The IGD Convention 2012 collaboration, trust and digital are the keys to future success
Although the major players in the food sector have different views on the potential for online food sales in the UK there is general consensus that greater collaboration in the industry will be widely beneficial. By Glynn Davis
Speaking at The IGD Convention 2012 in London Philip Clarke, chief executive of Tesco, suggested that digital technologies were revolutionising the industry and transforming how people shop: “With the touch of a finger and click of a mouse they can take their custom elsewhere.”
To counter such a threat he says Tesco has “been at the forefront of innovation” delivering click & collect, virtual stores, and drive thru outlets. The implication from Clarke is that online will account for a growing percentage of group sales in the future for Tesco.
This view appears to be not quite so strongly held by his contemporaries at key rivals. Marc Bolland, chief executive at Marks & Spencer, believes online food sales will ultimately account for between 5-10% of total sales: “Retailers already do a strong job online...and if stores do their work then they’ll compete strongly with online.”
It was a similar prediction from Justin King, chief executive of Sainsbury’s, who also says 5-10% will likely be the spent online in the future: “I’m not a naysayer like an old man who is not connected. In 12 years of internet development of food online from three big grocers - and Amazon is now joining - with £5 billion of collective investment, 97% of money is still spent in stores. There is life in the old [stores] dog yet.”
Jan Zijderveld, president of Europe for Unilever, took a more progressive view and forecasts that online revenues will account for 20% of total retail sales, but he points to the key to success as revolving around the “central question of how we work together”.
High frequency goods delivered to the home
He foresees brands and retailers working through the idea that certain things – commodity type goods - will possibly be delivered on a regular basis to the home (direct from manufacturers) while customers then go in-store for ideas.
This fits in with the view of the future from Amazon.co.uk, with Ajay Kavan, vice president of consumsables at Amazon.co.uk, highlighting the group’s launch of its ‘Subscribe & Save’ service in the US. It aims to supply customers with their most frequently bought items on a subscription-type model encompassing the likes of baby food, sports nutrition, coffee, cleaning products, and personal healthcare goods.
This represents part of a broad move by Amazon to build its presence in FMCG goods because the company has recognised the benefits of selling high frequency goods, which are good footfall drivers to its non-food goods. Kavan told delegates that Amazon founder Jeff Bezos has stated: “We can’t be a $120 billion company without a successful business in consumables and soft-line goods.”
To build its FMCG revenues Kavan says the company will be using its ‘Amazon Playbook’ that it has deployed successfully on other categories, which includes enabling manufacturers and suppliers to sell on its platform. This involves them in collaborative initiatives like creating smaller packaging that eases home delivery.
Growth in collaboration
Collaboration was a key theme at The IGD Convention, with King talking about retailers working more closely on nutritional labelling - ahead of any legislative demands from the EU - with a bringing together of GDA and multiple traffic light labelling on the front of packs into a consistent format.
He suggests there is nothing more important to consumers than health and that it is a key tenet in helping engender greater trust between retailers and their customers, which King says has been lacking in recent years.
“Not being trusted on price and promotions is playing a big part. Customers don’t trust what we say about pricing,” he says, adding that trust is equally important to all customer types regardless of socio-demographics.
This resonates with Richard Hodgson, group commercial director at Morrison’s, who says: “Seventy four per cent of people think supermarkets are trying to mislead them on pricing – according to Which? It’s the rise of the professional shopper – they are connected and listen to each other more than they trust the supermarkets. Trust has been eroded.”
He suggests that the more personal approach taken by Morrison’s is leading to more “evangelists” for the company who are spreading the word about receiving a memorable experience in-store. He suggests “habits are created from good experiences” and that this is the greatest driver of loyalty in today’s environment where shoppers are very promotion-driven and quickly switch their custom between retailers and between big brands.
Innovation is vital
Keep customers buying the big recognised Heinz goods is the task of Matt Hill, president of UK and Ireland for Heinz, who says the company has doubled its level of innovation over the last two years. And that this has been in tandem with a doubling of the marketing budget over the past three years, which has involved embracing digital marketing.
This has included the launch of limited edition sauces – including balsamic ketchup that was launched on Facebook - re-engineered pack sizes for baked beans, and soups in paste format. Dan Cobley, managing director of UK and Ireland at Google, recognises personalised products as a great way to engage with customers in a personal way and cites the packaging innovations undertaken by Heinz and Cadbury as successful examples.
From mass market to personalised
Joanne Denney-Finch, chief executive of IGD, says this sort of activity will be increasingly important for global operators: “Big companies win in mass markets by supplying the same products to a wide audience. They need to get it right for most people most of the time. But with so much choice mass markets are breaking down. The move from mass market to personalisation will continue and big companies have the most to lose if they do not follow this trend.”
Clarke agrees and suggests the answer to the challenge of increased choice, competition, and customer information is to “get personal”. He adds: “We need to personalise the entire offer, to meet the needs of customers now but also anticipate what they will want in the future.”
A key tool in this is digital technology that he says is enabling any brand owner the ability to forge a personal relationship with their customers. “Not only can we communicate with people directly, one on one, but thanks to the data we now all have, we can understand more about what those customers want, how they shop, their stage in life, their income, their tastes, and their habits,” explains Clarke.
But he accepts that “no company has a monopoly on ideas” so there is a need for Tesco to create a new spirit of partnerships where it works collaboratively with its suppliers around the world. In so doing he believes that greater trust will be fostered with producers, which chimes with those retailers at The IDG Convention suggesting trust also needs to be forged with customers.
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