Is sustainability evolving mass consumer markets? by Dr. Clive Black

November 19, 2019 2:56 pm
View Article

The green agenda is not a new thing. There have been campaigners and campaign groups operating for many years, such as Greenpeace, that have sought to raise the issue of the planet’s environmental and climate health, often through stunts and targeted disruption. More recently there has been the eclectic alliance of young and old seeking to rebel against the earth’s potential  extinction as they see it, with a few high minded celebrities doing their bit to damage their climate change credibility by flying in from LA to London to speak of their deep concern and care.

Whilst the campaigning debate evolves, the science and so learning builds. The corruption of science by evangelist climate change advocates did much to damage the credibility of the more honourable mass of research that is seeking to measure the earth’s climate. That said, Al Gore and the University of East Anglia aside, there is a growing body and arguably a consensus that the planet’s climate is evolving quite rapidly at this time, evidenced by rising global temperatures, changing ice patterns and, whilst more anecdotal, extreme weather conditions. Quite whether or not the dots are all joined up is a debating matter but the common comment, ‘well something seems to be happening’, maybe close to the truth.

For food markets, global warming, a term which has been replaced by climate change, has been a relatively peripheral matter at the shelf-edge, maybe until now. Indeed, the organic food movement in the UK remains a pretty peripheral proportion of the market, suffering quite materially in share participation after the financial crisis. Since then, it has taken much of this decade for the organic movement to ‘get back’ to where it was in 2010. However, is all this in the process of substantial change as the sustainability agenda evolves from a matter for enthusiasts and industry compliance to a more mass market position? I sense so.

Across all product categories the sustainability agenda is now more embedded and growing in importance. The extent and pace of movement is notable from major retailers setting new priorities and agendas through to entrepreneurs in the supply chain bringing new innovations, products and brands where the sustainability agenda is much more centre stage.

Across all product categories the sustainability agenda is now more embedded and growing in importance.

The evolving priorities of the sustainability agenda was very clearly brought into focus and extent by Tesco when it staged a June 2019 investor event that centred upon the environmental and social agenda. The holistic approach that Tesco presented that day is now being reflected in its actions from work on plastics to the labour processes of its suppliers at home and abroad and the sourcing policies of a growing number of products such as palm oil. The sustainability agenda, therefore, is becoming a larger more inter-connected and multi-disciplinary process that embodies wider factors of production than land.

With respect to the land there remain major arguments surrounding how farming practices contribute or otherwise to climate change. Indeed, the debate is evident with one of the fastest growing elements of the food industry being plant based protein. There are major steps by brand and private label suppliers to enter and participate in the plant-based protein market. Innovation rates are high as is acquisition activity; the latter partially stimulated by some crazy valuation multiples for the likes of Beyond Beef.

What the plant-based protein drive shows us is the fusion of well-being and the environment. When these two forces combine the market equation is potentially powerful. Again with Tesco, its ‘Wicked Kitchen’ private label range has been one of the most successful recent launches by the label in the UK whilst Marks & Spencer has similarly commented upon ‘Plant Kitchen’. We also notice a range of manufacturers acquiring in the plant-based/meat-free arena, such as Cranswick in the UK, which bought Katsouris Brothers.

Whilst all this is so, the livestock sector faces challenges as to its contribution and perception as a contributor to carbon emissions and wider pollutants such as ammonia and nitrates. Indeed, the environmental and well-being agendas combined are perhaps the greatest challenge for the red-meat segment in particular.

What the plant-based protein drive shows us is the fusion of well-being and the environment.

As ever, there are myths and realities around meat and the environment, with much emotion too. In terms of real change though, science based change, world leading activity is underway in research institutes and businesses to deliver beneficial change. From Ireland to New Zealand, where there is a definitive vested interest around the beef, dairy and lamb sectors on the environmental and health agendas, inspiring work is underway.

Indeed, in County Meath, Belfast based Devenish is undertaking tremendous work centred on soil and seed, to explore a holistic approach that embraces agronomy and husbandry standards too, that is striving for carbon neutral and even carbon beneficial livestock farming; the latter meaning beef and dairy farming that actually absorbs rather than releases carbon.

Such work shows how thinking is evolving from the field to the fork. We are in the foothills of a new industrial era where the digital revolution is combining with science, entrepreneurs and shoppers to bring sustainability higher up the agenda, to the mainstream. The future for sustainability does not, however, look like it is going to be the environment in isolation, rather a more holistic approach that is meaningfully going to influence and evolve mass consumer markets.

Dr Clive Black

Advisor

Coriolis Consulting

November 2019

Is well-being meeting sustainability? By Dr. Clive Black

August 29, 2019 4:16 pm
View Article

Brexit is not necessarily boring but it is draining and tiresome. It is quite remarkable how a supposedly advanced nation like the UK can find itself in such a ridiculously unsatisfactory position, unless, of course, one is an absolutely rabid Brexiteer, which must be heaven. The ability to propher credible wisdom on the future of the UK’s relations with the EU is virtually nil as summer comes to an end albeit for the British food system, and every orifice of it, the ramifications of a No Deal situation could be considerable.

That said, with an inability to predict or influence Brexit, bar advising that British food businesses absolutely listen, think about and become agile in preparing for a No Deal through calm, considered and common sense steps, it is an opportune moment to raise one’s eyes from the morass of a dysfunctional political class and perhaps reflect on notable developments in the wider food market.

The well-being and sustainability agendas are not new and far from being peripheral to the development of the British food industry. Whilst this is so, recent developments perhaps represent these factors behind shoppers’ food choices moving through the gear box and, perhaps, more definitively combining.

“…it is not unreasonable to contend that health and well-being are the key changing variables behind shelf-space in supermarkets.”

The notion that the more calories one eats and the less energy one burns results in weight gain is not especially complex, but is now pretty much accepted as fact. With that thought in mind, with growing evidence of the health challenges associated with obesity around cancers, coronary heart disease and strokes, means that more and more people are listening, thinking and changing their dietary behaviour.

Indeed, it is not unreasonable to contend that health and well-being are the key changing variables behind shelf-space in supermarkets and the menu items of the food & beverage sector at this time. At its most simple, of course, dietary well-being is simplicity, so fruit & vegetables come to mind, of which all health professionals encourage more consumption, with some scaling back at a population level of salt, harmful saturated fats and sugars.

That said, salt, saturated fats and sugars tend to taste good and give quick fix pleasures; comfort if you like. More to the point, the processed foods revolution of the twentieth century brought with it a reduction in food preparation time, so convenience, a key feature of the food markets in developed, or is that older, nations. Accordingly, health & well-being is now being factored into the convenience agenda across all categories, including pet food. This will continue.

A further feature of food markets has been sustainability of the planet Earth. The meaningfulness of the environment, for the want of the better term, is much less apparent on shelves and menus at this time as me (well-being) is more important than you (the environment), and especially so when pennies become few, as we witnessed in the UK in the last recession (which could be a relevant thought if the UK does drift into recession with undeniable implications for the labour market). Indeed, much food industry change around sustainability has been one of regulatory compliance, rather than aggressively chasing the green pound.

Is this changing though? The noise around climate change is now greater than ever and it does not look like it is going away; not least because more volatile weather systems seem to be with us plus notably warmer facts and figures. As such, the propensity of folks to listen, think and change behaviour around the food they eat with respect to the planet, and most particularly its packaging, is rising. Indeed, the sustainability agenda to the extent it relates to the environment also feels like it has gone through the gears.

“…at a global level, food markets are adjusting as a myriad of processes seemingly converge around well-being, convenience and sustainability”

So, does well-being and sustainability converge? Well, one area where vested interests are seeking to do so is plant-based proteins and, in particular, meat-based substitutes. Indeed, the rocket propelled IPO of Beyond Meat, with its meat look-a-like products made from plant-based proteins, is a story in its own right. More to the point, profile around bovine cattle production and the emission of methane as a contribution to climate change, for example, is becoming more common parlance, which in theory plant-based products, either in their own right or as meat substitutes, seemingly lead shoppers to feel good about themselves and others.

Whilst this is all so, the plant-based products perhaps need more scrutiny, just as animal based proteins correctly face, into their environmental impact – canola, pulses and soy – and their health implications when dosage levels rise. Equally, in facing a real challenge now, the livestock industry has to think about how its farming systems can lower emissions and actually use agronomic methods to sequest carbon, which as progress emerges, will be a positive for the reputation and demand of product from such systems.

So, whatever Boris, Jean-Claude, Jeremy and their cabal of plotters come up with on the political front remains to be seen, who knows and what could possibly go wrong? Whilst so, at a global level, food markets are adjusting as a myriad of processes seemingly converge around well-being, convenience and sustainability. As these processes further develop there will be greater scrutiny, particularly around climate change and plant based production systems and the claims that are made. Whilst, so the challenges to the meat industry are also likely to be met, noting the enormous debate on this front in Ireland for example, where necessity is the mother of invention.

 

Beyond politics, beyond meat there is much to think about, innovate and add value to.

 

Dr Clive Black

Advisor to Coriolis Consulting

August 2019

Boris and the weather fronts…… by Dr. Clive Black

July 4, 2019 1:55 pm
View Article

We all knew it was probably going to be the case; we knew it as soon as the normal summer weather rocked up last August, well July for those north of Watford Gap. The sublime late spring and summer 2018 was wonderful for the British food and beverage sectors, bringing lots of demand of relatively high margin prepared and seasonal food and drink. On top of that Gareth, Harry and Meghan, alphabetically ordered, brought events to put icing on the cake.

What we knew, however, is that late spring and early summer 2019 could be challenging if the weather Gods did not turn up; to be fair to Gareth he took England to third place in Portugal while Michael leads the Group versus Germany and the Netherlands following wonderful wins in Belarus and Estonia (Northern Ireland that is…). Alas, the weather Gods turned against the UK bringing a poor May and a dreadful first two months of June, one with record rainfall, which must have made the international cricketing authorities think, England, why? That recent weather has turned into a particularly challenging comparative hill for the grocery trade into a firm headwind.

Whilst this climactic stuff is all so, it would be wrong to ascribe demonstrable current trading weakness, manifested in sober trading updates from the food retailers, weak secondary data from the market watchers such as Nielsen and early and deep sales from the apparel trade, all to the weather; other factors are at play.

“…in addition to poor weather conditions the shopper is trying to come to terms with a chaotic political process.”

Sadly, three years on from the UK-EU Referendum the UK remains a totally excremental political show. A divided nation is suffering from a lack of capable leadership and so paralysis. That political chaos is wearing upon the British public and keeping their confidence subdued, as measured in terms of the GfK NOP data, which for June dipped back to minus 13 (from minus 9) as the feckless Tories feck about. And the paradox is that the UK has near full employment, a skills shortage and rising living standards, cards that a Chancellor of the Exchequer should be ramming down the throats of the Opposition.

Following a period of stocking up as the first Brexit deadline approached, the momentum in the UK economy has eased. Indeed, could those consumers’ worries about a recession be about to become true, because if Q2 delivers a decline in UK GDP, then a technical recession will have been reached; maybe not such silly shoppers after all; watch Jezza and Maoist McDonnell come to life on this one? So, in addition to poor weather conditions the shopper is trying to come to terms with a chaotic political process, which Morrisons and Sainsbury’s called out in autumn 2018 as one where it appeared the British were behaving as if they were about to lose their jobs.

Whilst this is all challenging enough, there are also yet other arguably more structural underlying changes taking place in the British food market, which serve to adjust the norm, particularly for the conventional supermarket. So, we see an increasing amount of household income going on consumer services rather than goods. For the food segment this is everything from breakfast at Greggs to a student push biker delivering tea from a ropey chippy with a 0/5 hygiene score (something for Deliveroo and Just East to start worrying about as the FSA has at last woken up). The point is that more calories are being prepared and eaten out of the home.

Shoppers are also procuring more goods from convenience stores (CVS), which have grown in effectiveness to challenge many supermarkets, online and through discount operators or limited assortment supermarkets as we now call them as their propositions contain more SKUs incorporating greater chilled and fresh goods. Whilst the death of the superstore has been over blown, foodservice and channel shift represent material ongoing challenges.

There is more change in play, however, than channel shift. Lifestyles are adjusting and well-being is the most powerful force. Consciously and otherwise folks are reducing their consumption of salt, sugar and saturated fat. Indeed, non-meat diets are amongst the fastest growing element of food markets. Such a change tends to have a further theme and that is ‘less’. So, shoppers that are more switched onto well-being, are buying fewer units and a different basket.

“…it appear(s) the British were behaving as if they were about to lose their jobs.”

Sustainability also fits into this mindset as David Attenborough changes the nation’s viewpoints. Sustainability is, of course, much more than plastic. We see shoppers now purchasing loosely packed goods and not buying food to only throw it away. Whilst a sense of proportion is needed, interest in production processes, food integrity and authenticity is growing too. Well-being and sustainability present a volume growth challenge but not necessary a value one; as Dave Lewis, Tesco’s CEO, recently put it; he is more interested now in the quantum rather than only the like-for-like sales volumes of his business. We have said it before and we say it again.., the fewer calories one eats the more expensive they often can be.

What this all means is a tough current trading environment for the UK’s grocers, especially in terms of volumes. Q2/Q3 CY2019  trading statements will reflect the present cocktail of events. Whilst the weather is a real constraint and the politicians are a real pain, understanding the moving parts of a dynamic British food industry is important, as much as the politicians love the limelight even as we loathe them, sadly for the ego driven tribe there is more to life and food markets. In this respect channel shift, digitisation, convenience, discount, well-being and sustainability are an inter-related series of processes that present many constraints and opportunities for food manufacturers.

Cost leadership is a constant theme of business. However, the present grocery sector cocktail make it particularly important. At a time when the banks are not normal either – lending when you don’t need it and taking your eyes out when you do – tight cash management can also be considered a particular virtue of the time. Additionally, whilst each business is different it feels as if we are in the foothills of the internet of things. Whilst one does not need the brains of NASA in the building, appropriate understanding of the fourth industrial revolution feels quite important.

Coriolis is a long standing organisation that focuses upon the food segment and understands the importance of human capital to business plus operational processes and priorities that can contribute to enhanced capability, cost reduction and cash generation. The rapidly evolving British food system may require a helping hand…

 

Dr Clive Black

Advisor to Coriolis Consulting

 

June 2019

News of the end of the engagement is confirmed… By Dr. Clive Black

April 25, 2019 2:07 pm
View Article

The Competition and Markets Authority did not believe that Sainsbury and Asda had become charitable organisations with the sole aim of cutting the grocery shopping bills of the British.

Sacre bleur!

How could the regulator possibly not see that and so supposedly believe that the prime motives behind the proposed merger was to masque the deteriorating trading position of Sainsbury’s Supermarkets and to allow Wal-Mart to exit the UK? In doing so how could that self-same regulator also believe that a duopoly in the British grocery market could in time raise prices? Look at the example of other domestic monopolies…, banks, telecoms, trains and utilities, what’s the problem?

“…..there is probably a sense of relief that the merger is not taking place with the supply base.”

The analysis of the whys and wherefores of this now doomed merger will be debated for some time one senses but what could it mean for the British grocery supply chain?

Well, at first base there is probably a sense of relief that the merger is not taking place with the supply base. Such an emotion will have been felt firstly by international brand owners, who were the prime initial source for synergies from the combination, and then by domestic players, who were thrown into the mix once the provisional findings were released in February and Sainsbury and Asda clamoured to demonstrate £1bn+ of price cuts.

Whilst so, it is important to note that the CMA has acted because it does not believe that a more concentrated industry is in the shoppers’ interest on a five, ten, fifteen year plus view. As such, the trade should be planning for a more competitive British market for longer as a result of this deal being prohibited as bizarre as that may seem; duopolies tend to result in consumers’ being ripped off in the long run.

Post the CMA’s decision all eyes will be on Sainsbury’s future strategy, particularly for a grocery business that has been sustainably losing market share with falling underlying like-for-like sales in 2019 even with modest inflation in the system. We doubt that there will be a revolution at JS and talk of the security of Mike Coupe’s position appears knee-jerk to us. However, a reset and focus of some sorts is necessary as Sainsbury cannot cut itself to growth. Hence, expect some change from JS, particularly around availability, product specification, service and supply chain costs.

As for Asda, well Wal-Mart may be regretting its justification for the Sainsbury merger, not least the preference to exit the UK. Morale at Asda House maybe better now that collusion with Sainsbury has been prohibited and the mood music should be sweeter than is the case at Holborn too. Quite where Wal-Mart goes with Asda though remains to be seen.

“….the CMA has acted because it does not believe that a more concentrated industry is in the shoppers’ interest…”

For choice, we sense a period of quiet reflection and focus is most likely, particularly continuing to work on Asda’s price differential with the German discounters. Beyond that though we will see if private equity fancies Asda or if in time Wal-Mart sees a listing on the stock exchange, an initial public offering, as a route to escape these shores.

The attempted merger process has been a material concern for the supply trade. A little like Brexit, its implications were uncertain, but dealing with it probably meant change. Quite whether or not that change was good or bad was to be determined. Now with Sainsbury-Asda’s prohibition one uncertainty has been removed. However, because of that it probably means a more rather than less competitive industry in the long-run.

In this respect cost leadership will remain to the fore as supermarkets continue to work with their supply chains to reduce costs. The domestic and international grocery supply industry is Coriolis’ forte in working with operating executives to be more productive. Collaboration in this area maybe increasingly timely.

Dr Clive Black

Advisor to Coriolis

April 2019

Three Little Birds…; Taste, Sustainability & Well-being by Dr. Clive Black

March 25, 2019 11:37 am
View Article

The great, sadly late, Bob Marley sang, ‘don’t worry about a thing, ‘cos every little thing is gonna be alright’.

Maybe Prime Minister, Theresa May, and the swamp creatures within her Cabinet alongside the likewise creatures sitting on the soft green leather at the Palace of Westminster feel that this is the way to run a country. At times it is all that many business folks can draw upon as a modus operandi to navigate their way through the UK’s supposed exit from the EU.

Fatigue is an understatement for the nation’s mood on how the political process has panned out. The term ‘national interest’ has been much used but totally abused by every shade of UK politician. And so who knows how things are going to progress but it is an exercise in mis-management of literally the highest degree. Due to that incompetence, the nature of any split and the time that is likely to take looks like it is going to be more costly, extensive and distracting than necessary.

“Fatigue is an understatement for the nation’s mood on how the political process has panned out.”

Whilst venting one’s spleen can have a modest if very temporary palliative effect, the reality is that the food & beverage industry in the UK has to operate within this chaotic environment. Indeed, through the extensive short-shelf life composition of many products, the food industry is absolutely at the forefront of the economic impact of UK-EU relations and, within the wider context, most particularly the positions of the respective industries in Northern Ireland and the Republic of Ireland, where one has to be worried that chaos could prevail. More broadly, food & agriculture are likely to be a central challenge for any trade deals that the UK engages within, if ever.., most notably the USA, where the Irish border, again, will be a key axis.

Beyond all this macro-political and global trade ‘stuff’ it is important not to lose sight of real people, shoppers, consumers… Like me, maybe you, they are sick & tired of ‘Brexit’. Indeed, many have stoically got on with their lives despite the self-centred, attention grabbing and detached operating in the House of Commons. And those shoppers continue to display behaviours that represent considerable opportunities that it is great to see entrepreneurs in the UK seize upon and see-through.

Most particularly is the shoppers’ appetite to pay more attention to what they are consuming. Good taste remains at the forefront of their behaviours, a simple human trait that is a key contributor of added value food – premiumisation amongst proprietary brand (PB) and private label food & beverage is, therefore, a structurally important underlying feature of the market. Good taste rarely is a function of chance though as opposed to the quality of ingredients, processes and the story around a product. Increasingly, therefore, we see growth in the British food market revolving around a joined up story with new lines taking share from legacy brands that have overgrown and at times overstayed their welcome.

Deeper into these market developments is a process that is now and will be more so in the future central to the prospects of shoppers, society and the food industry; well-being. Awareness around the nutritional composition of foodstuffs is rising albeit there is much more for public policy and the industry bodies to do to take matters a good deal further. Such awareness, predicated upon curiosity, interest and need, is influencing behaviours around diet and health. We are not at the start of this journey but it has a long, long way to go, centred upon structural changes to nutrient consumption with less salt, saturated fat and salt and more protein, omega-3, and the constituents of fruit & vegetables, pulses and legumes.

Beyond nutrients there is the level of engineering in food, simple is becoming more virtuous, natural is preferred to synthetic and then there are the issues that are driving vegetarian and veganism, which seems to be more about personal nutrients than animal welfare. Beyond food there is the matter of sustainability; how one man, an atom, changed the structure.., David Attenborough and plastic, doing in one television programme what environmental campaigners have worked for half a century on with lesser impact.

“…we see growth in the British food market revolving around a joined up story with new lines taking share from legacy brands that have overgrown and at times overstayed their welcome.”

So, whilst we sit amongst the stench of what appear to be rotten politicians in these Isles, small minded and what increasingly appear self-centred folks, there remain real decent people out there that need the British food industry to continue to meet their needs, continue to be entrepreneurial and to continue to innovate. A glance at a supermarket shelf shows how good taste, well-being and sustainability to mention but three are structural drivers of change, opportunity and growth that the UK industry is rising too and where the future appears bright.

At Coriolis there is a team of folks that focus upon delivering cost leadership and manufacturing excellence that enable the concepts, ideas and products developed by British food entrepreneurs to also be generators of free cash flow and wealth.

As the 29th March 2019 approaches here is to a competitive, innovative and entrepreneurial British food & drink industry whether our politicians are with or without us.

 

Dr Clive Black

Advisor

Coriolis Consulting

March 2019