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IGD Convention 2010 – great changes lead to big opportunities

Despite leading the way on many important fronts, such as sustainability, the food and grocery retail industry still does not enjoy the broad recognition that it deserves, especially from the Government. by Glynn Davis

GENERAL MERCHANDISE

IGD Convention 2010 – great changes lead to big opportunities

Despite leading the way on many important fronts, such as sustainability, the food and grocery retail industry still does not enjoy the broad recognition that it deserves, especially from the Government. by Glynn Davis

This was the view expressed by Justin King, president of the IGD and chief executive of Sainsbury’s, at last  week’s IGD Convention 2010 in London, as he suggested he had been “banging the drum” for the industry because he regarded it as not having received the appropriate recognition for its achievements.

He cited the industry’s position: as the single biggest manufacturing sector; its accounting for one in five of all jobs; the fact food retailer’s account for 50 per cent of all retail sales; and the industry representing 4.3 per cent of all UK exports.
“We are starting to get more recognition but there is still a long way to go. We need to make sure the Government hears how important we are,” says King.

Part of the problem has been the difficulty the industry has of speaking with a single voice because of its highly competitive nature. Apart from areas like skills and education as well as sustainability, there has not been a high level of collaboration across companies.
But this might have to change if the industry is to tackle some of its biggest challenges, according to Richard Brasher, commercial and marketing director at Tesco: “On obesity and climate change it makes no sense to work alone. And if we succeed on these big topics then we’ll make the industry stronger and more effective than it is today.”

Although the sharing of knowledge and best practice is increasingly important on these sorts of big picture issues Brasher remains an advocate of the competitiveness that permeates the food industry. “It has made the industry one of the most dynamic and we should be proud of competition. We’ve made millions of people’s lives better,” he says.

Nowhere is this competition more keenly felt than in the relationship between suppliers and retailers. Again Brasher regards this as positive: “I believe in the tension between retailers and suppliers. It’s not a cosy relationship. Strong and fair competition has made the industry more effective and creative.”

This creativity results in the development of many hundreds of new products each year – from suppliers of all sizes and not just the powerful bigger players. “I don’t believe the large companies have a monopoly on good ideas. It might just be that small companies lack the confidence to grow,” suggests Brasher.

The determining factor of success is not size but the ability to create a product that the customer wants. “The customer is in the driving seat and is empowered,” he says. Rick Bendel, international chief marketing officer at Asda, agrees and believes the customer is potentially ready to “create real disruption”.

He puts this down to the societal change that is taking place, with people “fed up” with the way they have been treated during recent years. “Over the last 14 years with the New Labour movement there was a sense that everything needed a brand and marketing. But this has been seen as having no substance. And it’s not just in financial services but across many businesses. They’ve abused their position,” explains Bendel.
He suggests added-value services have been found to have added no value and innovation was effectively thrown away. In many cases this led to customers having no transparency. “What was being said and fairness were not in the same equation,” he says.

Bendel believes the key reasons for the failure in the system were down to: businesses trying to be cleverer than the customer; rewarding the disloyal by giving the best offers to new customers and hiding this fact from the existing customer base; basing pricing strategies on chasing sales and not on long-term sustainability; and separating responsibility from accountability.

Despite this he remains positive for the future: “There is a massive opportunity to capitalise on the big changes in society.” Helping things along will be the new generation of leaders - aside from the new government he pointed to change at the top of a number of the big food retailers and the ex-grocery executives now heading up the Post Office and ITV.

Bendel regards the key themes as: the need by consumers for strong brands; the need to reward loyalty; and enhance convenience for shoppers. The latter he suggests is “the most exciting innovation” and points to the small pots of Heinz baked beans as solving the issue of half empty cans in the fridge, and cut fruit as being a particularly big seller in less affluent areas. 

Joanne Denney-Finch, chief executive of IGD, agrees that these are times of great change and that this represents an opportunity for retailers and the food industry. Among the areas she highlights as providing growth opportunities are ethics.

IGD research has shown a third of UK shoppers will try products for the first time if they are local, Fairtrade, free range or sustainably produced. “The long term return on investment [from a focus on ethics] is potentially enormous,” she says.   

Energy is another opportunity, with 11 per cent of people sharing a car on their grocery shopping trips, which shows how convenience stores can be used to build loyalty. Technology is clearly another massive opportunity, according to Denney-Finch, who points to the use of mobile in the shopper journey as having only a minority of users at present but its potential is undoubtedly huge as “most shoppers like things that save them time”.

She also highlights the flight to quality as a potential driver of growth, with IGD research showing 30 per cent of people saying they buy less meat and fish but buy better quality. Further evidence of this quality shift is that 10 per cent of people say food is their main leisure interest and another 18 per cent say they would like it to be their key leisure activity.

This is certainly driving growth at Waitrose, which is in the midst of an unprecedented period of expansion – opening 10 to 15 supermarkets and 30 convenience stores per year as well as supplying into Boots and motorway service stations.

Mark Price, managing director at Waitrose, says the company is adding stores organically around the country as consumers’ increasingly demand food with ethical values – and at a value price.

“It’s values as well as value. We’re taking value to a different set of customers. We’ve introduced lower price points [the Essentials range] but without cutting out the values. We recognise that people always want to shop aspirational,” he explains.

Although the company has recognised the need to encapsulate value in the equation, its overall position in the market has cushioned it somewhat from the worst of the promotional activity taking place in the industry. Up to 20 per cent of its turnover relates to goods on promotion whereas it is almost double this number for the other major supermarkets.

This all combines to give Price great hope for the future: “I’ve confidence in Waitrose’s plans and we’ll continue to see growth, more so than in non-food where it is affected by disposable incomes.”

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