Red Tractor Logo - The Reality

The hoo-hah among some farmers about Countryfile’s piece on food labels and what they mean for animal welfare seems to have died down, replaced by a new furore over Panorama’s look at whether rich/non farming types should receive the single farm payment.

If the people behind the Red Tractor are returning to business as usual, breathing a sigh of relief that the story has blown over, then they should think again.

Careful viewing of the Countryfile piece reveals no inaccurate reporting but rather a gentle effort by John Craven to get at the facts behind three labels – Red Tractor, Freedom Foods and Soil Association.  

The bald facts are that when it comes to welfare the Red Tractor label stands for little more than compliance with minimum legal standards.  This was tacitly acknowledged by their spokesman.

Freedom Foods requires more than the legal minimum in some areas. Animals cannot be transported for more than 8 hours compared with the 24 allowed by the Red Tractor. Pigs get more space than the legal minimum. They have to have bedding to lie down on, and be able to root around, neither of which is mandated by Red Tractor. Farrowing crates are being phased out next year, but Red Tractor has no plans to forbid them. When it comes to chickens, Freedom Food says no more than 15 per square metre compared with 19 for Red Tractor, and chickens must have natural light and straw bales to peck on, neither of which are required by Red Tractor.

The Soil Association also requires more than the legal minimum in some areas.

What the Red Tractor team need to understand is that animal welfare matters to consumers, and whilst there is still huge confusion among the majority about the facts behind the different labels, consumers are becoming more sophisticated and knowledgeable by the day, prompted by campaigning groups and enabled by technology which allows instant access to the internet for research and verification.

Red Tractor therefore needs to be clear in itself about what it promises, and transparent about what it communicates because it will continue to be exposed if it is not. It is no bad thing for it to stand for a guarantee that the food which carries its label is produced to legal requirements. But it has to be confident that this is indeed the case. Headlines such as “AFS promises action after shocking Red Tractor expose” (Farmers Guardian February 2012), must not be allowed to happen. It would help avoid another expose if it uncompromisingly stood for food produced in Britain instead of being prepared to accept all comers and rely on having a Union flag on the packet to confirm Britishness.

Whichever way it moves forward, the 15 member strong Red Tractor board would do well to give thought to the changing nature of consumer feelings, the rise of ever stronger campaigning groups, and the place of Red Tractor in this new environment.

Food Shopping 2012 - Not So Different From Granny's Day

So many things about the way we shop today would strike a chord with consumers in the 50’s and even 60’s. Then, there was little choice but to buy locally.  Home delivery was the norm with the customer making a list, and handing it over to the shopkeeper who would then drop the order off at a prearranged time. List making was critical as post war housewives abhorred waste, instead carefully planning meals, and eking out the Sunday roast for days – cold on Monday, in a pie Tuesday, and soup on Wednesday. Some of the more controversial farming methods like broiler chickens, or eggs from caged hens, or intensively reared pigs or fish farms were still to come, and anyway, shoppers often knew their local producer and found this reassuring.

A return to buying locally, home delivery, and list making are all major trends today, and concern about animal welfare is growing.  

The hard numbers confirm the trends.

Sales through local convenience stores have mushroomed, and they now account for over one fifth of all grocery sales, up 5% to £33.6bn in 2011. Local stores are indeed convenient. They cater for the weary commuter who does not want to detour via a superstore on the way home, preferring instead to buy what is needed for supper that evening and go straight home. They are a boon for the older, and walking to a local store helps save on petrol costs.

Localism is not confined to a local shop. Supermarkets are getting in on the act, mindful that nearly half of consumers say that supporting local/ British producers is their number one shopping concern.

On line shopping and delivery to home has exploded. This market is now worth £4.8bn, up 21%, and sales are expected to double by 2015.

And the rise in sales of welfare friendly chicken, the use only of free range eggs by all the major supermarkets, and the interest in better welfare pork all attest to increasing numbers of consumers putting their money where their animal welfare mouth is. 31% of shoppers cite animal welfare concerns as a driver for what they buy.

Much has been written about the careful consumer, adapting to difficult economic times by sticking to a budget, using lists rather than buy whatever takes their fancy, and going back to cooking.

Whilst the way we shop may be a return to previous decades, the technological tools we have to help us would leave the 1950’s shopper wide eyed. The internet allows grocery lists to be sent to the store without having to leave the armchair, smart phone apps can be used to create a shopping list anywhere, and thousands of recipes are available at the touch of a button rather than having to wade through cookbooks.

A return to old fashioned methods and values helped by the latest technology will be welcomed by most.

It must be remembered though that within this warmth and nostalgia lies a fundamental truth – and that is the need for an acceptable price/value relationship. There is a hard edge to shopping today, and it is about seeking the best bargains, finding the lowest price, buying 40% of goods on promotion, and making sure that the item in question, whether a premium or low ticket item, really is worth the price. This was probably true for the 1950’s as well as in 2012. 

Cattle Farm Gate Prices Up But Beef Consumption Down

Whilst beef farmers breathe a sigh of relief that farmgate prices for cattle have improved, there is a cloud on the horizon in the shape of falling beef eating.

In the 12 weeks prior to Christmas the amount of beef bought from shops plunged by 9 %. And it is not really surprising. Over the same period the average price of a kilo of beef went up from £5.99p a kilo to £6.58p, reflecting the increased prices that retailers and processors have been paying producers. (Source Kantar Worldpanel)

The drop was even more dramatic in the 4 weeks immediately before Xmas when sales were down 13%.

We have seen this picture already on lamb which saw even steeper farm gate and consequent retail price increases. Last year lamb consumption plummeted by 20%, and this was on top of a decrease in the previous year.

It is, though, a rare cloud that does not have a silver lining and the beneficiaries have been fresh pork (up 2% last year),bacon (up 4%), and sausages (up2%).

Consumers seem to have replaced much of their red meat eating with alternative protein sources. Chicken sales continue to grow and there was much anecdotal evidence of a major switch to turkey pre Xmas.

Of course domestic consumption is by no means the only contributor to farmgate prices. The size of the UK breeding flock has an impact as do the euro and imports.

These factors can change, as the euro performance just now shows, so, regardless of external factors, British farming needs a healthy domestic market.  The drop in beef and lamb eating reminds us that meat is price sensitive.To this end we should perhaps not chastise retailers for encouraging consumers to keep buying lamb, beef and pork, even if this does mean some price promotion.

Shaking Up the Milk Market - Why Muller Might Want to Buy Wiseman

At first blush it seems very odd that Muller Dairy, a very successful branded  yoghurt and desserts company, would shell out £279m to buy Wiseman – a one  product, one distribution channel company who are totally reliant on selling a commodity to fickle, hard negotiating supermarkets and  regularly issue profit warnings as a result.

Indeed, the Wiseman team saw the strategic writing on the wall nearly two years ago, in summer 2010, and appointed a financial advisor Greenhill to get themselves acquired. Muller apparently was the top contender. So Wiseman will be delighted with the outcome and as all the papers have pointed out the eponymous brothers have benefitted handsomely.

The rational for Muller is more difficult to pinpoint. Muller has a reputation for being secretive, and being privately owned is under no obligation to tell us the thinking behind their purchase. Their UK MD has confined comments to a bland statement about the two companies uniting to become a leading dairy player which can offer “exceptional products” to their customers.  Investment analysts seem baffled. Peel Hunt reckoned that there is no strategic logic to the move. Clive Black of Shore Capital could not see much benefit except in the area of milk procurement, collection and utilisation which he felt could be substantial.

Further mystery has been added by reports saying that the reason for purchase is not so called “hard savings”, ie the costs that can be shaken out of a merged business through streamlining back office functions like accounts, IT, purchasing, logistics, and administration. Apparently Wiseman will be left to run itself as it did – at least for now.

So we must look further afield for enlightenment. The clues could come from Mullers business in Germany. In Germany Muller sells not just yoghurts and desserts but cheese, butter, and fresh and UHT milk. It also has a big private label unit dedicated to providing brand and product development , packaging and logistics services to major European grocery players. Perhaps access to Wiseman’s milk supply would pave the way for some of their European products and expertise to be brought to the UK.

The one thing we do know about Muller is that it is highly innovative. Their entry into the UK yogurt market transformed the way it operated, improving quality, adding innovative products with the corner concept, and packaging innovation with the square container which is logistically more efficient than the round pots which previously prevailed .
Muller must see the acquisition of Wiseman  as platform for new product introduction which will wake up the hitherto rather  sleepy UK dairy market.

Players such as Dairy Crest and the milk cooperatives should standby for a milk shake up.

Tesco Pays the Price for Ignoring its Customers

It’s been a dramatic week for  supermarket watchers.

First, Morrisons who had been the clear leaders in the grocery war of late announced that their sales over Xmas period had grown by a tiny 0.7%. Dalton Phillips their Canadian chief executive said it was because cash strapped Brits were unwilling to splash out over the festive season.

Somewhat contrary to this picture of austerity consciousness, Waitrose announced sales growth of +3.8%. Now as anyone who has ventured through the doors of a Waitrose will know their food is not cheap, even following much publicised activities such as a price match with Tesco on 1000 lines.  Next came Marks and Spencer, also not a cheap place to shop, with sales growth of 3%. According to ex Morrisons chief executive Marc Bolland this was due to the introduction of 600 new products, and keen pricing on some lines. Indeed M&S customers seem to be gregarious types, powering sales of party packs of food to by 8% and fresh turkey by 25%.

Then we heard from Sainsbury with sales up 2.1%. According to their head man Justin King, their premium Taste the Difference range grew by 10%, but he did concede that at the other end of the scale their cheaper value range grew by 7%.

We have not heard from ASDA yet but they are reported by market researchers Nielsen to have had a good Christmas sales performance also.

And what can we say about Tesco whose Christmas trading performance was nothing short of dire, with sales down 2.3%. It is not just a short term issue either.  According to their chief executive Philip Clarke, Tesco’s “entire shopping experience” is not as good as it should be and he indicated that Tesco has failed for years to deliver on product availability, service and food quality.

And thereby hangs the clue as to what makes the difference between winners and losers. Yes, indeed British consumers are feeling the pinch, scrutinising all costs, budgeting, cutting down on waste. But, they are prepared to spend their money with grocers who offer the combination of price, quality, and specialness which makes them feel as if their money has been well spent.

The “upmarket” grocers between them have about 25% of the market and despite cash strapped times were rewarded because they offered that critical concept of value for money that consumers seek, especially when money is tight.

Those who keep close to their customers and listen to them generally do well. Tesco has not been listening, and has not done so for years, resulting in lost customers and falling market share.

Turning a deaf ear to customer needs leads to problems.  

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.