Executive summary
“And he gave it for his opinion,
that whoever could make two ears of corn or two blades of grass to grow upon a spot of
ground where only one grew before, would deserve better of mankind, and do more essential
service to his country than the whole race of politicians put together.” –
Jonathan Swift (1667 – 1745).
The Food Industry is viewed as a dynamic
market with peculiar problems dependent on product moved and route to market. From very
short lead-times to concerns over raw material sourcing, many factors can affect the
performance of an individual company trading in this competitive market.
These are not new problems. However, never
before has there been such an explosion in technology and travel which has exposed mass
populations directly or indirectly to new tastes and experiences. It is indeed a market in
which only the quickest can survive.
We talk about changes like the move from
primal cut to convenience meals, chilled foods moving to frozen markets, and more
exporting to accommodate a wider market. We see retailers vying to differentiate
themselves, and using many aspects of technology to achieve this; from self-scanning to
local merchandising and planograms; from tough price negotiation to partnerships. We see
producers investing in new plants for the first time, in order to bring innovative
products to market. (To date, much of this technology had been borrowed from other
industries, for example, new ‘extruded’ breakfast cereals using equipment from
the plastics industry or bread mixers using equipment from the rubber industry.)
Producers have to differentiate themselves
and their products. We have seen much interest in ‘functional foods’. We have
seen success stories like the merger of ice cream with count lines and confectionery
items. Everywhere, companies are spending more money on new products, against a background
of shorter product life cycles, increasing competition, new legislation, consumer
confidence issues and changing eating habits.
Match the investment required in new plant
against the cost of failure of that new product launch!
“Give me neither poverty nor
riches; feed me with food convenient for me.” – Proverbs 30:8.
More consumers eat out rather than cook for
themselves. New pre-treatments can make that ‘home heated’ product taste fresh
and crispy. ‘Processed’ foods have lost their mantle of being
‘inferior’.
But is this all new? We see retailers
differentiating themselves with ‘loyalty schemes’ and value-added services, for
example banking. The superstore is trying to become the whole shopping experience.
However, loyalty schemes existed in the co-operative movements in the nineteenth century.
Medieval cathedrals were hives of activity. They were used as hospitals, markets, grain
stores, even breweries – all at the same time. People used to buy items ‘on
credit’ at the corner store, much the function of a bank today!
Another view is that due to tight margins,
efficiency has to be maximized. But this could be at the expense of customer (and
consumer) service levels! We hear about Efficient Consumer Response (ECR) which covers a
lot of the areas where improvements are being sought. We also hear warnings that those who
do not embrace the message could go out of business to those that do. Yet, after three
years of visible ECR activities in Europe (and longer in the US), in interviews with the
final consumer, we find that they have not noticed. But they still notice the queues at
the checkouts!
What should we be looking at to ensure
survival? Do we understand consumer psychology?
The results of this survey show that many
issues are perceived as important. There are differences between countries and between
size of company. However, the most important issues appear to be ‘closer integration
with customers and suppliers,’ ‘new product innovation’ and ‘improve
product quality.’ The integration issue is no surprise, as this is where great
efficiency gains can be achieved, from eliminating non-value-adding costs, to faster
access to better information. As a comparison, let us look at another industry not in
Food.
From ore to payment in 41 hours
(including 12 hours shipping):
| Mon | 7:00 p.m. | Boat docks loaded with iron ore |
| Tues | 10:55 a.m. | Ore conversion complete |
| 12:55 p.m. | Cast in cylinder blocks | |
| 5:05 p.m. | First machining begins -55 second cycle |
|
| 6:00 p.m. | Block enters assembly | |
| 7:45 p.m. | Engine is complete – shipped to car assembly factory |
|
| Wed | 8:00 a.m. | Engine enters assembly line |
| 12:00 p.m. | Dealer takes delivery and pays |
Yes, the above refers to the car industry
in 1926!!!
Before your thoughts move to environmental
issues, the wooden pallets and crates, which shipped the parts, were then used to build
the vehicle!
Quality, considered by many consultants and
other industries as ‘a given’, is perhaps more of a surprise. The big five
drivers often mentioned in industry periodicals, in ascending order of importance, are
price, quality, service, flexibility and innovation. Perhaps this focus on quality is due
to consumer confidence issues, not restricted to Europe, but also in the US, where recent
scares have hit the headlines.
However, different countries are at
different stages in this evolution. Some do not have the correct metrics in place,
Customer Account Profitability – price, quality, customer service level, cycle-time and
virtual integration. Different companies may be trying to achieve the same ends through
different mechanisms.
The above illustrates some of the
hypotheses that can be confirmed from the research and some of the surprises. The graphs
provided are at a country level for comparison. However, the raw data tables are provided
at the end of the report to allow you to check whatever you feel is an untapped
differentiator for your company.
Survey research methodology
Prelude
The 1998 Food Industry Survey is an annual
analysis of the critical factors and industry trends which affect primary producers,
suppliers to large chain outlets and distributors within the Food industry.
This report is based on interpretation of
the results by Kurt Salmon Associates, the leading international management consultancy
specializing in the retail, grocery and consumer goods industry, and the JBA Food Industry
Group – a food industry specialist group based at JBA international locations.
The research was conducted through
telephone interviews and carried out by Benchmark and its agencies around the world. The
interviews were carried out in local languages by native speaking trained interviewers
using professionally translated questionnaires. The senior operations personnel were
contacted in each company participating in the survey. Three hundred and ten quantitative
telephone interviews were carried out within eight different countries. The results are
representative of suppliers in the food industry namely, primary producers (73%),
suppliers to major outlets (19%), and wholesalers (8%).
Various worldwide sources were used to
provide the sample for interviewing and the results were gathered in conjunction with
various agencies around the world.
Research methodology
The survey covered the following areas:
- Benchmark Research conducted interviews in
Europe with companies with an annual revenue of at least £20 million ($32 million) – 57
per cent of interviews were conducted with companies with a turnover between £20 million
and £50 million. - Interviews were conducted by Grace Marketing
in the US using the same questionnaire and methodology, and incorporated into tabulations
by Benchmark Research.
