Urban Food Chains

the links between diet and power

Pricing experts?

Ask any economist and they will tell you that economics is a science, founded on mathematics and using none but the most reputable methodologies known to  data science. The acid test of any scientific discipline is to be able to replicate previous experiments and repeat the results to within an acceptable margin.

To be sure, if you take the same data and crunch the numbers using the same calculations, you will get the same results as the previous economist. But economists are a diverse bunch, not to mention the smørgesbord of economic policy recommendations to be shared as the opportunity arises.

If this sounds less than serious in its tone or intent, it may be that it is not written by A Proper Economist (always spelt out in full, never abbreviated).  A Proper Economist can be relied upon to analyse market data and forecast the likely price trends within a given sector. If, on the other hand, you wanted to know the retail price of a grocery line for the coming year, that would be a closely-guarded secret between a supermarket buyer and her (or his) supplier.

With the digitisation of the retail checkouts in the early 1990s came a tidal wave of sales data that  probably paid for itself in months, if not weeks. For the first time in recorded history the multiples knew exactly how many units of which lines they were selling; where they had multiple suppliers of own-label products, the multiples could start to make direct comparisons between suppliers and the margins they were generating. Individual suppliers knew what volumes each was shipping to retail customers, but only the category managers had the whole picture.

The supermarket buyers’ secret weapon of choice in those days was a miniature tape recorder and microcassettes, to which verbal contracts worth millions of pounds were recorded. If any hard copies were ever made, these would have been kept in a safe. Supermarket buyers and category managers are overlapping roles. They were always instantly recognisable at trade fairs, leaving suppliers’ stands with their tape recorder pressed to their ear, playing back the small print as it was wrung out of the supplier. There was no question of suppliers passing  on price increases arising from higher prices on the international markets: the standard response in those days was: “find cost savings in your business…”

Not that buyers ever applied that principle to their own dealings with suppliers. Food manufacturers presenting new ranges and products to multiple retailers would face requests for a listing fee and, often as not, a request for special offer stock. Listing fees were also referred to as hello money or  shelf money, among other names. They used to start around £5000 per SKU for listings in an agreed number of outlets. Shelf money was never refunded if a product was delisted, but would be requested for years to come during the life of the listing.

Special offers were not what they might have appeared to be, either. The retailer charges the consumer for the special offer part of the price. But does the multiple give away the offer component of the price? Hell no! They recovered that from the suppliers, who systematically funded the offers, providing free stock directly or having the equivalent money withheld from invoices for other products. Either way, the retailer banked the full price on special offers. From the retailer’s point of view, it is having your cake and eating it. Even though the Grocery Code Adjudicator’s office has cleaned up the retailers’ act, the industry is still haunted by the ghosts of past sales targets.

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Every little hurts…

European food retailer Tesco has group sales of more than GBP 50 billion and saw its profitability soar by nearly 60%. The group is active in eastern Europe as well as the UK, where it operates convenience buying group and wholesaler Booker foods in addition to the ubiquitous supermarkets. Here are a few headline figures from its annual report.

[wptb id=787]

To give an idea of the scale of these results, the 2021 GDP of Rwanda was 11.7 billion USD.

Tesco financial 2022 results are available at https://www.tescoplc.com/investors/reports-results-and-presentations/annual-report-2022/, the Rwanda GDP figure supplied by Google based on World Bank data.

Eustice shopping tips
George Eustice (photo: UK parliament/free to use)

When trying to save money while shopping for food, stating the blindingly obvious is not going to go down well. Food and farming minister George Eustice (pictured) take note. For those who frequent the supermarket aisles at regular intervals, there is no need for well-paid MPs to chip in with their two pennyworth, as reported in The Guardian this week.
Supermarket shelves are laid out to make it easy to spot cheap products, so advising shoppers to consider cheaper fighting brands is unnecessary. Just saying that simply trading down will enable shoppers to “…contain and manage their household budget…” is rubbing salt into the wounds.
Possibly more damaging to his ministerial credibility was Eustice’s assertion that the UK has a “…very competitive retail market with 10 big supermarkets…” resulting in “…a lot of competition to keep prices down.” Since all retailers face open-ended rises in energy and haulage costs, food is not about to get any cheaper. And that is before phasing in veterinary certificates and the cost of food safety checks on imported animal products.

Migros marks major milestone

Swiss retail giant Migros has achieved the first stage of its 2030 carbon neutrality plan. All the multiple’s retail premises have completed their transition to become carbon neutral.

As the country’s largest food business and retailer, Migros operates the lion’s share of the national retail park. It has been a dominant force on the national retail scene for decades.

Between now and 2030, Migros will cut a further 80% of its greenhouse gas emissions from its business activities, including its extensive food manufacturing arm.

Instead of buying carbon credits to offset its remaining environmental overheads, Migros will “inset” its remaining emissions. One example of this arrangement is a project working with 1,000 Thai peasant families to raise the environmental standards of their rice growing. For instance, there are gains to be made by not flooding paddy fields, which area significant source of methane emissions. The result is a contribution towards a potential reduction of  60% in  the crop’s carbon footprint worldwide.

Nose before yes, says Morrisons

Yorkshire-based supermarket Morrisons is going to give up using best-before dates on a lot of its liquid milk lines and is telling customers to sniff the milk as they take it out of the fridge and make their own minds up as to whether or not it is fit to drink. The story appeared on the BBC, which added that milk is one of the most heavily wasted foodstuffs, with 490 million pints being dumped every year, 85 million of which is slung out because it had passed its best-before date. Properly managed refrigeration can keep milk wholesome beyond this time, which is a suggestion not a statement of fact.

Shaken, not stirred

The EUR15 billion Campari group has been talking to the FT about shifting the focus of its marketing to drinking at home, since the pandemic has all but shut down the hospitality sector. Campari reckons that indoor drinking will remain a growth area in the cocktail market, even after the pandemic subsides. Here is an improbably long link to the story in the FT, with no guarantee that it will will work for very long, if at all.

https://click.news-alerts.ft.com/f/content-e9e38332-9762-48cd-b206-b030b2707d6f/HgxNZkS8LqpL8e8zCHJ1bA~~/AAAAAQA~/RgRjvkEiP0ShaHR0cHM6Ly93d3cuZnQuY29tL2NvbnRlbnQvZTllMzgzMzItOTc2Mi00OGNkLWIyMDYtYjAzMGIyNzA3ZDZmP2Rlc2t0b3A9dHJ1ZSZzZWdtZW50SWQ9N2M4ZjA5YjktOWI2MS00ZmJiLTk0MzAtOTIwOGE5ZTIzM2M4I215ZnQ6bm90aWZpY2F0aW9uOmRhaWx5LWVtYWlsOmNvbnRlbnRXCGZpbnRpbWVzQgph1SK822HozVHBUhRwZXRlckBjcm9zc2tleS5jby51a1gEAAAAAA~~
Filling their boots

UK food retailers have filled their boots selling olive oil. These days they are taking a gross margin of between 30% and 40% on own label olive oil, somewhat less on branded products. Own label is more profitable because the retailer can control every last detail of the specification. But with today’s rising costs, the retailers have to curb their expectations. Besides, if Aldi and Lidl can sell extra virgin olive oil at around three to four quid a bottle, the mainstream retailers cannot afford to exaggerate their pricing.

During the 1990s the major multiples were skimming off 60p and more from every pound spent on own label extra virgin olive oil sold on a rapidly-growing market. This naked greed went unchallenged, since UK consumers trusted retailers to supply a grade of oil that merited the price being charged. No chance.

The sales director of a UK oil packer told me of his experience in those days with an own-label project with one of the big four. “I sourced an attractive bottle and filled it with a reasonable grade of extra virgin oil.” The multiple concerned stood to earn 66p in the pound on the SKU. “When I presented it to them, they turned round and said ‘fill it with shit and we’ll make 75%.’ At which point I put the samples back in my case and walked out.”

revised November 27 2021.

Knock, knock…

The French finance ministry announced the other week that it had raided a number of multiple food retailer head  offices and some of their suppliers. In a terse staement dated November 9, the competition authority warned that it is not going to identify the retailers concerned and will not risk compromising the investigation.

In similar raids in the past, inspectors of the Direction Générale de la Concurrence, de la Consommation et de la Répression des Fraudes (DGCCRF) have carried out raids without warning and gathered thousands of invoices and other documents within 12 hours. Known as the “répression des fraudes” the DGCCRF has a justified reputation for being ruthlessly efficient.

P… R… no Q!

Switzerland’s biggest retail cooperative, Migros, is eliminating supermarket checkout queues. Customers using the Migros “subitoGo” application can scan their purchases on their smartphone and leave the store without further ado.

The system will be tried out at 80 outlets and rolled out if it proves successful. The software also links into any shopping list that might have been prepared before leaving home; fewer chances of leaving the store without a full complement of shopping.  SubitoGo combines the Italian word for suddenly and Go.