competitive. They are obsessed with not allowing rivals to steal market share and so are highly attuned to the slightest nuance of consumer behaviour change. Their eagerness to respond before their rivals means that even slight hints of consumer change are put into action, to make sure shoppers stay with them as opposed to taking their custom elsewhere. And so consumers get used to having their demands met and understandably keep pushing for more.

Whatever the reasons, we can expect the bar of consumer demand to get ever higher.

EBLEX Levy Hike Needs to be Challenged

Good on Graham Dixon and his band of 30 Northumberland farmers for questioning EBLEX’s demand for an 18% increase in levy fees. A hike like this bears challenge even in boom times, much less when money is tight.

EBLEX which only covers England already has a big budget amounting to £13.5m, of which £12.7m comes from levy fees. This compares with a levy budget of £9.9m for Cereals and Oilseeds, which has a UK remit, and £6.8m for Dairyco which covers Great Britain.

The extra money raised amounts to £2m. £1.2m of this will be spent on promoting exports of beef, lamb, and the fifth quarter, and the rest on increasing domestic demand for beef and lamb. The current budget for export work is £2.4m, and the budget for domestic promotion is £4.5m.

Mounting a challenge is not easy, for it is difficult to pinpoint exactly who makes the decisions at EBLEX. There is a board, upon which sit a number of farmers and processors. The board seems to report to the AHDB board, and somewhere along the line DEFRA has a say. But if the decision makers could be found it would be helpful to get a view on the following issues.

1. Will not export performance be more a function of the strength of the Euro rather than anything EBLEX can do? If so, it seems odd that of the £2m extra raised by the new levy, £1.2m will go on export work.

2. With lamb consumption falling by 7% this year, and beef consumption just about static, what evidence is there that EBLEX marketing activities to date have made any difference at all to domestic consumption? It is not enough to cite awareness of promotional activities as evidence. Just knowing about something is not the same as being motivated to buy.

3. Given the substantial spend by retailers on advertising red meat on TV, in magazines and newspapers, promoting it on their websites with recipe ideas, and featuring it in store, where does EBLEX think it is adding value with its promotional spend?

4. If the increased funding does not come through, does EBLEX believe so firmly in the value of this new work that they are prepared to rejig budgets to carry it out?

The NFU is working to pull together responses from the industry about the proposed levy increase, and is right to request a business plan with clear and measurable targets. It should go further and insist upon a detailed analysis of effectiveness to date, to act as a basis for deciding whether an increase in the levy is justified, and to help judge whether the business plan is rooted in reality.

Why the consumer is buying less lamb – insight from EBLEX shows it’s not just about price

This year consumers have bought 6% less lamb than last, and the decline seems to be speeding up. In the last 12 weeks consumers bought 11% less lamb than they did in the same period last year.

These are scary numbers and the pessimist might envisage a time not very far away when consumer demand for lamb is about half of its current level, with a similar fall in demand for livestock.

A recent EBLEX report gives clues about why lamb is out of favour, and what can be done to reverse the drop.

The 500 meat eating women interviewed each quarter by EBLEX say that the main reason they don’t buy lamb as much as other proteins like chicken, beef or pork is that lamb is too expensive.

So far so predictable many might think. But price is not the whole story. What makes people buy anything, even the very highest priced products, is their perception of whether the product in question is good value for money, and most cuts of lamb are seen as “not at all good”, or “not very good” value. The exception is lamb mince which is just about neutral – neither good nor bad.

All sorts of factors come into the value equation, and compared with other proteins lamb is rated worse on versatility, on ease of cooking, and especially on fat content. 57% of people say lamb “can be fatty” compared with 46% for pork, 28% for beef, and 5% for poultry.

Lamb falls down on other health aspects. Consumers feel that lamb is not as protein rich as beef, and do not realise it is as good a source of vitamins and minerals as beef.

The one positive point is that consumers view lamb as a tasty food.

So what should be done?

Lamb needs to be given an image makeover. EBLEX suggests that its versatility and health benefits need to be promoted. To this could be added using imagination to present unpopular cuts such as shoulder in a better way. One supermarket for example sells shoulder chops – butchered in a way that ensures they are just as tender as from the leg, but around half the price, and far less time consuming than cooking a roast.

Producers could focus even harder on reducing the number of over fat lambs sent into the food chain, and processors and producers together might find ways of ensuring that the product is consistently of high quality when it reaches the consumer, which is not always the case at the moment.

The EBLEX findings are important to all in the lamb supply chain. A strong home market forms the backbone of the sector, cushioning participants from the ups and downs of exports, and from the ebb and flow of lamb supply.It is critical to ensuring a consistently profitable future.

Addressing the Beef Pricing Problem

The short answer to the problem of low farm gate prices is to get demand to outstrip supply.

The balance this year is particularly out of whack. Between April, when prices started to plummet, and August (latest published data), around 9% more cattle were slaughtered in Great Britain compared with the same time last year. Demand in the grocery trade over the same time grew by just 1%. So we cannot be surprised that prices have dropped.

The issue of oversupply might ease. According to the National Beef Association, dairy beef finishers will drop out of the market next year as profits suffer through low prices and high feed costs. Longer term, industry experts forecast that global demand for beef will outstrip supply.

Meanwhile, what can be done about demand.

There is no shortage of advice. We have heard the NBA call for supermarkets to follow America’s lead and be creative about developing high value cuts from the forequarter, and to stop selling mince at cheap prices because they cannot be bothered to think up other ways of selling meat from the front end.

Peter Allen, respected head of Midlands based catering butchers Aubrey Allen says the answer is to create a beef brand that will deliver guaranteed quality, and so command a higher price which can then be passed back along the chain.

John Cross, EBLEX chairman, reckons the answer is to export more, and that EBLEX is ideally placed to lead the charge across the channel and beyond. It’s true that exports are growing fast, up 20% this year, but at 56,000 tonnes compared with over 300,000 tonnes sold through supermarkets it will not solve the problem.

One thing is clear – raising the price of beef to consumers in the hope that some of the increase will be passed back to producers will merely dampen already fragile demand. We should be pleased that people are buying mince because at least that keeps them in the beef market rather than turn to cheaper pork or chicken.

What also needs to be recognised is that vague calls for “the industry” to grow demand will not work. Stimulating demand requires focus, funding, and clear accountability for performance.

Producers do not have this type of clout. Neither do industry bodies who can influence and campaign, but do not have the sales and profit responsibility that brings with it a hunger for results.

It is processors, who are best placed to drive demand and it is they who should shoulder the main responsibility for growing beef sales. A creative processor, who understands what consumers want, and has close relationships with the outlets they supply, should be able to develop products which build sales and profits for all in the supply chain.

Flashes of inspiration do exist, but mostly supermarket shelves and food service menus are filled with the same cuts that were available decades ago.

The role of the processor is rarely mentioned in the beef pricing debate. Processors need to come forward, raise their game and add some dynamism to a sluggish market.

Food for Thought from Marks and Spencer

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

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

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

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

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

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

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

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

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

Supermarket Watch - How Sainsbury and Waitrose Got it Right but ASDA Didn't

Americans call it “The Big Mo” and it means that happy state when a business has momentum - the team is winning, confidence is brimming over, and whatever is being done is a huge success. Sainsbury, with 19 consecutive quarters of growth under their belts have it, Waitrose, currently the fastest growing supermarket have it, but ASDA whose sales have dropped month after month for nearly a year, most certainly do not have it.

Confidence about doing the right thing and doing it well is illustrated by the way these three supermarkets have executed their recent new initiatives. Sainsbury have revamped their premium “Taste the Difference” range with trading director Mike Coupe claiming that “this is the best range of premium food available in any supermarket”. At the other end of the scale Waitrose is trumpeting value credentials by saying they will match the Tesco’s price on 1000 major brands. In the middle, ASDA have announced the launch of “Chosen by You” which is a quality upgrade of their standard range, with products selected after talking to 40,000 people across the UK.
So here are three major activities, but it’s the way they have been executed which marks out Sainsbury and Waitrose as confident winners, and ASDA as an outfit that, temporarily at least, has lost its way.

Sainsbury’s have made sure that food shoppers across Britain know about the new range. They took out three and sometimes four page advertisements in the papers, are running a TV ad with Jamie Oliver, and are giving away glossy leaflets in store. Customers who shop on line get a message about the new range as soon as they click on to the website. Waitrose also took out three page advertisements, are advertising on TV, and have the price cut message when shoppers click on the website. They have put up big displays of the newly priced products in their shops, pinned up labels on the shelves, and just in case the message has still been missed, the dividers shoppers put on the checkout belt to signify the start of their shopping also mention the price cuts.

And what about ASDA? The range was launched on September 21st, but on a trip to the Leamington store today I saw only a couple of overhead posters talking about the range - easy to miss as few shoppers were walking around staring at the ceiling. There were no displays, no markers at the shelves, and no in store tasting sessions. There have been no advertisements, and when clicking on to the website the first message is that prices are low, the second that there is 15% off furniture, and only the third talks about “Chosen by You”.

Possibly ASDA don’t feel that the new launch is that big a deal, but this seems unlikely as their recently promoted MD has made a point of criticising the quality of its food, and in the press release that accompanied the launch he talks about ASDA now driving as hard on quality as it does on price. More probably, the launch smacks of a company that has lost its edge, cannot decide what its main message is, and forgotten the attention to detail that is vital. Retail is detail as someone once said. The ASDA approach It is a big contrast to the super- confident actions of Sainsbury and Waitrose.

Wiseman's Profits Warning - Deja Vu All Over Again

Robert Wiseman’s profits warning shocked investors who promptly knocked 30% off the share price. The problem, says the company, is “intense competitive pressures across all sectors of the market”, and so they are reducing second half profit expectations by £7m, and 2011 by £16m.

The background has been well documented. Basically a price war has broken out on milk, with ASDA starting the fight, and Tesco promptly retaliating. The cost is being borne by processors, and the situation is seemingly exacerbated by smaller dairies being prepared to cut prices to gain more volume.

The most surprising thing about this announcement is that everyone is so surprised. Wiseman has a history of profit problems due to negotiations with the big supermarkets. In May 2005 the Group warned that profits had fallen by 15% versus the prior year due to losing a contract with ASDA. In May 2008, the company warned that profits would take a hit of £8.5m because it was taking longer than anticipated to get retailers to agree to price rises which were needed to cover escalating costs.

Here it all goes again, and with the firm’s current business model, profit performance will continue to be volatile.

The big issue with Wiseman is that it sells one product, fresh milk, and is reliant on one distribution channel, the major supermarkets. It has nowhere to go if things get difficult – no other product sectors, no major brands, and few other sales outlets. Unlike its competitors Arla, and Dairy Crest, the latter rushing out an announcement of their own saying that they expected full year profits to come in as forecast. They did admit though that the fresh milk market was proving challenging.

The optimist would point to Wiseman’s cash generating ability, and a good record on cost reduction. Unfortunately neither seems to be enough to protect against supermarket whims and power.

Reviving Organic Food - The Waitrose Way

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

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

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

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

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

Sales Fall Again at ASDA - Cheap Prices are not Compensating for Poor Quality

Here’s another confirmation that consumers do not just buy food purely on the basis of price. Mysupermarket.com the price comparison website says that ASDA is the cheapest of the “Big Four” (ASDA,Tesco, Sainsbury, Morrisons), yet ASDA yesterday announced that like for like sales fell by 0.4% in the three months to July 31st, after a 0.3% fall in the three months before that. At the same time Kantar Worldpanel, the research company which reports on how supermarkets are faring, said that ASDA continues to lose market share, whilst Morrisons and Sainsbury motor ahead.

Commenting on the company’s performance, Andy Clarke, ASDA’s new chief executive was vocal on the subject of price being different from value. Saying “We have got to be the best value. What we have been is the best price”, he promised that in future customers would see a “step change” in quality - “We are not as well known for the quality of our food as we could be”.
Despite this commitment to better products, Clarke also said that UK consumers are facing difficult times, that ASDA would respond by offering everyday low prices, and that as a first step towards this goal, ASDA would cut the price of staples such as bread, milk, and eggs.

He is not alone in recognising that as well as offering great quality, supermarkets have to offer sharp prices to ensure that shoppers walk through their doors as opposed to competitors. Even Waitrose, store of choice for the affluent, recognises this and anyone venturing in to a Waitrose will see aisle ends featuring promotional offers. In fact all supermarkets with the exception of ASDA are heavily price promoting with Kantar reporting that nearly 35% of all products are bought on promotion compared with 31% a year ago.

The focus on price is unlikely to ease any time soon. Consumer confidence has taken a bit of a dive recently as the scale of government cutbacks is becoming clearer, and they seem less willing to spend. Whilst this has yet to happen in supermarkets where sales in the last 12 weeks grew by 4.5%, supermarket supremos will be turning their attention to driving growth against a background of consumer thrift.

So how will they make money when heavy promotions lead to lower profits, and shoppers demand good quality? Harder bargains will be struck with suppliers of course. But a more productive answer might lie in developing a new “super premium” market segment with even higher cash margins than current premium ranges, and with a quality so irresistible that shoppers are happy to buy. We know that even in the depths of recession, consumers were prepared to spend on top quality goods if they felt they were worth the money.

Innovative suppliers who can deliver superb quality products at an acceptable return to themselves and their supermarket stockists could do well. Not easy though.

How Do You Solve a Problem Like Falling Lamb Consumption - Thoughts from Sheep 2010

There was standing room only for the session on marketing at last week's NSA event where farmer Geoffrey Probert, May Hill representative Henry Dunn, Remi Fourrier from EBLEX, and Steve McClean of Marks and Spencer discussed a variety of issues.

The problem of plummeting lamb eating in the home market was addressed, and the general concensus was that quality is fine, its all about price.

For Remi Fourrier, who is responsible for growing British lamb sales to France from it current one in 5 lambs produced, the main issue is encouraging younger people to eat lamb, and that ways had to be found to make lamb more convenient to cook.

Henry Dunn, representing May Hill who sell to Sainsbury, pointed to the success of Cotswold Lamb which he feels works because it has a strong provenance story. Consumers like the idea of knowing where their lamb has come from and how it was produced. Steve McClean agreed. Marks and Spencer shoppers are interested in provenance too, and increasingly in the impact of products on the environment. M&S are planning to add more environmental compliance measures into the standards it requires from producers.

All mentioned that consumers of ethnic origin eat large quantities of sheep meat - a figure of 27% was quoted, but all recognised the sensitivity of slaughter procedures required by some.

Returning to the quality issue, there were a couple of comments about grass fed lamb producing a top quality product. This was considered to be one of the reasons behind New Zealand lamb's good and consistent quality. Marks and Spencer source from NZ in our winter, and aim for grass fed lamb in summer for this reason. As Mr. McClean said "It's all about ensuring consumers have a good eating experience when they buy lamb".

So no silver bullets emerged from the debate.

As a firm believer that, whatever the product, price is a problem if the quality does not match up, I was surprised that quality and consistency of lamb did not get more of an airing.

A look at WorldPanel numbers supplied by BPEX shows that in the 12 weeks to July 11th, lamb sales dropped by a further 8%. So the problem of what to do about falling lamb sales is not going away.

Keeping the Farming Flag Flying

Matthew Naylor in his Farmers Weekly Mouth of the Wash blog, is urging peace between environmental enthusiasts both in and out with farming, and it inspired me to tackle the British Trust for Ornithology who were quoted in an article in this week's Sunday Times which accused farmers of getting paid to allow bird numbers to decline. Usually I'd have dismissed such a report with a tut and a " typical" and turned the page.

But not this time. It was on to the BTO to request the survey information to which the article alluded, and to make the point that it would be far more productive if we all worked together to preserve the environment and avoid scoring cheap points in the press.

The BTO's response in the shape of Dr. Gavin Siriwardena could not have been more different from that of the RSPB in the previous week. Commenting on one part of the same survey which showed reductions in the number of kestrels, the RSPB engaged mouth before brain, blamed intensive farming practices, and overall could not have been much more hostile.

Dr. Siriwardena by contrast went to great lengths to explain the BTO's research, and forwarded the newsletter which had been produced, which to be fair was far more balanced than the Sunday Times' heavily spun take. Importantly he recognised that too often there is a "them and us" feeling between farming and non farming environmentalists, and stressed the BTO's committment to working in unity.

Things have moved on, and today DEFRA released the BTO's survey results. I see that the RSPB is taking a much more even handed tone, possibly reacting to a barrage of outrage from their previous comments.


And the moral of the story?

What cannot be denied is that the decline in farmland bird populations is worrying to put it mildly. It needs a concerted and unified approach to sorting out the problems, with energy put into solutions rather than sniping. Some, like the BTO, have recognised this.

There are many farmers working diligently to improve the environment. It is time consuming, often financially draining, and usually happens without acknowledgement. Their efforts need to be communicated, but the only people who can spread the farming message are farmers themselves. No one else is going to do it.

Matthew quotes Heather and Phil Gorringe who upon hearing of the RSPB's comments about kestrels orchestrated a Twitter campaign to show what farmers are doing for the environment. Twittering may not be every farmers cup of tea, but the idea of making an effort to communicate the good things being done, and to challenge unfair attacks, looks like a pretty sound one.

Ocado Looks Like NOcado, at Least for Now

As of 3.00pm Friday 23rd July shares in Ocado, the online grocery delivery company, were trading at £1.55p. Well down on Wednesday's opening price of £1.80p and a country mile from the £2.72 - £2.00p that its ex Goldman Sachs owners touted as the company's value on Tuesday evening.

£1.55p still values Ocado at around £500 million, and the mystery is why anyone should think that a business which has never made a profit in its 8 years of trading, has an unproven business model, is competing with grocery giants like Tesco, and is fighting head to head with Waitrose who supply Ocado's products but who are also seeking to build an online offering, can be worth even that.

The optimists would point to Ocado's massive top line growth. They would cite projections that online grocery shopping will double in size to £7.2bn or about 5% of total grocery sales by 2014 (IGD research). And they would say that online retailers such as Amazon struggled to make a profit when they started out.

The Goldman Sachs founders would also add that they own world beating sophisticated technology, and that American investors who account for nearly 60% of shareholdings "get" this, whereas the Brits do not.

It should also be noted that, despite adverse comments in the press, Ocado's own customers were confident enough to invest between £5 and £10m of their own money in the company, and whilst customer investment was expected to be much higher (up to about £60million), this could say something about the quality of the Ocado offer versus competition. These customers have the chance to offload their shares at the original price of £1.80p and it will be interesting to see how many do so.

This blog was very sceptical about Ocado way back in March, and remains sceptical. It would be great to be proved wrong and find that a British business could succeed due to a genuinely different consumer offer backed by technological innovation.

We shall watch with interest.

A change in ethical food buying - consumers now "want value for their values"

Joanne Denney Finch of the Institute of Grocery Distribution in her keynote speech to the Consumer Goods Forum stated that consumers now "want value for their values". The conclusion is based on research they carried out in Britain, France ,Spain and Germany, and its interesting because it indicates that consumers are once again raising the bar on what they expect when they buy food.

Cynics would say that consumers have always wanted more than they are prepared to pay for, but I think there is a subtle shift of emphasis here. Yes, in the past a sizeable minority have been prepared to pay for what they believe in, but what seems to be happening now is that people expect higher standards but don't expect to have to pay for them. As Mary Vizosa of Waitrose said in the Times, consumers expect their retailers and suppliers to act ethically and sustainably, and not present ethics as an extra which commands a premium.

We can therefore expect a change in consumer behaviour, as they shop around to find the outlets that offer both value and values for a given product. Those who fail to deliver will lose custom.

This could be why Sainsbury took full page advertisements in today's papers to say that they have been named as "Best large supermarket 2010" by Compassion in World Farming, and put a value offer in the advert too ( 2 packs of sausages for £4, and 20% off Freedom Food chicken). Waitrose stopped short of adding a value twist to their communications but the front page of this weekend's newsletter features a very handsome beast with the caption "Farming with Compassion - Waitrose wins award for putting animal welfare first".

It would seem that ethical foods are just another example of what was niche gradually becoming the norm.

With the move to mainstream comes the loss of any price premium. The best example is Fair Trade, where volumes have rocketed but price stayed the same as the standard version, witness Sainsbury's Fair Trade bananas, and Cadbury's Dairy Milk.

Ms. Denney Finch argued that ethical products now offer competitive advantage, and that British business, which generally has a good ethical reputation, can use them as a springboard for growth internationally.

The notion that British business should raise the ethical bar is very welcome. The challenge of course to raise the bar without raising the price, and ensure in the process that all players in the food chain are treated ethically and sustainably.

Protected Food Names - Useful Marketing Tool?

References to protected food names are popping up all over the place, most recently last night on Countryfile where Julia Bradbury was reporting on West Country Farmhouse Cheddar, explaining that it can only be labelled "West Country" if the cheddar is made in Dorset, Somerset, Devon or Cornwall using the traditional mixing by hand or "cheddaring" process. A couple of weeks earlier the Gloucestershire Old Spot Breed achieved protected name status, becoming the first pigs in the world to be recognised for their distinctive taste. And there are another 40 British foods or beverages protected in one way or another.

The Protected Food Name scheme is an EU initiative which awards a quality stamp to authentic regional and traditional foods. There are three grades of stamp. The strongest is Protected Designation of Origin where the product must produced and processed and prepared in a geographical area, and have characteristics due to something special about the area. A red and yellow logo is available to reinforce the message. As well as the cheddar, Jersey Royal Potatoes, Yorkshire Forced Rhubarb, Orkney beef and lamb, Cornish Clotted Cream and Sardines, and Manx Loaghtan lamb are among the products falling into this category.

Protected Geographical Indication means the product has either been produced or processed or prepared in an area. Welsh beef and lamb, and Scotch beef and lamb are examples. Traditional Speciality Guaranteed means that the name must express the character of the food, like the Gloucester Old Spot. Both categories have a blue and yellow logo.

The process of authentication is a long haul, taking up to 21 months, and involving masses of paperwork.

So is the scheme a useful marketing tool? Well, a quality stamp is not a bad thing to have on a pack. Achievement of the stamp is usually reported by the press so the product gets publicity which in turn should help sales, and there is no doubt that people are increasingly interested in where their food comes from and keen to support local produce.

It also means that a manufacturer or retailer cannot say a product comes from an area if it does not, and this is important if years have been spent building up the quality and reputation of a product. To take extreme examples, Jersey Royals can't come from Spain, or Scotch beef from Argentina, which does offer some protection for farmers and growers.

In a world of many logos ( Red Tractor, EBLEX mark, LEAF mark, the new green organic leaf logo from the EU to name but a few), the usefulness of protected status as a marketing tool depends on the ability to communicate what it means, and also on the strength of the message behind the product. Having a protected food name is especially useful if the product in question has either a good reputation already or has a real, fact based point of difference that can be publicised, like the Gloucester Old Spot.

Given the importance of communication, it was disappointing not to find examples of products with protected name staus giving the award some prominence. The one exception is Manx Loaghtan lamb where the website makes much of the achievement. Hopefully it has helped contribute to better sales of their product.

Then Along Came the GM Salmon

It started as a week of positive news for food, food labelling, and British farming. The MEP's in Brussels voted for clear country of origin labelling, sweeping aside the ambiguity which meant that food can be labelled British even though it was only packed in this country rather than actually born or grown here. Then the Red Tractor celebrated 10 years of existence and here too clarity is emerging with the symbol accompanied by the Union flag meaning that the product really did start life here. Yes there are still niggles and wooliness. The Tractor without the Union flag can be used on foods which come from abroad but adhere to British standards, and on foods where the main ingredient is only 65% of the finished product. Both could mislead, but progress has been made towards the transparency that today's consumers demand.

Then along comes the GM salmon, coinciding with the GM potato trials just starting, and the ruckus at the Food Standards Agency which stands accused of being less neutral than it should be. The salmon, which grows 2 to 3 times faster than normal, was pictured dwarfing its tiny, conventionally farmed sister, and at a stroke reinforced perceptions of Frankenstein foods.

The last piece of research on GM was done by the Institute of Grocery Distribution in September 2008. It showed that 15% of those questioned strongly opposed GM, and 20% tended to oppose. Just 3% strongly supported the technology and 10% tended to support it. The IGD points out that, despite much publicity, the picture had hardly changed since it's 2003 research where 17% were strongly opposed and 3% strongly supportive.

The issue of course is that consumers do not know what to think, as vested interests rush to defend their corner, and no one has come up with a compelling reason why GM is a good thing. The FSA is reportedly about to spend £500,000 of scarce taxpayers money on more research which will probably show yet again that British consumers don't like the idea of GM.

Indeed, however rational you are, and however much you support science, that salmon is just plain creepy, and will do nothing to further a very controversial cause.

At the very least, should by some combination of genuine benefits from GM and overwhelming pressure from lobbyists GM products appear on our supermarket shelves, the products need to be clearly and unambiguously labelled. No weasel words, no vague statements, and no arguments about the need to mention if the amount of GM falls below a certain percentage. As much effort needs to go into this as on pro farming initiatives like the Red Tractor or country of origin labels.

Like growing numbers of the British public, I want to know exactly what I'm eating.

Seeking White Knight to Rescue Rachel's Organic

Actually, it's just “Rachel’s” now, the company having dropped the organic word from its brand name in April 2009, apparently because of the difficulties faced by the organic sector.

The company has been put up for sale by American giant Dean Foods with a price tag said to be around £20million. Whatever the reasons, this is sad news, putting a respected brand into play, with all the uncertainty and worry this brings to the 125 strong workforce.

Rachel’s is a small company with a turnover of £20million and a profit before tax of £2.3million according to accounts for the year to December 2008. For comparison, nearest rival in the organic dairy sector, Yeo Valley, has a turnover of around £175million of which 40% is organic.

So who might buy Rachel's? And what might they do with it?

At the brutal end of the spectrum, any of the existing dairy companies could buy, paying back the acquisition price by taking a hatchet to costs. They could close the Aberystwyth plant and either make themselves or contract manufacture, and fold all the administrative functions into their existing structure. The current sales and marketing strategies would continue,with Rachel’s sold alongside all the other brands in the acquirer’s portfolio.

There is an alternative and much more attractive strategy, one which would carve out a highly distinctive position in the market. Keep the plant open, continue to buy milk from the dairy farmers who currently supply, and market the brand as 100% Welsh, drawing heavily on Rachel’s Welsh heritage and history. Keep it organic, for this is what the brand is known for, and there is a market there, albeit small and going through a rocky patch, but make the brand the focus, not the organic tag. Instead of getting the product stocked sporadically nationwide, make sure that it is in every food store the length and breadth of Wales. And cut the price. Currently it sells at too high a premium over Yeo Valley, much less supermarket’s own brands

Is this a good enough strategy to pay back the acquisition cost?

It is not without risk. A pessimist would look at Rachel's declining sales,and its number two position in the wobbly organic dairy market and walk away.

The optimist might say here is a brand with potential,and it could be a strong number one in its homeland.

They would think through how to manage the business. Possibly the marketing budget could offer savings and be more effective if put in the hands of a Welsh company who understands marketing on a shoestring, and how to promote through the internet and social media.

They would accept that costs will have to be looked at, but pruned rather than axed.

They would take a forensic look at where the cash in the business is going. Is there for example too much tied up in stock and would a reduction in number of different lines release money. Are haulage costs overly high because of shipping products nationwide.

They would take a cautious but sensible look at increasing sales.

And then they would negotiate an appropriate price for the business.

Any of the dairy companies could follow this strategy, but consumers might feel warmer towards Rachel's if it went back to its privately run roots, rather than be yet another small company involved in a huge conglomerate.

Is there an entrepreneurial Welsh wizard out there who could really make something of this rather special brand?

Is Increasing Beef Retail Prices the Solution to Falling Producer Prices?

The recent drop in finished cattle prices is causing understandable alarm.

The cause appears to be too much supply and not enough demand, as spring calved stock and more dairy bull beef arrive on the market yet beef consumption remains sluggish and exports less strong. Indeed the National Beef Association has recommended that farmers stagger supplies to avoid a spring peak.

Pressure on producer prices regularly ignites calls for retail prices to rise and the additional revenue shared across the supply chain, because, says conventional wisdom, beef consumption is inelastic, meaning that increased prices will have little effect on volumes.

But is the conventional wisdom true?

In 2007 Eblex modelled the effect of a 10% increase in the price paid to producers on the volume of each cut of meat. Adjusting for slippage as prices work through the supply chain, this meant an average increase of 5% at retail, and the findings by cut were as follows.

A 3.2% rise in the price of stewing steak resulted in a volume decline of 1.3%. A 5.9% rise on mince led to a volume drop of 1.7%, a 3.8% rise in the price of steak led to a drop of 2.7%, and a rise of 6% on top quality roasting joints led to a volume drop of 16.1%.

Real figures from the market place confirm that price rises lead to volume declines. In 2008 at the height of retail price inflation what was then TNS Worldpanel (now Kantar) recorded that average beef prices went up by 11% and volumes dropped by 3%. Shoppers shunned the more expensive cuts like steak and roasts in favour of mince and stewing steak, yet this behaviour change could not prevent beef market volumes from declining.

In the 12 months to April 2010 prices were up 2% on the previous year, and volumes were flat. There has been a slight pick up in the last twelve weeks but all the evidence seems to indicate that beef sales are respond to price changes.

Some have suggested that the price of mince should rise, but this needs to be handled with care.

Mince is the cheapest entry point to beef. It is versatile, quick and convenient, and acts as a regular reminder of beef’s excellent taste and nutritional values. Over aggressive pricing risks people dropping out of the beef market completely, for they will not gravitate to other cuts, none of which deliver mince’s unique combination of price and convenience, but instead turn to alternative proteins, the obvious one being chicken.


I do not think that a market where volumes drop year after year does any player in the beef supply chain any favours. And whereas the declines might be just two or three percent in the short term, there is every chance that they will accelerate as consumers get out of the habit of buying beef, and retailers shrink the space devoted to it. This is happening on lamb right now where volumes are still dropping - down 4 % 2008 v 2007 and down a further 9% in the twelve months to April 2010.

Dairy Crest v Wiseman – Where Would You Put Your Money?

Dairy Crest and Robert Wiseman Dairies have just announced annual results. Both process huge quantities of milk (2.1 billion litres for Dairy Crest and 1.6 billion for Wiseman) but their business models could not be more different.

Wiseman supplies only fresh milk, sold mainly under a retailer’s own brand name. Dairy Crest is diversified, selling fresh milk, plus cheeses and spreads. It owns well known brands such as Cathedral City and Country Life, it also processes for retailers' own brands, and is present in France as well as the UK.

A glance at this years results might suggest backing Wiseman. Its sales were up 4.5%and profits up by nearly 60% although this is flattered by some one off benefits. It has very low debt, and strong cash flow.

Dairy Crest saw sales fall 1%, with profits before exceptional items up 5%. Debt is being paid down but is still £337m.

Investors responded by marking Wiseman’s shares down 1.8p to £481.5, Dairy Crest’s shares rose 8.9p to close at £362.5p. Those into share movements will know that Wiseman sells on a higher multiple than Dairy Crest, but even so, it’s an odd reaction.

Backing a company is not about the past though, it’s all to do with likely future performance.

So, if you like the sound of a diversified portfolio where poor performance in one segment can be offset by better news in another, or if you feel that brands are best, despite requiring huge advertising and promotional spend, because they give you more control than being at the whim of a retailer contract renegotiation, and debt does not scare, then Dairy Crest is for you.

If on the other hand you are confident that the company supplying retailers’ own brands is the lowest cost producer in the market place and so cannot be undercut on price, that it has the management talent to read the market place and anticipate where the major retailers are likely to want to introduce own label versions of a product, and the company has sufficient cash to invest in the new technology required, then Wiseman is the way to go.

Both companies have been successful with their chosen business model. Dairy Crest announced a 9% rise in sales of their 5 major brands, and chief executive Mark Allen, being interviewed about the results, made a point of stressing that diversification is good as the cheese division had a very difficult year whereas dairies performed well, conversely he reckons that over the next year cheese will recover but dairy struggle.

Wiseman competes effectively in the own label supply market, having increased share of liquid milk from 28% to 31%. It seems to be valued by retail partners, winning several “best supplier” awards, and chosen by Tesco to process its filtered milk competitor to Cravendale.

However, there are issues with both. Having already got 31% of a low growth market it is difficult to see how Wiseman will continue to expand its revenue, and Arla’s billion pound processing plant may mean that Wiseman loses it lowest cost supply status and struggles to defend what it already has. The company acknowledges the challenge of growth but feels the way through is to supply higher margin, more profitable products.

Dairy Crest’s 9% growth in sales for its key brands disguises the very heavy costs of advertising and promotion. The issue of costly promotions was addressed in my blog post in January, and work done by Bidwell’s Agribusiness on behalf of Dairyco shows that in the year to March 2009, 73% of Cathedral City was sold on promotion, 52% of Clover, and 60% of Country Life. They too face stiff competition from global dairy processors.

Despite the issues there is room for both business models in the short term, and longer term too, possibly helped by sensible pursuit of mergers and acquisitions.

Higher Welfare Products Grow Despite More Shopper Focus on Price

Last week’s blog post mentioned Institute of Grocery Distribution research which found that price is becoming even more crucial as shoppers decide what and where to buy.

But rock bottom prices are not always the driving force. The IGD analysis pointed to some growth in premium ranges, provide they are seen to be worth paying for, support for fair Trade, and continued demand for local food.

Consumer interest in animal welfare can also be added to the list.

The RSPCA has published research supplied by Kantar Worldpanel, respected grocery trade auditor, which indicates that in the year to March 2010 sales of Freedom Food chicken more than quadrupled - from £16million to £72 million, whereas those for standard, intensively reared chicken dropped by £27million. Of course we need to see the figures in context. The total chicken market is worth just over £2bn, so the numbers are small. Part of the growth will be due to shoppers dropping down the hierarchy of better welfare products. We know for example that sales of organic chicken are down about 28% year on year as organic buyers switched to free range. And no doubt some free range buyers will have bought ranges like Freedom Foods where the birds although indoors have more room. But the fact that the standard range has dropped in sales even though total chicken sales have grown, does suggest a conscious consumer switch to improved welfare chicken, despite the price premium.

The other piece of data is that, according to the British Free Range Egg Producers Association, sales of free range eggs now account for 53% of the market compared with 47% 12 months ago. Again growth has come despite free range being more expensive.

Interest in animal welfare has always been a factor in the British psyche, and it does seem that for the humble chicken and her eggs, interest has been translated into shoppers' continuing willingness to vote with their purse.

The Food Buying Consumer – More Focused on Price Today Than in the Depths of Recession

Whether the recession has permanently changed food buying behaviour remains a favourite topic among industry observers, with some commentators are saying that purse strings are loosening, trading up is becoming more prevalent, and the worst is behind us. It would seem though that this optimism is misplaced.

The big issue is confidence, and, despite a slow crawl out of recession, consumer confidence is dropping. The latest Nationwide Consumer Confidence tracked by TNS Worldpanel shows a fall in consumer confidence driven by concerns about employment prospects, worry about the state of the economy, and a view that earnings are likely to fall in the next few months.

The Institute of Grocery Distribution says Britain is out of recession, but that things will continue to be volatile. They predict that the return to buying quality products will continue, provided of course that they justify the price, and that sales in discount stores like Aldi have peaked. They highlight the increased demand for local food and think it will continue to grow. They suggest that Fairtrade products will continue to grow too.

However, their generally upbeat take is tempered by a couple of sobering realities. They have found that shoppers are even more focused on price today than they were either when the recession was at its deepest, or when food inflation roared away in 2008.

And they expect promotional activity, which in blunt terms means cutting prices, to continue because shoppers are now specifically choosing to buy in stores which feature promotions and loyalty schemes. Whilst strong brands will continue to be important, they say a “famous name alone is no longer enough to command loyalty”.

The other thing to bear in mind when trying to assess what consumers might do is that the recession so far may have been grim for many but millions have hardly been impacted. This will change as unpleasant economic medicine is administered by which ever party wins on Thursday.

The fall in consumer confidence illustrates that whilst technically Britain may be emerging from recession, psychologically it certainly is not. If economic conditions get tighter, and it is difficult to believe that they won’t, we can expect shoppers to focus even more heavily on price and promotions. Already grocery sales growth is slowing, to 3% in the latest twelve weeks from 3.6% previously.

Where the shopper goes, the big supermarkets will not be far behind. Expect price competition to be savage, profit margins to be slashed, and demand to be sluggish.

Putting the Organic Market into Perspective – Small and Likely to Remain So

The Soil Association’s market report for 2010 has been published and as expected shows a big drop in sales over the last year. Equally to be expected it is full of enthusiasm about the sector’s future, and points to a slowing in the sales decline.

But before anyone considering investment in organics plunders the piggy bank it is worth remembering that the organic market always was tiny, even in its heyday, and no amount of zeal will lead it to being anything but tiny.

It is important to remember this, for the whole thrust of the Soil Association report is that the 2009 decline was a blip, that organic farming is the only way to go to minimise carbon emissions, and that by wise allocation of the amount we eat organic farming will be able to satisfy food demand in the future. All that is required, says Peter Melchett, policy director, is money – money from the government both to research the sector and to increase support for farmers converting to organics, preferential treatment for organic produce in the public sector procurement, and money from the EU to bolster consumer demand.

As we know though, money is in short supply now. Whichever government wins the next election there will be swingeing cuts to budgets, with DEFRA being no exception. The little money that is available needs to be spent on projects that benefit the whole of agriculture, not just a particular, noisy sector.

Just how tiny is the organic market?

Sales in 2009 were £1.84bn, and are now below what they were in 2006. This is less than 2% of total expenditure on food and drink.

Performance by individual market varies but even in yoghurts, which, due to splendid branding efforts by Yeo Valley and Rachel’s, have the highest share of organic to standard sales, the organic share is just under 7%.

Organic milk sells 171,000 litres a year compared with a total market of 5 billion. Around 30,000 head of organic beef are killed each year compared with a total of 2.2 million. The figure for lamb is around 174,000 compared with a total kill of 15.8 million.

Producers in the organic market face a roller coaster ride. Farmer premiums for organic meat are rarely high, and often erratic. In 2009, the farmgate price of beef dropped by 3.5%, and the premium dropped from 22% to 9%. The premium for lamb dropped from 8% to 4%. The premium for milk also dropped back even though demand held up fairly well.

We cannot look to other countries and say that in time organics will account for a meaningful percentage of total sales. Even in affluent Denmark, the country with the highest percent of organic to standard sales, organics only account for 6% of the total market (Soil Association 2009 Market report). Not to be sniffed at, but not mainstream either.

All this is not to decry that there is a core of consumers completely devoted to buying organic, and farmers who deeply believe in organic principles. The point is that careful thought should be given to allocation of scarce funds to a small sector when the needs of agriculture in general are extremely pressing, and money is tight.

Local Foods – From Niche to Mainstream in 5 Years

In early 2005, the local food movement was mostly confined to farmers markets, a few intrepid souls selling by mail order or over the internet, one or two up market shops sufficiently different to flourish despite the supermarkets, and funnily enough, ASDA who had just begun to experiment with local foods in its Kendal store.

Now local foods are a feature of every supermarket’s business. ASDA has gone from strength to strength, and now asks its shoppers to write in with suggestions for local foods they want stocked. Tesco says they sold £624 million worth of local foods in 2009, around 2.2% of its sales, and a 30% increase since 2007. Morrisons make a big thing of sourcing local products such as pies, unusual cheeses and the monthly guest ale. Smaller stores are benefitting too, and shopper interest in local foods has played a part in encouraging specialised shops to return to the high street.

Recent IGD research has found that 30% of people purchased locally produced food in the last month, up from just 15% in 2006. This compares with 17% buying organic, also up from 15% in 2006.

This rapid growth comes about because people have a very clear idea about why they buy local food.

The number 1 reason for buying local is freshness. 57% of shoppers perceive local food to be fresher because it has not travelled very far. 54% buy because of a wish to support local producers. About a third buy local because they wish to support local retailers. Other reasons for buying local are environment, naturalness, and the security of knowing where the food has come from and how it has been produced.

The growth will continue. This is a trend, not a fad.

Consumers clearly like the idea of buying local. It is an easy purchase, particularly if prices are similar to a non local version, which is nearly always the case in supermarkets, and will probably need to be in smaller shops unless they are offering something very special.

One challenge is to pin down exactly what local means to consumers in terms of geography. IGD research tells us that in Scotland and Wales, “local” is seen to be from that country. In England, according to some work done by the Food Standards Agency, the definition tends to be based either on mileage (which can be anywhere from 10 miles if a country dweller, to 100 if living in London), or on counties around where the person lives. My view would be that whatever the definition, it is important that consumers don’t feel cheated by a local claim.

It is also important to avoid thinking that being local is either a substitute for strong branding or a passport to a premium price. This is especially true if selling to supermarkets.

The final comment would be that a move from niche to mainstream almost always means a move from high to lower prices.

Ocado Online Grocery Retailer – Profit is Sanity, Turnover Vanity?

Ocado, the up market online grocery retailer, has just announced a 25% increase in sales to £402 million but an operating loss of £14.4 million. Which is worrisome as this is now the tenth year in a row that the company has lost money, and indeed it has not made a halfpenny profit since it was set up by three Goldman Sachs bankers in 2000.

However, its enthusiasm is undiminished, it is confident it will move into profit sometime soon, and it plans to float on to the stock market after the general election, at a rumoured value of £1 billion pounds.

Might a few shares in Ocado be a good investment?

Certainly it does not lack financial muscle. In addition to the founding bankers, it has appointed to its board a former Reuters chief financial officer and a former vice chairman of KPMG. Before parting with cash though the investor might want to consider the following.

Ocado competes directly with Waitrose who have just set up their own on line service, but its products come directly from Waitrose in a tie up due to end in 2013. Even if the tie up continues its hard to see what Ocado can do to persuade shoppers to buy from them rather than Waitrose other than drop the price or up the service, both of which will be costly.

If the tie up does not continue, then the question arises of how Ocado with a turnover of £400m will have the same buying clout as Tesco, Sainsbury or ASDA who all run online services. It won’t of course.

Then we get to the way Ocado operates. Competitors fill orders in store then deliver locally. Ocado has a huge central warehouse to which all products are shipped, packed and then delivered around the country. It sounds very costly both on day to day running, and paying back the enormous amounts of money borrowed to set up the warehouse. And not very green.

Finally, the management team. It would be much more confidence building if Ocado’s banking founders had attracted onto their board someone battle scarred through hands on experience of running a real business either in food manufacturing or retailing rather then individuals connected with service businesses.

Its true that investment analysts are divided about Ocado with some saying that it takes time to build an online business, quoting Amazon which struggled for years to be profitable, and saying that online grocery shopping is a growth market with room for a competitor like Ocado.

A very long term investor could feel that its worth buying into as one of the major supermarkets might want to purchase Ocado themselves to give a premium arm to their activities.

The bottom line though is that after ten years there is no bottom line, just a further big loss.

It might be best to sit this one out.

British Lamb – Premium Price But Not a Premium Eating Experience

I’m still obsessed with the state of the lamb market.

The British are falling out of love with eating lamb, and sooner or later when the £ sterling gets stronger and exports fall off, it will have a knock on effect on producer lamb prices. In the last twelve months, according to figures published by the British Pig Executive (BPEX), people ate 8% less lamb than the year before, and whilst the pace of decline has slowed to a drop of 4% in the last twelve weeks, this contrasts with a growth of 4% for beef and 3% for pork. So whilst beef and pork are seeing consumers come back into the market there is no sign of the same for lamb.

So what is the problem?

Price is not helping of course. At £6.79 pence per kilo on average, lamb sells for about 80p a kilo more than beef and over £2 a kilo more than pork, and it would be easy to park it there and hope that somehow everything will come right again as consumers emerge from recessionary buying habits and start spending.

Apart from price, there is an issue of age. Lamb is bought primarily by the over 40’s, and Sam Pearl, chilled meat buyer from Tesco speaking to lamb producers in New Zealand, talked about the need to be innovative in the way lamb is presented to encourage younger buyers.

Certainly the supermarkets try to promote lamb. Sainsbury sells a range of lamb from different parts of the country. Tesco advertises in magazines. Booths, a small but very successful supermarket in the north and Sainsbury focus on breeds, Blackface in the case of Sainsbury and Herdwick in Booths.

Which leads us to the product itself and the biggest issue of all - lamb is a premium priced product but all too often it fails to deliver a premium eating experience. When shelling out £15 a kilo for chops or around £10 for a leg of lamb the product needs to be consistently superb otherwise people will be disappointed and refuse to buy again. Indeed, the BPEX data shows that less and less people are buying lamb.

Tracking down how best to improve lamb quality is not easy. Supermarkets send out mixed messages about lamb. Take seasonality. Except for a bit of Dorset lamb on their loose meat counter Waitrose holds fast to the principle of New Zealand in winter and UK sourced in summer. Tesco advertises that NZ is tenderest in spring, the south west and Wales in summer, and Northern England for Christmas, and Morrisons sticks to British all year round.

Then there’s age. EBLEX’s scientific work tells us that older, heavier lambs are tougher. Yet provided older carcasses are matured for at least 7 days, the lamb can be given the EBLEX quality mark. EBLEX also says that older ram lambs can develop off flavours. But over in NZ the Alliance farmers cooperative has done scientific work which concludes that this is not so.

Whilst there are some examples of growth in lamb sales, Tesco for example claiming that their sales have gone up by 12% because of promotions and encouraging new buyers, the main message is one of decline. So we must conclude that the issue with lamb goes deeper than an ageing consumer profile and a lack of excitement in its marketing.

One indisputable fact though is that consumers’ biggest complaint is about lamb is fattiness. Despite this, according to HCC, the Welsh meat executive, nearly 30% of lambs sold are fatter than R3L, and even after trimming by the processor, a lot of fat remains both around and within the meat. Could the time have come to tighten fat class standards further?

How irritated must consumers be, as I was, to buy two small chops for £5 yet find that nearly half is fat.

Whatever the answer, the total supply chain has to re-examine the issue of quality otherwise the market will move from niche to non existent.

Shopper Buying Behaviour - Insights from the NFU Conference

Edward Garner of Kantar Worldpanel ( previously called TNS) spoke yesterday about whether recent events like the move away from discounters, a decline in sales of value ranges, the resurgence of Waitrose and a swing to buying premium food over Christmas heralded the end of recessionary food buying behaviour. He did not offer a conclusion but en route to a fence sitting finale he did offer interesting nuggets about shoppers and the way they buy from the major supermarkets.

ASDA
The main message here is that ASDA is all about lowest price. When questioned, the overwhelming reason consumers give for shopping at ASDA is low prices., and it is ASDA who has gained most from the trend away from discounters. ASDA’s most recent price wheeze is to sell at a “round pound” price point, and in the last 12 weeks items priced at £1 have accounted for 14% of all sales. The round pound price point extends to £2, £3, £4 etc, and in total accounted for 22% of sales. Suppliers are being encouraged to tailor their products to sell at these particular prices.

The other side of the coin is that ASDA are not rated highly on quality. They undertrade on fresh and chilled foods, meaning their share of these is less than their total share, sales of their premium range are falling, and their organic sales are down 25% in the last twelve weeks, the worst performance of all supermarkets. (Note that ASDA would argue that they have upgraded quality and won lots of awards, but the Worldpanel figures suggest shoppers are not on the same page.)

Edward Garner did not say, but this obsession with price, coupled with a slight share decline over Christmas, may explain why Andy Bond who runs ASDA took the odd step of doing a public video in which he lambasted suppliers for not reducing prices when costs fell back , preferring instead to offer promotions which he termed “Weapons of Mass Distraction”. Bond declared that ASDA would “return with force” to its “Every day Low Price Strategy”, which he believes is best for customers, suppliers and shareholders. Other supermarkets might disagree.

Morrisons
Morrisons tends to be lumped with ASDA as a low price store, and certainly is seen by customers as offering good value, but it is changing its image and performing well. Morrisons overtrades by 3% in fresh and chilled foods, and by a huge 14% in fresh meat. As Garner says, something for farmers to be aware of. Also Morrisons is growing its number of wealthier customers, classed AB’s, who generally have more spending power.

Tesco
The news here is that their premium range is growing, and their discount range, introduced to fight Aldi and Lidl, only accounts for 1% of sales. Apparently the claim to be Britain’s biggest discounter backfired as we shoppers do not like to be told that we are buying cheap goods.

Waitrose
Waitrose has been doing well as shoppers get over the shock of inflationary price rises. Essentials, which Garner stressed is not a value range, but rather a communication exercise designed to make shoppers re- evaluate the store, has helped.

Marks and Spencer
Still a big problem, due to a lack of regular customers.

Fair Trade, Organics, Local Foods, and High Welfare
Sainsbury remains the biggest seller of Fair Trade products, and Waitrose sells 4.5 times more organic produce than its market share. However organic food has still not regained its position and Garner feels that the term organic will become a statement of production rather than a prime reason to buy.

Local Food sales are booming, and supermarkets are increasing the shelf space devoted to them.

High welfare products also continue to grow. 60% of all eggs sold in retail are now free range, despite costing about 30% more to buy, and free range chicken sales are also growing albeit at a slower rate.

Garner ended by saying that many industry watchers feel recessionary food buying habits may not have gone away because tax rises and spending cuts will breed uncertainty. On the other hand, he said, food only accounts for about 8% of overall consumer spend and so may not be the first port of call for consumer cutbacks.

If asked to come down on one side or the other, I’d say that there will be no return to unthinking spending any time soon, that people will pay for what they value whether it be premium ingredients or ethical beliefs, and not just follow lowest price, and that poor quality will not be tolerated.

Consumers and Shoppers – The Importance of Understanding the Difference.

From The Institute of Grocery Distribution comes a timely reminder of the difference between shoppers and consumers, consumers being the person who ultimately eats or uses a product and the shopper being the one who buys the product from the shop. Sometimes they are one and the same person, but not always. An example would be mothers buying food for the family where Mum is the shopper but the family eats what she buys (mostly!). Or in the case of a gift, the shopper buys but the consumer is the recipient. And when in the store, what someone feels as a consumer can be trumped by the immediacy of making a shopping choice.

The notion of differentiating the two has been around for years, but the point the IGD makes is that shopper understanding has become a multi million pound science. Retailers, engaged in a ferocious war for market share, are spending vast sums on understanding their shoppers in a climate where people are very picky about how they spend their money, and low inflation makes it doubly hard to get sales growth.

So, in this shopper is king (as IGD calls it) environment, suppliers approaching a retailer stands a better chance of getting heard if they bring deep knowledge about the way people shop for their particular product. Finding fresh insight is not easy given the enormous amount of data possessed by the retailers themselves. Tesco for example via their 83% owned subsidiary Dunnhumby reads the data of 22 million Clubcard holders every year.

Having said that, increasing sales is not just a matter of numbers, its also about psychology. IGD tells us that 70% of brand choices are made in store, and that 68% of product purchases are made on impulse. This seems a high number but it is not difficult to imagine products suddenly finding themselves in the shopping basket as a result of a stunning display, a slot alongside an obvious partner, or simply because it solves a shopper’s problem like what to dish up for dinner.

The snag with all this of course is that it stretches suppliers’ profits even more thinly. Not only do they have to be able to give retailers the margins they want, and cough up increasing sums for value based promotions, they now have to match retailers in shopper understanding, as well as spend money on marketing to build their brands with consumers.

This may give a clue as to why the big branded manufacturers want to get bigger. Size gives them the economies of scale they need to handle retailer demands both in the UK and globally, for the same retailer game is being played world wide. Such pressures may help explain moves like the Kraft bid for Cadbury.

It is clear though that anyone who supplies products under a retailers own brand name must be very conversant with shopper behaviour.

Which leads to an interesting dilemma for the levy boards - DairyCo, EBLEX, BPEX et al. Are they better spending money on broad messages to the consumer, as EBLEX have just started to do again, or would it be more productive to carry out forensic, in depth research on shoppers.

I'd vote for shopper research on the grounds that the findings would be valuable to all producers, large or small. No concrete case has been made about whether generic advertising works, yet a thorough understanding of how people shop a category could lead to fresh ideas and a much needed rise in sales.

Hard Cheese – The Baffling Behaviour of Branded Cheddar Sellers

Dairyco have just published figures for cheese sales in the 52 weeks to end December 2009. The top line picture is that total cheese sales are up, by 4.2% in tonnage, helped, as Dairyco points out, by a very modest price rise of just 1p per kilo.

The detailed figures reveal one startling change, namely that the price of branded cheddar dropped by 29p per kilo or 5% whereas that of supermarkets’ own label increased by 1p. This means that branded cheddar is 7% cheaper than the supermarket equivalent, whereas all received wisdom would say that it ought to be at least 10% dearer to pay for the advertising and promotional costs that accompany a branded product. At the end of 2007, branded cheddar cheese sold at £5.63p a kilo versus own label at £5.21p, a premium of 8%. At the end of 2009, branded cheddar sold at £5.99p versus supermarket own label at £6.42p.

The branded guys will no doubt be celebrating spectacular sales. The price cut meant that their volumes grew by 21% in 2009 and their sales value by 16%. The own label people acted very differently. On their standard cheddar they took a modest price rise and achieved increases of just under 1% in volume and value.

So what might be the right strategy - to maintain price, volume and profit margin, as retailers did with their own brands, or to cut prices, get higher volume, but sacrifice margin.

We will never know exactly what the financial outcome of these heavy promotions is. All we will hear during investor presentations is that brands saw terrific growth. However, the chances are that the branded sellers made much less money than own label.

Here’s why. At a price of £5.99p per kilo, a 30% margin to retailers and a 50% cost of goods the volume increases achieved would deliver the same profit as holding the price at 2008 levels. If either the cost of goods or retailer margin is higher then the promotions lose money. Add to this a likely payment to the retailer to run the promotion, a possible demand for cash margins to be maintained even though prices are reduced, and overtime running at factories to produce the incremental volume then losses increase.

The supermarkets will be laughing their socks off. Their total cheese sales are up, and their profits will be too as all the expensive price cutting promotion costs will have been borne by the brands.

The branded processors behaviour is baffling. Deep price cuts are a zero sum game, for as soon as one company breaks ranks the others follow to avoid losing market share, and they are generally ruinous to profits.

We can speculate as to how any shortfall in profit might be made up. The reasons for declines in farmgate milk prices get lost in a terrific snow job from processors who blanket us with tales of unfavourable exchange rates and world commodity prices. But one is left wondering whether the drop in liquid milk prices went some way to funding all these cheese promotions.

Food Buying Behaviour – Distinguishing Between a Fad and a Trend

There is a lot of change just now in consumer food buying behaviour, and being able to distinguish between which of these changes are fads and which are trends saves time, money and heartache.

Well documented changes include more buying of local and British, a drop in organic sales, more interest in welfare friendly products and Fair Trade, a shift back to upmarket Waitrose and away from discounters, a boom in buying premium foods over Xmas but increased amounts of products sold on promotion, a massive rise over Xmas in online food buying, and frantic attempts by retailers to stop what Laurie McIlwee of Tesco called “promiscuous” customers shopping around for the best deals. Other reported changes are more people growing their own vegetables, more scratch cooking and less ready meal purchase, and an upsurge in sales of unfashionable cuts such as pigs trotters and skirt of beef.

What in all that might be a fad to be avoided or a trend to be embraced?

The text books tell us that a trend is something that reflects broader society and what it values. Often a trend will cut across various industries, usually emerges slowly and builds over time, and is a development of an already existing trend . A fad appears from nowhere, is taken up with exaggerated enthusiasm for a short time, and is often fed by media hype. It is not fuelled by consumers needs.

So, which are fads and which trends in all the changes mentioned earlier?

Predictable fads are oddballs like pigs trotters. The rush to grow your own is also likely to be a fad, dying down as all but the most dedicated realise how backbreaking and expensive home vegetable growing can be.

More controversially I’d say that the big rise in organic sales between 2005 and 2007 was a fad, as was the flocking in 2008 to discount supermarkets. Purchasing organic for a short while became the fashionable thing to do, fuelled by the media who liberally advised organic purchase without saying why. Equally, the discount rush quickly subsided as many who felt they had to go and see what all the fuss was about decided that they could get more choice at the value they wanted in conventional supermarkets. This is not to dismiss the loyal core of consumers who won’t buy anything but organic, or who find exactly what they need at Aldi or Lidl. Rather it is to stress that explosive growth is rarely sustainable,unless it results from a solid reason to buy.

The jury is out on whether Fair Trade is a trend. On the one hand the British support fair play, but on the other I’m not sure whether there would be a huge outcry of protest if it disappeared from the shelves.

On line food shopping is definitely a trend. It started in other industries and fulfils a consumer need for convenience. Buying British and local are trends as is the increased interest in welfare friendly products. Both tap into a deep rooted albeit often latent- until- prodded British wish to fly the flag, support community, and care about animal welfare. The move towards premium food is also a trend. People are interested in high quality ingredients and good tasting food. The only reason for a hiccup in premium buying was that a lot of products labelled premium did not justify the price asked.

One definite trend is the cutthroat competition among supermarkets. This will only accelerate as they try to lap what have been high growth years. Despite all having good sales over Christmas the price cutting promotions have already begun with Tesco and ASDA leading the way. Where they go, others will follow.

Food 2030 – Can We Rely on the Consumer to Make Everything OK?

One new thread in a document generally viewed as big on aspiration but light on action is the role of the consumer in driving change.

By 2030, according to the document, consumers will be “aware of the origins of their food and understand the environmental and social impact of their choices.” They will “choose and afford healthy and sustainable food”. They will play a major part in achieving a low carbon food system. They will “express environmental concerns in the market place” and by demanding environmentally friendly products they will prod producers and processors into climate friendly innovation and invention.
They will be sufficiently educated to stop their current practice of wasting a third of the food they buy.

Net net, consumers will use their influence and spending power to support those who produce environmentally sound, sustainable, animal welfare friendly, healthy food.

It’s a lovely idea. How super to think that in just 20 years time Britain will be a nation of slim, fit, concerned individuals dedicated to spending their money only on the right type of food, bought in the right quantities, produced in the right way, and with a fair reward for those who produce it.

This is a massive attitude change, and raises the question of just how do you change consumer behaviour so radically.

It helps to have a following wind, and it is true to say that consumers are becoming more interested in eating healthily, want to know where their food comes from and how it is produced, and like to buy local foods. But it’s still a minority, and its an even smaller minority who are interested in things like the carbon footprint of their food. The document acknowledges that the topic of a sustainable diet is a “niche interest”.

The strategy document talks about encouraging change by putting information on the “eat well” website and make labelling more explicit. This is nowhere near enough. Getting the wholesale change described will require enormous advertising and promotional budgets, commitment from major retailers to disproportionately stock and display so called healthy and sustainable foods, and a situation where the price of the “right” food” is the same as, or only a few pence more than the “wrong” equivalent.

How big might the marketing and advertising budget need to be? In the year to March 2009, the government spent £540 million pounds on communicating anti smoking, climate change, anti obesity and road safety messages. This is a 59% increase since 2005, yet 25% of the population still smoke, and obesity levels do not seem to be falling. Big budgets do not guarantee success, particularly when it is government talking, and its interesting to note that one of the major shifts in consumer buying, the shift to higher welfare chicken, came about not through government action but through the efforts of celebrity chefs Oliver and Fearnley-Whittingstall.

Major retailers with their 80%+ share of grocery shopping will be crucial to consumer change. They are past masters at running with even a hint of consumer demand, but they are unlikely to support anything they see as overpriced or giving them a lower margin.

And on the subject of price, the search for the "right" food is unlikely to be accompanied by a major loosening of consumer purse strings. We know that consumers will pay a bit extra for something they value, but baulk at overpaying, as the recent collapse in organic sales has shown. One of the reasons Fair Trade has been so successful is that many of its products are sold at the same price as equivalents, such as bananas, Cadbury’s Fair Trade Dairy Milk chocolate, and Tate and Lyle’s Fair Trade sugar.

It will take alot to reach the Nirvana described in Food 2030, and at the end of the day one is left wondering what difference the attitude change, were it achieved, would make to producers. It would probably impact the actual foods that were produced, and how they were produced. It would not help the issue of how to produce more, and it would not address the issue of profitability. Which leads us back to the failure of the strategy document in that it is a social and environmental treatise, not a production plan.

Ways to Grow the Beef Mince Market - A Report for Beef Producers

Mince accounts for 52% of all beef sold, and it has come under the spotlight in a new report written by the Institute of Grocery Distribution with contributions from Dunhumby, who analyse Tesco data, and Taylor Nelson Sofres who monitor the total market. The report’s aim is to “help beef producers understand the challenges that the wider beef supply chain faces in maintaining and growing one of the most important and versatile meat products”. The report is endorsed by the NFU, EBLEX and the AHDB.

Some of the data in the report could be guessed, but some is really quite startling. Fairly predictable is the fact that mince beef sales, although down 1% in volume over the past year, have held up better than any other cut. Total beef sales are down around 3%. It’s also unsurprising that premium mince, sold under supermarkets expensive labels such as Tesco’s Finest and Sainsbury’s Taste the Difference, tends to be bought by the more affluent, whilst value mince is bought by the less well off. Smaller 250g packs are bought by pensioners and older families, and bigger packs by bigger families.

Other facts are less obvious. For example, nearly half of all mince is sold on some sort of price promotion, the most popular just now being “buy 2 packs for (say) £4”. This compares with about a third of sales on promotion a year ago. And mince is not just mince. In fact the market is divided up into 4 segments – premium, standard, value and healthy. These are categories defined by supermarkets themselves, and are designed to appeal to different types of consumers. Region wise, the Scots eat most premium mince, value sells best in the North East, and healthy mince appeals most in the south and east.

Most startlingly of all, value mince has grown very fast with sales doubling in the last year, but it still only accounts for a small proportion of mince sold. IGD shows that in Tesco, value mince in the biggest selling 500g pack size, is just 3.4% of sales of all its mince in the 250g to 500g sizes, compared with 4.5% for premium and 11% for healthy. So, contrary to most people’s expectations, consumer choices are not all about lowest possible price.

Looking forward, the report suggests that anyone seeking to grow the beef mince market should bear consumer trends in mind. Chief of these is health, with 57% of people thinking that they can make a difference to their health through the foods they eat. Interest in local foods continues, as does commitment to buying products with high animal welfare standards. And most encouraging of all, 89% of consumers feel that British farmers should be supported.

The last point made by the report is the need for carcase balance. And they are right to point this out. Clearly it makes little financial sense to grow the mince market yet in the process use up cuts which can be sold at a higher price. Although easier said than done, a marketing strategy is needed for the whole animal.