The Rise and Rise of the Packed Lunch, and a Chilling Comment from Tesco

In another example of people rapidly changing behaviour to save money, we learn from TNS, the market research company, that 28million of us ate a total of 4.2 billion packed lunches in the last twelve months. That's a growth of 6%, or 226 million more lunches.

Making your own sarnies is definitely a lower cost option, with an average spend per lunch box of £1.30p. Each box contains an average of 3.4 items, being the sandwiches, and a combination of a drink, packet of crisps and a sweet treat. Sometimes a piece of fruit is added, but usually alongside the treat as opposed to a replacement for it.

Packed lunches are now a way of life for those in the workplace, particularly young adults, as well as for schoolchildren. But we are generally quite conservative about what goes into the sandwiches. 69% of us stick to the same two types of filling, and cheese and ham remain the most popular.

There are two other lunch box trends which reflect the drive to cut costs. Alot more leftovers are being used, like pasta, and rice to make the lunch more filling. And there is less of a drive to include healthy products, which tend to be more expensive and less substantial.

TNS does not say this but the fact that so many more packed lunches were eaten during the coldest winter for decades when most bodies would be crying out for warm nourishment, highlights the efforts people will make to balance budgets.

TESCO

Much has been written about Tesco's annual results with most commentators rightly finding much to admire, despite the business losing market share. However, analysts will soon knock the company if share loss continues, and Tesco itself will be smarting from being second best to competitors. The following statement from Sir Terry Leahy should produce a chill in the heart of every Tesco supplier:-

"In the coming year we expect to trade the business harder.....investing more in cutting prices, sharpening promotions, and putting even more affordable products on our shelves".

So the question is who will pay for the price reductions, and who is monitoring that Tesco trades fairly with all its suppliers as it delivers the promised price cuts. Another reason to support appointment of a supermarket watchdog with teeth.

Internet Grocery Shopping - How Big Will it Get?

This week saw another salvo in the internet grocery shopping war with Waitrose scrapping its delivery fee on orders over £50. MD of Waitrose Mark Price, interviewed on Sky News, reckons that online grocery shopping it could be worth £13bn, or 10% of food bought, and he is planning to grow Waitrose’s online sales from a current £70m to £300m in the next 4 years.

Mr. Price is not alone in planning a big future for online. Sainsbury’s delivers 90,000 online orders per week , has seen sales grow by 40% year on year, and has marked the area out as a development priority. Tesco in their 2008 annual report said sales had grown by 31%. ASDA recently revamped their website. Ocado, who are an online venture only, part owned by Waitrose, have committed to matching Tesco on the price of its prepacked products, meaning it often undercuts Waitrose in store prices. The bullish views about the future are supported by the IGD, who estimate that the market was worth £3.5bn in 2008 and will double in size to £7.1bn by 2013.

So what do we know about online grocery shopping now, and why might it grow?

At £3.5bn the market is still small, despite being available for at least 8 years. According to TNS the market research company, speaking at a recent Meat Outlook conference, online sales account for 2% of Tesco’s till roll, about 0.6% of ASDA’s, and about 0.5% of Sainsbury and Ocado.

TNS also tells us that the heaviest on line shoppers are those with children 0-4 years old, 6.5% of this age group shop online. The lightest shoppers are retirees, of whom just over 1% shop online. High earners, of whom 7% shop online, are over 4 times more likely to shop this way than lower income groups.

Again, these are small numbers, so in an age of increasing technological savvy, the presence in other sectors of tried and tested models such as Amazon, and the faster times that broadband presents, what might be stopping people from using the internet to grocery shop?

Well, its got a bit of a bad reputation for reliability of delivery service, and quality of products delivered. Consumer magazine “Which” did a small but widely reported survey at the end of 2007 which said that online groceries arrived with very short shelf lives, less than those to be found in store. More recently, Mumsnet, the social site for mothers with young children, gives real life examples of the issues, showing a thread from last month where mums talked about banana yoghurts being substituted for bananas, wilting fruit and veg, and deliveries not turning up when promised. These mums concluded that the quality of experience varied a lot not just between different supermarkets, but from different stores within the same supermarket.


At the other end of the scale, IGD did some research with over 60’s and found that they would use the internet more if the sites were easier to navigate around, security could be guaranteed, quality would be consistent, prices were equal to those in store, delivery charges reduced, and the sites made easier to navigate around.

On the subject of growth potential, it is clear that supermarkets are working to address the issues, particularly making the sites more user friendly. Tesco’s idea of drawing attention to a cheaper version of what might first be selected is a great one, and far easier than walking up and down the shelves looking for the best buy. Sainsbury’s offers hundreds of recipes and allows you to buy all the necessary ingredients with just a click. The supermarkets are also making sure that there is no price disadvantage to shopping on line.

One key challenge for them all is to communicate more clearly and consistently the benefits of online shopping, particularly to key target groups such as mothers who must find it a struggle to organise all the paraphernalia needed to go shopping with a young child, and to older groups who may welcome the benefits such as having heavy shopping delivered to the door. Interestingly many of the Mumsnet mums were so committed to the benefits of online that they were prepared to shop around until they found a store they could rely on. But not everybody will be prepared to do this, so the other key challenge for supermarkets is to ensure total consistency, making every online shopping experience a good one.

Solve both of these and online could easily achieve 10% of all food buying.

Consumers and the Credit Crunch - Latest Views on Food Buying Behaviour

In the words of Justin King of Sainsbury, speaking during a business performance update last week - “the consumer is in a bad place just now”. Which is not really surprising, given the amount of depressing economic news.

Nevertheless, both Sainsbury and Morrisons, who also gave a business update last week, feel that food is one of the last things where consumers are prepared to trade down. A view echoed by the IGD (Institute of Grocery Distribution) who say their research indicates that “Economising is not the same as down trading”. Sainsbury’s “Basics” range is indeed up 60% year on year, but it still accounts for only 3% of total sales. Sales of their premium “Taste the Difference” range are “off the pace”, which is corporate speak for falling, but the range is still 2.5x as big as Basics, and the sales decline is attributed to a drop in the market for ready meals, rather than a flight from quality. Morrisons “The Best” premium range is up by 5.3%
So there is still a search for good food, and a Times Populus survey (26th March) put quality as equal to value for money when it comes to choosing a store. But its not quality at any price. Instead, people are far pickier about what they buy and energetic about finding the best deals.

The search for good deals is leading to much shopping around. The days of convenient one stop shopping have given way to two and even three stop shopping and both Morrisons and Sainsbury claim an increase in numbers of shoppers in their stores. What this suggests is that the traditional way of categorising stores is dead. No longer can we say Sainsbury and Waitrose upmarket, ASDA and Morrisons downmarket, and Tesco in the middle. Its much more individual than that now with each shopper asking whether the quality /value equation at a particular store at a particular time is right for them. Looking at the crystal ball I’d say that the next big strategic challenge from supermarkets will be how to build loyalty. Meanwhile value offers will become increasingly innovative.

Once in the store, what the shopper buys is changing. The aforementioned ready meals market is plummeting, and TNS (Taylor Nelson Sofres) the market research company tells us that frozen foods are growing by over 9% year on year, enjoying a change in status from poor relation to a wise choice due to cheaper prices and far less waste.

The IGD as well as the supermarkets tell us that there’s a lot more cooking from scratch going on, apparently herbs and fresh pasta are flying off the shelves in Morrisons. And there is a return to families eating together.

There are mixed views about whether ethical purchasing is taking a back seat. The decline in the organic market has been reported to death (sales down 15% in the last three months, bread down 31%, vegetables down 10% according to TNS), but as is being acknowledged even by the Soil Association, the issue here is that consumers can’t get their heads around why organics in general are worth a premium. Animal welfare issues though remain important to consumers. Sainsbury stressed again last week that this is something shoppers search for, and IGD research confirms it. The question of course is where this welcome concern about animal welfare will go next and there are reports that Hugh Fearnley Whittingstall is turning his attention to dairy cattle.

So in summary, the recession is leading to changes in what and how shoppers buy. They are not prepared though to sacrifice quality, and will shop around to get it at the right price. Equally they are prepared to support ethical products where they clearly understand what it is that they are paying for.

The Changing Shape of Meat Eating

The British Pig Executive (BPEX) has published data about meat consumption comparing the year ending 25th January 2009 with the previous 12 months, and the figures give an interesting insight into how consumers are coping with the twin challenges of rising prices and recessionary nervousness.

Faced with some whopping price rises on red meat*, and a conscience led move towards buying more welfare friendly chicken, I thought that consumers would just cut back on the amount of meat, fish and poultry they bought. In fact total consumption of these foods has remained the same as last year at just under 3 million tonnes.

There are though quite big changes in the types of protein bought.

Up are sales of burgers (+6%), sausages (+3%), frozen fish (+4%), pastry based meats (+2%) and fresh fish (+1%).

Down are sales of canned meats (-5%), lamb (-4%), beef (-3%), pork (-2%), and chilled ready meals (-5%).

Poultry is still by far the biggest meat bought, and sales are level with last year.

Within the red meat sector there has been a well documented trend towards buying cheaper cuts. Lamb mince has seen the biggest rise in sales followed by pork loin, stewing lamb, beef mince and stewing beef. The biggest falls have been in roasting cuts of lamb, beef and pork shoulder, and also in beef steaks. What seems to be happening is that people are buying red meat less often, and when they do buy, they buy less at any one time.

The trends make sense. Consumers are managing their budgets carefully. They have turned to meats such as bacon, sausages, and burgers which are not just cheaper but allow for stricter portion control, and so less waste. They are prepared to spend time at home now, cooking those cheaper cuts, rather than go out and pay restaurant prices. The trend towards frozen foods is being seen generally, not just in fish, again because of price. And the move away from ready meals reflects unwillingness to pay high prices, but also the rise in home cooking.

Perhaps the most surprising thing is that these shifts in consumer behaviour are large, and have happened very quickly. They can have a dramatic effect on profitability, for example in red meat where demand for expensive cuts has plummeted and best cuts are either being minced or sold off at vastly reduced prices. They forcibly illustrate the need to keep a very close eye on trends, and to be prepared to change tack to meet consumer needs.

* Notes on price rises

The data shows that in the last year prices per kilo have risen as follows: beef +11%, lamb +9%, pork +10%, bacon +11%, sausages +7% and sliced meats +8%. These rises are averages and reflect the trend to cheaper cuts. Like for like comparisons on each cut will show much higher increases. Price increases are accelerating, for example in the last 12 weeks, beef has gone up by 16%, and lamb by 11%, compared with the same period a year ago. Further changes in the patterns of consumption are therefore likely.

Essential Waitrose - All a Bit Confusing

To Waitrose, keen to see what the new “essential Waitrose” range is all about.

Billed by the Waitrose press office as “designed to make shopping for staple groceries easier for shoppers”, I found it all rather confusing.
Perhaps the problem was expectation. I had expected to find a new range, displayed alongside existing products, but with a cheaper price and an easy to understand reason about why it is cheaper. Similar to Tesco’s Value, Sainsbury’s Basic and ASDA’s Smartprice.

Not so. Much of the new range is being sold at the same price as existing products. This is true of meat, where the new range and the old were being sold side by side, and fruit. What makes it more difficult to understand is a sign above the meat and fruit shelves saying “all the quality you would expect from Waitrose at prices you wouldn’t.” Which means the price conscious shopper will probably feel put out because prices have not been reduced, and the quality conscious consumer fret that the product is not as good as it used to be.

And then there is that word “essential”. On shelf today were blackberries from Mexico, blueberries from Chile and raspberries from Morocco. Hardly essentials. Essential branding on the meat shelf is being used on rump and sirloin steak, not just on cheaper cuts like mince and braising beef. And I see from the press photo that there will be an essential farfalle. It’s a pasta apparently, but to most people probably not an essential purchase.

On a less critical note, it is easy to see an opening for a bog standard yoghurt, because at the moment all you can buy are speciality flavours and ranges like Seriously Fruity or Probiotics. Also, an offering of free range eggs that do not come from a specific breed like the currently sold Columbian Blacktail could be cheaper, and understandably so. The milk, jam, and biscuits are not yet on shelf so we do not know what sort of products they will be.

Waitrose is a great business, to be wholeheartedly admired for its commitment to quality, and its exemplary animal welfare standards and reputation for fair dealings with its farmers. Clearly it does need to tune its strategy, along with every other retail operator, to manage through the current economic challenges.

But to work, an initiative needs to have a clear and simple message easily picked up by consumers. I think the issue Waitrose faces is that they tried to combine two elements – a pack design change with the introduction of cheaper products. And its hard enough to communicate one new message to shoppers, let alone two.

I really hope it’s just me who finds the offer confusing.

Diversification Trends - DEFRA Survey Shows More Farms Involved But Income Down

DEFRA has just published its annual analysis of farmer diversification activities in England, and the income generated from them. (Diversification being defined as “The entrepreneurial use of farm resources for a non agricultural purpose for commercial gain.” )
The survey is peppered with statistics and makes for dry reading. But for those happy to delve into the detail there are some useful insights to be had.

Income from diversification fell sharply to £400m in the year to April 2008, compared with £430m in the year to April 2007, and dropped from 21% of total income to 15%. The fall is not due to less farms being involved in diversification. Indeed there were 29,600 diversified farms in 07/08, compared with 28,700 in 06/07. Rather, the drop is due to a fall in the amount of income generated per farm. In 06/07 the average income per farm was £14,500 compared with £13,700 in 07/08.
The survey figures are not sufficiently robust to draw hard and fast conclusions about the reasons for the drop, but anyone considering diversification might want to think about the following factors, which boil down to the size of the market opportunity, competitive conditions, and costs to operate.
For example, is there now so much competition that diversifiers are having to reduce prices to get business. Or, are the new businesses being established very small because most of the market has been mopped up by existing players. Or, have costs now risen sharply, but competitive conditions mean that prices cannot be put up to offset them, and so margins are squeezed.
Another factor is that the drop in diversified income coincided with a rise in income from core farming excluding subsidies, so it could be be that diversification loses focus once financial circumstances improve. This is in itself dangerous as business once lost will be difficult to recapture.

The survey also compares the number of new and discontinued enterprises, and shows that the number of new enterprises exceeded discontinued ones in all areas except food retailing and processing. 3,100 farms started diversification in 07/08, compared with 2,200 discontinuing. The biggest jump was in sport and recreation, and tourist accommodation and catering (although the survey says the sample size for tourism is small, and may not be totally accurate). By contrast, 1,100 food processing and retailing enterprises were discontinued, compared with 800 start ups.

Letting of farm buildings accounts for just over half of all diversification enterprises, and 68% of diversified income, and has the highest profit margin.
Letting buildings gives a margin of 83%, compared with 62% for sport/recreation activity, 58% for tourist enterprises, and 25% for processing/retailing. It is perhaps no wonder that letting of buildings is so attractive given the high margins and low hassle factor.
The average enterprise incomes per farm are as follows:
Letting of buildings = £13,000
Processing/retailing
of farm produce = £9,800
Sport/recreation = £4,700
Tourism = £10,300
These look like healthy returns, but they are average figures which disguise the fact that most diversified enterprises are small. 56% of all enterprises have an output (turnover) of less than £10,000 and 15% have an output of less than £1,000.

It is often thought that small farms are more likely to diversify than larger ones, but the opposite is true, with 66% of the very largest engaged in diversification compared with 42% of the smallest. Less surprising perhaps is the fact that the largest make considerably bigger profits than the smallest, averaging £25,100 per farm versus £10,900 for the smallest.

Reading through the survey results reminds us that diversification requires thorough research about the size and profitability of a market opportunity before proceeding, and constant attention to consumer trends and competitive activities once up and running. It also reminds us that most diversifications are small.

But encouragingly, the survey shows that just 2% of diversified businesses made a loss in 07/08, which indicates that diversification can be a very useful addition to farm income.

Catering Trade and the Credit Crunch - Value Winning Here Too

Conventional wisdom says that the catering trade performs badly during recession, but just like every other sector this trade is seeing its winners and losers, and the broad message is that those who offer value for money are performing well.

Value for money does not mean cheap. Even the most expensive restaurant will be seen as good value provided food, service, bar bill and general “feel” justify the cost at the end of the meal.

Take Le Gavroche, one of London’s top eateries. According to legendary owner Albert Roux, the restaurant is a full as it has ever been. What has happened though is that instead of ordering wine costing hundreds and in some cases thousands of pounds, customers are trading down to more sensibly priced tipples, a pattern seen in many other up market restaurants, according to a piece in Bloomberg news published last week. The same piece interviewed several other expensive restaurant owners. Most are reporting that business is generally holding up, but all are heavily focussed on service and value for money, as well as keeping a very close eye on costs.

On the other hand, some celebrity chef ventures have not been able to keep going. Anthony Worrall Thompson, has just closed 4 of his 6 restaurants, Aldo Zilli has shut his Brighton café, Raymond Blanc has shut his Manchester restaurant, and Tom Aikens has gone bankrupt, although managed to reopen elsewhere, allegedly leaving a trail of unpaid suppliers in his wake. Even Gordon Ramsey has a reputed £10m overdraft, although he claims overall business is good.

Presumably all these names will be reviewing exactly what they are offering consumers to tempt them to spend when times are so difficult, and why in so many cases their business models have not worked as planned.

But moving out of celebrity chef territory, and into a world more familiar to the average diner, there are sectors of the catering trade performing well.

Fast food businesses are motoring. Domino’s Pizza has grown profits by almost a quarter, they plan to open 50 restaurants this year, and will be creating 1500 new roles. KFC is undergoing a £150million expansion, opening 250 new outlets and creating 9000 new jobs, Subway is adding 600 new stores and 7000 new staff. McDonalds added 2 million new customers a month in 2008, grew sales in the “low double digit” range, and is opening 20 new restaurants. What characterises all these firms is that they offer predictability in taste and price, and are seen as value for money.

Fast food’s performance contrasts alarmingly with what is going on in pubs. According to the British Beer and Pub Association 39 pubs are closing every week, due to a combination of tax hikes on beer prices, the smoking ban, and the recession. But here again, value for money wins out. Wetherspoons, with its focus on cheap food and beer, has grown sales by 2.6% in the quarter to 18th January 2009.

Mid market, mid priced, and middling quality outlets are also struggling. Its these outlets who are promoting heavily with offers more usually associated with Tesco like buy one meal get one free, or “eat early eat cheaper” and set price lunch deals. There has also apparently been a big rise in on line restaurant vouchers.

So in the catering trade, as in every other sector, its value for money which is winning out. If food or drinks are ludicrously priced, with average quality, tiny portions, and surly service, then customers will vote with their wallets, and take advantage of the “Eat in for a tenner” type offers promoted by the likes of Marks and Spencer.

Marcus Wareing who operates from the Berkeley Hotel in London’s Mayfair, summed it up well “The slowdown has made me more aware – conscious of waste, making sure margins are right, seeing what we can do to bring customers in. We are not offering lots of cheaper menus…..but we are ensuring that the customer receives value for money. This slowdown will shake up the industry. In some ways it is a good thing as it makes us all think more.” Wise words.