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February 12, 2018

The New Artisanal Economy

Yesterday (12th Feb 2018), the Sunday Times ran an article, confirming that Tesco’s had a plan to compete directly with Lidl and Aldi. Today, Bloomberg published data identifying the UK as the front line in the global grocery war. Category management and shopper marketing will have its part to play.

According to Bloomberg (13th Feb 2018) “With 18 per cent of retail sales taking place online in Britain, the stakes are even higher than in the U.S., where the comparable figure is 12 per cent.” With Tesco’s share earnings per share declining by 36.5% in the last five years there is a need to fight back. By comparison, Next grew by 11.5% in the same period. In 2017 Amazons online sales grew by 29.7% with Sainsbury’s and Tesco’s achieved 6.5% in the same period.  In the same fiscal period, Tesco’s delivered over 45% operating loss in online operations. By comparison, Morrisons achieved a 5% operating online operations loss in the same period.

Since 2016 five forces have impacted on the UK grocery market:

  1. With a higher cost base for UK Grocers, new online entrants are experiencing lower overheads and a more benign tax regime.
  2. Prices are being driven down by the growth in online which physical stores have little to respond with.
  3. The arrival of the discounters is making it harder to manage product prices and promotions (by both traditional grocers and food manufacturers). Consequently, there is an acute pressure on margin performance.
  4. The result is that consumers are voting with their feet and buying groceries, more frequently at multiple outlets, both online and offline.
  5. The fourth disconnect for traditional grocers was the fall in the pound due to the European Referendum.

In that period profits in Tesco’s, Sainsbury’s and Marks and Spencers have almost halved.  However, the expectation is retail sales will only fall 0.4% in 2018 compared with 2.4% in the U.S. To alleviate this global market restructure, omnichannel has been promoted to focus grocers online strategies to engage the consumer. The issue remains that the consumer doesn’t recognise the theoretical borders presented by omnichannel.

Retailers will have to change their distribution model to grow. Which takes me back to the Sunday Times article announcing Tesco’s proposed plans to launch its own discount format. This development by Tesco’s may legitimise the strategy of the discounters and result in a zero net sum gain

So what about tomorrow’s consumer and shopper? How will category management and shopper marketing impact on choice? The choice will be the driver. Knowing where the shopper will be two years from now will shape many of the transition questions raised by FMCG in today’s trading environment.

There is growth in artisan products and services, often developed by millennials fed up with corporate responsibility. These new entrepreneurs are seeking to address a gap in the market. Consumers today are seeking more healthy food solutions as can be demonstrated by the growth in vegan diets, restaurants and products. These fresh challenges have to lead to new formats with more entertainment with greater provenance. The proliferation of craft bakers, brewers and of course, gin makers confirm where the consumer is heading. Handcrafted manufacturers are becoming very fashionable. Turning that fashion into a repeated behaviour for the product, outlet and retailer is the next big step.

Will this lead to the development of a compact agile retail destination to entice the shopper? Amazon is buying shuttered shopping malls across the United States and the explosion in Ai and VR technologies is combining with the consumers move away from Big Box retail formats. But the online formats aren’t having all their own way, with Unilever announcing today that it is withdrawing all online advertising from Google and Facebook. Unilever has taken this course of action to disassociate itself from the more anti-social and distasteful elements that sit alongside online advertising. As one of the largest online advertisers globally Unilever has a strong hand to play.

But what of those global food manufacturers, with a valuable stable of well known FMCG brands? This challenge is equally daunting as it is for the supermarkets. Some of those organisations are developing an entrepreneurial environment to develop or acquire an artisanal product to meet the demand of Generation Z.

Is this the start of duality? Are ‘Big Brands’ forming an entrepreneurial subculture within a big brand ecosystem to address the demands of new consumers in FMCG niche markets.? New markets require new products with new behaviours not readily available in the traditional FMCG model. New brands demand a less formalised P&L structure and a more agile environment in which operate outside the standard 4P’s matrix. Are ‘Big Brands starting to unwrap the traditional FMCG model and develop a more responsive and simplified environment to connect with the shopper?

Has the artisanal economy arrived? If so how are you going to respond?


David Edwards: Engagement Director

About the Author:

David co-founded Big River Solutions with his wife Christine in 2004 to address the emerging relationship between CPG technology, operational practice and process within category management and shopper marketing disciplines. Traditionally a siloed community with any CPG organisation,  David believes category management and shopper marketing value should be central to any client consumer engagement program.

Since its formation, the Big River team has become a trusted advisor to many clients across Europe and North America. Latterly, the Big River team has extended to Africa and Australasia. Next stop the Far East!

For an informal chat in the first instance call David

David can be booked for speaking events, after dinner speeches and sales conferences

Source: Euromonitor, Sunday Times, The Economist, Bloomberg, ONS, Economist 1843.

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