APPENDIX 29
Memorandum submitted by ASDA Stores Ltd
(F38)
INTRODUCTION
This document outlines: the market trends and
growing customer demand for organics at ASDA; the increase in
sales of ASDA organic products over the last 18 months; the existing
and potential issues as we see them; our views on the domestic
organic supply base and our plans to help to increase it.
ABOUT ASDA
ASDA is the third largest superstore chain in
the UK, with a market share of 14.1 per cent by value (source:
Taylor Nelson Sofres), 238 stores and over 100,000 colleagues.
THE ORGANICS
MARKET
The table below estimates the growth of the
UK organics market . . .
|
| Year | UK organics market value
|
|
| 1993 | £105 million
|
| 1998 | £390 million
|
| End 1999 | £500 million
|
| Forecast end 2000 | £700 million
|
| Forecast 2002 | £1 billion
|
|
Table compiled based on Soil Association and ASDA sales figures*
CUSTOMER DEMAND
Independent research commissioned by ASDA shows that our
customers have found that many organic foods on the market have
been of disappointing quality and poor value. Nevertheless, in
`We're Listening'—our customer feedback survey—organic
products are the most frequently requested foods by ASDA customers.
In addition, 47 per cent of shoppers said they would buy more
organics if they were cheaper and 18 per cent would buy more if
they were featured in their local store (source: MINTEL).
Since the introduction of our own-label range, sales of organic
products at ASDA have increased by 50 per cent.
THE GROWTH
OF ASDA'S
ORGANIC RANGE
A range of 30 branded organic products first went on sale
in our London stores at the end of 1998. This range was increased
to 133 in September 1999, available in a slightly wider range
of stores. Due to increased customer demand, we introduced a range
of ASDA brand organics to every store in February 2000.
Our organic range currently stands at 254 branded and own-label
items across bakery, wine, beer, provisions, dairy, frozen, grocery,
baby-food, pet foods, meat, poultry, fish, fruit and vegetables.
By the end of 2000 we expect the range to total more than 300
lines.
ASDA sells around £420k of organic products every week
and we estimate our market share to be around 4.5 per cent*. We
anticipate ASDA organic sales to more than double, reaching over
£1m per week before the end of the year.
ORGANIC PRODUCE
SALES
The Soil Association state that produce (fruit and vegetables)
account for over 44 per cent of all organics sold via retailers
and they expect the organics produce market to grow by a further
50 per cent over the next year.
Customers trying organics for the first time invariably start
by sampling produce and it is in this area that we have seen the
most growth with sales up 300 per cent on last year.
We currently sell £120k of organic produce per week,
compared to £15m per week on non-organic produce. Although
organic sales are very small by comparison, we expect the strong
customer demand to result in a 400 per cent increase in sales,
of organic fruit and vegetables, over the next year.
THE ISSUES
FOR CUSTOMERS,
FARMERS AND
RETAILERS
Value
Our research has shown that, historically, customers have not
seen organics as good value for money. When we developed our organics
range we wanted to ensure that it was consistent with our mission
to satisfy the weekly shopping needs of ordinary working people
and their families who demand value.
As a result we have committed that organics on sale at ASDA
will be at least five to ten per cent better value than the lowest-priced
competitor (with an aspiration of being no more than 30 per cent
higher than the non-organic equivalents). To ensure this remains
the case, independent price checks have been carried out on a
basket of organic produce on our behalf every four weeks.
Farmers
Farmers were cautious about a move to improve value for money
on organics. With the non-organic industry in crisis, many saw
the growing organic market as one of the few profitable areas
in agriculture and were keen not to see profit margins eroded.
Many felt a great price to the customer had to mean a poor price
to the producer.
They were, however, reassured by our promise to deliver value
to customers by taking less profit ourselves rather than asking
for cost price savings from our suppliers. We make less profit
on organics in order to offer the best possible price; by selling
for less we sell more which is good news for the customer, retailer
and farmer.
Conversion Periods and Associated Costs
Conversion time for organic producers can be up to three
years. During this time farmers incur significant increases in
production costs as yields fall. Product can not be sold as "in-conversion"
until after the first year.
Certification Schemes
There are eight certification bodies in the UK, all of which
operate to different standards. In Europe there are nearer 26,
again all with different standards. The wide variety of production
standards is potentially confusing for customers and, we understand,
is a bone of contention for British farmers.
Buying British and Availability
Availability is the biggest challenge to all UK supermarkets
as production of organics has not kept pace with demand. As a
result imported organic product accounts for a relatively high
proportion of total organic sales. Indeed Soil Association figures
show that, on average, retailers source 20 per cent of organics
from the UK and 80 per cent from abroad.
ASDA has pledged to source from Britain in preference to
importing wherever possible. As a result ASDA brand organic products
beat the industry average for domestic sourcing—around 50
per cent UK and 50 per cent imported. All ASDA milk and eggs are
sourced from the UK.
The shortfall in British product is most clearly illustrated
when trying to source home-reared organic meat. If demand grew
in line with our expectations we estimate that ASDA would need
140 head of organic beef cattle per week to satisfy customer demand;
at the moment we are only able to source seven beef cattle per
week from the UK.
In order to be consistent with our Backing Britain policy,
and increase our supply base, we have created the Organic Meat
Conversion Scheme.
ASDA ORGANIC MEAT
CONVERSION SCHEME
On 14 April 2000, at ASDA's Working Together Conference for
farmers and growers, we announced we would earmark £3 million
to spend over the next three years on encouraging ASDA meat suppliers
to convert to organic farming methods and, therefore, increase
our UK organic meat supply base.
The fund will be used to set up a cost-plus scheme, with
farmers who currently supply product to ASDA invited to join.
The scheme, run via one of our meat suppliers, will establish
the annual volume of organic meat we wish to source. ASDA will
then accept into the scheme farmers producing enough meat to satisfy
our needs. The farmers will receive a guarantee that ASDA will
sell all the meat we have contracted them to supply; they will
be paid on a cost-plus basis (a price based on what the beast
costs to produce, rather than a fluctuating market price, as well
as a profit—the "plus").
In addition an extra payment will be built into the per kilo
cost-plus price so farmers can recoup some of their initial conversion
costs. ASDA have already had very positive meetings with two suppliers
and the National Farmers Union and established that we will follow
the UKROFS organics scheme.
The UKROFS standards on organic meat farming are currently
being amended. The final version will be available on 24 August.
At this point we will have a clearer picture of costs that will
be incurred at every stage along the conversion process and will
be able to properly assess the costs involved in producing organic
meat. From this point the Conversion Scheme can progress.
ASDA ORGANIC MEAT
ASDA will introduce a range of own-brand organic meat, poultry
and fish into hypermarkets (22 stores) from 19 June 2000. Range
and prices are as follows:
BEEF
| Cut | Organic price (per kilo unless stated)
| Non-Organic price (per kilo unless stated)
|
| Topside Beef joint | £8.99
| £5.49 |
| Rump steak | £11.99
| £8.31 |
| Sirloin steak | £14.99
| £9.89 |
| Beef Mince | £2.99 per 454g pack
| £0.88 |
LAMB
| Cut | Organic price (per kilo)
| Non-Organic price (per kilo)
|
| Leg of lamb | £10.49
| £4.98 |
| Lamb chops | £12.49
| £7.69 |
| Lamb shoulder | £4.99
| £2.88 |
BACON
| Cut | Organic price (per 250g pack)
| Non-Organic price (per 250g pack)
|
| Drycure Back | £2.69
| £1.99 |
| Unsmoked Streaky | £1.49
| £0.99 |
PORK
| Cut | Organic price (per kilo)
| Non-Organic price (per kilo)
|
| Pork shoulder joint | £4.99
| £2.43 |
| Pork leg joint | £6.99
| £2.59 |
POULTRY
| Product | Organic price (per kilo)
| Non-Organic price (per kilo)
|
| Whole Chicken | £4.99
| £1.85 (average for fixed weight whole birds)
|
FISH
| Product | Organic price (per kilo)
| Non-Organic price (each)
|
| Whole Trout | £6.99
| £0.99 |
IN DEVELOPMENT
Organic sausages, pork steaks, smoked salmon and smoked salmon
fillets will be added to the range at a later date.
CONCLUSIONS
There are concerns about the strength of the UK organics
supply base and availability keeping pace with demand. Our scheme
to address UK organic meat supply, rather than see European sourcing
as inevitable, has been welcomed by the farming industry.
The wide range of accreditation schemes across Europe has
the potential to cause confusion for both customers and farmers
and clarification or a common standard would be beneficial to
the industry.
Although the organics market is still relatively small, growth
is outstripping that of almost every other category and, as our
sales figures have shown, where customers can get quality and
value organics they will buy in increasing quantities. All indications
are that the organics market has a bright future.
13 June 2000
*Exact market share data is difficult to obtain. As the organics
market is relatively new and growing very rapidly with retailers
adding to the range all the time no market research company has
the complete picture so market shares and market values are a
best approximation.
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