Riverford and Abel and Cole - The Contrasting Styles of Guy Watson and Keith Abel

The two big names in organic veg boxes have been in the news recently, but their messages could not be more different.

Guy Watson has been explaining that the price of Riverford’s produce is typically 20% less than the supermarket equivalent and that whilst this means low margins (typically 3-4%), he is not overly bothered because this pricing strategy fits with his values of good food, good farming and good business at affordable prices.

Keith Abel’s coverage was all about Keith and how since his return to Abel and Cole two years after he sold it to private equity firm Phoenix netting about £20 million in the process, the business has grown and profitability been restored.

Both companies are of a similar size. Riverford claims to deliver about 47,000 boxes a week, and grew sales by 2.4% to £39.5m in the year to April 2011. Abel and Cole, according to the Sunday Times article of 12^th December, claims to deliver to over 50,000 households a week. It had reported sales of £36m in the year to August 2011, up from £28.7m, and made an operating profit of £1.5m.

The two companies might operate in the same market and be similar in size but the philosophies of their founders are very different.

Keith Abel would probably take great offence if accused of being cash driven despite his windfall from the sale to Phoenix, and despite admitting to the Ecologist in June 2011 that one of the reasons he came back to Abel and Cole was because “they offered me a great package”. Even his barrister friend Jeremy Hall quoted in the Sunday Times said that “Keith likes making money”, although he did qualify the comment adding that he possesses a “strong moral compass”.

Nevertheless, the sudden burst of publicity seems tied into the wish of Lloyds bank, current backers of Abel and Cole in which Keith Abel still owns a 20% stake, to sell the business in the next twelve months on the back of an improved company performance.

By contrast, Guy Watson, in a piece posted on the Riverford website just a day after the Sunday Times Abel interview, says that he would never sell his company to venture capitalists, that he is uncomfortable about "unbridled capitalism", and that whatever the future shape of Riverford it must involve people "who are intimately involved in determining its success”.

Does it matter whether one founder of a business is driven more by wealth and another more by values? Possibly not.  In the case of veg boxes customers perhaps only worry about the quality of the food and reassurance that produce is appropriately farmed or grown.

I would guess though that any customer who trades the convenience of shopping for what they want when they want it for downsides of veg boxes like being tied to a delivery day, never being quite sure what they will contain, and having to polish up cooking skills because something unfamiliar has turned up, might be deeply interested in the whole ethos of a company and those who work in it.

Local Food Gains Ground as Consumers Support Those Closest to Home

The move towards buying local food has been around for several years now and the economic downturn seems to have made consumers even more inclined to support nearby producers.

According to the Institute of Grocery Distribution, the number of shoppers buying locally produced food has grown from 39% in September last year to 43% in September this year. As to future intentions, 41% say they will buy more local food compared with 39% who said the same thing at the start of 2011. This number compares with 31% who intend to buy more welfare friendly food, and 17% who intend to buy more organic.

Supermarkets are responding to the trend by stocking bigger local food ranges. Sainsbury now sells 3000 locally produced foods, and grew their sales by 15% in the last year.

Tesco says that “many customers want to buy locally sourced foods to support their local communities”. In response they have built alo special local foods website, where you can type in your postcode, find the nearest Tesco store and a list of the local foods they stock. In 2010/2011 compared with the previous year Tesco grew their local food sales from £850m to £1billion.

Asda, who can justly claim to be the first supermarket to spot the trend has 6000 local products on sale from 600 suppliers. They are aiming to turnover £500m in local food sales, a 15% increase on where they are now.

A trip north of the border to Scotland illustrates the trend well with a Scotland-produced variant of virtually every fresh food like eggs, milk bread, cheese fruit and vegetables available on the shelves. Imagine if that degree of localness spread to English counties or regions.

The urge to buy local is definitely a trend rather than a fad.  As has been the case for a while it is the 65+ age group who are most supportive of local foods, but the IGD tells us that the 55+ group seems to be the keenest to increase their local food purchase, and if the trend spreads to a younger age group then robust sales growth seems to lie ahead.

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.