Archive for 'Supermarkets- the other stuff'

Supermarkets, Growers & Food Prices.

munichmerch1One of the more intelligent articles I have come across in recent years on the topic of supplier relationships in the perishable food area can be found in the Guardian.  Here is a poignant part of  the article’s last paragraph which should have some resonance in our part of the world too.

“…farmers need to be paid enough to invest in our agricultural base. We actually need to pay a little more for our food now to avoid paying much more later. A price war might be good for consumers in the short term. It might offer some sort of relief. In the long term, however, we would all be much the poorer.”

I wholeheartedly agree with this sentiment but would even be more specific. Growers and farmers need to receive sufficient enough a price for the food they produce to provide them with a reasonable income as well as a return on their investment.

The background to the article is the market share loss being experienced by the UK’s main stream supermarkets at present, with the writer analysing the predictable price cutting strategies being implemented from the perspective of their potential impact on Britain’s self-sufficiency in food production.   A very worthwhile read.

A Few Comments On The Latest Round Of Progressive Bashing

pants_compressed

It must be election year. And – the Aussie/Kiwi relationship has had some bad press in recent weeks in relation to New Zealanders living in Australia not being able to access certain state services. Then we allegedly had Coles and Woolworths discriminating against non-Australian FMCG products as part of their “Buy Australia” campaigns.

A good time then for Labour’s Shane Jones to kick off a debate on supermarket business practices – particularly that supermarket chain that happens to be owned by one of those Australian behemoths.  And which incidentally, used to be owned by the other one of those two in the late eighties and early nineties. In the interval between Coles selling Progressive and Woolworths buying it, a third Australian group, FAL,  owned Progressive. As a nation, we are therefore used to having about 50% of our grocery retail capacity owned by the cuzzy bros from across the ditch. That lengthy period of general acquaintance and the fact that I spent some ten years working for Progressive leads me to adding my tuppence worth to the discussion in progress.

So here are a few facts from my perspective:

  1. Supermarkets are a social phenomenon. Once mankind decided to congregate in towns and cities, we stopped hunting and gathering in the forests and on the prairies, shifting our attention to merchants, markets, stores, supermarkets and now, the worldwide web.
  2. Like it or not, supermarkets have for decades been the gatekeeper to the consumer for anyone who is commercially marketing food products beyond a minimum volume level.
  3. Supermarket operators are not stupid. Of course they are interested in increasing market share, income and profits. In that they do not differ from any other business.
  4. Supermarket net margins are slim in percentage terms. It costs a lot of money to acquire land, build stores and maintain them.
  5. Demand outstrips supply in terms of shelf space availability in-store and new products  promoted by manufacturers are competing vigorously  for that shelf space.
  6. It therefore makes perfect business sense for supermarkets to sit their prospective and current suppliers down to ask them three questions;
    • How are you going to support your products through consumer marketing campaigns, so that we gain some comfort in justifying the shelf space we are about to make available to you?
    • What is your specific marketing strategy in relation to selling your product through our stores network?
    • What trading terms do you offer us?
  7. Yes, we no longer seem to have this neat separation between manufacturer and retailer with each focusing on their core competency and letting the other one getting on with his business without interference…but hey, we also have machines in our offices that combine in one device functions previously carried out by four separate devices, i.e.; photocopier, scanner, fax and email programme. In other words, business evolves. It is not static. Things change. The traditional supermarket business model is being challenged from all directions. In the US,  Amazon is becoming a fresh food fulfillment centre… Here in New Zealand, Nappies Direct turned itself into Supermarket Online
  8. Supermarkets and their operators typically know they are under  the constant spotlight in terms of compliance with the regulators whilst consumers are scarce with their praise and brutal with their criticism. And politicians are prone to comment prematurely on anything without having all the facts…
  9. Let’s not muddle up all the issues involved here as that only skews matters further. Each of the following has its own dynamics:
    • supplier negotiations between buyers and sellers. Market forces will prevail and in a market economy there is no room for political interference.
    • marketing strategies built around “Buy Australia/New Zealand/Upper Volta” campaigns. Every country has these. They are economically flawed, don’t fit into today’s WTO based thinking, are ultimately not sustainable but have good resonance with consumers.
    • supermarket private label or own brand philosophies which are a reflection of the fact that the skill sets bundled within the global supermarket operators are such these days that these companies have an obligation to their shareholders to optimise their revenue opportunities beyond the traditional grocery model.
  10. We could, of course, nationalize the entire food supply chain and subsidize food prices for the entire population.  If that approach had been a workable proposition, the Soviet Union would still be alive and well today.

My closing comment is this:

Dave Chambers, the Managing Director of Progressive/Countdown, is an ethical operator. He learned the grocery trade from the bottom up, having gone through the old Foodtown Management Trainee programme. I first came across him when he was store manager of Foodtown Kelston in West Auckland in the early nineties. He was a smart cookie then, a very personable guy and a rational thinker –  and he retained and built upon all these qualities.  With all due respect, the same qualities did not apply to many of his then store manager colleagues – which explains how Dave managed to rise to the top of the pile. Dave stayed his entire career in the store operations area – in other words he was never a buyer or category manager negotiating with suppliers but always focused on serving the customer.  Yes, he reports to Australia, but Dave Chambers comes with a high level of personal integrity and a reputation he has built over decades. So when Dave  says that the recently made allegations about retrospective supplier payments are incorrect, I am inclined to accept this.

My Milk Was Off This Morning

lgmaking_tea_milk_1000_0056One of the more frustrating occurrences in one’s morning…the milk is off! Not good at all when one only notices it after one has poured said milk into one’s tea. A glance at the label and the mood does not get any better. The milk should have lasted for another three days at least. Granted, it is summer – at least in New Zealand – but hey, my fridge works, I drove straight home with my shopping a couple of days ago, the car is air conditioned and the store is five minutes down the road. Where is the problem then?

Let’s start with where the problem most certainly will not be found….at the source. There is nothing wrong with my milk when it leaves the cow. Farmers have a reasonably good handle on making sure it does not go off on the farm, the milk tankers collect like clockwork and the processors tend to get that bit right as well, i.e.; processing the stuff coming out of the cow in a timely and temperature controlled fashion into plastic bottles with various lid colours ready for distribution in chilled trucks. Sooo – if my milk goes off despite the processor having his cool chain under control, the milk sitting in the retailer’s fridge when I bought it and yours truly being able to look myself in the eye with a clear conscience re personal fridge discipline at home….what does that leave us with?

Well, my money is on the retail rear store area being the culprit. Or more precisely…the amount of time it takes for the milk to get from the store delivery dock into the rear store chilled area. All the other steps are dedicated…cow gives milk, farmer stores milk, tanker driver collects milk, factory processes milk, truckie delivers milk,  THEN  BIG BLACK HOLE, retail assistant restocks milk fridge, customer selects milk and takes milk and all other purchases home.

The BIG BLACK HOLE  in my mind is that I have seen several variations to the theme over the years when it comes to milk being delivered to the store. These are, in no particular order,

  • delivery driver leaves milk on rear dock and buggers off
  • delivery driver attempts to raise store receiving staff and when he fails in that endeavour, leaves milk on rear dock and buggers off
  • receiving staff see milk sitting on rear dock but don’t register that milk and sun don’t go together, so the milk stays put
  • receiving staff see milk, but have other priorities, with milk shifting being not being high on that list
  • receiving staff drag milk out of sun into the rear store proper but not straight away into the chilled area.

There are bound to be other scenarios as well but the ones I have listed here  serve the purpose of illustrating a critical aspect of supply chain management when it comes to fresh food, whether we are talking about milk, peaches or bagged salad. The sad truth is that effective  supply chain management is generally consistently achievable when the focus is on individual products or a group of products with similar characteristics and therefore needs. When products with different characteristics and needs appear at a critical supply chain node at the same time, a high degree of personal initiative, the ability to prioritise without waiting to be told and the capability to understand the ’cause and effect’ concept become crucial.

Do supermarkets really train their rear store receiving staff to work consistently to these principles? I think not.

TURDUCKEN ANYONE?

Turducken Source: wikipedia

Turducken
Source: wikipedia

December, 25th, 2013

This is a Christmas story of a different kind. As you read on, you may well think that I have lost the plot altogether, you may wonder where the Christmas connection  takes us, but rest assured there is a Christmas aspect to this story, one that reaches beyond the Christmas Day we are celebrating today in 2013. I watched the news last night and in addition to the guts and glory coverage that television news is all about these days there was a human interest story related to Christmas that that caught my attention. The central theme of the news item was a unique Christmas roast that few people had heard of, that was in increasing demand and had its origins in the Middle Ages.  The roast is called a Turducken, which is a chicken, complete with stuffing, stuffed into a duck and the duck then stuffed into a turkey. The news item featured a Farro Fresh Market and one of its founders was being interviewed about the Turducken phenomenon. A fascinating food story, told in an innovative fresh food retail environment. What a fantastic marketing opportunity.

Cut. Change of Scenery.

In 1996 I rejoined Progressive Enterprises, then owner of Foodtown, Countdown and Three Guys supermarkets and itself owned by Foodland (FAL) , then  a grocery co-operative in Perth, Western Australia. The management team was given three core objectives by the owners. Firstly, streamline the merchandise and operations departments run separately hitherto, into one effective system; secondly, develop the food retail concept of the future; thirdly, improve operating profits. By 1998, the first objective had been achieved. The category management and buying teams had been combined and the operations management structure had been merged into one. A new meal solution concept had also been established and it was being “road tested” at Foodtown Meadowbank. This concept reduced emphasis on selling ingredients and meal components and focused instead on providing shoppers with complete meal solutions depending upon the time they visited the store. An entire kitchen team inclusive of an executive chef was based at the store. The third objective, improving margins, proved a little more difficult.  Restructuring does take time and costs money.  The fact that the Foodtown and Countdown IT platforms were incompatible and needed to be reconstructed from the ground up did not help either.  Nor was margin growth assisted by the fact that the Countdown merchandise sales management & reporting process was a store by store affair which caused major difficulties in understanding category profitability across the group.

In early 1998 FAL lost patience with its New Zealand division – which they did not understand at the best of times.  To put this statement into perspective…Perth based FAL in the nineties was akin to a bunch Four Square grocers having come together and with Progressive they had a tiger by the tail.  The FAL owners understood the grocery business very well…but grocers are not necessarily known for their innovation and strategic foresight when it comes to fundamentally reinventing themselves. And having paid top dollar for Progressive when they bought the chain from the then Coles Myer a few years earlier, they wanted to see a return on investment.

Source: www.allposters.com/

Source: www.allposters.com

Graeme Kelly, the CEO they had only hired a couple of years early was sent packing and after a short intermezzo by Barry Alty, a Kiwi grocer turned Perth based Aussie, FAL recruited Ted van Arkel, a Kiwi based grocer of Dutch heritage as Alty’s deputy and eventual successor.

Ted was a grocer from way back, Woolworths trained, who knew the grocery business upside down, back to front and left to right.  The Meadowbank innovation was initially parked for review and then quietly abandoned. The stores were refocused on the core grocery business, integration of operating systems was further strengthened and the bottom line started to show the improvements the owners in far away Perth were expecting.

Cut. Change of Scenery.

I am a father of three adult children these days.  Doesn’t time fly. My daughter works for a global market research company in Frankfurt, Germany.  My older son is both a history teacher and New Zealand naval officer (don’t ask…it’s complicated). My younger son has just finished a Bachelor of Design and Visual Arts (Photography) degree at Unitec and will hopefully find his fulfillment as an artist.

Earlier this year he started talking about Unitec wanting to essentially make the entire design faculty redundant. He was concerned about that, both from his perspective as well as from that of the affected staff.  Naturally, once these plans were made known to the lecturers, they were no longer entirely focused on the learning needs of their students. Unitec’s position was that the Faculty and the courses it offered needed to be realigned with the core focus of Unitec as a technical tertiary institution.   Reading between the lines….someone clearly thought that there was too much art going on and that the place needed to concentrate on churning out craftsmen instead of artists.

Staff got their redundancy notices on the day the students opened  their end of year exhibition – where they could have benefited from the support of focused staff.  Instead, the staff involved the students in black armband protests and other forms of “passive resistance”. It was not good to observe what was going on.

I had not fully tuned in when my son started talking about the demise of his Faculty.  Partly because I was busy with other things and partly because I knew that by the time these changes were due to take place in 2014, he would have graduated and be on his way.  So it was not until a couple of weeks ago that I went to the Unitec website to check on the composition of the Unitec Council. Interesting.

Cut. Change of  Scenery

Christmas is the time for reflection. When I reflect about how my shopping behaviour has changed in the last three years, I realise that I spend quite a bit of my time, and more importantly money, at Farro Fresh Markets.  They sell the food I enjoy eating. Their stores offer a mix between grocery retailing and retail theatre that I don’t find in the traditional Countdown, New World or Pak’ n Save outlets.  They sell decent Spanish and French wines for a fraction of the price one has to pay for local Pinot Noir.  Their cheese selection is a shoppers’ magnet. A Farro Fresh Market is not necessarily exactly what the 1996 Progressive team  had envisaged…but Farro is the closest to the retail concept Progressive had in mind back then…and their opportunity came when Progressive consigned anything other than the expert grocery model to the ‘too hard’ basket.

What are the big learnings here for me?

  • Horses for courses.
  • Timing is everything.
  • There is a difference between a supermarket and a Design School.
  • The consumers’ food procurement model is changing at a rapid pace.
  • The shopping model I grew up with does not  meet the needs of today’s consumers.
  • Thank God for options, choice and innovation.

The clock will tick over soon. 2013  becomes history and the fledgling 2014 will spread its wings. Let’s hope we can learn from past mistakes and avoid repeating them.

And the practice of stuffing birds within birds and serving them fried or baked at table seems to date  back way beyond the Middle Ages, right down to the Romans and their famous banquets.

 

How Do I Get My Product On The Supermarket Shelf?

guardianMasterclasses are something I immediately associate with food and TV. We can thank Masterchef for that. And the Guardian is a British newspaper. What should I make of those two terms strung together though? The short answer is – anything is possible in a day and age when entertainment by bite size is the norm and the print media resembles a dinosaur and is desperately trying to reinvent itself. The Guardian seems to have determined that it has a role to play in business education way beyond having the latest crop of bowler hatted gentlemen study its financial pages. Which is why it runs a Masterclass dedicated to getting new products, presumably including new produce items, on the supermarket shelf. Details can be found here. If that thought does not appeal, how about waiting for the Walmart “Get On The Shelf” contest to come around again? From time to time, Walmart invites “inventors, tinkerers, thinkers, marketers and everyday Joes” to submit their ideas for scrutiny. BeatlesAnything seems to go these days, as traditional channels of getting business done are reduced to direct contact between wacky inventors and grocery giants and newspapers move into the adult education business. Not that there is much space on those supermarket shelves. Ever since supermarkets decided that their own name belongs on those shelves as well via their house brand and private label product ranges, it tends to be getting pretty crowded on those shelves, with a distinct limit to how many “me too” brands are required. Consumers should welcome that as it narrows the selection typically down to the premium FMCG brand, the retailer’s product and one of the second tier suppliers, just for good measure. Unless, of course, the retailer has a budget line as well as a premium label  he wants to make available. Three is already a crowd. Four becomes a mob – and unmanageable. Luckily, we don’t get to see those positioning exercises too often in the fresh produce area. For now at least, anyway. I seem to recall that supermarket product ranging trends tend to start in the centre grocery aisles before they spread to the perishable departments at the edge of the store. Oh well, The Guardian class starts on Saturday. If you hop on a plane tonight, you will get to the UK on time!

Alternatively – talk to us.