James Walton Chief Economist

Transcription

1 James Walton Chief Economist December 216 Hilton Hotel, Paddington, London FOLLOW ME ON

2 EU governments face common challenges Banking sector still weak (NB: bail-ins now compulsory) Geopolitical challenges (EG: refugee crisis) Low ability / will to reform (NB: Italian referendum in December) Low productivity / lack of competitiveness Persistent low growth Sovereign debt / unfunded social liabilities Images: Thinkstockphotos

3 Share of respondents (%) Euro-scepticism is not a British monopoly 8 Opinions of the European Union Very favourable Somewhat favourable Very unfavourable Somewhat unfavourable Source: Pew Research Center, December 216 Data is for Spring 216, chart does not show DK / refused answers

4 Grocery businesses also face common challenges Behavioural shift Deflation Foodservice & FTG Health Shoppers are making more frequent, smaller transactions Competition is driving prices down, accelerating maturity Trendy operators are taking volume from food retailers Shoppers and government expect businesses to lead on health Large stores Usage of large stores is falling Operating costs These will rise in future, driven by National Living Wage etc Promotions Promotion may be weakening as a driver of shopper choice Volume Food and drink volume sold per-capita is below previous levels Images: Thinkstockphotos

5 The benefit of historical changes is petering-out Barcodes EU Feminism Green Revolution Mass car ownership And retail technology in general The single market and CAP Women at work and in politics A surge in food production The emergence of mobile consumerism Nixon Shock Rise of fiat currencies worldwide Peace... through superior firepower Post-war Baby Boom The maternal state TV and mass media Golden age for brand building Images: Thinkstockphotos

6 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Share of respondents (%) UK shopper sentiment is moderate and stable 1 Personal financial expectations, next 12m Worse off Same Better off Source: ShopperVista, IGD Research, December 216 Base: 1, main shoppers per month; note change in sample frame in Sep-16

7 Jan-6 Jan-8 Jan-1 Jan-12 Jan-14 Jan-16 Change, 3m on same 3m yr ago (%) Real incomes are supported by low inflation Av weekly earnings, nom Impact of CPI inflation Av weekly earnings, real Source: ONS / IGD, December 216 Impact of inflation calculated by IGD using Fisher equation

8 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Share of respondents (%) But worries about food prices have not gone away 1 Grocery price expectations, next 12m More expensive Less expensive Stay the same Source: ShopperVista, IGD Research, December 216 Base: 1, main shoppers per month; note change in sample frame in Sep-16

9 Share of respondents (%) Brexiteers look forward to less red-tape 6 Which of these newspaper headlines do you think are very likely to appear in the next 1-2 years? Voted to LEAVE Voted to REMAIN 1 Source: ShopperVista, IGD Research, December 216 Base: 1,+ main grocery shoppers, balanced sample Fieldwork: August 216

10 Share of respondents (%) Pro-EU voters worry about economic impacts 6 Which of these newspaper headlines do you think are very likely to appear in the next 1-2 years? Voted to LEAVE Voted to REMAIN 1 Source: ShopperVista, IGD Research, December 216 Base: 1,+ main grocery shoppers, balanced sample Fieldwork: August 216

11 Share of respondents v. worried by outcome (%) Industry communication should focus on price Food shortages 3 Food prices up 2 1 Less choice of food Cost of eating out up Eating more British food Source: ShopperVista, IGD Research, December 216 Base: 1,+ main grocery shoppers, balanced sample Fieldwork: August 216 Share of respondents thinking outcome v. likely in 1-2 years (%)

12 Jan-6 Jan-8 Jan-1 Jan-12 Jan-14 Jan-16 Annual inflation, CPI (%) For now, food and drink prices continue to fall All items Food and drink Source: ONS, December 216 Codes refer to ONS measures

13 Price reduction since peak (%) Apr-13 Feb-14 Feb-13 Mar-14 Feb-14 May-14 Nov-13 Oct-14 Feb-14 Dec-13 Feb-13 Feb-14 May-15 Dec-14 All food and drink categories are affected Source: ONS, November 216 Data is for October 216, dates show when prices in each category peaked

14 Labour costs put margins under pressure Image: Thinkstockphotos

15 Jan-6 Jan-8 Jan-1 Jan-12 Jan-14 Jan-16 Change, 3m on same 3m yr ago (%) Grocery retail volumes are rising kind of Food retail - val Food retail - vol Source: ONS, December 216 Data is for physical stores only

16 Store numbers (n) Grocery store portfolios are growing 25, 369 2, 29 4,87 2,483 4,83 15, 4,745 1, Hypermarkets Discounters Supermarkets 5, 12,748 14,56 Convenience and forecourts Source: IGD Research, December 216 Data is only for retailers logged on IGD s Datacentre; this is not a complete population census

17 Product price Deflation changes price / quality trade offs Value then Value now Product quality Source: IGD Research, December 216

18 Suppliers work hard to drive interest and affection Customisation Cuteness Mystery Personalisation Nestle cereal cocktails, Westfield Stratford April 216 McVities augmented reality ikittens June 216 Oreo hole encourages exploration, New York, Feb 216 Romantic Marmite for Valentine s Day, Feb 216 Images: companies

19 Discounters have shown they can do food values Organic and fair trade Talking about origins Convenient lunch solutions Images: IGD Research, December 216 Photos taken and used with permission; store is Aldi, Eastcote, October 216 Extra services, more reasons to visit

20 Value market share (%) Discounters are not big but they are big enough Tesco Asda Sainsburys Morrisons Co-op Waitrose Aldi Lidl Iceland Others Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Source: Worldpanel, Kantar, December 216 Value shares are for 12 week periods

21 Implied YOY sales growth (%) Discounters are not big but they are big enough Aldi Iceland Lidl Waitrose Co-op Tesco Sainsburys Morrisons Asda Source: Worldpanel, Kantar, December 216 Value growth is for 12 weeks ending Nov-16

22 Value share of UK grocery retail market (%) Share is expected to continue to shift Hypermarkets Supermarkets Convenience Discount Online Other Source: IGD Research, December 216 Channel value forecasts based on main case, discount includes grocery component of High St discount retail

23 Supermarkets are working to revive large formats Licensed bar Waitrose Kings Cross, London Dec-15 Online order collection Sainsbury s Nine Elms, London Oct-16 Service concession Tesco Newmarket Mar-16 Store-in-store Morrisons Colindale, London Aug-16 Images: IGD Research, December 216 Photos taken and used with permission

24 Government is still focused on health Image: Thinkstockphotos

25 Who will lead on food values brand or PL? Image: Thinkstockphotos

26 The path to purchase new participants Inspiration Media sharing, eg: Instagram, Pinterest Social media, eg: Facebook, Twitter Investigation Search engines, eg: Google, Safari Comparison Price checking, eg: MySupermarket, PriceRunner Transaction Payment services, eg: Apple Pay, Paypal Transportation Delivery, eg: Instacart, Uber Eats Consumption Evaluation Post-purchase, eg: Checkout Smart Review, eg: Trip Advisor

27 New tech will reshape the grocery supply chain AI and robotics Making humans less necessary? Indoor agriculture eg: hydroponics New manufacturing eg: 3D printing Novel foods eg: test tube meat, no-cow milk Renewable energy Especially local and small scale Virtual reality Making travel less necessary, esp business travel Image: Thinkstockphotos

28 Ten talking points Are you thinking about all sources of strategic risk, not just BREXIT? Do shoppers see your business as part of the establishment? What is your company s approach to the other major challenges facing the grocery supply chain? Where will the next 5 years of growth come from, for your company and its partner businesses? Should you warn your shoppers or partner businesses about possible price changes due to BREXIT? How can your business work with retail partners to drive supply chain productivity / efficiency? How can your business work with retail partners to de-commoditise food and drink categories? Which retail accounts should receive the most resource from your business? How will pan-european buying and distribution work, post-brexit? What role might your business play in a supply chain that has been transformed by technology?