The recent performance of UK supermarket chain Iceland has proved a cautionary tale for any retailer hoping to make the move to organic produce and ride the waves of mass consumer demand.
After its much-advertised, environmentally friendly foray into the exclusive realm of organic foodstuffs last summer, new CEO Bill Grimsey was forced to admit yesterday (22 January) that sales had simply “not matched expectations.” Once a marketing coup that had taken the food sector by storm, poor organic sales were blamed for poor trading results, as well as a cut in promotional activity.
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The switch to organic had backfired dramatically and Grimsey was embarking on a U-turn to boost his company’s results. In the six months to 29 December, sales fell 1.5%. In the four weeks to 28 December they plummeted 5.5%, and this in the boom pre-Christmas sales period Poor trading figures prompted a falling share value and analysts slashed forecasts for full year pre-tax profit by up to £15m.
Grimsey and his team – should they carry the can?
Analysts are blaming the lack of hands-on managerial strategy for the organics decision, seemingly inspired last June but arguably premature in retrospect. Grimsey’s candour has been welcomed after months of board shuffling. CEO Stuart Rose quit last November and since Grimsey’s appointment, together with managing director Russell Ford. Founder and group chairman Malcolm Walker is also currently under possible investigation by the Financial Services Agency after his £13.5m share sale just six weeks before the profit warning.
Grimsey has a different attitude to organics than his predecessors, saying: “If you’re doing something like this, you should do it on a controlled basis and roll it out over time as your understanding of consumer reaction increases. Customers were saying, ‘I don’t want these, where are the ordinary ones I buy?'”
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By GlobalDataNot what the Iceland consumers were after?
Grimsey added that focussed consumer profiling would have revealed an older, cost-conscious clientèle for whom organics are not necessarily a priority. Indeed, Sainsbury revealed that its consumers who chose organics do not tend to buy much frozen food, preferring to stick to fresh fruit and vegetables and bread. This would suggest that frozen foods and organics are simply not a winning combination.
Are organics destined to remain a niche market in the UK?
There is also of course the possibility that the mass consumerisation of organics will not happen as hoped. Maybe the much-publicised GM-free sensibilities only belong to a niche market in the UK. This seems unlikely however, given the positive relative growth of retailing rivals Tesco and Sainsbury in this area. Indeed, a spokesman from the Soil Association has predicted that during 2001 organic sales will double, to reach £1.07bn.
Maybe, then, consumers were confused by the sale of premium produce at non-organic prices. While prices were significantly cheaper than in other stores, Iceland customers were still not prepared to lash out full price when they were used to “buy on get one free” promotions. Furthermore the organic ranges were still slightly more expensive than the non-organic produce previously stocked.
Problems with availability?
Not only do consumers want choice, but they also want well-stocked shelves, and despite buying up nearly 40% of the world’s organic crop, Iceland has at times sported a distinct lack in the vegetable basics. Notably, upon a store visit in December, Grimsey was informed that organic varieties of the Christmas bestseller, Brussels sprouts, could not be sourced. Such gaps in the product range are not conducive to consumer loyalty.
Re-introduction of non-organic
In a bid to turn around flagging sales, non-organic produce will be placed back in Iceland’s freezers. The total switch was “too much, too soon,” admitted Grimsey, and in the future organics will be sold through “integration not revolution.”
The organics blunder is expected to cost the company dearly. Financially, it was spending £8m a year to convert all its own label vegetable produce to organic. Its reputation has also been battered. A statement concerning the future strategy of the chain is expected at the end of this month.
By Clare Harman, just-food.com news journalist
