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

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


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

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

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

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


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


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

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

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

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


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Posted in Convenience, Foodservice, Online

New Age Food & Drink Stealing The Clothes Of Culinary Classics: Is It Fair Play Or Are They Fair Game?!

Have you noticed that the food industry’s “Old Guard” – meat, milk and wheat products – have been taking a good bashing in recent years? Swathes of consumers eschew these nutritional staples because of: perceived food intolerances (e.g. gluten, lactose); health worries (e.g. cancer-causing warnings from WHO on, in particular, cured meats); concerns about the environment (e.g. methane accelerating global warming, destruction of the Brazilian rain forests for soy and cattle production, “excessive” water use to produce beef); and animal welfare concerns. Are these worries just “Scotch Mist” – self-indulgent musings of the chattering classes? They’re more than that to the red meat, dairy and baking industries as, in each case, consumer concerns have been translated into eating less of the “classics”, namely red meat, milk and white bread:

  • Red meat consumption per capita in many higher income countries is static at best and declining in most;
  • Dairy product consumption is under pressure in rich countries – in the UK, the only real growth category in the retail dairy department is in “Non-Dairy Dairy”!;
  • Wheat flour has been in free fall in Western countries – down by 10% per capita in the USA in the last 8 year period.

Ironically, however, the reverse is happening in fast-growing, lower income countries where meat, dairy and wheat flour consumption is burgeoning. Plaudits are due to a dynamic global market place and a certain circularity is evident in global food trends – as we embrace Ancient Grains (e.g. quinoa, chia, millet, tef), emerging country consumers discard them for wheat and rice; and plant-based protein is on-trend with rich consumers just as lower income Asian country folk trim vegetable intake and plump for more meat and dairy protein.

But, here’s a peculiar thing, the purveyors of alternatives to meat and milk are reluctant to stray far from the imagery associated with the “Real Thing”:

  • First, Quorn which has enough cheek for another row of teeth proudly asserting on its packages “Chicken Fillets” and “Swedish Style Meat Balls”, followed in smaller and fainter type by “meat free”! So, Quorn isn’t meat but looks like meat and is sold slap bang in the chilled meat cabinet. We’re amazed that the Quorn guys haven’t been hounded mercilessly by the global meat industry for misleading consumers.
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“Meat-Free Chicken Fillets” A Bit Cheeky on Labelling!

  • Impossible Foods with its “Impossible Cheeseburger” and Beyond Meat with its “Plant-Based Burger Patties” are darlings of the media and are intent on redefining what consumers think of as meat – but, still, they mimic the real meat products that they criticise so roundly!
  • Then, there’s Rebel Kitchen and its “Mylks”. This is a Millennial start-up company that thumbs its nose at “Big Food” and advises its customers that their approach is “Simple & Right, Big on Ethics, Bold on Taste, and No Preaching!

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  • And, Pret a Manger who “milk” the coconut theme with its Coconut Flat White Coffee and the strap line Moo Moo – the only link with mammals that coconuts have is when they are used to mimic the clopping of horses (as in Monty Python’s Holy Grail film).
  • But where does one draw the line? Hampton Creek’s just MAYO from the USA is, essentially, mayonnaise without any egg ingredients, notwithstanding that mayonnaise is defined as a food product. containing egg yolks. A principal ingredient in just MAYO is pea protein. Is this pulling the wool over mayo consumers’ eyes? Unilever thought so and set out to sue just MAYO, largely driven by the desire to protect its Global Number 1 mayonnaise brand Hellmann’s. But, in 2016, the suit was withdrawn and Hellmann’s launched its own egg-free mayonnaise version!
  • Campbell’s (of Warhol soup can fame) through its Bolthouse Farms subsidiary have launched MAIO, an eggless mayonnaise lookalike based on creamy yoghurt. Good for dairy bad for eggs!

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What do you think: is it cheeky, naughty, or downright illegal to call something that isn’t meat meat, or isn’t milk mylk, or isn’t egg-based mayonnaise MAYO or MAIO? Or are we just causing a kerfuffle?! We’re not calling for more regulation/legislation – there should be plenty on the books already. It’s more about fairness to the producers of classic wholesome foods, like meat and eggs, who appear to be on the back foot at the moment. And here’s  a very serious point – are the nutritional attributes of the New Age food products in the same league as the classics? The National Osteoporosis Society of the UK don’t think so. A recent survey indicates that 20% of under 25’s are cutting out or reducing dairy products in their diets, and 70% of 18-35 year olds are dieting and concerned about their dairy intake. Let’s hope the result isn’t spindly-legged, faddish diet-obsessed  consumers with rickets.

Posted in Fresh Products, Health

The Coyote and Road Runner: Big Food and Start-Ups Friends or Foes?

Dairy giant Danone has announced this week that it’s cutting €1 billion in costs over the next 3 years as business conditions are tough. Where?   …. err everywhere, including fast-growing emerging mega-markets like China. Danone is not alone – in Europe, fellow fmcg titans Unilever, Henkel and Reckitt Benckiser are all desperate for growth. Even resilient Nestlé is struggling – “Swiss giant food company braces for slowdown as new chief hatches revival plan” screams the business press. Across The Atlantic it’s a similar scene for General Mills and Mondelez. There’s a well-worn strategic path taken by “Big Food” in these circumstances:


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  • First, slash costs to maintain margins. The drive is to trim fat/increase efficiency but, also, for self-preservation. Remember, around the corner lurking is 3G Capital and Berkshire Hathaway waiting to do a “Kraft Heinz” buy out and merger hatchet job on you! Scary, just ask Unilever!;
  • Second, acquire a major player who is in a complementary and, preferably, higher growth part of the market. Danone has already done this with its purchase of WhiteWave Foods for $10 billion (completing this quarter) – owner of Alpro, Vega and Silk branded plant-based “non-dairy dairy” products which are expanding sales rapidly. Reckitt Benckiser (owner of Durex condoms, Dettol, Lemsip, Finish, Scholl, etc.) has mopped up infant formula producer Mead Johnson giving RB a jump start entry into fast-growing emerging markets where, currently, it has little presence. Dr. Pepper Snapple Group have snapped up Bai Brands maker of healthy, anti-oxidant rich new age drinks and, similarly, PepsiCo has bought the remaining piece of Kevita drinks company that it doesn’t already own (needless-to-say, Kevita drinks are organic, probiotic, gluten/GMO-free, vegan, stevia-sweetened and have very few calories);
  • Thirdly, give the existing product portfolio a thorough make-over. In January, General Mills launched a raft of “new” or “augmented” products “meeting a range of consumer snacking trends worldwide” – new Cheerios RTE cereal with less sugar, anti-oxidant rich berries and whole grains; Yoplait Greek yogurt with extra protein and only 100 calories; Annie’s organic popcorn; Lärabar natural snacks which are gluten/dairy-free, non-GMO, Kosher and, for the lucky ones may contain a smidgeon of kale; Nature Valley muesli bars meeting the nut and non-dairy trends with added almond butter; and even Progresso soup has a 2017 face – Tuscany chicken broth, if you don’t mind!;
  • Fourthly, and increasingly fashionable, is the trend for ”Big Food & Drink” to take ownership positions in exciting, on-trend, start-ups via their own in-house venture capital funds/companies.

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Why would “Big Food &Drink” take the VC route? It’s an acknowledgement that they’ve been slow to spot and react to trends in increasingly fast-moving markets – fmcg companies they may be, but fast-moving they aint! The General Mills of this world have their genesis in the 19th Century – the brand Cheerios is 70+ years old, a youngster relative to 120 year old Kellogg’s Cornflakes. Brilliant performers in the era when the family sat down together for breakfast with father at the head and mother serving, they’ve looked more and more dated in the rushed world of the 21st Century and, now, sitting in the part of the supermarket that some call “The Morgue”, RTE cereals and highly processed foods look, frankly, old-fashioned. Quick-on-their feet start-ups, often run by those pesky millennials, have run rings around them – Rebel Kitchen and Sneakz Organics come to mind. But, give lumbering old fmcg its due “if you can’t beat them, join ‘em!”. So, they’ve offered VC finance to promising start-ups, taken ownership positions and, if they sense that the start-ups have market traction enough to make the big time, then, they just pop out and buy them:

  • in mid-2016, Kellogg’s via its “all natural” company Kashi (acquired as long ago as 2000) bought vegan snack company Pure Organic; very recently, again via Kashi, Kellogg’s has invested in a tiny start-up Kuli Kuli which makes superfood bars and herbal teas from Moringa (a plant protein). General Mills has boosted its investment in Rhythm Superfoods, a kale chip start-up (gotta love that kale!);
  • the General Mills VC vehicle is 301 INC (Emerging Brand Elevator), and Unilever has Unilever Ventures albeit specialising in financing personal care and digital start-ups. Campbell Soup launched a $125 million venture capital fund named Acre Venture for start-ups in February last year. Kellogg’s VC vehicle is eighteen94capital – “if you have a food-industry consumer product in-market or ready to launch, we have the capital and resources to take it to the next level. We’re all about collaboration, shared passion and a commitment to succeed”;
  • it’s a moot point whether “Big Food” and new age start-ups can gel or are immiscible. We guess only time will tell. But Ben & Jerry’s is a decent example of success – acquired by Unilever in 2000 and still maintaining a slightly rebel edge to its culture and market positioning.


It is, however, instructive for “Big Food” to ponder on the following. Over the last 4 years, the entire USA groc
ery store food and beverage sales grew by just 2.3% per year (it’s been much less in the UK, in fact, the last couple of years sales were deflationary). The largest 25 food & beverage companies contributed only 0.1% of that annual growth. Where did the growth come from?: 20,000 small companies outside the top 100 which together saw revenue growth of $17 billion.




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Posted in General, Trends

Veganuary: So Long Sausage?!

Phew, it’s the end of January. It can be a tortuous month as one comes to terms with under-achieving on all those rash New Year resolutions made in haste on guilt-laden, leaden early-January days where we promise ourselves to do less (e.g. eating, drinking) and more (e.g. exercise, mind-expanding reading). Retailers are quick to exploit our soft under-bellies!: Ocado with its “Resolution Boosters” and Aldi with treasure trove offers on Picture1.pngfitness DVDs, exercise bikes (doomed for the garage), and “fitness tracker watches”. Not only have we been exhorted to have a “dry” month and eschew alcohol, also, we’re being asked to reduce meat intake – Veganuary not January, Sainsbury’s incurring the wrath of farmer organisations by planning to place meat and non-meat alternatives together in what was solely “the meat cabinet”, Waitrose giving its much-admired food magazine a front cover on “Eat Veg”.



What on earth is going on? Eating meat, particularly cooked meat, accelerated human evolutionary progress from gibbering vegetarian homo habilis 2.5 million years ago to our big-brained meat-eating homo sapiens ancestors a mere 200,000 years ago. Now, Northern European governments and special interest groups are recommending we don’t just shave our meat consumption but slash it drastically for health and planet-saving reasons:



Claptrap or what? Well, the global food industry believes consumers are ready for dietary change and are on a plant-based foods splurge. Flexitarian diets are in vogue and, frankly, have their attractions. Here’s a secret: we’re both vegetarian  … well, every other Thursday we are and, anyway, David doesn’t count bacon and Miguel doesn’t include jamón as meat! The fact of the matter is that there are, increasingly, some brilliant vegetarian products available. Gone are the days when vegetarian fare was akin to wearing a hair shirt and thrashing oneself  with birch twigs  – remember those gritty soyburgers and appalling nut roasts?




So, do we expect to see per capita meat consumption dwindle? What we eat at home and away does change but slowly. In the UK, white fish consumption, the centre piece of our iconic national dish, has halved over the last 40 years and, God forbid, we drink half as much tea as we used to. But, then, we gobble down salmon fillets and sushi, and prefer fancy coffees and herbal teas. The white bread doorstep sandwich is in steep decline, but wraps and artisan breads are hot to trot. Per capita meat consumption in most high income Western countries is at best static and probably will edge down over time. Crucially, however, for those with some income latitude, when they eat meat they might eat less but they’ll certainly want to eat better meat. The challenge for the meat industry is to work out  exactly what 21st century consumers value in their meat products and what will they pay more for?

And the excitement pervading plant-based proteins – are they bone fide competitors to “old-fashioned” meats or a Guardian-reading, chattering class flash in the pan? In the 1990’s, meat dominated the centre of the dinner plate. “What’s for dinner, Mum?”. “Beef” was the response received with enthusiasm. Now, it’s much more likely to be “pizza, Chinese, Italian, tapas”, with the species of meat being very much secondary. Millennial consumers are much more likely to respond “Dinner, what’s DINNER?” as they graze on snacks and mini-meals through their socially networked day. Our perception of the world of protein is and will continue to expand. Meat has serious competition to deal with from plant-based foods, algae, myco-proteins like Quorn and even insect protein. It will require the red meat industry in particular to drag itself out of the primordial soup and offer consumers snack and meal solutions which are consonant with their lifestyle requirements and values, and which are rich in stories that delight their senses as much as the taste delights their palates.

Posted in Consumer, Health

Consumer Trends and Their Impact on Sales

Had enough of grocery pundits pontificating on consumer trends that will take the market by storm in 2017? What do they mean for your business? Are they a genuine trend, or just fancy or fad?! Here’s some thoughts to consider during this end-of-year trendfest.

First of all, looking back is a good start before looking forward:

  • Take tea, it’s our national drink and consumption per person has halved over the past 40 years or so – in 2016, the big brands of “builders’ tea” (e.g. PG Tips, Tetley, Typhoo) had a shocking year. So, bail out of tea? Well, no, upmarket teas (e.g. “single estate” teas with provenance) fared much better and green and herbal teas have had continued growth. In fact, the fermented tea, Kombucha, is highly prized by the chattering classes and, bet your boots, they’ll be drinking it with chia seeds before you can say “quinoa”!;
  • What are we drinking hot if not tea? Instant coffee is struggling to hold its own, but retail sales of roast and ground coffees are on the up – not least in coffee pod form (accelerating since Nespresso compatible pods hit the market). But, it’s been on the High Street where the likes of Costa, Caffè Nero and Starbucks have flourished. Now, you have to go to night school to learn how to order coffee. Coincidentally, the long-term downtrend in cows’ milk would have been more drastic if not for milk in coffee taking up the slack created by falling sales of RTE breakfast cereals;
  • and, in fresh foods, haddock and cod have seen similar long-term declines. Here, it’s more about availability, product knowledge and price rather than the British eschewing one of our famous national dishes (i.e. fish & chips). Supply has been constrained by EU fish quotas (quite rightly), haddock and cod loins have become premium meat cuts still much loved in small portions by oldies but more likely to be exchanged for much cheaper pre-prepared basa fillets by younger consumers unwilling to fuss with fish!

Looking at the UK grocery retail market by category in 2016, what trends can we glean from looking at categories that experienced volume growth? Incidentally, of 112 categories analysed, 40% saw volume increases and 60% volume declines which underlines how tough it is out there in the market place – our UK population grew by 450,000 people in 2016 but the volume of groceries sold shrank in more than half of categories. Does that mean we’re eating less and the nation is wasting away? We think not!

Who did well?:

  • products that are perceived as being good for health and our well-being, and for improving our bodies – “free from” leapt forward, bottled water and sports nutrition products did very well, fresh berries were stellar performers as they have ben for the past 12 years, and products that eased the pain of hard times progressed – e.g. alcoholic drinks particularly sparkling wine, condoms and sex toys, and cosmetics. Mars produced “Protein” versions of its Snickers and Mars bars to ride the non-meat protein trend – the guilt of the indulgent snack can be assuaged by the thought that it’s high protein and contributes to body shape and fitness!


And who struggled to gain volume growth in 2016?:

  • anything in cans – fruit, meat, fish, soup, beans. Bail out of cans? Not necessarily – redefine the can! John West’s “Light Lunch” is in a contemporary can and ticks a dozen trend boxes – tasty, healthy, one of your 5-a-Day, calorie-controlled, gluten-free, snack/mini-meal, simple and few ingredients, convenient (to buy, carry, eat, dispose), no refrigeration, fish-friendly, recyclable and the reassurance of a famous brand – brilliant (as are JW’s Steam Pots and Infusions);

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  • frozen products had a tough year – particularly pastries, desserts, pizza, ready meals – and, maybe, this is a British problem for frozen where chilled value-added foods are perceived to have the quality edge and are an affordable indulgence. One answer is to up NPD as McCain for mini-roast and jacket potatoes and Young’s for fish have shown. There’s a more profound problem for frozen foods, ‘tho – the frozen aisle isn’t welcoming (cold and products are behind frosted glass) and it’s easy to by-pass if “we don’t need French fries and peas this week”!;
  • the demonization of sugar and pervasive interest in weight reduction has hit several categories very hard – fruit juice, carbonated drinks, yoghurts, jams, sweet biscuits, for goodness sake even chocolate bars – and products seen as being “carbohydrate-heavy” have struggled, such as sliced bread and dry pasta, although reflecting the strong interest in Asian cuisines, rice and noodles have surged on;
  • and, then, there’s red meat, sausages, bacon, etc. – volume and even more value declined as UK per capita meat consumption struggles to hold historic levels – health, animal welfare concerns and, for some, tight budgets constrain meat purchases. Emerging is consumer interest in a flexitarian dietary approach to food – “sometimes I feel vegetarian and sometimes I don’t” and the market has responded with a wave of convenient, tasty non-meat snacks and meals and, for dairy, “non-dairy dairy” as coconut/almond/even pea milks are on the same shelves
    as cows’ milk. Plant protein meat analogues and plant milks are  just niche market stuff? Not so: Tyson and General Mills have bought into meat analogue start-ups and Danone shelled out $10 billion for WhiteWave Foods – owner  of Alpro

Picture: Deliveroo.

On trends, one thing is certain – “Big Food” is MUCH more attentive of what’s happening in the pool where food company minnows spawn and grow. The top 5 owners of $billion megabrands saw their sales slip by $15 billion in 2015/16. Silicon Valley entrepreneurs have turned their attention to plant protein foods and non-traditional routes to the consumer – a crazy $5.5 billion has been invested in food delivery start-ups over the past 5 years e.g. Deliveroo is in 100 cities across 12 countries. In its UK home market, Deliveroo is opening 20 “Rooboxes” (so-called “Dark Kitchens”) this year where restaurants with restricted space can expand to establish “delivery only” kitchens from which meals can be delivered within 30 minutes of ordering. Big changes coming – we’ll look back in 20 years at social media holograms showing stressed shoppers in traditional supermarkets buying, to use an old-fashioned term, ingredients for the evening meal and howl with laughter. What were they doing?!

While we have your attention, Happy New Year from David and Miguel and may it be both rewarding for your families and your businesses.


Posted in Consumer, Trends

What’s Coming Up in 2017 for the Grocery Industry?

Consumer price inflation in the UK has risen from virtually zero at the beginning of 2016 to 1.2% in November – its highest rate for 2 years and economic pundits are reckoning it might test the Bank of England’s target rate of 2% early in the New Year. Mind you, overall inflation would have been higher through the year if it wasn’t for price deflation for food and grocery products . This has been great news for consumers but cold comfort for food industry participants!2016 12 01 Grocery Price Deflation.jpg

What’s kept food prices down in 2016?:

  • ferocious competition in grocery retail – “traditional” supermarkets desperately cutting prices to stem market share losses to the hard discounters. Is the Price War all over? Not on your nelly!;
  • Food manufacturers “buying forward”, so their ingredient costs in, certainly, the first half of 2016 reflected international commodity prices in 2015. The FAO food commodity price index was 20% lower in 2015 than 2014 and continued to drift lower until mid-year 2016.

So, what can we expect in 2017? In short, higher food prices but, likely, not as high as food suppliers would like. An inexorable continuation of the cost-price squeeze seems inevitable:

  • International food commodity prices have strengthened – the FAO global food price index was 10% higher in November than in May and these are yet to be fed into higher ingredient prices in the UK. Dairy, vegetable oils, coffee and, particularly, sugar prices have seen the strongest growth, with cereal prices actually softening;
  • Sterling has lost 15% of its value against major currencies – when new purchase contracts cut in, they’ll be at higher prices in £s and, remember, we import 35% or so of our food. Eventually, suppliers will be able to pass on to retailers some of the higher ingredient costs but the “Marmitegate” kerfuffle is indicative of the lengths retailers will go to before excepting price increases particularly for sensitive KVIs (known value items);

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  • Our view is that the economic uncertainties associated with Brexit won’t be helpful in 2017. Look, we’ve had a surprisingly good run since the referendum – no economic melt-down and our GDP growth has been better than our smouldering, snubbed EU partners. However, consumers are nervous – the unemployment rate is the lowest it’s been for 11 years (4.8%) but growth in wage rates is stagnant and, in real terms, wages have declined by 10% since the most recent recession. This decline is particularly felt outside London and the South East (e.g. GDP/head is 250% higher in London than in Wales and the North East of England). With inflation ticking up, consumer confidence is edging down. Now, retailers don’t set regional prices – e.g. Tesco can’t give Liverpudlians a price break on their trolley load of groceries and make it up on the Burghers of Bermondsey, apart from anyone else, The Daily Mail wouldn’t allow it! As a result, there’ll be plenty of families opting for a “Hard Discounter Diet” and the “traditional” supermarket chains will be fighting tooth and nail to ensure that not them but some other competitor takes the hit This means pressure on prices and margins that will be pushed right down the chain. Don’t be surprised to see one of the “Big Boy” retailers crumble in 2017.
  • It’s looking like an economic and social policy-makers nightmare – huge debt load, running a massive deficit, a national productivity problem, increasing regional economic and social inequalities, inflation edging up so “should we increase interest rates?” but just imagine the house-owners response to higher mortgage rates and, to rub salt in to the wounds, OPEC confounds the sceptics and announces the first cut in oil supplies in 8 years (watch out for significantly higher fuel prices)!

Make no bones about it, 2017 is going to be a tough year in the UK and other countries’ grocery industries. But, it was ever thus! Grocery industry folk are made of stern stuff. Global food staples are intrinsically volatile and price instability seems to be increasing, driven by the physical (e.g. unexpected climate events) and the political (e.g. food trade disruption between Russia and the EU). So, don’t be surprised if we get an unexpected bout of one or both of these in 2017 to discombobulate business results and business planning.

Well enough of this festive cheer! A Very Happy Christmas and let’s hope a serene and profitable New Year to you all from David and Miguel.

Posted in Inflation

Trend-Reporting Time in the Food and Drink Industry


Nestlé’s Cocoa Plan: show me the farmers! Source: Nestlé.

At this time of year, food industry pundits spray their readers with nuggets on the directions new products are taking as we stand on the threshold of 2017.  We like the Innova Market Insights approach as the company analyses new product introductions during the year to distill common attributes of products that indicate a change or reinforcement in market direction seen across the globe. What’s on their trends to watch list for 2017?:

Asda - Stevia.jpg

Health trend and sweet tooth gives an opportunity for Stevia based products.

  • Clean Supreme” – clean and clear ingredient labels with total supply chain transparency where natural rather than artificial, environmental/animal welfare and other social aspects are integral to the product. “The Green Bar” is being inexorably raised and manufacturers have to earn the right to produce. Good social behaviour is simply expected and doesn’t receive a price premium, rather it carries a discount if not provided;
  • Disruptive Green” – the galloping advancement of plant-based ingredients reminding the meat and dairy industries that consumers have a much wider view now of what constitutes protein in food or milk in drinks. Seeds go mainstream. Big Food is on to it – e.g. Danone shelling out billions for WhiteWave and Tyson and General Mills buying in to plant protein start-ups;
  • Sweet Balance” – sugar is demonised but our sweet tooth prevails providing burgeoning opportunities for natural sweeteners such as stevia;
  • Kitchen Symphony” – home cooking moves up a notch driven by endless cooking shows, media attention and consumer desire for fulfilment and family/peer praise! Authentic cuisine, “what sort of Italian/Chinese”, artisanal/local/heritage ingredients – it’s cool to be knowledgeable about food;
  • Body in Tune” – we’re not quite at DNA-profiling for My Diet, but “what’s good for me/my family’s body and well-being” is an increasingly important driver of purchase;
  • Affordable Indulgence” – irrespective of how tough things are, we deserve a treat and, what’s more, we want the proper premium one not the ersatz. Yummy taste and status but within budget!;
  • Horses for Courses and Fuzzy Borders” – is the occasion a snack, mini-meal, regular or special meal? We need food product formats to be in-tune with our specific and immediate needs. What’s the job of the food product for each occasion – reward, on-the-go snack, impress the guest? Flexitarian diets flourish – meat and vegetarian options are interchangeable;
  • Cool Kids Food” – more adventuresome children’s food with better nutritional balance (e.g. “frushi” – fruit sushi – looks good and is fun food).
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Provenance and local products still very important attributes for consumers.

Reassuringly, irrespective of product category, there are recurring themes emanating from this years trendfest. Here’s what Cargill Cocoa and Chocolate Division think are the key drivers in the chocolate confectionery market:

  • Indulgent: flavours – chocolate and vegetable combinations, building on chili, the irrepressible kale finds a place in our 2017 chocolate treats, and beetroot features alongside chocolate in cakes; texture – bigger chunks, and crispy chocolate layers; colour – cocoa powder in various shades (red through black) to add depth;
  • Premium: provenance/origin/where manufactured, artisan links (pushing big players to acquire trendy, successful start-ups at astonishing multiples!), type of processing (e.g. stone-ground, slow-churned);
  • Healthy: avoiding the perceived “unhealthy” (e.g. palm oil) and seeking the “healthy” (e.g. organic, coconut milk) and a focus on “-free” – gluten/HFCS/lactose) and removing guilt through protein enrichment and claims of healthy snacking;
  • Sustainable and Clean: even more of where the food comes from and who grew the ingredients (real farmers or factory farmers?) and what are the environmental and social impacts ? – supported by 3rd party accreditation and web links to see at first hand. Short ingredient lists with natural products to colour and flavour and real fruit, vegetables and plant extracts.


Sainsbury's - Chorizo Pancetta.jpg

Fancy a different pigs on blankets this Christmas? Sainsbury’s version is affordable and looks upmarket.

Posted in Consumer, Trends

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About the authors
Prof David Hughes: Around the world, David speaks to senior agribusiness and food industry managers about global food industry developments that are and will affect their businesses and industry. Energetic, engaging, humorous and insightful, David gains the very highest evaluations at seminars, conferences and Board level discussions in every continent he visits. Miguel Flavián: works for several Spanish organisations and companies to help them to learn from the developments of the British grocery market and improve their business back home.