Chris Brown
Head of Ethical and Sustainable
Sourcing
ASDA Stores Ltd
Our Purpose
“To make goods and services more
affordable for everyone”
What we are doing?
• We have a plan and strategy that is working
• Rebooting our business to meet the new customer
agenda
• Staying true to what we are
• Championing EDLC
Long term grocery growth trends
Market growth slows slightly despite inflationary pressures
8
% change vs last year
7
6
5
4
3
2
1
98
99
00
01
02
03
04
05
06
07
0
Grocery Market 12we
Grocery 12we 05 Oct 2008
08
Food Inflation
10
9
8
7
6
5
4
3
2
1
0
9.0
9.3
8.1
6.8
5.0
4.6
4.5
2.9
Average Price Paid Per Pack
Grocery 12we 05 Oct 2008
05-Oct
10-Aug
13-Jul
2.6
15-Jun
18-May
20-Apr
23-Mar
2.5
Inflation
5.2
5.4
3.6
3.3
3.2
24-Feb
5.8
07-Sep
4.9
4.4
4.4
3.8
27-Jan
Change Year on Year %
Rate of increase has started to slow
Market shares and growth rates
Value oriented retailers still leading the pack in spend growth
Till Roll Market Year on Year Sales Growth
%
Till Roll Market Share %
Tesco
22.8
Asda
12.4
Sainsbury's
11.4
Morrisons
8.1
Aldi
22.1
Iceland
11.8
Lidl
9.8
Morrisons
9.6
Co-Op
3.1
Asda
Somerfield
2.8
Sainsbury's
5.6
Waitrose
2.7
Tesco
5.5
Aldi
2.2
Netto
Lidl
1.7
Co-op
Iceland
1.2
Waitrose
Netto 0.5
9.0
3.6
2.4
1.6
Somerfield 0.1
6
Till Roll 12we 05 Oct 2008
Slight skew to less affluent shoppers but ASDA is essentially a
mass market retailer
11
16
11
18
14
22
15
15
15
17
15
17
16
17
16
15
17
25
22
23
Class AB
Source: TNS Till Roll – 13 July 2008
24
23
22
22
24
23
23
24
24
24
19
18
10
10
11
22
Class C1
28
22
18
16
14
19
Class C2
27
23
Total Co-op
26
Somerfield
17
26
Lidl
19
Asda
21
27
Aldi
26
Morrisons
27
Tot Grocers
24
20
20
19
Tesco
27
Sainsbury
Waitrose
30
19
31
28
37
21
20
26
30
20
Iceland
11
13
Farm Foods
9
13
Netto
14
Class D
14
Tot Indepts
17
M&S
Spend Profile %
Till Roll Demographics Ranked on
Social Class - 4 w/e Jul 13 2008
24
Class E
ASDA large family bias – but almost 50% spend is from 1 – 2
persons households
Till Roll Demographics Ranked on
Household Size - 4 w/e Jul 13 2008
7
8
15
16
15
6
9
6
5
14
13
9
12
12
16
16
17
15
35
35
38
42
30
32
28
26
30
13
19
23
19
22
Lidl
18
45
1 Member HHs
2 Member HHs
4 Member HHs
5+ Member HHs
Source: TNS Till Roll – 13 July 2008
13
43
42
Aldi
19
23
38
37
Sainsbury
17
30
19
17
Morrisons
20
35
20
Farm Foods
36
35
Netto
Asda
16
29
21
Tot Grocers
31
20
Tesco
21
18
18
17
4
11
7
M&S
15
9
Waitrose
16
11
Total Co-op
18
20
10
Tot Indepts
18
9
10
Iceland
Spend Profile %
21
13
Somerfield
11
3 Member HHs
ASDA also bias to families – but almost 60% spend is from
households without children
4
4
14
12
12
16
14
12
13
12
18
Source: TNS Till Roll – 13 July 2008
12
12
12
11
2
11
7
2
7
8
75
75
76
83
66
66
69
Sainsbury
75
80
71
65
1 Child HHs
4
10
13
71
No Children
4
9
14
Morrisons
62
6
7
15
Farm Foods
60
16
Netto
57
15
Tot Grocers
16
Tesco
19
Iceland
19
16
3
9
M&S
5
Waitrose
7
Lidl
5
Total Co-op
5
Tot Indepts
7
Somerfield
8
Aldi
6
Asda
Spend Profile %
Till Roll Demographics Ranked on
No. of Children - 4 w/e Jul 13 2008
2 Child HHs
3+ Child HHs
Looking outside the ASDA bubble …
… we are now in recession…
• UK Inflation +5%
• 1.8m people unemployed
• 1.2m homes in negative
equity risk
• House prices down 15%
…impacting businesses close to us
Despite some reprieve in mortgage, fuel and food prices
customer confidence is still low
Source: Pulse of the Nation
However grocery basket size continues to grow; but on a
backdrop of fewer trips across a bigger number of stores
Yr on Yr
Growth %
7
6
5
4
3
2
1
0
-1
-2
-3
-4
6.0
1.9
0.9
-2.8
Store Repertoire Trip Frequency
Source: TNS
Basket Size
Items per basket
Meal preparation and consumption has become more fluid and less
formal
% eating or drinking, in or out of home, by time of day, all days, 7.00am to Midnight
35%
1961
2001
30%
25%
20%
15%
10%
5%
Source: BBC/National Statistics/nVision
Base: 545/654 adults in households with children
Midnight
11.00 pm
10.00 pm
9.00 pm
8.00 pm
7.00 pm
6.00 pm
5.00 pm
4.00 pm
3.00 pm
2.00 pm
1.00 pm
Noon
11.00 am
10.00 am
9.00 am
8.00 am
7.00 am
6.00 am
0%
Cooking from scratch is a widely held aspiration and people
report it rising substantially over the last four years
4.0
No. days per week
3.5
2003
3.0
2007
2.5
2.0
1.5
1.0
No kids
Kids
0.5
No kids
Kids
No kids
Kids
0.0
Make a meal entirely from
raw/fresh ingredients
Source: Future Foundation
Base: 1,210 adults aged 16+, UK, 2007
Cook from a recipe
Eat takeaway in the evening at
home
But people mean different
things by scratch
People still believe that food is becoming less healthy
The reality is different but the impression persists
“The food people eat is less healthy than it used to be” % who agree
90%
2003
2006
80%
70%
60%
50%
40%
30%
20%
10%
0%
Total
Male Female
Source: nVision Research
Base: 1,000-1,230 respondents aged 15+, GB
16-34 35-54
55+
ABC1 C2DE
Environmentalism has grown quickly over time
“I’m concerned about what I personally can do to help protect the environment”
% agree/strongly agree
80%
70%
60%
50%
40%
30%
20%
10%
1980
Source: nVision Research
Base: 1,200 aged 16+, UK
1999
2007
DE
C2
C1
AB
65+
55-64
45-54
35-44
25-34
16-24
Female
Male
All
0%
However, let’s get this in perspective – ethics & environment is not a
significant driver of decision-making
Ethical or environmental concerns influencing last purchase of food
14%
11.5%
12%
10%
8%
7.4%
7.0%
6%
3.7%
4%
2%
Source: nVision Research
Base: UK, 1,200 aged 15+, 2007
DE
C1C2
AB
All
0%
Fundamental Customer Truths
• My children must have a better life than me
• My family's health comes first
• Wasting money in the current climate is a crime
• Money problems divide families, divide communities,
divide the nation
• Nobody should compromise quality for price
Fundamental Business Truths
• Customers define and shape business strategy in a
recession
• Value operates at all levels of customer needs
• Experiential businesses fail or succeed on truth not spin
doctoring
• If colleagues don’t believe, customers never will
YouGov Survey Results - 22nd Sept 08
•
Who do you think the UK food industry puts first, profits or customers?
– 88% said profits
– 1% said customers
•
“The UK food industry thinks obesity is a problem”
– 5% strongly agreed
•
“The UK food industry puts profit before health”
– 75% agreed
•
“The UK food industry should have stricter limits on the amount of unhealthy food
they produce”
– 63% agreed
•
“Supermarkets are putting their prices up more than necessary as they have the
excuse of food inflation”
– 73% agreed
– 5% disagreed
•
Since the onset of the economic crisis, do you trust supermarkets more or less?
– 40% said LESS
– 0% said MORE
Key Questions for the food supply
chain
• Are we being responsible and adjusting our costs
vigorously?
• Are we trying to tactically trade our way through this
recession, or are we strategically adjusting our
business?
• Are we trying to manage price perception, or
genuinely saving people money?
• Do we care about child obesity, or are we
worried about the sales impact?
• Do we believe sustainability saves money and
lowers prices, or is it charitable donation?
Our Collective Cause
• Customers are doing without – we need to make sure they
don’t
• EDLC is not a tactic, it is a vocation
• Value is a democracy
• Saving people money is our social responsibility
Rebuild confidence in the food industry
Supplying ASDA – some thoughts
•
Value - what is the expected selling price of the product in Asda – actual
retail is an ASDA decision). How will the product be positioned?
•
Accreditation - has you got the correct technical accreditation especially in
high risk areas eg chilled food?
•
Packaging - is the product in retail ready packaging (rrp), is it in a
reasonable case size?
•
Lead time - how often can the product be ordered - once every 2 weeks
production on a fresh product is not ideal. Ensuring availability is critical.
•
Minimum order quantity - if the minimum is 1 pallet then we may struggle to
ever trigger an order point
•
Budgeting on advertising and generally getting the products launched, up
and running and to drive volume.
The ASDA way
• We are committed to our purpose
• We have created a vocational culture of EDLC
• We are winning new customers
• We believe sustainability saves money, and
lowers price
Customer Views
• Consumers feel overwhelmed & want business to help:
– Global warming perceived as the most immediate threat to life
on earth after terrorism
– After government, big business is considered to have the
greatest responsibility for doing something to stop global
warming. (Source: Tesco Internet Survey (Nov 2006) among
1030 adults, UK (incl. 256 opinion formers)
• Packaging Waste is the 2nd highest concern for GB consumers
Source: Nielsen Homescan survey February 2007 – Great Britain
– 11% of household waste in the UK is plastic, 40% of which
comes from the 15M plastic bottles used everyday. Source:
www.thesite.org www.wasteonline.org.uk
– 86% of consumers felt it would be good if packaging contained
recycled plastic (Source: M&S / WRAP)
What do customers really care about?
% m e n t io n in g
0
No 1
10
20
30
40
50
60
70
80
T h e n e e d to r e c y c le
C lim a te c h a n g e
T h e u s e o f c h ild la b o u r
T h e n e e d f o r r e n e w a b le e n e r g y
F o r e s t d e s tr u c tio n
( O th e r ) e x p lo ita tio n o f w o r k e r s in T h ir d W o r ld c o u n tr ie s
Men
Ex c e s s iv e p r o f its o f la r g e c o m p a n ie s
U s e o f p e s tic id e s
G e n e tic m o d if ic a tio n o f f o o d
O v e r - f is h in g /d e p le te d s to c ks
F a c to r y f a r m in g
` F o o d m ile s ' ( ie th e d is ta n c e f o o d tr a v e ls f r o m p r o d u c e r
to s h o p )
W omen
Business Imperative
•
•
•
•
Lower costs
Enhanced reputation
Reduced risks
Legislation proofing
Food Industry concerns
• Current sources not consistently viable
• Supply more variable – top-ups post crop
failure
• Novel logistical solutions
• Novel legislation
Greenhouse Gases and Food
• Fruit and Vegetables (2.5% total)
– Trending to increasing GHG
•
•
•
•
Intensive produce
Air freighted
Unseasonal protected
Pre-prepared - fragile / spoilable
• Meat and Dairy (8% total)
– Mainly at livestock stage
• methane and nitrous oxide
Food Miles – Simple Solution?
• There are trade-offs to consider
– agricultural production
– manufacturing efficiency
– energy sources
– storage
– waste
– Is the answer today robust for 10 years time?
Air Freight – bad guys?
Air Freight – on one hand
• The most GHG intensive form of transport
• Kenyan green beans 20 times more GHG
intensive than seasonal UK beans
• Food is the fastest growing air freighted
commodity
• Influence of climate change on air freight use
Air Freight – on the other?
• Other supply options equally GHG
intensive (eg. Glasshouse production in
EU)
• Or impractical - greenhouse green beans?
BUT
• These systems are changing – biomass
CHP
• Broader debate on supply optima and
market demand
And again..
• Top 20 air freight importers by volume are
nearly all less developed countries
• 1-1.5 million people dependent on export
horticulture in those countries
• Often smallholder suppliers
• in Sub Saharan Africa (up to 120,000
directly employed)
Asda Organics Share movement YoY by Business Unit
12 w/e
14
12
% Share
10
12 w/e 09 Sep 07
12 w/e 07 Sep 08
8
6
4
2
0
Total
Organic
Edible
Grocery
Fresh Meat
& Poultry
Produce
Frozen
Dairy
Chilled
Bakery
Total Organics (12 weekly trends)
12 w/e Market & Retailer Growth
TOTAL MARKET
Total Morrisons
90
Total Tesco
Total Asda
Total Sainsbury's
Somerfield
Total Waitrose
M&S
Expenditure Growth (%)
80
70
60
50
40
30
20
10
0
-10
-20
12 W/e
02 Dec
07
12 W/e
30 Dec
07
12 W/e
27 Jan
08
12 W/e
24 Feb
08
12 W/e
23 Mar
08
12 W/e
20 Apr
08
12 W/e
18 May
08
12 w/e Period
12 W/e 12 W/e 12 W/e
15 Jun 13 Jul 08 10 Aug
08
08
12 W/e
07 Sep
08
Milk – dairy farm C footprint
System
Conventional
Average
Conventional
Top 25%
g ‘CO2 equivalent’
per litre milk
907
745
% Contribution from
CO2
23
25
% Contribution from
methane
52
55
% Contribution from
N2O
25
20
Packed Potatoes
Supply chain
Tot GHG as CO2 eq
per tonne of
potatoes
% CO2 per tonne of
potatoes
Growers (inc on farm
storage)
0.104
62%
Packhouse (grading
and packing)
0.014
8%
ASDA Depot
0.005
3%
Transport
0.044
26%
Total
0.167
ASDA sales packed potatoes Total CO2 cost = 40kt
Key Points
• The carbon footprint varies significantly between farms
so a “standard” footprint for milk cannot be applied.
• The contribution from direct sources for milk production
is relatively modest at 20-25%.
• For ruminant production the contribution due to methane
is the largest component.
• Efficiency of production on farm is the key driver to
reducing the carbon footprints.
• By measuring some simple key measures on farms we
could account for the majority of the carbon footprint and
this should enable bench marking and sharing of best
practice to become possible on farms.
Kgs CO2 produced per hen place for different egg
production systems
Cage
Free
Range
Respect
ful
Organic
Rearing
0.43
0.67
0.67
0.67
Laying
2.27
4.43
0.41
6.69
Packing and
Distribution
1.20
1.83
1.83
1.83
External
1.36
1.36
1.36
1.36
Total KG's carbon per
hen
5.26
8.30
4.28
10.5
Index against cage
100
158
81
201
Summary
• Awareness is growing and concerns about
climate change are widespread, if confused
• General feeling of powerlessness about the
issues in consumers minds – which products or
retailers are “good” or “bad” on green issues
• How will this develop?
– Growing understanding of the real issues.
– Customers asking for and rewarding those
who meet their requirements
– NPD for low carbon products
The decisions we take in the next 12 months will
define the future of our businesses, and the food
industry, for the next 10 years
Only “Doing the Right thing” will restore
confidence in our industry