The Trust Equation. Key conclusions of Agri & Food Trends 2014 MANAGEMENT SUMMARY. Edwin Lambregts Lindy van der Veen Roel van Lanen Jos Boumans

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1 Edwin Lambregts Lindy van der Veen Roel van Lanen Jos Boumans MANAGEMENT SUMMARY The Trust Equation Key conclusions of Agri & Food Trends 2014 AGRI&FOODTRENDS

2 THE TRUST EQUATION KEY CONCLUSIONS OF AGRI & FOOD TRENDS

3 MANAGEMENT SUMMARY AGRI&FOODTRENDS AGRI & FOOD TRENDS 2014 Reputation and trust: the central theme of Agri & Food Trends In the last five years, the agrifood industry was hit by a number of scandals. As a result, consumer trust has been negatively affected. However, research shows that many organisations in the agrifood sector rate the perception of the industry as excellent. The question arises: does the sector need to become more confident and reflective? And what does the sector need to do to regain consumer trust? In this document you will find a brief summary of the main conclusions of Agri & Food Trends 2014, published by Berenschot for the third consecutive year. In addition to our annual partners, VMT, ZLTO and LTO Noord, this year the HAS Hogeschool, FNLI and Fevia joined as partners. While the majority of respondents are Dutch, this year some Belgians are included. This study is unique, since it encompasses five links in the agrifood value chains: primary producers, the food industry, service firms, suppliers, and traders and wholesalers. The width and depth of the survey make it possible to draw comparisons between these. Besides the subject of perception and trust, the study includes topics that have been studied in each of previous editions of the survey. These topics are strategy, distinctiveness and unique selling points, future expectations and international markets. Furthermore, the opinion of respondents on a wide range of trends and developments has been researched. Would you like to know which trends and developments influence the agrifood industry most? And in which trends do firms choose to invest? You will find this and more in Agri & Food Trends Download the full report at 3

4 THE TRUST EQUATION KEY CONCLUSIONS OF AGRI & FOOD TRENDS 2014 About the survey The online survey was conducted in November and December The complete agrifood value chain has been studied. The total number of respondents that filled out our online questionnaire was 664 (double the number of last year s survey). In addition the online survey, thirteen managers of pioneering companies in the agrifood industry have been interviewed. Last but not least, the survey included fourteen mini-cases to illustrate the trends in practice. Respondents per sector (n = 664) 11% primary sector 45% service providers 16% food Industry suppliers trading companies 2 Respondents according to company size (n = 664) 3% 8% Number of employees % % > % 4

5 MANAGEMENT SUMMARY AGRI&FOODTRENDS CHOOSE OR LOSE? Organisations within the agrifood industry find it extremely difficult to distinguish themselves from their competitors. First off, respondents were asked what strategic choices were made. Subsequently, we examined whether or not these strategic choices have been consequently implemented. Starting point of this examination are the three basic strategies, as described by Treacy & Wiersema: operational excellence, product leadership and customer intimacy. Interestingly, 32% of the respondents were unable to make a clear choice between these. What is your strategic preference in 2014? per sector % % 48% 7 9% 68% 6 71% 5 18% % 65% 16% od gr Tra d ing Operational excellence ifo ies lie pp Su Product leadership 1 rs rs ce p ro v us Se rvi ind ide try r ec to Fo od ar ys Pr im Customer intimacy 38% To ta la 5% an % 32% mp 2 co Top five ways to distinguish oneself for each sub strategy total Agrifood Operational excellence Product leadership Customer intimacy 1. Quality of product/service (67%) 1. Quality of product/service (66%) 1. Quality of product/service (6) 2. Sustainability, corporate social responsibility (46%) 2. Innovation (48%) 2. Customisation (31%) 3. Sustainability, corporate social responsibility (3) 3. Sustainability, corporate social responsibility (28%) 4. Customisation (29%) 4. Service (25%) 5. Brand/image (19%) 5. focus on specific customer segments (21%) 3. Delivery reliability and -time (21%) 4. Lowest life time cost / total cost of ownership (1) 5. Customisation (12%) 5

6 THE TRUST EQUATION KEY CONCLUSIONS OF AGRI & FOOD TRENDS 2014 This survey shows that almost two thirds of the entrepreneurs see the quality of their products as a unique selling point. However, should good quality not be a given, instead of a unique selling point? Or to speak in terms of Treacy and Wiersema: isn t quality just a threshold value that forces companies within the agrifood industry to excel in other areas in order to retain a competitive advantage over their competitors? WE AIM FOR GROWTH Companies in the agrifood industry are optimistic in their expectations for revenues, profit and employment for Only one in ten respondents expects a decrease in turnover. Almost half of the companies expect their profits to increase and forty percent expects the level of profit to remain unchanged. Wholesalers showed to be the most positive whereas primary producers were (relatively speaking) the least positive. Percentage of companies with growth expectations in 2013 per sector % 78% % 6 48% 5 53% 48% 73% 6 62% 55% 55% 48% 42% % 21% 19% 1 Primary sector Food industry Revenue growth domestic market Service providers Revenue growth foreign market Suppliers Profit growth Trading companies Growth personnel formation Companies seek the highest growth potential within domestic and other western European markets. Asia is frequently named in the survey as an interesting growth-market. Interestingly enough it seems that the continents Africa and South America have yet to be discovered by many firms. This is rather surprising, considering the vast potential of these markets. Many African countries are experiencing a fast growing economy with an upcoming middleclass. Also, there are many differences between the various sub-industries within the agrifood. The primary sector sees many opportunities within Eastern 6

7 MANAGEMENT SUMMARY AGRI&FOODTRENDS 59% 5 Service providers Suppliers 27% 31% 3 3% 6% 8% Northern Europe 22% 19% 12% 29% 27% 5 59% Australia / Oceania 11% 1% 3% 1% 1% 8% Africa Central and South America Food industry Western Europe Home market (excl. home market) Asia 2% 5% 5% 6% 1% 7% 7% 16% Middle East Primary sector 25% 8% North America 4 16% 8% 3% 7% Russia 26% 2 21% 31% 3% 9% 1 18% 12% Growth regions in 2014: percentage of respondents that see growth opportunities in certain regions per sector 6% 11% 3% 15% Europe and Russia, whereas the food industry is more focused on Western Europe and Asia. Service providers prefer to stay closer to home. Eastern Europe Southern Europe Trading companies THE TRUST EQUATION: TACKLE OR IGNORE? Lately, the agrifood sector has come under enduring scrutiny by the public. A prime example of this is the recently published survey of the Dutch Safety Board about the risks in the meat supply chain. The consumer has become particularly suspicious about food and those who produce it. The consumer is considered to be hypersensitive when it comes to health risks, only to fall back into the same old dietary habits after a while. There seems to be a gap between the critical consumer on the one hand (those who demand virtuous, authentic and healthy food) and the price sensitive consumer on the other (those who do not want to overpay). The agrifood industry is struggling to cope with this gap. Communication is often reactive and defensive, despite there being so many things to be proud of within the agrifood industry. In any case, it is clear that the reputation of the Dutch agrifood is under pressure. With that in mind, it is particularly interesting that the results of our survey show that three quarters of the respondents claim agrifood to have an excellent image. 7

8 THE TRUST EQUATION KEY CONCLUSIONS OF AGRI & FOOD TRENDS 2014 Statement: The agrifood sector has an excellent image in the Netherlands total Agrifood Primary sector 76% Food industry 23% 58% Service providers 5 Suppliers 5 32% 9% 42% 4 Trading companies 6% 77% Total Agrifood 15% 66% 1 Agree 2 Disagree 8% % Not applicable So everything is fine and dandy, right? Well, not quite. Approximately a quarter of the organisations has directly suffered from a trust crisis in the past five years. As many as 42 percent of respondents don t think the crisis management within their own sector is well organised. Thus the likelihood of something going wrong in the near future seems quite high. A large percentage of respondents believes that their needs to be more government oversight. However, more and tighter control won t be enough to regain consumer trust. After all, trust starts with transparency. Communicate what you are doing and do what you promise. Unfortunately, this is easier said than done. Companies within the agrifood industry seem reluctant when it comes to opening up towards press and public. Statement: Government needs to control far more intensely when it comes to good and safe food total Agrifood Primary sector 33% 61% Food industry 55% Service providers 42% 48% Suppliers 53% 1 Agree 2 31% 43% 5% 43% 62% Total Agrifood 48% Trading companies 8 6% 8% 52% Disagree 4 5 Not applicable 6 7 5%

9 MANAGEMENT SUMMARY AGRI&FOODTRENDS INTEGRITY WITHIN THE BUSINESS PRACTICE Negotiation within the food chain is fierce. Not only between the producers/wholesalers and purchasers from retail, but also between service providers and their customers. The staunch belief that margins are unequally distributed throughout the chain is dominant within the primary sector and wholesale. Statement: My company has recently been affected by unfair trading practices total Agrifood Primary sector 4 Food industry 32% 5 2 Service providers 16% 4 41% 27% Total Agrifood 1 Agree 29% 42% 32% 23% 4 Suppliers Trading companies 2 31% 39% 2 Disagree % Not applicable One in three respondents indicates that their company suffers from unfair trading practices. An additional telephone survey conducted among 15 respondents suggested that low selling prices are the result of an imbalance in power relations. A sensitive subject, to which it is not clear whether the idea of unfairness stems from normal laws of supply and demand or whether it is related to misuse of power of one link within the value chain. Currently, the Dutch agrifood industry is running a pilot with a code of conduct regarding business practices1. The purpose of this code of conduct is to ensure good commercial practice throughout the agrifood industry. Our survey demonstrates that the extent to which organisations are aware of this code of conduct is still rather limited. WHAT S IN A TREND? Agri & Food Trends 2014 shows the current trends and developments within various chains in the agrifood industry. Moreover, we asked organisations in which trends they will actually invest. This all resulted in our ranking of the 1 We refer to the Gedragscode Handelspraktijken, developed by LTO, FNLI, CBL and VNO-NCW. 9

10 THE TRUST EQUATION KEY CONCLUSIONS OF AGRI & FOOD TRENDS 2014 trends in hotspots, niches and sleeping beauties which you can use in defining your strategy for the upcoming years. The questioned trends (fifty to sixty trends for each sub sector) have been divided into seven categories. Similar to last year, respondents indicated sustainability to be the most important trend category. Trends in the field of food safety and quality are continuously gaining in importance. If you are interested in an overview of all trends within each category and sub sectors, we recommend you download the full survey at Which of the following trends and developments will have the biggest impact on your company over the next two years? Total agrifood and compared to More attention to sustainability 2 Increasing attention to food safety and quality 18% Changing national and EU legislation 15% Changing consumer demands 13% Increasing attention to health 13% Stronger collaboration within and outside the chain Developments in the field of technology 10 11% 8%

11 MANAGEMENT SUMMARY AGRI&FOODTRENDS Example: analysis of consumer trends within horticulture and agriculture Classification of trends in hotspots, sleeping beauties and niches Consumer Niches important for few investment-ready companies Hotspots important for many companies who invest in it No real trends Sleeping beauty important to many companies but only some invest in it Intention to Invest Intention to Invest Importance of Trend Explanation for reading graph above. The percentage of respondents that see the trend as important is depicted along the horizontal axis. The vertical axis depicts the percentage of respondents who see the trend as a trend they would like to invest in. The horizontal and vertical lines in the graph depict average scores within the category. Trends on the right side of the vertical axis do score higher than average on the number of companies who find it important. Trends higher than the horizontal axis do score higher than average on the number of companies willing to invest Importance of Trend 1. Emphasis on tasty food 2. Changed pattern of consumption (less fixed meals, easy food) 3. Changed sales channels 4. Social media (as marketing instrument) 5. Biological (or natural) alternatives (meat substitutes for example) 6. Labels (in the field of animal welfare for example) 11

12 THE TRUST EQUATION KEY CONCLUSIONS OF AGRI & FOOD TRENDS

13 MANAGEMENT SUMMARY AGRI&FOODTRENDS AUTHORS Edwin Lambregts is sector manager agrifood at Berenschot. He has more than 15 years of experience in consultancy and has conducted a multitude of cases for clients within the agricultural sector, trade and food industry. Edwin enjoys thinking outside of the box and stimulates customers by combining new insights with passion and the vigour of entrepreneurship. Lindy van der Veen is strategy consultant within the agrifood and Horticulture sector. Her experience and interests lie in the field of innovative chain collaboration, business models and international entrepreneurship. Roel van Lanen is a senior strategy consultant at Berenschot. He enjoys turning complex abstract concepts into measurable results. He applies a wide range of strategic, financial and entrepreneurial tools in order to help managers be successful. Jos Boumans is an intern at Berenschot and actively involved in conducting the survey and analysis of the results. Currently he is a studying business administration and agribusiness at the HAS Hogeschool in Den Bosch. Berenschot and partners would like to thank Simone Heemskerk and Pieter Strackx for their support. Gilmar Pattipeilohy has been indispensable as graphic designer and Rike Weeda in the communication of the survey. This management summary was generated with support from Arie-Jan Baan and Justin van der Starre. 13

14 THE TRUST EQUATION KEY CONCLUSIONS OF AGRI & FOOD TRENDS

15 MANAGEMENT SUMMARY AGRI&FOODTRENDS PARTNERS Berenschot VMT LTO Nederland HAS Hogeschool FNLI FEVIA ORDER INFORMATION It is possible to download the full survey at A hardcopy of the survey is available for 15. To order a hardcopy, send an to Lindy van der Veen (l.vanderveen@berenschot.nl). 15

16 THE TRUST EQUATION KEY CONCLUSIONS OF AGRI & FOOD TRENDS 2014 Agri & Food Trends 2014 The Agri & Food Trends survey 2014 is conducted by the independent management consulting firm Berenschot, in collaboration with VMT, LTO Nederland, HAS Hogeschool, FNLI and FEVIA. For the third consecutive year, the most important trends and strategic choices within the agrifood industry have been surveyed. These were measured using an online questionnaire that was filled out by entrepreneurs, company owners and majority shareholders, directors and top managers within the Dutch and Belgian agrifood industry. The survey has been supplemented by interviews with important managers in the business. Unique is that the survey encompasses all sub-sectors of the agrifood industry, namely the primary sector, food industry, service providers, suppliers and trading companies. This year, special attention has been paid to the theme image and trust since the industry is under scrutiny by press and public opinion after several scandals, including the horse meat and salmon affairs. We believe the industry must regain trust by using a mix of measures. The Agri & Food Trends survey 2014 offers unique insights into the boardrooms of companies in the agrifood industry. What is going on in the agrifood industry? What does the industry invest in? How would companies like to distinguish themselves and what will the profits look like in 2014? To get all the answers to these questions, download Agri & Food Trends 2014 at Berenschot Groep B.V. Europalaan KS Utrecht T +31 (0) E contact@berenschot.nl 16