If you’re interested in the global agrifood industry, then, it’s useful to keep tabs on what Nestlé is up to! At $93bn (2019), its annual sales make it far and away the biggest food & drink company in the world and its market capitalisation (value in the eyes of the market) is close to $300bn. Number 2 and far behind in the global league table is PepsiCo, with sales of $67bn and market cap. of $200bn.
Nestlé is on the news recently! In late-2020, the company acquired Freshly a US subscription-based fresh-prepared meal delivery service for $1bn (it had taken a minor share in 2017), and last week they snapped up UK recipe kit business Simply Cook, a similar business. Nestlé is on a mission!, as it continues to grow rapidly its home delivery business in the wake of Covid era.
We’ve mentioned that “Big Food” took a good bashing during the 2015-2019 period, only seeing sales recover oddly enough during the pandemic as “locked-in” consumers rushed to buy previously out of fashion comfort foods with trusted brand names. Kraft Heinz is a classic case in point. Kraft & Heinz were put together by majority owners 3G Capital and Berkshire Hathaway in 2015. Analysts liked the zero-based budgeting approach and focus on slashing costs but its products looked increasingly old-fashioned. Its current share price is one-third of the high point in early-2017.
How has Nestlé performed during the torrid 2015-20 period for “Big Food”? Better than most! In 2018, USA investor activists targeted Nestlé intent on waking up the sleeping Swiss giant! Well aware of the slow rate of sales growth in developed economy fmcg markets, Nestlé’s Board acted out of both previous practice and character in hiring a new CEO who (a) was not from within the company and (b) who had a non-food and non-fmcg background. Since early-2017 to late-2020, Nestlé’s share price has risen by around 40%. Its focus on “at home” products, rather than food service has been helpful during the pandemic.
Under Mark Schneider’s (the new CEO) leadership, the company has taken a middle ground of setting more challenging profit margin targets and undertaking needed reorganisation within the company. He re-established the need to grow the “top line”, i.e. sales. Organic sales growth at Nestlé had fallen from 7.5% p.a. in 2011 to 2.4% in 2017, slowed down by food price deflation, changing middle class diets in Europe and North America, and sluggish growth in emerging markets where young consumers are spending more money on digital products than on confectionery! Initiatives taken over the past 2 years include:
Increasing speed to market for new products. Nestlé was looking slow-footed relative to startup brands who had strong social media and e-commerce skills. Schneider’s view was that taking 3 years to launch a new car was acceptable but not for a chocolate bar! Garden Gourmet plant-based burgers were launched in Europe in 2019 and the improved “Sensational” burger in 2020. Nestlé Purina offered an allergy-busting cat food. As mentioned in last week’s “NPD and more” nugget, a R&D Accelerator has been established for dairy and plant-based dairy products;
Transformative deals were negotiated such as the licensing of Starbucks coffee for sale in any retail outlet apart from a Starbucks café;
An aggressive acquisition strategy, such as adding businesses to its nutritional health division and, in late-2020, paying $1.5bn for startup Freshly, an American home delivered healthy meal business, and recently acquiring SimplyCook and a majority stake at Mindful Chef in the UK. Underperforming and/or slow growing businesses have been sold – such as its American ice cream brands in late-2019, and selling the majority portion of its European packaged meat business to a Spanish specialist meat company;
Increasing its share of premium products in the overall Nestlé portfolio (e.g. the “super snobbish” “flat white over ice” Nespresso pods) and pinned its flag to the mast of plant-based foods as a driver of future sales growth;
Making a substantial statement about its concerns and actions on sustainability issues – apportioning a budget of $3.5bn to combat climate change, including $1.3bn to work with farmers on regenerative agriculture, pledging to make all packaging recyclable or reusable by 2025 (Nespresso pods by 2022);
Rejigging its China portfolio (next to the USA, China is Nestlé’s 2nd biggest market) by concentrating on infant nutrition, coffee, confectionery and pet care and selling its canned food business (Yinlu).
“Big Food” has taken a bashing but Big doesn’t have to be Bad. Scale brings access to huge resources and, when guided by astute senior management, ensures a 150 year old company’s products and services meet the needs and wants of 21st Century consumers.
Irritating although it may be for the meat, egg and dairy industries, it’s Veganuary this month and 500,000 people worldwide have signed up to eat only plant-based foods for the month of January. Both Veguanary and the notion of adding more plant-based foods to the diet are gaining support around the globe, particularly with higher income consumers. However, it’s not clear which foods they are replacing, if any. Demand for meat remains buoyant!
One-quarter of people signing up are in the UK where most of the major supermarkets are running Veganuary vegan specials. Veganuary was established in 2014 by Mathew Glover and Jane Land and “the movement” has gone from strength to strength. Their focus is on Latin America this year where 150,000 have signed up.
Serial vegan entrepreneur Glover has just launched Vegan Fried Chick*n Company VFC and aims to crank up sales volumes of his faux chicken such that it can outperform KFC on price. The product is wheat-based, i.e. seems similar to seitan, the meat substitute much used in history in Japan and China, which is essentially high protein gluten and has a chewy mouth-feel and pulls apart like chicken. So, it’s not gluten-free (it’s solid gluten!), but it is soy- and nut-free.
VFC products are currently only available online in the UK but are scheduled to be part of the menu in as many of the 3,600 fried chicken outlets as will take them. The company is proudly activists with its mission to be “an act of positive rebellion against a system that has brought us climate change, environmental destruction, factory farming, and slaughterhouses. The way we’ll dismantle this destructive system is with great food – it’s our sit-down protest”!
Veganuary’s founder, Glover, is not to be taken lightly – he’s established Veg Capital in 2020 as a fund specifically focused on the removal of animals from the food chain and has taken early investments in Mighty Pea (yellow split pea m’lk) and vegan One Planet Pizza. Looking for vegan “winners”, he’ll be spoilt for choice – plant-based products mimicking beef burgers stole the show initially. Now, there’s a host of start-ups focusing on vegan chicken, egg, pork, and fermented plant-based proteins.
Big name companies are asking their employees to sign up to Veganuary – Nestlé, Mars, Quorn (no surprise!), PWC, EY and Bloomberg – the movement has traction. A quote by Nestlé’s Marco Settembri, CEO of Nestlé Zone Europe, Middle East and North Africa, reveals how this is more than a business opportunity for them, as he encourages his workers to follow: “As someone who stepped up to the Veganuary challenge this year, I am happy to be part of this movement as it grows across Europe and beyond. For me, now, behind Veganuary there’s a bigger picture – and one which induces long-term action. It’s about really feeling the need of the consumer. That is why, this year, I am promoting Veganuary across many of our categories and initiatives. After all, a well-planned plant-based diet can meet nutritional needs during all stages of life and there are the environmental benefits, too. This year, I am passing the baton and encouraging all Nestlé employees to participate in Veganuary and sign-up to the challenge. We will inspire them with delicious recipes from our Garden Gourmet range, vegan options in the staff restaurant, tips from experts, and dietary advice.”
What’s driving consumer interest in plant-based products? There’s 5 things:
For some, particularly younger consumers and more women than men, they don’t like the idea of killing animals to eat – that could be 20% of the market by 2030;
For some, particularly older consumers, it’s about their own health – plants are perceived to be intrinsically healthier than most meat (fish is the exception);
The fastest growing group includes those who are concerned about the environment, climate-change, etc. and like the notion of climate-friendly diets;
Some are drawn to the products because they’re attractively packaged;
And, then, for some and for some products, they’re very tasty!
Should meat businesses be worried about the frenzy of plant-based NPD and the media fascination about “going vegan”? No and for two reasons: plant-based meat is a market opportunity for “real meat” companies – many of them have jumped on the bandwagon developing their own faux meat products and brands, and/or taken a share in a startup plant-based firm; in Western higher income economies, aggregate meat consumption per capita remains relatively stable – there’s no clear downward trend. Beef consumption is slipping in Europe, but not so in the USA where meat overall continues its onwards march – over 100kg per capita and that’s without fish and seafood! Chicken consumption continues to edge up in most countries. It suggests to us that the biggest influence over movements in meat consumption is relative price not increasing availability of plant-based protein alternatives. In the USA, in particular, consumers just seem to be eating more of everything and that’s reflected in the frightening obesity statistics (and we’re hardly sylph-like in UK, Australia, etc.).
What could “real meat” businesses do better in the face of this new plant-based competition? For a start, they could improve packaging and shout out loud on-pack about the nutritional benefits of their natural products. FMCG “Big Food” does exactly that (ad nauseam) – full of fibre, excellent for your gut, zillions of probiotics, etc. Meat companies, for some reason, are more demure (hardly in character!) and leave it up to the shopper to work out the benefits of purchasing. Of all the foods we omnivores eatl, many scientists recognise the nutrient quality and density of meat and the crucial role it has played in our evolution and shaping us as humans.
We praise the initiative of the Great Britain Agricultural Levy Board in the UK, launching in January a campaign about meat and dairy nutritional benefits. The objective is to inform and educate consumers on how eating a balanced diet, including red meat and dairy, is a sustainable way to enjoy food. During Veganuary and to “safeguard the reputation of red meat and dairy”, AHDB is launching a £1.5m ($2m) “Eat Balanced” consumer marketing campaign including:
“Eat Balanced” TV advertisements;
“Eat Balanced” consumer website;
Proactive and paid for social media activity;
Stakeholder information including a “Positive Conversations” Pack;
And monitoring “anti-meat/dairy” advertising/promotional materials to ensure any pronouncements are truthful, have a respectable science base, and do not contravene the UK’s Advertising Standards Association standards.
(video link to an advertisement of the campaign)
Agencies representing the interests of the meat industry (particularly livestock farmers) are changing their approaches in the face of a veritable tsunami of media coverage and interest in plant-based meat to become less defensive and angry to become more engaging on the attributes of their products rather than on the iniquities of “fake” meat! Quality Meat Scotland is a case in point. The QMS strategy is: “Veganuary and Brexit are upon us. Our strategy is not to defend our industry but to promote its benefits, be bold and proud of what we do. The QMS campaign focuses on – Local, The Scotch difference, and health and wellbeing with particular attention to the benefits of Vitamin B12”.
Meat and dairy producers should defend their patch against skewed, untruthful propaganda (and there’s lots of that about!). But, the meat industry really needs to focus on “the moment of truth`’ when, in particular, younger consumers face a wall of slabs of raw meat with scary names linked to points of anatomical origin on the carcase (e.g. half lamb shoulder) in unattractive plastic packs on supermarket shelves and they’ve no idea how to convert the scary raw product into meals!. Whereas the fast-expanding array of plant-based products look cool, are strikingly named and packaged and focus on providing meal solutions not meal problems.
Don’t forget that eating is more than refuelling, often, it’s a social event. Sometimes, one person in a household can have a disproportional (arguably, tyrannical) influence on what the family eats, particularly during these Covid times when all the family are at home from morning to night! At the moment in the UK, 1 out of 5 households has a vegetarian/vegan at home. we’d bet that in 5 years time, 1 out of 4 will. The meal preparer has to have a veggie option for the vegetarian/vegan one amongst them. If the family can’t spot the difference between the plant-based mince and regular beef mince in a lasagne, and if the plant-based is the same price or cheaper, and if it’s human and environmental health halo is shiny, why wouldn’t you opt for tasty “fake” mince!
Organisations representing the interests of livestock farmers – and, in particular, beef and lamb – are moving on from visceral primal screaming at the anti-meat lobby to more constructive approaches presenting the benefits of their products to human health, rural development, and even climate-related advantages such as carbon sequestration on grassland pastures and use of crop byproducts. That’s good! Meat and dairy products are essential in a balanced diet, and they must be positioned when promoted to contemporary consumers in a manner that is consonant with their values, lifestyles and aspirations.
Often, we’re wary of consumer surveys relating to food and health – we want to eat healthier, but it’s so tempting to indulge in a naughty snack! Mid-Covid, USA consumers claim to be eating healthier/making healthier choices and, although taste is Number 1, healthiness is second on their list. They’re confident in the safety of the overall food system although, during the pandemic, they’re more likely to wash fresh produce. Optimistic bias is alive and well: 75% of consumers think their diet is healthier than average and 60% believe that they are Very Healthy, notwithstanding that 69% of US adults are overweight/obese!
For fresh fruit and vegetables, the USA consumer did “put their money where their mouth is” – fresh produce retail sales zoomed up $4.5bn January-August 2020 versus 2019. Mind you, this captured substantial trade from food service which was virtually closed down. Fresh food in general made LockedDown consumers feel happier!
Americans like dieting – 43% say they are on a specific diet, with intermittent fasting being the most popular (cutting out breakfast?!). In the search for healthier ingredients, high fibre, whole grains and plant protein are the top three. A significant percentage say that they are cutting down on red meat – hmmm this isn’t reflected in USDA’s national meat consumption trends!
Recent Nielsen data on USA FMCG grocery show the winners are:
Oat milk and plant protein meat alternatives – both perceived as being intrinsically healthy, yeast – because the nation decided to embrace home baking, not least sour dough bread, and crab & lobster – no surprise really, as an indulgent home seafood meal becomes an affordable treat whereas its restaurant equivalent pre-Covid would have been a stretch;
With the losers being – work snacks and comfort food, such as gum, mints and cupcakes, and premium nutrition bars that were “in the gym” fare when the gyms were open!
What about the UK? British consumers promised themselves that they would eat healthier under LockedDown, but then regressed. Supermarket multipacks of chocolate treats soared and retail sales jumped £260m in short order. This is what the trade refers to as the “lipstick effect”, i.e. when cheap treats sell well during tough times. Ice cream did well, too, and fresh and frozen vegetables spiked, reflecting the increase in home made lunches and dinners. But, the real star was “The Full English Breakfast” – eggs, bacon and sausage were a morning treat whilst time was on our hands! Butter did very well – driven by the Great British Bake Off effect pre-Covid and the desire to try out our own neophytic baking skills when we were locked in.
The locked in cooking craze is positive – pre-Covid, we’d return home and sink into a sofa to watch a cooking show. In-Covid, we turned to the screen for practical help, but wanted to touch the ingredients. Then, proudly, we shared our meal result with friends on Instagram!
Accelerating a pre-Covid trend, perhaps surprisingly, was a sharp increase in the “nolo” drinks category, i.e. low or no alcohol beverages driven by millennial and younger consumers. Guinness launched a no alcohol version of its iconic stout. Adnam’s, a regional English brewery, claims low alcohol beer with flagship brand Ghost Ship, is 11% of its turnover.
Thanks to all of you for your interest in our new Weekly Food Business Insights but, particularly, for those who have registered!
If you haven’t had the time to peek at “the product”, we’ve posted a previous week’s Insights to give you a more precise idea of what to expect.
Please, see here Issue Number 02, that we published in July 2020. All the news nuggets are on the same page but, when you are on the platform proper, the information is the same but each nugget has its own page. We hope you find it interesting and worth signing up for the one month trial and then stay with us!.
Commuting to City Centres is Passé. Stay Home, Stay Smart & Safe!?
Covid-19 has turned the home into the hub both for working and socialising. Lower stress working from home (relaxing in pyjamas until the business Zoom call!)? Not so – many parents have had to balance home working with home schooling for their kids. Working from home may be the new normal for many people as employers see the cost savings associated with having remote employees.This could be worrisome for property owners as city centre offices are shrunk and workers head for the suburbs or even rural areas. It’s threatening, too, for restaurants and Food-2-Go outlets located next to city centre office and apartment towers. Some notable trends with food industry implications include:
local shops, services, restaurants, coffee shops and bars offering local products are preferred. Consumers have more trust and feel more connected to local businesses. Brands should highlight their provenance credentials and links with the local community to encourage this goodwill. ;
Starbucks envisaged its cafés as “The Third Place”, somewhere in the middle between home and the office. Increasingly, the workplace may be distanced with local coffee shops being the office during the day, a social focal point in the evening, flipping the beverages (energisers during the working day and alcohol/CBD for relaxation in the evening) and food offers to suit customers.
BIG IMPLICATIONS: Local is in and the cachet of the global brand is diminished. The Post-Covid period may require city food and drink businesses to be particularly agile in responding to a new world of work and after-work socialising. But for local firms with local attributes and links to the local community, make sure you shout loud!
Covid-19 Accelerates the Introduction of Automation and AI Throughout the Agricultural and Food Industry
Starship Technologies has been running a robot delivery service for groceries in Milton Keynes (a small city north of London) for over two years, working with Tesco and The Coop. Previous customers were Just Eat and Deliveroo delivering takeaway meals. Happy households can track the robots progress and have loved the “no human contact” element during the coronavirus crisis. Walmart has robotic floor cleaners silently sweeping huge hypermarkets in the USA. Kroger’s Giant Eagle stores have robots to check stock availability. The distribution centres of Ocado, the pure online grocery player, are notable for their lack of human staff and abundance of robotic product pickers & packers..
In China, the world’s first robotic restaurant was opened by Country Garden (in June) and 20 in-house robots cook and serve food. Caliburger in the USA has Flippy robots to work at the grill. Dr. Food ordered a beer and snack when staying at the Mandarin Oriental in Boston and it was brought to his room by a robot in a tuxedo!
The use of robots, particularly in the horticultural and dairy sectors, is exploding worldwide – apples in New Zealand were picked in some orchards this season mitigating the extreme shortage of harvest labour worldwide in agriculture.
BIG IMPLICATIONS: In all parts of the agricultural and food chain, AI and robotics will transform productivity and cost control for food businesses. Also, “Germaphobic” consumers love the idea of products being “untouched by human hands”. But, aspects of the “sharing society” may be stalled as some are concerned about “Who used this last?”.
Retail 2020/21: 10 Trends in Global Retail – Post-Crisis Update
How will the retail sector worldwide adapt to the new “mask economy” post-Covid? A recent report provides some good ideas for food businesses:
Reduce physical interaction but maximise the ways to engage with customers.
Most customers want to shop quickly and efficiently most of the time and, particularly when they are shopping for day-to-day “Fuel Food”. Don’t confuse them in-store or online. Reduce checkout processes with self-scan apps, etc., make online shopping and click & collect even easier;
Develop “Experimental E-Commerce” activities particularly when shoppers are willing to invest their time to buy, cook and present “Story Food” (rather than weekday “Fuel Food”) – like live-streaming product demonstrations, focussing on what is in-season, how/where and by whom the product is grown, lessons on how to cook, video consultations and one-to-one sessions.
Use social media to support in-store and online shopping;
Shopping festivals and holidays will gain in importance (we’re learning from Asia where they celebrate on a different and higher level than Westerners!);.
Develop more resilient supply chains which, often, means shorter chains with longer lasting commercial relationships. Understand better your risks associated with sourcing, and engage with suppliers that can help you to be stronger in front of unknown adversities (Covid-19 has taught us this the hard way!). Local suppliers will be more important, and digitalisation will help to manage an increasing number of suppliers and, using technologies like blockchain, enhance transparency and traceability in the chain.
While foodservice has been hit particularly hard by Covid, many food retailers have benefitted as a result of lockdowns. A combination of downward pressure on household incomes as we face a global recession and more practice and a greater willingness to cook at home may serve food retailers very well;
In many countries, as we faced a fearful health challenge, citizens have been more community friendly and inclusive. We’ve looked to help our neighbours and work together to “defeat” coronavirus. Increasingly, consumers expect their brands to be fair to society, the planet and all living things within it!; Pre-Covid, there was growing consumer interest in sustainability and this continues now (notwithstanding that most consumers have only a vague understanding of what sustainability actually is). However, they look to the companies that they buy goods and services from and expect them to be better corporate citizens than in the past. Don’t disappoint them!
BIG IMPLICATIONS: Covid-19 has broken our food shopping and meal preparation mould! Is this fragmentation for ever or will the accelerated introduction of an effective vaccine allow us to slip back into our former ways? Covid-19 has accelerated trends such as online shopping and this will not reverse. But make food shopping easier and even enjoyable! It’s slowed down the anti-plastic movement as plastic is seen as being safer than other packaging forms. But recyclable and compostable packaging will regain its prominence as Covid fears recede (see next item).
Source Coresight (free with registration to the site)
Five Sustainable Packaging Launches During the Pandemic
While the key concern of households has been the health of their families, consumers are still concerned about the health of the planet. Pre-Covid, big and small food companies were presenting a “greener” face to their consumers and, in anticipation of “green’ concerns returning to the very top of consumers’ agenda, smart companies are trying to keep ahead of the curve on sustainability. Here’s some examples of packaging initiatives:
“Big Food” such as Danone, Campbell’s and Nestlé are changing their processes and their designs to reduce the environmental impact. Nestlé is using paper rather than plastic to wrap its iconic Smarties. Campbell’s Kettle Chips is sourcing from recycled materials and changing the design of the pack to use less plastic. Danone has launched in France a bottle of Evian mineral water without an added label as the information is engraved on the recycled plastic bottle.
L’Oreal and Colgate are following a similar approach. The latter has launched a new toothpaste called “Smile for Good”, with a first ever easily recyclable toothpaste tube. Businesses want to be “A Force for Good”, because their shoppers ask them to be so.
Unilever, in particular, has shown leadership in embracing the need for businesses to have a social purpose first and foremost. Profitability is important but secondary. Indeed, Unilever CEO Alan Jope holds the view that if a brand doesn’t have a social purpose, it doesn’t belong in their portfolio and should be sold!
BIG IMPLICATIONS: As we emerge from the Covid crisis, consumer concerns about the health of our planet and our society will be one of the dominant themes for the remainder of this decade. Companies that engage earlier, substantially and openly with regard to sustainability issues will be rewarded with greater loyalty from their customers.
Fit for a Better World: The Importance of National Strategy & Branding.
New Zealand’s Ministry for Primary Industries has released a new agrifood strategy through to 2030. It’s starting point is that “if the natural world is healthy, so too are the people”. New Zealand has a world class reputation as a food producer and its “clean and green” claim is an important element in the national branding of its food exports. Its management of the Covid-19 crisis has only served to enhance this positive image (NZ has had only 1,500 coronavirus cases and 22 deaths and the nation has returned to “normal”).
Here’s three paragraphs from the document that are refreshingly self-critical but nonetheless inspiring as they recommend a future pathway for their agricultural and food industry:
“For a start, we need to be very clear that we are not a volume producer – and we should stop acting like one. Selling commodities in undiversified markets is a race to the bottom. Yet we have let that be our default position.
Instead, we must select the market niches where we can excel in providing and capturing value – and keep a razor-sharp focus on those.
And, let us set our sights on the real prize – which is owning market categories. One outstanding example of this is Zespri’s development of the gold kiwifruit category. This New Zealand company worked with researchers to develop a new variety that would excite consumers”.
Mind you, if you promise much about your environmental credentials, then, you better live up to them! Activists in New Zealand are critical of the impact of NZ’s dairy industry on the environment and the animal welfare track record of the livestock sector. It’s great to have green aspirations but smart to under promise and over deliver to maintain a pristine “Clean & Green” image!
BIG IMPLICATIONS: For a nation, ensure food industry members agree on what are their values and collective vision and how these can be communicated to the outside world. Then, work out where your food industry can have the biggest and most profitable impact in export markets. In a fast-changing world, it is vital to be agile and tuned in to the global scene with a clear understanding of market forces.
Hi and thanks for taking a peek at our blog over the past few years. We hope you’ve been both entertained and informed with our notes about developments in food and grocery markets. Covid-19 will continue to transform the nature of global food business accelerating some trends we’ve often discussed (e.g. on health & well-being, online shopping, sustainability) and decelerating others (e.g. for the moment, we’re more plastic positive for food safety reasons!).
The future shape and dynamics of the food industry, as ever, are unsure but it’s vitally important to keep up with consumer trends and industry developments to be the first to respond to business challenges and opportunities. We think we can help you here. We are launching “Dr. Food Weekly Food Business Insights”, a weekly information package of emerging global news “nuggets”, all wrapped up with a video where David joins the dots and explains the implications these developments have for food businesses. This punchy post will take you 15 minutes per week to consume while you’re drinking a cup of coffee or tea.
What’s the weekly cost of “Dr. Food Weekly Food Business Insights”?? Same as your cuppa (drink): less than £3/week – for billing purposes, £12/€13/$15 per month. You will have to key in your payment details when you register. Nothing will be charged during the first 30 days, when you can read each of the weekly insights and see the videos. If you like what we are doing, just keep going and we’ll invoice you monthly. Otherwise, tell us to stop and we’ll do exactly that!
We have partnered with Agribusiness Academy, a leading organisation for Online Learning that gives us access to their excellent learning platform. This makes it easier for you to link with our Insights wherever you are in the world, and whenever is convenient for you.
David explains this in the above video. If you like the idea, do go to http://agribusiness.academy/drfood and register in order to enjoy 4 weeks for free. Then, we hope you’ll sign up for as long as you feel we are delivering value for money!
We are continuing with our supermarketsinyourpocket blog. Expect to see posts here from time to time, with our unpredictable regularity. Thanks again for spending time with us so far. Stay safe and keep washing your hands and masking up!
We don’t usually reach for a quote from Lenin to kick-off a blog but, in a pensive moment, Vladimir Ilyich mused “There are decades where nothing happens, and there are weeks where decades happen”. Ten weeks of lockdown, with travel limited to a walk to the end of the garden, has given us lots of time to read and observe what’s happening in the world of food business. Our conclusion is that Covid-19 has accelerated existing trends and forces, so, buckle your seat belts and keep a weather eye. We’re going to try our best to give you a list of pointers on the outcome of the pandemic and how it has and will affect the agribusiness and food industry. Here goes:
1.The business impact and opportunities will depend on the shape of the curve in your markets.
The popular view of the alphabet of economic recovery is that we’ll see a V shape – i.e. the cataclysm we are or have just been through, followed by a sharp recovery (and, fingers crossed, an effective V for vaccine). That’s what the IMF thinks but others, such as ING’s view for the German economy is that it’ll be more U shaped and, what’s more, the U will have a flat bottom – “the route to normality will be long”. Let’s hope it’s not a W – dive, sharp recovery but a coronavirus spike in the Autumn/Fall causing another dive or, even worse, a L – after the dive, we bump along the economic bottom for months. You can’t assume that it’s going to be a V, so, what’s your plan if it isn’t?
2.The business impacts and opportunities will depend on each country’s experience managing and living through the Covid-19 epidemic.
Let’s contrast experiences in the UK and Thailand, countries with similar sized populations (68/69 million each). From March to the end of May, Thailand had 3,000 cases and 60 deaths; the UK had 265,000 cases and 38,000 deaths. We’d wager that, as they are doing now, Thais will be flocking into their restaurants, masked albeit and tipping their hats to a modicum of social distancing. Actually, when the malls opened in late-May, customers were required to show their national identity cards and download a tracking app. Thais won’t be wary of brushing against other Thais but they’ll be terrified of any contact with Europeans unless they have a big sign on their heads announcing “I was Covid-19 cleared when I landed at Bangkok Airport”!
British, Spanish, French and Italian consumers, likely, will be much more circumspect dining in close confined restaurants, browsing in packed shopping malls and travelling to social events cheek by jowl on public transport. This suggests that the restaurant sector, in particular, will be on a long road to recovery but disappointing in-house revenues will be bolstered by burgeoning meal deliveries courtesy of Uber Eats, Deliveroo, Just Eat et al.
It looks likely that Asian economies will recover quicker than those in the “West”, not least because most (e.g. Japan, South Korea) were roughed up considerably less by Covid-19 than Western countries. This is good news for food exporters to, in particular, the higher income Asian countries. But recession in North America and Europe is bad news for economies in other regions who target high income Western markets.
3.The biggest impact by far of Covid-19 will be its dreadful legacy of reduced household incomes for the large majority of consumers.
We’ll see a scramble for value right across the globe as consumers seek to maintain standards of living by increasingly savvy shopping and their scrimping, particularly for food, will affect product and service purchases and choice of sales channels for every food business:
premium meats such as beef and lamb will struggle to compete with lower-priced pork, chicken (although, in the short-term, meat prices globally will be lifted by massive Chinese imports of pork to replace local pork eliminated through African Swine Fever culling), and affordable eggs. As we’ve already seen in many Western meat markets, carcase balance will continue to be an issue as shoppers seek lower value cuts;
it’ll be the same story for premium fish and seafood;
plant protein meat substitutes (e.g. Beyond Meat, Impossible Foods) will need to pare back their prices to be more competitive with regular meat if they are to maintain their meteoric sales growth;
and for premium fruit & vegetables – on domestic and export markets, premium cherries, berries and stone fruit will be under particular pressure;
in the early days of lockdown when panic shopping was rife, consumers accepted less choice as their focus was on procuring the basics. Is a longer-term trade off for the income-constrained shopper, less choice but lower prices on essential products?;
even eco-sensitive shoppers will trade down (as they did after the global financial crisis of 2007/8) and seek more affordable “planet savers” – it’s not that they will value less “green” initiatives and important social attributes relating to, for example, animal welfare, it’s their pragmatic view will be “financial needs must”;
worrisomely, coming out of the Covid-19 crisis, income distribution will have worsened in many countries (frighteningly so if we have a W rather than a V or U recovery) – a growing gap between haves and have nots. After us all “pulling together” through the pandemic crisis, this will foment social division encouraging political populism with all its negative aspects.
4.Longer-term changes in food shopping and eating out post-Covid.
In process is an acceleration of the trends that were evident for grocery shopping pre-Covid, i.e. much more online grocery shopping with concerns about “supermarkets choosing my fresh food” reduced as a result of acceptable experience during the lockdown. Top up shopping from local convenience stores will continue to see growth. Hard discounters, particularly when they have fine-tuned their online offer, will take more market share from traditional supermarkets. Don’t expect multi-channel retailer, Tesco, to fall over – its “Aldi Price Match” offers on its fake farm-branded fresh meat and produce (e.g. Rosedene Farms) are effective hard discount foils but one of the supermarket Big Boys is going to get in trouble.
We’ll see significant disruption in food service post-Covid exacerbating the troubles of those businesses that have focused exclusively on serving the restaurant trade (helping their food service customers introduce takeaway offers would be a well-received service). It’ll take time for diners to have the confidence to return to sit down restaurants, even with tables suitably spaced and staff exuding good hygiene practices. Customers will have to get used to 2 or even 3 “sittings” – e.g. 6 to 8 pm and 8 pm to late. The importance of re-building the confidence of tourists to travel to holiday destinations is paramount – tourism is 10% of global GDP! Restaurants will supplement sit down customer revenues with an increasingly sophisticated takeaway offer. QSR and Food-2-Go chains (e.g. Pret) will recover well. Contactless ordering and payment will be a common feature. Look out for vending machine developments (delivering tasty food and drink rather than fizzy pop and sugar-loaded snacks – they’re already in place in Japan and South Korea) with no point of human contact.
5.Scary times raises consumer concerns about safety, health and food security which affect everybody in the food chain.
We’ve all becoming more germophobic so don’t touch! Spanish supermarket advertisements start and finish with a promise on “Safe Shopping”. The Japanese are inveterate mask-wearers and bow on greeting rather than shake hands – 2 reasons suggested why the Covid-19 death count in Japan is one-fortieth of the UK, even although they have an aged population which is twice the size of the UK, packed into big cities (Greater Tokyo is the largest metropolitan area in the world making London appear a minnow). Get used to masks, gloves galore, plenty of perspex, hand sanitizer, and contactless ordering and payment to build consumer confidence and don’t forget social distancing which will be with us for the foreseeable future. In restaurants, we will to have to leave the details of all of the people dinning with us so they can be traced if anyone starts coughing a few days later! This brings additional cost without much chance of it being recouped. In Asia, there’ll be an accelerated rationalisation of traditional wet markets. In the West and, for the moment, we’ll be less wracked with guilt about using “evil” plastic packaging, although the pressure will be there to make it recyclable and preferably compostable sooner rather than later. In fact, any initiative that makes shopping faster will be welcomed and rewarded – for safety and simple time-saving reasons.
Being locked down for 10 weeks has given us more time to think of our health and how we might improve and gain more control over it. Notwithstanding that indulgent snacking and drinking at home has gone through the roof, consumers say they want to eat healthier and exercise more such that they can be self-reliant – we may love the NHS in the UK and, certainly, we want it on tap but for me and my family “only in extremis”. Food that is perceived to be healthier is firmly on-trend but it should be real food, i.e. not food that has the bad stuff taken out and good stuff added. Healthiness relates to much more than just me and my family, but to the local community and local businesses, the environment, farmers and their animals. Are we willing to pay extra to improve the health of our society? The spirit is willing but the pocket book is weak!
Declining household incomes will reduce the degree of eco-activity in otherwise green-leaning families, but the longer-term trend of selecting climate-friendly diets will regain its 2019 strength (Beyond Meat’s share price doubled in April/May). Expect organic foods to struggle but, as organic’s proxy, local foods and local food retailers will do well. Expect to see burgeoning demand for intrinsically healthy fresh fruit and vegetables – yes, but only if they are convenient to prepare and consume. Remember, convenience trumps health. Frozen foods have received a fillip from lockdown – their storability was and is a plus but, then, we’ve found out that they have the quality of chilled products and at a lower price.
6.Renaissance for Home Cooking?
We shall be spending more time at home and, therefore, we’ll eat more of our snacks and meals at home. That’s good news for supermarkets but, also, good news for Food-2-Go specialists, meal kit specialists (e.g. Mindful Chef, Simply Cook, Abel & Cole) and for the scourge of city streets Deliveroo, Uber Eats, Just Eat et al! Will we be cooking more from scratch actually using, if you’ll excuse the old fashioned term, ingredients? Our recipe repertoires may have improved slightly over lockdown, and we may have produced a sour dough loaf after much experimentation, but we haven’t been transmogrified into a nation of Mary Berrys! We’ll purchase meal components that we will then bolt together to present, with a flourish, as our home cooked meal! Mind you, for families really income-constrained (1.6 million families used a foodbank in the UK in 2019 and early-2020 – a shocking statistic for a “high income developed country”), combining ingredients is a cheaper route to preparing a meal than purchasing something part-prepared.
7.Disruption in the food supply chain.
Supply chains and their operations are in a constant state of evolution and even disruption and this has been accelerated by the coronavirus pandemic. In general, “the global food system has weathered the challenge of covid-19” (The Economist) – the exceptions are meat processing particularly in North America, labour issues with the harvesting of fresh produce, and supply chain interruptions for fresh fish and seafood (e.g. air freight shipments of shellfish collapsed as air travel came to an abrupt halt) . But above our current tribulations, we have the Internet of Things (IoT) transforming our food system at every level in the chain, such as:
with “home as the hub”, increasingly, we are reliant on technology and much more than simply for ordering our groceries & meals. When did you last open a recipe book when YouTube is a click away? ;
supermarkets are developing apps for queue management, robots to check on-shelf availability, and to pack shopping orders in “dark stores”, and there’s the on-going revolution to match Big Data with “loyalty card” data to provide personalised grocery and meal deal offers to each family;
much more automation and encrypted information flow across the supply chain from the home and from the restaurant back to the farm which provides opportunities to match better supply and demand and to reduce waste;
consumers want to know more about where their food comes from and how it is produced – this translates into greater transparency and traceability in the chain with blockchain one technological option.
8.Greater robustness and resilience in supply chains.
As we said earlier, the global food supply chain has, all things considered, done pretty well. But, there’s been sufficient shocks for major players to take hard looks at their supply chains to ensure that, in the next crisis (and there will be plenty), they won’t be hung out to dry because of the lack of key ingredients and services. Likely, this means that supply chains will be shorter and closer bound with, hopefully, partnerships being real, i.e. stronger, longer-lasting, rather than simply partnership promises comprising fine but fluffy words!
9.Food security concerns elevated.
To repeat, consumers have been pretty well served in terms of food supply during the lockdown. Yes, there’s been a run on flour and occasional shortages of eggs, but most folk have been able to buy their gluten-free brioche when needed! David, a veteran of food rationing from the early-1950s, thinks that whingeing namby-pamby consumers should get a life and be force fed Woolton Pie (Google it!). But, a positive outcome of consumer concern about food security is that it has and will continue to drive demand for locally-produced foods which can be purchased from local businesses. There’s a challenge here for the local product – to make it convenient to buy (in terms of availability) and to communicate loudly and clearly its benefits for consumers. Remember, in a post-Brexit world for UK agriculture and food, there’ll be keenly-priced food items from our new trading partners that will be attractive to many consumers seeking to put affordable meals on the family table.
The crisis has raised governmental concerns about food security. This raises a red flag as a political response is to support calls for more food self-sufficiency in a country. On the surface this may appear rational but it is, also, the thin edge of the wedge in terms of disrupting freer trade around the world. We’ve been a major importer of food in the UK for 150 years (since the repeal of the Corn Laws). If we can build self-sufficiency with world class efficiency that’s one thing, if we just put up tariff walls at the expense of both consumers and historic trading partners that’s another. Looking at food prices across the globe through the coronavirus crisis, only rice has spiked and why? Because the Vietnamese government put a block on rice exports. As there are only 4 major exporters of rice, removing a major player from the market spawns frenzied buying by consumers (it’s sort of like Kimberly-Clark stopping the shipment of Andrex with the consequential crazy impact on shoppers’ toilet paper buying behaviour – sound familiar?!).
10.What are you doing to make things easier and better for your customers during the Covid-19 crisis?
Before, during and after this dreadful pandemic is expunged, consumers have and will be asking those that sell them products and services “What’s the purpose of your business? How are you contributing to society? How are you making things better for me and my family?”. It is very useful if you have answers to these questions. Take a look at what Unilever and Danone are doing – they recognise that brands with a purpose grow faster than those that simply have a raw commercial rationale. Danone has just become an “enterprise à mission” whereby its purpose and objectives in the social and environmental fields are set out in the company’s articles of association and its performance on these are measured each year by an independent auditor. If something good can come out of this dreadful coronavirus pandemic, it could be that companies globally recognise that being good is good for business!
Big corporates – supermarkets and fmcg – are courting farmers and fisherfolk again. Is this a Covid-19 thing that induces love for primary food producers? Yes but it’s more than a kneejerk coronavirus response. One outcome of a pandemic or, indeed, even a lesser disaster, is that consumers become more worried about their food – where does it come from?, will it be available? who produced it and how? Gaining this knowledge gives them a comforting feeling of authenticity, quality and product integrity when buying and eating food. Picking up these consumer vibes, supermarkets are swift to show their adulation of and support for their nation’s food producers.
Morrison’s have just announced the opening of new steak and seafood bars “to help struggling British farmers and fishermen” and have offered their 2700 farmer suppliers a 5% discount on grocery shopping. M&S have launched a campaign “to encourage support for British farmers” and have long used farmer images in-store to emphasise farmer partnerships. Hard discounter Aldi isn’t shy about communicating its British food credentials. There at in Spain, too – Auchan wants to be the farmer’s friend. Across The Atlantic, American grocers are no different – Kroger (No. 2 to Walmart) is promising to source produce locally, as is Wegman’s (the American Waitrose equivalent). Mind you, most supermarkets flirt, or have dalliances with their farmer suppliers of, particularly, fresh meat, fruit & vegetables, and milk. Market research shows consistently that shoppers’ perception of fresh food quality, range and price are key criteria used in choice of store. So, supermarkets want “to own” fresh food and build stories around their fresh food partnerships to differentiate themselves from competitors.
Partnerships between supermarkets and farmers don’t and never have reflected equality. No surprises here – in the UK, 6 supermarkets account for 75+% of fresh food sales which are supplied by thousands of farmers. Only at the premium end of the market, where the retail pack is adorned with a multitude of adjectives (e.g. farmer name/provenance, specific rare breed), is there a modicum of longer-term commitment if the supplier guarantees exclusivity. Also, supermarkets can be equivocal on farmer partnerships and commitment to British produce, for example:
Tesco’s “faux” farm brands for meat and produce don’t please every farmer or food activist;
hard discounter Lidl, with enough cheek for another row of teeth, extolling its Birchwood Farm brand for fresh meat sold in England and Strathvale Farm for Scotland – the nearest either of these farms have been to verdant pasture is the front lawn of the advertising copywriter!;
and Sainsbury’s and Asda both besmirched their commitment to British fresh food in April by importing Polish beef during a “beef crisis”. Really, you lot, why would you wish to incur the wrath of the farming fraternity for a tiny amount of mince that wouldn’t satisfy an Essex trencherman? We hope the supermarket meat buyers responsible got a good slap on their wrists from their Seniors.
Telling stories about partnerships in the food chain are not solely the prerogative of supermarkets. “Big Food” fmcg companies are keen to share stories about their direct links with farmer suppliers and, often, it’s in their direct interests to do so to ensure supply but, also, to please a surprising proportion of consumers who want to know the brand story. Why? Because there’s an appetite for knowledge on where the ingredients come from. In turn, this drives the food industry to improve transparency and traceability in the supply chain:
small-scale cocoa farmers in West Africa were slowly going bust prompting Mars to launch “Cocoa for Generations” aimed at protecting and rewarding families in cocoa-farming communities whilst ensuring that Mars have a secure future supply of cocoa for its confectionery;
Côte d’Ivoire cocoa farmers are receiving Covid-19 health and safety updates via Cargill’s digital farming tool. Good for the farmers and good for Cargill’s cocoa supply and its corporate image;
a “Thank My Farmer” app powered by IBM Blockchain gives consumers the ability to trace their coffee beans with an interactive map. The app has been developed by, inter alia, Jacobs Douwe Egberts, J.M. Smucker, the Columbian Coffee Growers’ Federation and Rabobank;
the Italian pasta and biscuit baron, Barilla, celebrates the local grain farmers that produce the wheat and rapeseed used in its products;
Warburtons long-standing wheat growing partnerships with UK and Canadian grain farmers is part and parcel of the Warburton bakery story;
Weetabix earns plaudits from its customers by sourcing wheat from growers farming within 50 miles radius of the factory in Northamptonshire.
From a farmer perspective, the worm’s turned – supermarkets and food manufacturers want stronger associations with farmers (and fisherfolk – admired hunters of the sea as they are). They want farmers to be team mates. Farmer friendliness and strong rural connections are good for building brand loyalty for “Big Food” companies seeking relevance in a turbulent world .
So, what’s so sexy about farmers and farming? The more urban-based we have become, the less we know about how our food is produced and the more we yearn for the bucolic! Let’s be fair, there’s more romance in growing crops and cute animals than there is in the bits of the food chain that follow on from farming – slaughtering, mincing, grinding, emulsifying, packaging, warehousing, transporting and putting it out on supermarket shelves! And we love underdogs and love to hate bullies – enter stage right the good guys, i.e. farmers and stage left the bad guys, i.e. supermarkets. However, there are complexities – we want farmers to be paid more/assured a fair price, but we don’t want supermarkets to raise prices!
Relative to other food industry participants, farmers are more trusted. They haven’t always been so. Agriculture had a bad patch in the 1970s and BSE wasn’t helpful. Thelwell and Heath captured this in cartoons during the dark period when urban consumers were falling “out of love with agriculture”.
But, like producing crops, growing and maintaining trust requires education, resources, plans, and assiduous, meticulous cultivation. Trust building is becoming increasingly challenging for farmers as commercial agriculture goes through accelerating change. Consumers’ perceptions of farming (the rural idyll) will lag agricultural development as farmers embrace 21st Century technology – robotics, manipulation of the microbiome and gene editing (e.g. using CRISPR), precision agriculture, etc. – and non-farm food production (e.g. growing meat in a commercial lab) gains traction. Beware, in history, agribusiness and farming advanced whilst the industry kept schtum only to scare the food consumer when advances were revealed after the fact (the launch of Roundup Ready comes to mind).
How can farmers capitalise on being trusted by consumers and viewed as an important partner with grocery supermarkets and food manufacturers? There’s a job to be done (and is in process) at every level of the agriculture and food industry. A co-ordinated strategy embracing major industry players is fundamental and harnessing the passion and enthusiasm of individual producers is its life blood. The likes of LEAF with Open Farm Sunday and Farmer Time for schools are brilliant examples at the national level and there is lots to learn from, say, Italy with its Agriturismo.
We worry that farmers are, often, characterised as being “oppressed, struggling, needy”. A distinctly more positive perception of farmers would be helpful, viz.:
in tune with consumer and citizen values;
progressive but sensitive to their key role in safeguarding and improving our countryside heritage (reminding tax payers why investment in public goods-producing ELMS is good for society);
modern, efficient food-producing businesses providing food security for the nation.
Remember, when it comes to building trust, connecting with shared values is key. Education and communication of the reality of modern agriculture is complementary but secondary. New wave farming business people (millennials and younger!) are more positive, proactive and adept at using social media to tell their story than their parents who preferred to keep their heads down until there was a problem and, then, whinge to largely unsympathetic politicians.
The above is all fine and dandy but what can an individual farm business do to capitalise on farmers becoming fashionable? If we had answers, we’d have told you long ago! It’s always going to be tough producing something that is close to being identical to the production of thousands of others which is sold into a highly concentrated industry. But, it’s a good start to look over the gate and find out what consumers are wanting to buy, through which channels, and whether the business’s production strengths are consonant with the requirements of our customers. A focus on being the very best lowest cost producer is fundamental for a successful commodity farmer. Yet, a niche market opportunity doesn’t mean an inconsequential one. We’ve been consistent in our blogs to remind businesses that mass markets are splintering. Look out for what your customers and final consumers value and are willing to pay a premium for. We characterise this as searching for the value-adding adjectives (e.g. a real not a fake farm name) that you can add to the commodity nouns (e.g. beef, pork)! Finally, as Spanish farmers reminded their customers and consumers in a recent farmer demonstration – “Si el campo no produce, la ciudad no come”! (If farms don’t produce, the city doesn’t eat). We think that’s well said.
How’re you all doing? Miguel’s family had a scare – his wife was very poorly for 3 weeks but is much better now. David, self-isolating in his bunker, has been grumbling about Government spokespeople listing the criteria for those considered particularly high risk which seems to include everything pertaining to him apart from his postal code! He’s peevish, too, that he sees more of the Tesco grocery delivery guy than his grandchildren.
Here’s some thoughts on the wider protein market and what it takes to do well. We’ll sneak in a few points on Covid-19 and its impact on the food industry at the end because one’s obliged to but, largely, this is a coronavirus-free blog.
There is a clear global mega-trend towards more climate-friendly and planet-friendly foods driven by younger consumers (your children and grandchildren), the UN and several of its agencies, and individual governments. The influential and occasionally irritating Greta Thunberg plus a legion of social media activists have captured the lion’s share of media attention but, this is no fad, and planet-friendly views will be reinforced in the aftermath of this round of coronavirus. Not a loony special interest group but UBS, a traditional conservative Swiss investment bank opines that “the plant-based food category is expected to surge to US$85bn. over the next few years as people seek out alternative options to meat that are more environmentally-friendly”. Whether we like it or not, there will be “enviro-traffic lights” on foods just like there are health traffic lights now (“nutri-scores” in EU parlance) – enviro-labelling is already in the market place.
Time to panic for the global meat industry? NO: increasing the protein content of the diet is seriously on-trend and the envy of carbohydrate and sugar producers. Savvy producers of meat and plant protein products (e.g. new age jerky snacks and cereal-based “health” bars) are quick to highlight their protein credentials on front of pack, let alone on the ingredient list on the back.
Who are these interlopers seducing consumers with new protein options?:
Krave meat and plant-based jerky – owned by the iconic chocolate bar owners Hershey;
Nature Valley – owned by “Big Food” General Mills;
Kellogg’s – aren’t they the breakfast cereal people?!
The arrival of “Big Food” into the protein snack market ups the competitive ante for traditional meat companies and “Big Food’ comes with considerable consumer marketing skills and nous.
Global protein consumption grew by 40% between 2000 and 2020 and, over the next 5 years, it’s expected to increase by a further 15%. But, remember, there’s much more than meat under the protein umbrella:
Plant-based protein is the largest protein category but it’s growing much slower than others;
Eggs and dairy are increasing like an express train;
Chicken, pork and fish/seafood dominate the overall meat category and are in very healthy growth (although, ASF will constrain supply growth in the short- to medium-term);
Aquaculture is the fastest growing category – particularly for Asian-grown basa (pangasius) and tilapia;
Wild catch fish is the slowest growth category with sustainable supply being a big issue;
“Non-traditional” protein (composite category including “fake” plant-based meat and insects) is in spectacular growth but from a tiny base;
Emerging Asia and Africa are the regions were consumption is in fastest growth with Europe and higher income Asia being the slowest;
And China has the world’s largest total consumption share and this will continue through this decade.
We’re getting used to global business disruptors such as Amazon and Alibaba in grocery, Uber in personal transport, and Airbnb in room rentals (it took Hilton 100 years to accumulate 250,000 rooms across the globe and Airbnb a decade to top the million). Could plant-based and cell-based meats be the mega-disruptors in the global meat industry in the decade we’ve just entered? Let’s take a look at a massive long-term disruptor in the global meat industry and use the impact of chicken in the US as our example. Over 60 years, chicken has come from lowly levels to dominate the US meat scene. Beef has drifted lower year-by-year for 50 years and pork struggles to maintain historic consumption levels.
What accounts for the success of chicken?. It has out-performed other meats on the consumer’s check list but, along with the others, struggled on the citizen’s check list. The former list comprises the attributes of chicken that are consistently identified in meat market research around the globe. Chicken is seen as being:
Healthy and nutritious;
High, quality protein content;
Easy to add taste;
Can be eaten hot and cold;
Kids like and will eat without a fuss;
Food service favourite and suits fast food;
Increasingly, fits all meal and snack occasions (see McD’s and Chicken for Breakfast);
Often, has local provenance (e.g. British chicken, Farmer Smith’s);
Products are consumer-orientated (e.g. nuggets), not carcase-based product names;
Wide product range;
Largely seen as safe – notwithstanding occasional salmonella and campylobacter scandals and chicken flu (avian influenza) issues in foreign markets;
Competitors must look at their products through consumers’ eyes and honestly measure the performance of their protein against the long list of chicken attributes listed above. Processed pork products probably come closest with their affordability and convenience attributes being key.
What about the citizen’s checklist? Here, chicken does less well but leads on climate-friendly and environmentally-friendly vis-à-vis its land-based meat competitors. Arguably (in the eyes of consumers), plant-based and in prospect cell-based meat proteins score higher on citizen attributes such as climate/environment, human health, and animal welfare. Eco-active consumers, some universities (e.g. Goldsmiths, University of London, University of East Anglia Student Union) and some public sector food service divisions are increasingly modifying their food purchases on the basis of citizen issues (with beef being a particular target). They wish their purchases to “make a difference” to an ever growing list of social issues. So, what about the relative weightings of consumer attributes and citizen attributes? We’re not sure: the importance of citizen attributes are growing fast BUT for the majority of consumers, consumer attributes trump citizen attributes when push comes to shove (a bit like convenience trumps health in food product selection). In many countries facing real declines in household income over the next few years, the eco-purchase may be more aspirational than practical when the family food budget is tight.
Could “Fake Meat’ Out-Chicken Chicken? Only if its performance on the consumer and, to a lesser extent, citizen attributes outperforms chicken. That’s unlikely to happen in a hurry. In the medium-term, plant-based meats and cell-based meats later will have a significant place in the overall market but only modest relative to the real thing. In the longer-term, cell-based meats may be the massive long-term disruptor. We’re a long way from seeing “fake meat” steaks, fillets and chops, but comminuted products such as burgers, sausages and nuggets are already with us and will only grow in market importance. Remember, there’ll be a veggie in the majority of households by mid-decade and the purchaser and preparer won’t want Brenda to veto the meal!
Now, if we still have your attention, we’ll slip in some top of mind thoughts on the Covid-19 pandemic and its impact on the global meat industry:
We are facing a deep global recession – i.e. sharply falling real household incomes in many maybe most countries – this will increase demand for food staples (the relatively cheap everyday items that are core to our diets and fill our tummies) and decrease demand for premium foods. From a meat perspective, that benefits chicken and farmed fish, presents a strong challenge for premium-priced beef and lamb, and is so so for mid-priced pork;
Asian economies will recover quicker than Europe and North America – good news for export-orientated meat companies;
The picture for pork is less predictable – the impact of African Swine Fever and the time it takes for particularly the Asian pork industry to recover will determine how long global pork demand remains strong, irrespective of the Covid-19 impact;
Currently, there is no direct links between Covid-19 and food and its packaging (i.e. concerns about being infected from touching/eating specific foods is very low relative to concerns about infection from other humans). However, watch this space and expect supply chain slowdowns because of increasing food safety checks at borders;
Global food supply chains are robust, particularly for long shelf-life commodities (e.g. grains, oilseeds) but unexpected supply chain disruptions for meat products (e.g. ASF, AI, unpredictable climate events, nasty trade spats) will add to business risk;
Mid-pandemic crises will cause food processing disruptions – e.g. the labour shortages resulting in Tyson, JBS and Cargill closing meat packing plants in the USA this month;
Hiccups in availability for food through the pandemic will drive long-term concerns about food security and result in both government and consumers seeking more local/domestically-produced meats;
Concerns in Asia about food safety will drive accelerated declines in traditional, wet markets as the principal source of supply for fresh foods to the advantage of modern retail. This is a plus for meat exporters to Asia;
In Western and higher income economies in general, concerns about the provenance of food products and their ingredients, how they are produced, by whom, and whether the values of the producing company are in tune with its customers will only grow as we come out of the coronavirus crisis and have more weight in the purchase decision;
This coronavirus period has accelerated the adoption of online grocery shopping because of positive experiences during lockdowns – this is a threat to traditional supermarket companies but a clear opportunity for those that are progressive;
Closing down of restaurants and the food service sector in general is encouraging home cooking and ingredient box companies (e.g. HelloFresh, Mindful Chef, Gousto). Post-pandemic, will we return to the cafés and restaurants? Big time! But, a proportion of consumers will feel more comfortable in the kitchen and their lower incomes will encourage them to eat more often at home;
If we have (God forbid) re-occurring coronavirus pandemics, intermittent periods of panic buying will reoccur and, sadly, food wastage will increase.
Keep up the hand-washing, social distancing and self-isolating and do keep well.
Well, what a to-do! Just as the nation achingly comes to terms with Brexit, we’re sand-bagged with COVID-19. Bugger! But, on the brighter side, our viral tribulations, apparently, are evoking the cooperative, all pulling together spirit of The War Years – apart from minor lapses such as hand-to-hand fighting in the supermarket aisles and stripping the shelves of staples such that Tesco Extra looks like some Eastern European bare-boned store when the Iron Curtain was still down. We’ve been spared formal food rationing which, incidentally was introduced 80 years ago this past January with bacon, butter and sugar first to be listed in 1940 and sweeties (1953) and cheese and meat last to come “off the ration” (1954). David has a clear early 1950s memory of playing “shop” with his sibling – she 6 he 3 – using the family’s coupons as currency, National dried milk powder tins and angular syrupy Welfare concentrated orange bottles on the pretend shop shelf, with his sister the authoritative shopkeeper and he the compliant customer. Incidentally, it was during these formative food rationing years that we Brits honed our internationally-acknowledged core competence in queueing. Lest you think that Boris’s “Let’s Get Brexit Done” was an unique clarion call, the Tories were trotting this out as an election pledge on food rationing in 1951, although it took a further 3 years to actually execute – mmmm, sounds a bit like what may happen to Brexit in a coronavirus-distracted world!
Of course, we’re doing supermarket-based rationing right now and we’ve all chuckled at the spoof maximum purchase notices:
But, we are not at WW2 food rationing levels of hardship when our issues of concern are securing Tesco delivery slots for our weekly groceries and, God forbid, being limited to a paltry maximum of 80 items, bitching because they’re out of plain flour (and when we secured this scarce resource would we know what to do with it?), and sighing with relief that gluten-free, agave-sweetened chocolate brioche are still available. All-in-all, and considering that one-third of our total food supply is imported, the resilience of our supply chains is exceedingly strong. Consumer expectations are so high but it’s no bad thing for shoppers to embrace the fact that it’s not the end of the world if we can’t secure everything we want whenever we want it. You’ll recall the primal screams when bad weather in Spain three years or so ago pushed iceberg lettuce prices from tuppence to some multiple of tuppence. Our wartime family understood the notion of seasonality for food and so should we now. Incidentally, the current run on staple foods may auger well for an uptick in home cooking. As an aside, in 1960, David used to nip down to Mr. Fink’s The Fruiterer near to his school in Keswick, Cumberland, and use his pocket money to buy 4 oz. of fresh lychees as a treat with no thought how this fragile tropical delicacy arrived from Malaya. International supply chains for perishables weren’t too shabby 60 years ago!
David’s late Mum and Dad lived and worked in a South Wales steel town in the late-1940s. They were then de-linked from their home village which was a challenging 45 miles away (no car, basic public transport). They had little or no social network – so, for example, no “off ration” extras from a friendly local butcher (à la Lance-Corporal Jones of Dad’s Army fame). His Mum recalled 1947 as being the “hungriest” year of the period 1940 to 1950. David’s sister was 2 and came first in the family feeding line. Fresh fruit & vegetables were never rationed but, often, in short supply and, unexpectedly, Mum found a bunch of fresh grapes to buy in the local market. Home she went to feed these sugar-filled treats to Jennifer and she recalled peeling them and eating the skins herself to keep her grumbling tummy quiet! In 2020, 5,000 food parcels are handed out each day in UK (one-third of them to children), so tummies continue to rumble in 2020 UK which is hardly a matter of pride for us as a leading global developed country. And, then, there’s the 800 million people in our world that wake up and go to bed hungry. But, that’s another hugely serious matter.
What’s for dinner tonight in the “self-isolating” Hughes household? The exigencies of the time encourage serving nursery food – and it’s corned beef hash. Of course, Fray Bentos comes to mind. The father of organic chemistry, German scientist von Liebig (yes, of condenser fame) beavered away at extracting the essence of meat as a means of taking the beef cattle bounty of the South American Pampas to the booming industrialising cities of Europe (in pre-freezer transportation days). Compagnie Liebig, with a business based in Fray Bentos, Uruguay, established the Fray Bentos corned beef and the Oxo brands. Dumb David remembers driving past the City of Fray Bentos en route to Punta del Este (Uruguay’s West Palm Beach) where he was speaking and wondering why you’d name a city after a corned beef brand. Corned beef (or Bully Beef as it was known to the British Forces in WW2) is still sold in excruciatingly difficult-to-open cans with those peculiar easy-to-lose keys. Generations of home cooks have risked tetanus and lockjaw so that their families can enjoy their favourite comfort food!
We are slap bang in the middle of scary times. From an agriculture and food industry perspective, let’s hope that our tribulations will spawn a more positive era and a better understanding of food issues such as those relating to food security, food equity, food safety, even food cooking at home and our children’s understanding of where food comes from, how it is produced and by whom and its impact on our planet. Whether it be a nasty human or animal virus (coronavirus is both i.e. it’s zoonotic), climate change-induced calamity (floods, droughts, fires, etc.), and vituperative trade policy spats, directions in our world seem to be increasingly uncertain. Super-efficient JIT supply chains have their moment but, maybe, we should focus on those with more robustness. This will bring additional costs and the need for creative products and routes to market for “waste”.
How we shop for groceries is in flux – the return of “The Big Shop” but purchased online and delivered to our door; increasingly more frugal shopping (UK household incomes are forecasted to decline by at least 5% this year); less focus on quality and more on availability; more careful selection of items that are perceived to contribute to the health and well-being of the family; redefining convenience to include ease of securing grocery needs for the family for the week and less on the immediate Food-2-Go requirements of the individual; and declining consumer confidence in the future manifested as squirreling behaviour for “essentials”. But, when the air raid sirens sound the all clear, will we revert to avaricious consumer type and forget the lessons learnt during the coronavirus war of 2020?
Both of us hope that you and your families will prevail and prosper and we look forward to interacting with you when the evil mist dissipates.
Two years ago Amazon, one of the online shopping world behemoths, confounded analysts by announcing that it was about to buy Whole Foods – an up-market bricks and mortar grocery shopping chain (June 16th, 2017). Share prices of major grocery stores plummeted, particularly in the USA (and they were rocky in the UK, too):
Grocery pundits opined that
the Amazon-Whole Foods deal would change the face of grocery to the detriment
of traditional supermarket players. We put in our two cents with our blog “What
if …. Amazon bought Sainsbury’s?!” (July 2017). What’s more, in the aftermath
of the UK regulator thwarting Sainsbury’s merger with Asda, we are minded to
repeat this question!
So, has grocery retailing been
turned on its head since then? No, but there’s been lots of changes. In the
USA, the grocery retail giants didn’t show the white flag! Most piled into
upping their online presence, not least Walmart who are bound and determined to
“Out-Amazon Amazon” with initiatives such as:
investment in Chinese electronic marketplace company JD.Com and bringing it to
the USA, alongside its own Jet.com (an acquisition in 2016 to compete with
Testing a grocery
delivery plan – households can pay $99/year for unlimited delivery of groceries
of $30+ basket size – hmm, sounds rather like Amazon Prime to us! – albeit without
the music, reading material and TV freebies that’s included in Amazon prime. In
the UK, Amazon hired the Top Gear guys to
produce a new programme to accelerate the uptake of subscriptions.
investment in automation/AI – trialling autonomous grocery delivery, expanded
robotic use in DCs.
under-performing assets (like Asda?) to generate additional funds to invest in
activities that improve its competitive position against Amazon.
The USA has been a slow poke
for online grocery shopping (3% of total grocery spend – it’s 8% in the UK) but
from a low base it is growing rapidly and may reach 10% (combining delivered
and click & collect) by 2024 giving the online route to the consumer a
handsome value of $100 billion. Walmart’s growth in online grocery sales is
much stronger than Amazon’s and for that omni-channel offer (“You can shop with
us anywhere, any time, in any format”), Walmart has 10 times more stores across
America than Amazon. But, they don’t have an Amazon Go offer and, mark our
words, these quintessential convenience stores will be become pervasive in
higher income urban markets. The real action for online grocery purchases
increasingly will be in Asia. South Korea leads the global pack now, but China
will dominate the online scene: Asian Millennial and Generation Z fresh food
shoppers are caustic about their parents’ affection with traditional wet
markets (which they see as being downright dangerous from a food safety
perspective) and who would want to visit a physical store for routine food
purchases in congested conurbations with scary air pollution problems?
By 2025, then, will our food
shopping behaviour be radically different than it was in 2015? Yes and No! Buying
food is different than, say, purchasing a branded electrical appliance, or
topping up our on-hand cash, or the services of a taxi. We’d wager: you don’t
have wistful moments recalling halcyon times queueing up at the bank for YOUR
cash; notwithstanding your admiration for black cabs and the “The Knowledge” of
their drivers, dialling up an Uber hasn’t left you in inner turmoil; and doing
your research online and, then, purchasing the fridge brand of choice isn’t too
difficult either. But, buying fresh foods is a different kettle of fish! Then,
we’re much more contemplative.
For starters, we are conservative in what we eat – of course, there are changes but, generally, they aren’t dramatic. In history, affordability and availability were paramount and, over time, the form of the food purchased became influenced by its convenience – in contrast to now where all foods are available all of the time. Food traditions were and are important, for example, the centrality of the Sunday roast which, then, led to a cold meat meal on the Monday and a minced one of whatever remained on the Tuesday. Religion played its part – fish on a Friday to cater for Catholics and, God love The JL Partners, Waitrose continues with its “20% Off Counter Fish on a Friday”! But, keep a keen consumer eye, roast dinners, casseroles, soups and sausage-based dishes are down across the UK, and Italian, Oriental, salad and vegetarian meals are up. Potatoes are featuring in 25% less roast dinners than they were 4 years ago.
Where we purchase food
changes slowly, too, reflecting not least who we trust to provide the food we
feed to our families. Remind us, what experience and expertise does Amazon have
in retailing fresh meat, fruit and vegetables and aren’t they a tad more
complex to source than masonry drill bits? A major constraint to expanding
online retail sales of fresh food in the UK and many other countries is that shoppers
mistrust the retailer to select produce on the customer’s behalf – even
although the likes of Sainsbury’s, hardly a Johnny-come-Lately, have been doing
exactly this for 150 years!
However, the rate of change
of what we eat, where we purchase and consume it is accelerating driven by, inter alia:
change particularly in burgeoning cities – e.g. the growth of one person
households (close to 50% of households in major international cities);
for families where 2 parents are working outside the home or, even more
frantic, single parent families;
the “family” meal occasioned by different working hours, proliferation of extra-curricular
activities (sports, music, Ipad time, etc.);
incidence of food allergies and dietary preferences – e.g. the 20% of families
with youngsters in the 10-20 year old range who are – vegetarian or gluten-/lactose-intolerant (we
refer to this as the tricky “What have you bought/cooked that Brenda can eat?”
And the global
impact of food trends emerging, converging and being embraced brought about by
social media consumption – e.g. pervasive Instagram food pictures (David’s 9
year old granddaughter woofs down smashed avocado on sour dough toast having no
truck with Fanny Craddock-esque avocado prawn cocktail with scarily pink Marie
The food service industry responding adroitly to accelerating food-to-go demand – for example:
the likes of Pret out-performing traditional supermarkets in F2G (and buying F2G chain EAT to expand its vegetarian offer presence);
gas/petrol stations becoming respectable places to stop by for a chocolate croissant and decent coffee (explaining why Coca-Cola swept up Costa Coffee early this year) and a nutritious, ready-to-eat salad curated by Jamie Oliver himself;
restaurant meal delivery options arriving en masse (note that Amazon has just increased its investment in Deliveroo having failed twice to buy the company, and McDonald’s with its global link with Uber Eats is expecting a $3 bn. meal delivery business by the end of 2019);
meal kits whisked to one’s door with the week’s meals ingredients (in the USA, Unilever increasing its investment in Sun Basket and the largest Japanese organic food investor purchasing Purple Carrot both to hold positions in vegetarian and paleo diet meal offerings).
There’s so much going on in
global F2G that it makes you dizzy and the pace of change and entrepreneurial
energy in the UK is frenetic!
Having taken a battering over
the past few years, Big Food as we expect has come back fighting and recognised
that cutting costs is not the only solution to
its woes. Global brands are on the decline and regional/local ones on
focusing on growth of the local brands in its brand stable, and on high growth
areas such as plant-based foods, dairy protein, rehydration (water!), and gut
health (pre- and probiotics);
Gut health has also
appealed to Kellogg’s (launch of “Happy Inside” cereals) and to Unilever
(investment in Culture Republick probiotic ice cream) as well as riding the
healthy snacking trend by buying the UK’s Graze;
emphasis from slow or no growth developed markets to speedy emerging markets is
the order of the day, too – Unilever’s sales increased 5% in the latter and
0.3% in the former last year;
Even Big Meat,
never first to the innovation parties, have lumbered forward with Tyson, JBS,
Cargill and Purdue all launching flexitarian and plant-based “meat” products
within the past few months. This is a segment that Nestlé seems stubbornly trying
to embrace. Initially, the company failed with the launch of plant-based meals
Garden Gourmet but, stoically Swiss as ever, Nestlé is re-launching it and has
the impetus of providing its product as McDonald’s Big Vegan Burger, and has
revealed to the world the Awesome Burger under the Sweet Earth label. Slow but
generally sure, Nestlé aim to reach $1bn in sales within a decade from plant
What’s all this mean to the rest of us – from broad acre arable farmers through SMEs in food manufacturing and meal & snack solution delivery? Change in the food and beverage industry is constant, inexorable and is clearly accelerating. Businesses of all shapes and sizes should reacquaint themselves with The Boiled Frog fable. Irrespective of the relevance to you of the second anniversary of Amazon’s Whole Foods purchase, ask yourself “In the last 24 months, what have we done in our business both to improve our position vis-á-vis our competitors and our customers?”. Go on, make a list! And for your products and services, what’s the fastest growing routes to the consumer and are you in them?
We started the blog talking about Amazon’s acquisition of Whole Foods and the tremor that this caused through global retailing. Two years on, the Whole Foods Division is the slow poke of the Amazon Empire (+2% p.a. revenue growth) dragging down overall corporate growth to a miserly 18%! Bricks & mortar grocery retailing is not in the stratospheric arena of cloud computing in which Amazon excels. Kroger – America’s Number 2 grocer – slipped backwards in sales last year. Since buying Whole Foods (and not because of), Amazon’s stock price has close to double, whilst Kroger has lurched to and fro and, currently, has scraped a 6% gain over its June 2017 price. It’s tough trucking in grocery retailing and that’s one of the reasons, dear readers, to put it delicately that big supermarket chains are such difficult entities to deal with!
Prof David Hughes: Around the world, David speaks to senior agribusiness and food industry managers about global food industry developments that are and will affect their businesses and industry. Energetic, engaging, humorous and insightful, David gains the very highest evaluations at seminars, conferences and Board level discussions in every continent he visits.
Miguel Flavián: works for several Spanish organisations and companies to help them to learn from the developments of the British grocery market and improve their business back home.