In today’s Britain is there a place for the independent food retailer?

28
Nov
2016
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Our guest blog this month is from Edward Berry from The Flying Fox and is a write up of the presentation from our event at Food Matters Live 2016.

The Flying Fork is an independent food consultancy providing a range of commercial advisory elements to food retailers and producers.

My talk includes items I have researched, observations and ideas. You do not have to agree, but as people who are committed to good food, seeing it well sold and enjoyed, I hope that we can find some common ground for discussion.

So, the stats. I have used numbers provide by IGD, Institute of Grocery Distribution and the Office for National Statistics and other bits and pieces. Bear in mind that the independent sector is quite varied, and does not easily provide statistics to the sophistication and accuracy of the multiples and other sectors.

First the bad news. We are spending as a nation less of our income on food and currently spend less than Norway, Australia, France, Belgium, Italy, Croatia, Denmark, New Zealand, Israel, Austria, Canada, Spain, Holland, Germany, Portugal , Ireland, and many more. However the grocery sector in the UK is worth £177.5 billion or 51.3p in every £1 of retail sales. Growth has slowed in recent years from a peak of 4.9% in 2009 to 1.7% last year. And by 2020 it is set to grow by 13% in total to £200.6bn. Of this there are no surprises as to who sees the vast majority of transactions. 40% is in Hypermarkets and superstores , 20% in small supermarkets, 21% convenience stores with less than 3000 sq. ft., 13% discounters, the new but growing sector with Aldi, Lidl, Netto, 5% on line, including on line sales through the supermarkets (or £9bn) and 6% on others…independents, farm shops etc. In total, the independent trade see about £19bn in sales, or 10%, although if we are looking at the speciality sector, this is more like £4bn. So our massive grocery story is for the speciality sector a rather small 2%.

Various population trends and projections can be identified that affect spend and influence purchase. It is clear from data available that the UK will not only have a larger population, but a demographically different one too. Between 2016 and 2031 the population will grow from 64 million to 71 Million. In the same period the population over 65 will rise from 15% to 22%. By 2033 the number of people over 85 will reach 3.2 million. The number of single person households will increase by 60% by 2031. An increase in older and single person households can affect the desire to cook proper meals but produces opportunities for those that sell ready meals. There is a slight dichotomy that suggests that old and single folk would prefer to order everything on line for convenience. However it can also be argued that this is at odds with the personal touch – for some living alone, regular food shopping might be a principal connection with other people- and is better provided by small, local independent traders.

The UK will also continue to become more ethnically diverse, offering opportunities for those that sell imported products with broader tastes.

Overall food and drink spend has risen by 2% since 2006. And on average households spend £38.08 per person per week on food and drink of which £11.33 is spent eating out.

The Food market is competitive, affected by the economy, demographics, rationality, habit and convenience.

I don’t want to make this a supermarket bashing exercise, but we all see the way some operate. However there is only one real casualty…the independent food retailer. .

The big four titans – Tesco, Sainsbury, Asda and Morrison’s publicise every step of the way, value coordinating, offering cash back, engaging buyers who need all the more value for their money – yet while we realise that cut value bargains can’t in any way, shape or form lead to high quality, we don’t generally see the bigger picture and how such huge price wars affect our local community. Shopping habits in the course of recent years have changed however it is to the disadvantage of the local community and the local retailer. Comfort has assumed control, with individuals avoiding excursions to the shops.

However there are opportunities and in varying food retail sectors.

For example – a new report by AHDB (Agriculture & Horticulture Development Board) Beef & Lamb has shown that independent butchers have added a total of £555 million to the British economy, as well as contributing significantly to employment in the food and drink market

The report, conducted by Trends Business Research (TBR) also found that the sector generated £2.3 billion in turnover in 2014 and has adapted to the changing needs of customers well, offering advice and convenient options to their customers.
In England there are 5,240 independent butchers, accounting for 2.2 per cent of all retail firms and 8.4 per cent of all food and drink businesses.
The perception of independent butchers’ expertise among customers is also incredibly encouraging.
Independent butchers are ideally placed to offer advice on what to try and how best to cook it.

Morrison’s own goal with Hugh Fearnley and the parsnips has nothing but “buy local and support farmers” written all over it, the horsemeat scandal demonstrated the impact of the constant energy put into making food cheap, with dire consequences. To my mind the major supermarkets continually undermine each other’s activities, attempting to beat each other on price and simply moving market share around.

Post the 1970s a decline in the number of greengrocers, bakers and butchers continued unabated, within in one year between 2006 and 2007 recording a decline of 5%. However we have also seen from 2005 to 2010 the number of shoppers specifically buying local produce increasing from 15% in 2005 to 38% in 2010 and 42% last year. Whilst previously freshness has been the prime reason to purchase, a most recent survey by IGD found that supporting the local /British economy – helping producers, retailers and jobs – is the most popular reason to buy local produce. All these reasons that relate to the local economy have almost doubled in importance to shoppers since 2008, indicating that shoppers are prepared to rally to support their communities in time of need. Alongside, good value is reported as an important reason for buying locally, but over 40% of local shoppers also said they were prepared to pay a premium for locally produced foods.

The number of independent retailers across the UK has soared year on year, rising by 110% in the past five years according to new sector analysis.

The annual High Street Tracker report from Simply Business analysed over 69,000 independent retail outlets across the UK and it identified a consistent rise in local, small businesses. The biggest increase has taken place in the North West.

Overall, the biggest surge was seen in 2012 (46%), following the publication of the Portas Review by the Department of Communities and Local Government and the Department for Business Innovation & Skills.

In 2014, coffee shops emerged as the most popular independent store to open, with more cafes established than any other retailer and rising by 31% over twelve months. Together with independent food stores – the most popular in 2013 – the number of these independents has risen by 100% between 2010 and 2014.

FARMA, The National Farmers’ Retail and Markets Association, which represents about 300 farm shops, says that many members have reported a 5-10% increase in turnover this year.

Some analysts expected the burgeoning sector of small food-and-drink companies to be decimated by the financial crash of 2008. Surely tasty treats from the local deli would be the first casualties as household budgets were slashed. In fact, the reverse has happened. The sector has not only survived, but prospered, partly due to the change in shopping habits provoked by that same recession.

After 2008 many consumers started shopping at cheaper supermarkets, such as Aldi and Lidl. Customers also started buying in bulk online. However, in contrast to previous downturns this time people continue to buy basic products at the cheapest price, and spend the money they save on products that are better quality. “Promiscuous shopping”, as the analysts call it, is replacing the traditional once-a-week trip to an out-of-town Tesco or Sainsbury’s. Those retailers are therefore being squeezed by Aldi and Lidl undercutting them and the farm shops taking business away at the top end, albeit still on a modest scale. Small producers are doing very nicely.

Independent businesses in the UK are also capitalising on the nation’s growing ‘foodie’ obsession, resulting in a surge of small food retailers.

In a welcome break from High Street doom and gloom, a study by insurance firm Simply Business has shown there are now a quarter more independent food stores than there were a year ago, with bakeries and fishmongers the most popular new enterprises.

Analysts believe that the figures are partly down to shoppers voting with their stomachs in the wake of the ‘Horsegate’ scandal, which resulted in a backlash against supermarket chains.

The business insurance broker studied more than 40,000 British independent retailers and discovered an increase of 27 per cent in food and drink merchants year-on-year across the nation.

These range from a 31 per cent rise in bakeries to a 10 per cent increase in wine merchants.

There has also been an astonishing 65 per cent rise in independent supermarkets, which includes small delis and grocers, but not chain supermarkets or brands like Londis or The Co-op.

London has seen the largest growth in food businesses by far with 20 per cent of the new independent shops located in the capital, leaving many other parts of the country trailing behind.

In fact, while there has been a 13 per cent increase in independent health food stores in London, there was an average fall across the rest of the nation.

While we can see a national increase of small businesses making the most of the “foodie” revolution, it’s clear that London has seen the more concentrated side of this growth spurt as they positively emerge from our economy’s downturn faster than other regions.

Consumers have grown up watching Delia, Nigella and Jamie slicing, dicing and occasionally mincing away. Supper has become a conversation – where it is sourced, how it was cooked and what is it matched with. Customers are becoming inquisitive and interested about what they put in their bodies, not only from a health perspective but also from an ethical one.

A major challenge is marketing and the power of the big player. Now for some time I worked for a large farm shop driving demand using the major selling points of the independent rural based food retailer – local, seasonal, artisan, home made, baked on site and real people – farmers, shepherds, pig farmers and locations – orchards, fields, gardens, – and you name it, the supermarkets have systematically taken these words and messages to their own uses. An east London pop-up market would not usually be associated with a discount supermarket but this concept formed the setting of a company’s £20m ad campaign. The TV advert showed people visiting a specially constructed farmers’ market and are wowed by the low prices of the goods considering the quality of the food, and the crunch comes when they are handed the produce in a Lidl-branded bag.

The stunt is a way of convincing people the discounter’s food is just as high quality as that sold at farmers’ markets. Mmmmmmmmmmmm. Enough said.

On Thursday of last week I found an article in The Grocer – saying that The Co-op has vowed to double its number of local suppliers to 1,200 by the end of 2017 to quote “foster closer relationships” with small businesses.
Retail chief executive Steve Murrells said the initiative, which comes as part of the Co-op’s strategy to back British produce, which would give local food “pride of place on our shelves”.
“We know our customers care about the provenance of their food and are keen to champion British products wherever they can,”
Food minister George Eustice gave his backing to the scheme. “From family-owned microbreweries to local vegetable suppliers, small businesses are the heart of our food and drink industry,” he said.
“It is great to see a major retailer like the Co-op supporting local suppliers and producers, bringing a real boost to communities around the country.”Well, let’s just see.

So what is the independent food retail sector? To evaluate it, we need to know it. Who are its heroes, exemplars, successes and models for us to consider when asking if the sector has a future?

Now, I am not just going to bang the drum for local. I am equally passionate about the foods of the world and whilst that may not be the flavour for some, I do believe that commercially with the scope of the feasibility of independent retailing, it can’t be ignored.

High profile delicatessens – often originally set up to cater for the growing international community – French, Italian, Spanish, and Polish. – I have spent many hours and too much cash in Garcia on Portobello Road sampling Iberico ham, manchego, olives, tortilla, beans and those great salty crispy corn kernels. And as we have as a nation travelled and tasted, so our appreciation, and dare I say appetite for the foods of the world, have made us seek out these special places.

Demand has also increased for organic, locally sourced, additive free, allergen free, Fairtrade – and these outlets have been in a good place to respond.

I have a challenge for food retailers that I really only see in this country. Now I am reasonably well travelled and as far back as I can remember I have always looked for food when travelling – markets for example from the familiar French staples in medium sized towns with plenty of local cheese and charcuterie, to the massive Boqueria in downtown Barcelona to the sensory challenges of Asian markets with fish, spices, herbs and lots of noise. But, in this country there seems to be an assumption that good food is for the middle classes, to like food and pay a bit for it is somehow elitist, and not for all. Now we all know what a high end food store looks and feels like. Dean and Deluca was set up for the New York spenders. But not all food sold in independent food shops is posh, or expensive. In fact there are more than enough reports encouraging better value in markets than supermarkets. We have been forced to think that food should be cheap and only bought when on offer, that good food is an untouchable. I have seen it first hand, when I owned delis in London and Wiltshire, nervous eyes looking in shops , seeing a deli counter with great cheese, and moving on swiftly, with a “it’s not for me” look. But why? Was it scary? I wanted to grab them, give them a taste, a little but not too much knowledge, some fun…and unless I have missed something, I don’t see this issue elsewhere. Food is for all in other countries. It may be a cliché, the Italian working family eating together, enjoying food, cooking, sharing, and probably eating as well as anyone else in their country.

I would hope that the sheer volume of food on TV would help our cause. Now I remember the early days of chefs attempting to bring their recipes to the home cook. Disastrous. And it’s pretty clear why. When I was cooking at the Savoy Grill in the early 80’s we used the traditional culinary techniques developed by the likes of Escoffier, which meant endless base sauces for example. So along come Johnny chef, or Jean Pierre, to write his book, and he goes straight to his own cooking experience and starts his recipe with first roast ten kilos of veal bones – well you get the idea. Today it’s easy, with premade sauces and Jamie’s 15 minutes and everyone else. Curiously despite this the ready meal market grows to the £2.6 bn it is today. But perhaps our independents can have a little of both – the cook and the convenience shopper.

There has been some speculation that the media has exaggerated the extent of the economic doom and gloom and thereby effected a greater reduction in consumer confidence than is perhaps necessary. Let’s face it, if you have a job, you will have seen interest rates low helping the cost of your mortgage, some cheaper oil and fuel, low inflation, low CPI and at the lower end increased wages. So not all bad. However government figures have shown that net disposable income had fallen, confirming lack of spend, and if interest rates rose the effect on mortgages could make disposable income even worse.

Overall food and drink spend has risen by 2% since 2006. In general price affects purchase in three ways..trading down i.e. finding a cheaper version of the same product, buying less, i.e. smaller amounts of the same product, or spending more i.e. accepting the price increase – same amount – same product.

However decision making behind purchasing is more complex than a simple calculation – there is need, as in how important is it, and desire – there are some products – treats for example – such as chocolate and confectionery that experience increased sales despite price rises. Then add nutrition, health, cultural and religious practices, food availability – seasonality, food preferences, social considerations, environmental considerations, the power of advertising and special occasions and of course cost.

So, cheap food. Now during the Horsegate scandal, in which if you recall certain high profile products, and brands – burgers and lasagne were identified as having traces of horse DNA as detected by the Food Standards Agency. Anecdotally there was a spike in sales of meat from independent butchers. Now at the time I had responsibility for a butchery selling estate reared meat, with a turnover of £1m. So, as good as it gets, reared in the surrounding fields, hung and butchered and sold to a good number of regular customers, passing trade and seasonal visitors. So when Horsegate broke I was asked if we had seen an increase in sales. Now I saw a number of butchers display posters proudly announcing their own traceability, and I am sure to good effect. But us, it made little if any difference. And why? Well, if you buy value burgers from a supermarket, at say 12p each, you are a long way from a quality product at more like £1.00 or £1.50, so are unlikely to make such a big leap.

Low price is one of the most important weapons supermarkets have. Although shoppers can buy a full basket of fruit and vegetables from their local market for less, in the main, the supermarkets are consistently cheaper than independent shops. They do this by being big, and being able to negotiate harder with their suppliers.

But the independent has much to offer.

If regular customers get to know their independent trader they should be able to recommend products. For example, if they have a particular dietary requirement they can be great at telling shoppers all about products you may wish to buy.

Local bakers throw in extra rolls for regulars; grocers give informal 10% discounts; and market stall holders are prepared to negotiate on prices. Independent retailers can use their discretion to reward regular custom, and it can mean customers getting – now for the big shock- discounts on the items they actually want to buy, rather than being tempted by multi-buy offers in the big chains.

And another issue – many independent shops cannot compete because they cannot offer free parking, an important element in a convenient shopping experience. I spent some time selling and marketing wines, and had seen the demise of the high street wine merchants’ chains – Peter Dominic, Augustus Barnett, Bottoms Up, Threshers, Victoria Wine, – leaving primarily Majestic – and I had asked the previous CEO what was the reason for their survival against the odds. He had only one answer and it wasn’t product or price based – but parking! One of the recommendations of the retail guru Mary Portas’s review into high streets, commissioned by the Government, is that shops would thrive if the council waived parking fees for much of the day. Hardly any council has acted on this advice.

Major retailers have the advantage of economies of scale and can afford to slash prices and offer reduced costs. However, it’s easy to waste money on products shoppers end up not actually liking. You can hardly crack open a bottle of fizz in a supermarket aisle and do a quick taste test, or check if an apple is crunchy by taking a big bite. Neither can you do this online. At independent retailers, however, it’s easier to ask to sample a product. Many independent off-licences throw regular wine tasting events, while farm shops, bakeries and delis hand out tasters as a matter of course.

So – as expected mixed messages. What opportunities are there for the budding food retailer? In my experience these brave folk come in various guises. The passionate foodie who loves the idea of selling great food and thinks he or she can do better than the competition. The city type with a healthy bank balance and a desire to quit the rat race, the entrepreneur who sees a chain of stores in sight and the farmer who is sick of low milk prices or simply hopes to get more for his beef by selling direct.

Farm retail is probably the most exciting part of food retailing at present. As the ‘big four’ multiples set to work to undercut each other on price, farm shops prove that there’s a market for quality products, ethically sourced with values not only spoken but acted on. There are 4,000 (estimated) farm shops in the UK, and Defra has assessed that half of farms in the UK engage in some kind of diversified activity with farm shops being the most regularly profitable.

Some 30% of consumers visit a farm shop at least once a year, and 12% shop at a farm shop at least once a month. Farm shops are seen by consumers as supporting the local economy and ‘local’ has far outpaced ‘organic’ in recent years.

Customers are increasingly seeking out specialist food producers and Farm shops are opening at a faster rate than ever. The customer demand is based on a desire to understand and know the provenance of food, and for the food to be merchandised and sold in an authentic environment, coupled with personal service. There is also evidence of a genuine interest and pride in supporting local producers. People have never been so interested in quality local food and how it is produced, in freshness and in traceability. Customers are seeking out specialist producers and for some; there is a desire to reduce food miles.

Farm shops come in all shapes and sizes, the most sustainable at the moment are those offering what is known as a full basket shop – all the ingredients for a good wholesome meal, thereby making the journey for customers worthwhile, and then added to the experience is the opportunity for secondary spend either in a café or children’s play area. Above all the Farm shop is not seeking to replicate the supermarket.

Regions with tourism also see demand for locally produced gifting items and for this, a local farm retailer is an option.

The economics suggest that keeping customers on site is the key, and the closer to an urban location the site, the greater the offering that can be developed. The plan to keep the visitor on site needs to be achieved with a range of offers and activities, building as much a destination as a food shop.

High street and town centre Delis are evident throughout the country, and we all know our favourites. However for me, as a former owner, now advisor and sometime awards judge, success or failure cannot be put down purely to juggernaut supermarkets and the economic climate. Unlike supermarkets, these are not about familiarity and standard brands. In fact if anything, the independent’s mantra should be to do what the supermarkets cannot do. React swiftly, be flexible, give the highest level of customer service with that special touch, stock small production foods, home made foods, champion the serve over counter with cheese cut to order, whole carcass butchery, fresh fish, local and seasonal fruit and veg.

So, advice for the next generation…

Those entering this commercial environment need to be on their toes, with no illusions. When I visit delis and farm shops I expect innovation, research, a bit of risk. If I see the same old brands from the catalogues of the same old wholesalers, I am disappointed.

The old location bit is hugely important – access, visibility, footfall, demographics to meet your offer.

Obvious, but many follow the dream…to own a deli, but fall over on a full appreciation of the numbers. Now it’s fine to go in with the passion, but cover the bases, with help if necessary. Know how much you need to take each day, what is your break even, if you are a tenant, which most are, have a good lease, know how much rent you have to pay. Rent may not sound much, but it has to be paid every month or quarter, and that’s without business rates. That lovely small deli, with perhaps only 800 sq.ft looks fun and well stocked. But you probably need to take at least £500 every day not to lose money. So a cold Monday in January when only twenty people cross the threshold, and spend only £10 each, that’s a challenge…Cashflow has to be fully understood. It’s what keeps you going, and the bank off your back.

Be prepared for staff – both as a cost to the business, and the front line.

Retail Theatre is probably a little over used in our world – and a bit ambitious, in particular if you don’t get that a customer just wants to buy a loaf of bread and leave. But actually some entertainment is a possibility, some excitement, a surprise, a treat, a sensory experience – so yes, perhaps theatre. It’s not easy, and we British shoppers are a tough nut. Suspicious, cynical, reactionary to the American shop assistants style. We can smell the genuine from the fake. Know your product, and you will win loyalty. Harness the passion, and close the deal. An attractive display is a wonderful way for a food shop to tempt its customers to make a purchase.

In my experience there are constant challenges to running a food business where passion for product dictates selection above a real understanding of customers, their requirements, habits, boundaries. I am sure that in London for example you could build a business on bottarga, dulse and argan oil but regionally consumers are perhaps at a different stage, but more importantly are quite conservative. I have had many discussions with producers introducing not only new product, but new categories, and that’s a challenge. Its got to sell off the shelf. Good selection does not always have to be comprehensive. I’d rather go to a shop which had a handful of discerningly chosen foods at their best, than somewhere that has a large but indiscriminatingly chosen range of dull stock.

We can’t ignore food trends and independents can be the go to places for the most exciting. I was on the tasting panel at Bread and Butter Fest the weekend before last, and if you didn’t know that healthy – natural health and added health benefits weren’t a trend, believe me they are. Mind you, that’s also from the producers perspective. Half way through the morning, I was dying for some indulgence! So health and perhaps health and pleasure – naturally balanced and indulged (not sure what’s in that category – good chocolate perhaps) , also quality – consistent brands with compelling stories, and levels of sustainability, the local versus global paradox still challenges us, tradition with innovation, meal mobility – portable and easy to eat – the authentic bakery – real scratch baking – not the loaf tanning salons of some larger retailers.

Establishments that offer examples of how to create alluring displays with food, whether it’s with baskets of fresh fruit, piles of meringues or a great display of chocolate truffles.

My favourite shops are those where the staff really like what they sell and know about it. Neal’s Yard Dairy leaps to mind as a prime example of a shop offering excellent well-informed service – friendly and helpful without being either fawning or pushy. As the artisan cheeses change from batch to batch, customers are freely offered tastings so they can see for themselves.

An unobtrusive level of knowledgeable expertise makes shopping a pleasure

Just as in a restaurant, bad service can cloud enjoyment of a meal, however good the food was, the same applies to shops.

Supply chain needs consideration. Maintaining well stocked shelves with in date produce at all times is a challenge. Out of stock suppliers, erratic delivery times, damaged goods, short dated stock, an abundance of orders to process and invoices to pay.

So, stock that is kept in good condition. Spanking fresh produce that makes you want to buy it when you look at it, an array of cheeses that have been well looked after or an inviting display of fruit and vegetables are all sights that gladden my heart.

Conversely, however, food that’s not been looked after is frankly off-putting – whether it’s a sad piece of dried out cheese, lacklustre fruit and veg..

Don’t over-order and keep a close eye on shelf life.

Know your customers. It doesn’t matter if cappuccino popcorn is in if they prefer salt ‘n’ vinegar crisps.

Trust your judgement. Does it taste good?

Marketing is a broad subject and even the local food retailer needs to have a plan, whether it’s about local PR, internal and external signage, events, promotions, social media, newsletters and announcements – loyalty programmes, seeking awards, it all needs attention.
Conclusions

The rise of independent food and drink retailers may demonstrate a consumer backlash against national supermarkets and an increased desire to buy local produce.

With a number of recent high-profile food scares, consumer confidence in the quality of supermarket produce has dipped. We’re glad to see the positive impact of this for small businesses, with shoppers turning to more local, independent food merchants for produce and essentials.

The surge in independent food shops exemplifies the nimble nature of small businesses as their success is often determined by smartly tapping into growing trends at the right time.

I hope these independent food and drink stores will profit from consumers moving from established supermarket chains in favour of their local providers who breathe new life into community high streets. Independent businesses are vital to the ongoing growth of the UK economy.

To assume that the supermarkets have it all is incorrect. But the independents have to fight back. Champion the small producer, give customers a treat, entertain them, build their loyalty not just with cards and points, but with a genuine reason to return. It’s not easy, I know.

Thank you.

Edward Berry