Ethical consumerism, the growth of the Internet, emerging markets and the threat private equity takeovers represent to retailers were among the wide range of issues discussed at the IGD Global Retailing Conference in London last week. Dean Best reports.

Growth and innovation are two upbeat but somewhat vague terms that crop up time and time again when consumer markets are being discussed, and the food industry is no exception.

In London last week, growth and innovation were once again the key themes at a conference organised by analysts IGD and attended by the great and good of the food industry.

Delegates from the manufacturing and retailing spheres gathered to hear some of the industry's leading lights discuss where consumer trends are heading in the food business and how best they could all tap into the promised land of growth in both mature and emerging markets.

However, that rosy picture was somewhat smeared by warnings to manufacturers and retailers at the start and end of the conference. IGD chief executive Joanne Denney-Finch told delegates that sustainability had usurped health and wellbeing as the key "battleground" to win over ever more ethically minded consumers. Ethical business, Denney-Finch told the conference, has become "mainstream".

"Ethical reputation has overtaken quality as the leading component of a successful brand," she said. "Quality is now a given." As such, Denney-Finch asserted, brandowners and retailers are facing a consumer landscape where they could be less sure of brand loyalty and where the "classical marketing approach" no longer works. Denney-Finch implored brandowners to make themselves "indispensable through innovation" as, it seems, competition intensifies on two fronts.

Shoppers demanding more "ethical" products - organics, fairtrade and so on - have opened up a new front in the competition among suppliers as they tussle to meet growing demand for premium food. Meanwhile, retailers are developing their own upmarket private-label ranges.
 
Manufacturers have to react to these changes now or face either being left behind or becoming low-cost suppliers to the retailers, the conference heard.

The rise of more expensive retailer brands comes as demand for premium food, particularly in the UK, blossoms, the conference heard. The market for premium foods in the UK stands at GBP13bn (US$25.9bn); by 2012, it will reach GBP19bn.

There is little doubt that UK consumers are starting to trade up when it comes to their food shopping. That's pretty much a fact. For decades, spending on food as a proportion of total consumer expenditure has been falling but now that trend has stopped and there are signs that it is reversing.

However, before the country's manufacturers and big retailers get too excited about the prospect of higher margins, questions remain over how widespread the trend is - and its longevity. Are all UK consumers reacting this way? That seems doubtful. Such demand also seems reliant on the health of the economy; if there's a downturn, "premium" foods would most likely be among the first goods consumers cut back on as they tighten their belts.

And it's not clear that all retailers would benefit from this popularity of premium food. As Merrill Lynch analyst Andrew Fowler argued, as a brand, Asda seems out of step with the trend to premium. Fowler also asserted that, among the major retailers, Tesco is not seen as a particularly upmarket brand, especially when compared to Sainsbury's or Waitrose.

What's more, how global is the rise in demand for premium food? Denney-Finch spoke of moves from Germany's retailers to stock more organic and fairtrade products but the country's powerful discount grocers remain as strong as ever. Moreover, Fowler argued that France's retailers remain locked in a "1990s-style price war" - hardly conditions conducive to a burgeoning premium foods sector.

Fowler's appearance came towards the end of the conference. A 20-year veteran of the retail sector, he warned that all of the world's retail giants are vulnerable to bids from the cash-laden private equity sector. Sainsbury's may have recently rebuffed such an approach, Fowler said, but investor dissatisfaction has left all global retailers vulnerable to private equity bids.

In different ways, the likes of Carrefour, Tesco and Metro may also be exposed to private equity bids. Fowler said investors are growing frustrated at the lack of returns from the retailers' investments in developing markets and that dissatisfaction has led certain shareholders to eye the sale of retail property as a way of boosting their returns.

And Fowler warned of the possible threat to suppliers of private-equity owned retail groups. "If we don't stop it, everyone will be up to their necks in debt," he said. "Retailers will have to pay their interest bill and that could lead to margin compression, or suppliers will have to give buyers longer credit. Then, the ownership of your retail client will change hands again in two to three years."

In between, the conference heard about the potential of emerging markets, the opportunities that remain in health and wellbeing and how to drive growth in mature markets. One other theme that stood out, however, was the rise of the Internet. Mark Parry, a retail analyst at PricewaterhouseCoopers, said that shopping online had become a key component of a consumer's shopping habits.

"The online channel is truly mainstream; reality is catching up with the hype," Parry said. PwC estimates that some 10% of all retail spending, excluding eBay and travel expenditure, will be online by 2011. Parry forecast that some 60% of the growth in retail spending over the next four years will come from the Internet.

While debate remains over issues like distribution and pricing in the online channel, there is no doubting how rapidly the area is growing. "The impact on business," Parry said, "will be enormous." Something, certainly, for all of us to chew on.