It was the year of big government, an ever-bigger Tesco, a bid for Somerfield, and bird flu. The Grocer team flag up the hot stories
Your man of the year
Sir Anwar Pervez
Bestway chairman Sir Anwar Pervez was a worthy winner of The Grocer Cup for Outstanding Business Achievement this year. This prestigious annual award is voted for by readers of this magazine, so that makes him your man of the year.
From humble beginnings, Sir Anwar has built up Bestway into an empire with interests in banking in Pakistan, as well as a major cement business over there, plus property, rice milling and cash and carry wholesaling in the UK. In so doing, he has become one of the country’s best known, and wealthiest, Asian entrepreneurs.
His big achievement this year was the acquisition of rival C&C operator Batleys for a sum believed to be about £100m. This bold deal has turned Bestway into the country’s second-largest C&C company with 49 depots, good national coverage and £1.6bn turnover.
Sir Anwar stood out on a shortlist of other industry heavyweights, including Sir Terry Leahy, Justin King and Steven Esom, as well as rising stars such as Innocent Drinks co-founder Richard Reed. He picked up his award in front of his peers at the IGD Food Industry Awards in October.
It crowned a great year for the Bestway founder. But already he is looking forward to 2006, when he will have another reason to celebrate as Bestway marks 30 years of success in the cash and carry industry. Julian Hunt
PR disaster of the year
Fall of Food Brokers
The year kicked off with the sad news that Food Brokers was throwing in the towel with the loss of 122 jobs.
Newcomers to the industry may have seen it as just another food broker, but those who had been around longer understood the pioneering role it had played in introducing brands that have become household names such as Green Giant, Ferrero Rocher and Pringles.
From its humble beginnings in 1961 under the leadership of Desmond Cracknell, it grew into a multimillion-pound business under his sons Victor and Toby.
When Food Brokers was forced into administration, it was still handling sales and distribution for suppliers such as Quaker, Masterfoods and Fox’s Confectionery.
But what had led to the downfall of a company with such standing? There was little doubt it had been hit hard by the demise of the phone card market. The word was that this, coupled with payment disputes with third-party logistics firms, had brought it to its knees.
The situation could have been worse if all parties involved, including administrator Grant Thornton, had not rallied round to find alternative supply routes and jobs for those being laid off.
Companies such as SHS moved in to fill the gap. Former staff formed businesses such as 852 Solutions and Phoenix Field Marketing. Rod Addy
Shock of the year
Gerrards Cross
Public relations disasters in the world of food and drink retailing usually follow embarrassing product recalls or newspaper stories of an 80-year-old grandmother being asked to prove she is over 18 while trying to buy a bottle of gin.
But Tesco endured something truly disastrous when a rail tunnel underneath a site for a store development caved in.
The June mishap at Gerrards Cross, Buckinghamshire, which was being built over the railway line, was splashed across the nation’s newspapers and television screens with aerial views showing the ugly aftermath in all its glory.
Despite no one being hurt, that was just the beginning of Tesco’s woes as the site, and the subsequent disruption caused to local residents, businesses and commuters, continued to be the subject of much unwelcome press coverage.
Damage limitation was offered in the form of cash payouts to rail users and local businesses affected by the line’s closure, while pressure for Tesco to abandon the project has remained high ever since.
However, few would deny that the disaster could have been a lot worse.
How would the nation have felt about Britain’s number one retailer if the tunnel had collapsed while a passenger-packed train had been travelling through it? Simon Mowbray
Speech of the year
Andy Bond at IGD
Whatever you thought of its tone or content - and readers’ reactions certainly kept our letters pages full for weeks - there’s no denying that Andy Bond’s contribution at this year’s IGD convention rates as the year’s best speech.
First, the Asda boss, who was dressed head to toe in George casual gear, blasted the ‘grey suits’ in the grocery industry who, he claimed, had created a sector full of “bland, amorphous sameness” in terms of products and stores, saying: “The flair ain’t there. It’s no wonder so many people hate shopping these days. It’s boring.”
Then he had a pop at suppliers, accusing them of being too scared to establish points of difference between the major supermarkets and of breaking up any special relationship they may have had with Asda. “What is the point of me putting myself out for them when they don’t put themselves out for me?” he declared, urging them to work more closely with the retailer to put “the fun back into food”.
Bond was in no doubt as to what action was needed and who should be spearheading the ‘flair movement’. “I have loads of ideas and I’m in a great position to have a go - because I’m not a grey suit and I work for Asda, which has a history of being innovative.”
We loved the speech - and the impact it had across the industry. But Andy, we’re sorry, we still don’t like your George jeans. Julian Hunt
Deal of the year
Allied-Pernod merger
One minute it was on, then it was off. But by June the ‘i’s had been dotted and the ‘t’s crossed in the biggest deal of the year as the second and third-biggest drinks companies in the world - French giant Pernod Ricard and the British Allied Domecq - joined forces.
The completion of the £7.4bn deal by Pernod and Fortune Brands to take over Allied meant that Pernod could well afford to rest on its laurels. Not only had it covered significant ground to pose a realistic threat to world leader Diageo, but it had also acquired an enviable list of treasures to complement its portfolio.
In the aftermath of the deal, competition concerns made the merger trickier than it had originally looked. But, in the end, Pernod walked away with Ballantine’s whisky, Beefeater gin, Malibu, Kahlua and Stolichnaya vodka, among others.
Its bid partner, Fortune Brands, scooped Courvoisier, Sauza tequila and Canadian Club whisky, as well as local market leaders Teacher’s Scotch whisky, Cockburn’s port and Harvey’s sherry in the UK.
This left Diageo - whose pole position had ruled it out as a contender for Allied - hovering in the wings for discarded brands. But when given the option to own the New Zealand Montana wine operation, it made sure it had the final say on the matter by turning it down flat. Sonya Hook
Leak of the year
Von Spreckelsen letter
The vitriolic pen of Somerfield chairman John von Spreckelsen set tongues wagging when a letter written to Nisa-Today’s chairman Dudley Ramsden was leaked to the press.
The letter, which delivered stinging criticisms on corporate governance and Ramsden’s pay deal, was written in July, just in time to cause a big furore at the opening of Nisa-Today’s annual conference in September.
The biggest bombshell dropped in the letter was that The Co-operative Group had secret talks with Nisa-Today’s about a possible takeover. Although Ramsden admitted that discussions had been held, he denied that any firm offer had been made. As for other criticisms in the letter, Ramsden told The Grocer: “It’s history.”
Von Spreckelsen, who was a non-executive director of Nisa-Today’s, expressed his concern in the letter about Ramsden’s domination of the company’s board and the way in which a new pay deal for the chairman was approved. He also said “the controls and checks and balances which should govern decision making are not there”.
Three months on, von Spreckelsen has resigned from Nisa-Today’s board and is soon to leave Somerfield. Meanwhile, Nisa-Today’s is battling to bring its supply chain into check after the opening of its distribution centre in Scunthorpe, North Lincolnshire. Fiona McLelland
Saga of the year
Bid for Somerfield
It was a long time coming, but Violet Acquisitions has all but bought Somerfield in time for Christmas. The details should be finalised in court next week (December 21), which means that the UK’s fifth-largest grocer will transfer into private hands for £1.082bn, nearly a year after the first approach was made.
In January, Icelandic retail group Baugur’s initial offer of 190p per share was rebuffed. So it teamed up with Apax Partners, Barclays Capital and Robert Tchenguiz in March to place an indicative bid of 205p. This time there was a rival - the London & Regional Partners/ Nomura bank consortium. The City was gearing up for a great bidding auction when United Co-operatives surprised everyone by joining the fray. But, after looking through Somerfield’s books, it withdrew - the first sign that the much hyped bidding war might not materialise.
And, in the end, it was indeed a one-horse race. The Apax consortium acquisition vehicle Violet Acquisitions’ 190p per share offer was the only official bid to finally make it to the table by the October 14 deadline.
Meanwhile, Baugur’s chances were scuppered when it was rocked by fraud charges (since dropped) against chief executive Jon Asgeir Johannesson. The rewards went instead to fellow Icelander Kaupthing Bank, which filled Baugur’s shoes at the last minute. Fiona McLelland
Row of the year
Morrison vs Jones
During the summer it looked unlikely that Morrisons’ non-executive deputy chairman David Jones and Sir Ken Morrison would be talking to each other by the end of the year, let alone working together.
The colourful pair began the year presenting a united front, determined to steer Morrisons through the choppy waters created by the takeover of Safeway. However, as time went on and the retailer limped from one profits warning to another, the relationship hit the rocks.
They reached a crisis point in June, with Jones seemingly ready to call on shareholders for Sir Ken’s head should he not agree to Jones’ choice of non-executive directors.
In the end Sir Ken relented and the two stubborn Yorkshiremen kissed and made up, metaphorically speaking.
In September, Jones offered an olive branch when he reaffirmed his support for Sir Ken through his autobiography, but the old tensions soon started to bubble away once more. The pair are currently believed to be at loggerheads again - this time over the process of recruiting a successor to outgoing chief executive Bob Stott.
Jones is set to step down as chairman of Next in 2006 and it is unclear how long he will remain with Morrisons. However, there are sure to be some more fireworks before either Sir Ken or Jones finally lets go. Ronan Hegarty
Weird craze of the year
Cider on the rocks
Until recently, if cider was described as ‘on the rocks’, it was usually in reference to the desperate plight that the category was in. And, thanks to its association with park bench drunks and West Country bumpkins, it could be argued that it was an apt description.
These days, however, the leading brands would have us believe that the phrase refers to a sophisticated apple drink served over ice.
In a remarkable bid to reinvent the category, one company is bravely trying to change the way we drink and think about cider.
Tagged with the simple message to add cubes of frozen water, Magners, owned by Irish drinks and snacks company C&C, came rolling across the UK this year, triggering a new interest in all things made of fermented apples.
Copycats Strongbow and Merrydown were quick to take a slurp of the “over ice” pint, the former launching Sirrus and the latter cheekily changing its marketing to play up the new way to drink cider.
Meanwhile, smaller producers reaped the rewards of the nation’s new love for top-class and, more significantly, top-priced bottled ciders.
Dovetailing the revival is the decline of budget brands. White Lightning, for one, saw a whopping 28% sales decline in value to October 1. Still, there’s probably a long way to go before cider casts off its cheap and cheerful image. Sonya Hook
Copycat of the year
Tesco gets Sporty
Tesco would rightly claim to be at the forefront of food retailing in the UK, so you’d think it would be the first with everything. But in September it launched a new initiative not unlike a highly successful scheme already run by arch rival Sainsbury.
In fact, it was hard to spot the difference. Tesco Sport not only offered free sport equipment and coaching when vouchers were collected by shoppers, but it was also fronted by cutting-edge sport stars - just like Sainsbury’s Active Kids.
Tesco, of course, pulled out its wallet for the occasion, signing Paula Radcliffe, Frank Lampard and Jason Robinson compared with Sainsbury’s comparatively lonely looking Kelly Holmes.
Sainsbury said it was “flattered that Tesco is copying our good idea”. But an irritated Tim Mason, Tesco’s marketing director, dismissed Sainsbury’s childish gloating, retaliating with: “Sainsbury basically copied our Computers for Schools scheme anyway.”
Another thing both had in common was the tremendous value offered by their schemes. While Sainsbury’s customers had to spend £240 to earn the cheapest product, a durable plastic skipping rope, Tesco generously gave shoppers an old-style wooden-handled skipping rope in return for £160 worth of shopping. Rachel Barnes
Irritant of the year
David Handley of FFA
Oops, he did it again. Yes, Farmers for Action boss David Handley is our Irritant of the Year for the second year running.
Go back to the spring and Handley might actually have been in the frame for Hero of the Year, after spearheading successful negotiations to persuade retailers to charge more for milk and pass the extra down the supply chain.
Had Handley, better known for favouring direct action over talks, entered a mellower chapter in his life? No. It all unravelled when the big dairies cut the prices they paid farmers for milk. Handley was back picketing depots - and not just those belonging to processors and retailers. He also took his crusade to his own kith and kin - factories run by farmer co-ops.
Handley’s ‘pièce de irritance’ came in November, when he called farmers out on a three-day strike. They were to withhold milk from the market and, after a hare-brained scheme to send it to Third World countries collapsed, spread it on their land.
The strike irritated processors, who had to make contingency plans to ensure supplies weren’t disrupted. It irritated retailers because it gave one more public airing to damning allegations about the way they treat their suppliers. It even irritated other farmers’ groups, who opposed the strike, but privately must have been green with envy at the media coverage. Richard Clarke
Departure of the year
Asda’s Tony DeNunzio
In March, with Asda sitting somewhat uncomfortably as the UK’s number two supermarket, president and CEO Tony DeNunzio called time on his four-year reign at the Leeds-based retailer.
Well liked, but more respected for his head for figures than his charismatic leadership qualities or killer instinct, DeNunzio had delivered consistent growth for more than a decade.
But latterly he was perceived as ever more at odds with his Bentonville bosses.
The beginning of the end appeared to come in 2004 when he admitted that Asda would never be able to challenge Tesco’s dominant position in the market.
Speculation intensified when he took on the MFI deputy chairmanship in February.
Since his departure, Asda, under the leadership of Andy Bond, has faced a renewed challenge from Tesco for its cheapest supermarket crown and from a resurgent Sainsbury battling for its number two spot. Bond admitted that this could take place early next year.
Bond has so far shown a thick skin and fighting spirit - despite claims in the press that he has been given 18 months to prove himself or he’s out, claims that have been laughed off by Asda.
Given the pressure on Bond’s shoulders, DeNunzio, now chairman of Dutch group Vendex KBB, probably doesn’t have too many regrets. Ronan Hegarty
Brand war of the year
Branston vs Heinz
It was trailed as one of the biggest brand wars in years and sparked a catfight between two of the UK’s biggest food suppliers, but was the launch of Branston Beans to take on Heinz all just a lot of hot air?
Premier Foods - which is investing more than £10m to market the new baked beans brand - would certainly beg to differ, ambitiously predicting that Branston Beans has legs to become a £70-£100m brand within two years.
Heinz turned its nose up at the new bean on the block, however, saying that together with Premier’s existing Crosse & Blackwell and HP beans, it was the third time that Branston was trying to challenge it with “yet another” brand. However, it was worried enough to dramatically reverse an advertising freeze and put out TV ads in November highlighting Heinz Baked Beanz’s status as the original and number one bean.
Premier, meanwhile, is focusing on what it claims is the superior taste of Branston Beans in its advertising, needling its rival by calling it “has beans” in newspaper ads.
It’s running a Great British Bean Poll, taste tests of 750,000 consumers, and will use the results in its marketing.
Do Branston Beans really taste better? Can it challenge such an iconic brand as Heinz? Can Premier convince people its beans don’t contain pickle? Watch this space. Claire Hu
Fad of the year
Atkins low-carb diet
Touted as the next big thing since sliced bread and by some as sounding the death knell for the great sliced white loaf, the Atkins diet star burned fiercely but fleetingly in the grocery firmament. It was fun while it lasted, though.
First we had large companies such as Unilever, Nestlé and Heinz confidently sitting back and watching the ‘fleeting fad’ pass by without a care in the world, quickly followed by a flurry of profit warnings as the Atkins effect did, in fact, begin to take its toll on their carb-dense products.
Then we had the panic developments from the big boys, at much expense no doubt, perfectly timed to catch the tail end of a diet that, in the end, proved itself to have been a fad all along.
Add to this the slanging match between dieticians as to whether the diet was any good for you, the sniping from the Federation of Bakers and the British Potato Council over how the diet was demonising the humble carbohydrate and, to top it all, detractors highlighting the untimely demise of Dr Atkins himself - and you can see why it generated such interest in the press. And, with the diet now gone, companies will have to find something else to blame a sales slump on.
It’s a tough act for the now popular low GI diet to follow, that’s for sure. Stefan Chomka
Non event of the year
Panic over bird flu
For a few weeks this autumn, panic gripped the country as bird flu spread through Europe.
We sat, face masks at the ready, nervously Googling ‘Tamiflu’ to locate black market supplies, and waited for the anticipated epidemic to hit us.
The media told us the deadly disease would come in on migrating birds or through illegally smuggled parrots or chicken meat imported from Asia. There were any number of ways it would come in.
In the end, the closest it got was a quarantine centre. And isn’t that what quarantine centres are for, anyway? But the media frenzy was at its peak and would take a long time to recede.
Meanwhile, we waited with bated breath for the disease to wipe out the national poultry flock, but not before it had mutated and killed us all as well.
Such was the hype that even so-called experts were sucked in. One told Gordon Ramsay’s new TV show that there would be no free-range turkeys this Christmas because of bird flu. He was, of course, dead wrong.
The industry tried to reassure consumers, but the damage was done. Poultry meat sales plummeted and Justin King admitted Sainsbury was ordering more beef and pork this festive period as fearful shoppers abandoned the traditional turkey.
If this is what happens when we don’t get bird flu, heaven help us if we ever do. Richard Clarke
Paradox of the year
24-hour licensing
Britain is a nation of unruly binge drinkers, said the government. So let’s allow people to buy drink from pubs or supermarkets at any hour of the day.
The paradox of demonising drink, on the one hand, and making it more accessible, on the other, wasn’t lost on an industry that was left wondering how it was supposed to take advantage of the new laws without being accused of encouraging the problem. So began the game of ‘it’s nothing to do with me, guv’.
Drinks producers pointed the finger at cheap supermarket brands. Supermarkets blamed pubs. Pubs blamed the government... and supermarkets.
The government diverted attention with a last-minute clampdown on underage drinking - thereby blaming pubs, supermarkets and drinks producers in one fell swoop.
Public opinion was divided. It was bad enough finding drunken youths lying on your pavement at 11pm - surely it would be worse if they could lie there at 2 or 3am?
Those in favour of the new legislation tried to evoke reassuring images of Continental late night cafés and new levels of sophistication.
On November 24, after months of confusion over applications, the historic day arrived.
While some hit the town until the early hours to celebrate, for the most part the change has had little impact.
But, with Christmas and New Year upon us, there’s still time for things to get messy. Sonya Hook
JANUARY
Icelandic retailer Baugur’s initial offer for Somerfield is rebuffed. ACNielsen’s TradeTrak research shows that six out of 10 people visited a Tesco in the four weeks to Christmas giving it 30% of trade. Bestway enters the end game in its bid to take over Batleys. The nationals get excited about our story showing sales of honey squeezing past marmalade for the first time.
FEBRUARY
Food Brokers goes into adminstration after 43 years in business, and Unwins pulls out of talks to sell its business. Meanwhile, there is a chaotic start to the new alcohol-licensing regime as councils misinterpret the regulations and there is confusion over how to apply. But the month’s biggest story is the withdrawal of more than 400 products tainted with the illegal dye Sudan 1.
MARCH
Premier Foods comes under scrutiny in the wake of the food scare. Asda chief executive Tony DeNunzio announces his shock departure for little-known Dutch retailer Vendex and rising star Andy Bond is confirmed as his replacement. Meanwhile, in its long-awaited report, the OFT claims that the grocery market is working well for consumers.
APRIL
Tesco breaks through the 30% market share barrier just days before it becomes the first UK retailer to post profits of more than £2bn in its year-end results. Pernod Ricard enters the end game to acquire Allied Domecq for £7.4bn. Sainsbury kicks off an 18-month category review as it looks to challenge Tesco and Asda more vigorously.
MAY
Speculation mounts that Tesco is planning US entry. A new foodscare, Para Red, hits the news. Meanwhile, Kit Kat Low Carb bites the dust, signalling waning interest in the low-carb market, and UBUK cuts fat and salt in top brands. The OFT’s May 31 deadline for evidence to launch a further review of supermarket practices comes… and goes.
JUNE
Industry bodies are divided over whether the OFT will launch a new market review. Asda emerges as the UK’s cheapest supermarket for the eighth year in The Grocer 33 and its parent company declares an interest in the Irish Republic. Elsewhere, the roll out of chip and PIN in some independents is hit by data processing problems.
JULY
Aldi launches a £500m campaign to turn its image into one for middle Britain, while one commentator speculates that it won’t be long before a major multiple launches a hard discount format. The latest Harry Potter novel sparks a price war among the multiples and the FSA’s nutrient profiling model for Ofcom is slammed by the industry.
AUGUST
Tesco emerges as cheapest non food retailer in the first The Grocer 33 Non Food report, while its complaint about Asda’s use of The Grocer 33 title of cheapest supermarket in its adverts is upheld by the ASA. At least 6,500 retailers risk losing their alcohol licences as they fail to meet application deadlines. The Co-operative Group sells 100 stores and plans to axe 600 jobs.
September
Calls of ‘hypocrite’ start ringing in Wal-Mart president Lee Scott’s ears as he condemns Tesco’s dominance and calls for a government probe. The OFT’s ‘effective competition’ ruling and two-market definition of the sector are lambasted by the industry. In the light of that definition, Somerfield believes it is unable to sell three stores to Proudfoot. It could have done...
October
Off-licence chain Unwins’ woes deepen as suppliers start to terminate contracts, while Wine Cellar sells 45 stores to Oddbins and in Northern Ireland Wine Mark buys Philip Russell. David Cheesewright and Andy Clarke return to Asda as COO and retail director in time to oversee the roll-out of Asda Living, the retailer’s attempt to compete with Tesco’s Home Plus.
NovemBEr
Whole Foods Market is voted finest food retailer in the world by The Grocer’s academy of global experts. The FSA’s chair, Dame Deirdre Hutton, recommends a multiple traffic light signposting system to help consumers evaluate nutritional content - to much booing and hissing from the industry. Farmers strike in protest against supermarket buying power.
December
Discounter Aldi announces plans to double the size of its head office in Warwickshire, which would help with its ambitions for 1,500 stores in the British Isles. The FSA’s nutritional profiling model for Ofcom faces renewed attacks from nutritionists, while figures from National Statistics show that a third of consumers’ food spend goes on fresh fruit, veg, meat and fish.
Sainsbury gets back to business
The multiple has taken great strides on its comeback trail, says Rachel Barnes
Sainsbury had a miserable start to the year. Its third-quarter results for 2004, which came in on January 1, showed a 1.2% decline in like-for-like sales. CEO Justin King promptly reaffirmed his commitment to resolving availability issues, declared that sales trends were showing signs of heading in the right direction and took action, cutting 600 jobs at head office from all areas of central support services.
And, with cries of “it’s business as usual” coming from the remaining 2,000 HQ staff, all King’s hard work and soothsaying began to pay off.
Three consecutive quarters of like-for-like growth heralded a new dawn - albeit with a somewhat slow sunrise in the low single digits.
“Our business plan is on track” became the mantra when asked if it had yet turned the corner, with March 2008 stamped as the date when Sainsbury would be made great again.
Slowly but surely, progress was made. With the three profit warnings of 2004 behind it, Sainsbury started to look at areas other than the bottom line this year. The launch of its corporate social responsibility programme, Active Kids, in February was a great hit with the nation. More than 20,000 schools registered for the vouchers-for-sports-equipment scheme in the first couple of months and a total of £17m worth of equipment and activity sessions was donated at its close.
Sainsbury also re-signed celeb chef Jamie Oliver as the face of the supermarket and ploughed £10m into the launch of its new slogan and ad campaign, Try Something New Today.
It couldn’t come too soon, with ‘Making Life Taste Bitter’ too often the jibe in the national papers.
Having Oliver’s contract signed and sealed has been a blessing for Sainsbury, despite rumours last year that it would drop the star. But that was before the School Dinners campaign. Now, it is fortuitously linked with the healthy food campaigner and championing the health of the nation’s kids. A multimillion-pound rebranding of its organic range in the summer and the planned relaunch next month of its Be Good to Yourself range are helping to cement its health credentials.
As for its strategy, it’s actually difficult to find issues to pull Sainsbury up on in the past year. Its prices are more in line with rivals, to the point that it highlights on its shelf edges where it equals or undercuts Tesco’s prices, and availability is at market-matching levels, it claims.
The only blip could be the fact that it failed to take over Asda as the number two supermarket, a possibility that was highlighted by Asda chief Andy Bond earlier in the year. However, it’s still on the cards. Indeed, King has pointed out that if both retailers continue their current sales patterns, 2006 could be the year it happens.
In the shorter term, in just a few weeks’ time, it will be either celebrations or commiserations all round for Sainsbury on January 1. For this year’s third-quarter results, it hopes, will show a full 12 months of growth - starting the year as it means to go on. Beyond that, growth on growth is the big goal for King in 2006.
Winner of the year
Waitrose shines
Waitrose has emerged as the real winner this year, says Julian Hunt
Tesco may have been strongest financial performer in 2005, but as Britain’s number one was battered by negative publicity, it was Waitrose that emerged as the real retail winner of the year.
Sales are booming - up more than 4% on a like-for-like basis in the first six months of the year - as the chain capitalises on a growing consumer love affair with food that offers quality and provenance. Waitrose is also well placed to tap into another emerging trend: consumer concerns over the ethical dimensions of food retailing.
Its stellar top line performance has been boosted by an aggressive expansion programme, which has seen Waitrose buy and revamp 24 stores from Morrisons in the past 18 months. Together with its newbuild stores, that activity has allowed Waitrose to expand its brand northwards out of its traditional heartland.
And MD Steven Esom is keen to keep the momentum going. As he told The Grocer only last week, the retailer wants to double its market share, strengthen its presence in the north and be operating 250 stores within 10 years.
Esom remarked: “We have a pretty healthy organic development plan but most of our growth will come through acquisitions. There are definitely more opportunities in the north and, again, it’s all about acquiring the sites.”
Waitrose’s clever rebranding strategy for the former Morrisons stores not only ensured impressive sales figures but also earned the retailer a place on the shortlist at The Grocer Gold Awards for best consumer initiative.
Its integrated marketing campaign created excitement among would-be shoppers while managing to override perceptions about the price differential between the new Waitrose stores and former Morrisons outlets. The resulting Smile campaign was praised for its imagination and creativity by The Grocer Gold judges.
It’s no surprise because, if there is one thing at which Waitrose excels, it is at clearly communicating its brand proposition. Another is its strong relationship with suppliers, particularly when it comes to working with small local producers and dairy farmers. The year has not been without the occasional glitch, however - the most recent being the shock news that popular director of buying Angela Megson will be quitting the company at the end of January after three years in the role. Nevertheless, Waitrose’s profile has never been higher - a fact reflected in our recent survey where we identified the world’s finest food retailers. Waitrose emerged as the best British retailer in that survey, while its 80,000 sq ft Food & Home outlet in London’s Canary Wharf was named as the best store in the country, thanks to its great service, fantastic product and presentation and impressive food-to-go offer.
However, in the same survey, US supermarket Whole Foods Market was named the world’s top retailer by our academy of experts. And Waitrose will need to be wary of this behemoth of the natural foods world as it gears up for a launch in the UK in 2007.
The flipside to that argument, of course, is that there is plenty of room in the UK for more retailers operating at the quality end of this polarised grocery market.
As Joanne Denney-Finch of IGD says: “There is still considerable growth left in this market. British consumers want better quality and more local and regional foods.”
Waitrose is better placed than ever to capitalise on that trend.
Tragedy of the year
Unwins in trouble
The future looks bleak for Unwins as it continues its desperate fight for survival. Rod Addy reports
It didn’t take a genius to realise that Unwins was fighting for its life this year. Its struggles culminated in it heading for administration as The Grocer went to press this week.
Walk into most of its stores and the shelves were virtually bare. In one Hove store, attempts were made to disguise the problem by spacing out bottles.
Staff resorted to gallows humour, one responding to a customer’s complaint that there were no cigarettes with the risible claim: “We’ve run out because people are smoking too much.”
Times had been tough for the company for a long time. The post of CEO, vacated by David Wetz in January 2003, was empty. Yet, at the beginning of 2004, Unwins had such grand designs for self-improvement.
Phillips Newman, its upmarket retail concept, was performing well. And Unwins itself reported a flurry of interest from bidders after putting itself up for sale in the summer of 2004 to raise cash for future growth.
When it was bought by DM Private Equity in March, the business had a fresh injection of money and there seemed to be light at the end of the tunnel. There were plans to tighten up on availability by rolling out an SAP supply chain management system. Plus, like Thresher Group, Unwins was developing a wider convenience offering, including ambient, chilled and frozen food, to offset competition from major supermarkets in beer, wine and spirit sales. However, since a major u-turn on that policy at the end of 2004, things started to deteriorate rapidly.
The problems became all too apparent in April, when rumours surfaced of a dispute with supplier Palmer & Harvey McLane and tobacco and confectionery stocks grew scarce. At the same time, the departure of purchasing director David Armstrong was revealed in a restructuring of the business.
Then, in July, Unwins announced it was slashing its tobacco lines in half and taking the axe to its beer, wine and spirit ranges. DM Private Equity had pumped £30m into the business by August to clear debts and pay creditors, yet that barely scratched the surface.
Further job losses followed. Then came the body blow. Major suppliers privately revealed that they had stopped delivering to Unwins because their bills weren’t being paid.
Reports of Unwins’ switch to overseas suppliers and a further multimillion-pound injection of cash seemed futile.
The latest proposal, before the company filed for administration, had been to lease some Unwins stores under franchise, convert others to the Phillips Newman format and keep the rest under the Unwins name.
As Christmas approached, the business was frantically seeking a way out of total collapse.
Hype of the year
Whole Foods, OK?
The US giant is set to take the UK by storm, says James Durston
If you haven’t heard of Whole Foods Market by now, you haven’t been reading The Grocer properly. The biggest natural foods retailer in the US, which started in 1980 as one small vegetarian shop in Austin, Texas, with a turnover of $250,000 a year, has grown into a 180-outlet juggernaut with sales of $4.6bn.
It has forged a trail through North America, publicising its values of pure, unadulterated food and customer service under its adage Whole Foods, Whole People, Whole Planet.
It also came out on top, by some distance, of The Grocer’s poll of experts to find the best food retailers in the world last month and has in the past few years become a watchword for high quality trading with a conscience. And it doesn’t even have a store in the UK yet.
Its first overseas fascia (Whole Foods already owns the Fresh & Wild chain of natural food stores in the UK) will open in Kensington in London in 2007 and, although it’s just one store, UK grocers would do well to keep an eye on it, because all this hype is built on a significant commercial drive.
Although its founder and CEO, John Mackey, makes a point of prioritising customers and team members before shareholders, he makes no apologies for his company’s financial success or for his future ambitions for it. “Despite 2004 being our best year ever, we still expect sales growth of 15% to 20% and comparable store sales growth of 8% to 10% in 2005,” he says.
David Stoddart, analyst at Teather & Greenwood, thinks UK retailers would do well to keep watch on Whole Foods’ performance. “If it really delivers in an area that has traction, other retailers will have to do something similar and make sure Whole Foods doesn’t build too much share.”
Whole Foods approaches food from a customer-led angle, says Mackey. His mission is to motivate his employees by getting them excited about the business’s purpose, which will, the theory goes, manifest itself as great customer service.
Mackey plans to take sales to $10bn by 2010. With 64 new store developments in progress, including the one in London, the square footage of the company is set to double, making this more than possible.
Backlash of the year
Tesco gets a fistful of complaints
Tesco’s dominance of the market has sparked a big reaction from its critics. But has it amounted to anything, asks Liz Hamson
As 2005 kicked off, media pundits were delivering stark warnings of an impending consumer backlash. The multiples - read Tesco - were too powerful, too profit-motivated and, well, too successful. They were turning the high street into a desert and shoppers were finally beginning to wake up to the fact.
Investigative journalist Joanna Blythman was just one member of the national media claiming that a shopper revolt was nigh.
“I expect the anti-supermarket backlash to intensify in 2005. Tesco and Asda are first in line to get it in the neck,” she predicted dramatically in the first issue of The Grocer this year. “People are beginning to realise that Asda is part of Wal-Mart and that neither it nor Tesco is a homespun grocer anymore. Rather they are both global corporations motivated purely by profit.”
But did the backlash actually materialise? The nationals certainly devoted significant column inches to it. And as far as rivals, independent chains and campaigners go, 2005 was the year the knives came out.
They were all at it in April, when Tesco broke through the 30% market share barrier for the first time and became the first UK retailer to post a profit of more than £2bn (see opposite page).
The redoubtable Alan Toft, then director general of the Federation of Wholesale Distributors, saw its pledge not to carry out any further acquisitions as an acknowledgment on its part that the backlash was real. “It is a gesture from Sir Terry Leahy that recognises the power of the lobby,” he said. “It has had to give a signal that it recognises the backlash is reaching a crescendo that can no longer be ignored.”
Others remained cynical. In one of several impassioned letters to The Grocer, Vicki Hird, senior food campaigner, Friends of the Earth, accused Tesco of “unrestrained expansion” that was “destroying our town centres by putting local shops out of business, leaving the public with less choice of where to shop”. The well of discontent rose still further in June when the New Economics Foundation published its report into ‘Clone Town Britain’ in which its author, Andrew Simms, claimed that the backlash had only just begun.
As concerns over supermarket dominance mounted, Tesco became shorthand for people’s unease and the word “Tescopoly” was born.
That said, the multiples pretty much all came under attack for their treatment of suppliers, Forum of Private Business chief executive Nick Goulding entering into a memorable war of words with Sainsbury chief executive Justin King over the retailer’s payment terms.
The unions were quick to pick up on the changing mood.
Few of the multiples were immune to mounting unrest among distribution workers and unions, with Asda and Morrisons arguably coming off worst, though Tesco had to contend with a driver revolt.
As far as proposals for new stores went, it didn’t matter who you were - the not in my back yard brigade were out to get you.
But with more stores on the drawing board than its rivals - in a dossier of 150 problem sites collated by Friends of the Earth, most involved Tesco - it inevitably attracted the most flak.
And so the situation rumbled on as Tesco pushed ahead with further development and dealt with the tunnel collapse at Gerrards Cross. Those who agreed that Tesco was becoming too powerful could even check out a new web site that claimed to provide evidence from public interest groups showing what a problem it was.
As far as Tesco’s detractors were concerned, the OFT topped the list of Tesco’s co-conspirators for failing to check its expansion and there were repeated calls for it to ditch its two-market definition of the sector.
Ben Pinnington, spokesman for the Forum of Private Business, summed up the frustration: “What we want to see is the OFT finally step up to the plate. It should be a tiger, not a pussycat.”
New OFT head honcho John Fingleton, however, fuelled the flames by arguing that hardship for individual groups of competitors did not necessarily equate to damage to competition or mean that consumers were worse off.
He added that Tesco shouldn’t be penalised for its adroit land assembly strategy in the 1990s.
Fingleton’s lack of sympathy for the plight of smaller retailers cast doubt over MP Jim Dowd’s ability to achieve anything as chairman of the All Party Parliamentary Small Shops Group. It also made the prospect of the OFT referring the grocery market for review considerably less likely.
Tesco itself played the whole threat of backlash down. At the height of the protests, marketing director Tim Mason insisted: “Customers are not expressing concern that Tesco has grown too big. They judge us on the merits of their shopping trip.” He was right to bring the debate back to what the shopper wants, said Mike Dennis of Cheuvreux. “Shoppers do not have the opinion that they can get too much of a good thing.”
Initially, the public backed him up. In February, a survey for The Grocer revealed that almost a third thought the retailer was a great British success. Just one in five felt it was too powerful.
By October, however, attitudes were shifting. A second survey showed that a third were uneasy about its dominance, although they were also shopping in greater numbers and spending more money at its stores.
Shore Capital’s Clive Black felt Tesco had nothing to worry about. “Consumers are still walking into Tesco in their droves,” he pointed out.
Whether they continue to do so next year is another matter. The backlash has so far been confined to interested parties. How long before the unease already registered by the general public translates into behaviour?
Performer of the year
Tesco triumphs
2005 was the year Tesco broke all records and left rivals in its wake
It was always going to be Tesco’s year. But it exceeded everyone’s expectations in April when it became the first UK retailer to post profits of more than £2bn, up 20.5% on 2004.
The results, which came just days after it broke through the 30% market share barrier, were all the more impressive against the backdrop of a weakening retail and economic environment.
As Tesco posted the record-breaking figures, it was little solace to rivals that it appeared to rule out further acquisitions. The cynics retorted that it was just a smokescreen to keep the OFT and competition authorities happy. With a turnover of £37.1bn, the UK making up £29.5bn of it, the only question was: how much bigger could Tesco become?
Initially, it seemed as though nothing could stand in its way way. There were predictions that it would break through the £3bn barrier by 2009.
Meanwhile, rumours abounded of an imminent entry to the US and it opened its 600th Express in October.
By November, however, Tesco’s ferocious progress did appear to have slowed slightly. It posted third-quarter results showing sales were growing at their slowest in two years, non-fuel like-for-likes rising 5.5% against a forecast of 5.8%.
Analysts blamed the drop in core sales growth on a slowdown in non-food sales, though the supermarket continued to outperform its high-street competitors and rivals.
As Tesco continued to prevaricate over the US amid rumours of tensions in the boardroom, analysts began to ponder how it could continue to drive growth as the domestic market weakened and the obvious global opportunities became fewer.
Some even began to ask the previously unthinkable: could 2005 be the year Tesco reached the top of its game and in doing so peaked - at least in the UK?
Issue of the year
Seeking healthier options
Food and drink companies’ role in the nation’s health came under intense scrutiny from all sides this year, says Siân Harrington
Disbelief, confusion, exasperation and frustration - if you have had anything to do with building the government’s health strategy into your business this year, these are just some of the emotions you will have felt.
At the beginning of the year, food and drink companies seemed to be in a no-win situation as their role in the nation’s health came under ever more intense scrutiny from both government and the media.
On the one hand, they had to fight for any recognition at all of the good achievements they had made to date on reformulation, labelling and socially responsible advertising strategies. On the other, their calls for a practical, sensible and joined-up approach to implementing the Choosing Health White Paper fell mainly on deaf ears.
The government’s own deadlines came and went - and, after it all went quiet, it began to look as if the year would end with food and drink companies little further ahead in understanding exactly what was required of them. More importantly, they were running out of time to show they could put their house in order voluntarily, no thanks to the slippage of deadlines.
But there was some solace at The Grocer’s White Paper seminar in November. A change at the top - new public health minister Caroline Flint replacing the industry-unfriendly Melanie Johnson - brought a glimmer of hope that the infighting between the Department of Health and Food Standards Agency was a thing of the past and that a more constructive relationship with industry was on the cards.
It couldn’t come soon enough. The souring relations between the industry and the DH were apparent from January when Cadbury Schweppes chairman John Sunderland warned that food and drink companies, while keen to work with government to promote health, would not throw money at a campaign demonising their own products.
Two months later Food and Drink Federation president Gavin Neath slammed the DH for failing to work with the industry to improve the nation’s health. He said: “There is one big lacuna in our links with government. We have yet to build a really effective relationship with the DH. If the good intentions of the Health White Paper are to be translated into action then, like it or not, the food industry will need to be involved.”
What a difference eight months made. In November, Neath was telling the audience at The Grocer’s seminar: “We have a solid, robust relationship with the Food Standards Agency. We believe we are building a similar one with the Department of Health.”
And Flint’s comment that there had been progress with industry when it came to dialogue, together with FSA deputy chair Julia Unwin’s acknowledgment that any turf war between the FSA and DH was firmly in the past, were welcomed by the industry. Flint said: “I hope that the industry realises that if it has issues it can talk to us about them.”
Nevertheless, many of the big questions at the beginning of the year have yet to be fully answered. Nutrient profiling is still a sticking point. Over the year the FSA’s model has variously been criticised by the industry and nutritionists as unworkable, too simplistic, disproportionate and scientifically flawed. FDF deputy director general Martin Paterson said in October that the FSA had “pulled a fast one” by changing the model during consultation without notifying the industry. The point-scoring approach now means ‘bad’ nutrients are not offset by ‘good’ nutrients.
The FSA’s Unwin was visibly surprised by the accusations over its scientific merit at The Grocer’s seminar and has invited industry to approach the agency with any concerns.
But the point still stands that the objectives of the model, which will underpin Ofcom’s classification of products that can and cannot be advertised to children, are unclear. Is it to address obesity, the balance of nutrients or to reduce hypertension by cutting out products high in salt (not something that affects kids anyway)? Each issue has a different solution and one model cannot satisfy all. And the use of 100g portion sizes, when many of the products are eaten in quantities well below this, is absurd.
Then there is the question of how long advertisers will have to implement changes to their advertising and promotion strategies before a potential ban comes into effect. With Ofcom yet to classify the foods, there is very little time left for advertisers to work out what their approach should be, particularly as it takes about 18 months to make major advertising shifts. And that is too long: Flint confirmed in November that she was standing by the early 2007 deadline for monitoring whether the new approach had succeeded in changing the balance of food consumption by children.
The other contentious issue has been front-of-pack signposting. With the FSA coming down on the side of traffic lights, albeit multiple ones, it looks increasingly unrealistic that an industry that favours Guideline Daily Amounts will adopt the scheme consistently. The industry was given 12 weeks in November to voice its opposition or back an alternative model using colour-coded GDAs. But the FSA board is expected to give its scheme the green light early next year.
Food scare of the year
Sudan 1 contamination
News of a cancer-causing dye in the food chain sparked a crisis in February, says Simon Mowbray
There was little humour to be found in the Sudan 1 cancer food dye scare that gripped the nation from February onwards.
For once, the frenzy of scaremongering from the consumer press that greeted the UK’s biggest-ever recall of prepared foods and ready meals was arguably justifiable.
The Grocer’s own comprehensive coverage of the crisis kicked off with the warning that “it’s just beginning” as key industry sources warned that the discovery of the offending dye, which had found its way into the food chain through contaminated chilli powder in Worcestershire sauce supplied by Premier Foods, had been a time bomb waiting to explode.
Indeed, the warnings proved prophetic as about 600 product lines were eventually caught up in the scare, prompting the industry to take a long, hard look at itself.
The issue also stubbornly refused to go away as the nation demanded answers, even though scientists did their best to allay fears by pointing out that consumers would have to gorge themselves on several tonnes of the contaminated foods to stand a chance of suffering any problems, so low were the levels of the rogue dye in any food.
Nevertheless, there’s nothing quite like a food scare to concentrate the nation’s minds and things were hardly helped by the revelation that new EU certification rules, governing the importing of chilli powder since 2003, had failed to account for unknown quantities of the ingredient that were still swilling around the food chain from before that date.
The issue certainly kept the industry busy as it scrambled to manage the massive and complicated recall of contaminated ready meals, sauces and snacks, not only at home but abroad as well. Every angle had to be covered, from hauling back product from expat grocery shops across Europe to making sure future production was unaffected by a repeat performance.
There was at least one funny anecdote to report.
The Grocer noted one enterprising wag had tried to capitalise on the calamity by offering a Sudan 1-contaminated Pot Noodle on eBay. However, it attracted a top bid of just £1.24.
Your man of the year
Sir Anwar Pervez
Bestway chairman Sir Anwar Pervez was a worthy winner of The Grocer Cup for Outstanding Business Achievement this year. This prestigious annual award is voted for by readers of this magazine, so that makes him your man of the year.
From humble beginnings, Sir Anwar has built up Bestway into an empire with interests in banking in Pakistan, as well as a major cement business over there, plus property, rice milling and cash and carry wholesaling in the UK. In so doing, he has become one of the country’s best known, and wealthiest, Asian entrepreneurs.
His big achievement this year was the acquisition of rival C&C operator Batleys for a sum believed to be about £100m. This bold deal has turned Bestway into the country’s second-largest C&C company with 49 depots, good national coverage and £1.6bn turnover.
Sir Anwar stood out on a shortlist of other industry heavyweights, including Sir Terry Leahy, Justin King and Steven Esom, as well as rising stars such as Innocent Drinks co-founder Richard Reed. He picked up his award in front of his peers at the IGD Food Industry Awards in October.
It crowned a great year for the Bestway founder. But already he is looking forward to 2006, when he will have another reason to celebrate as Bestway marks 30 years of success in the cash and carry industry. Julian Hunt
PR disaster of the year
Fall of Food Brokers
The year kicked off with the sad news that Food Brokers was throwing in the towel with the loss of 122 jobs.
Newcomers to the industry may have seen it as just another food broker, but those who had been around longer understood the pioneering role it had played in introducing brands that have become household names such as Green Giant, Ferrero Rocher and Pringles.
From its humble beginnings in 1961 under the leadership of Desmond Cracknell, it grew into a multimillion-pound business under his sons Victor and Toby.
When Food Brokers was forced into administration, it was still handling sales and distribution for suppliers such as Quaker, Masterfoods and Fox’s Confectionery.
But what had led to the downfall of a company with such standing? There was little doubt it had been hit hard by the demise of the phone card market. The word was that this, coupled with payment disputes with third-party logistics firms, had brought it to its knees.
The situation could have been worse if all parties involved, including administrator Grant Thornton, had not rallied round to find alternative supply routes and jobs for those being laid off.
Companies such as SHS moved in to fill the gap. Former staff formed businesses such as 852 Solutions and Phoenix Field Marketing. Rod Addy
Shock of the year
Gerrards Cross
Public relations disasters in the world of food and drink retailing usually follow embarrassing product recalls or newspaper stories of an 80-year-old grandmother being asked to prove she is over 18 while trying to buy a bottle of gin.
But Tesco endured something truly disastrous when a rail tunnel underneath a site for a store development caved in.
The June mishap at Gerrards Cross, Buckinghamshire, which was being built over the railway line, was splashed across the nation’s newspapers and television screens with aerial views showing the ugly aftermath in all its glory.
Despite no one being hurt, that was just the beginning of Tesco’s woes as the site, and the subsequent disruption caused to local residents, businesses and commuters, continued to be the subject of much unwelcome press coverage.
Damage limitation was offered in the form of cash payouts to rail users and local businesses affected by the line’s closure, while pressure for Tesco to abandon the project has remained high ever since.
However, few would deny that the disaster could have been a lot worse.
How would the nation have felt about Britain’s number one retailer if the tunnel had collapsed while a passenger-packed train had been travelling through it? Simon Mowbray
Speech of the year
Andy Bond at IGD
Whatever you thought of its tone or content - and readers’ reactions certainly kept our letters pages full for weeks - there’s no denying that Andy Bond’s contribution at this year’s IGD convention rates as the year’s best speech.
First, the Asda boss, who was dressed head to toe in George casual gear, blasted the ‘grey suits’ in the grocery industry who, he claimed, had created a sector full of “bland, amorphous sameness” in terms of products and stores, saying: “The flair ain’t there. It’s no wonder so many people hate shopping these days. It’s boring.”
Then he had a pop at suppliers, accusing them of being too scared to establish points of difference between the major supermarkets and of breaking up any special relationship they may have had with Asda. “What is the point of me putting myself out for them when they don’t put themselves out for me?” he declared, urging them to work more closely with the retailer to put “the fun back into food”.
Bond was in no doubt as to what action was needed and who should be spearheading the ‘flair movement’. “I have loads of ideas and I’m in a great position to have a go - because I’m not a grey suit and I work for Asda, which has a history of being innovative.”
We loved the speech - and the impact it had across the industry. But Andy, we’re sorry, we still don’t like your George jeans. Julian Hunt
Deal of the year
Allied-Pernod merger
One minute it was on, then it was off. But by June the ‘i’s had been dotted and the ‘t’s crossed in the biggest deal of the year as the second and third-biggest drinks companies in the world - French giant Pernod Ricard and the British Allied Domecq - joined forces.
The completion of the £7.4bn deal by Pernod and Fortune Brands to take over Allied meant that Pernod could well afford to rest on its laurels. Not only had it covered significant ground to pose a realistic threat to world leader Diageo, but it had also acquired an enviable list of treasures to complement its portfolio.
In the aftermath of the deal, competition concerns made the merger trickier than it had originally looked. But, in the end, Pernod walked away with Ballantine’s whisky, Beefeater gin, Malibu, Kahlua and Stolichnaya vodka, among others.
Its bid partner, Fortune Brands, scooped Courvoisier, Sauza tequila and Canadian Club whisky, as well as local market leaders Teacher’s Scotch whisky, Cockburn’s port and Harvey’s sherry in the UK.
This left Diageo - whose pole position had ruled it out as a contender for Allied - hovering in the wings for discarded brands. But when given the option to own the New Zealand Montana wine operation, it made sure it had the final say on the matter by turning it down flat. Sonya Hook
Leak of the year
Von Spreckelsen letter
The vitriolic pen of Somerfield chairman John von Spreckelsen set tongues wagging when a letter written to Nisa-Today’s chairman Dudley Ramsden was leaked to the press.
The letter, which delivered stinging criticisms on corporate governance and Ramsden’s pay deal, was written in July, just in time to cause a big furore at the opening of Nisa-Today’s annual conference in September.
The biggest bombshell dropped in the letter was that The Co-operative Group had secret talks with Nisa-Today’s about a possible takeover. Although Ramsden admitted that discussions had been held, he denied that any firm offer had been made. As for other criticisms in the letter, Ramsden told The Grocer: “It’s history.”
Von Spreckelsen, who was a non-executive director of Nisa-Today’s, expressed his concern in the letter about Ramsden’s domination of the company’s board and the way in which a new pay deal for the chairman was approved. He also said “the controls and checks and balances which should govern decision making are not there”.
Three months on, von Spreckelsen has resigned from Nisa-Today’s board and is soon to leave Somerfield. Meanwhile, Nisa-Today’s is battling to bring its supply chain into check after the opening of its distribution centre in Scunthorpe, North Lincolnshire. Fiona McLelland
Saga of the year
Bid for Somerfield
It was a long time coming, but Violet Acquisitions has all but bought Somerfield in time for Christmas. The details should be finalised in court next week (December 21), which means that the UK’s fifth-largest grocer will transfer into private hands for £1.082bn, nearly a year after the first approach was made.
In January, Icelandic retail group Baugur’s initial offer of 190p per share was rebuffed. So it teamed up with Apax Partners, Barclays Capital and Robert Tchenguiz in March to place an indicative bid of 205p. This time there was a rival - the London & Regional Partners/ Nomura bank consortium. The City was gearing up for a great bidding auction when United Co-operatives surprised everyone by joining the fray. But, after looking through Somerfield’s books, it withdrew - the first sign that the much hyped bidding war might not materialise.
And, in the end, it was indeed a one-horse race. The Apax consortium acquisition vehicle Violet Acquisitions’ 190p per share offer was the only official bid to finally make it to the table by the October 14 deadline.
Meanwhile, Baugur’s chances were scuppered when it was rocked by fraud charges (since dropped) against chief executive Jon Asgeir Johannesson. The rewards went instead to fellow Icelander Kaupthing Bank, which filled Baugur’s shoes at the last minute. Fiona McLelland
Row of the year
Morrison vs Jones
During the summer it looked unlikely that Morrisons’ non-executive deputy chairman David Jones and Sir Ken Morrison would be talking to each other by the end of the year, let alone working together.
The colourful pair began the year presenting a united front, determined to steer Morrisons through the choppy waters created by the takeover of Safeway. However, as time went on and the retailer limped from one profits warning to another, the relationship hit the rocks.
They reached a crisis point in June, with Jones seemingly ready to call on shareholders for Sir Ken’s head should he not agree to Jones’ choice of non-executive directors.
In the end Sir Ken relented and the two stubborn Yorkshiremen kissed and made up, metaphorically speaking.
In September, Jones offered an olive branch when he reaffirmed his support for Sir Ken through his autobiography, but the old tensions soon started to bubble away once more. The pair are currently believed to be at loggerheads again - this time over the process of recruiting a successor to outgoing chief executive Bob Stott.
Jones is set to step down as chairman of Next in 2006 and it is unclear how long he will remain with Morrisons. However, there are sure to be some more fireworks before either Sir Ken or Jones finally lets go. Ronan Hegarty
Weird craze of the year
Cider on the rocks
Until recently, if cider was described as ‘on the rocks’, it was usually in reference to the desperate plight that the category was in. And, thanks to its association with park bench drunks and West Country bumpkins, it could be argued that it was an apt description.
These days, however, the leading brands would have us believe that the phrase refers to a sophisticated apple drink served over ice.
In a remarkable bid to reinvent the category, one company is bravely trying to change the way we drink and think about cider.
Tagged with the simple message to add cubes of frozen water, Magners, owned by Irish drinks and snacks company C&C, came rolling across the UK this year, triggering a new interest in all things made of fermented apples.
Copycats Strongbow and Merrydown were quick to take a slurp of the “over ice” pint, the former launching Sirrus and the latter cheekily changing its marketing to play up the new way to drink cider.
Meanwhile, smaller producers reaped the rewards of the nation’s new love for top-class and, more significantly, top-priced bottled ciders.
Dovetailing the revival is the decline of budget brands. White Lightning, for one, saw a whopping 28% sales decline in value to October 1. Still, there’s probably a long way to go before cider casts off its cheap and cheerful image. Sonya Hook
Copycat of the year
Tesco gets Sporty
Tesco would rightly claim to be at the forefront of food retailing in the UK, so you’d think it would be the first with everything. But in September it launched a new initiative not unlike a highly successful scheme already run by arch rival Sainsbury.
In fact, it was hard to spot the difference. Tesco Sport not only offered free sport equipment and coaching when vouchers were collected by shoppers, but it was also fronted by cutting-edge sport stars - just like Sainsbury’s Active Kids.
Tesco, of course, pulled out its wallet for the occasion, signing Paula Radcliffe, Frank Lampard and Jason Robinson compared with Sainsbury’s comparatively lonely looking Kelly Holmes.
Sainsbury said it was “flattered that Tesco is copying our good idea”. But an irritated Tim Mason, Tesco’s marketing director, dismissed Sainsbury’s childish gloating, retaliating with: “Sainsbury basically copied our Computers for Schools scheme anyway.”
Another thing both had in common was the tremendous value offered by their schemes. While Sainsbury’s customers had to spend £240 to earn the cheapest product, a durable plastic skipping rope, Tesco generously gave shoppers an old-style wooden-handled skipping rope in return for £160 worth of shopping. Rachel Barnes
Irritant of the year
David Handley of FFA
Oops, he did it again. Yes, Farmers for Action boss David Handley is our Irritant of the Year for the second year running.
Go back to the spring and Handley might actually have been in the frame for Hero of the Year, after spearheading successful negotiations to persuade retailers to charge more for milk and pass the extra down the supply chain.
Had Handley, better known for favouring direct action over talks, entered a mellower chapter in his life? No. It all unravelled when the big dairies cut the prices they paid farmers for milk. Handley was back picketing depots - and not just those belonging to processors and retailers. He also took his crusade to his own kith and kin - factories run by farmer co-ops.
Handley’s ‘pièce de irritance’ came in November, when he called farmers out on a three-day strike. They were to withhold milk from the market and, after a hare-brained scheme to send it to Third World countries collapsed, spread it on their land.
The strike irritated processors, who had to make contingency plans to ensure supplies weren’t disrupted. It irritated retailers because it gave one more public airing to damning allegations about the way they treat their suppliers. It even irritated other farmers’ groups, who opposed the strike, but privately must have been green with envy at the media coverage. Richard Clarke
Departure of the year
Asda’s Tony DeNunzio
In March, with Asda sitting somewhat uncomfortably as the UK’s number two supermarket, president and CEO Tony DeNunzio called time on his four-year reign at the Leeds-based retailer.
Well liked, but more respected for his head for figures than his charismatic leadership qualities or killer instinct, DeNunzio had delivered consistent growth for more than a decade.
But latterly he was perceived as ever more at odds with his Bentonville bosses.
The beginning of the end appeared to come in 2004 when he admitted that Asda would never be able to challenge Tesco’s dominant position in the market.
Speculation intensified when he took on the MFI deputy chairmanship in February.
Since his departure, Asda, under the leadership of Andy Bond, has faced a renewed challenge from Tesco for its cheapest supermarket crown and from a resurgent Sainsbury battling for its number two spot. Bond admitted that this could take place early next year.
Bond has so far shown a thick skin and fighting spirit - despite claims in the press that he has been given 18 months to prove himself or he’s out, claims that have been laughed off by Asda.
Given the pressure on Bond’s shoulders, DeNunzio, now chairman of Dutch group Vendex KBB, probably doesn’t have too many regrets. Ronan Hegarty
Brand war of the year
Branston vs Heinz
It was trailed as one of the biggest brand wars in years and sparked a catfight between two of the UK’s biggest food suppliers, but was the launch of Branston Beans to take on Heinz all just a lot of hot air?
Premier Foods - which is investing more than £10m to market the new baked beans brand - would certainly beg to differ, ambitiously predicting that Branston Beans has legs to become a £70-£100m brand within two years.
Heinz turned its nose up at the new bean on the block, however, saying that together with Premier’s existing Crosse & Blackwell and HP beans, it was the third time that Branston was trying to challenge it with “yet another” brand. However, it was worried enough to dramatically reverse an advertising freeze and put out TV ads in November highlighting Heinz Baked Beanz’s status as the original and number one bean.
Premier, meanwhile, is focusing on what it claims is the superior taste of Branston Beans in its advertising, needling its rival by calling it “has beans” in newspaper ads.
It’s running a Great British Bean Poll, taste tests of 750,000 consumers, and will use the results in its marketing.
Do Branston Beans really taste better? Can it challenge such an iconic brand as Heinz? Can Premier convince people its beans don’t contain pickle? Watch this space. Claire Hu
Fad of the year
Atkins low-carb diet
Touted as the next big thing since sliced bread and by some as sounding the death knell for the great sliced white loaf, the Atkins diet star burned fiercely but fleetingly in the grocery firmament. It was fun while it lasted, though.
First we had large companies such as Unilever, Nestlé and Heinz confidently sitting back and watching the ‘fleeting fad’ pass by without a care in the world, quickly followed by a flurry of profit warnings as the Atkins effect did, in fact, begin to take its toll on their carb-dense products.
Then we had the panic developments from the big boys, at much expense no doubt, perfectly timed to catch the tail end of a diet that, in the end, proved itself to have been a fad all along.
Add to this the slanging match between dieticians as to whether the diet was any good for you, the sniping from the Federation of Bakers and the British Potato Council over how the diet was demonising the humble carbohydrate and, to top it all, detractors highlighting the untimely demise of Dr Atkins himself - and you can see why it generated such interest in the press. And, with the diet now gone, companies will have to find something else to blame a sales slump on.
It’s a tough act for the now popular low GI diet to follow, that’s for sure. Stefan Chomka
Non event of the year
Panic over bird flu
For a few weeks this autumn, panic gripped the country as bird flu spread through Europe.
We sat, face masks at the ready, nervously Googling ‘Tamiflu’ to locate black market supplies, and waited for the anticipated epidemic to hit us.
The media told us the deadly disease would come in on migrating birds or through illegally smuggled parrots or chicken meat imported from Asia. There were any number of ways it would come in.
In the end, the closest it got was a quarantine centre. And isn’t that what quarantine centres are for, anyway? But the media frenzy was at its peak and would take a long time to recede.
Meanwhile, we waited with bated breath for the disease to wipe out the national poultry flock, but not before it had mutated and killed us all as well.
Such was the hype that even so-called experts were sucked in. One told Gordon Ramsay’s new TV show that there would be no free-range turkeys this Christmas because of bird flu. He was, of course, dead wrong.
The industry tried to reassure consumers, but the damage was done. Poultry meat sales plummeted and Justin King admitted Sainsbury was ordering more beef and pork this festive period as fearful shoppers abandoned the traditional turkey.
If this is what happens when we don’t get bird flu, heaven help us if we ever do. Richard Clarke
Paradox of the year
24-hour licensing
Britain is a nation of unruly binge drinkers, said the government. So let’s allow people to buy drink from pubs or supermarkets at any hour of the day.
The paradox of demonising drink, on the one hand, and making it more accessible, on the other, wasn’t lost on an industry that was left wondering how it was supposed to take advantage of the new laws without being accused of encouraging the problem. So began the game of ‘it’s nothing to do with me, guv’.
Drinks producers pointed the finger at cheap supermarket brands. Supermarkets blamed pubs. Pubs blamed the government... and supermarkets.
The government diverted attention with a last-minute clampdown on underage drinking - thereby blaming pubs, supermarkets and drinks producers in one fell swoop.
Public opinion was divided. It was bad enough finding drunken youths lying on your pavement at 11pm - surely it would be worse if they could lie there at 2 or 3am?
Those in favour of the new legislation tried to evoke reassuring images of Continental late night cafés and new levels of sophistication.
On November 24, after months of confusion over applications, the historic day arrived.
While some hit the town until the early hours to celebrate, for the most part the change has had little impact.
But, with Christmas and New Year upon us, there’s still time for things to get messy. Sonya Hook
JANUARY
Icelandic retailer Baugur’s initial offer for Somerfield is rebuffed. ACNielsen’s TradeTrak research shows that six out of 10 people visited a Tesco in the four weeks to Christmas giving it 30% of trade. Bestway enters the end game in its bid to take over Batleys. The nationals get excited about our story showing sales of honey squeezing past marmalade for the first time.
FEBRUARY
Food Brokers goes into adminstration after 43 years in business, and Unwins pulls out of talks to sell its business. Meanwhile, there is a chaotic start to the new alcohol-licensing regime as councils misinterpret the regulations and there is confusion over how to apply. But the month’s biggest story is the withdrawal of more than 400 products tainted with the illegal dye Sudan 1.
MARCH
Premier Foods comes under scrutiny in the wake of the food scare. Asda chief executive Tony DeNunzio announces his shock departure for little-known Dutch retailer Vendex and rising star Andy Bond is confirmed as his replacement. Meanwhile, in its long-awaited report, the OFT claims that the grocery market is working well for consumers.
APRIL
Tesco breaks through the 30% market share barrier just days before it becomes the first UK retailer to post profits of more than £2bn in its year-end results. Pernod Ricard enters the end game to acquire Allied Domecq for £7.4bn. Sainsbury kicks off an 18-month category review as it looks to challenge Tesco and Asda more vigorously.
MAY
Speculation mounts that Tesco is planning US entry. A new foodscare, Para Red, hits the news. Meanwhile, Kit Kat Low Carb bites the dust, signalling waning interest in the low-carb market, and UBUK cuts fat and salt in top brands. The OFT’s May 31 deadline for evidence to launch a further review of supermarket practices comes… and goes.
JUNE
Industry bodies are divided over whether the OFT will launch a new market review. Asda emerges as the UK’s cheapest supermarket for the eighth year in The Grocer 33 and its parent company declares an interest in the Irish Republic. Elsewhere, the roll out of chip and PIN in some independents is hit by data processing problems.
JULY
Aldi launches a £500m campaign to turn its image into one for middle Britain, while one commentator speculates that it won’t be long before a major multiple launches a hard discount format. The latest Harry Potter novel sparks a price war among the multiples and the FSA’s nutrient profiling model for Ofcom is slammed by the industry.
AUGUST
Tesco emerges as cheapest non food retailer in the first The Grocer 33 Non Food report, while its complaint about Asda’s use of The Grocer 33 title of cheapest supermarket in its adverts is upheld by the ASA. At least 6,500 retailers risk losing their alcohol licences as they fail to meet application deadlines. The Co-operative Group sells 100 stores and plans to axe 600 jobs.
September
Calls of ‘hypocrite’ start ringing in Wal-Mart president Lee Scott’s ears as he condemns Tesco’s dominance and calls for a government probe. The OFT’s ‘effective competition’ ruling and two-market definition of the sector are lambasted by the industry. In the light of that definition, Somerfield believes it is unable to sell three stores to Proudfoot. It could have done...
October
Off-licence chain Unwins’ woes deepen as suppliers start to terminate contracts, while Wine Cellar sells 45 stores to Oddbins and in Northern Ireland Wine Mark buys Philip Russell. David Cheesewright and Andy Clarke return to Asda as COO and retail director in time to oversee the roll-out of Asda Living, the retailer’s attempt to compete with Tesco’s Home Plus.
NovemBEr
Whole Foods Market is voted finest food retailer in the world by The Grocer’s academy of global experts. The FSA’s chair, Dame Deirdre Hutton, recommends a multiple traffic light signposting system to help consumers evaluate nutritional content - to much booing and hissing from the industry. Farmers strike in protest against supermarket buying power.
December
Discounter Aldi announces plans to double the size of its head office in Warwickshire, which would help with its ambitions for 1,500 stores in the British Isles. The FSA’s nutritional profiling model for Ofcom faces renewed attacks from nutritionists, while figures from National Statistics show that a third of consumers’ food spend goes on fresh fruit, veg, meat and fish.
Sainsbury gets back to business
The multiple has taken great strides on its comeback trail, says Rachel Barnes
Sainsbury had a miserable start to the year. Its third-quarter results for 2004, which came in on January 1, showed a 1.2% decline in like-for-like sales. CEO Justin King promptly reaffirmed his commitment to resolving availability issues, declared that sales trends were showing signs of heading in the right direction and took action, cutting 600 jobs at head office from all areas of central support services.
And, with cries of “it’s business as usual” coming from the remaining 2,000 HQ staff, all King’s hard work and soothsaying began to pay off.
Three consecutive quarters of like-for-like growth heralded a new dawn - albeit with a somewhat slow sunrise in the low single digits.
“Our business plan is on track” became the mantra when asked if it had yet turned the corner, with March 2008 stamped as the date when Sainsbury would be made great again.
Slowly but surely, progress was made. With the three profit warnings of 2004 behind it, Sainsbury started to look at areas other than the bottom line this year. The launch of its corporate social responsibility programme, Active Kids, in February was a great hit with the nation. More than 20,000 schools registered for the vouchers-for-sports-equipment scheme in the first couple of months and a total of £17m worth of equipment and activity sessions was donated at its close.
Sainsbury also re-signed celeb chef Jamie Oliver as the face of the supermarket and ploughed £10m into the launch of its new slogan and ad campaign, Try Something New Today.
It couldn’t come too soon, with ‘Making Life Taste Bitter’ too often the jibe in the national papers.
Having Oliver’s contract signed and sealed has been a blessing for Sainsbury, despite rumours last year that it would drop the star. But that was before the School Dinners campaign. Now, it is fortuitously linked with the healthy food campaigner and championing the health of the nation’s kids. A multimillion-pound rebranding of its organic range in the summer and the planned relaunch next month of its Be Good to Yourself range are helping to cement its health credentials.
As for its strategy, it’s actually difficult to find issues to pull Sainsbury up on in the past year. Its prices are more in line with rivals, to the point that it highlights on its shelf edges where it equals or undercuts Tesco’s prices, and availability is at market-matching levels, it claims.
The only blip could be the fact that it failed to take over Asda as the number two supermarket, a possibility that was highlighted by Asda chief Andy Bond earlier in the year. However, it’s still on the cards. Indeed, King has pointed out that if both retailers continue their current sales patterns, 2006 could be the year it happens.
In the shorter term, in just a few weeks’ time, it will be either celebrations or commiserations all round for Sainsbury on January 1. For this year’s third-quarter results, it hopes, will show a full 12 months of growth - starting the year as it means to go on. Beyond that, growth on growth is the big goal for King in 2006.
Winner of the year
Waitrose shines
Waitrose has emerged as the real winner this year, says Julian Hunt
Tesco may have been strongest financial performer in 2005, but as Britain’s number one was battered by negative publicity, it was Waitrose that emerged as the real retail winner of the year.
Sales are booming - up more than 4% on a like-for-like basis in the first six months of the year - as the chain capitalises on a growing consumer love affair with food that offers quality and provenance. Waitrose is also well placed to tap into another emerging trend: consumer concerns over the ethical dimensions of food retailing.
Its stellar top line performance has been boosted by an aggressive expansion programme, which has seen Waitrose buy and revamp 24 stores from Morrisons in the past 18 months. Together with its newbuild stores, that activity has allowed Waitrose to expand its brand northwards out of its traditional heartland.
And MD Steven Esom is keen to keep the momentum going. As he told The Grocer only last week, the retailer wants to double its market share, strengthen its presence in the north and be operating 250 stores within 10 years.
Esom remarked: “We have a pretty healthy organic development plan but most of our growth will come through acquisitions. There are definitely more opportunities in the north and, again, it’s all about acquiring the sites.”
Waitrose’s clever rebranding strategy for the former Morrisons stores not only ensured impressive sales figures but also earned the retailer a place on the shortlist at The Grocer Gold Awards for best consumer initiative.
Its integrated marketing campaign created excitement among would-be shoppers while managing to override perceptions about the price differential between the new Waitrose stores and former Morrisons outlets. The resulting Smile campaign was praised for its imagination and creativity by The Grocer Gold judges.
It’s no surprise because, if there is one thing at which Waitrose excels, it is at clearly communicating its brand proposition. Another is its strong relationship with suppliers, particularly when it comes to working with small local producers and dairy farmers. The year has not been without the occasional glitch, however - the most recent being the shock news that popular director of buying Angela Megson will be quitting the company at the end of January after three years in the role. Nevertheless, Waitrose’s profile has never been higher - a fact reflected in our recent survey where we identified the world’s finest food retailers. Waitrose emerged as the best British retailer in that survey, while its 80,000 sq ft Food & Home outlet in London’s Canary Wharf was named as the best store in the country, thanks to its great service, fantastic product and presentation and impressive food-to-go offer.
However, in the same survey, US supermarket Whole Foods Market was named the world’s top retailer by our academy of experts. And Waitrose will need to be wary of this behemoth of the natural foods world as it gears up for a launch in the UK in 2007.
The flipside to that argument, of course, is that there is plenty of room in the UK for more retailers operating at the quality end of this polarised grocery market.
As Joanne Denney-Finch of IGD says: “There is still considerable growth left in this market. British consumers want better quality and more local and regional foods.”
Waitrose is better placed than ever to capitalise on that trend.
Tragedy of the year
Unwins in trouble
The future looks bleak for Unwins as it continues its desperate fight for survival. Rod Addy reports
It didn’t take a genius to realise that Unwins was fighting for its life this year. Its struggles culminated in it heading for administration as The Grocer went to press this week.
Walk into most of its stores and the shelves were virtually bare. In one Hove store, attempts were made to disguise the problem by spacing out bottles.
Staff resorted to gallows humour, one responding to a customer’s complaint that there were no cigarettes with the risible claim: “We’ve run out because people are smoking too much.”
Times had been tough for the company for a long time. The post of CEO, vacated by David Wetz in January 2003, was empty. Yet, at the beginning of 2004, Unwins had such grand designs for self-improvement.
Phillips Newman, its upmarket retail concept, was performing well. And Unwins itself reported a flurry of interest from bidders after putting itself up for sale in the summer of 2004 to raise cash for future growth.
When it was bought by DM Private Equity in March, the business had a fresh injection of money and there seemed to be light at the end of the tunnel. There were plans to tighten up on availability by rolling out an SAP supply chain management system. Plus, like Thresher Group, Unwins was developing a wider convenience offering, including ambient, chilled and frozen food, to offset competition from major supermarkets in beer, wine and spirit sales. However, since a major u-turn on that policy at the end of 2004, things started to deteriorate rapidly.
The problems became all too apparent in April, when rumours surfaced of a dispute with supplier Palmer & Harvey McLane and tobacco and confectionery stocks grew scarce. At the same time, the departure of purchasing director David Armstrong was revealed in a restructuring of the business.
Then, in July, Unwins announced it was slashing its tobacco lines in half and taking the axe to its beer, wine and spirit ranges. DM Private Equity had pumped £30m into the business by August to clear debts and pay creditors, yet that barely scratched the surface.
Further job losses followed. Then came the body blow. Major suppliers privately revealed that they had stopped delivering to Unwins because their bills weren’t being paid.
Reports of Unwins’ switch to overseas suppliers and a further multimillion-pound injection of cash seemed futile.
The latest proposal, before the company filed for administration, had been to lease some Unwins stores under franchise, convert others to the Phillips Newman format and keep the rest under the Unwins name.
As Christmas approached, the business was frantically seeking a way out of total collapse.
Hype of the year
Whole Foods, OK?
The US giant is set to take the UK by storm, says James Durston
If you haven’t heard of Whole Foods Market by now, you haven’t been reading The Grocer properly. The biggest natural foods retailer in the US, which started in 1980 as one small vegetarian shop in Austin, Texas, with a turnover of $250,000 a year, has grown into a 180-outlet juggernaut with sales of $4.6bn.
It has forged a trail through North America, publicising its values of pure, unadulterated food and customer service under its adage Whole Foods, Whole People, Whole Planet.
It also came out on top, by some distance, of The Grocer’s poll of experts to find the best food retailers in the world last month and has in the past few years become a watchword for high quality trading with a conscience. And it doesn’t even have a store in the UK yet.
Its first overseas fascia (Whole Foods already owns the Fresh & Wild chain of natural food stores in the UK) will open in Kensington in London in 2007 and, although it’s just one store, UK grocers would do well to keep an eye on it, because all this hype is built on a significant commercial drive.
Although its founder and CEO, John Mackey, makes a point of prioritising customers and team members before shareholders, he makes no apologies for his company’s financial success or for his future ambitions for it. “Despite 2004 being our best year ever, we still expect sales growth of 15% to 20% and comparable store sales growth of 8% to 10% in 2005,” he says.
David Stoddart, analyst at Teather & Greenwood, thinks UK retailers would do well to keep watch on Whole Foods’ performance. “If it really delivers in an area that has traction, other retailers will have to do something similar and make sure Whole Foods doesn’t build too much share.”
Whole Foods approaches food from a customer-led angle, says Mackey. His mission is to motivate his employees by getting them excited about the business’s purpose, which will, the theory goes, manifest itself as great customer service.
Mackey plans to take sales to $10bn by 2010. With 64 new store developments in progress, including the one in London, the square footage of the company is set to double, making this more than possible.
Backlash of the year
Tesco gets a fistful of complaints
Tesco’s dominance of the market has sparked a big reaction from its critics. But has it amounted to anything, asks Liz Hamson
As 2005 kicked off, media pundits were delivering stark warnings of an impending consumer backlash. The multiples - read Tesco - were too powerful, too profit-motivated and, well, too successful. They were turning the high street into a desert and shoppers were finally beginning to wake up to the fact.
Investigative journalist Joanna Blythman was just one member of the national media claiming that a shopper revolt was nigh.
“I expect the anti-supermarket backlash to intensify in 2005. Tesco and Asda are first in line to get it in the neck,” she predicted dramatically in the first issue of The Grocer this year. “People are beginning to realise that Asda is part of Wal-Mart and that neither it nor Tesco is a homespun grocer anymore. Rather they are both global corporations motivated purely by profit.”
But did the backlash actually materialise? The nationals certainly devoted significant column inches to it. And as far as rivals, independent chains and campaigners go, 2005 was the year the knives came out.
They were all at it in April, when Tesco broke through the 30% market share barrier for the first time and became the first UK retailer to post a profit of more than £2bn (see opposite page).
The redoubtable Alan Toft, then director general of the Federation of Wholesale Distributors, saw its pledge not to carry out any further acquisitions as an acknowledgment on its part that the backlash was real. “It is a gesture from Sir Terry Leahy that recognises the power of the lobby,” he said. “It has had to give a signal that it recognises the backlash is reaching a crescendo that can no longer be ignored.”
Others remained cynical. In one of several impassioned letters to The Grocer, Vicki Hird, senior food campaigner, Friends of the Earth, accused Tesco of “unrestrained expansion” that was “destroying our town centres by putting local shops out of business, leaving the public with less choice of where to shop”. The well of discontent rose still further in June when the New Economics Foundation published its report into ‘Clone Town Britain’ in which its author, Andrew Simms, claimed that the backlash had only just begun.
As concerns over supermarket dominance mounted, Tesco became shorthand for people’s unease and the word “Tescopoly” was born.
That said, the multiples pretty much all came under attack for their treatment of suppliers, Forum of Private Business chief executive Nick Goulding entering into a memorable war of words with Sainsbury chief executive Justin King over the retailer’s payment terms.
The unions were quick to pick up on the changing mood.
Few of the multiples were immune to mounting unrest among distribution workers and unions, with Asda and Morrisons arguably coming off worst, though Tesco had to contend with a driver revolt.
As far as proposals for new stores went, it didn’t matter who you were - the not in my back yard brigade were out to get you.
But with more stores on the drawing board than its rivals - in a dossier of 150 problem sites collated by Friends of the Earth, most involved Tesco - it inevitably attracted the most flak.
And so the situation rumbled on as Tesco pushed ahead with further development and dealt with the tunnel collapse at Gerrards Cross. Those who agreed that Tesco was becoming too powerful could even check out a new web site that claimed to provide evidence from public interest groups showing what a problem it was.
As far as Tesco’s detractors were concerned, the OFT topped the list of Tesco’s co-conspirators for failing to check its expansion and there were repeated calls for it to ditch its two-market definition of the sector.
Ben Pinnington, spokesman for the Forum of Private Business, summed up the frustration: “What we want to see is the OFT finally step up to the plate. It should be a tiger, not a pussycat.”
New OFT head honcho John Fingleton, however, fuelled the flames by arguing that hardship for individual groups of competitors did not necessarily equate to damage to competition or mean that consumers were worse off.
He added that Tesco shouldn’t be penalised for its adroit land assembly strategy in the 1990s.
Fingleton’s lack of sympathy for the plight of smaller retailers cast doubt over MP Jim Dowd’s ability to achieve anything as chairman of the All Party Parliamentary Small Shops Group. It also made the prospect of the OFT referring the grocery market for review considerably less likely.
Tesco itself played the whole threat of backlash down. At the height of the protests, marketing director Tim Mason insisted: “Customers are not expressing concern that Tesco has grown too big. They judge us on the merits of their shopping trip.” He was right to bring the debate back to what the shopper wants, said Mike Dennis of Cheuvreux. “Shoppers do not have the opinion that they can get too much of a good thing.”
Initially, the public backed him up. In February, a survey for The Grocer revealed that almost a third thought the retailer was a great British success. Just one in five felt it was too powerful.
By October, however, attitudes were shifting. A second survey showed that a third were uneasy about its dominance, although they were also shopping in greater numbers and spending more money at its stores.
Shore Capital’s Clive Black felt Tesco had nothing to worry about. “Consumers are still walking into Tesco in their droves,” he pointed out.
Whether they continue to do so next year is another matter. The backlash has so far been confined to interested parties. How long before the unease already registered by the general public translates into behaviour?
Performer of the year
Tesco triumphs
2005 was the year Tesco broke all records and left rivals in its wake
It was always going to be Tesco’s year. But it exceeded everyone’s expectations in April when it became the first UK retailer to post profits of more than £2bn, up 20.5% on 2004.
The results, which came just days after it broke through the 30% market share barrier, were all the more impressive against the backdrop of a weakening retail and economic environment.
As Tesco posted the record-breaking figures, it was little solace to rivals that it appeared to rule out further acquisitions. The cynics retorted that it was just a smokescreen to keep the OFT and competition authorities happy. With a turnover of £37.1bn, the UK making up £29.5bn of it, the only question was: how much bigger could Tesco become?
Initially, it seemed as though nothing could stand in its way way. There were predictions that it would break through the £3bn barrier by 2009.
Meanwhile, rumours abounded of an imminent entry to the US and it opened its 600th Express in October.
By November, however, Tesco’s ferocious progress did appear to have slowed slightly. It posted third-quarter results showing sales were growing at their slowest in two years, non-fuel like-for-likes rising 5.5% against a forecast of 5.8%.
Analysts blamed the drop in core sales growth on a slowdown in non-food sales, though the supermarket continued to outperform its high-street competitors and rivals.
As Tesco continued to prevaricate over the US amid rumours of tensions in the boardroom, analysts began to ponder how it could continue to drive growth as the domestic market weakened and the obvious global opportunities became fewer.
Some even began to ask the previously unthinkable: could 2005 be the year Tesco reached the top of its game and in doing so peaked - at least in the UK?
Issue of the year
Seeking healthier options
Food and drink companies’ role in the nation’s health came under intense scrutiny from all sides this year, says Siân Harrington
Disbelief, confusion, exasperation and frustration - if you have had anything to do with building the government’s health strategy into your business this year, these are just some of the emotions you will have felt.
At the beginning of the year, food and drink companies seemed to be in a no-win situation as their role in the nation’s health came under ever more intense scrutiny from both government and the media.
On the one hand, they had to fight for any recognition at all of the good achievements they had made to date on reformulation, labelling and socially responsible advertising strategies. On the other, their calls for a practical, sensible and joined-up approach to implementing the Choosing Health White Paper fell mainly on deaf ears.
The government’s own deadlines came and went - and, after it all went quiet, it began to look as if the year would end with food and drink companies little further ahead in understanding exactly what was required of them. More importantly, they were running out of time to show they could put their house in order voluntarily, no thanks to the slippage of deadlines.
But there was some solace at The Grocer’s White Paper seminar in November. A change at the top - new public health minister Caroline Flint replacing the industry-unfriendly Melanie Johnson - brought a glimmer of hope that the infighting between the Department of Health and Food Standards Agency was a thing of the past and that a more constructive relationship with industry was on the cards.
It couldn’t come soon enough. The souring relations between the industry and the DH were apparent from January when Cadbury Schweppes chairman John Sunderland warned that food and drink companies, while keen to work with government to promote health, would not throw money at a campaign demonising their own products.
Two months later Food and Drink Federation president Gavin Neath slammed the DH for failing to work with the industry to improve the nation’s health. He said: “There is one big lacuna in our links with government. We have yet to build a really effective relationship with the DH. If the good intentions of the Health White Paper are to be translated into action then, like it or not, the food industry will need to be involved.”
What a difference eight months made. In November, Neath was telling the audience at The Grocer’s seminar: “We have a solid, robust relationship with the Food Standards Agency. We believe we are building a similar one with the Department of Health.”
And Flint’s comment that there had been progress with industry when it came to dialogue, together with FSA deputy chair Julia Unwin’s acknowledgment that any turf war between the FSA and DH was firmly in the past, were welcomed by the industry. Flint said: “I hope that the industry realises that if it has issues it can talk to us about them.”
Nevertheless, many of the big questions at the beginning of the year have yet to be fully answered. Nutrient profiling is still a sticking point. Over the year the FSA’s model has variously been criticised by the industry and nutritionists as unworkable, too simplistic, disproportionate and scientifically flawed. FDF deputy director general Martin Paterson said in October that the FSA had “pulled a fast one” by changing the model during consultation without notifying the industry. The point-scoring approach now means ‘bad’ nutrients are not offset by ‘good’ nutrients.
The FSA’s Unwin was visibly surprised by the accusations over its scientific merit at The Grocer’s seminar and has invited industry to approach the agency with any concerns.
But the point still stands that the objectives of the model, which will underpin Ofcom’s classification of products that can and cannot be advertised to children, are unclear. Is it to address obesity, the balance of nutrients or to reduce hypertension by cutting out products high in salt (not something that affects kids anyway)? Each issue has a different solution and one model cannot satisfy all. And the use of 100g portion sizes, when many of the products are eaten in quantities well below this, is absurd.
Then there is the question of how long advertisers will have to implement changes to their advertising and promotion strategies before a potential ban comes into effect. With Ofcom yet to classify the foods, there is very little time left for advertisers to work out what their approach should be, particularly as it takes about 18 months to make major advertising shifts. And that is too long: Flint confirmed in November that she was standing by the early 2007 deadline for monitoring whether the new approach had succeeded in changing the balance of food consumption by children.
The other contentious issue has been front-of-pack signposting. With the FSA coming down on the side of traffic lights, albeit multiple ones, it looks increasingly unrealistic that an industry that favours Guideline Daily Amounts will adopt the scheme consistently. The industry was given 12 weeks in November to voice its opposition or back an alternative model using colour-coded GDAs. But the FSA board is expected to give its scheme the green light early next year.
Food scare of the year
Sudan 1 contamination
News of a cancer-causing dye in the food chain sparked a crisis in February, says Simon Mowbray
There was little humour to be found in the Sudan 1 cancer food dye scare that gripped the nation from February onwards.
For once, the frenzy of scaremongering from the consumer press that greeted the UK’s biggest-ever recall of prepared foods and ready meals was arguably justifiable.
The Grocer’s own comprehensive coverage of the crisis kicked off with the warning that “it’s just beginning” as key industry sources warned that the discovery of the offending dye, which had found its way into the food chain through contaminated chilli powder in Worcestershire sauce supplied by Premier Foods, had been a time bomb waiting to explode.
Indeed, the warnings proved prophetic as about 600 product lines were eventually caught up in the scare, prompting the industry to take a long, hard look at itself.
The issue also stubbornly refused to go away as the nation demanded answers, even though scientists did their best to allay fears by pointing out that consumers would have to gorge themselves on several tonnes of the contaminated foods to stand a chance of suffering any problems, so low were the levels of the rogue dye in any food.
Nevertheless, there’s nothing quite like a food scare to concentrate the nation’s minds and things were hardly helped by the revelation that new EU certification rules, governing the importing of chilli powder since 2003, had failed to account for unknown quantities of the ingredient that were still swilling around the food chain from before that date.
The issue certainly kept the industry busy as it scrambled to manage the massive and complicated recall of contaminated ready meals, sauces and snacks, not only at home but abroad as well. Every angle had to be covered, from hauling back product from expat grocery shops across Europe to making sure future production was unaffected by a repeat performance.
There was at least one funny anecdote to report.
The Grocer noted one enterprising wag had tried to capitalise on the calamity by offering a Sudan 1-contaminated Pot Noodle on eBay. However, it attracted a top bid of just £1.24.
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