Examination of Witnesses (Questions 500-517)
MS PENNY
COATES, MR
IAN MERTON
AND MS
LUCY NEVILLE-ROLFE
WEDNESDAY 27 FEBRUARY 2002
500. So Nature's Choice and the growth of the
organic market suggests very strongly that perhaps some customers
are prepared to pay more for a more sustainable product?
(Ms Neville-Rolfe) Certainly they seem
to be prepared to pay a bit more for organics. What is interesting
and what one is always researching is whether that is around perceptions
of "eating the view" or around perceptions that they
think it is healthier and safer. One of the really interesting
things we discovered in this research was that poorer people were
wanting to buy organics because they thought they were better
for themselves and their children, which suggested it was more
about health and safety than the environment, but I think there
is more work to be done in this area.
501. The market signal very strongly is that
organics is going to grow.
(Ms Neville-Rolfe) Our research tells
us that it is going to grow and that is why we have said we can
sell £1 billion worth, which is far more than all of us are
selling together today, in five years' time.
502. You cannot source it in the United Kingdom?
(Ms Neville-Rolfe) 80 per cent comes
at the moment from elsewhere, including other EU Member States,
and there must be an opportunity there.
503. There is an opportunity there and you have
told us very consistently all morning that this is a real partnership
and we need to send some strong market signals. There are plenty
of market signals around. What are the problems? Why are farmers
not producing the goods?
(Mr Merton) First of all, I think our
customers see environment slightly higher up the list which is
why we pay a lot of attention to it for our customers. We see
that in organics. Clearly, as Lucy said, there is a big requirement
there. We also have an organic partnership club—called The
Organic Partnership or TOP—where we actively work with our
teams to do this. We have set an objective of getting our dairy
and beef to be totally British sourced. We currently run at something
like 70 per cent imported on organics. Our ambition is to get
that down to 45 per cent by 2004. We are doing that with the work
through The Organic Partnership to try and bring that down into
that sort of region. There are things we are doing. It is high
on our customers' agenda. That is why we are paying it a lot of
attention. We have just won the award for being fourth equal in
this area in the Business in the Environment Awaards, which is
the leading supermarket for this sort of thing. Our customers
have a slightly different view of what they expect of us.
504. Okay, so you are trying.
(Mr Merton) We are trying.
505. There is no doubt about it, people are
trying but why are producers not responding more quickly? The
industry sector is in crisis, here is a big market opportunity,
so why are the producers not responding?
(Mr Merton) Clearly a lot of people are
and many conventional growers are now looking at organics and
they are putting new land down. We all know the conversion times
and unfortunately because it is growing at 30 or 40 per cent a
year, as fast as we put more land down for it the demand increases.
It is a real issue but we are working very hard.
506. The growth of organics has come in at a
time of a fairly benign economic cycle. If the cycle turned down
a bit do you think you would see the organics growing as quickly?
(Mr Merton) I think it depends on the
customer. Lucy's point is right. There are lots of people who
want to buy more organics who maybe cannot afford it. Our job
is to try to make it as efficient at whatever premium is necessary
to bring it down. I think there are opportunities if we can make
it more efficient and less expensive and you will see a further
growth in organics.
507. We are not entirely sure why people are
buying organics because it is a number of factors?
(Mr Merton) Yes it is.
Mr Todd
508. Two of the three of you run store card
systems in which you log all of my purchases at your stores and
presumably all your other customers' purchases. To what extent
do you analyse that data to prompt choice which you see as evidenced
by the purchasing patterns that are available? I have often puzzled
as to why you are not able to prompt, for example, local inclinations,
organic choices, other environmental choices from the data that
you have available from your customers.
(Ms Neville-Rolfe) The answer is we do
use it rather in the way that you describe. Certainly on organics
when we wanted to extend the range to 1,000, we went and looked
at data and discovered that people who buy organics also buy a
lot of wine rather than beer.
509. I do not buy organics.
(Ms Neville-Rolfe) So we extended the
range of organic wine. So I think we are getting better at mining
the data for these uses and the people who shop with us should
be getting vouchers linked to what they want to buy using that
data. It is a good way of building up a relationship with customers.
510. You should be able to swipe your card at
the start of visiting the store—at Sainsbury's you can—and
there get a whole series of prompts saying: "If you are interested
in this kind of thing, we have got local produce from your particular
area on this particular stall, organic produce here, the ones
that come from a particular environmental project, whatever?.
Those are the kind of things that you have the scope already to
do?
(Mr Merton) Yes.
511. You try to sell me nappies and I do not
buy them.
(Mr Merton) The reward points system
is the whole point in question. Yes, there is a huge amount of
data to mine and get it right. As I am sure you will understand,
it is highly dependent on technological advances to do all this.
Quite often you have got data but you may not be able to get into
it and mine it in a way to prompt the right debate. Going forward,
as we get better and better at it I think you will see more and
more of that—tailoring the offer for you as an individual
rather than just a general member of the public.
Chairman
512. Let me wind up, if I may. When I go into
Tesco in Kennington or Sainsbury's in Victoria Street or, for
that matter, Waitrose in Saffron Walden or Morrison's or Safeway
in Ripon, I do my best to fight my way through the organic section
in order to get to some really good GM-enriched products. When
do you think the supermarkets will get over their gutlessness
on this and actually enable me as a consumer to exercise my choice
to have GM-enriched products?
(Ms Neville-Rolfe) I am sure we would
all say the same in that we do not sell GM. We started with a
system of honesty and labelling, which we thought was what customers
wanted, but as things progressed we discovered they did not want
GM and the confusion of having it in the store, so we took it
out. We are monitoring that all the time. Things could change.
While we have said we are not against biotechnology, the key would
be to find a product (which happens on medicines) which brings
a real benefit to consumers. If consumers can see a real benefit
then it might be that things would change but at the moment I
do not think that the consumers do see any major benefit, at least
on food.
(Mr Merton) I think, Chairman, to add
to that, that is where we started because right from day one when
GM first came out we launched tomato purée and we gave
the customer the choice and told them the difference and it worked
extremely well and initially customers preferred the GM product.
All the subsequent press it got and what has gone on since that
time has told us very clearly that customers are not comfortable
at the moment.
513. Headlines on the front of the Daily
Mail "Frankenstein foods" and all that kind of thing?
(Mr Merton) Yes. What we would see is
that this is an on-going and changing debate and maybe there is
more information in terms of the merits of GM that has got to
come forward in order to change public opinion. If that happens
then of course we would review our policies.
514. Let me ask you a final question. Ms Neville-Rolfe
mentions in her submission, and she has mentioned it two or three
times today the pound/euro relationship, but in her submission
she draws no conclusions from that as to the impact upon procurement
policies. Let me put it to you if the pound were ten per cent
weaker against the euro, what difference would that make? I am
going to ask all three of you on your procurement policies, how
much more do you think there would be in our stores if that relationship
were different or, without politicising it, if we were euro members?
How crucial to your procurement policies is that exchange rate
and how responsive are your procurement policies to changes in
the exchange rate?
(Ms Neville-Rolfe) I think over time
if the price of imports goes down, as it does when the euro weakens
then there will probably be more imports in some areas. We find
in terms of buying British that we like being able to buy from
a source that is traceable, that we know. If you get short term
changes in the exchange rates you tend not necessarily to move
your product abroad. I think if you had a big shift of 20 per
cent, the sort of change you have had over the last three or four
years, you would inevitably find that for UK imports as a whole.
515. We have organic milk. Some people do not
buy organic milk, some people do. Some supermarkets are importing
organic milk from Germany whereas in the United Kingdom there
is a surplus of organic milk, so if I buy milk which I regard
as non-imported milk it may well be that I have organic milk in
the carton. How does one explain that? It is very difficult when
the Government is throwing large amounts of money at people to
convert and farmers are thinking of converting to explain that.
Is that an exchange rate issue or subsidy issue?
(Ms Neville-Rolfe) We buy our organic
milk in the United Kingdom but the fact is we do have a European
market and food does flow from country to country and you will
have imports coming in at some times. We are not suggesting that
we never import anything. Obviously we import a lot where it will
not grow in the United Kingdom or is out of season.
(Mr Merton) May I add something here.
I think price is one element of the customer offer. I referred
before to quality, service and price being the three key elements.
There are tiers of quality, there are tiers of service and obviously
price is an important factor to the consumer. Part of that also
is about choice for the customer. As Lucy said, we buy 100 per
cent British organic milk. Assuming that something like that came
forward from imported, although our policy is to have all British
milk, we might offer that choice to the customer and stock both
and let them decide. I think that would be far more constructive.
516. You would offer them German organic milk
and English organic milk?
(Mr Merton) We are committed to British.
We are already 100 per cent British on our milk and we intend
staying that way. Assuming that something happened in the way
that you describe, and you talk about German organic milk being
available, if it was a customer requirement—and let's say
the high street was selling German organic milk—we might
give the customer that choice, explain to them the difference
and let them decide.
(Ms Coates) We supply 100 per cent milk
from British farmers and there are no plans at present to do what
you suggest. We do invest quite a lot of money in buying British.
Our meat and livestock are 85 to 90 per cent British and we do
pay to do that, we support British farming, that is our heritage.
517. Thank you very much indeed for coming before
us. If you have anything you wish you had said which you have
not, please let us know. If there is anything you have said which
you wish you had not, it is a bit late, but we would be very happy
to receive any further thoughts. We may contact you later. I think
there are some points of clarification and bits of further information
you promised us and we look forward to receiving those, but thank
you for coming here today.
(Mr Merton) Thank you.
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