Labour isn’t working… By Dr. Clive Black

July 1, 2021 8:00 am
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What times eh!

A year ago the prevailing narrative was that the UK was facing an unemployment crisis, some suggesting that the rate could double and even treble to levels not seen for a generation; 9-10% was mentioned in despatches.

Certainly, there were grounds for real concern as the UK and global economies entered genuinely new terrain, a British economy that contracted by 10% in 2020. To mitigate a mountain of unemployment the British Government, to its credit, introduced a new common term to the vocabulary, furlough, which has been a Godsend for many households.

The Coronavirus has ran rings around public policymakers, first of all exposing systemic failure in the governance of the UK not so much politicians but the advisors, the civil servants and the media, going on always to stay one step ahead. So last summer, as lockdown 1.0 looked like it was working the Kent variant emerged. Then with the vaccination coming through, protecting the most vulnerable, the Indian variant came through.

Now, with hospitalisations and fatalities, thankfully, down, and an immense debt of gratitude to front line health and care workers, I am not so sure GPs deserve the same pat on the back, the UK seems to be close to the last leg of the unlocking programme; full release in mid-July 2021.

Perhaps encouragingly, the education and health ministers for England also seem to be applying a more balanced and pragmatic approach that hopefully respects this terrible bug but recognises other risks and challenges that need some attention too.

So, whilst all this public health work has been in-tow the liquidity infused (printing money) British economy has been bouncing back strongly, very strongly. The Governor of the Bank of England told me that it could be back to pre-Covid levels before Christmas 2021, albeit losing the growth that otherwise would have occurred. We all would have taken that in late March 2020.

“…unemployment is less than 5.0% and falling fast….. the UK amazingly is facing a labour crisis with three million people still on some form of furlough or another…..The British Government has been inflexible to the requests of a food industry short of drivers, pickers, cleaners and factory floor operatives.”

More to the point unemployment is less than 5.0% and falling fast. Indeed, with a generation of education failure, particularly skills training, many European workers returning home post the UK-EU referendum, and new border controls limiting low wage immigration, the UK amazingly is facing a labour crisis with three million people still on some form of furlough or another. Remarkable!

The Government wants higher wages and at 5.6% including bonuses in  May 2021 it has it. Many firms are chronically short of people and it looks like wage-cost inflation is building. Alongside higher oil prices, rising freight costs, upwards packaging costs (DS Smith talk of 5-10% for cardboard) to name but just three, real input and producer price inflation is emerging.

The British Government has been inflexible to the requests of a food industry short of drivers, pickers, cleaners and factory floor operatives. As such operational consequences, service levels, as well as costs can be expected to deteriorate and rise respectively until matters change for the better. Maybe the end of furlough will balance the labour books somewhat as some businesses fold and let folks go as the state aid ends?

Maybe, but without policy changes the cost of labour is going to remain a problem with millions of Britons seemingly unemployable; hence the disconnect between the unemployment rate and the need for labour.

Within these contexts the strong demand of the UK and global economy is going to encourage more automation as the returns compared to the deployment of labour adjusts in favour of machines. With the Chancellor’s tax incentives to invest in capital to April 2023, a step change in automation is in the offing, with the corresponding labour implications to follow.

In this context Coriolis’ time has come as it is an experienced feet on the ground advisor that measures, diagnostic tests, listens, watches and changes things for the better in manufacturing businesses,  culturally and practically; having done so effectively for the UK and international food industry for many years. The present labour crisis necessitates a fresh look at the practices and processes of business and Coriolis is exceptionally well positioned to add value and help from within to engineer beneficial change.

The summer months are likely to see more and more talk of the failings and otherwise of the British labour process. I wish you well in the face of these challenges. If you are able, I also wish you a lovely summer holiday, hoping that another new variant does not keep the bug one step ahead.

Dr Clive Black

Senior Advisor

Coriolis

 

July 2021

Don’t be an ostrich on sustainability… By Dr. Clive Black

May 25, 2021 11:49 am
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The matter of the welfare of the Planet and the subject of the green economy is moving at pace.

Science has been outlining problems ahead for Planet Earth for some years now, which has led some to be ambivalent, maybe even suspicious and sceptical, the phenomenon that was Donald Trump comes to mind, whilst some have been evangelical, no more so than teenager Greta Thurnberg, albeit she is a new generation ahead of many others, Al Gore comes into mind at his point, an evangelist who seemed to embrace dodgy science.

So, on the matters of global warming, if that is an expedient term use these days, or the less contentious ‘climate change’, there is seemingly an opinion for all seasons. Whilst the pre-dispositions of folks vary and the data emerges, one thing that is clearer is that the political and so regulatory environment is adjusting as a matter of fact. Indeed, the election of Joe Biden as President of the United States of America has brought a major new twist to matters, whilst the British Government’s rhetoric on matters green is quite dark in hue.

Indeed, it is arguable that the UK sees an opportunity, post-Brexit, to engender greater differentiation, pace and resource into the green economy, something that will be a growing matter of attention as COP26 approaches in Glasgow in November 2021. No doubt pledges will be coming in left, right and centre around this event, one where the commitment and so regulation towards change to control carbon emissions amongst other things is more likely to rise than not.

With that the British food system can be expected to be a notable silo of attention. Food is integral to our future and it’s supply industry, end-to-end, should be considered a solution to the challenges of well-being, society and the environment. To do so though requires an attitude whereby the pint is half-full rather than half-empty; this is really important for the leaders of all of our food businesses to embrace.

Those leaders than take the pint half full approach will not only be more innovative, they will be part of the future in terms of compliance but also create the licence to trade. Any business supplying Morrison, Sainsbury and Tesco needs to be on top of this green agenda, particularly sustainability. Morrison is working towards a British agricultural supply chain that is carbon neutral by 2030; less than a decade away. Sainsbury is a retail sponsor of COP26, so imagine what it will be thinking about talking on over the next few months and years, whilst Tesco set out its ESG stall in great detail in 2018 and it continues to act with a sustainability and social perspective in evermore of its work.

“…not embracing sustainability in the food chain from a positive, constructive and engaged manner poses the direct danger of being left behind; being compliant  ….is going to become a licence to trade.”

Put another way, not embracing sustainability in the food chain from a positive, constructive and engaged manner poses the direct danger of being left behind; being compliant and more on such matters is actually, in the UK at least, going to become a licence to trade.

What this means is evermore consideration of supply chains, data and traceability; it requires end-to-end thinking. It is also a global issue and so what happens on the other side of the world, be that deforestation in LATAM for beef or unsustainable palm oil in South-East Asia, is relevant here in the UK if such products are ingredients. It means that great detail has to be considered to measure inputs and outputs and new investment should have energy utilisation and carbon emissions front and centre of thinking and in ways that are verifiable.

Doing so, requires all of the food chain to identify the direction of travel, not just some, but all, if the UK’s food system is not only going to avoid losing share due to a lack of compliance but actually embrace what is clearly an evolving picture of valued added opportunity that produces different social and environmental outputs. Indeed, the pint half full mentality can actually lead to a fuller pint; sadly, those firms ignorant of the evolving market and/or burying heads in the sand will become more marginal to the point of extinction.

The breadth of the food industry means that each firm will have to face common challenges, arguably evolving and growing opportunities, if very varied ways when it comes to specifics; which means that from the lofty heights of the helicopter view presented here, there requires a connection from the theoretical and principles to the actions on the ground.

Coriolis is an advisory firm that operates at the sharp end of businesses, seeking to solve problems with better operational, compliance and economic outcomes on the ground. It is also a business with a half pint full approach.

 

Dr Clive Black

Senior Advisor, Coriolis Consulting

 

May 2021.

Reasons to be Cheerful. By Dr. Clive Black

April 27, 2021 2:53 pm
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The United Kingdom has been through the mill since early 2020, a time remember when there was relief that the country had a Government with a majority to govern after chronic paralysis and procrastination since the EU-UK referendum.

The Wuhan bug ruined Boris’ honeymoon

However, there was no real honeymoon period as Government became consumed not by Brexit but the pandemic that made its way by aeroplane from Wuhan to these shores. The death toll from Coronavirus, which now exceeds one eighth of a million Britons, is a national tragedy of such deep magnitude. The wider fall out has also been immense for the wheels of both commerce and Government.

The British Government was subsumed by the pandemic and clear deficiencies in policy making and culture within the state, including the Civil Service, became apparent; deficiencies that will be the focus of future investigation, no doubt, and on which necessary change should ensue. Whilst so, the cavalry emerged, thankfully, in the form of Kate Bingham who delivered a world class vaccination programme that has provided an avenue for recovery in more ways than one.

The pandemic shadow for the British food system

For the British food system the pandemic has been immense, driving retail as the Food & Beverage channel was considerably impeded, structurally changing online grocery retail participation and determining a major contraction of the casual dining sector. Within the food system, key workers across the piece became national heroes, unlike teaching unions and can’t do, won’t do bodies like the General Practitioners trade association too. And so hygiene, bio-security, rose up the priority list and is likely to be a key legacy for the industry at all interfaces, so likely to drive further automation.

Heroine Kate Bingham

The aforementioned vaccination programme is allowing the British food system to emerge from the crisis mentality. Commencing with the necessary return to schools, mobility levels started to rise, so reducing the amount of time many folks were spending at home and increasing demand for Food-to-Go lines (e.g., sandwiches and snacks). The re-opening of non-essential retailing and the outdoor F&B channel further raises mobility, so reducing home meal occasions too. Hence, the F&B channel is starting to crank up its engine and accompanying supply chain whilst the supermarkets face into tough pandemic elevated comparatives.

Fragility and positivity

Looking ahead, there remain considerable uncertainty and fragility around the pandemic; mutations, the vaccines’ robustness and scope for a fourth wave. Whilst this is so, the appliance of science continues, for example oral pills to combat Coronavirus, and the domestic vaccine production capacity also builds, so reducing dependence upon a nasty European Commission. Hence, new resources and learnings provide a little bit more confidence that full lockdowns can perhaps be avoided; in this respect the right to a foreign holiday versus the responsibility to protect our kin could be a live summer debating matter over a glass of Rose in the UK for sure, maybe further afield too.

“…there are grounds to look forward with strong optimism for those that have survived, lower capacity helping pricing power. The supermarkets will experience lower like-for-like sales volumes until spring 2022, but also much lower Covid operating costs…. an improved mix as we consume fewer staples and the benefit of a profitable online channel”

Surging activity

For the UK economy the mood music has brightened enormously in just a matter of weeks. From the depth of January, when chins were on the floor, April sees virtually all economic indicators improving and very strongly so. Business confidence is rising, aided by the Chancellor’s capital investment tax breaks, all sectors are seeing rising activity levels albeit from low bases, whilst the housing market is now booming. All this is starting to feed into consumer confidence and so household expenditure, noting that there is c£150-200bn of cash sitting earning nothing in bank accounts, some of which will be spent.

Strong economic growth is ahead

The Governor of the Bank of England told me this month that he now expects the UK economy to reach pre-pandemic levels of activity before Christmas 2021 if there are no more major shocks. That is an amazing expectation, suggesting exceptionally strong summer economic growth with more to come in 2022. Indeed, such are the growth expectations in the USA, where Biden has printed money like there is no tomorrow, that bond markets are flashing about rising inflation, which leads to chatter about the ending of quantitative easing and even the possibility of rising interest rates.

F&B to enjoy the summer at the top-line, supermarkets at the bottom-line

What times eh! For the food system, particularly F&B, there are grounds to look forward with strong optimism for those that have survived, lower capacity helping pricing power. The supermarkets will experience lower like-for-like sales volumes until spring 2022, but also much lower Covid operating costs (c700m for Tesco UK), an improved mix as we consume fewer staples and the benefit of a profitable online channel. The two-year sales stack for UK grocery is also notably higher than it would have been without Covid.

So, without tempting fate, let us all hope that the vaccine derived improvements lead to a more prosperous, healthier and happier summer for us all.

In managing these evolving market conditions, in Coriolis there is an agile, experienced and adaptable team to deliver operational and financial improvement.

 

Dr Clive Black

Senior Advisor, Coriolis Consulting

 

April 2021

How may Covid condition the UK food system in 2021? by Dr. Clive Black

March 4, 2021 12:19 pm
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A year ago we were being introduced to an invisible entity that supposedly emerged from a Wuhan market that has totally transformed the lives of the British, including over one hundred thousand fatalities. To have predicted the events of the past year in early March 2020 would have been the stuff of modern day fantasy.

How many times did we see the word ‘unprecedented’

However, but three weeks on from the beginning of March last year the UK would be in a national lockdown whilst in-between the supermarket shelves would be cleared out by panic buyers; rationing had to be introduced. The industry’s employees would gain key worker status, many supermarket check-out staff putting their lives on the line from a sense of duty – teaching unions may like to take note – whilst unprecedented demands would be placed upon the supply chain, not seen for the vast majority in their life times.

One year on and the UK remains in lockdown, with a road map suggesting that the key will come out and fully open the doors for people on midsummers’ day. Those keys, however, will only come off the rail if mutant variants remain suppressed and hospitalisation and fatality rates continue their current downward trend. There will no doubt be further twists and turns to this most remarkable story.

Comparatives are likely to distort 2021

And for the food system, the industry at the heart of the pandemic, what of 2021? Well, notable adjustments are likely to be evident whilst some of the developments witnessed in 2020 will be with us for good. Most evidently, from mid-March the British supermarkets face into material sales headwinds, given the spike in demand encountered last year. Thereafter, sales momentum is likely to ebb and flow to last year’s tune, with comparatives easing through the summer months and ‘eat out to help out’, before rebuilding through the autumn and winter.

In early 2020, Shore Capital Markets was forecasting that the value of the British grocery industry would grow by c2.0% in the year ahead, c1.5-2.0% in 2021. As it turns out, the UK Grocery market grew at c7.5% in 2020, about 6.5% of which was volume, nearly four times Shore’s expectations. Accordingly, for 2021 it is reasonable to anticipate a decline in value, c2.0%, with volumes weaker still, maybe 3.0-4.0% after taking into account inflation and mix; in 2022 value growth should again be positive, maybe c2.0% again.

All in all for grocery, Covid has brought elevated sales but also costs too, c£850m in the case of Tesco UK in its FY2021. So, whilst the supermarkets face into weaker sales momentum in 2021, its mix, costs and cash flow comparatives should remain very positive as the economy unlocks and people move. From a mix perspective, it is also reasonable to anticipate that the demand for staples may ease back as more Food-to-Go is consumed with students and workers once again on the move.

“In early 2020, Shore Capital Markets was forecasting that the value of the British grocery industry would grow by c2.0% in the year ahead, c1.5-2.0% in 2021. As it turns out, the UK Grocery market grew at c7.5% in 2020, about 6.5% of which was volume, nearly four times Shore’s expectations.”

The return of a smaller F&B channel?

On top of the comparatives, if the British unlocking programme comes through as planned, then demand for the beleaguered Food & Beverage (F&B) channel should correspondingly rebuild. Whilst so, that channel is expected to be 20-30% smaller than the pre-pandemic days, capacity that is likely to benefit supermarkets, whilst supporting pricing and so gross margins in the out of home market.

Quite how the F&B channel evolves remains to be seen. Quick Service Restaurant (QSR) players like McDonalds have transformed their digital capabilities through the pandemic, now emerging as a much more able click and collect operator. Many restaurants have also become takeaways in effect and it will be interesting to see how many return to their sit down roots. Sadly, the pandemic will probably account for many independent cafes, public bars and restaurants, with the Casual Dining segment a particular victim, albeit this was a segment with too much capacity and pre-existing vulnerabilities.

The importance of working from home

The new dimension to the British labour process and so its food system will be working from home. It feels like home working is here to stay, which should boost supermarkets and the online channel in particular, noting that most web based grocery shopping is store picked. Whilst the comparatives for online shopping are particularly challenging, c100% for some, an expanded market with many households still concerned about bio-security is likely to mean no going back to c7% pre-pandemic participation. A key question for the sector is will the move into online grocery profitability be competed away or are the structural gains here to stay?

What we see in the last year is evident elsewhere in British consumer markets, many years of organic change experiencing a concertina process into just one. The legacy of Covid-19 though can be expected to persist well into future years through its reshaping of lifestyles and behaviours.

What of biosecurity, sustainability and well-being? 

More enduring questions, therefore, revolve around the future shape and mix of the British food system, its channels and segments, plus whether or not biosecurity, sustainability and well-being have also gone through a metamorphosis as a result of the last year.

The shadows of Covid can be expected to be long, all of which makes the sunshine of St David’s Day and the crocuses and snow drops of 2021 all the more special.

 

Dr Clive Black

Senior Advisor

Coriolis Consulting

 

March 2021.

The year ahead…? by Dr. Clive Black

January 19, 2021 10:49 am
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If P45s were issued to forecasters for the effectiveness of their predictions, there would be few around at the start of 2021. Few, if any, were walking the wet markets of Wuhan in late 2019 to gain the inside track on what was the defining development of 2020 and perhaps the current decade.

I for one had never heard of the term Coronavirus before early 2020. And yet just ten weeks into the year the British supermarkets shelves were stripped of goods, notably loo roles, with the major chains introducing rationing. What a year in-between, quite unfathomable developments that have elevated the sales for the mainstream grocers, propelled demand for online food delivery and decimated the food systems of central business districts and travel hubs.

The scars of the Coronavirus pandemic will last well beyond 2020 for the British food system and so what should we be looking for as factors to condition the New Year?

At the start of last year the world was worried, (for a little while until bat bug from the east travelled to Europe, seemingly the first port of call was the skiing resorts of Italy), about the scope for Iran and the USA to do something foolish. Twelve months on, the crazy outgoing President of the USA decided to give the green light to smashing up his own capital rather than Tehran, ahead of his childlike departure from the White House.

It will be interesting to see what new President, Joe Biden, brings to international food systems. Will the sustainability and green agendas go up the priority list under his time in office, and what about Kamala Harris, who may be the President by the time the next election comes around in 2024? What, therefore, of US agriculture; how will Mr Biden see trade with China, the EU and the UK, bearing in mind that along with Mr Obama he suggested that the UK would be at the back of the line for a trade deal with the USA?

Such macro-machinations matter to the food system because China is one of the most influential markets on the planet, its stock piling of wheat is suspected to be the single most important factor behind the commodity’s current price elevation. What does Mr Biden think of the Sino-EU accord; will that bring him closer to Boris? And then there is US-UK trade, where food standards were the key sticking point, will there be movement on the ground on this matter; I sense not.

“…the food system has clearly become part of the nation’s infrastructure, which is likely to condition a wide spectrum of government policy on its organisation development in the future.”

Back on this side of the pond, the UK has sort of left the EU, an ‘agreement’ that has been chaotically implemented, with far too little time to digest and prepare for the new administrative arrangements. M&S shelves in Ireland and France are bare, Scottish fishermen fume and the food hauliers to Northern Ireland have Michael Gove’s condescending mush on many a dart board.

One could almost think that he waited until about two days before implementation day so that he could squirm away from any justifiable flack. In 2021 the food system of the British Isles, the UK and Ireland, never mind Continental Europe, where up to now the majority of the c40% of imported goods are sourced, needs to come up with workable ways and means, not just leaving it to the industry to sort out. At the same time, British farmers and growers, plus manufacturers need to open the dialogue with government about the future with respect to food security, optimal sourcing for the next decade taking the planet into account, including the rain forests and the high seas, as this all increasingly matters.

Trump, Brexit, and, oh yes, Coronavirus. Let us hope that we are in the darkest before the dawn territory on this terrible disease that has taken over one hundred thousand Britons, the deepest scar of all, whether they had pre-existing conditions or not. The virus sustains the aforementioned distortions to the industry and with lockdown 3.0 likely to last until the end of March, maybe Easter in April, the Food & Beverage channel must remain in hibernation and the supermarkets busy with online and offline demand.

Hopefully, the vaccination, where to be fair the British Government deserves considerable credit, will gradually release society from the constraints of Coronavirus for once and for all; although I do wonder if this will mirror the flu in needing annual jabs and so the state’s desire to develop domestic vaccination manufacturing capabilities; not trusting globalisation. It is unlikely to be the start of Q3 though before full scale lifting of restrictions will come through. So what will have changed since the pandemic started for the UK food system?

Well, the Food & Beverage channel will be a whole lot smaller with many casual dining chains downsized plus cafes, public houses and restaurants closed. The corollary of this reduced capacity can be expected to be higher prices and less promotional activity. Whilst so, working from home is likely to be the key mechanism driving the food system and so those Food & Beverage establishments in suburbs are likely to perform better than those in the aforementioned central business districts and travel hubs; if the average person works two days a week at home, that is a 40% reduction in commuting and office occupancy.

In the suburbs supermarkets and neighbourhood stores will be coming to terms with tough sales comparatives from spring 2021 (cost and cash flow comparatives are favourable), so stores with smaller baskets but maybe more visits, and so some trade will be lost to a return to the commute for some and the re-opening of the on-trade. However, the two-year sales stack for 2020 & 2021 will be stronger than we thought at the start of last year, whilst the online channel participation will have structurally moved to the right (7% to c15%), with no going back, so constraining the market access of the German discounters in the process; it took a bat bug from Wuhan to stymie the advance of Aldi.

More substantively, perhaps, the food system has clearly become part of the nation’s infrastructure, which is likely to condition a wide spectrum of government policy on its organisation development in the future; just as we saw the French prohibit the bid by Couche-Tard for Carrefour on food security grounds.

The British food system should be very proud of its work in 2020 and society should take a moment when rightly applauding and commending NHS workers to think about the butchers in major halls, the check-out workers, the lorry drivers and the like, folks that put teaching unions to shame, for their real contribution for feeding the nation and keeping it sane.

Predictions are clearly a mug’s game but so much has changed at the start of 2021 compared to 2020. One has to hope it is change that is for the better; if it is not too late, a very Happy New Year.

Dr Clive Black

Senior Policy Advisor

Coriolis Consulting

 

January 2021