Katy Askew

The food business blog from Katy Askew

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Tesco scrambling for growth in developed markets

15 Apr 2014 17:00

I got an early message this morning (15 April) from our sister site, www.just-style.com. "Tesco are relaunching in the US," it read.

Whaaaa?!?!

"Don't get excited, not grocery - clothes," it continued.

As just-style reports, Tesco plans to launch F&F stores in the northeast of the country, with the first location to open in Boston. This will be followed by four stores in New York and stores in Philadelphia and Newport, Virginia.

Call me a sceptic, but I am sceptical.

Having failed to turn a profit in the highly competitive US grocery market - just months after the group had to retreat with its tail between its legs - what makes the company think it will have more luck with its clothing offering?

In the UK, F&F sales exceeded GBP1bn (US$1.5bn) last year and LFL growth was 9%. But there isn't all that much that differentiates F&F - aside from the fact that you can pick something up while you get your groceries. Does the business stand out in terms of quality, design or even value? In a word, no.

Transplanting this to the US - a highly saturated, extremely competitive market with mature players that already have strong brand recognition - doesn't sound like a recipe for success. In fact, it sound like good money after bad. 

The US has been an elephant's graveyard for UK retailers that have been lured by the fact that it is the world's largest consumer market with affluent and big-spending shoppers. For instance, M&S - that bastion of UK apparel retail - had to retreat from the US with its tail between its legs some years ago.

There have been some successes. Top Shop, for instance, operates four stores in New York, Chicago, Los Vegas and LA. The brand is also available through Nordstrom's. But then, Top Shop has something that F&F lacks: a strong identity, Kate Moss, attitude that appeals to youthful types.

Another Tesco announcement that crossed the just-food news desk raised some eyebrows last week. The retailer is reportedly looking at rolling out a food-to-go concept in London.

As our editor, Dean Best, argues this move also raises some big questions. It would see Tesco entering a saturated and highly competitive market where it will come up against established and strong competitors.

These initiatives combined suggest one thing. Tesco is clutching at straws to eke out some - any - growth in developed markets.

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Jacob's goes crackers in "British hall of fame"

04 Apr 2014 12:57

Kate & Wills

Kate & Wills

United Biscuits relaunched Jacob's as a "master brand" this week, bringing the group's classic cream crackers together with the likes of Mini Cheddars and Oddities.

How to celebrate the heritage of an iconic UK brand that has been trading since 1885? Make a "great British hall of fame" - from the crackers themselves - of course!

Food artists "Miss Cake" and Nathan Wyburn used over 12,000 Twiglets, 54kg of cream crackers and 10kg of mini cheddars to create various images from modern UK pop culture.

The exhibition included "Cheddar Cole", "Stone-cheddar-enge" and the Duke and Duchess of "Creamcracker-bridge" [pictured]. 

Sadly, however, if you wanted to see the "Union Crackerjack" or a "double cracker bus" you are out of luck. The artworks were on display in London for one evening only.

The striking exhibition was the centre piece of a launch event kicking off United Biscuits' GBP10m marketing campaign behind the Jacob's brand. The evening was hosted by TV cooking brothers Tom and Henry Herbert. (Apparently, cream crackers were a lifesaver for a wife of one of the Herbert brothers. She lived off them after being hit by Delhi-belly while travelling in India).

Marketing controller Nick Wizard took some time out at the launch event to explain the benefits UB believes the move will bring. Click here for more.

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Co-op exec pay details fly in face of PR drive

10 Mar 2014 15:39

Details of The Co-operative Group's pay agreement with chief executive Euan Sutherland attracted criticism in the weekend press as it emerged that his package this year is worth around GBP3.6m.

Sutherland will reportedly receive a base salary of GBP1.5m this year, plus a GBP1.5m retention payment. Pension contributions and a contribution for buying him out of his previous contract with Kingfisher brings the total up to a cool three-and-a-half mil.

At a time when the UK mutual would seem to be gearing up to report heavy losses - primarily driven by the disastrous performance of the group's baking arm - echoes of much derided "bankers bonuses" and the controversy that they attract are clear. Industry watchers expect the Co-op's losses to stack up to around GBP2bn last year.

Sutherland took to the Co-op's workers' Facebook page to retort: "We seem to have an individual, or individuals, determined to undermine me personally, my team and the rest of the group board regardless of the uncertainty and disruption this causes to our 90,000 colleagues and our supportive members."

He added: "I wish I could promise you that this kind of occurrence will not happen again. You deserve to hear information in a proper, orderly and considered fashion. But we appear to have disaffected people who are determined to make life difficult and embarrassing for The Co-operative at a time when what we need most are professionalism and loyalty to the business."

This is all very well. And Mr Sutherland could very well be the right man for the job of turning around the Co-ops fortunes. He joined the firm last May and has since rolled his sleeves up and started forming a strategy to improve the cooperative's performance.

But herein lies the rub. Conspiracy theories aside, the grand reveal could have some implications for The Co-operative's drive to reposition and revitalise the brand. 

The Co-op recently launched a massive PR campaign to get the communities in which it operates engaged and to give its members - its owners - the opportunity to "have their say" in the running of the business. We recently argued on these pages that community involvement is a splendid idea for the Co-op - and one that can only pay dividends in terms of customer loyalty.

I heard an add on the car radio this morning. A chap with a regional accent (clearly one of us regular types) was talking about how important the initiative is, about how the Co-op belongs to UK consumers and therefore works for the benefit of us... But the idea that these lofty executives get paid more in one year than most of us make in ten - at a time when the mutual is in dire straights - seems to detract significantly from this message.

And yes, I am aware of all the arguments that companies have to pay for top talent. But it does rather detract from the "one of us" PR message that the Co-op is currently trying to leverage.

 

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Danone goes beyond digital marketing

20 Feb 2014 17:16

Starbucks JV will help Danone target 170m US consumers, French group

Starbucks JV will help Danone target 170m US consumers, French group's CEO said

Danone is hoping to reach out to US consumers and "educate" them on the merits of dairy through its joint venture with Starbucks, CEO Franck Riboud suggested today (20 February).

Speaking during a conference call to discuss the group's full-year results, Riboud insisted the tie-up, which was announced last summer, goes far beyond representing a "new channel" for Danone. Instead, he argued, it is a new way to interact with consumers.

"It is much more than a new channel. It is my Facebook, my Google. Why? Because every morning in the US, 170m consumers have had their breakfast and go into a Starbucks... and they will explain to them fresh dairy."

There is an almost subversive element to this approach, which goes beyond conventional and even digital marketing. Danone is feeding into established consumption patterns and altering them from within. A smart way to boost US yoghurt consumption, which still significantly trails European consumption levels.

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Manuka welfare scandal another blow for NZ dairy

22 Jan 2014 11:40

The reputation of the New Zealand dairy industry has taken another blow, with Chilean authorities reportedly launching an investigation into alleged animal cruelty by Manuka Dairy.

Reports in the Chilean and New Zealand press have accused Manuka's operation in the country of killing "thousands" of calves not needed in the milk processing process by "leaving them starving, slitting their throats or beating them with objects of great forcefulness".

The media outcry prompted Chilean politician Fidel Espinoza to denounce Manuka in the Chilean House of Representatives. An investigation has been launched into the company's activities and any psychological impact these practices may have had on workers, reports say.

While Manuka lacks the clout of New Zealand dairy giant Fonterra, the fresh scandal comes as an additional setback for the country's dairy industry on the global stage.

New Zealand dairy has benefited from being well-known for offering high-quality, safe and responsibly produced products. Allegations of animal abuse are hardly in keeping with the country's green reputation.

Fonterra's false botulism recall last year dented consumer confidence in the sector - particularly in key markets in Asia, including China. More recently, an E.Coli recall this month could go some way to tarnishing Fonterra's reputation further still. 

The NZ government has focused on re-establishing the reputation of NZ dairy exporters, with a particular focus on bringing the message that the country's industry is safe to China, a key market. This new controversy can do little to build bridges.

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ConAgra fined for... lead in paint?

17 Dec 2013 10:56

ConAgra Foods has been ordered to contribute to a damages payment totalling US$1.1bn to replace lead paint in millions of homes in California.

The link between ConAgra, which is best known for grocery brands including Healthy Choice and Chef Boyardee, and the use of lead paint in construction might seem tenuous at first. Certainly ConAgra believes so.

"ConAgra Foods vehemently disagrees with the decision," the company vented in a statement to the press. "ConAgra Foods is absolutely not an appropriate defendant and was never in the paint business. As a food maker who employs thousands of people in California, we believe this case is an unfortunate example of extreme overreach."

However, Superior Court Judge James Kleinberg would beg to differ.

According to his assessment, ConAgra assumed the liabilities of paint manufacturer W.P. Fuller & Co. when it acquired Beatrice Company and its former subsidiaries in 1991. As such, the company was ordered to pay damages along side two other defendants - Sherwin-Williams Co. and NL Industries Inc.

In a statement to the stock exchange filed before the California ruling, ConAgra revealed it has faced various litigation and environmental proceedings related to businesses "divested by Beatrice prior to its acquisition by us", including W.P. Fuller. In similar proceedings, the company saw favourable decisions in Rhode Island, New Jersey, Wisconsin and Ohio.

ConAgra said it would appeal the California ruling.

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Sanlu's new owners turn to organic to escape melamine's shadow

16 Dec 2013 14:37

The now owners of the Sanlu brand, Zhejiang Sanlu Industrial Co, are reportedly hoping that they can rebuild consumer trust and leverage - what remains of - Sanlu's brand equity by moving into organic grains.

Sanlu is a name synonymous with the 2008 melamine contamination scandal, which resulted in the deaths of six babies and sickened 300,000 more. Sanlu Group, which had been worth CNY14.9bn in 2006, was pushed into bankruptcy in the wake of the scare. It was then snapped up by Zhejiang Sanlu Industrial Co for CNY7.3m.

According to The Global Times, Sanlu's new owners now hope to build the brand into a force in the organic grain sector.

Linking the brand with the organic movement is a cleaver ploy. Organic sales in China growing apace. According to the China-Britain Business Council organic sales are expected to grow by more than 20% a year until 2020.

The key driver of this expansion is the widespread belief that organic products are safer. This selling point helps provide organic food manufacturers with a strong identity and clear message in a market where food safety concerns are almost a national obsession.

In obtaining organic certification in various markets - including China, Japan, Europe and the US - the message is clear. Sanlu grain products are safe.

Whether this will be enough to allow the brand to emerge from the long-shadow cast by the melamine contamination scare remains to be seen.

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UK food exports continue to trail EU peers

13 Dec 2013 15:58

The UK Food and Drink Exporters Association yesterday held a conference in London and the message was clear: the UK food sector is improving its export profile, but more work lies ahead.

According to Steve Barnes, director of economic and commercial services at the UK Food and Drink Federation, food exports account for 20% of the country's food production. In the first nine months of 2013, the "disappointing" trends of 2012 were reversed and the country recorded export sales growth of 4%, bringing UK food and drink exports to GBP14bn.

However, despite an increased focus on - and step-up in Government support for - exports the UK's performance significantly trails its European peers. "Every country has reacted in the same way: we have a recession, let's export our way out," Barnes explained.

"The UK exports the least food and drink by value of also the lowest percentage of total production. We are benchmarking below our peers."

For example, Barnes said Germany exports ten times as much food to the BRIC markets as the UK. Only 3% of UK exports are destined for these high growth economies. "We have great opportunities and we are not quite seizing them collectively," Barnes cautioned.

An important question, then, must surely be why? For the most part, the UK faces the same trade barriers and benefits from the same free trade areas as our European cousins. So what is unique about the UK that means we are "failing" to capitalise fully on export opportunities?

When this question is posed to the food industry, a fairly standard answer is to point to a perceived lack of government support. However, since austerity measures have kicked in around Europe those seemingly endless Italian or Spanish stands you see at trade shows are no longer heavily subsidised by their respective governments. At the same time, the UK government has stepped up its support of would-be exporters in the food sector. This year, UK Food Secretary Owen Paterson has attended trade shows in the Middle East, Asia and Europe.

Perhaps, then, the issue of one of culture. The importance of language barriers and cultural differences when establishing trade relationships cannot be overlooked.

Could our island mentality be standing in our way?

Stereotypically, the European Union is often portrayed as a means to open markets for German finished goods and support French agriculture. While this is obviously a gross over-simplification, the idea that the economics of trade underpin the Union seems fairly sound. But the UK has always remained somewhat separate. Has this contributed to the reticence of UK companies to look overseas to drive growth?

Comments on this blog post


Although there are compelling reasons for UK PLC to increase its food and drink exporters, we must not lose sight of the fact that we have some very professional and successful exporters as was so evident during the afternoon session of the FDEA Network Forum on 12 December when 5 companies shared their export experiences and successes: Fisherman’s Friend, Suma, Mrs Crimbles, Fever Tree and Tyrrells.

 

Elsa Fairbanks said at 10:37 am, December 18, 2013

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Lidl to up expansion rate in UK

02 Dec 2013 17:11

News that Lidl wants to more than double its number of stores in the UK within the next three years could signal competition is heating up further still in what is already a hotly-contested market.

The retailer has 600 UK stores, commanding a 3% market share. It is eyeing taking that network to at least 1,200 outlets, Ronny Gottschlich, MD of the German grocer's UK arm, said at the weekend.

The chain plans to step up the rate of store openings and increase the pressure it is putting on the "big four" - Tesco, Sainsbury's, Asda and Morrisons.

In an interview with The Sunday Telegraph, Gottschlich said Lidl expects to spend around GBP170m in the UK this year. Annual investment is likely to rise to GBP300m within two years as Lidl accelerates from opening 15 to 20 stores per year to at least 30 to 40 stores.

"There are no restrictions to the openings we can do in a year. The funding is there," he said.

The bulk of that spend will be on store openings, but the group is also planning to introduce in-store bakeries at its existing locations in order to increase its mainstream appeal.

Here in lies the key to Lidl's success in the UK. The retailer has gone from being viewed as a bargain basement outlet pedalling a random assortment of products shipped in from Europe to a supermarket operator with mainstream - albeit still value - appeal.

Lidl has adjusted its ranging strategy and increased its focus on fresh products, including significant investments in expanding its meat and poultry offering.

And it is that kind of investment that has helped Lidl grow its share of the UK market. It accounts for 3% of sales, low compared to the likes of Tesco and Asda, but its double-digit growth rate will be causing furrowed brows at its larger rivals.

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Peltz ups pressure on Mondelez

30 Oct 2013 15:59

Activist investor Nelson Peltz is apparently not a man to be easily disparaged.

Through his investment vehicle Trian Fund Management, Peltz issued a call this summer for PepsiCo to split into pure-play drinks and snacks businesses and merge the latter with Mondelez International. The move, which Peltz said would generate significant value for shareholders, was roundly rebuffed by the management of each company, with PepsiCo's CEO Indra Nooyi mounting a particularly strong defence.

Peltz's analysis on Mondelez focused on the group's lower-than-average margin. Peltz insisted that the company is struggling to get its margins up to standard. Even on a stand-alone basis, Peltz insisted Mondelez can get its margins moving in the right direction - and a lot more quickly than management has targeted.

According to Trian's analysis, the investment firm has identified a 400 basis point margin opportunity. This is consistent with management's long-term 14-16% margin target. However, Peltz is apparently working to a different timetable and believes that margin improvement can be achieved more quickly than Mondelez is currently targeting. As he said at CNBC's Delivering Alpha conference in July, he is "not getting any younger".

With a large stake in Mondelez - as the group's fourth largest shareholder - it would seem that Peltz is unwilling to let the issue drop.

According to a report in the Wall Street Journal, Peltz has gone on the offensive again. In a presentation delivered in Chicago this week, Peltz insisted Mondelez could nearly double EPS through tighter cost management. Peltz also said Mondelez should be able to boost its operating income margin to 18% from 12%, the WSJ reported.

Peltz has reportedly shared his proposals with members of the Mondelez board, but not yet gone fully public with his plan.

Meanwhile, Mondelez is moving ahead with its own plan to boost margins. Last month, the Oreo and Cadbury owner revealed details on a revamp of its production network as well as supplier and SKU rationalisation. Nevertheless, the group is also pushing forward with high levels of investment in its emerging markets business.

Whatever the impact of this latest offensive from Peltz, it is clear that Mondelez's margin will remain in the spotlight for some time to come. 

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