Spectacular Increase in Lamb Eating as Supermarkets Cut Prices - But Still a Premium Meat Needing Premium Marketing

Lamb eating in the UK has grown for the first time in over three years. 

According to KantarWorldPanel data for the 12 weeks ending 10^th June volume sales of lamb grew by 16%. This reverses a severe downward trend, with sales at one time looking as if they were in free fall. Indeed, annual sales of fresh and frozen lamb through supermarkets have dropped from around 101,000 tonnes in 2008 to 70,000 tonnes today. (Source: World panel/EBLEX).

Renewed growth is welcome news to sheep farmers for the halcyon days of high lamb prices caused by the weakness of the £ versus the euro are behind us at least for the foreseeable future, and a strong domestic demand is needed to ensure that prices do not fall to unsustainable levels.

Predictably, the main reason for higher consumption is a drop in retail price. In the 12 weeks under review the average price of a kilo of lamb reduced from £8.22p to £8.08p as supermarkets promoted the product over Easter and in the run up to the Jubilee. Sales were also helped by the rocketing price of beef in the shops. The gap between the average price of a kilo of beef versus lamb has narrowed to around £1 a kilo versus £1.92 a year ago.

£8 a kilo is not cheap. Lamb remains a premium priced product out of the reach of many. And there has been sobering news on the premium food front. According to Kantar World panel, sales of supermarket own brand premium ranges, like Sainsbury’s Taste the Difference or Tesco’s Finest, have declined for the first time since 2008. It had seemed that consumers were willing, despite the general price of food rising, to keep buying premium food as long as they felt the quality justified the price. Now they are thinking twice, and in the last 12 weeks sales of premium own brand ranges have dropped by 6%. By contrast, sales of value ranges have soared, up 13%.

Further signs of belt tightening come in the form of below inflation sales through supermarkets – down 0.7% in June 2012 compared with June 2011, and the well documented performance of discounters Aldi and Lidl who continue to grow, up 26% and 11% respectively.

The increase in lamb eating is good news, and it is hoped but not expected that supermarkets will keep the price of lamb at these lower levels to encourage consumption.

What is urgently needed is a total rethink about the way lamb is marketed so that product quality is consistently superb, the type of cuts offered and advice about how to cook them are imaginative and relevant, and lamb becomes a worthwhile buy in the eyes of more consumers.

From Farm to Fork -Ireland's Plan to Brand its Food and Drink Exports

Ireland’s food and drink exports are worth 8.9 billion euros, around 9% of all exported merchandise, and grew 25% in 2011. In an effort to ensure that they remain competitive the country is embarking on a project to sell Ireland’s produce as a premium brand with sustainability as its key selling point, and hard evidence to back up the claim.

“Origin Green” is a voluntary scheme  embracing farmers, processors and food and drink manufacturers, run by Bord Bia the government body set up to promote growth in Irish food production. On signing up, participants commit to environmentally friendly actions like using less energy inputs, encouraging more biodiversity and minimising water use.

The idea of branding a country’s food output in order to achieve a premium price is original, ambitious and rather exciting. But will it work? 

Sceptics may say that the project is doomed to failure: that special interests will get in the way of uniting such a disparate band of players, and that it will be a hard sell to the independent minded farming community who must be engaged if the effort is to succeed given that sustainability starts on the farm.

These naysayers are probably adding that the sustainability bandwagon has rolled on and that in the current economic climate few consumers, the ultimate definers of what is worth a premium, are not prepared to shell out for such a nebulous benefit.

They could well be right of course, but here are a few reasons why the Irish approach might fly.

First, the impetus for the strategy comes from the top. The Irish Minister for Agriculture, Simon Coveney wants Ireland’s exports to grow and sees the way to do this as making Irish produce “Recognised globally as a trusted source of high quality, high value foods.”

Second, across the globe greenness and Ireland go hand in hand in the public’s mind. The Emerald Isle has a bigger opportunity than most to claim “greenness” as a point of difference and turn it into a strong reason for people to buy.

Third, the food and drink industry seems enthusiastic about the idea. Several heavy hitters have signed up to pilot the programme including ABP, Dawn Farm Foods, Kerry Group, Marine Harvest and Irish Distillers, and  Irish farmers are already engaged in projects designed to improve their environmental credentials. Since May 2011 Bord Bia has been monitoring the carbon footprint of all its quality mark beef farmers, checking around 500 farms per week. The dairy industry is next in line to take part in a similar programme.

Which leaves sustainability and whether it is a strong branding message. There is no doubt that consumers expect the companies they buy from to act with integrity, and this includes doing the right thing for the environment. Social media means that those who do not are quickly named and shamed. Thus major retailers, restaurant chains and manufacturers are driving the sustainability agenda, because they feel that this is what their customers expect of them. Bord Bia spoke to Marks and Spencer, McDonalds, Sainsbury and Unilever prior to finalising the Origin Green programme, and all confirmed that their suppliers are increasingly being required to adhere to sustainability criteria.

Whether sustainability can command a premium is difficult to say. But where the advantage might show itself is when a buyer looks at two products he is considering stocking, one Irish and one from elsewhere. All other things being equal he might well opt for the Irish version because of its sustainability credentials.

One wonders if countries on the British mainland would be able to develop and implement such a united, focussed approach to developing food and drink exports.

The First Commandment of Selling - Know Thy Customer

Anyone who operates in the food chain is regularly told that we need to understand the consumer. Now, propelled by low growth markets, and the rise of technologies which allow personalised consumer contact, the race to lead the way in consumer understanding is becoming increasingly intense.

The consumer as ever holds the key to business success or failure. When, as now, markets are flat, the only way to grow sales is by stealing market share, and the only way to steal market share is to satisfy customers better than the competition.

It is easy to drift away from understanding what it is about a business that makes it appealing. ASDA forgot that its customers went to them because of lower prices, sprang into action by promising that they would be 10% cheaper than anyone else, and have started to recover market share. More controversially, Morrisons who are facing some growth difficulties have been lambasted by its founder Sir Ken Morrison for going too upmarket and forgetting the needs of core customers.
Whilst those two examples are about broad strategy, it is clear that “know thy customer” marketing activity is getting much more precise, and technology allows this to happen.

No longer is it enough to track an individual’s web viewing through “cookies” and flash up a message on the computer screen, or to send a general email to customers announcing events like a sale or special promotion. Now retailers are striving to send tailored communications which closely reflect the interests and previous spending patterns of their customers.

Thus we see Tesco’s Philip Clarke in a speech entitled “Follow the customer or die” a couple of days ago saying they would be using Clubcard, held by some 18million people, to categorise their shoppers into age, number of children, and  wealth categories based on recent purchases. The information is then tailored to suggest to online shoppers what they should buy. The action follows from Tesco’s recent decision to categorise their stores according to neighbourhood, changing the range of goods stocked to match the spending power of the people who shop there.

It is this pursuit of ways to tailor messages to consumers which led to Facebook commanding what some might call a ludicrously high price when it floated on the stock market. Enthusiasts reckoned  that with 100’s of millions of members most of whom used their Face book page every day there had to be a way of translating this vast consumer contact into hard dollars. Of course the practicalities are leading to some having second thoughts now.

So as we are bombarded with messages at every turn, on our computer screens, smartphones, or even in the post, the key issue for any seller is how to balance giving consumers genuine and welcome information versus an unsolicited and irritating intrusion into their everyday lives and personal affairs. There is already some evidence of a backlash and it is likely to grow.

GM Foods - What the Consumer Thinks

The recent protest against Rothamsted’s Genetically Modified wheat trial brought GM foods back under the spotlight, and perhaps the most interesting data to emerge was that published by the IGD which indicated that shopper attitudes to GM foods have hardly changed at all in the last nine years. In 2003, 14% of shoppers either strongly supported or tended to support GM foods versus 36 % who strongly or tended to oppose them. In spring 2012 the equivalent figures were 16% in the support camp and 33% were opposed. In both 2003 and 2012 just over 50% were not sure what to think about GM.

The views at either end of the spectrum have been formed despite shoppers acknowledging that their understanding of GM is sketchy. Just 21% of shoppers claim to have a good or very good knowledge of GM foods, and 8% claim to have a very poor understanding.

The data seems to indicate that scientists still have a long way to go in explaining the benefits of GM, and reassuring consumers about possible risks. They may take some heart from media reporting of the attack on the wheat trials, which was generally measured in tone, highlighting what the scientists aimed to achieve as well as outlining the views of those opposed.  The Guardian for example gave a considered response, saying that pressures on food supply anticipated in future years meant that science should not be ignored, and GM foods could have a part to play.

One set of stakeholders who have remained quiet are the supermarkets, yet their reaction is critical. During the last major uproar about GM they weighed up public opinion, decided that supporting GM could be damaging to their reputations and took the decision not to use GM in any of their own brand products, a stance which continues today. Tesco for example says on their website “Our research shows that UK customers don’t want GM foods in our stores. So naturally we don’t have any own brand GM foods on our shelves”. Sainsbury have categorically stated that they have no GM crops, ingredients, additives or derivatives in their own label. Supermarkets are unlikely to change this stance any time soon, especially in view of incidents such as the uproar which erupted in social media following news that Waitrose were selling a broccoli, which although not GM was grown from seeds purchased from a subsidiary of Monsanto, a company well known for its GM involvement. Supermarkets will only embrace GM once they are sure that those in favour significantly outweigh those against.

What the IGD data combined with supermarket attitudes tells us is that, for GM to become acceptable, the (extremely vocal) 33% who tend to, or strongly oppose GM, will need to soften their views,  and the 50% who are not sure what to think about GM will have to be persuaded of the benefits,

All of which suggest that it will be many years before GM technology is accepted in the UK’s food chain.

Merger with Arla – Milk Link Secures Stronger Future for Farmer Owners

The proposed merger between Milk Link and Arla has been warmly applauded by dairy industry watchers, and rightly so.

Against a background of ever stronger retailer power, increased globalisation by major players with turnovers in the £billions, and a realisation that dependence on commodity markets usually means erratic profits it was becoming more and more obvious that Milk Link, a company with sales of around £700m operating in one country and without the benefit of strong brands, was unlikely to deliver the returns that investors deserve. And so it has proved. For years Milk Link’s price to farmers on a pence per litre basis has consistently languished near the bottom of the league table.
The merger with Arla means that Milk Link is allying itself with strength.  Arla, as has been pointed out is big, innovative and invests heavily in the industry. It is also highly commercial and unafraid to take the tough decisions in order to provide the best returns to its farmers as shown by its announcement last week that it intends to cut its cost base by some 500 million Danish Kroner to ensure it remains competitive.

No doubt there will be tough decisions ahead in the UK as the two businesses are streamlined, eliminating over capacity in production and duplication of ack office services such as administration, finance and IT.

The Arla Milk Link move follows aquisition of Wiseman by German company Mueller and it will force remaining companies in the dairy industry to examine future strategies with some urgency. First Milk will need to do some hard thinking, and even relatively strong Dairy Crest, which is publicly quoted and therefore more in the spotlight will be facing close questioning from investors.

The existence of larger, well capitalised, forward thinking processing companies selling higher added value products should result  in bigger profits. With that should come increased returns to farmer owners, and not before time.

Shoppers Further Batten Down Hatches in Face of Economic Gloom

According to the IGD’s latest research, 59% of shoppers say that their most important concern just now how much they spend. Not surprising given that since 2007 prices have grown by 14% compared with wages at 9%, the spectre of unemployment  looms and every day brings a fresh story of economic woe.

As Giles Quick of Kantar Worldpanel pointed out in a recent presentationto dairy and red meat levy boards, in the search for spending control, shoppers have two options - either buy less or pay less.

It is clear that they are following both routes.

Both IGD and Sainsbury in its recent results presentation confirmed that consumers are indeed buying less. Justin King of Sainsbury told us that shoppers are putting less items in their shopping trolleys, and he and the IGD pointed out that shoppers are making more trips per week in an effort to cut down on total spend by buying only what they really need, and minimising waste as less products are thrown out due to being past sell by dates or starting to shrivel in the fridge. IGD data shows that the percentage of people making 3 or more shopping trips a week has gone up from 39% to 49 % in just two years.

Shoppers try hard to pay less. For the first time since late 2009 sales of supermarket value lines are growing faster than their premium ranges. The amount of product sold on promotion shows no sign of decreasing and 40p in every £ is spent on deals. Supermarkets have recognised this trend to shopping around and responded. ASDA promises to be 10% cheaper than everyone else, Sainsbury have countered this by giving their shoppers a coupon at the till which refunds the price difference if a branded product could be bought more cheaply that day in Tesco or ASDA, and Waitrose have now pledged to match Tesco on all branded items except when these are on promotion.

Pricing at a “round pound” is another tactic being pursued to attract shoppers. ASDA first started the trend towards pricing goods at £1, £2 or £3, and such goods now account for 40% of their sales in categories where the tactic operates. Tesco and Sainsbury are responding by stepping up the number of goods they sell in this way.

Paying less encompasses reductions in fringe shopping costs. The effort to reduce fuel consumption has led to a rise in on line shopping, and buying from the local convenience store. Sainsbury recorded a 20% increase in online grocery sales in the past twelve months, and IGD tell us that 17% of people currently shop for groceries on line.

All in all it’s a story of hard pressed consumers who think that they will be even harder pressed in the coming months. 46% say their future spending will decrease a little or alot compared with just 15% who think their spending will increase a little or alot. And it’s a story of highly competitive retailers changing strategies, and coming up with innovative ways of fighting for every tenth of a point of market share.

Removing a Barrier to Organic Market Growth - Prince of Wales Charitable Foundation Funds Programme to Boost Organic and Low Input Farming Yields

Few people reject the idea of organic products. Indeed according to the Soil Association’s market report 2012, 8 out of 10 households have bought at least one organic product in the last year, and most people have some idea of what organic farming means, with the top reasons for buying organic being  fewer chemicals, cited by 62% of people questioned, natural and unprocessed (57%) and healthier for me and my family (52%).

Nevertheless, according to the Soil Association the market fell by 3.7% in value terms in 2011 and the problem is price.  91% of people questioned say that high price stops them buying more organic food. The problem is made worse by the current difficult economic climate. So much so that the Soil Association concedes that “Prospects for revival in the organic market are inextricably linked to trends on the high street and conditions in the wider economy”.  Even Waitrose, known for its well heeled customers, and an enthusiastic promoter of Duchy Originals organic produce saw sales drop by 2.2% in 2011.

There are two ways to tackle the price issue – either persuade consumers that it is indeed worth paying the higher price for organic produce, or work to reduce the cost of production and pass any savings on to the consumer in the form of lower prices.

It is therefore good news that the Prince of Wales Charitable Foundation is allocating £200,000 to help organic farmers and those striving to farm on a low input system to rely less on expensive bought in materials, step up their yields, and possibly increase nutritional performance whilst holding true to sustainable principles. It is especially good news too that the scheme will be open to conventional farmers many of whom will be keen to reduce reliance on bought in material s such as fertilisers.

As for future growth in the organic market, any work which reduces production costs and therefore the price needed to charge consumers can only be beneficial. Whilst it is important to continue explaining to people why they should buy organic, translating good feelings about this way of production in to actual purchase will always be difficult whilst the current price gaps between conventional and organically produced foods remain at current levels.