Time for Norfolk producers to demonstrate their value to the surging supermarkets.
By: Justin Wright Date: 30 January 2017
Category: Press Release,Food and drink
Justin Wright, a member of our specialist food and drink team, says that strong sales figures from the major supermarkets reveal some opportunities for our local producers.
Despite concerns about Brexit, the crisis in the NHS and Donald Trump becoming president, consumer confidence is somehow remaining high – and no sector is demonstrating this better than food and drink.
A rash of supermarket results in January showed strong growth in sales, although the picture was not uniform. Big winners were Aldi with a 15% growth in December sales (albeit with 11% more stores than last year), Morrisons which reported a 2.9% increase in like-for-like sales in the lead-up to Christmas (although this was on the back of a two year restructuring programme), Waitrose at 2.8% and Tesco, which saw a more modest but nevertheless respectable 0.7%growth (food sales were up 1.3% but on the back of poor recent results); Sainsbury’s, meanwhile, saw just 0.1% like-for-like sales growth (although even that is an increase) but, food sales actually dropped slightly. M&S food sales grew by 0.6%.
These figures are important for producers because the last few years have seen a definite ‘squeezed middle’ in the food retail market, with top-end supermarkets such as Waitrose and M&S doing well, alongside spectacular growth among the discount retailers.
Even for smaller producers which don’t do business with the supermarkets, these trends are important. The big chains have such a big share of the market that what happens in the aisles of Sainsbury’s, Tesco, Asda and the rest will inevitably be reflected wherever consumers are buying food and drink. So what are the lessons that Norfolk’s producers should be taking from this latest round of results?
Although it might be easing, the concept of the ‘squeezed middle’ remains important. The luxury retailers and the discounters have largely been able to ride out tougher times because they have a very focussed USP and are targeting a very specific market.
At the top end, these are affluent consumers who are prepared to pay premium prices for products that they believe deliver a noticeably different experience. That might be a simple question of quality, but it is just as likely to be an issue of provenance, localness, ethical production or simply a nicer shopping experience and attractive packaging, in its widest sense.
Clearly, the likes of Aldi and Lidl have tapped into a market which is very focussed on value, often driven by the simple fact that some consumers are struggling to make ends meet. Aldi opened 70 stores last year with another 70 planned for this year so they clearly feel that there is more market share available.
The lesson for producers here is the importance of developing a unique proposition which is aimed at a particular market – if you are simply a me-too, middle-market producer, you are likely to fall between the cracks. Your USP might be to do with the quality of the product but, more likely, it will be based on your product’s story; because, increasingly, this is what the discerning consumer is looking for.
One other take-out from last month’s flood of retailer results is that inflation is once again starting to creep into the food sector – the first real impact of last June’s Brexit vote. The huge devaluation of the pound has led to some pretty hefty rises in input costs for many food producers and that is now finding its way onto the weekly shopping bill.
For local producers, using local ingredients to make their products, this represents an opportunity to be more competitive because, for them, the impact of a weak currency will be small.
This could be the time for Norfolk producers, who don’t rely on imported inputs, to take the plunge and demonstrate their value to the big retailers – because you can be sure that the supermarkets will all be looking to replicate last year’s strong figures once again in 2017.