The Domino Theory: Implications for Plastic Packaging

Who would you choose to captain your fantasy A Team on environmental issues? In agriculture and food, Rachel Carson of “Silent Spring” comes to mind. She’s been the mother of the modern environmental movement with her early stance on abusive usage of pesticides. St. David Attenborough would make a decent Vice-skip, particularly with his revelations on destruction of our planet’s oceans which are the home of the world’s favourite meat protein – fish and seafood. Concerns about the impact of plastic waste on our environment are not new but, certainly, he has raised them to their current high levels via the BBC documentary Blue Planet II.

Evening Standard February 25th, 2018Evening Std Milkmen.jpgA recent UK Kantar Worldpanel survey identified that:

  • 25% expressed “extreme concern” about plastic packaging in grocery;
  • 42% thought it should be a priority to make all packaging recyclable;
  • 21% want entirely plastic-free packaging;
  • and 59% said they were trying to minimise plastic waste at home.

A large sample, these results reflect substantially more than the views of eco-terrorists, Guardian readers and Waitrose shoppers!

Grocery industry folk we meet with outside our borders often comment on the profligacy of packaging in the UK, identifying “overly-packaged” fresh foods and ready meals as being particular culprits. There’s some truth in this although it does reflect that we are an acutely convenience-driven shopping society – grab & go people with no time (or competence?!) to select the pick of the crop and, anyway, shouldn’t that be the job of the vendor? This suggests that we don’t like plastic packs but we might find it difficult to give them up.

Richard Walker The Grocer.jpgMind you, there’s plenty going on in the grocery industry:

  • astute Malcom Walker, CEO of Iceland, was first out of the blocks promising to eliminate plastic packaging from all Iceland’s own brands by 2023;
  • Waitrose has announced it will eliminate black plastic on own brand products by the end of 2019;
  • Tesco has its “3 key pillars of the Little Helps Plan” committing to make all packaging recyclable or compostable by 2025;
  • Nestlé and Unilever, amongst others, have endorsed a total ban on oxo-degradable plastics (those that many consumers believe are biodegradable but, in fact, leave micro-plastic waste as a hazard for fish in the oceans);
  • Coca-Cola has a “World Without Waste” goal to have 100% of its packaging recyclable by 2030;
  • and pesky millennial start-up companies incorporate total recyclability into the package of values that are integral to their products. Ella’s Kitchen (now, part of “Big Food” Hain Celestial) has pledged to make its baby food pouches recyclable by 2024 but, in the meantime, has an “Ellacycle” scheme in which consumers can drop off their empty Ella packs to be made into useful consumer items! Fair Play, Nestlé have picked up from customers’ front doors used Nespresso pods as part of its coffee system offer for years.

 

So, the grocery industry seems to be saying “We recognise there is a plastic packaging problem and we shall fix it .. umh .. in 5 or 10 or 15 years time”. Problem recognition is a good start, albeit after years of, if not denial, at least ignoring. Do you remember the contretemps associated with CFCs –used in refrigerant cooling and aerosols. In the very-early 1970s, their impact on the ozone layer was shouted out by “eco-terrorists, ne’er-do-wells, flower power people and communists”. But, it wasn’t until the 1987 Montreal Protocol that the world started to take action to address the widening hole in the ozone layer. David can remember in the 1970s blithely using spray can deodorant without a smidgeon of guilt that he was upping the skin cancer risks for his mates in Australia!

So, relax, we’ve got 15 years to fix the plastic packaging problem. Well, it took Rachel Carson and her “Silent Spring” and the anti-CFC protagonists the better part of 15 years to get a hearing but, then, we didn’t have pervasive social media. If you sell a dodgy chicken in Ulaanbaatar and get rumbled this morning, it’ll be on facebook and Bloomberg News before lunch. Time has become compressed. Those that run our industry – consumers – won’t allow us the luxury of 15 years to fix the problem and particularly those impatient centennials and millennials. There’s billions of them around the world and they are astonishingly inter-connected and, increasingly, concerned about social and environmental issues. Damn them. They’re all like Veruca Salt, the spoilt brat in Roald Dahl’s “Charlie and the Chocolate Factory” who wants the Golden Ticket and she wants it NOW!

The issues associated with plastic packaging are analogous to those related to animal welfare, food safety, and food chain integrity, in general. Responses to consumer concerns are accelerated by the actions of major food industry players. Why the Big Boys? First, increasingly, they are aware that if their corporate interests are not consonant with the values embraced by their customers, then, they won’t remain Big Boys and they’ll certainly be perceived as Badder. Secondly, nimble start-up and smaller players will grasp social and environmental initiatives to give them a competitive edge and exacerbate the doldrums which many major companies find themselves in.

McDonald’s is a case in point. In many social areas, it’s been ahead of the curve (e.g. MSC certification on its fish). On a platform of “Food with Integrity”, USA-based Chipotle claimed “antibiotic-free chicken” and, essentially, forced or at least accelerated discussions that McDonald’s had with its chicken suppliers worldwide to follow a similar path (mind you, Chipotle went on to foul up on food safety and queer its pitch on food integrity!). McDonald’s move towards cage-free hens for its egg supplies in many countries reflected pressure from animal welfare groups and prompted a very quick response. Do click on the link below to see the YouTube clip placed by Animals Australia (2014) which is a quite brilliant example of lobbying – fair and balanced? No. Effective? Yes.

Once a Big Beast like McDonald’s or a Tesco takes a radical social, environmental, and/or animal welfare initiative (or, indeed, one on price), major competitors are forced to follow – the dominoes start to fall. What’s more, these domino tiles aren’t tiny, they’re the size of massive Stonehenge pillars and the consequential knock-on effect has massive implications for the food industry.

What’s our point? We see a classic example of the Domino Theory in Practice for the accelerated removal of plastic packaging. Concerned consumers won’t accept dates for 100% recyclability that stretch into the mid-2020s. Back to Veruca Salt, they want it NOW and, increasingly, their purchase decisions will reflect this. We’ll be seeing much less of the pervasive, anger-inducing label on pack of “not currently recyclable”. Should this be an opportunity for governments to regulate? We’ve moved on: in the food industry, it’s not governments that regulate us, it’s our customers, the major supermarket and food service chains, and they are the proxy for those with the real market power – shoppers, consumers and their families!

Plastics will take time to disappear but if they are not recyclable and/or compostable soon, the products inside these packages will not be purchased. Will consumers pay more for green packaging? NO – they’ll simply expect it and will be outraged if it is not. Ralph Early (Harper Adams University) has an insightful article in February’s issue of Food management Today: He concludes “(food businesses) derive income from the products they sell to consumers and in doing so they assume a range of moral (and ethical) responsibilities on behalf of consumers”. We concur. We’ll attain 100% recyclability much quicker than the food industry is planning to do so now. When we get there, we’ll be asking ourselves “Why didn’t we do this before?”.

 

Posted in Consumer, Credentials, Sustainability

Trust Me, I’m a Farmer!

Back in 1933, soap detergent company Procter & Gamble sponsored “Oxydol’s Own Ma Perkins” daytime radio show and soap operas were born! Post-War, the “goggle-box” arrived and we’ve been huddled together watching the ubiquitous soaps for decades. Food companies got into the game: Domino’s Pizza and BirdsEye sponsored The Simpsons. But, the notion of the “nation’s favourite” laundry detergent or food brand has dissipated – weakened by encroaching supermarket private label, promiscuous shoppers chasing price deals and, more recently, the gnawing perception by not least millennial consumers that Big Corporates are Bad and Smaller are Sweeter!

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The 1930’s Advertisements for Oxydol were Soap Operas in Themselves!

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In fact, there’s been a collapse in trust of erstwhile élite institutions such as government, the church, non-government organisations, the media (true or false news?!), particularly social media (trusted by less than 25% of Brits), and business, not least global companies. Grumpiness about the latter varies substantially by country: the French are the most dyspeptic (hasn’t it been ever thus “La Bonne France, L’Autres  sont Terrible”!), Brits are sceptical by nature, Americans generally positive and the Chinese, ironically given their Communist status, laissez-faire and happy to embrace international brands! Mind you, it’s not surprising that the Chinese are generally happy with their lot – there’s more than a few citizens of democratic countries that would trade their voting franchise for a long sustained period of income growth and “things getting better for my family”.

On trust, “Big Food & Drink” has fared badly this decade, as we’ve reported in previous blogs. As issues relating to consumer health, the environment, worker welfare, etc., have become more widely discussed, big corporates have been perceived more of being part of the problem rather than the solution. Let’s be clear, it’s a nonsense to think that the answer is to revert to small-scale, but Big F&D has been ponderous and, often seemingly reluctant, to align their values and performance to meet their customers’ requirements. Let’s give 2 cheers to Kellogg’s in the UK who announced in November last year that it was cutting sugar content in kids’ breakfast cereals by 40%. Child obesity didn’t pop up as a problem in 2017, Mr. Kellogg! And, then, there’s Coca Cola promising that by 2030 all its packaging will be recyclable – much too little and much too late would be our view, lest the oceans be a squidgy mess of plastic waste by then! Or the gob-smacking promotion this month from IHOP (International House of Pancakes) in the USA – the country firmly in gold medal position in the OECD Obesity League Table.

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We think that 2018 will see an acceleration in the transformation of the global food and drink industry. Sieving through the plethora of “Food Trends for 2018” that arrive with the New Year, we like Innova Market insight’s top trend “Mindful Choices” which identifies increasing consumer concerns about the health of the family and the health of the planet as current  Millennials enter the family “nesting” stage of their lives. In 2007, 1% of global new product launches identified environmental and ethical attributes – in 2017, the figure was 22% (Mintel Global NPD Base). Is this just corporate greenwash? No, Big Food is on to this, or at least some of them are. Unilever and Nestlé are clear leaders but here’s a quote from Danone’s CEO: “our business is inherently reliant on agriculture, so we will help transform the food system, and work with our partners to build regenerative models of agriculture based on healthy and resilient soils”. When did you last hear a word from a food and drink company that acknowledged that its business had anything to do with soil!

On environmental matters, and particularly the global food industry’s impact, we’ve passed the tipping point. Sometimes it just takes a little nudge – a 5 pence charge on a supermarket plastic bag and usage is slashed (UK). It’s got little to do with the financial penalty and much more to do with the increasing awareness of the impact of plastic waste on our environment (and the guilt of being an indiscriminate plastic bag user). The BBC’s riveting Blue Planet II has taken this concern to a higher level – note the headlines “Plastic killing our precious sea creatures” (for goodness sake, sanctify Richard Attenborough!).

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The most recent and pivotal manifestation revolves around non-recyclable coffee cups and whether there should be a 25 pence (35c) charge. The charge won’t materialise because it won’t have to – increasingly, consumers will make it unequivocally clear that if the cup isn’t recyclable, then, they won’t buy it. That’s why we feel that frequent criticism of over-packaging of food in the UK is currently valid but shortly to be passé. This is a great area to show a first mover initiative – note Iceland supermarket very recent promise to remove all plastic packaging within 5 years. Be assured, in a very few years, if packaging isn’t at least recyclable but preferably compostable, then, the product won’t be purchased. There’ll be no premium paid for recyclable/compostable packaging, but there will certainly be a discount on products which are not!

We mustn’t ramble on, so, back to building trust in the global food and drink industry. Reflecting back on the past 60+ years, “those in charge of our food” has changed from big food and drink manufacturers usurped by monolithic retailers (hey, it was only a decade ago we all thought Tesco would bestride the retail world and Amazon was a Ponzi scheme and Alibaba a fairy tale character). Now, the internet has brought huge social challenges but, in the world of food and drink, it has moved power firmly towards the consumer-citizen. A bit late in the day maybe for some in the industry – if we had worked out back in the early-1990s that doing clever stuff with plant genetics required the sign off from consumers before we got too far down the pike would have saved us a lot of grief on GM food. However, then, we weren’t smart enough to grasp that working on the basics of life required us to gain a licence to operate from those that paid our salaries and took the risks of our actions i.e. consumers.

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Jeff Bezos, in the process of building the challenger of Walmart and Tesco.

It’s a fact, Consumers Rule OK! They demand transparency and traceability along the supply chain. Increasingly, they’re interested in how the products they put in their families’ mouths are produced, and where and by whom – why wouldn’t they be? Particularly because they are of the mind that the food and drink industry has been sparing in information presented heretofore and, occasionally, economical with the truth on its costs and benefits.

This upcoming decade may well be a watershed for food producers – and we mean the farmers and fisher folk who produce, to use an old-fashioned term, the ingredients which comprise our daily fare. Actually, from a consumer trust perspective, in general, farmers are well placed (maybe to their surprise). Research from Canada, for example, shows that farmers are more trusted than other food chain participants – such as retailers, manufacturers and government regulators; although, trust levels have slipped right across the food chain in most recent years. Canadians see their farmers as being competent but needing to work on providing greater transparency in their farming operations. A similar picture is evident in the USA: government, farmers and food manufacturers are all held responsible to ensure safe food for the nation, but farmers (along with our own family members and the local doctor!) engender much more trust than the others. Big Food and big business in general lack trust, whereas smaller-scale operators are perceived more benignly. If there is a pervasive view that “Small is Beautiful”, then, this is both naïve and problematic – small can be cute and cosy but, of course, it can be under-resourced, ill-trained, under-regulated and downright sloppy!

There is a big issue for farmers, too, on consumer perceptions of scale in agriculture. Big farming/factory farming is demonised whereas smallholder farming is fêted. The rhetoric surrounding messianic support for the small-scale producer reminds us of Primrose the pig in George Orwell’s Animal Farm mindlessly chanting “Four legs good, two legs bad”. Most UK consumers, for example, would have no idea of what number of cows would constitute a large or small dairy herd. In fact, what is portrayed as gargantuan and the worst sort of industrialised farming by activists would be seen as barely economic in, say, South Island, New Zealand!

Clearly, one can’t usefully lump farmers (or any businesses) into arbitrary categories based on land plot size, sales, etc. The world over, there are good businesses and bad businesses and, fingers crossed, let’s hope there is sufficiently robust regulatory frameworks in place to weed out those that are noxious! For a producer of a “finished” food product sold to a consumer, however, what is much more important than in the past is the story associated with the manufacture and procurement of the ingredients that comprise the final product – the primary producer is an integral part of the food team. This wasn’t the case in the history – ingredients appeared automatically, almost by magic! The farmer is now maybe the most important part of the food integrity team. Those farmers that can deliver this on a sustained basis will earn a premium for doing so, after all, they are carrying the brand integrity torch on behalf of food brand owners.

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In the future, expect to see primary food producers much more upfront than in the past. It’s already happening – note the coverage that small-scale coffee and cocoa farmers receive in advertisements from the likes of Nestlé, Cargill, Kraft Heinz. McDonald’s puts egg and potato farmers in its advertisements. Danone is talking muck and farming! The worm is turning! Farmers are becoming increasingly fashionable and deserve a premium for their fashionista status. This doesn’t mean that every farmer should become a media star. There’s a lot of farmers who would put the fear of God up a consumer. But farmers do need to be more on the front foot. We like the farmer-led campaign to promote milk products and dairy practices in the UK –  #Febudairy. Let’s see some “agri-proactivity” as it shouldn’t just be the bailiwick of vegan special interest groups to trample unfettered across the twittersphere when communicating with impressionable consumers. Finally, in Agriculture’s “A Team”, make sure there are real farmers who are personable, attractive to the eye, with media training to carry the banner for the agricultural industry!

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Aldi sponsors Olympic Team GB and picks the most athletic farmers to supply them with milk!

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Posted in Credentials

Some Reflections on Global Food System Trends

End of the year food blogs, often, focus on trends embraced by the chattering classes, such as Gothic desserts, even more obscure ancient grains, and posit opinions on whether demand for kombucha tea has peaked. However, we thought we’d take the “ground-breaking” FAO 2017 study of global food system trends and pull out some stuff that might be of interest to you whether you are farming, retailing or doing anything in between.

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  1. World Population Growth is Slowing

We’re going to add 2 billion more people to our world over the next 30 years and most of us will be living in cities – that’s handy because it makes them easier to bag with our products and services.  By 2050, India will be the most populated country and China will have got old before it gets rich, with too many grumpy batchelors. Notwithstanding the UK’s wingeing about new entrants, Germany’s population growth rate is double our own. Urbanisation brings sharp falls in fertility rates across the globe – who’s going to do the grunt work? A combination of robots and immigrants?

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  1. Dietary Patterns are Changing

Global meat demand is buoyant and the better part of 90% of anticipated increase in consumption over the next decade will come from Asia. Right now, China woofs 25% of the world’s entire production of soya to feed an increasingly ginormous pork herd, but global meat exports will surge – 5 million tonnes per year into China alone. Counterbalancing meat demand growth in emerging markets will be a slow drift down in per capita consumption in richer countries. Mind you, protein intake will grow, driven by pulses, dairy and complex meat substitutes.

  1. Nutrition and Health

The proportion of the world’s population that is under-nourished is falling, thank goodness, but over-consumption is increasingly pandemic. Under- and over-consumption bring huge avoidable costs to us all. Food culture and history explain astonishing divergences between countries: in Europe, obesity is 3 times higher in the UK than Italy; and it’s 10 times higher in the USA than in Japan! There’s a well-beaten path – first, government departments of health recommend we change our diet and lifestyles. Little happens and the food industry is exhorted to reformulate. Marginal changes arrive but too little, too late. Governments turn to fat and sugar taxes more as a stick to beat industry into accelerated change than to influence significantly consumer behaviour. The health & well-being megatrend is a long-term runner.

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  1. Global Economic Growth, Investment, Trade & Food Prices

Global annual economic growth is projected at 2.7% but it won’t be shared equally around the world. Watch out for hiccups in China, the USA and India – the first two have a disproportional impact on the rest of us, i.e. if they have a sniffle, we catch cold. A slowing China is entirely predictable but don’t forget that a VERY modest 5.2% growth in Chinese GDP is equivalent to adding “Another Germany” every 5 years! When the USA is struggling, China and India account for over 50% of global growth – a frightening reminder that economic performance in these two emerging markets can both make and break us economic minnows. Agricultural commodity prices are expected to remain at relatively low levels which is particularly disappointing for farmers ……

  1. Competition for Natural Resources, Agricultural Productivity and Innovation

…. because of growing scarcities of natural resources which will drive farm input costs higher. FAO anticipate “intense competition for diminishing resources resulting in further land degradation, deforestation and an unsustainable level of use of water resources”. But, there may be some mitigators: peak oil being pushed further back into the future because of alternative sources of both non-renewable and renewable energy; increasingly AI-driven, high tech agriculture bringing a productivity surge to commercial farming; science-based and societally-approved genetic engineering of plants with consumer and producer benefits such as nitrogen-fixing staple crops, drought- and disease-resistant crops, etc.; transformation of business models in farming fuelled by rewarding productivity increases (and other societal benefits) rather than focussing on slowing the rate of agricultural adjustment (e.g. elements of the CAP).

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Unilever and other Big Food using their scale for good.

 

  1. Climate Change, Natural Disasters, Conflicts, Crises & Migration

FFAO separate these into 4 separate, gloomy trend boxes but we lump them into 1. Unequivocally, climate-related disasters are escalating causing huge economic damage, viz. $100 bn. per year between 2004 and 2014 and exacerbated by higher global temperatures and erratic rainfall. For many countries, this will mean greater food insecurity – higher income consumers can cope if a staple or a treat leaps in price. But, it’s a different matter for the lady buying food for her family in The Philippines. More than half her family’s income goes on food and, if the price of rice rockets because of a nasty El Niño, she doesn’t buy less rice, probably she buys more and much less of the little treats she was starting to give her family (e.g. imported beef, dairy products). For exporters, anticipate more volatility when you are business planning.

Here’s another crisis in prospect: in Bangladesh, half of the 165 million people live so close to the water that a combination of rising sea level, more frequent and extreme weather events and add in the tragic influx of Rohingya Muslims from Myanmar, then, Bangladeshis and the world have a massive problem. Because when push comes to shove and their feet get wet, they’ll start walking – and in numbers that will make the more recent North African immigrant flow into Europe look like a Sunday picnic. This is a Bangladeshi issue but a problem that the world will have to solve. Mind you, it’s an ill wind etc…. as we’ll be needing the labour.

  1. Transboundary Pests and Diseases

Global food security is threatened by an alarming increase in the number of outbreaks of pests and diseases in animals and plants. Bird flu is a case in point. Two years ago, there was egg rationing in the USA for goodness sake – a country where they can’t spell rationing, let alone come to terms with food shortages! China’s National Health & Family Planning Board reported 79 human deaths in January, 2017 from Avian Influenza. The worry is that a mutation might allow human to human transfer of AI and that would beget a cataclysmic pandemic. Remember, more than 70% of infectious diseases in humans since 1940 can be traced back to animals.

  1. Food Losses and Waste

There is plenty of food to feed our world of 7.6 billion. It’s not evenly distributed and close to 800 million people end their day hungry. Yet, one-third of all food produced is lost or wasted! In emerging countries, food is mainly lost in the supply chain before it reaches consumers (e.g. spoils in storage, or in-transit). In “our” world, most of the waste is in the home – we buy too much and throw it away. We’ll all get better at this – better supply chain management and infrastructure in emerging countries and, in the Western world,  we’ll be shamed into more sustainable food buying and consuming practices and become savvier about spending our hard-earned money on groceries. Move on to 2050 – Malthus will be proved wrong again as we produce plenty of food for 9 billion consumers. The issue is will we be doing so in a sustainable way?

  1. Structural Changes within Economies and the Food System

As we travel the world of food, we note the accelerating pace of change in many markets. When David lived and worked in Africa, one huge constraint to smallholder farming was simply them getting paid for their output – payment was slow and poor via a labyrinthine marketing chain. Then, the mobile phone era arrives – Africa skips the need for a land-based telephone system and becomes a world leader in transferring cash safely via the phone. It’s refreshing to note, for example, Cargill’s “Cocoa Promise”  to small-scale farmers ensuring rapid and fair prices plus extension support to their mutual benefit – a better deal for farmers and a more secure and higher quality source of cocoa for Cargill. The triple bottom line approach to business is a megatrend and essential for “Big Agribusiness and Food” to regain the trust of farmers and consumers worldwide.

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We wonder about the path that grocery retailing will take in some emerging countries. Not necessarily the path of small grocery store (duka) through to large supermarket route characteristic of grocery evolution in our own markets – note the huge attraction of on-line grocery shopping for customers living in global mega-cities in Asia! In short, the evolution of food systems in Western economies is no blueprint  for emerging countries. What we’ve learnt is that, for any business person, it’s good to get out more (and go a little further than Tesco and Pizza Hut). Stay home, stay stupid!

Happy Christmas to any readers who have got this far in our last blog of the year. We’ll talk to you in 2018 and reveal all about Gothic ice cream and kombucha tea!

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Posted in Trends

Big Food: Going, Going, Gone?!

Big food companies haven’t been cracking open the champagne in recent years – in developed markets, sales have been in free-fall, with fast-growing emerging markets saving the day but, still, the overall sales trend has been ominously downwards, and this has been reflected in their share prices. It’s darkly amusing because consumer activist groups still rail against Big Food – Unilever, Nestlé, Kraft, Mondelēz, Danone et al – because, purportedly, they have global consumers in their thrall! But, listen to Emmanuel Faber, Danone’s CEO: “the food industry is going nowhere – because short-sighted companies see only a transactional relationship with consumers, not deeper ones based on values”.

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Rabobank graph with Euromonitor data for the US Market, showing the performance of Big Brands, Small Brands and Private Label in different categories.

What are the problems for Big Food? Well, there’s the one Faber identified above and here’s four more:

  • Consumers have moved on eschewing “over-processed” foods as they seek healthier, fresher, more natural snacks and meals with simpler ingredients. Take breakfast cereals for example, Kellogg’s Frosties, Post’s Fruity Pebbles and Honey Bunches, General Mills’ Cheerios screamed “sugar-drenched” to mums (if not to kids). Start-up companies, generally, run by millennials spotted the slow-footedness of these ponderous dinosaurs and whizzed in with new age products that pleased parents and their offspring. We blame those pesky, difficult-to-please centennial and millennial consumers. They deserve a good spanking but, the trouble is, there are 4 billion of them worldwide;
  • More broadly, consumers have been showing a distinct predilection to trust must less our traditional pillars of society – like big government, the church and, yes, big business (legal but nonetheless dodgy tax avoidance by Starbucks et al hasn’t helped here);
  • Big Food’s major customers – supermarkets – are under extreme pressure as Amazon and Alibaba are in the process of changing how consumers shop for groceries. When Tesco gets squeezed, its suppliers feel the pain. Doubly so, when supermarkets expand their private label offer at the expense of branded products to seek points of differentiation. What’s more, the centre of the store is being squeezed as shoppers flock to the perimeter where more exciting fresh and freshly-prepared foods are sold. No wonder the centre of the store is darkly termed “the morgue”!;
  • And, of course, an extended deflationary period – reflecting declining raw material prices (corn, soy, energy, etc.), over-supply in grocery retail bricks & mortar, households still recovering from the vicissitudes of the GFC hasn’t been helpful. When inflation is rampant, it’s a tad easier to sneak up retail prices than when shoppers expect prices to remain the same or fall.

Like big business in general, Big Food has this recurring nightmare of exiting the top 100 companies in their respective stock markets. The average lifespan of a company in the S&P 500 was 60+ years in the 1950s and, now, it’s less than 20 years. So, CEOs have similar nightmares to football managers in the  UK Premier Football League – viz. the threat of demotion to the lower leagues! To continue the football analogy, food businesses do the same as soccer teams when results turn against them – they change managers! Who’s done this recently? – well, in the last 20 months, 17 CEOs of big food companies have been sacked or “stepped down/retired”, including Kellogg’s, Mondelēz, General Mills, Hershey and, God forbid, even rock solid Nestlé. Particularly for US companies, getting the boss to fall on (usually) his sword is the first move to convince investors that a turnaround is a coming (shackled as they are to “deliver the financial numbers” every quarter). So, being promoted to CEO is akin to being presented with the “Black Spot” in Robert Louis Stevenson’s classic “Treasure Island” – the pirate king is doomed to a tragic end!

Sack the boss, is that the solution to its woes? No, Big Food has other arrows in its turnaround quiver, like:

  • Slashing costs across the business and doing it in a hurry before 3G Capital with Warren Buffet, the “Sage of Omaha” arrive on the scene and peremptorily acquire you and introduce zero-based budgeting (as they have manifestly and successfully done so with KraftHeinz);
  • Do the above but think big, again à la 3G Capital and merge Heinz and Kraft and, what’s more, have a go at adding Unilever into the mix to produce mega-economies of scale that astounded the market in February this year;
  • Reformulate/tweak existing products and accelerate NPD to launch healthier, on-trend products. Normally, this brings a rash of kale, chia, and panoply of gluten-free ingredients, or a link with a celebrity;

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  • Sell under-performing divisions/categories of the business – e.g. the spreads division of Unilever (“I Can’t Believe It’s Not Butter” doesn’t have to believed, it just disappears!). This is the “shrink to success” sub-strategy (unless you’re P&G when the sale over time of its coffee, snacks and pet food businesses was an “exit food for higher margin health, beauty and homecare” strategy);
  • Focus on faster-growing areas of the business. Nestlé comes to mind as it identifies – water, coffee, pet care, infant nutrition as high growth areas, with consumer healthcare a longer-term slow-burner, and accelerated pushes in emerging markets;
  • Buy a big player in a fast-growing area – e.g. Danone’s purchase of White Wave for $10.4 billion, whereby a major dairy-based foods company acquires a plant-based “non-dairy dairy” company with brands such as Alpro, Horizon Organic and Silk soy milk, or Mars and its $9.1 billion purchase of pet care company VCA, Inc. in the USA (the pet care market is growing at twice the rate of consumer foods);
  • Pervasively fashionable with Big Food has been the establishment of venture capital divisions with modest pots of money to buy into start-up companies that have product portfolios with high potential – e.g. Danone’s Manifesto Ventures that has invested in organic baby food start-up Yooji, Michel & Augustin (premium cookies and organic yogurts), Farmers Fridge (salad vending machines) and Accel Foods (a VC accelerator backing, inter alia, a company making tater tots from cauliflower) over the past year. Unilever, Nestlé, Kellogg’s, General Mills, Campbell’s have all been similarly busy with the hope that they’ve picked a Fever Tree start-up phenomenon that can go big time;
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Campbell Soup has just announced they are joining the Plant Based Foods Association, to reinforce their commitment to healthy food and perhaps buying new brands in this area!

  • Announce share buybacks to keep shareholders sweet and activist investors off the corporate back. This is a “capital structure” play that is preferred by the likes of Nestlé – and handy when one has cash but nowhere immediately to spend it on a high return opportunity;
  • Finally, the far-sighted food companies place society’s interests at the centre of their businesses and communicate this effectively to consumers, shareholders and other stakeholders. Unilever and Nestlé do this best. For instance, Nestlé’s use of the Creating Shared Value (CSV) tool: focusing on areas of greatest intersection between its business and society’s concerns – products with a nutrition, health and wellness dimension perform better than junk food in the long term, rural development programmes for farmers ensure long-term ingredient supply (e.g. cocoa) and are liked by consumers who want to know who produces the ingredients for Nestlé’s KitKats, and responsible stewardship and sale of water saves costs, lives and is positive environmentally. Paul Polman, CEO of Unilever, has been a thought leader in this area – the Unilever Sustainable Living Plan is about doubling the size of its business whilst reducing its environmental footprint and increasing its positive social impact (moving towards “net positive”). Emmanuel Faber (see opening paragraph) is onside, too, launching Danone’s “One Planet One Health” signature programme.

So, is it “Big Food, Going, Going, Gone?”! Well, let’s hope it’s Big Food Bad Food heading for oblivion. But, there’s nothing wrong with big companies – they’re not intrinsically bad. They bring scale, resources, technological sophistication, jobs and, when they move in a direction that is consonant with society’s greatest needs, they can be powerful accelerators of positive change. Let’s give Big Food some encouragement and a kick up the backside and may Little Food continue to harry them mercilessly. Whether you’re Big Food or Little Food, however, the principal key to commercial success is to produce tasty products that are irresistible and produced in ways that are in tune with the values of consumers and society at large. What must stick in the craw of Big Food that has got this message is that it’s a long row to hoe! In the meantime, the most profitable companies globally in grocery are the ones pedalling cigarettes and booze. Organic yogurts and chia-coated muesli bars can be yummy but they’re not addictive. C’est la vie – it’s a cruel world!

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Posted in General, Health, Premium, Trends

Red Alert on Red Meat!

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The consumer and food trade media is full of stories about “the end of meat as we know it” and, indeed, we’ve been banging on about “non-meat meats” for months – and for good reason. In the USA, plant-based burger companies Impossible Foods and Beyond Meat (which will be in UK restaurants and on shop shelves in 2018), lab.-grown “clean meat” Memphis Meats, Modern Meadows growing collagen-rich leather from animal cells, egg-mimicking mayo-producer Hampton Creek,  and others have attracted over $1 Billion in start-up finance from the likes of Bill & Melinda Gates, Li Ka-shing, Google’s Larry Page and other Silicon Valley noteables. Their rationale is partly altruistic but, partly, driven by the belief that the agriculture and food industry is due for massive disruption just as, concomitantly, the way that food and groceries arrive in our homes is being transformed via electronic platforms à la Amazon and Alibaba, and recipe kit start-up companies such as Hello Fresh and Blue Apron, with delivery agents Deliveroo and Uber Eats spreading like wild mushrooms across the globe.

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We recognise that there are pundits aplenty who take a cynical dyspeptic view that most of the above are ne’er-do-well Ponzi schemes that are bound to implode. Indeed, many will not make it but, do you doubt Amazon’s ability to change the rules of the grocery retailing game? Getting back to meat, available in 19 countries is 32 year old mycoprotein Quorn, now owned by Monde Nissin of The Philippines. Hardly new on the block, Quorn within the next couple of years will be the first $ Billion meat analogue in our world and it continues to cheekily labelling itself as “Meat-Free Chicken”!

Let’s nail our dietary preferences to the mast” David is a meat and 3 veg. baby boomer – a solid meat supporter although a little girly on portion size; Generation Xer Miguel is Spanish (or he may be – he’s from Barcelona , you know!) and Iberians wallop back way more meat per capita in toto (including seafood) than Brits do and consider vegetarian a term of abuse. Our headline views on meat include the following:

  • We’re at the apex of the species triangle because of meat. Our ability to hunt and eat raw meat, then, control fire to cook it, improve its taste and accelerate digestion rapidly grew the size of our brains. We are brainy because we eat meat – if we hadn’t, the other higher primates would have had us on toast (metaphorically, of course, because they are largely vegetarian). Remember, they’ve got opposable thumbs, too!
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Savvy shoppers can feel cavemen for a day!

But, because we’re brainy (or, at least, brainier than most chimpanzees), social and emotional we’ve got some issues we have to handle with meat and, in particular, with red meat which are both real and perceptual:

  • Most humans have got this unfortunate penchant that if we really like doing something and we’ve got the economic wherewithal to do it, we tend to do it to excess (Americans excel at this). This underpins growing concerns that as the global population increases and incomes grow commensurately, the so-called “emerging world” will gollop down “developed country” portions of meat and, then, we’ll run out of land, and bugger up the environment growing crops to feed to animals that convert them inefficiently. Grain-fed beef is a particular target in this regard. But no livestock species is spared. Brazilian rain forests can be felled to turn into pasture or into farm land that can grow corn and soybeans whether this be fed to cattle, pigs, poultry, or fish for that matter. Cutting to the chase, carbon sequestration is and will be increasingly a big issue for the livestock and meat industry;
  • Focussing on red meat, cattle and sheep are brilliant at converting grass into absolutely yummy meat (and dairy products) for our tables. This is fabulous because humans are particularly poor at digesting cellulose and gaining any nutrition from it – and if we could, who’d want a fescue sandwich? But, the real bummer is that our much-loved ruminants produce huge amounts of carbon dioxide, methane and nitrous oxide whilst catering for our red meat and dairy product preferences. All the scientific evidence shows that these greenhouse gasses are significant contributors to global warming which is bad for all of us (with the possible exception of self-interested Canadian Prairie farmers – nobody farms North of them, you know).
  • Animal welfare is a large and growing concern and for sound reasons. This is by no means to belittle the huge issues under this complex canopy, but the level of consumer concern is linked to the size of the animal at slaughter – ruminants en route to red meat for our tables such as doe-eyed cattle and gambolling lambs are a particular target of concern for consumers, mind you so are monogastric pigs (curse that anthropomorphic Babe).
  •  We’re living longer but not necessarily healthier and meat gets a bad rap in some quarters. Two years ago, WHO identified red meat as being probably carcinogenic and processed meats as being definitely so. Clap trap? Our view is that homo sapiens was probably not programmed genetically to shovel down 100+ kg. of meat per person per year. Governments who, in many countries, carry the can via taxpayers for the cost of the nation’s health, are increasingly signalling that we should eat 500 grms. of red meat per week not 500 grms. for dinner! This pressure will continue inexorably.

So, where are we? Meat industry folk have got a lot of issues on their plate to address; whereas ironically, in rich countries, consumers will have less meat on their plate! The impact of the above issues, the growing interest in plant-based proteins, flexitarian diets et al will all chip away at meat volume purchases per capita in our markets. But, Hallelujah – consumers with money are signalling that they might wish to eat less meat but, certainly, they want to eat better meats. Thus, the opportunity and challenge to work out what consumers value in their meat products and are willing to pay more for.

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A good start would be for us to recognise that millennial and centennial consumers (and there are 4 billion of them worldwide) don’t awake with the driving ambition to have red meat today. Soylent devotees apart (you know, the meal in a bottle folk), most consumers expect the food industry to come up with tasty, affordable and quintessentially convenient meal and snack solutions and NOT problems. Yet, the antediluvian “half shoulder knuckle on” lamb product still lurks in the freezer bins of most supermarkets – acknowledged only by poor pensioners and dog lovers and eschewed by anyone under the age of 40 as they recoil from the apocalyptic sight that puts them in mind of an axe murder. We’re astonished that some retailers still display fresh meat by species – i.e. the beef/pork/chicken/lamb sections – and not by usage/occasion – e.g. meal in under 10 mins./special friends coming/for the kids sections. But don’t start Miguel ranting on about the British foible of having special dumb meals for children. “What’s wrong with giving them smaller portions of whatever the adults are having”, he says. You know those quirky Mediterraneans!

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British Retalier J Sainsbury’s catering for all: those who want to cook or can’t afford, pick the ingredients, those who don’t want to cook or are poor on time, pick the ready meal stew-in-30-minutes-no-fuss pack!

Whilst increasing protein intake is seriously on-trend with many consumers, there’s much more than red meat in their protein selection set. Remember, too, that the 3 meals a day approach to feeding the body and social soul is fragmenting. Mini-meals and snacks are the order of the day. Red meat snacks? Ah, the renaissance of jerky. Miguel was at a fish conference in Dublin last week and dashing through the airport he noticed the protein-on-the-go product below. A snip at £3.59 per 25 grm. pack. Do the maths and rejoice in the commercial anticipation of opportunities for brain-building, story-packed red meat! Red Alert on Red Meat? Beef and Lamb have their issues, but let’s celebrate that they are premium products and ensure that consumers are happy to pay more for them.

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Posted in Fresh Products, Trends

“Alexa: Turn Off the Lights when the Last Shoppers Abandon Supermarket Aisles 4 to 12”!

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It’s Winter 2030 and shrivelled, desiccated traditional supermarket companies fall like Autumn leaves from the NYSE and LSEs of our world. In only a dozen years, grocery shopping has disappeared as a drudge activity. We still shop but on our own terms and the angst associated with shopping trolley and car park rage has evaporated. Children giggle at our knees as we explain old-fashioned words to them such as groceries and ingredients and are as bemused as we were when our parents told us of escutcheons and liberty bodices. Visiting a supermarket for our basic household needs seems quaint like when we used to queue up to request our own money from supercilious bank clerks in pre-ATM days.

What do you think –  nonsense; pipe dream? Well, last year in South Korea, grocery sales via e-commerce increased by 41% year-on-year and supermarket & hypermarket sales declined by 7%. In the UK, we saw a similar but more subdued pattern and, along with Japan and China, we are in the front ranks of on-line grocery sales developments.

The moot question is why has it taken so long to get to our current baby step stage in on-line grocery shopping? After all, the internet has been up and running for close to 50 years and the world wide web is a robust millennial of 26 years. Home delivery of groceries  was the norm decades ago: David’s mum had the Hughes family’s red meat, fish, fruit and vegetables, dry groceries, milk, lemonade and coal all delivered. She had no time to shop during the week because she was teaching infants Monday to Friday. A quick phone call to the butcher and he was more than likely to recommend what meat she should have for Sunday lunch (“I’ve got a lovely leg of lamb for you this week Mrs. Hughes” – he’d know what she could afford, what she’d bought last week and, importantly, what he’d got to sell!). The relationship was based on mutual trust – something which is in relatively short supply for many customers particularly when it comes to the quality of fresh foods.

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Trust is so important for Sicilian housewives that they even send their husbands to the market to buy fresh fish!

What about in Spain? On-line grocery sales are growing but from a lower base than in the UK. Traditional independent retailers still account for around 50% of fresh food sales value. Miguel recalls that, for his grandparents, open markets were popular as in France. Women were the primary shoppers and, typically, were not working outside the home. Shopping had a strong social element – an opportunity to catch up on what was happening locally. For special occasions such as Christmas, El Corte Inglés might beckon offering Harrods-like goodies for the family. For Miguel’s working mum, food shopping for the family might be sneaked in during the lunch break and emerging supermarkets would be chosen for packaged and processed foods as outdoor and central markets became dowdy. Frankly, now, in Spain or the UK drudge grocery shopping has little social value for most shoppers (bar older pensioners seeking “free” coffee in Waitrose and a gossip!).

Way back in 1989, Peapod was launched in the USA as an on-line grocery ordering and delivery company (owned by Ahold Delhaize since 2001). Like many start-ups it struggled but has survived. Retail pundits predicted its demise largely on their view  that consumers would not pay to have their groceries delivered and the supermarket sector was so competitive and low margin that such interlopers could not survive. What time has shown us is that some consumers unequivocally will pay for such a service. Clearly, retail businesses have to keep in touch on price with competitors, particularly for a range of KVIs. But, the opportunity cost of time is not the same for all shoppers. How much do you value your time? The convenience trend is unstoppable – consumers and, particularly, younger ones want products that are convenient to buy, prepare, consume, and dispose of. Did you/are you reading your children “Charlie and the Chocolate Factory”? Remember Veruca Salt, well, she wanted Wonka’s Golden Ticket NOW – Veruca is a Millennial to a T!

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There are plenty of options in UK if you want your food to be delivered home.

What the pundits completely misread was the creativity of the grocery/restaurant meal delivery sector à la “You’ll never make any money out of delivering low margin groceries” – well, tell that to Quiqup, Convibo, Deliveroo, Uber Eats, beelivery in London. And we take delight in noting that Sainsbury’s groceries can be delivered within the hour in 2017 by a boy on a bike, as they did in 1917! Some will go bust, but a super-efficient last mile delivery service is emerging. Tesco recognises that “the man in the Tesco van” can be its front line ambassador like the milkman of yore (with all the accompanying smutty jokes). Check out FoodKick, Instacart, etc. in the USA. Will consumers pay for quick service? Of course they will – depending on occasion, location, income and age of shopper.

On-line grocery (to use the archaic term) delivery is with us and will explode. Bye bye traditional supermarkets – like tumbleweeds blown out of town and into oblivion? Don’t hold your breath – they still represent just under 50% of total UK grocery spend. But, look up and around – Amazon and Alexa, Tesco in the UK and Walmart in the USA with Google: voice-activated replenishment is coming towards us like a tsunami and in its wake automatic replenishment – those centre of the store basic items will soon be long gone from the supermarket and bricks and mortar retailers better have smaller stores or more interesting products and services in their stead. Does that mean the traditional supermarket can rest on its laurels as a trusted fresh food provider? Not so, as food retail and food service converge at an accelerated rate (what’s the difference in offer between food service Pret and retail M&S Food to Go?), watch out for the nimble food-to-go specialists with snack and meal solutions delivered wherever and whenever you want them.

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Expect rapid change in the grocery retailing business. If providers are to capture full “baskets”, then, the battle must be won on fresh foods. Those that gain the trust of the shopper will prevail. Mind you, they’ll have to show excellence in execution and a comprehensive range of click and brick shopping options. Clearly, keeping in touch with competitors on price is crucial but never underestimate the value that many consumers put on their own time. For many, they’re often short of money but they’re always short of time! Automatic replenishment of the routine purchases will be pervasive. Alexa, turn off the lights as the last shoppers leave supermarket aisles 4 through 12!

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New range of Sushi in the food to go section of Marks & Spencer. Ready to challenge the specialists and the supermarkets that prepare the product within the store.

 

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Posted in Online, Uncategorized

What is Your Story for Millennials?

Do you know that close to half of all eating occasions in the UK and the USA comprise one person eating alone – a morose male tucking into a “Sad Bastard Ready Meal for One” comes to mind. But, that’s not so, we’re all too busy and, anyway, in most major urban centres of higher income countries 35% or more of households are singletons – Oslo tops the league with 60% of households being solo and helps explain why they are the highest per capita consumers of individual pizzas in the world! But, not in family-friendly Asia you say?: well, in 2000 less than 50% of 25-29 year old Singaporeans were single and, now, 70+% have that status. It’s no different in 21st Century urban China.

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Lighter Pizza for One from Pizza Express

Official statistics on household size are no indication of actual household food eating behaviour, particularly when it comes to millennials. Students and early stage professionals may live together but they certainly don’t eat together at home. Sharing the rent is an economic necessity but, invariably, they have a fridge shelf each and, because of frenetic work and social schedules, pass like ships in the night. Those pesky millennials, why don’t they shut up and get a life? Well, by 2025, there will be 2+ billion of them and will account for over 50% of the global work force. They’re voluble, opinionated, impatient and seem to be obsessed by taking pictures of the food they are eating and crowing about it to their friends. But they are our future core customers – and some of them will elect to produce children. Baby boomers, pampered by the state when the state had money, comfortably off with index-linked pensions and the mortgage paid are disproportionately holders of the nation’s net worth, but their purchasing habits, if not actually set in stone, are very difficult to shift.

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Shoppers at the store checking their mobile phone? Maybe they are not comparing prices but checking remotely their fridge to see if they are running out of almond milk!!! Picture: Samsung.

Allow an indulgence and a vignette of no statistical significance. David was in Australia last week and talking to a daughter of an old friend. She’s 30, single, a teacher and shares an apartment with a colleague. They never eat together. In the morning, it’s out of bed and off to the nearby fruit & veg. store to buy a customised  smoothie for brekky (tick – that’s 4 of her 5-a-day done) and pop next door to buy a sandwich or salad for lunch. Cookies in the staff room for an indulgent, naughty snack. Evening meal? Depends: maybe a takeaway if pushed for time (50%), out with friends, or home for a pasta-based meal prepared at the weekend to cater for such exigencies! Her preference is not to shop in one of the big stores (Woolies or Coles) but to use local outlets who know her and her requirements. She’d buy more organics if she had more income but needs must! Think of young professionals you know, sound familiar?

Let’s not forget about the Generation Xers – exhausted parents as some of them are. These are the lot born between the early-60’s and 80’s. Do they sit down for breakfast and evening meal with father serving at table? Well, no! In the USA (and the UK is close behind), 26% of households with children have a single parent – up from 9% in 1960. Even if they had a full parental set, the notion of “the family” all eating the same meal is passé: God dammit, Brenda is vegetarian this term, David is out at soccer practice, mum is on the FODMAP diet (don’t know about it? You soon will!), and father is gluten intolerant.

Often we’re asked about our view on the globalisation of food and, particularly, the perception that American fast food has an insidious hegemony worldwide. Let’s dismiss this forthwith – urban consumers want food fast around the globe and, increasingly, burgers and pizza apart, Asian food styles are most prominent – any one for sushi, stir fry, noodles? However, the globalising phenomenon is the convergence of values and attitudes of millennial consumers: educated 20 to 35 year olds from Asia, Europe, North and South America, Africa and Australasia have much more in common with each other than they do with the generation before them.

Here’s Kantar’s take on ASEAN (Asian emerging countries bar India, Pakistan and China) food trends:

  • Functional consumption – health & wellbeing driving salad bars, healthy meal kit deliveries, cold-pressed juices in Malaysia, Vietnam, Thailand. But, simmering concerns over food safety and food chain integrity;
  • Mini-foods – indulgent foods in small sizes to reduce guilt such as mini fizzy drinks, ice cream, chips/crisps;
  • Food as fashion to bolster image with international brands having strong currency, particularly from Korea and Japan;
  • Street fusion – traditional. modern and international mixed such as traditional Indonesian martabak pancake with Nutella and mozzarella toppings;

 

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Back and forth influences: martabak pancake with Nutella and Matcha Latte!

  • Food trucks for goodness sake (surely, Asia was the home of street food?) in Malaysia and Vietnam, with English high tea being seen as cool!;
  • Food on demand – we want it NOW using digital hand held phone technology and instant delivery;
  • Café society prospers at the expense of old-fashioned boozing – it’s a wifi-driven world where one can connect in comfort (for the recently pubescent, there’s Hello Kitty and Pokémon cafés);

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Some Seoul cafés attract die-hard wifi-thirsty urbanites by offering a bit of animal socialisation without the pains of having pets at home.

  • Consumers ask more of the industry in terms of social responsibility, worker and animal welfare, environment, and care of the local economy;
  • And all of the above is mega-digital – it’s astonishing and worrisome how much time Thai, Malaysian and Filipino consumers spend glued to their phones (even by Western standards).

With some exceptions, the above seem consonant with trends prevalent in Western countries for millennials. Now, clearly, in emerging ASEAN countries, the above can be sampled by a relatively small proportion of 20 to 35 year olds simply on income grounds, but that doesn’t mean that a much greater group can aspire to such because they’re all linked in to Facebook, Instagram, Snapchat, Pinterest or their own equivalent.

What’s it all mean for us in the food industry? Who knows! But it would be handy if, during a very difficult period for many food companies worldwide, we understood how to relate to this pesky millennial lot. Can we answer key questions such as:

  • Do you share my values, particularly as they relate to social issues?;
  • Are you listening to me and how quickly can I contact you at a level where I can get action?;
  • Can you excite me and my taste buds and help me impress my friends?;
  • What’s your story about your company, ingredients, product, the “moment” when we’re enjoying your food and the company of our family and friends?;
  • How are you helping me and my family improve our health and wellbeing (without making it too much effort!);
  • Can I access you NOW, not this afternoon or tomorrow, but NOW!

Being in the food industry is a tough gig! Why didn’t we choose to be in something addictive like liquor, tobacco or other soft drugs?! Well, one reason is that eating and drinking isn’t going out of fashion. The trick is to work out what, when and how we’ll be feeding the body and elevating the soul and that’s the challenge and the huge opportunity.

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The wonderful story of avocado: they wanted to take pictures of their breakfast and they raised the sales of avocado by 30%! Picture: theamyacker.

 

Posted in Consumer, Trends, Uncategorized

What if ……… Amazon Bought Sainsbury’s?!

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Warm, woozy weather and we’ve been  saturated with Wimbledon, Lions, cricket and more. Pass the Pimm’s, please! But, global food industry developments have had their moments, too and not least Amazon’s purchase of Whole Foods Market. We chuckled no doubt as you did at the spoof exchange between Jeff Bezos and Amazon Echo’s Alexa: [JB] “buy me something from Whole Foods, Alexa”; [A] “buying Whole Foods, Jeff”; JB “oops, ah … oh, go on, then”! It’s hardly fanciful when one considers that Amazon has a market cap. of close to $500 billion and Whole Foods was snapped up with small change for $13 billion.

Amazon has been experimenting with bricks & mortar grocery stores, albeit with its own twist – Amazon Go the store without a till or checkout staff. But surely, it’s impressive share price growth reflects the market rewarding Amazon for its disruptive technology and not having to invest in hugely expensive retail store infrastructure?

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Last Year, back in Little Britain, Sainsbury’s purchased Home Retail Group owner of Argos online and catalogue seller of general merchandise. Its rationale was to boost sales growth, improve its delivery networks and sell their products to each other’s customers. This rings true for the Amazon-WFM deal, too. Particularly for fresh foods, being close to customers is essential to be cost effective in distribution and maintain quality of perishable products. Equally important for Amazon if it wishes to have a competitive fresh food platform, it must have strong relationships with fresh food suppliers and this Whole Foods can deliver. Like traditional grocery retailers, Amazon knows that excelling in fresh foods wins customer trust and loyalty and provides a huge opportunity to build a strong private label presence which is, increasingly, the only way that major retailers can differentiate themselves from the competition – Wickedly Prime is the first tentative steps in Amazon doing exactly this and, frankly, the initiative looks like a baby step! Mind you, Whole Foods hasn’t earned its spurs in private label either – the 365 everyday value products, designed to fit the millennial-friendly new Whole Foods 365 store format is OK without generating gushing revues.

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Picture: L.A. Times.

Taking the longer view, we believe that traditional super/hypermarkets have lost the battle for most shelf stable (even basic frozen) groceries. Routine purchases with little emotional involvement will become the bailiwick of online providers. The field of battle is focused at the point where “fuelies” are transmogrified into “foodies”. It’s happening right now – shoppers and consumers are increasingly interested in food experiences. The National Restaurant Association (NRA but not the gun one!) put it nicely “menu trends today are shifting from ingredient-based items to concept-based ideas mirroring how consumers tend to adapt their activities to their overall lifestyle philosophies” (e.g. “let’s have a local/sustainable meal”, rather than “let’s have beef for dinner”!). Now, clearly, this approach isn’t for every household (it depends on income, household composition, day/time in the week, i.e. relaxed time or frenetic time), etc. Sometimes foodies will want to shop physically and touch the products and talk to knowledgeable vendors but other times the smart phone will do as an intermediary. Just look how traditional supermarkets are reconfiguring their stores – as a supplier, you don’t want your product to be in the middle aisles, the morgue as it is known, because shopper interest is focused on the periphery or the special gondolas where there are fresh foods, interesting prepared snacks, mini-meals and meal solutions, and exotic international foods that will give you “food cred” around the office water cooler.

Now, whether Amazon can make it in fresh foods is a moot point. But, the company has a track record of investing for the long-term and Amazonians are not over-awed by big name grocery incumbents such as Walmart. Amazon Fresh shows intent and is pushing in multi-directions – it’s just filed a meal kit trademark for its own label in the USA to compete directly with Blue Apron (the largest meal kit operator in the USA) and Germany’s HelloFresh which is active in the UK. The strap line for Amazon is “We do the prep., you be the Chef”! Successful or not, Amazon will do damage while it is trying to establish a financially viable fresh food platform. Any implications for us in Little Britain as we fret about Brexit and gaze forlornly at our navels? Well, we think so!

First of all, why bother with our little island? Well, two reasons for starters:

  • Amazon are already making an online grocery play here with Amazon Fresh – which gives Amazon Prime customers paying £79/year (free next day delivery of non-food items) the opportunity to pay another £7 month for unlimited same day delivery of fresh and frozen foods for baskets over £40. Amazon uses its partnership with Morrisons to supply Morrisons own brand products at prices competitive with the other major retailers’ value brands;
  • And the UK is, along with China and South Korea, a leader in online grocery shopping. With a 6.5% share of the grocery market and sales in excess of £10 billion, online has traction and, although growth is slowing, it’s optimistic but not unreasonable to expect a 10% share by 2025 (say £20 billion sales). For online grocery, we are well ahead of the US and will remain so and there’s lots of learnings for Amazon that can be applied in the slower growth American market.

 

Next steps for Amazon in fresh foods in the UK?: continue to learn from its Amazon Fresh Now experience and the partnership with Morrisons; observe the extent of the damage that the discounters place on the big four retailers – IGD forecast that Aldi/Lidl may increase their combined market share of groceries to 14+% over the next 5 year and the incremental 4% will come out of the hide of the Big 4 (although robust price inflation may ease the pain for them, their share prices will be under pressure); and don’t be completely surprised if Jeff Bezos asks Alexa to buy Sainsbury’s!

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Why buy another bricks & mortar retailer, you may ask, and if Amazon is so whimsical why not buy its current grocery partner Morrisons?: Here’s why:

  • Sainsbury’s have made a decent fist of online grocery delivery and there’s much for Amazon to learn from them about selling perishables.
  • Sainsbury’s have an excellent supply base for fresh foods and have good in-house technical staff who understand the challenges of retailing perishable food.
  • Sainsbury’s can teach Amazon and Whole Foods a thing or two about delivering a successful private label programme.
  • Sainsbury’s have a customer base that is more online friendly than Morrisons, with geographical strength in the richer South of the country and an excellent crop of millennial shoppers edging into familyhood – younger two person household shoppers are key online grocery customers for frequent small basket purchases and families with young children are disproportionately into the larger weekly online shop .

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  • Sainsbury’s has 600 supermarkets and 800 convenience stores (and may have much more if it swallows Nisa) giving it a great platform to distribute groceries to nearby located well-heeled consumers.
  • Sainsbury’s comes with heritage – it’s been around for close to 150 years.
  • At current share values, Sainsbury’s has a market cap. of around $7 billion – pop in a purchase premium of 20% and Amazon could mop up JS for a modest $8.5 billion – peppercorn monies we’d say! Mind you, Amazon would have to cosy up to the Qatar Investment Authority (largest shareholder), the Sainsbury family and, of course, the UK Competition and Markets Authority.
  •  In the UK, Sainsbury and Amazon combined would make a very powerful multi-channel retailer and longer-term success will be earned by the retailer that can service the customer best wherever and whenever the customer demands.

That’s enough for this blog, do you think the Pimm’s has gone to our heads? Do enjoy your Summer holidays. Miguel is off to Spain and David, as ever, is on one of his talking tours in Asia and the Antipodes. Adiós!

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Posted in Fresh Products, Online, Uncategorized

In Food Marketing, Savour Those Adjectives!

It’s not so much a point of principle, more one of maintaining standards, but we simply won’t countenance eating a bacon sandwich unless the pig concerned has been privately educated. Needless-to-say, that’s why we plump for Waitrose 1 Free Range, Air Dried, Beech Smoked back bacon. Born and schooled in Norfolk, the Waitrose Hampshire breed pigs are whisked to Suffolk where they are  humanely dispatched, Hand Cured (redolent of Pip’s upbringing in Great Expectations) and, thence, transported to the retail store for sale (on offer) at 200 grm./6 rashers for £2 (equivalent to £10/kg.).

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This is an exquisite use of adjectival marketing: bacon is the noun and nouns are essential but not carriers of great profit; free range/beech smoked/ air dried/hand cured are adjectives impregnated with margin that smell as delicious to the vendor as the bacon does to the consumer! Add a few more adjectives – such as organic, non-GM feed, Saddleback rare breed, as Helen Browning’s branded bacon does and one enters stratospheric pricing territory, viz. £4.29 for 184 grm./6 rashers (£23.32/kg.). Mind you, as Helen proudly advises her customers, the bacon is made from “probably the best pigs in the world”, particularly we assume if they are washed down with a Carlsberg beer!

So, is this all frippery and of interest only to the moneyed classes? Not so, there is pervasive consumer interest in the provenance of food and the steps it takes to reach the family table and for two broad reasons: first, it’s about food safety and food integrity – opportunistic, indeed, illegal behaviour gave us the likes of “Horsegate” and other food frauds and precipitated a sharp decline in consumer trust surrounding the food chain; and, secondly, when we are in “foodie” rather than “fuellie” mode, we particularly value the stories intrinsic to and wrapped around our food. But, there’s a problem with such adjectives as hand cured, free range, even organic – they are pretty difficult to see or taste and, so, we take them on trust. They are credence attributes and they carry a premium price. Thus, the need to have transparent supply chains that consumers can monitor to convince them that what they are buying is what it promises on the pack. Recent developments, such as blockchain technology, and the emergence of firms which can scientifically prove the origin of products are testament to this high level of consumer concern.

We’ve talked in earlier blogs about the commercial pressures that “Big Food” is under and one of its manifestations – i.e. slimming down their portfolios in mature markets; e.g. Unilever looking to exit spreads, Nestlé looking for a buyer for elements of its USA confectionery business, Procter & Gamble getting out of food altogether. FMCG companies have used brands to appeal to a broad cross-section of the marketplace and, in doing so, missed focussing on the perceived to be niche but premium end of the market. This has been the hunting ground of idealistic start-ups determined to bring better tasting, simply processed, more sustainable food and drink to attentive, particularly younger consumers. These “young gun” companies understand that the pesky millennial consumer wants value (competitive price) but, also, social values –

and they want the products they buy and the companies that make them to share their values. Mind you, not all these start-ups are the bailiwick of the young. We note 56 year old Mr. Clooney and two friends launched the super premium tequila brand Casamigos (“House of Friends”) in 2013 and it has just been snapped up by Diageo for a cool $1 billion. That’s a lot of dosh for a start-up cactus juice company!

Getting back to pig products, are you craving bacon but a little stretched for cash as the end of the salary month approaches? Tipping your cap to the common man and Jeremy Corbyn? Why not seek a little help from Tesco? The controversial faux brand Woodside Farms (exclusively for Tesco) has smoked back bacon at a regular price of £1.20 per 300 grm. pack (£4/kg.) – tastily-priced indeed, notwithstanding that the pigs clearly went to a comprehensive! Mind you, Woodside Farms bacon is short on adjectives and a tad obfuscatory on provenance. The scoundrels – the pigs weren’t even schooled in England – “using pork from the EU”, although the bacon is “produced in the UK”. Nothing illegal here, but just a bit shabby for a world class retailer like Tesco to mimic the hard discounters that have been running our grocery market leader ragged. Woodside Farms sounds pretty British to us, whereas the pigs’ home Houtkant Landbouwbedrijf doesn’t (Dutch literal translation of Woodside Farms)!

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We are amused by the hoops companies have to jump through on food safety matters. So, back to the Woodside Farms bacon instructions:

  • Cooking Precautions: not suitable for cooking from frozen.
  • Freezing Guidelines: suitable for home freezing. Ideally freeze as soon as possible after purchase.
  • Defrosting: defrost thoroughly in the fridge before use.

Just as well, we consumers have all the time in the world to peruse the instructions. À propos the verbiage on many food packages, well, we’ve read shorter books. Could be worse, though. There’s four official languages in Switzerland! But for the above, “Bacon: can be frozen but thaw carefully before cooking” might save a bit of space. Anyway, do enjoy your bacon sandwich and savour those adjectives because you paid for them.

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Those who read the labels deserve to have a break and some fun! Sainsbury’s entry price range is always ready for a joke, without adjectives!

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Posted in Consumer, Fresh Products, Private Label, Uncategorized

Red Hot Revolution in the World of Food Retail and Food Service

Twenty years ago, the share price of fledgling Amazon.Com was $1.49 and over the next 10 years the company burned money ferociously, made no profits and the share price moved slowly up to $68. Clearly, some investors believed in the Bezos vision for the company, but many pundits thought it a folly. The current share price? – a modest $1,011(June 6th)! To this day, the prevailing punditry wisdom is that there’s no money to be made in on-line grocery delivery. Peculiarly enough, in the early days (and particularly in the USA), the view was that shoppers wouldn’t pay a delivery charge for groceries – “$5? Hmm, that’s excessive. I’d rather face in-store trolley rage and supermarket parking lot driver fury”! Really, so how little do you value your time? Now, in London Amazon Prime customers who pay a £79 ($100) annual fee (which, by the by, is about what it costs to be a Costco member) can have Amazon Fresh food at their doorstep for a top up fee of £7 ($10) per month on as many deliveries over £40 as they want! Spoilt for choice?: if you have the time to browse, there are 130,000 skus ranging from toilet paper to artisanal goodies from Borough Market on Amazon’s electronic shelves.

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Busy but you want to get all the goodies from a market? This hotel is doing the job for you, but surely soon you can get this delivered to your house!

But the hot news on delivering food to home or office is about McDonald’s. In the USA, Australia and shortly across Europe, including  the UK, McD’s is rolling out a partnership with Uber Eats. In the US, 75% of the population are within 3 miles of a Golden Arches restaurant which brings ordering to home delivery time down to less than 30 minutes. It’s millennials who are most enthusiastic and, at a push, they’ll hang on for half an hour without squealing. The most popular delivery time window is later in the evening – handy as it happens to coincide with a slow period in the restaurants. Home delivered Big Macs will best suit a group of mates as there is a $5 delivery charge. This is big food news because McD’s is so big – 14,000 outlets in the US (1,250 in UK) with close to a 50% market share of the large burger chain market. A leap of faith? Hardly, McD’s have a $1+ billion home delivery business in Asia and the Middle East already. What do the analysts think? Well, McDonald’s stock price has increased by 39% since November 2016 (the All-Day-Breakfast in the US was a contributing factor, too). McD’s CEO, Limey Steve Easterbrook and his team must be cock-a-hoop.

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Returning to on-line grocery home delivery, the UK is a rara avis with 7% of groceries already being delivered via the online channel. Only Asia (Japan, South Korea and accelerating massively China) has a greater share. Tesco has more experience in online than any other grocer – its 20th online anniversary is coming up soon. Early into click & collect, speeding up delivery, adding other services, Tesco has been consistently innovative driven on by competition from Amazon, other supermarket chains, and the pure play online Ocado. The principal focus has been on capturing the “Big Shop” – removing the drudge of restocking the fridge and larder in a Godforsaken “superstore”! Success in this area has been a double-edged sword – “Every little helps” core customers but, concomitantly, it reduces volume through those big barns which has led Tesco and others to downsize their grocery and other ranges and seek complementary businesses to sub-lease underutilised space.

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Shopping habits are changing – that main grocery procurement outing is getting smaller and less frequent. Shoppers are more likely to pop into a store to shop for tonight, grab a luncheon meal deal, or do the “Big Shop” online – IGD estimate that of the £28 billion of increased grocery sales we shall make in the UK in 2022 relative to 2017, 80% of the sales gains will be in convenience stores, the hard discounters (post-Brexit household income squeeze?) and online. The supermarket chains are particularly focussing on the convenience-driven purchase: Tesco have Amazon Fresh in its sights with a 1 hour delivery promise using courier Quiqup; Sainsbury, too, is trialling 1 hour delivery with a “boy on a bike” reminding one of the circularity of trends – Sainsbury were doing this in the 1920’s, and so was Mr. Barnes The Grocer employing a fresh-faced cyclist in the early-1950’s to deliver groceries for the week to David Hughes’s Mum; Morrisons has launched its online grocery presence with Amazon and Amazon Prime customers can have their Morrisons groceries within the hour … for a price; and M&S and Majestic Wine both use Deliveroo for “want it/need it now” alcohol purchases.

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Mind you, pizza and ethnic restaurants have been in the meal delivery business for years! Only recently have web-based companies such as Deliveroo and Uber Eats arrived to compete with the more established Just Eat (“order takeaway online from 20,000+ restaurants”) to link hungry consumers with trusted restaurants. These companies have exploded with success, none more than Deliveroo building “Dark Kitchens” aka “Roo Boxes” to provide independent restaurateurs who have run out of space in their sit- down restaurant and , now, can replicate their kitchen in a Deliveroo warehouse to service online clientele.

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deliveroo editions: kitchens in containers ready to use by any restaurant partnering with deliveroo!

Then, of course, there are the rush of fresh ingredient recipe boxes that are directed at those who love food, love to cook but don’t have time to prepare – Hello Fresh and Gousto lead the pack. Supermarkets are responding: Waitrose, having trialled but withdrawn a “Dinner for Tonight” recipe box sold from stores, are trying a home delivery option “Cook Well from Waitrose”; Tesco has had more success with its store-sold “Recipe Box” and is expanding the meal ingredient range to include more Asian fresh items and sauces.

What’s next to grab the headlines? Tesco emulating McDonald’s and forging a partnership with Uber Eats to handle the last couple of miles delivery for its mainstream online orders? After all, like McD’s, most households in London are no more than 5 minutes away from a Tesco store of some sort. Probably not just yet. Tesco has done an excellent job with its online offer and the friendly person in Tesco livery delivering your groceries puts us in mind of the milk man of yore – he’s one of VERY few delivery people who crosses the threshold of a home and gets as far as the kitchen (no further one hopes and we’ll park the “looks like the milkman” jokes). As such, the Tesco delivery person is a Brand Ambassador for the company and is key in building and maintaining the bond of trust between retailer and customer.

What won’t grab the headlines is the number of grocery and meal delivery start-up companies that will get swallowed by competitors or go bust over the next 12 months. In 2016, $1.4 billion of venture capital monies was invested in such companies and about the same amount will be added in 2017. Is there that much spare margin going begging in the food service business? We are sceptical but, then, neither David or Miguel invested in Amazon when the entry price was $1 per share. Ho hum and it’s back to the grindstone for us two humble bloggers!

 

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Posted in Convenience, Foodservice, Online

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About the authors
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.