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.

Canny Consumers - Cutting Food Costs Without Cutting Quality or Amount Consumed

Peter Marks of the Coop, trying to explain a 4.6% reduction his first half year food sales, said that “People are spending less on food – that’s a first.”  Kantar Worldpanel confirms the cutback, explaining that in the last three months grocery sales were up 3.8% in value, compared with inflation up 5.2%.

But behind the scary sound bites lies a story of canny consumers shopping and cooking more wisely, cutting expenditure but not sacrificing standards.

Take waste. Consumers recognise that waste is a big issue. In a recent Institute of Grocery Distribution survey, waste was cited by consumers as their major environmental concern. Whilst they raged against food companies for not selling smaller packs, and using cut price promotions to encourage buying too much, consumers acknowledged that they themselves cause much waste through lack of planning, and not paying enough attention to using leftovers.

And there is considerable scope to reduce waste. According to WRAP, in 2009 UK households generated £12 billion of avoidable food and drink waste, or about £480 per year for the average household. To put into context, DEFRA estimates that households spend around £125 billion each year on food and drink, so if WRAP figures are anything like accurate we waste about 10% of what we buy.

As to what is being wasted, WRAP estimates that £6.7bn goes on food and drink thrown away untouched or started but not finished. Examples are fresh fruit and vegetables (£1.4bn), bread and bakery products (£1.1bn), milk (£280m), yoghurts past their sell by date, and unused slices of bacon. A further £4.8bn is wasted on food and drink where too much has been prepared, cooked or served.

Still on the waste theme, there is evidence of shoppers spending less merely by refusing to shop impulsively and throw something into the trolley just because they like the idea.

Shopping at discounters is seen another way of spending less, and according to Kantar sales of ALDI and LIDL continue to grow at a clip, the former recording a growth of 24% in the last three months compared with the previous year. And sensible use of promotional offers is another well tried method of reducing spend.

Interestingly though, as Kantar points out, consumers’ food choices are not only about price. In the last 3 months sales of budget own label lines grew by just 2%, compared with an 8% growth in sales of premium own label products. So premium foods are by no means dead, but they do have to offer that elusive combination of quality and value to justify their price.

Shoppers have the scope to reduce spend and in the current economic climate will continue to do so. We can expect more years of cutbacks, especially on what could be described as poor value, over processed or not strictly necessary.

By contrast, spend on staples should continue to hold up. Despite the pressures, sales of beef, pork, bacon, sausages, milk and cheese have all shown volume growth in the last year. Consumers clearly see them as necessary, and, critically, fairly priced.

Red Meat Consumption Update - Beef and Pork Steady, Lamb Plummets

Shoppers bought 19% less lamb in the 12 months to mid July 2011 than they did in the previous year. (Source: Kantar Worldpanel)

By contrast, volume sales of beef are up 1%, pork and sausages up 2%, sliced cooked meats up 3%, and bacon up 5%. Overall, purchases of red meat have remained level with last year, indicating perhaps that lamb buyers have migrated to alternative red meat options.

This is perhaps not surprising given that the average price of a kilo of pork is £4.71p, and beef £6.12p, both around what they were last year. The price of a kilo of lamb though has increased by 14%, and now stands at £7.94p, the knock on effect of higher prices being paid to farmers for their live lambs.

Consumers are walking away, put off by having to pay around £5 for a couple of chops, or £13 for a small leg of lamb. Only 22% of people buy lamb every 4 weeks compared with 37% buying pork and 55% buying beef, and when they do buy they buy less – 1kg of lamb compared with 1.5kg for pork, and 1.4kg for beef.

The figures should make those advocating higher retail prices for beef and pork pause for thought. So far, despite the difficult economic climate, sales of these meats have held up well. The question is whether they are sufficiently special to persuade people to buy despite price hikes. Or would demand just fall as it has with lamb? And will a fall in demand lead to oversupply of pigs and cattle, and reduce the price paid to farmers anyway?

Many factors influence prices paid to farmers, and it is difficult to find a clear link between retail prices and those paid at the farm gate. The lamb experience shows that domestic eating of lamb can fall dramatically yet prices paid for live lambs stay buoyant due to external factors like a strong euro, less imports and shrinking breeding flocks. By contrast, when farm gate prices for beef fell sharply last year due mostly to high quantities of dairy beef cattle, retail prices hardly moved at all, and consumption stayed about the same.

What is clear though is that a push too far on price will probably result in big falls in the amount of meat eaten, and  that the fundamentals of supply and demand tend to hold true in the long term. So, if farmgate prices are to remain higher following an increase in retail price in the home market, additional outlets for British cattle and pigs need to be found urgently. Not an easy task.

Buying British - Catering Companies Letting the Side Down Badly

Unlike supermarkets, catering companies are not obliged to tell the public where the food they sell every year actually comes from. So you and your family could be eating anything from anywhere, and produced to heaven knows what standards.

Quite apart from the standards question, it is depressing to see that so many catering companies, even the big ones, do not wholeheartedly support British farmers and growers.

Trawling through profiles of some of the larger businesses we find that:

Compass Group, the biggest catering suppliers in the world, use 100% British for their fresh beef, milk, and eggs. All their root veg comes from Britain “where seasonality and quality allow”. They do not claim that their chicken is British, but use the words “British Farm Assured”, which may mean it is produced in Britain. We do not know where they get their pork, bacon and ham from, or their dairy products apart from milk, or their lamb.

McDonalds’ goes for dual sourcing, buying milk (all organic), eggs, (all free range), beef, pork and oats from both Ireland and Britain, probably to benefit from the effects of currency exchange.  100 tonnes of the 440 tonnes of apples they use in their fruit bags are British. We do not know where their chicken comes from.

Wetherspoons the pub chain have 100% British beef in their burgers. All the pork in their sausages is British, as are their potatoes. Their eggs (all free range) “carry the British Lion quality mark”. Again, it is not clear whether the eggs are produced in Britain.

 About 40% of KFC’s chicken is imported, with the rest coming from Britain. They have just put the Red Tractor logo on their on the bone chicken.

Gregg’s, noted for their pies and sausage rolls, provide no details of where their food is produced but have committed to issuing an ethical sourcing policy this year.

Subway, now said to be the biggest fast food chain in the world, also has nothing about sourcing in its literature, but is reported to get their turkey from Brazil, and their chicken from 5 different countries – Thailand, plus 4 in South America.

The most transparent company found is Pret a Manger, the £350million turnover purveyor of extremely high class sandwiches. On their website you can find details of where every ingredient they source comes from.

Their chicken is UK sourced, to higher welfare standards, as is their ham, bacon, organic milk, and free range eggs “if we can get them”. Their beef though comes from southern Ireland, as does their cheddar, and their butter from France!! But though it is possible to cavil at a company which for some reason won’t buy British beef, cheese or butter, at least we know a fair bit about what we are eating.

So some caterers make more of an effort than others, but clearly there is a lack of commitment by catering companies to buy British, and it is disappointing. The market for food and soft drinks eaten out is worth £43 billion. Supply to catering companies would be a welcome boost to demand at a time when consumers are cutting back on the amount of food they buy from the shops.

Supermarkets' Own Brands - An Increasingly Important Battleground

For the first time in a long time supermarkets are struggling to grow food sales. Food inflation of around 5%  plus economic uncertainty equals shoppers trading down, seeking promotions, cutting waste and sticking to a budget. All of which gives a headache to supermarket bosses.

They of course will be twisting their supplier thumbscrews ever tighter, but ultimately there is only so far that cost cutting will take a business. At some stage it needs to grow. And here is where a sound own brand strategy can make a difference.

Own brand is possibly the best weapon in a supermarket’s armoury, if it gets it right.

It is supremely flexible. The name can be applied to thousands of products at various price ranges. Tesco Finest operates at the top end, and Tesco Value at the bottom. Sainsbury has Taste the Difference and Basics,  Asda has Extra Special, Chosen by You and Smart Price. Waitrose Essentials distinguishes their standard range from more expensive variants.

Done well own brands can enhance a retailers reputation, and provide a point of difference from competitors. Marks and Spencer has built a business on great quality, highly innovative food products.

Ultimately though, the reason why supermarkets make such an effort on own brands is that they are  more profitable than national brands, because they deliver a higher margin.

A good own brand range is especially important just now. Lower margin national brands are promoting heavily, drawing sales from own label. And, supermarkets are desperate to provide reasons for people to choose their store rather than a competitor’s, so that they get the highest possible share of a shrinking market.

So, we hear that Morrisons, which has 45% of its sales in own brand, is planning its first own label revamp for four years. Sainsbury is relaunching its 6500 line mid tier range, renaming it “By Sainsbury”.  Apparently around 25% of products across Sainsbury are new each year, so that customers don’t get bored and go elsewhere.

Waitrose is also working on improving its own label offer.

Reportedly Tesco is trying something completely different, registering a number of different brand names, but not displaying on the packaging that the brands in question belong to them.  The products will be premium priced. Chokablok ice cream for example which is said to be one of the new Tesco brands, sells at the same price as Haagen Daz.

The consistent theme through all these upgrades is an emphasis on quality. Supermarkets realise that in order for their own label ranges to succeed competitively they have to offer a combination of quality, price, and something a bit out of the ordinary.

So supermarkets’ own brands are more profitable and a potential differentiator. There is also a new thread emerging. Shopping online has been earmarked as a growth area,  and retailer labels can play a part in enhancing a supermarket’s on line shopping offer. The IGD points out that the web does not suffer the same space constraints as a shop, and so the full range of own label can be highlighted, reinforcing a stores reputation in whatever area they choose be it for innovation, price or quality, or ethical and environmental standards.

Renewed Growth of Discount Grocers Prompts Return Visit to Aldi

Discount grocers sales are booming again, with growth levels not seen since the recession of 2008. Aldi is up 21% in the last three months and Lidl not far behind at plus 16%. Their combined market share has reached an all time high of 6.1%. Kantar Worldpanel who monitor this data, say that unlike 2008, the growth is coming mostly from existing customers buying more, rather than new shoppers.
So I went back to Aldi after an absence of three years to look again at what it is that generates such customer loyalty.

Well, the main attraction remains rock bottom prices. At Aldi you can buy a kilo of British beef mince for £2.40 ( at least £4 everywhere else unless very high fat content), a kilo of Jersey Royals for 49p (Tesco’s best price for new potatoes is 69p), and nectarines for less than 18p each compared with 25p at Tesco.

Packaged goods prices are low too, certainly in comparison to the leading brands, with coffee at £1.69p for 100g compared with Nescafe at £2.40p, and jaffa cakes at just over 3p each versus McVities at 8p. Interestingly their jaffa cakes contained 11% orange juice compared with 8% for McVities.

Aldi seems to have improved the feel of shopping in its stores. There are nods to food trends with free range chicken and eggs on sale, and they stock alot of British food. The store was clean and bright and the staff cheerful and helpful.

Aldi’s pursuit of low prices has downsides. Fresh food has to be carefully selected – the strawberries were mouldy today and there was no date code on the potatoes. It stocks few brands you will have heard of, and the range remains limited to essentials.  Quality is not always great. The jaffa cakes were entirely acceptable, but the coffee tasteless.

There are irritations too. It is annoying to have to find a £1 coin to unlock the trolley, but the system ensures no one has to be paid to fetch trolleys back to the store. There are no baskets for doing a small shop, because that would require additional investment. There is no bag packing at the till because that would slow the cashier down. Instead the system requires the shopper to unload the trolley at one end of the belt, fling everything back into the trolley at the other end, and move to a different area to pack.

But having said all that, regular shoppers will have adapted to the system. They will know which products deliver the quality they want and which do not. We know that many people are budgeting more tightly than before, and thinking carefully about how much they spend and where.

Aldi seems to be offering what its loyal shoppers want.