The occupational hazard of punditry is excessive intellectual output with insufficient intellectual input. We took a pause from Punditing to recharge those intellectual batteries, emotionally draining ever since my father was diagnosed with pancreatic cancer.
Part of the learning process is the obvious: reading, listening, thinking. But one big advantage we have always had is the fact that, like those who read this column, we are active in running a business. We’ve built a company from a piece of paper and a dream, and now the company is in the midst of its 29th year.
This past month, we spent most of our time in Europe, as we prepare to launch The London Produce Show and Conference on June 4-6, 2014. There was important work to do. Partly it was to visit Fruit Logistica, which we have been to before and have frequently recommended. Mostly though, it was to spend a month’s time in the United Kingdom, to begin doing a deep dive into the culture and the industry.
It is an exciting time for the produce industry in the United Kingdom, a time of great flux, and whenever you stand at the precipice of a sea change, there is a substantial opportunity for those willing and able to see beyond the present.
The market in the UK has been changing. To most foreign shippers, there were only four big retailers to sell, and for the last generation those four retailers were consolidating procurement through their preferred supply partners. Already famous for rigorous audit standards on food safety and sustainability, the UK market was a very tough one to crack. The heavy consolidation also gave the so-called “Big Four” substantial leverage on price and made profit opportunities skinny for suppliers. Many a shipper in production areas that were dependent on the UK, such as South Africa, made it their priority to diversify their customer base away from the UK.
That picture, though, only holds for those who do business through a rear view mirror.
Part of the issue is that retail is not the whole picture. There has been an explosion of culinary activity. The British have given the world much — the Magna Carta and so on — but the island nation was never known for great cuisine. Yet today, London is one of the top restaurant towns in the world.
British cuisine itself has been recreated with celebrities such as Jamie Oliver leading the way, and, of course, a substantial population from places such as India has made the city a focal point for Indian Food, but today it is often said that the English don’t even live in London anymore. Though not precisely true, there is truth in this.
Prime property has become too expensive. If you sit in the 5-star Grosvenor House where we are holding The London Produce Show and Conference, you see Arab sheikhs in flowing robes, Russian billionaires with platinum blonde girlfriends and an extraordinary array of the world’s most affluent… more than you see English folks. These people have created demand for incredible cuisine and hip venues. Yes, there are plenty of places to get fish and chips, but there are lots of people at Novikov or Hakkasan. Take a look at the produce always on display at Novikov, which is said to be London’s top grossing restaurant and is owned by Arkady Novikov, Moscow’s largest restaurateur:
So, today, the Fresh Produce Consortium, with whom we are presenting The London Produce Show and Conference, estimates that fully 40% of produce in the UK goes through the foodservice or wholesale channels. That’s a big chunk of business without factoring in retail at all.
The retail sector is also undergoing extraordinary change. There is basically a trifurcation of the market, with a booming deep discount sector. German retailers Aldi and Lidl are steadily eating into the market share of the Big Four. At the same time, the carriage trade retailers, such as Waitrose and Marks & Spencer, are boosting share, Waitrose in particularly.
In addition, you have lots of smaller cracks in the Big Four hegemony — American chains such as Costco and Whole Foods have footholds but also online services, such as Ocado.
The Big Four thus find themselves in between a growing top and a growing discount sector — and the middle is not typically a sweet spot for retailing.
This is leading the Big Four to change, and for the moment at least, much of the change is focusing on procurement, which is leading to dramatic new opportunities. Basically, over the past few decades, large chains that may have had 15 suppliers in a category, such as grapes, have consolidated that to two. Yet now the large chains no longer want to work with selected importers; instead they are looking to buy direct from producers around the world. This means shippers who never had a shot at a PO from, say, Tesco, suddenly have new opportunities. Give it a few years and the same chain that had 15 suppliers and shrunk down to two will be back at 15. Opportunity does not only knock in developing markets.
Of course, procurement changes may or may not be effective at helping the Big Four compete with Aldi and Lidl. It’s always easy to think one can cut out layers of expense, but it often turns out that those plans underestimate the value contributed, in this case, by importers who tied themselves at the hip to big retailers.
One wonders if in the search to navigate the new retail environment, one of the Big Four won’t become really bold and try some totally innovative merchandising. The UK has traditionally been a private label market, but we suspect there is a big win out there for some retailer who is willing to focus completely on brands.
Maybe Morrisons, whose sales results have been weak lately, would be willing to steal a page from Bruce Peterson. When Bruce started Wal-Mart’s produce program, he wanted to ride on the brand equity of his vendors, so, for a long time, the Wal-Mart produce selection reflected Bruce’s understanding of consumer brand acceptance. For years, for example, Wal-Mart exclusively carried Chiquita bananas.
One advantage of private label is that it enables a chain to differentiate itself, but in a market that is all private label, going branded might be a big win as a differentiator. Fortunately Bruce will be presenting at The London Produce Show and Conference, so both retailers and vendors will get a chance to see how this transition might work.
Of course, the big branded players probably need to reawaken their focus on the UK market to nudge this along. Perhaps a firm such as Morrison’s would be quicker to take such a leap if it could be assured of marketing and promotional support for the brands. This Pundit grew up in an age when television was filled with commercials saying, “A Dole banana is a great banana, and it’s great because it’s Dole!” And the Pundit Poppa would sing the commercials of his youth that “I’m Chiquita banana and I’ve come to say, bananas have to ripen in a certain way.”
Much as it said that generals are always fighting the last war, businesses tend to set up their organizations to serve the trade as it has been, not as it will be. When a market is in flux, as the UK market is, though, using last year’s organization to meet the challenges of the future guarantees that one will miss opportunities.
If you want to position your organization to take advantage of the tumult in the UK, then let us know here if you would like to consider exhibiting or sponsoring.
And click here to get information on attending.
