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!
Don’t you just love those old fashioned advertisements that pluck at our heart strings regaling us about how we used to shop and put meals on the table for the family. The classic 1970s Hovis advertisement turned out to be prescient – the boy on the bike morphing into the Tesco deliveryman and the deliveroo guy!
Within 5 years, ageing Millennials and Generation Zers will be shaking their heads and chuckling at YouTube clips of “Supermarket Shoppers as Mules” queueing endlessly to purchase groceries and, then, ferrying them across carparks fraught with danger.
Around the world, traditional
supermarkets are under siege and leaking grocery market share. The antagonists
are a motley crew, including:
on-line specialists like Amazon, Alibaba, JD.com who are also taking aim at the offline side with shops that
appeal to urban consumers because of their speed (Amazon Go) or the theatre and
experience (Alibaba’s Freshippo);
basic but effective hard discounters like Aldi and
Lidl, and “dollar stores” (e.g. Dollar General) in the USA expanding their food
offer and adding in fresh produce;
small format convenience stores personified by the
impressive 7-Eleven chain;
“food-to-go” specialists such as Pret, itsu and EAT.
in the UK (and USA) ;
restaurants teaming up with on-line food ordering and
delivery services such as Just Eat and Uber Eats, and for
those appalled at food waste, the app Too Good To Go as a means of buying food
that would otherwise be thrown out and is good for the pocket and for the
meal kit providers à la mass market Hello Fresh and
niche Mindful Chef;
specialty vendors of all kinds of foods
linking primary producers directly to consumers (e.g. Crowd Cow in the USA with
its “craft meat” offer, Abel and Cole in the UK selling premium organic ingredients,
or the likes of Odd Box, another UK initiative that delivers “ugly” fruits and
vegetables direct to consumers’ homes.);
non-food retailers adding a food section – e.g. the
Walgreens Boots Alliance in the USA and, of course, Boots UK has long been a
significant player in food-to-go (as has news agent & book seller WHSmith),
and the increasingly sophisticated convenience food and drink product ranges in
petrol/gas stations (who’d of thought of buying a chocolate croissant and fancy
coffee from the greasy-handed pump attendant of the 1970s?!);
more modest local initiatives allowing us to
use apps to connect with each other and swop (or unload) food that’s surplus to
and coming to a home near you shortly, cool
3D printers that will produce intricate fancy cakes and cookies and magic up
custom-designed, multi-coloured spaghetti and pizzas.
Globally, consumers are cooking less and buying more prepared meals and snacks, and eating out more. Euromonitor International note that “the bond between consumers and meal facilitators is becoming stronger”. This is particularly the case among younger consumers who report far less time and inclination to cook than previous generations. They use their mobile phones as extensions of their bodies and as the first port-of-call for help/assistance. What’s more, they are astonishingly impatient – whatever they want, they want it RIGHT NOW! This isn’t just a smart aleck London/NYC consumer trend, it’s a global pandemic! Indeed, with regard to frequency of eating out, the “Western” world is following emerging Asia rather than leading: 60% of Thais eat out 3 or more times per week and are loathe to pop out of their home for snacks when Line Man is on hand (established in 2016 as a WhatsApp look-alike, it exceeded 1 million Bangkok customers by mid-2018 as it expanded the range of services it was offering).
This preference for uber-convenience is particularly
expressed by younger consumers who view meal preparation as a very low order
priority (“who has the time when there is so much to keep up with on social
media?”). Of course, the dark irony is that “food and dining is becoming even
more of a lifestyle, to be discussed, explored and used to define ourselves”.
The preface to a meal is not a prayer of thanksgiving, it’s taking a photo of
the plate to share with friends on Instagram! So, consumer interest in food,
its story, food trends, and the willingness to pay a premium for food with status
is growing even as the time to shop for and prepare food is being compressed.
This has enormous implications for the global food and drink industry.
Demand for convenience in meal preparation isn’t a 21st century phenomenon. In the 1950s, David’s Mum would magic up Instant Whip dessert for a mid-week treat (Angel Delight in the USA). But, then, making instant pudding became too time-consuming! The last 70 years of the history of “Big Food” has been a journey of adding convenience (including extension of shelf life). In fact, this unrelenting journey has been part responsible for bringing “Big Food” to its current uncomfortable place – one characterised by slow sales growth, dwindling margins and the perception by many Millennial mummies that Big Food makes yesterday’s food.
Big Food’s megabrands have
been assaulted by upstart new age food producers who cosy up to their customers
with convenient, tasty products and heart-winning stories about their values
and how these are commensurate with those of 21st century consumers.
And of course, how “natural” and “clean” they are in
many cases, and that they leave the planet much better than they found it! Just
as traditional supermarket retailers are under siege, so are traditional fmcg
food companies and BOTH are being attacked from all sides. An “on demand”
freshly prepared food economy is emerging at the double turning fresh
ingredients into meals and snacks whenever and wherever consumers require them.
For Big Food’s billion dollar mega-brands, “one size fitted all” – now, the
challenge is to be faster, fresher, more personalised, artisan-like but using
AI and automation, and emulating fast fashion wizard Zara in shortening supply
chains, and working much closer with producers.
When the focus is on providing
consumers with meal and snack solutions rather than ingredients for them to
prepare, power in the food industry shifts “to a new generation of companies
and brands, from delivery aggregators and meal kit providers to next generation
retailers, restaurant operators, and cooking equipment manufacturers, all striving
to offer a wider range of prepared meal (and
snack) solutions, across a wider range of occasions than ever.”
(Euromonitor International). Led by Marks & Spencer (with a 50 year history
of producing high quality chilled prepared meals, meal components and snacks),
UK traditional supermarket companies are significantly further ahead than, for
example, US supermarket retailers in responding to this challenge. For them,
it’s making sure that their meal and snack products are immediately available
when and where the customer wants to purchase and consume them. Proximity of
store to the customer is helpful but not the end game. McDonald’s were
comforted by the fact that 1 billion consumers were within 10 minutes of a
Golden Arches outlet. The view was “that’s handy, it’s not far for them to drop
by our restaurant”. Current senior management interpreted the proximity more
perceptively as being “very handy, it’s not far for us to deliver whatever they
want, whenever they want”!
Increasingly, we want more “experiences” when we buy products and services, particularly when we are in leisure mode. But, to reiterate, whatever we want, we want it NOW! Our demand for food is more complex: when we are in a food-as-fuel frame of mind, convenience is paramount (convenient to buy/prepare/consume/dispose). Our requirements are modified when food is the centre piece of a memorable gathering with friends or family. For a very few meal occasions in our week, we may well be willing, God forbid, to try out newly honed cooking skills garnered from watching cooking programmes. Then, food preparation and consumption is about celebrating the stories associated with the meal.
The decline of home cooking
is not indicative of moral decay. It does reflect the reality of, in
particular, urban life across the globe. Smaller households are burgeoning –
single person households will increase by 30% between now and 2030, whereas those with 2 parents and
children will expand by half that rate. In high income urban markets, the
single person household is the dominant
unit. The 1 person family isn’t going to pop home after a long working day and
prepare and cook a satisfying slow-cooked shoulder of lamb! They’re more likely
to eat out, buy something prepared on the way home, drop into the Amazon Go
which will be at the foot of every apartment building, order something in and
have it delivered, or maybe heat up some leftovers in the microwave. Then, it’s
either slump in front of the screen to surf the internet, watch a lifestyle
cooking programme/dream of your “Escape to the Country” (i.e. rural idyll) or some
intense moments perusing a dating app – hope triumphing over experience – with the prospect that you might find a compatible
Happy Easter holidays from the two of us. Miguel’s off to South Korea (he’s a kimchi aficionado and has to feed back his clients with the latest Asian trends). David is hot foot for a 6 week talking tour in SE Asia and Australia/NZ.
Well, we’ve got through Veganuary and, if you’re to believe all the media hype, the comfortably-off Western world is eschewing meat. January saw a torrent of plant-based meat lookalike products and vegetarian fare flood onto markets in Europe and North America and, what’s more, they were courtesy of “Big Food” not quirky millennial start-up companies, inter alia:
McDonald’s launched its first vegetarian Happy Meal for kids;
Pizza Hut playfully launched a cheeky, cheesy jackfruit pizza;
Vegan Beyond Burgers arrived in Carl’s Jnr. and A&W outlets in USA and Canada and, now, the Beyond Burger is in Tesco;
M&S introduced its Plant Kitchen range and had a special offer Vegan Valentine’s Dinner for February 14th featuring a heart-shaped beetroot burger;
Discounter Aldi pre-empted M&S with its own tiny-priced beetroot burger, and Iceland had launched with “surprising success” its “No Bull” burger back in April, 2018 and a jalapeño variant is now available;
Tesco doubled its vegetarian Wicked Kitchen offer;
fmcg heavyweight Unilever popped out to buy The Vegetarian Butcher in Holland and Nestlé will launch its plant-based Incredible Burger this Spring under the Garden Gourmet brand;
and, just to make dairy farmers nervous, Danone USA doubled its plant-based milk processing product capacity (e.g. So Delicious yogurts and cheese, Vega Clean Protein (i.e. without “naughty” No’s such as GMO, gluten and, of course, without dairy!), Silk soy, nut, grain-based milks).
What’s the story and is meat consumption plummeting? Certainly not in the USA where “Meat is Making America Great Again” and per capita meat consumption is at a record high (+100 kg. per capita). In many other Western markets, however, per capita meat consumption is flat at best and any market growth reflects an increase in overall population and, within the overall meat category, beef and lamb are struggling for momentum while chicken still has inexorable growth. In fluid milk markets there are clouds, with liquid consumption falling (“full milk” in free fall and growth in semi-skimmed failing to compensate fully), whereas plant-based milks (isn’t cows’ milk plant-based?!) are experiencing huge growth albeit from a very modest base. Butter’s doing well – God Bless The Great British Bake Off!
What’s good for foods with a bona fide protein claim is that
consumers are seriously interested in upping
their protein intake as part and parcel of the Health & Well-Being super-trend. But,
in the consumer’s mind’s eye, the “protein canopy” (to coin a phrase) has been
in history, red meat and particularly beef were synonymous with prime protein, then, chicken (and, to a lesser extent, turkey) muscled in!;
eggs have always been an acknowledged protein source but lower order than “proper” meat, occasionally bedevilled with food safety scares and, still, some consumers are uncertain about the impact of eggs on cholesterol levels (although, currently, eggs are motoring well) ;
whey protein was for body-builders and the infirm but, now, it has broad market appeal still used for sculpting the body beautiful but, also, for adding muscle to dwindling, wizened baby boomer frames;
a decade ago, yoghurts weren’t perceived as being proteinaceous, then, Chobani launched in the USA and the “Greek-Style” yoghurt race was on with high protein claims. Arla wasn’t slow to the party and quark-based yoghurts and cottage cheese came to market as “Arla Protein” with advertisements claiming “same amount of protein as 2 egg whites”;
soy, long a protein mainstay of vegetarians, is a principal ingredient in protein “shakes”, protein bars (e.g. Mars Protein and Snickers Protein), protein breakfast cereals (e.g. Kellogg’s Special K Protein), etc.;
and, remember, the protein backbone for the Indian sub-continent and the Middle East for millennia has been pulses – peas, beans, lentils, etc. – which are having a surge in growth on Western menus. Then, there’s nuts, of course, which in Western markets are moving on from being Christmas items and salty pub snacks to having a moment in “high protein” snacks, salads and meat-free meals which are scooped up by omnivores not just vegetarians;
creeping into view, pardon the pun, come insect protein products – the Insekten Burger is our favourite, but cricket flour snacks abound (e.g. Jimini’s and you can have your insect of choice – grasshopper, mealworm, and buffaloworm) and algae protein, not least with Spirulina, is becoming very fashionable;
and, lest we forget, what about Faux meats? These are the plant-based burger lookalike products and mycoproteins (e.g. Quorn) that incense the traditional meat industry. Love them or hate them, they are under the protein canopy and will be joined in years to come by much closer representations of “the real thing”, i.e. meat grown from animal cells. Faux meats are, increasingly, in the product stables of international meat companies (e.g. Cargill, Tyson and Maple Leaf Foods)
We note the outright antagonism between meat and dairy farmers and the more extreme end of plant-based imitations (aka fake meat/milk in Trumpian parlance). Can meat only be the flesh of an animal? In history, the term meat meant food of any kind. Venerable David has long referred to coconut meat and milk and the more hide-bound in the red meat industry don’t count fish as real meat! Some of the plant guys, mind you, can be self-righteous and zealotic to the extreme excoriating omnivores for destroying the planet, ruining their health and encouraging animal welfare abuse. The use of “clean” protein/milk/meat fans the flames with the intimation that animal meat and milk is “dirty”.
On nomenclature, it’s still
early days and going forward expect to see regulation and the application of
common sense. The over-riding requirement is not to confuse the consumer –
s/he’s confused enough as it is! If it’s a burger, then, usefully precede with
an adjective such as beef/pork/vegetable. In the past, Quorn has been cheeky in
its labelling – e.g. meatless & soy-free (in small type) Chik’n
Tenders – clearly, beyond the pale. But, Quorn meat-free mince seems to us
perfectly acceptable. Does milk only come from female mammals? We reckon that
soy/almond/oat/hemp … milk labels will be permissible long-term on the basis
that 99.9% of consumers won’t be confused at the supermarket shelf.
As mentioned, the market for protein foods is expanding and farmers through to retailers should be happy about this. Let’s look at meat (including faux meat!) in the marketplace. We see a continuum of products in the Meat or should it be the Protein or Centre of the Plate Department of the near future:
at one end,
“real” meat with a compelling story – festooned with adjectives identifying
provenance, breed, feeding regime, etc., and retailing at a substantial
more basic meat
fare, value-priced for weekday meals (more fuel than fancy!);
products combining meat and pulses – they’re gaining market traction right now
– e.g. Lidl’s Keen & Bean chilli con carne meat balls, Greggs sausage and
bean melt (so, what’s new about flexitarian products – Michelangelo invariably
had chilli con carne in his lunch box as it was well-suited for those doing ceiling
work), Waitrose’s Spanish pork, chickpea, red pepper & spinach sausages;
cell-grown meat initially will be accessible only to those with high incomes
and, of course, it will be grown to meet customer specifications on shape and
a range of faux meat products, like the
Impossible Food and Beyond Meat burgers with no animal products in their
a small and
discrete entomophage section for insect food lovers.
Will each of the above categories have distinct, unique customers? Yes and No! Vegetarians and vegans will stick to their own. But, increasingly, the majority will have a meat repertoire and shop across all categories depending on the occasion – e.g. it has to be the real McCoy meat with a story for the big celebration. This is why anyone in the meat processing business should consider having representative products in all categories.
Traditional retail meat
departments, as we know them, may be increasingly a feature of the past – it’s
happening in front of our eyes right now. Consumers are stressed and short of
time and they demand a meal or snack solution, not a problem.
Clearly, the meat purchase, per se,
has become less central as the importance of the meal purchase
increases. The challenge for meat of any description is to ensure that it gets
into the breakfast/lunch/dinner/snack sections of the supermarket or the
high-flying food-to-go outlets.
“Real” meat has never been
under so much pressure on three fronts: its impact on the environment, human
health, and animal welfare. Within the past couple of months, 2 high profile
reports (EAT-Lancet Commission and World Resources Institute [WRI] Sustainable
Diet Report) concluded that meat consumption, particularly in high income
countries, should be slashed. WRI gives advice to those marketing plant-based
foods and recommends “appealing language to boost mainstream diners’ appetites
for plant-rich foods”:
meat-free, vegan, vegetarian, “healthy restrictive” labels;
but do use
provenance, flavour, look and feel as hooks. Sainsbury’s Cumberland-spiced
veggie sausages and mash sales jumped
76% when the “meat-free” label was downplayed and the traditional recipe was
The traditional meat industry should dwell on its unique attributes from a consumer perspective. We say, don’t get angry with the plant-based guys, get smart! They’ve joined meat under the protein canopy and they’re here to stay. Don’t fixate about “your protein” versus “their protein”, or even risk chronic constipation bickering over product nomenclature! Consumers want food that is tasty, healthy and affordable and they’re most interested in convenient meal/snack solutions NOT problems! Remember, this means convenient to buy, to prepare, to consume and to dispose of what’s left and its packaging. The threat to the meat industry of plant-based protein foods is not so much an emerging era of vegetarianism, it’s more of the arrival in the market of delicious, convenient, affordable food that happen to have fruit and vegetable ingredients!
Watch out, food industry
pundits are about holding forth on key trends affecting your business in 2019.
Blink and 2019 is gone and we’re into a new decade. So, we thought our blog to
you should be on what the global and local food industry scene might look like
in 2030 – it’s closer than you think!
Good news to start with – the global population will have grown from 7.7 billion now to 8.5 billion by 2030 and 800 million extra mouths to feed is both a challenge and a huge opportunity. Half of the population increase will come from Africa and most will stay there if economic growth advances at a decent clip. However, if the African continent slips into the economic doldrums with slow growth and economic gains garnered only by a favoured few, then, unhappy citizens will walk and most will head North and that could create a real immigration crisis in Europe! Much of the other half of the global population increase will be in Asia, not least the Indian sub-continent and Indonesia. Rapidly growing Asian countries are experiencing transformed diets benefitting particularly chicken, egg, fish and dairy businesses and soy producers (largely in South America and the USA). Intensive insect producers will be well-established by 2030 competing with soy to supplement intensive livestock feed supply.
What about the UK? We’ll add
3 million to our population over the next 10 years or so (from 67m to 70m) and
that’s way better than in Japan, Russia, Germany where numbers will decrease.
Like many countries, the UK is ageing fast – in 2018, 18% of us were 65 or
older and by 2030 it will be 28%. So what? Older folk eat less and,
increasingly, are concerned about their health. If you’re over 60, stand on a
chair and look out. What you can see is THE END and you’re bound and determined
to push THE END out a bit further by improving your diet! In 10 years, most of
us irrespective of age will be significantly more conscious of what we eat and its
impact on our health. We’ll have a much better notion of our food goals, for
if we aspire to
be fit, toned, with an active lifestyle, then, food that is good for
muscle-building, improving performance and providing quick energy will appeal;
or if wishing to
retain (even improve) our looks, then, food and drinks that are good for the
skin, assist weight control, and are anti-ageing will be sought;
or, maybe, we
wish to be more zen, less stressed, with improved sleep quality and more
balance in our lives and a better digestive health diet might fit the bill;
and for those
with specific health problems, foods with known disease prevention/repair
attributes, heart healthy, and allergen-free might appeal.
By 2030, we’ll embrace technology much more than at present to assist us in food and drink selection. It’s happening right now – e.g. Professor Toumazou from Imperial College London has developed a cool DNA Nudge “machine/App” whereby you swab saliva from your mouth, pop it into his magic machine and, then, when shopping zap the ingredient list of the food product you fancy and the DNA Nudge will advise you whether it is a good or bad purchase given your dietary proclivities.
In many countries, not least the UK, health systems will be under huge pressure because of the ageing population, and 2 major diseases – heart health and Type 2 diabetes. Governments will have long moved on from simply recommending that we should moderate our diets and, as they are doing now for sugar, will wade in with hefty taxes on food and drink products high in sugar, salt, fat and alcohol. Cannabis and hemp food and drink products will be closely regulated but pervasive for social and medical usage. The global beer and soda companies are all investing in drinks containing CBD (cannabidiol oil).
Incidentally, in early-January 2019, world stock markets are reverberating because of concerns about slowing economic growth in China. Well, pardon the pun, here’s another Sino-wrinkle, by 2030 China’s population profile will be very similar to that of Japan’s in 2018, i.e. more old folks than young ones as a result of decades of the one child policy in China (now rescinded). In fact, China will get old before it gets “Western” rich and will have all the consequential labour, social and health problems associated with such. AI and robotics may ease the pain of labour shortages and care of the elderly but the years of China driving global economic growth are numbered.
Returning to the UK and other developed (as we amusingly call them) countries, consumer stress levels are on the rise and will continue to do so. Current millennials will be 10 years older and well into (for some) their child-rearing years. They’ll be increasingly peevish to have missed the spectacular financial gains made by Baby Boomers and Generation Xers from house price inflation. For the food industry, escalating consumer stress will simply accelerate the already well-developed trend towards providing snack and meal solutions and not problems. Whilst income distribution in the UK is unequal, perhaps surprisingly, it has not deteriorated significantly over the past decade. Notwithstanding this, consumer households in the bottom 2 income deciles are struggling now and will continue to do so over the next decade (irrespective of the political party(ies) in power). This will be exacerbated by the sharp growth in AI and robotics which will squeeze jobs at the lower income end of the labour market. This will ensure that traditional supermarkets will continue to have a very strong focus on price. The Tesco/Sainsbury-Asda’s of our grocery retail world have broad shopper churches and can’t afford to lose the custom of their keenest price-conscious shoppers.
We’ve been talking for a few years about how “the green bar is rising” in the food industry. Globally, consumers are seeking products that are tasty, convenient, affordable and that are good for their families’ health and for the health of the environment, local economy, food producers and their animals, etc. By 2030, putting consumers and society first will be pervasive in the world of business and such will be the transparency of supply chains and global communicative powers of social media that “greenwashing” will be doomed to failure. Specific examples of how this will affect the food industry include:
the burgeoning popularity of “climate-friendly” diets;
an accelerated move to less, recyclable/compostable packaging (“Big Food” is promising this by 2025 – they won’t have that much time!);
an increasingly global focus on reducing food waste – in richer countries, in the home and emerging countries on the farm and in the supply chain;
The food sector under the most “green” pressure will be meat. By 2030, inexorable pressure relating to the impact of high levels of meat consumption on human health, the environment and animal welfare will reduce the centrality of meat in Western diets exacerbated by the continuing growth of alternative protein foods (including “lab-grown” meat). A proportion of Generation Zers will hold the view that dispatching sentient animals for us to eat as being barbaric. Beef, lamb and pork will be in the front line. Bye bye carnivores? Of course not, but flexitarian diets will be widespread. Our meals will look more Asian just as theirs look more Western (i.e. with more meat)!
This leads us on to thoughts on what the food retail scene might look like in 2030. We’ll keep it brief:
hard discounters (Aldi, Lidl, etc.) will continue to threaten the traditional supermarket players in every country where they are established: they’ll keep growing in the UK and hit 20% grocery market share in the next decade; likely, Aldi alone will take a 20% share Down Under giving long-term migraines to Woolworth and Coles (and, surely, Costco will add to the Australian Big 2’s tribulations by significantly increasing store numbers); and we shall see if the combined clout of Aldi, Lidl and the dollar stores become more a serious competitor than an irritant for Walmart, Kroger and Ahold Delhaize in the USA. As an aside, we expect the much loved Trader Joe’s discount gourmet concept (Aldi North-owned) to appear outside the USA. Will the German discounters seek to invade Asia and Africa? The combination of strong population growth and households with relatively low but increasing incomes would seem to be lip-smackingly attractive for a discounter. But, experience shows in Asia that local/regional operators are adept at out-competing the global monoliths! In Africa, there’s a serious challenge for even the super-efficient Aldi to cope with poor infrastructure although, courtesy of President Xi’s “Belt and Road” initiative, internal road communications are improving but this may encourage retailers from China to try their hand in sub-Saharan Africa;
as discounters continue to expand in mature markets, the big 3 or 4 traditional supermarkets will look to hang on to their current share. In markets such as the USA with a distinct regional structure, expect to see smaller regional players disappear. In all markets throughout the upcoming decade, there will be a dog fight on price, more concentration, agreements between non-competing retailers to negotiate together (à la Tesco and Carrefour), sharing services, and grocery retailers looking to increase their customer base with linkages into independent stores and food service (à la Tesco’s takeover of Booker) ;
on-line grocery sales will march on with a range of offers (click & collect, 1 hour delivery, etc.) driven by millennials reaching the “nest-building” stage of their lifecycle – online will simply be the normal way to purchase food, unless it’s dashing out to a store for emergency purchases or, if they want to prepare a special meal and take the time to seek advice from a retail artisan. Amazon will struggle to compete in fresh and chilled prepared foods in the absence of a significant store base which suggests Amazon will either exit fresh or purchase other grocers and push on relentlessly. Check out what Alibaba/Hema and JD/7Fresh are up to in China to find out what is going to happen here – for convenience retailing and retail theatre overall, we have much to learn from the Asian experts;
Tesco and Walmart emerge as two of the world’s leading practitioners of omni-channel retailing, although the dynamic action in online is best observed in Asia, not least China and South Korea;
big stores will suffer through the decade and dwindle in numbers, but little stores and, in particular, mini-stores will flourish popping up like weeds in every apartment and office block, hospital, entertainment area, indeed, wherever people congregate. Some of them will not necessarily be manned as the system will recognise us when we enter, and cameras will record anything we purchase in the store. The offer? – fast turnover healthy, tasty snacks, mini-meals and regular meals (again, see best practice of this in Asia with the likes of 7-11 stores) increasingly, special interest groups and activist shareholders are influencing the policies and activities of major companies (e.g. on executive/gender pay, the environment). Major retailers will have to become accustomed to such pressure particularly in relation to product sourcing – consumers will ask “remind me again, what foods can’t I eat?”, whether it be slave-tainted shrimp from Thailand, orangutan-harming palm oil from Malaysia, chicken that has been fed on soy from the Amazon Basin, wrappers that are not recyclable;
the next 10 years will see a technological revolution in our supply chains – it’s already well underway with robotic picking, blockchain and its equivalents becoming mandatory, Big Data and individual loyalty data personalising offers, and grocery shopping experience being transformed – “drudge” shopping for routine essentials disappearing as IoT kicks in and the loo paper inventory is managed by our lavatorial product provider in the clouds, while we can elect to shop for “touchy feely smelly” stuff in a store with knowledgeable staff or online talking directly to the producer. Mind you, there’s a dark side to the IoT/AI/Robotics era which is rushing towards us. Indubitably, criminal hackers will see opportunities to hold us and our food supply chains to ransom and this will elevate concerns about food security to a higher and darker level;
climate change will have an important impact not least on fresh produce. Weather extremes can create havoc with supply programmes. In Europe, we’ve seen this with The Beast from the East disrupting arable crops, Winter deluges in Spain destroying salad crops and droughts in Summer across the continent sharply reducing produce yield and quality. Expect to see serious growth in urban hydroponic farming and continued expansion of protective cropping (e.g. polytunnels). Seasonal eating may well have a renaissance as consumers match their fine words and thoughts on being greener with their actual food purchasing and consumption behaviour;
we’re already seeing the accelerated convergence of food retailing and food service and this will continue apace. Note in the UK that, for food-to-go, traditional supermarkets are upping their game but still only in 3rd place to specialty operators (such as Pret and EAT) and the fast food operators that will be attempting to get a slice of the food for home market! The food-to-go market will flourish in the big and most visited cities, and we think London will be a global leading light in innovative freshly prepared meal and snack solutions reflecting its cosmopolitan population and their voracious appetite to try anything new;
from a fresh food sector perspective, suppliers will benefit substantially over the coming decade as the importance of emerging routes to the consumer increase, in addition to the traditional supermarkets and hard discounters. Understanding and being in concert with the values and aspirations of consumers will be vital. “Greener” consumers will be hard taskmistresses – local food with trusted provenance will continue to flourish and look towards towns and cities seeking to become carbon neutral, even self-sufficient in their energy use.
The global food industry is changing and fast and the pace seems to be accelerating. Consumer trends permeate the globe at an astonishing rate, with social media the lubricant. “Big Food” companies (including retailers) when pondering food industry evolution would do well to recall a couple of Charles Darwin quotes, viz.: “It is not the strongest of the species that survives, nor the most intelligent …. It is the one that is most adaptable to change.”; and “In the long history of mankind ….. those who learned to collaborate and improvise most effectively have prevailed.”! Happy New Year to you all and early next month, it’s Chinese New Year (February 5th) and it’s The Year of the Pig. Winston Churchill was fond of pigs: “Dogs look up to us. Cats look down on us. Pigs treat us as equals”. We’d add “and they provide us with bacon without which Veganuary would turn into a veritable 12 month tsunami of vegetarianism”!
One way or another, each of us ingests food every day. The intriguing question is, in the future will we be buying it from the same retail providers as in the past? Drop back a decade and the answer revolved around the perceived relentless march of the mega-supermarkets – Walmart, Tesco, Carrefour et al. Now, massively present although they are, “Big Box” retailing is looking a tad jaded, with the Germanic terrible twins, Aldi and Lidl, causing consternation and the manifestation of all that is online, Amazon, hovering menacingly! So, what’s the story?
Let’s look at some facts and forecasts. In the UK, supermarkets and hypermarkets have a combined grocery market share of 55%. By 2023, their share is forecasted to slip to 52%. Let’s race ahead to 2030 – share will have dipped to the mid-40% but reports of their death will have been greatly exaggerated. Discounter share in the UK, now at 12% and expected to reach 14%+ by 2023 will nibble towards 20% by 2030. Across Europe, those pesky discounters have shown consistent ability to prosper in a hostile environment – like moths in the wardrobe, they’re very difficult to expunge!
Retail pundits are increasingly disappointed and sceptical about the future rate of growth for online grocery. In 2018, 6% of UK groceries were purchased online and this is projected to increase to a modest 8% by 2023. The disappointment is that this growth trajectory does not emulate that of hardware, electricals or fashion. We believe that in the UK online grocery share may be 15% by 2030 but what sort of groceries will be routinely sold online?
Look, there’s a big difference in the level and frequency of emotional involvement in our purchases of, say, kitchen paper towels versus meat. For paper towels, we buy our regular brand or whatever other brand is in our “paper towel repertoire”, often being influenced by whatever is on special. Few shoppers sniff the pack and search assiduously for the “best before” date! However, fresh foods are predominately supermarket labelled and we feel the need to check dates/appearance/ripeness/maybe smell because, after all, this core purchase will be eaten by me and my family. Like meat, the fruit and vegetable purchase is equally complex: green or ripened bananas?; is the avocado for guacamole tonight or do I want it to be perfectly ripe for a salad in 3 days?
Satisfying online shoppers on fresh foods is a weighty responsibility. Trust in the provider and brand owner, whether it be a supermarket or a pure online player like Ocado is paramount. So, do you think the majority of shoppers will be comfortable with their local supermarket selecting their families’ fresh foods, let alone a distanced, monolithic entity such as Amazon?! Building online share for fresh foods will be very hard work whereas doing the same for the other boring but essential stuff will be, relatively speaking, a doddle! That’s why UK online share of grocery purchases will be “only” 15% by 2030 and the disproportionate share of those online grocery purchases will be for shelf stable items that are, currently, located in the middle aisles or “the morgue” as this area is unkindly named. Surely, at least half our grocery purchases, the ones that are essential but low involvement from a shopper perspective, will be auto-replenished via signals from smart fridges and pantries in most homes within a decade?
Shoppers’ relationships with groceries have always been a bit more personal than other goods. Back in 1998, grocery sales were just 14% of total for Walmart and it took close to 20 years for “The Mother of All Grocery Retailers” to ratchet this percentage over the 50% mark (57% of Walmart’s $500 billion sales were grocery items in 2018). For Amazon, 2017 sales of $180 bn. had a tiny fresh food component – that’s one of the reasons Bezos bought Whole Foods. We’re convinced that he’s kicking himself regularly for not putting in an early bid for Sainsbury’s before they went and queered his pitch by snagging Argos and, then, Asda. Online platforms with no track record in perishable fresh foods need to earn shopper trust and an accelerated way to do this is to purchase a bricks and mortar retailer with a fresh food pedigree. The strong performance of Morrisons’ share price over the past few months is indicative that market pundits think Amazon may dip into its petty cash and fork out $8 bn. (a mere1% of its current market cap.) to buy a friendly Yorkshire grocer before the year’s out!
Pundits have a short attention span and are impatient by nature. Amazon takes a longer-term view. David signed up as a customer with Amazon in 1998 – 20 years ago, when Bezos was just moving out of his garage using it as an office and depot and his “books by mail” business was taking off. In 2018, Amazon has a 40% share of ALL online sales in the USA. Are its sales peaking? Hardly! 85% of retail in America is still bricks and mortar-based. But Bezos believes that Amazon must expand and grocery sales are an integral part of this expansion. Look to China for endorsement – both Jack Ma (Alibaba) and Pony Ma (Tencent) are expanding their internet-based businesses by buying into traditional supermarket chains.
China’s level of digitalisation is enough to make Western online companies dribble with excitement. Payment by touch phone dominates and cash is passé. B2C e-commerce penetration in China far exceeds that in any other market in the world. Are the Chinese more tech-savvy? No – they’re leap-frogging traditional stores because of poor store networks and shocking product availability. For a US food producer, partnering with the top 4 grocers gives you access to half of the US food market. In China, by contrast, the top 4 grocers connect you with 5.7% of food retail spending (The Economist Intelligence Unit). This is a headache for food producers and consumers alike – supply chains are long, circuitous and, often, dodgy. So many Chinese consumers shop online because the products they want are not available offline and, as a bonus, they don’t have to sit in a horrendous traffic jam going to and from the store!
Getting back to our food purchasing behaviour – let’s not forget that whilst food is fuel, it’s also for some occasions (which are being squeezed) hugely social, fun, family, tradition, entertainment, reward and much more. Online is great for basics but can be at odds with consumer values when we are in feasting rather than refuelling mode. Yes, we can make “Mindful Choices” shopping online but it’s more rewarding when we have an opportunity to interact with the physical food and those that sell it. Capturing online share of fresh foods and story foods will be a marathon not a sprint. But focussing on the battle solely for grocery market share is profoundly blinkered. The overall market for food must be viewed in the round. What about food consumed out-of-home or when we “eat out in” using the likes of deliveroo, uber eats, etc.?
The food-to-go market is huge and growing substantially faster (x2) than traditional grocery. Whereas supermarkets are expanding their food-to-go offer, they are not the movers and shakers. 60% of this market is taken by specialists and by QSR, but over the next 5 years the specialists will advance at pace and QSR overall will struggle, as some fail to keep pace with the digital/technological initiatives of the global fast food employers (particularly McDonald’s who have done remarkably well in the UK during a torridly competitive period for food service). For best in class, look to Pret (snapped up recently by Germany’s JAB), Itsu and, as ever, M&S’s food-to-go offer can be fabulous. Younger consumers are the driving force in food-to-go and when they want it, they want it NOW, not in a minute but NOW! Desperate to claw their share of this market, supermarkets are and will continue to revert to type and rely on astonishingly low-priced meal deals. It’s in their DNA to foment a “race to the bottom” on price.
As traditional eating patterns (breakfast-lunch-evening meal) break down and are replaced by a series of mini-meals and/or snacks which can be bought and eaten out, or delivered in to office or home, demand for old-fashioned food ingredients wanes. Breakfast is purchased on the way to work, lunch is at or close to place of work, dinner is carried home or “ubered-in”. The result is that the pre-eminence of the supermarket as a destination to purchase food is lessened substantially. In short, the meal/snack market moves from being highly competitive to, let’s call it, ubercompetitive!
Is this good news? Well, YES from a consumer perspective with a myriad of food businesses vying for our attention and opportunities galore for those that are quick on their feet, technologically adept and are well tuned-in to fast-changing consumer whims and fancies. But, it’s more challenging for monolithic 20 Century grocery retailers who may lose sales massively from the core of their stores to pure play online merchants and struggle to keep up in the fast-changing world of food on the move! Surely, it’s good news for food suppliers as new routes to the consumer emerge and become established and, in doing so, take share of stomach from the traditional supermarkets. So, do we expect to see tumbleweed blowing through dust-covered aisles of abandoned Tesco and Sainsburys/Asda supermarkets? No – they have huge areas of strength including a thorough understanding of sourcing fresh foods, the capacity and resources to change, and the capability to be world class omni-channel retailers.
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.