Examination of Witness (Questions 200
WEDNESDAY 6 FEBRUARY 2002
200. Obviously you have to sell the concept
of cards and the added value they bring once again to consumers.
I have to say that many of them now regard them as largely a way
of getting discounts every now and again.
(Professor Hughes) They are not loyalty cards; they
are discount cards.
201. Which was not the point of them when they
were originally launched.
(Professor Hughes) No, but they are getting more sophisticated.
They will use them as they should be used and then they will be
very effective. It is a competitive policy point actually because
you have these huge supermarkets which will have increasingly
proprietary knowledge about how we shop. That has terrific value.
202. From my IT background, I am dumbfounded
at how little they have used this data.
(Professor Hughes) Remember that great commercial
strength does not equal great strategic wisdom.
Mr Todd: Maybe here is a job for me out there.
David Taylor: This is not entirely a tongue-in-cheek
question, Chairman. How far beyond the 2010 timetable, or whatever
it is you are using, do you envisage in the daily decisions of
this world actually earmarking a sum for it might be £50
a week and saying, "Send us what you think"?
203. You have the information from before from
our loyalty card. Just send it each week.
(Professor Hughes) Remember that what comes round
goes round, or whatever the expression is. My recollection of
1953 when I was five is that is exactly what Mr Barnes the grocer
Diana Organ: Yes, he turned up with the weekly
204. Or the local farmer would turn up with
(Professor Hughes) Then he would have a little conversation
with mother saying, "We have a couple of new products. You
might want to try them, Mrs Hughes".
Chairman: We will move on from this nostalgic
205. I was a bit worried about this share of
the stomach. I thought we were going quickly to move into dissection
of what people were eating. You have touched so far on the fact
that supermarkets may be losing share. Let me just come at it
from another way. One of the things that I support in my constituency
is a pressure group called "Keep the Fylde Farming".
It was formed by local farmers who wanted to emphasise localness.
The slight problem I am having with it is to say, "You have
to tell people where they can buy" and that is a big problem.
For example, a dairy product disappears into Lancashire Dairies.
It then becomes anonymous. It then disappears off in some supply
chain to Aberdeen and nobody will know it is full of Lancashire
milk. How do farmers tackle that, to pick up on your point about
information? One of the things that worries me about the idea
of more information, localness, relationship between where food
comes from and how it is marketed, is that big supermarkets currently
are not well geared up to being able to procure on a relatively
localised or regionalised basis to provide products, give information
to people to help, if you like, to make the connections in the
food chain that you were describing earlier.
(Professor Hughes) I can make a number of cuts at
this. First of all, if we are going to segment and buy local or
buy regional, then it will only be successful if consumers think
it is relevant. The theory of market segmentation, or one of the
elements, is that anybody can find a segment but if there are
only eight people in that segment, then commercially it is not
worthwhile having a go at it. First of all, not everything has
a value because it is local or regional. Just use some basic market
research to find out what others there are. I would think milk,
for example, is a good area for local products. From a consumer
point of view, I could get value from knowing that it is local
milk rather than out of some great milk lake up north or in Cheshire.
That is point one: make sure that it is consumer relevant. Secondly,
on the supermarket end, I think they are increasingly recognising
the power to differentiate by having a unique regional offermaybe
not so much local but regionaland they are putting pressure
on their suppliers to provide that. Supermarkets just wait until
the noise level of their customers gets up to a certain significant
level and then they will respond, and they are starting to respond
now. In the strawberry business, for example, we are told by the
Tescos and Sainsbury's, "We want a regional offer. Sort it
out". Now they have the IT and so do we and we can actually
handle that. I think increasingly there are things happening in
the supply chain management which will make it easier for a regional
offer to go through these big megastores.
206. Are you suggesting that because of this
type of response to the noise, as you describe it, from consumers,
the other routes to market which underpin this concept show that
traditional supermarkets are losing the share of the stomach and,
once these alternatives get to a certain critical mass, the supermarket
comes down and says, "Right, I must respond to that".
Are we going to see Tesco's farmers' markets, for example?
(Professor Hughes) Let us move away from the UK and
take one of the best global retailers, which is Royal (Ahold),
the Dutch company, or Albert Heijn for those of you who know it
in Holland itself. Their annual report on the front does not say
that they are retailers; it saysand they are not trying
to be cutethey are real solution providers. They are the
second largest food service player in the US and the third largest
retailer in the US. Clearly, as retailers see the traditional
supermarket becoming less relevant, then they are going to have
to evolve. I would suggest that Tesco is increasingly a food service
provider. One would expect to see, depending on the competitive
dynamics, more joint ventures between major retailers and major
petrol companies, for example, which is increasingly a source
of food supply for us. There are lot of routes to the market for
the consumer. They all have their moment. The farmers' market
I think is a good example. Clearly it is only for some farmers.
Most farmers do not want to meet consumers or have not got the
time to do so. It is a terrific opportunity for some. I think
the importance of farmers' markets, and indeed for the so-called
box schemes, is in a way more than measured by the revenue generated
by them. I think they put leverage on major supermarkets and other
routes to the market.
207. If we take these other routes to market,
and farmers' markets are mentioned, picked out in the Curry Report,
are you saying that the trend of the switch in the share of the
stomach is going to be significant now to provide a real alternative
route to the consumer whereby the farmer can have more, or should
I say the primary producer because it might be a co-operative,
control over the value-added chain and that this will help to
enhance farm income, or do you see, whatever happens, that dominant
players are still going to be the supermarkets and major catering
outlets in terms of selling on to the public the product of the
(Professor Hughes) We are going to have dominant players,
and we will have dominant players in both food service and retail.
It may be the same dominant players over time. That brings both
opportunities and threats. Getting back to my strawberry co-operative,
it is a good example. With a £55 million turnover, 90 per
cent of our product goes to five supermarkets. That is fabulous
for us on the one hand. We have those five great customers who
pay us well, although they are finicky and difficult to deal with,
but at the same time the threat is that if we are dropped by one
or two, there is damage to our business. We are looking in the
longer term to put some balance into our business by broadening
out the customer portfolio and we are trying to build linkages
with major food service providers. If I am on the wrong track,
stop me. When I go to a Harvester restaurant, for example, I note
that on the menu you cannot get strawberries and cream. Does that
meant that British people do not like eating strawberries and
cream? Of course they do; they love strawberries and cream. Why
are they not on the menu? It is because they will only put something
on the menu if they have 12-months coverage. Harvester invests
£150,000 in menus alone and the last thing they want to do
is put something on there that then is not available. There is
nothing worse than have somebody taking five minutes to say, "I
have decided I will have strawberries" and being told, "Sorry,
they are off, dear". You have to have that 12-month offer.
That brings a challenge to us as a co-operative. That means we
have got to have an import business so that we can get that12-month
offer and at the same time it means we have to do a lot more homework
and development work to get the product in the form that they
wish it to a Harvester restaurant somewhere in Dundee with a certain
208. The view you have just put forward knocks
out the arguments you were talking about earlier when you talked
about exploiting seasonality. On the basis of the United Kingdom
strawberry producers, you have just told us that 52 weeks of the
year world procurement is a way forward.
(Professor Hughes) No, I said that if you want to
deal with major players, then you have to have a 12-month offer.
The vast proportion of strawberries go out in our season when
consumers, thank the Lord, quite naturally say, "Oh, goodie,
it is Wimbledon, it is time to eat strawberries". You need
a constant 12-month offer. Yes, seasonality is a very good marketing
tactic, but it does not suit everybody. Nobody under 30 has any
idea about seasons, for goodness sake. Without trivialising it,
I would say that if I talk to my students and say "spring
cabbage", they think it has some sort of intrinsic bounciness.
They do not associate that with the season. Seasons are not for
everybody, and that is what I am saying. That is the wonder of
209. Can I just bring you back to the supermarkets
because, listening to the exchange you were having with colleagues,
the idea is that during the week there is this awful rush by people
who have got to go and buy food and come away but at the weekend
they dreamily think about cooking and watch cookery programmes,
which are more about entertainment I suspect than cooking. I am
not certain that you are right about your image of a supermarket
today, let alone in five years' time. It seems to me that what
the supermarkets have cleverly done is turn the big supermarkets
into a sort of total experience in which buying food is part of
it but they now have cafés and restaurants; they now sell
a wide range of goods. They lock people in of course in theory
to cheaper and cheaper petrol. During the week, there is a heck
of a lot of retired people who happily spend three or four hours
in a supermarket and on a Sunday there are now more people in
the supermarkets than in churches. Indeed, they could be said
to be part of a total experience and supermarkets might actually
have faith zones. I do not say this as a satirical joke. They
may end up by voting for the supermarket. It does seem to me that
what we are seeing and what you have not touched upon is that
there is the suspicion by farmers, and I think by many consumers,
that, yes, supermarkets look at trends, they look at what we want,
but they also manipulate what our tastes are. Anybody in the supermarket
business will tell you that they create a market in one form or
another. So the real question is: how does British farming get
into this? If we are looking at the future of British agriculture,
niche markets are going to be all well and good but I suspect
they are still only going to be a relatively small proportion
of British farming. Has British farming actually got a future
in terms of the large supermarket chains which are still dominating
the area in which most people buy their food?
(Professor Hughes) Clearly niche markets do not solve
the whole problem; they are part of the solution. These problems
are complex. What else can British farmers do? We have already
addressed some sort of horizontal co-operation that would help.
Clearly it is very difficult for an individual farmer to have
a dialogue with Tesco; it is unreasonable. As a group within a
supply chain, I would suggest there are all sorts of things that
farmers can do. I will give you a quick example. I work with a
major supermarket, Sainsbury's. The work I will do is supply chain
communication facilitation, if you follow me with that phrase.
Let me give you an example: dairy. A Sainsbury initiative has
been taken. The Sainsbury dairy team, about six people - three
commercial, three technicaland two major processors, Dairycrest
and Express, bring, say, two people each. We are up to ten. Then
there are two milk groups that provide all the milk, as I said.
We did this about six months ago. They put us all together in
a room for a day and I do the facilitation. That was the first
time they had ever met as a supply chain. At the end of a very
successful day, it was pathetic in its way that one of the farmers
from the milk group thanked us for the day and said it was the
first time he had met a supermarket person. Do we have a problem
with supply chain communication? Damn right we have a problem.
Who should take the initiative? Farmers should take the initiative.
It takes the supply chain to tango, if you will, but there is
so much that can be done. By the end of that day, we had identified
projects to take on; for example Sainsbury's say, "We ask
you to meet these requirements with regard to your milk. How does
that relate to national quality assurance requirements? Are they
identical? Are we being unreasonable? Are we adding cost where
there is no added value?" At the processor end, we identified
that two tankers were going down the lane, one turning right to
pick up milk from one farm and the other turning left to pick
up milk from another farm. You say, "That seems a bit stupid.
Why would you want to do that? Why would you not just send one
tanker down the lane? Is there anything you can do together?"
Yes. There are so many opportunities with regard to improving
supply chain management. That will bring competitiveness. That
will improve competitiveness. There are always too many elements:
one, if we got better supply chain communication, if we took some
of the costs out of the supply chain, and they are there to be
taken out; two, if the euro is stronger versus the pound; three,
if we were in the part of the commodity cycle which was on the
up rather than on the down, then we would see transformed agriculture
in the United Kingdom rapidly. I find that slightly worrisome
because then the view would be: oh, it has got better and we do
not have to change. I think we have to watch that.
210. Do you think that British supermarkets
did any calculation at all that they might try to give some form
of advantage to British farming or did they just have to be entirely
hard-nosed and it is ultimately what the customer wants and market
(Professor Hughes) I am not here of course to defend
supermarkets. My bet is that if you had a range of them and you
asked them that question, they would say, "We are surprisingly
loyal to UK producers". I think they are. Clearly they are
in there to earn the maximum return but there is a predilection
to focus on British producers. That is not just altruistic; in
part it is because that is what their customers want them to do.
Their first preference is to purchase British.
211. The final question, and I know this is
very simplistic: in those areas of British farm produceand
traditionally supermarkets have not purchased in the great areas
where you would expect importsis that British farming percentage
the same as it was five years ago; is it less; is it more? What
is the trend?
(Professor Hughes) It is not that I have studied this
in great depth, and I take a long-term view, but there are people
at the back who might better than me. In terms of self-sufficiency
in food, through the Seventies, Eighties and Nineties, it has
largely increased and quite steeply. That is what the Common Agricultural
Policy was about, was it not, in part, although in the last two
or three years you see a dip off, and that I would guess is largely
euro-driven, currency-driven. That is the real key in terms of
European competitiveness. I have forgotten your question, I am
212. It was trying to identify within supermarkets
the percentage of the kinds of things that British farming has
traditionally produced. Tastes have changed. They are importing
lots of things but with those core elements of five years ago,
has the percentage moved at all or is it the same?
(Professor Hughes) The basic commodity has gone up
over the last 30 years, although it has struggled in the last
three and that is largely currency-related.
213. If the currency problem was overcome, what
do you think the trend would be then?
(Professor Hughes) I think it is flattening out. We
are at relatively very high rates of self-sufficiency, particularly
if we focus on those products that we can actually grow in the
UK, and certainly versus the 1930s or even the 1950s.
Chairman: I want to conclude this session in
about 15 minutes' time. I ask colleagues to be fairly crisp about
the questions and answers.
214. Looking at both ends of the supply chain,
how responsive has UK agriculture been to the demands of differing
goods and such from the consumer, and do you see that farmers
are actually now responding better with trends getting better,
so that they know what the consumer is now wanting and demanding
and growing products which relate to that?
(Professor Hughes) I think there is a substantially
better understanding of the need for improved marketing and the
fact that there is a consumer than there was 10, 15, 20 or 30
years ago. There is some reluctance still to embrace consumerism:
just leave me alone, I just want to farm. Increasingly they are
aware of the driver. Of course that is happening at a time when
the direct subsidy element is becoming less.
215. Is that more driven really by the consumer
demanding it or what the supermarket actually is placing in front
of the consumer and inviting him to want to demand it, and therefore
the supermarket buyer sits in the middle controlling, if you like,
what he wants the consumer to purchase from his shelves because
he can then communicate that to the grower?
(Professor Hughes) You are right: supermarkets, particularly
for fresh food in the UK, which is largely own label or private
labeland fresh food is the part of the food market that
is on the increase in terms of the demandare constantly
trying to work out what consumers want. Do they lead them by the
nose? Not really. Consumers do not articulate well what they want.
They say, "We would like products with these sorts of attributes.
Go off and work it out yourselves". Then you develop a new
product; you put it on the shelf and if it moves, it moves; if
it does not, it does not. In most cases of new product development,
statistics show that nine out of ten new products fail. How do
you measure failure? That is if it is not on the shelf, say, two
years after it was launched. Trying to work out what consumers
want and how I can put something together that will meet their
expectations is not a science; it is an art. Yes, supermarkets
are in the business, particularly for own label products, of trying
to work out what consumers want. In history, that was the job
of the food manufacturer. Increasingly that role is switching
more towards the supermarket.
216. So the farmer essentially is growing to
the demands of his purchaser, not the consumer?
(Professor Hughes) There is a supply chain. At one
end is the consumer and the other end goes past the farm. If that
supply chain is not transparent, then the messages will not get
passed down through. It is as simple as that. Many supply chains,
and not just in British agriculture but in European and world
agriculture, are not transparent; they are too long; they are
disjointed and the messages do not move up and down.
217. You touched earlier on the changes in food
demand in the United Kingdom and northern Europe. I was wondering
if you would like to make a few comments in terms of the implications
of those future changes on the processing industry in the UK and
also on the farming industry in the UK.
(Professor Hughes) Maybe I can take another tack.
We are seeing to a degree globalisation of retailing, the emergence
of half a dozen retailers who are now most likely to be in 25
or 30 different countries. One of the great and reassuring things
about food is that we still have local tastes, regional tastes,
national tastes. I do a lot of work in and around Europe. If I
am in Scandinavia and put up the top 20 food and beverage brands
from the UK by sales value, then the Scandinavians might know
half of them but 10 of the 20 they will not know. That is reassuring
from a UK food processing point of view. That tells me we are
likely to hang on to at least that part of the processing business.
Otherwise, it depends on the competitive dynamics within the European
scene and then by increasing the pressure we will need to have
some large processing plants which may or may not be based in
the UK. That depends on a whole range of factors. For example,
if you take the Magnum ice cream that we buy from time to time,
which is sold right across Europe, that is a Unilever product.
They make it in Gloucester. You feed dairy products in one side
and lots of money comes out the other side and that product is
sold all over Europe. That can work to your advantage or your
disadvantage, depending on all sorts of macroeconomic factors.
Yes, we are seeing some rationalisation in processing. That can
disadvantage us. There are people who take a really very close
look at this. I am not sure how we are doing competitively, if
you will, on processing. Another point, though, which relates
to consumer demand, is that as you see an increase in demand for
the fresh foods, and we are right in the front of the chilled
food revolution globally, then we have the expertise in the UK
and also we are right next to our own customer. That suggests
to me that the Northern Foods of this world are going to be major
players in the UK for a long time because they have expertise
and proximity to the market. That is good news.
218. You have stressed the importance of income
growth and the money in consumers' pockets. Presumably, if one
is an optimist, one sees income growth in developing countries
too. What would be the effect of that on the northern European
(Professor Hughes) Let us be optimistic and hope we
get the global income growth and what we would expect to see.
I do work in developing countries. In fact, I spent half my professional
career there. What do we expect to see? Characteristically we
are seeing a significant increase in demand for meat protein.
Clearly that has all sorts of significance for us because then
that puts pressure on feed grain supplies world-wide. What would
I expect to see? I would expect to see growth in meat consumption
in developing countries. That will suck in feed grain supplies
and it will contribute, over time, to more resilient food and
feed grain markets internationally, but it will also probably
bring more instability. So, as farmers in that business in the
UK and as we release ourselves, if you will, from the yoke of
the Common Agricultural Policy, we will have to learn how to deal
with instability to a much greater extent than we have in the
219. I want to take you back quickly to a point
you made before, which was about the value of the euro and where
we were in the cycle of produce. You told us that if things got
better, then farmers would not want to change because they are
interested in farming. Do you see that as a very real threat?
(Professor Hughes) Yes. We all like an easy life.
Also, remember why are we in farming. At the top of the list for
most farmers is not maximising income. There are all sorts of
reasons why we farm. If you talk to a group of commercial farmers
and ask them to list their objectives for their farm business,
characteristically they will start off and say: number one, maximising
income. Then when you get into that, about 15 minutes later you
find that has dropped down to about number four. They are in that
business for all sorts of reasons, which is in part the problem
of farming. Because there are lifestyle elements, et cetera, it
means that there are a lot of people out there who are willing
to discount their income to keep the lifestyle that they wish
to have. That puts pressure on farming. You can expect to see
more people going out of farming. Lots have gone out of farming
but you could expect to see even more people going out of farming
if they were solely driven by commercial criteria, and they are
not. As things get better, as the euro strengthens, as commodity
cycles turn, the pressure to change will get less. It is a worrisome
aspect of British agriculture and I am sure of agriculture in
other countries. I remember I worked with the apple industry in
the UK and there were something like 23 marketing desks for English
apples, which is a market overall which is declining. Rather than
being 23, there should be two, let us say, and everybody agrees
there should be two. Get them in a room and, yes, they all agree:
"Well, should we reconfigure before we are reconfigured by
our major customers?" They all agree on that and they go
away to talk to their boards and then come back and say, "We
have decided not to change". You say, "Why will you
not change?" They say, "Because we are not hurting enough
yet. We want to bleed more before we are forced to change".
By then, of course, they have haemorrhaged to a degree that they
just have no energy and no strength.