Catering to a bifurcated market, the prospect of shorter supply chains and the onward march of technology were key topics for food retailers at the British Retail Consortium’s annual symposium.
These topics reflect key challenges for the big UK grocers (and by extension the country’s manufacturers) at present; namely to cater to budget and premium buying habits; to rebuild consumer trust following the horsemeat scandal; and to better understand the divergent ways in which people wish to shop for groceries.
Perhaps one of the most surprising things about the UK’s economic hangover, now into its fifth year, is that recession has not simply led to all consumers thrashing around in the bargain bins of the cheapest supermarkets.
The UK food sector is in a very odd place. On the one hand, charity food banks are sprouting in many towns, and government figures show the poorest 10% of households are having to spend a higher proportion of their dwindling income on food. Relatedly, Kantar data shows discount supermarkets like Aldi and Lidl have motored to record market shares in 2013. On the other hand, so has Waitrose.
It’s interesting, too, to remember that both Waitrose and discounters have sought to step out of their classic sales pitch, the former offering a stripped back ‘essentials’ range and the latter installing premium product lines. It’s not simply that there are less well-off and affluent consumers; often the same shopper wants a product at an entry-level price and others with a premium price tag.
This is what analysts at Rabobank are now calling the rise of the ‘hybrid’ consumer. In essence, the term partly repackages what market research firms such as Mintel and Euromonitor have been arguing for several years; that shoppers are willing to scrimp on the basics in order to afford treats, often at weekends when they have more time.
That point was explored at the BRC symposium this week, with some speakers referring to people’s changing relationship with eating. “Food has become quite an experience,” Ocado chairman Sir Stuart Rose told delegates. “In the old days, people ate to live. Now, people are living to eat. It’s an experiential thing.”
Recession has not dimmed this impulse. Cooking programmes and foodie events show little sign of abating, despite Sainsbury’s CEO Justin King warning that “consumers will not have discretionary spending greater than they have today in the few years ahead”.
Howard Saunders, a store design expert who has worked closely with Waitrose, Marks and Spencer and Tesco, told the BRC symposium he’s “convinced” gourmet food will prove to be the ‘saviour’ of the UK high street. His argument is that “ordinary” people are seeking out high-end, crafted produce.
Retailers and restaurants alike need to develop specialities and “you’ve got to be brilliant” at it, Saunders said. The message for multiple grocers seemed clear enough: work harder on this aspect of your business or risk losing footfall.
Underpinning Saunders’ speech was the rising importance of ‘values’ versus ‘value’ when it comes to consumers’ purchasing decisions.
Ocado’s Rose told BRC delegates that he believes growing numbers of consumers understand that there is an “irreducible minimum” when it comes to price, if a certain level of quality and sustainable sourcing is to be guaranteed. He said retailers who put these values “back into the deal” with consumers will be the winners over the longer-term.
In the shorter term, Sainsbury’s’ King warned of the need to rebuild consumer trust following the horsemeat debacle. He linked to this to efforts by some UK grocers to shorten supply chains by sourcing more British produce. Tesco will source all fresh chicken from the UK from next month. Sainsbury’s already does this, and is committed to increasing animal welfare standards and doubling its sourcing of domestically-produced food as part of its 20×20 sustainability strategy.
Of course, shorter supply chains, alongside dedicated supplier groups on longer-term contracts, are also becoming attractive as retailers look to secure supply lines amid growing world demand, and insulate themselves from volatile commodity costs.
Another key focus at the BRC event was technology. Tesco’s chief marketing officer, Matt Atkinson, said retailers must be prepared to “connect with their customers when, where and however they want to”.
He reiterated the supermarket’s commitment to digital investment, but he said all main purchasing channels still hold potential. Tesco has 150 stores that offer click-and-collect, he said, but added: “Our home delivery service continues to grow strongly”.
Atkinson insisted he saw a “bright future” for Tesco’s bricks-and-mortar stores but said: “Many will have to get smaller.” He highlighted a project to reduce the trading area at Tesco’s store in Stockton-on-Tees, in favour of installing a gym and other amenities. It is proving something of a pilot for Tesco’s vision of turning stores into “hubs for the communities that they serve”, Atkinson said.
Several other issues touched the fringes of the BRC symposium, from food waste to front-of-pack nutrition labelling. As previously reported by just-food, there were also comments on the groceries code adjudicator and climate change.
Industry representatives came away with plenty to chew on.