Blog: Dean BestFood in flux as consumers chase value

Dean Best | 15 September 2008

The collapse of US investment bank Lehman Brothers may not have an immediate direct impact on consumers across the pond but it will add to the already heightened anxiety about the economy.

And it's that anxiety which is informing the business strategies of companies right across the FMCG spectrum - not least in the food industry. Over the weekend, Wal-Mart told us about its plans to launch a marketing offensive in the US to push its value credentials. The ads will be based around price comparisons - much like we have been used to here in the UK - and highlights just where the battleground is between US retailers. Tellingly, while some retailers have suffered as the credit crunch has deepened, Wal-Mart seems to have thrived; figures released last week revealed sales at the retail giant had increased by 10% year-on-year during August. The advertising push this autumn could spell more gloom for the company's competition.

The value end of the retail spectrum looks the best place to be here in the UK, too. Last week, Morrisons published a set of strong first-half results, with like-for-like sales up over 7% and profits jumping 19%. While Morrisons CEO Marc Bolland hailed the retailer's "price-crunching deals", life at upmarket rival Waitrose is less rosy. The company also issued its first-half numbers last week and, while like-for-likes were up 2.5%, earnings were down 8.4% as the retailer looked to cut prices to boost demand. Until now, Waitrose has managed to steer clear of the problems seen at fellow high-end grocer Marks & Spencer but its results last week suggested that it too has been hit by the changes in consumer spending.

Changes in consumer habits have long been a feature of the Japanese economy. The country's leading businesses have been looking to expand overseas in order to breathe fresh life into operations hindered by a stagnant domestic economy. That expansion has been stepped up in recent months, led by companies like retailer Seven & I Holdings and local conglomerate Kirin.

Last week came news of consolidation within the Japanese food sector when two companies, Meiji Dairies and confectioner Meiji Seika, decided to merge. Japan's ageing population was held up as a significant reason for the move but the global economic downturn, plus the battle with rising commodity costs, has led some of the country's leading companies to look around and mull where their futures lie. The merger between Meiji Dairies and Meiji Seika will create Japan's fifth-largest food group, with sales of JPY1trn (US$9.5bn). It would be little surprise if similar deals among more of the country's other food groups were on the horizon.


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