Britain: Multiples losing Market Share in the Organic Market

The Soil Association’s Organic Market Report 2005 on the developments of the organic market in Britain may well have been a sober read for managers in the multiple retail sector. Although the market volume for organic products in Britain increased by 11 % to 1.2 million pounds (1.7 Million Euro), the multiples increased their turnover by a miserable 3.8 %! In contrast to their German colleagues, who are gaining an ever-increasing slice of the cake, the British multiples lost market share for the second year running: from 81 % in 2003 to 75 % in 2004.

Picture: British organic apples

In order to understand the reasons for this development, the retail managers would have to see where British consumers are increasingly buying their organic products, for it is the independent retailers, direct farm sales and in particular the box schemes who are gaining market share.  The turnover of the independent retail sector grew by 43 % in the last year to reach GBP 156 million (224 million Euros) and direct sales by a third to reach GBP 144 million (205 million Euros).

The multiple manager would have to realise that more consumers are turning away from „anonymous“ organic products in the search for more „authentic“ sources such as farmers markets, natural food stores and farm shops. They are finding an increasing number of smaller organic growers and producers, who are also looking to develop marketing channels outside the mainstream retail sector, in which they see no perspectives. This explains why the turnover of fresh primary products such as organic fruit and vegetables, meat and sausages and dairy products is rising, whilst the market for ready meals and prepared foods is stagnating. The former products are the classic domain of direct marketing.

The alternative retail channels are also becoming more professional and offer the consumer both the experience of authenticity as well as the necessary measure of convenience demanded by a modern largely urban consumer. The website of one of Britain’s largest Box Scheme suppliers, the London-based company Abel & Cole (www.abelandcole.co.uk) shows not only that the customer can purchase his or her organic goods 24 hours a day, but can also find out from whom the leeks or the apples are coming from. Companies such as Abel & Cole and Riverford Organic Vegetables with a weekly turnover of more than 20,000 boxes are not only organic box schemes, but more and more a full-range, home delivery organic service. It is hardly surprising that box schemes now have a 78 % share of the direct sales market. (Picture: Tesco fruit and vegetables)

The impending opening in 2007 of the new Whole Food Market Superstore in London’s Borough of Kensington is likely to have a similar effect on the customer’s expectations in the independent retail sector front.

Despite all this the multiples are still set to dominate the marketing of organic food in Britain  and their organic turnover of 913 million GBP (1305 million Euros) is increasing in a growing market. But here too the manager would be well advised to study the developments in detail. The turnover of the smaller quality retailers, such as Waitrose and Marks & Spencers grew on average much more strongly than their larger competitors. The market leaders such as Tescos and Sainsbury’s are still planning to maintain their position, but have had to realised that rationalisation of organic lines in the last years may have had a negative impact on sales and market share. This is one of the reasons why Sainsbury’s relaunched its organic range under the new slick SO Organic brand (Picture) and increased the range by 100 products. Market observers suggest that other retailers will follow suit and reposition their organic lines, providing new impetus for market growth in the next year. More importantly, the current market trends show that competition is not just a matter of quantity, but also of quality.

Market leader in terms of number is Tesco plc. Tesco declared goal is to be the organic number one in the British retail sector, and recent figure from Taylor Nelson Soffres -TNS- data suggest that with 28.8 % Market share this goal has been reached. The Tesco organic range has around 1200 organic products. By comparison a Tesco Extra Hypermarket has around 45,000 products. Tesco own figures show a 28.5 % growth in organic turnover in the 2004 (which seems to contradict the Soil Associations general market figures for the multiples), with strong growth both in the number of customers regularly buying and sampling Organic products. The strongest growth has been amongst mainstream and price-sensitive customers. This growth has certainly been fuelled by a number of price reductions, as part a general trend for which Tesco has increasingly been criticised, since the company is being seen to use its market position to put pressure on suppliers. 

The total turnover of Sainsbury plc of 20,7 billion Euros and 583 outlets (figures from 2004) is significantly lower than that of Tesco (36,1 billion Euros – 1878 outlets) the company has an organic market share (multiples) of 27 % - in other words not much less than Tesco. With 1300 products the Sainsbury’s organic range is larger than that of Tesco and is characterised by a high level of innovation and award winning products, such as own label organic smoothies. Sainsbury’s has also won the Soil Association‘s important „Organic Supermarket of the Year“ three years in a row.

Although the other major retail players Asda (Wal Mart), Morrisons, Somerfield, Marks & Spencers and Waitrose all have an organic range, the figures show that the size of the company is less important than the quality of the offer and the customer structure. Asda is in terms of total turnover (20.1 billion Euro – 265 outlets) the number two food retailer on the British market, but with a range of around 400 organic products and a largely price driven strategy is not recognised a main organic player. The smaller retailer Waitrose (3.9 billion Euros – 146 outlets) has more than 1300 organic products on offer and a market share within the multiples of 20 %, not least because of a largely middle-class affluent customer base. In 1983 Waitrose was also the first retailer to market organic products seriously, and has a long-standing commitment to organic. The Waitrose (picture below) range of organic products is defined by a higher proportion of branded products than the other retailers, who tend to define organic as a key own label brand. On account of the company’s size and commitment to quality Waitrose is an attractive customer for smaller specialist organic suppliers.

These comparisons demonstrated the importance of the supermarkets’ “organic credentials” on the British retail market. The aim of the annual competition for the Award „Organic Supermarket of the Year“ was to put more pressure on the supermarkets to improve the quality of their organic operations. The dominant position of the multiple retailers in the marketing of organic food was a cause of concern for the organic association, who saw the dangers in a price-driven market making it difficult for quality suppliers to compete. The Awards Scheme judges the participating supermarkets in eight categories: Quality and choice, percentage of home grown products, value for money, ethical trading, environment, animal rights, education, and customer satisfaction. The winning supermarket can use the recognisable and attractive awards logo on its products for the following year and the results are actively communicated by the Soil Association in the media.

A look at the further organic activities of the supermarkets suggests that the leading organic retailers do take their commitment to organic seriously, or at least realise that success depends on a wide range of factors.

Tesco (picture) held an Organic supplier conference in November 2005 to share their plans for the coming year and enable the suppliers to share their own experiences of supplying the company. Tesco also holds Customer Question Times with customers who the company knows to regularly buy organic lines to understand what the company is doing well and where it is possible to improve the offer.

Waitrose has a clear commitment to supporting and encouraging the development of UK grown organic products and in addition supports research and development. The company was one of the first signatories supporting the labour government’s „Organic Targets Bill“ with its goal of 30 % agricultural in organic production by 2010. The „Waitrose Organic Assistance Scheme“ offers support and encouragement to farmers interested in converting to organic agriculture and has organised a number  of demonstration organic farms amongst its suppliers. The company has also financed three trainee positions (one a year for three years) at the Henry Doubleday Research Association, which focuses on helping agricultural economists to understand the needs of the supermarkets. Waitrose has also sponsored R&D projects at the University of Wales.

Sainsbury’s (picture) hat also set itself the goal of increasing the proportion of UK produced organic products on offer. According to the company’s website all beef, pork, poultry, eggs and milk are produced in the UK and the company is looking to improve the proportion of UK production in other lines. In terms of price Sainsbury’s is also happy to be somewhat more expensive than arch-rival Tesco, if the organic farmer receives a fairer price for his produce. The company also has a project with the research institute Elm Farm Research Centre to monitor the sustainability of organic farms. Sainsbury’s was also one of the first companies to introduce biodegradable packaging for its organic products.

Despite multiple retailers’ declared commitment to home-grown organic products, consumer groups and organic associations are keeping a critical eye on their activities. Labour’s Organic Action Plan has a target of 70 % of all organic food consumed in Britain being produced in the country by 2010. The clear expectation of the Plan is that the multiple retailers do their fair share towards reaching this goal. The Soil Association revealed in the Organic Market Report 2004 that the proportion of imported organic primary produce increased in the last year by 1 %, and demanded that the government step up the pressure on the supermarkets to take the targets seriously. Although government pressure will surely continue to be a stick with which to keep the multiples on course, it could be argued that the increasing market share of the independent retail sector and of direct sales, will put more immediate pressure on the supermarkets, to explore ways of providing the consumer with more authentic home grown organic products.