Strong Brands Win Again - Dairy Crest Outperforms Robert Wiseman

Half year profit results from Robert Wiseman and Dairy Crest once again show the perils of being a one product, one sales channel company operating in a commodity market.

Wiseman’s who sell only fresh milk saw pre tax profits drop by 42%, from £20.2m last year to £11.8m, on a turnover which climbed by 1%. The profit problems arose because the price they paid to farmers rose three times this year, and energy bills rocketed, but supermarkets, on whom Wiseman depends for nearly all their sales, refused to pass these costs on to consumers. Indeed many will recall that retail prices have been slashed of late.

By contrast, Dairy Crest who sell big brands such as Country Life butter and Cathedral City cheese alongside fresh milk reported a profits rise of 9% on a revenue increase of 2%.

Its just as well that Dairy Crest has these brands.  Profits in their dairy division which sells the milk saw profits plummet by 89%, from £10.9m to £1.2m, a shocking performance which puts the fresh milk supply problem into sharp relief.

By contrast profits in the cheese division jumped by 32% due to higher selling prices, and butters and spreads profits grew by 16.5%.

For whatever reason, Wiseman seems to have held a the difficult milk situation together better than Dairy Crest,  possibly because of scale (Wiseman supplies about a third of all fresh milk). But as previous blogposts have indicated, the Wiseman story continues to be a tale of erratic performance, and it is difficult to see how their current business model of one product and one sales channel can be made reliable and sustainable.

Some investors point to their strong cash position, and much has been made of their new venture with New Zealand company A2 which may deliver innovative products such as a more easily digested milk for those who think they have a lactose intolerance. Then again though, Arla seems to have solved this issue with Lactofree.

Dairy Crest with its brands, its presence in cheese, butter, and spreads as well as raw milk, and its sales through more than just supermarkets seems better able to deliver the steady, predictable performance that suppliers, customers and investors like to see.

Warning Call From EBLEX - More Must be Done to Boost Red Meat Consumption

Hard work is needed to keep consumers buying beef and lamb. That is the message coming from EBLEX’s recent conference, and it is an important one. Farm gate prices are strong just now, helped by a reduction in supply from UK farms, a reduction in imports, and a solid export trade due to the weak pound.

UK consumption though is just about stable for beef and dropping like a stone for lamb. Kantar Worldpanel figures show that in the 52 weeks to October 2^nd, people ate 21% less lamb than in the previous year.

So what are the problems? Price is the big one of course. When asked why they do not eat more beef 32% say it is too expensive, and 27% say they cannot afford to. The comparable figures for lamb are 45% and 33%.

We know from other research that price in general has become more of an issue. %. In 2008 34% of consumers claimed to make a shopping list and stick to it. In 2010 this had risen to 44%. In 2008 28% said they worked to a strict budget when buying groceries. That figure now is 40%.

The other main problem on beef is that 17% of consumers think it is not very good for you.

Lamb has its own issues. 57% of consumers agree that lamb can be fatty, and 14% say that too much fat is left on the plate after eating. 15% say there is not enough meat and too much bone to offer value for money.

What can be done to boost red meat consumption?

No one thinks that consumers will become any less price and value conscious in the foreseeable future.

So as Richard Phelps, now of ABP, pointed out at the EBLEX conference, consumers must be given reasons to eat red meat. He believes that, despite continuing pressures on spend, consumers are becoming more adventurous with ingredients and recipes. They are staying in more rather than eating out, and are prepared to buy premium products, mixing these with value lines as budgets allow. So red meat marketers must respond with new cuts and new products.

Phelps says that quality has to improve. He specifically focussed on age of herds, but as anyone who has forked out for a joint of beef and found it tough and tasteless, or left most of their lamb because it was too fatty, much more attention has to be paid to the eating qualities and presentation of red meat. Nick Allen of EBLEX made the quality point also, particularly on lamb where he feels product must improve to combat consumer perceptions of fattiness and poor value.

The final question therefore is who has to take the lead in this. I would suggest it is the processor, ideally with the backing of the supermarket they supply. It is the processor who has the opportunity to set production standards, to reject the over fatty animal, and to ensure that good butchering means consumers get a product they feel is good value for the money spent.

Connecting with Consumers on Smartphones - Now Key to Business Success

“A nation addicted to smartphones” is how Ofcom summarises its findings from a recent piece of research, saying that 27% of all adults and almost half of teenagers now own a smartphone (a mobile which connects to the internet). Smartphone owning numbers have exploded in the past year, and are set to rise further as annual sales of smartphones are now higher than those for the standard version.

More internet users connect to the web via their mobile than a laptop (45% versus 38%), and the number is even higher among 16-24 yearold where 71% access the internet via phone.

Smartphone usage is definitely here to stay and businesses are thinking through how they tap into the trend, whether it be for advertising their products, providing information, or directly selling goods online.

At the very least, websites must be simple enough to be quickly accessed. Consumers will rapidly lose patience if they have to wait for information to be downloaded. This means either having a site tailored to mobile usage, which automatically comes up when searched via phone, or having a link redirecting users from the main site to a mobile friendly one. Amazon and Tesco are good examples of a speedy tailored link. Asda’s site take an age to download.

The other option is to provide an app, or application, which sits permanently on the phone for easy access to a specific activity.

Although most usage is still for socialising, downloading music,  gaming, and searching for information,  the IGD reckons that smartphones are starting to change the way groceries are bought online. According to their research, 1 in 10 online shoppers are using smartphones to shop. Ocado claims that 15% of customer checkouts during the first half of the year came via their smartphone app. Tesco has a handy app which allows shoppers to scan the barcode of a product on their phone whereupon it is automatically added to their online shopping basket.

As to future developments, the IGD predicts that tailored apps which build a relationship with individual consumers are the way to go.

The time has probably come to view selling and marketing via the mobile phone as a crucial part of any business plan.  The research finds that 81% of smartphone users never switch them off, even when they go to bed, and that huge numbers are happy to use the phone whilst socialising, at the meal table, and even in the bathroom.

Smartphone usage is now a part of life. Those businesses without a smartphone presence may find themselves competitively disadvantaged.  

 

The Top Four Issues Worrying Food Shoppers Struggling with Austerity

According to the Institute of Grocery Distribution’s Shopper Track research the top four areas where cash strapped consumers are seeking help are:

1.       Sticking to a budget

2.      Reducing waste

3.      Making shopping a less tedious experience

4.      Understanding enough about product provenance to make the ethical choice

Joanne Denney-Finch, from IGD, speaking at their annual convention went on to explain what the frustrations are.

What shoppers do not want to see as they grapple with budgets is tinkering around with a product to hit a price point. So reducing weights or quality is a no no.

They are not happy with offers which encourage multiple purchase such as 3 for the price of two, or two for a discounted price.

What they do want are straight price reductions, and more advance notice of offers to enable them to plan better. They would also like to be able to keep a running total of spend as they go round the store to avoid the shock that can often come when the final bill is presented at the checkout.

Shoppers also say that branded budget ranges would be welcome as an alternative to buying a retailer’s own brand.

On the subject of waste, shoppers would like to see re-sealable packs, and a longer shelf life on products, as well as a reduction in the number of multi buy offers which they feel encourage over-purchase and often result in product being thrown away.

Food shopping remains a harassing experience for most, with crowds and a bewildering choice being the main sources of angst. This should point to an opportunity for online shopping but it seems that a half of all online shoppers have stopped buying this way, with a third of those finding the whole experience too tedious.

And so to provenance. Denney-Smith does not actually say that consumers will walk away from a product if they do not understand where it has come from. Rather, that giving information about provenance is a vital way of encouraging brand loyalty. She cites the Patagonia clothing website as a good example of how to do this.

So how much of this shopper wish list are we likely to see during our forthcoming supermarket trips?

It would be a brave supermarket that stopped multi- buy promotions in favour of straight money off, because the multi-buy means that shoppers spend more money in the store which helps boost turnover. This in turn boosts market share, and makes a contribution to covering overheads. Equally, anything which means shoppers limit the number of trips they make to a store is bad news as once in, many shoppers are likely to be tempted to buy something which could be classed as unnecessary.

Shoppers’ requests for budget brands are admirably served by Aldi whose whole reason for being rests on just that, but it is unlikely that major branded manufacturers will move this way. It is too costly to build a separate brand, particularly one with a low price.

The ability to keep a running total of the bill whilst going round the store is already available through Waitrose.

So far no supermarket has cracked the code to a pleasurable food shopping experience despite much effort being put in. In fact Sainsbury and Tesco with their emphasis on self serve checkouts and consequent reduction in checkout operators are merely adding to the stress of shopping.

 I have a feeling that communicating provenance will become more widespread. Certainly the technology is available for consumers to find out where there item has come from, whether through a company  websites, or social media like Facebook, or an app on their smartphone, or even through good old fashioned wording on the pack.

The thrust of Joanne Denney-Finch’s speech was that in an age of austerity which shows signs of being around for years, the winners will be those who listen hard to their customers and who are brave enough to pursue radical innovation in response to their customers’ needs. Quite right.

Being Creative with a Commodity - How Meat Marketers are Adding Value

These beefburgers, with their reference to breed and Britishness  neatly capture some of the ways that marketers are adding value to meat. The British reference is important as consumers continue to seek reassurance about where their food comes from, and buying British becomes more of a consideration.

Breed is increasingly being used as a value adding tool. Aberdeen Angus has for a long time been seen by consumers as a quality breed. McDonalds sells an Angus burger costing more than the standard variant, and Waitrose emphasises meat from Angus as well as Hereford cattle. Now Morrisons are embracing breed differentiation, selling beef from Shorthorns (and paying producers a premium in the process).

At the other end of the breed spectrum Kobe beef from Waygu cattle is gaining a reputation for quality, so much so that at the request of a Japanese chef, an Australian farmer is feeding his Waygus a litre of wine every day.

Making meat meals more convenient to prepare and serve also adds value as many consumers are nervous about cooking meat, and, given its price they want to be reassured that the end product will taste great. Hence the rise of "foolproof" products such as Simply Cook where all ingredients are available in one pack, the size of portion is strictly controlled, and the food just has to be flung into the oven for the specified time.

These cook in the bag products from Maggi are a cheaper solution, but offer the same benefits.

Value can be added through packaging innovation. Some consumers do not like to handle meat, so Tesco's meatballs are packed individually, in a tray like an egg carton so that the product does not have to be touched, and Waitrose sells their roasting chickens in a hard case rather than film for the same reason. Note the saltire and reference to Scotch on the pack to reinforce where the meat came from.

All this innovation notwithstanding, price remains a key part of the value equation. It is no accident that all of the above featured products from Tesco came with a promotional offer - mostly two for a discounted price. It is a sobering reminder that people will not pay if they do not think a product is worth the money.

Speciality Farm Produce Available Online - Former Asda CEO's New Venture

One of the more interesting  news items from last weekend is that Andy Bond, former chief executive officer of ASDA is investing in Farmison.com, an online food retailer which aims to provide home cooks with speciality food ingredients produced by small British farmers and normally only found in restaurants.

The move is interesting on a number of counts. Bond clearly believes that online food retailing has a big future and that Farmison can sort out the problems that stop many from buying fresh food online such as variable quality, and irritating substitutions. He must also believe, despite harsh economic times that super premium food, with a provenance that traces back to the individual farmer has a future too.  And he must believe that Farmison has something unique about its offer which will ensure it succeeds in an increasingly crowded market.

Farmison faces competition from other online retailers, and from grocery stores making increasing efforts to go super premium. Marc Bolland wants to take Marks and Spencer in this direction, Waitrose and Ocado makes strenuous efforts to be special, and all three are investing online, along side every other food retailer. There is also competition from the likes of Riverford Organics and Abel and Cole companies who sell local food from small farms.

Will Farmison be a good financial investment not just for Andy Bond, but for the small farmers who are paying for the privilege of being sold through it? Difficult to say at this early stage, but the business will face challenges. Ocado, after 10 years still has not made a profit, its sales are slowing, and investors are so spooked they have written the share price down to about half of its launch price. Although the supermarkets are happy to talk about growth rates in their online business, no one ever mentions profitability which probably means it is low. On the other hand, Andy Bond has a good track record and will have investigated Farmison’s potential in detail before parting with his money.

Going for Growth - How Marks and Spencer, Waitrose, Morrisons and Aldi are Tackling the Challenge

Growth remains the holy grail for all supermarkets. Here we look at four different approaches -   M&S and Waitrose at the premium end of the market, Morrisons in the mainstream, and Aldi the discount chain.

The discount sector remains an endless source of fascination for supermarket watchers because the business models are so different from the mainstream, but their growth rates are tremendous. In the 12 weeks to September 4^th, Aldi has grown by 26% and LIDL by 13%. This run of growth has been going on for months. Part of it is down to the demise of Netto, meaning that discount fans have had to transfer their allegiance, part of it is a response to rising food prices and shrinking disposable income. Interestingly though, the growth has come for the most part from loyal discount shoppers who previously would divide spend between discounters and say Tesco, but who now choose to spend an increasing proportion in the discount shop. The actual number of new discount shoppers is small.

So the Aldi challenge is to persuade those shoppers who already like much of what they see in Aldi to spend an increasing amount of their grocery budget there. And the key to achieving the objective is to bring the quality of its fresh food up to that of its packaged goods, but maintaining value. Already work is underway and Aldi stand a very good chance of continuing the growth levels already experienced.

Morrisons is one of the “big four” supermarkets, and the only one growing faster than the market average. It is managing to combine growth with increased profits.

Their success so far is down to the quality and value of their fresh food, and they now want to extend this expertise to online shopping. To this end they purchased a stake in FreshDirect,  the New York based company heralded as a leader in online. If Morrisons get this right they could be on to a winner as one of the main gripes about buying food on line is that fresh food is of variable quality, too near its sell by date and often the first choice is substituted for something less acceptable.

Waitrose today published its half year results, and whilst it is achieving sales growth of 9%, profits are down by 14%. Waitrose is chasing growth in a big way, by opening more stores, improving its online business, and promoting more heavily. Its challenge is to expand from its niche without losing the emphasis on quality and service that has made it successful, and the strategy is not without risk. As a privately owned company it has more time than most to get the model right, but at some stage it will need to restore profitability.

The M&S challenge is different. You cannot do your weekly shop there, so what CEO Marc Bolland and the team have to do is develop a food offer that cannot be bought in supermarkets. The answer according to Bolland is to make M&S even more special, putting delicatessens into bigger shops, upping the specialness of the bakery section, and featuring products little known in the UK but acknowledged as outstanding in other countries like Iberico ham and fresh burrata cheese (a mixture of mozzarella and cream apparently!).

These  moves are unlikely to transform performance. Introducing such products is merely a difference of degree – another step along the rarity spectrum. It is not the radical, totally new meeting of a consumer need that has characterised M&S success in food in the past. In bygone days M&S was noted for pioneering, whether it was exotic sandwiches where previously only cheese and pickle was available, or ready meals which allowed a harassed meal provider to put something on the table which not only tasted great but was whipped up in half an hour, or previously unheard of  fruit and veg.

Here we have four different companies all with different growth strategies. All will be convinced that their strategies will be successful. Time will tell who has got it right.