MEMORANDUM FROM SCOTTISH ENTERPRISE
NOTE ON THE SCOTTISH FOOD AND DRINK STRATEGY
1. CONTEXT
Some initial comments, observations and assumptions
are offered here which provide the context for this document.
1.1 Scottish Enterprise's (SE) principal
interaction with the Scottish Food and Drink Industry is through
the Scottish Enterprise Food and Drink team in Bothwell Street,
and through the wider team dispersed throughout the SE Network.
1.2 Within the broad cluster of food and
drink, SE's principal focus does not rest with the whisky industry
(which is seen as a sophisticated global industry for which public
sector intervention is largely inappropriate). The vital significance
of the drink's industry to Scotland is however fully acknowledged.
It is assumed however that the Committee will have received very
full statistics on this from other bodies and it was felt inappropriate
to replicate this here.
1.3 The Scottish Enterprise Network's approach
to the broader drinks industry (noting the remark on whisky above)
is not markedly different from its approach to the food industry.
The same consumer and customer behaviours are driving these businesses.
As a consequence, SE's approach has been to develop with the industry
a strategy for the food and drink cluster in its entirety. Within
that strategy, SE, in conjunction with other public and private
sector partners, is driving forward group and one to one activity.
2. A STRATEGY
FOR SCOTTISH
FOOD AND
DRINK
2.1 Introduction
2.1.1 Through a rigorous programme of research,
consultation, and analysis, a cluster strategy for the Scottish
Food and Drink Industry was developed and launched by the industry
and the Minister for Rural Development, Ross Finnie, in June 1999.
2.1.2 This 18 month strategy development
process was co-ordinated and facilitated by Scottish Enterprise—the
strategy and its subsequent implementation is however very much
led by industry.
2.2 A Vision of Scottish Food and Drink, 2010
The strategy determined what kind of industry
we would want to have in 10 years time.
"In 2010 Food and Drink from Scotland is
now thriving internationally. The country has built an unrivalled
reputation in food, drinks and in related products and services.
They are perceived as natural, high quality and completely in
tune with today's world and consumer tastes.
By 2010 Scotland has succeeded. Perceptions have
altered, and the changes go deep. Organisations linked to food
have changed in a very real sense and operate in an environment
of trust and mutual respect.
Scottish business recognised the changes happening
in the industry; markets becoming more international; food consumers
becoming more sophisticated. They were more intimate with consumers'
changing lifestyles, and gained advantage from strong linkages
between farmers, fishermen, processors and customers—from
the table, counter, car and on the go.
Once these shifts were identified; the trick
was to make sure the Scottish industry made the most of the opportunities.
It used its international connections to sell more abroad and
its inherent innovativeness to offer new products and services
to a fast changing market. It exploited the best technologies
and made the most of its image to boost perceptions of quality
and service.
Some companies could do this alone, but the impact
was so much greater when the whole industry got together and pulled
in one direction. A culture of real innovation flourished enabled
by connections between producers, scientists and production companies.
Businesses invested in their people, their processes and the marketing
of their products to the customers who really mattered. These
shifts in attitude attracted ambitious young people into a vibrant
industry".
2.3 The Targets
Scotland's food and drink industry stands today
on the brink of momentous change. With focus and by joining together
to achieve common goals, Scotland can implement such a vision.
The economic aspiration is to grow current sales of food and soft
drinks from £4.2 billion to £7.4 billion and increase
value-add from £1 billion to £2.5 billion. This equates
to a compound annual growth rate of 6 per cent of sales and 9
per cent in value-add. Exports will treble to £1.5 billion
and food manufacturing employment should increase from 48,000
to 54,000. Increases assume a food inflation value of 2 per cent.
Improvements will be driven by increased sales volumes, unit price
increases and supported by labour productivity gains.
2.4 How is this being achieved?
2.4.1 We need to work differently
In a global market, in which size increasingly
matters, it is essential for individual companies to co-operate
and share ideas if they are to achieve sufficient scale to compete
effectively. By combining to co-operate on specific issues, they
can develop muscle way beyond what any one company can hope to
achieve alone and in the long run better preserve their independence.
Ironically, it is by surrendering some small part of their independence
that companies can best preserve it.
The purpose of a cluster strategy is to enable
businesses in related industries to work together to concentrate
on reducing costs and build competitive advantage by focusing
on common issues. It is an approach which can yield cost savings
for every company involved eg in the area of logistics and supply
chain management, or IT, shared resources can drive down unit
costs for all the resource users.
So what is a cluster?
At its simplest, a cluster is a group of organisations
in related industries that are linked together because they buy
and sell from each other, and/or because they use the same infrastructure,
customers or skills base. A competitive cluster is underpinned
by high levels of innovation and characterised by co-operation
and collaboration. The Scottish cluster embraces the drinks, agriculture,
fishing, aquaculture, science and education base, in addition
to the food processing industry and other supporting organisations.
2.4.2 We need to prioritise
Our market analysis highlighted that Scotland's
competitive position lay primarily in offering differentiated,
high-value primary and secondary products, to be sold at premium
prices in key markets within the UK and northern Europe. However,
niche positions (such as smoked salmon) will be developed further
afield, where the economics of distribution are viable.
Two specific priorities were developed to provide
the market focus for actions, Excellence in Raw Materials and
Developing Value-Added Meal Components.
(i) Excellence in Raw Materials
We have some real strengths here already. This
priority seeks to build on Scotland's competitive position in
primary sectors through:
— Increasing international market share,
price premiums, and adding value to primary materials (especially
meat and fish), by emphasising Scottish branding, improved packaging/presentation
and advanced supply chain and category management capabilities.
— Creating a significant position in
healthy/natural/organic animal protein and related segments, through
differentiation around Scottish branding, sustainable farming,
natural preservation techniques and a stringent regulatory regime.
This is a very high growth market, with strong underlying competitive
potential.
(ii) Developing Value-Added Meal Components
To enhance Scotland's competitive position in
value-added meal components through:
— better use of food technology, creative
recipe expertise, category management capabilities, and an understanding
and exploitation of new opportunities in the food service sector.
The principal targets will be premium growth
segments of the food service sector and value-added meal solution
within the retail sector.
2.4.3 We need to exploit these opportunities
Five key areas for action were identified, initiatives
and activity developed under each, and significant progress made
already. Briefly, these are:
(i) To develop and grow leading suppliers
and processors of food and drink
We will create more innovative and far-sighted
organisations capable of competing in tomorrow's markets, by creating
an environment and culture where collaboration can prosper.
An industry leadership group has been established,
comprising key players from the industry, wider cluster and public
sector, to drive forward the implementation of the strategy. Other
key activity areas here include mentoring, graduate placement,
inward investment, learning journeys and infrastructural alignment
with key partners and grant schemes.
(ii) To build our reputation, as suppliers
to the premium, sophisticated retail and food service markets
of the UK and Europe.
Key activity areas here include:
— Scottish Food and Drink International—an
integrated programme of activity to assist companies to increase
exports and other forms of international business development.
— Consumer and Market Intelligence
Centre—which will provide market intelligence on key premium
retail and food service markets in the UK and Europe. The first
stage of this, Food Facts, is now operating across Scotland.
— Organics—to maximise the opportunity
presented by the rapidly growing organics market in the UK.
— Market Advantage—an integrated
market development programme developing skills and capability
in key areas (eg key account management, advertising and promotion,
category management, best practice visits, etc).
— Meet the Buyer—where Scottish
Enterprise acts as an honest broker in bringing together Scottish
suppliers and key customers (eg multiple retailers, food service
companies).
(iii) To grow advantage through innovation,
including our exploitation and application of technology.
We must develop innovative processes, services
and products to gain competitive advantage. Technology will be
an important driver and enabler. There is a specific focus on
the application of biotechnology, e-commerce and packaging technology,
supporting the aims of value-add, supplying to the premium market
segments and extending shelf-life to exploit markets further afield.
Key activities include:
— Food Innovation Network—creation
of facilities and expertise to support innovation and technology
transfer into the food and drink industry.
— Functional Food—identification
of, and assistance with, market opportunities for Scottish companies
within this high growth area.
— Proof of Concept Fund—research/commercialisation
fund which can drive focussed activity in this area.
(iv) To build an efficient and competitive
supply chain
This will be essential in meeting increasingly
demanding customer product, service and delivery requirements.
Key activities here include:
— Loadshare—the reduction of
costs in transport/distribution element of chain by encouraging
co-operation and load consolidating among companies.
— Seafood Scotland—industry led
organisation which seeks to improve the quality and market position
of Scottish seafood.
— Quality Meat Scotland—industry
led organisation which seeks to improve the quality and market
position of Scottish red meat.
— Smart Farms—assist farmer to
become more market focussed and strengthen their links with the
manufacturing base.
— Sector Strategy Development—initially,
the development of strategic action plans for the dairy and sheep
sectors.
(v) To develop the capabilities of our people,
working together, active in local and global networks.
We need to change attitudes, and build world-class
standards in our skills and competencies. The industry must work
together to overcome fragmentation and destructive rivalry and
we must make the industry attractive for tomorrow's graduates
and school leavers as well as for aspiring leaders.
Key activities include:
— Food Skills group—led by industry
and learning organisations, it provides strategic direction for
the skills elements of the cluster strategy.
— Scottish Food Skills—one door
approach for advice, information and assistance with SVQs.
— Food Learning Network—provide
rapid access to learning information and opportunities through
the collaboration of the learning industry.
— Create Interest—the promotion
of the industry to potential recruits and key influencers.
— Develop Leaders—to address
current low demand for leadership development.
2.4.4 Moving Forward—Making it Work
Significant progress and key achievements have
been made already against the action areas outlined above. The
industry at its broadest needs to radically change its cultures,
values and behaviours. For the cluster to continue to improve
its competitiveness, the most important need is the creation of
an atmosphere where collaboration and competition can co-exist
and which encourages innovation.
This shift is more vital than any individual
action—and highlights the continuing need for the strategy
to be led and owned by the industry itself.
3. WHAT WE
HAVE LEARNED
Through the strategy development process, the
current Scottish competitive position was analysed, best practice
from overseas was examined and the key market and consumer drives
were researched. Headlines from these key areas are as follows:
3.1 Where is Scotland now
The size and structure of Scotland's food and
drink industry
The food and drink industry is already a major
contributor to the Scottish economy with sales of £7.3 billion
(including whisky sales of £2.6 billion) and employing 17
per cent of Scotland's manufacturing employees.
Whisky accounts for 35 per cent of the sales,
by value, of Scotland's food and drink industry and has made the
major contribution in building a positive image of Scottish food
and drink in overseas markets. A long-term aim is to seek closer
involvement of the well-developed and sophisticated whisky industry
with the wider food and drink cluster.
3.1.2 Scotland's Competitive Position
The Scottish "Brand Image"
Scotland enjoys a world-wide reputation disproportionate
to its size and population. This is due to its status as an international
tourist destination, its cultural exports and the significance
of whisky as a globally consumed product. This translates into
powerful, relevant imagery for Scottish foods, emphasising naturalness,
purity and tradition. In conjunction with Scotland the Brand,
we have begun to tap this potential.
World Class Food Science Base
Scotland has a world-class food science base.
The network is extensive and world leading in certain agri-food
related disciplines, where Scotland has a high share of world
publishing. However, most of the output is in core (rather than
near market) science and take-up by the domestic food industry
is low—much of Scotland's research expertise migrates to
other parts of the UK and the rest of the world.
Proximity to the UK Multiple Retailing Sector
Approximately 65 per cent of Scottish output
is supplied to the UK multiple grocery sector. This is one of
the most demanding markets in the world in terms of category management,
innovation and supply chain efficiency. However, although Scotland
has strong home demand, we are not strong in the supply of higher
value-added categories.
Scotland has a low export dependency, especially
when you take whisky out of the picture. Despite a smaller land
area, and similar overall share of world agricultural exports,
Denmark and New Zealand have shown far superior export activity.
This performance is mostly due to market innovation and branding
capability.
The Scottish food industry is still very fragmented,
lacks scale and is predominantly privately owned, which can sometimes
lead to rivalry. It is still firmly rooted in primary processing
and its potential for value-add lies largely untapped. The most
important need is to create an atmosphere where collaboration
and competition can co-exist in order to drive innovation.
3.2 What did we learn from elsewhere?
3.2.1 Why the cluster approach offers a way
forward
There are examples of successful, competitive
food and drink clusters to be found in other countries. For example,
the US has a world-leading poultry cluster, Denmark's pork cluster
is among the most competitive in the world and New Zealand's economic
existence is dependent on a thriving food industry cluster, covering
many sectors from dairy and meat to fruit and seafood. Lessons
can be drawn for Scotland from these and other internationally
successful food clusters.
3.2.2 Lessons from America
The US poultry cluster has successfully exploited
the sophisticated demand within its domestic market, which has
spurred industry innovation. The US industry is characterised
by significant co-operation as well as competition between the
players.
The whole industry benefits from high levels
of co-operation and rapid diffusion of innovation and best practice.
Co-operation is limited to basic processing and slaughtering,
however, with further processing ring-fenced as a free and highly
competitive arena.
Companies in the cluster develop good performance
and efficiencies at the processing level, enabling investment
and concentration on differentiation and value-add.
As a result, intimate and enduring networks
emerge and real trust and co-operation result.
3.2.3 Lessons from New Zealand
The national culture of New Zealand reflects
an export mindset with open collaboration and widespread knowledge
sharing:
— acknowledgement of the importance
of exports and the overwhelming need to be globally competitive,
despite discrimination against New Zealand in many markets via
tariffs, drives a culture thriving on adversity—"us
against the world";
— an open, information-sharing culture
promotes rapid diffusion and cross-fertilisation of knowledge;
and
— farmers understand market needs and
are able to respond quickly to emerging trends.
3.2.4 Lessons from Denmark
Denmark has similarities to Scotland—it
is a small country with a focus on agriculture. Denmark, however,
has been highly effective in building a successful export industry,
dominating world pork exports with a 20 per cent share, way ahead
of its 3 per cent share in commodity exports and even managing
to break into the Japanese market.
The industry has established powerful networks
and institutions for knowledge sharing, skills building and technology
transfer.
It also has a highly focused and well developed
research infrastructure.
3.3 What will the marketplace look like in
2010?
3.3.1 The changing global market and the business
opportunities
Scotland's food and drink industry will have
to compete in a dynamic and fast changing global marketplace.
The globalisation of the world's food supply means that around
75 per cent of the global food and drink industry is controlled
by just 200 companies—none of them Scottish owned.
The global market is worth approximately $3
trillion world-wide and some $800 billion in Europe. Though the
developed world market is quite mature, changing trends will create
significant new opportunities for food and drink products and
services. These trends are:
Consumers:
— are becoming more affluent, with
a further 850 million consumers for higher value-added foods by
2010;
— food is seen for its functionality
eg health;
— the move to less formality, snacking
and grazing is advancing;
— the time spent in shopping, preparation
and cooking is decreasing; and
— food is seen not as an ingredient,
but as a meal solution.
Food Sales:
— food service is of growing importance,
accounting for 50 per cent of the consumer food dollar in the
US. It is becoming more centralised, less fragmented and concentrated
into major, commercial organisations;
— the retail multiples are of growing
importance in the developing world too, even emerging in parts
of Latin America and Asia; and
— home shopping is the new form of
distribution emerging particularly in the US but now also in Europe.
Consolidation:
— supply chains are becoming increasingly
sophisticated with techniques like Efficient Consumer Response
and Category Management;
— there are more multinational companies,
as a result of consolidation;
— there is a constant search for lower
costs, more innovation and flexible processes;
— we see faster change than ever before,
including shorter product lifecycles; and
— scale is very important, but there
will be an increasing number of significant niche opportunities
for small players from retailers to manufacturers.
4. CONCLUSION
4.1 The strategy is challenging and ambitious—the
need to meet these challenges and achieve the vision is however
essential, if Scotland is to sustain and grow its competitiveness
in an increasingly dynamic global marketplace.
4.2 The drinks industry, most notably whisky,
is a vital component of Scotland's food and drink industry.
4.3 The strategy is relevant to all parts
of the food and drink industry, given that it is the same consumer
and market drivers which shape demand for their products.
4.3.1 The industry leadership group has
initiated conversations with the Scotch Whisky Association, to
explore areas of mutual interest, and in particular the whisky
industry's key strengths in global consumer marketing and logistics.
4.3.2 Whilst there is, as yet, no defined
sub-strategy for the beer and soft drinks industry, both they
and smaller independent whisky companies can and do benefit from
the activity which flows from the strategy, in one of two ways:
(i) through joint activity organised nationally
(eg Meet the Buyer, Scottish Exhibition Programme, Market Advantage,
Scottish Food Skills); and
(ii) through one to one business development
activity with their Local Enterprise Company.
Scottish Enterprise
January 2001
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