It’s little over a year since we first learned that Woolworths would be closing down. To the man on the street this was the clearest indication that the world of retail was changing. The previous few months’ news headlines had been dominated by dire forecasts and predictions about banking and the manufacturing industry but this was real and tangible. Other major changes followed as car manufacturing virtually stopped dead for the first three months of 2009 and businesses everywhere began to ready themselves for a tough year. Virtually everyone predicted life was about to get much tougher.
As we come to the end of 2009 the media is beginning to talk about ‘green shoots’ but we’re not sure if this is government spin or the promising hopes of captains of industry. We think that in some cases the worst is yet to come.
Recent business results from the major retailers, while not being spectacularly brilliant, seem to have shown that their strategies have worked well for what has come so far, but manufacturing is still struggling. And while unemployment is not rising as fast as it was, it is still rising.
FRUGAL CONSUMERS POINT THE WAY
In 2009 consumers learnt the art of frugality. In foodservice posh coffee shops and medium priced restaurants really suffered, whereas operators offering great value such as McDonald’s, Subway and Gregg’s have reaped tremendous rewards. ‘Once bitten twice shy’ they say and it seems clear from now and for some years to come the consumer will remain frugal, searching out great value and adapting purchasing habits to save money without compromising basic lifestyle.
Consumers will continue with this approach because it doesn’t matter what the media says about ‘green shoots’. Today’s consumers will still be struggling with unemployment, house prices, lack of credit availability and uncertainty well into the next decade.
Consumers will also support what they trust. Many well established brands have done very well despite the recession as consumers take care not to waste their shrinking finances on items that don’t work or are of poor quality. Marks amp; Spencer has recognised this and changed a 125-year tradition by starting to stock well known brands such as Nescaf eacute; and 400 other famous grocery lines.
Coupled with the consumer mindset, which from a demand viewpoint will mean we can expect 2010 to be similar to 2009, foodservice suppliers will also have a couple of other issues to contend with. For us the biggest issue on the horizon will be that whatever the colour of the next government, expenditure will be cut in public services such as Health amp; Education. These cuts mean that the bread and butter business of many foodservice manufacturers, suppliers and distributors will come under scrutiny at the basest cost level. This is worrying because for many foodservice businesses, government contracts recover fixed costs and create stability. Public services have barely felt the impact of the last year and that’s why we believe tough times are set to continue.
The highly volatile political environment and the continued pressure on pricing on many basic food product’s will mean that for the next few years food will remain high on the political agenda, expect to see food security, obesity and healthy catering among the areas of debate in the coming months. Remember, it is now Brussels, not the UK government, which is the decision maker over many of these issues.
Cost control and stock control will be key to efficient foodservice operators, the growth of Booker’s online ordering business worth pound;300m this year (source: Catersummit) from a standing start five years ago dispels the myth that caterers don’t want online ordering.
Online ordering and a 12 hour guarantee on deliveries has to be the way of the future for both wholesalers and end users.
This last year has started to sort out the weak from the strong in retail, foodservice and wholesaling. Those that are left are likely to be around for some time to come. Some are fitter than others.
But there is less room for mistakes than ever before. Businesses cannot be rushing into new ventures. They will have to make sure that they have strategies in place that are carefully thought through, well researched and proven in order to succeed.
All businesses will need to choose their partners carefully, focussing on creating consumer value first and foremost. That’s the way to win. It’s going to be tough for a couple more years yet. We have no doubt about that.