RETAILING: THE END POINT OF THE GRAIN CHAIN
The retail background
The relationship between customers and retailers controls the food chain in
general, and this also applies to the grain chain. In the UK, most consumers
shop at supermarkets, either in person or on-line, which means most grain chain
products (e.g. bread, biscuits, cakes, breakfast cereals) are sold through large
multiple retailers. This makes the supermarket chains very powerful.
Retailers respond to consumer demands and all consumers want value for money
when buying food. Retailers have different ways of responding to this in their
mix of products and pricing, but operate in a competitive environment. This
tends to put pressure on prices, which is transferred down the grain chain. This
sometimes breaks out in ‘supermarket wars’ when the prices of everyday foods
such as bread and milk plummet as the big multiples (Tesco, Sainsbury's, Asda,
Morrisons etc.) compete for customers. As the supermarkets become more powerful
and popular, small businesses decline – there has been a massive reduction in
the number of small businesses on the high street, including bakers, over the
last 10 years.
Bread and the consumer
Consumers demand that bread, like other products, is available all day. This
poses a challenge for retailers, and for other sections of the chain such as
bakers. Bread must now be baked, and transported to supermarkets, 7 days a week.
Retailers must anticipate exactly how much bread is going to be sold. If they
order too little, they lose money and risk losing customers to the competition.
If they order too much, there is wastage and they lose money.
Most bread sold in the UK is branded (e.g. Hovis, Kingsmill, Warburtons
etc.). Products can often be labelled as ‘value’ or ‘premium’: the cheapest
breads available are ‘value’ breads, whereas more expensive products (such as
many branded or crusty breads) are considered ‘premium’ products. Sometimes
bread is sold at 'below cost', which means it is sold at a price that is cheaper
than it cost to make and deliver the bread. This is called a 'loss leader' and
may be used as a tactic by retailers to entice more customers into their store.
The idea is that customers will buy other, more profitable foods while they are
in the store, so overall the store will make a profit.
The grain chain is affected by how much people spend overall when they are
shopping for food. In the UK, expenditure on food eaten at home has remaining at
a fairly static level, but spending on eating out is growing. Therefore, as a
proportion of total consumer expenditure, food to eat at home is steadily
falling. In fact, catering now accounts for as much of household expenditure as
food eaten at home. Within a static market, spending on staple foods (such as
bread and breakfast cereals) tends to decline relative to spending on 'added
value' goods as manufacturers and retailers respond to changes in consumer
demands and lifestyle.
Between 1993 and 2000, household expenditure on food and drink rose from
£46,334 million to £55,850 million. Spending on bread rose from £2012 million to
£2185 million; cakes and biscuits from £2146 million to £2487 million; other
cereals from £2415 million to £3432 million. Over the same period, the rate of
price inflation for food was well below the overall rate of inflation.
Responding to the challenges: category management
Category management has become an important retailer response to major
developments in the food retailing sector over the past decade. These
developments include the rise of the ‘value’ segment, price competition, supply
chain integration, changing consumer shopping behaviour and rising operating
costs.
Category management responds to these challenges using four main principles.
- Customer focus: category management encourages
retailers to work backward from the consumer into the retailer’s ranging and
planning decisions, and into its systems. It therefore requires much greater
marketing input, relying heavily on intensive research into consumer
attitudes and behaviour.
- Cross-functional teamwork: eradicating functional
barriers is essential if the firm is to be flexible and responsive to
changing customer needs. Category management cannot work without effective
cross-functional teams.
- Supply chain integration: developing a responsive,
integrated and low-cost supply chain is critical to successful category
management. Achieving this requires closer, more co-operative relationships
with key suppliers. This principle in particular impacts on the various
suppliers involved in the grain chain.
- Application of new technology: category management can
only be implemented if customer, marketing and trading data is made
available through a modern IT infrastructure.
International consumers
The grain chain also relies on consumers beyond the UK – Britain's cereals
are exported all over the world. In 2001, the UK exported 5.1 million tonnes of
grain: 2.3 million tonnes as unmilled grain and 2.8 million tonnes of grain in
the form of products such as bread, biscuits and breakfast cereals. This
represents 25% of the UK total cereal crop.
Here are some quotes from three major purchasers.
- "The UK's assurance schemes put the British growers in an excellent
position to compete in wheat export markets. The UK system can offer
traceability from the farm to the customer."
Giampolo Bernardi, Buying Director, Barilla, Italy.
- "The UK is now recognised (by China) as a source of quality malting
barley."
Mr Geng Zhaolin, Director General of the China Brewery Association and
of the China National Council of Light Industry.
- "There is now a growing and consistent demand for British wheats in
Italy. The UK has made noticeable progress in supplying homogenous quality
wheats."
Dott Loris Carani, Agrimeta, Italy, at the end of a visit to the UK.
The quality of the UK's cereal crops and its grain products are essential to
its success at home and abroad, and all stages of the grain chain are important
for ensuring this quality is maintained.
