We used to think growth was the norm.
From the mid nineties to the mid noughties, consumption in Europe grew by almost four per cent per year.
But since the credit crunch, sales volume for our sector is down by two per cent.
People are calling this the Great Correction and no-one knows how long it'll last.
So the economy won't help us.
If we want to recapture growth we'll have to be bold, decisive and truly exceptional.
We need real breakthroughs.
Like this one.
This is a breakthrough.
It's an automatic gearstick.
A victory for General Motors in 1940 and a victory for me when I finally passed my test at the fifth attempt after four failures on improper use of gears!
We all know what we're up against - the low growth economy, sustainability,scarce resources, inflation, the squeeze on household budgets, the promotional merry-go-round, greater complexity and an ageing population.
We need to manage the quarter and manage the future.
We need to rebuild consumer confidence and business confidence.
Our backs are against the wall.
A new pack size, an additional flavour, a bit of a quality upgrade, are no longer enough.
We need big steps.
But there's some good news.
The Great Correction should also be a golden age of innovation.
Science and technology are advancing in leaps and bounds.
We're only just beginning to untap the power of smart phones.
We're starting to see data ascend into the cloud
- Super-fast broadband, digital screens everywhere
- 3D images
- Artificial intelligence
- Cheaper RFID
- And a massive network of sensors delivering constant feedback
It’s a new infrastructure with massive potential and it's not just about digital.
We're also making big strides in renewable energy.
In food technology, we're delivering better taste with fewer calories.
Nanotechnology is bringing us new materials genetic profiling is providing a wealth of new insights and higher yielding, more resilient crops are on the way.
So the technology we need is here or coming soon.
Our links with consumers are strong and getting stronger.
Our skills base is high though we must keep working on it to be fit for the future.
And many companies have large cash reserves or good access to credit.
Most of the building blocks are in place but are we taking advantage?
IGD tracks big ideas around the world and we have noticed more recently.
Here are some that have caught our eye this year, beginning with new store formats.
An American baker, Panera Bread, has a novel approach to pricing - pay what you want!
They've found that 60% of people pay the suggested price, 20% under-pay and 20% over-pay balancing it out.
A new packaging-free store has opened in Texas called in-dot-gredients.
Shoppers bring their own containers to fill.
In France, Coursenville presents 38 town centres in virtual reality.
You can browse in the shops, order online and collect from the real stores or get a consolidated home delivery.
In Korea, Tesco projected a virtual store onto a subway station wall showing how shoppers could order products using phones and QR codes.
And Ocado has tested this too with a virtual wall in a London shopping centre.
We've seen digital technology used in many other creative ways.
In Germany, Rewe is testing a 360 degree scanner that reads product bar codes as they travel down the conveyor.
A telecom company in China has mounted tablets on trolleys that tell you about promotions as you walk past the product displays.
Ahold allows shoppers in the US to self-scan with an app on their own phones.
And there's now a chip from MasterCard to insert in your wristwatch and swipe to pay in stores.
There have been some real product breakthroughs too.
Frito Lay's SunChips are made using solar energy.
Wrigley's consumers can design their own packaging.
And Britvic has launched an aerosol version of its Tango range.
My final example is from the University of Exeter.
It's a device to make chocolate shapes to order.
You design your shape on a screen, the chocolate flows through a special printer and out comes your 3D shape.
How many of these ideas will stand the test of time?
Nobody knows but what we can say is that radical thinking is alive and well and in our industry.
So where next?
Many of you have been asking us where shoppers are now.
They’re feeling the squeeze: over 40% say they’re more likely to stick to a set budget over the next six months and over half say they look out for the price of every item they buy.
So shoppers are more disciplined and less open to impulse and yet they do still care about quality and ethics with a growing sense of community.
And they’re still trying to save without sacrificing quality, taking advantage of promotions and weighing up brands with own brands.
Through our ShopperVista programme, they’re raising a series of challenges.
Shoppers find it difficult to:
- keep within that fixed budget
- plan meals ahead
- choose a varied diet that keeps the family healthy
- find enough time for shopping and cooking
- compare quality and prices and get the best value
- avoid waste
- learn as much as they'd like about food
- choose products that reflect their ethical standards
- and achieve good results every time they cook
These have always been long term opportunities for us but we can now look at them in new and different ways.
Doing the ordinary extra-ordinarily well and consistently is often the way to get the biggest payback.
So the first job when we’re under such pressure is to maintain our disciplines and get the basics right.
If we ever let our standards slip we’ll be sprinting flat out yet still moving backwards.
The second job is to find quick and simple improvements to deliver those short term percentage points.
And then we can work on the long term solutions.
Through ShopperTrack … we asked shoppers what they’d like our industry to concentrate on.
They gave us four priorities:
- Helping to keep to a budget
- Reducing waste
- The store experience
- Product provenance
So let me work through these priorities looking first for simple answers.
Shoppers need our help to save money and they have some very strong preferences.
Their biggest no-no is reformulating products to keep to a price point.
Only 4% of shoppers approve of this.
They understand real value especially in times of austerity.
What shoppers do want is better information to stay in control.
They’d like advanced notice of special offers, a way to keep a running total as they shop and consistent information across a category to make products easy to compare.
They’d also like a more comprehensive and consistent budget range.
Over half claim they’d buy fewer own brands if a lower tier of manufacturer brands was available.
When it comes to cutting waste, shoppers want more re-sealable packaging and more price discounts replacing multi-buys.
They’d like to see the meal deal extended to meal components with more "pick and mix" offers like selecting a fruit bowl with any ten items for a fixed price.
And they’d love to have longer shelf life both ‘best before’ and ‘use by’ dates.
This can make all the difference between shopping once or twice a week and a full or a part bin of waste.
So maybe it’s time to go back to the drawing board to see how we can provide this.
The third priority is to improve the shopping experience.
We asked shoppers "what are your biggest stress points around shopping?"
Their top three answers were coping with crowds the sinking feeling you get when what you want is out of stock and deciding between products.
The downside of choice is information overload.
It’s a real headache for shoppers and we’re close to the crunch point.
Do we keep expanding choice or go for simplification or can we deliver both?
For instance, could we consolidate range in store but extend it online and make it easier for shoppers to click and collect?
Or could we design our stores with a quick route and a slow route.
The fourth and final priority for shoppers is provenance.
As promotional activity increases, loyalty decreases.
The appeal of brand heritage has been strengthening and yet 79% of shoppers feel that own brands have been improving in quality.
The battle is hotting up and building loyalty through provenance and transparency is vital.
To see this done exceptionally well take a look at the Patagonia website.
For every clothing product they sell they offer a map of each stage in the supply chain.
They list the good and the bad points about the sustainability of each product explain how they’re tackling the bad points and invite anyone to make suggestions.
Now let’s look a bit further into the future and some of the opportunities that will emerge.
As digital displays replace printed signs we can add more theatre to stores and price more flexibly.
We can personalise our relationships with consumers for instance through tailored meal plans.
We can give shoppers more information on how much they have saved or could save using loyalty or online data.
But did you know that almost half of all shoppers who’ve tried buying groceries online are now lapsed?
And of those lapsed shoppers, a third found it tedious.
But now we can liven online shopping up through touch-screens, faster broadband and new approaches.
Auchan, in France, is testing a 3D online shopping mall, which works like the Sims computer game.
And we can use smart phones to connect the online and offline worlds, delivering more personalised promotions, rewards and feedback.
If store traffic falls then retailers should have more space for demonstrations, taste tests and other ways to reward their best customers.
And more joint ventures involving specialist retail and service providers could bring excitement and differentiation to large grocery stores.
Our ShopperTrack participants also made some futuristic requests.
When a product is out-of-stock, could we show when the next delivery is expected which other stores do have it in stock and recommend alternatives?
Instead of offering one big discount for food on its sell-by date could we drop the price gradually day by day?
Could our packaging change colour when the product nears its use-by-date, or the fridge-freezer advise you what to eat up soon?
Could our shopping trolleys hold your phone securely and use it to guide you round the store, point out promotions and help you find products?
And could we provide a personal provenance map that builds your profile over time showing where your food and groceries came from, how much was fair trade or free range?
I always argue that we are the world's most important industry the linchpin of the economy, public health and the environment.
So it's incredibly important that we don't let our immediate difficulties derail our long term mission.
Many of the great inventions of the modern world originated from these islands but we've let it slip.
UK private sector spending on R&D has been just 1.1% of GDP over the last ten years compared with 1.7 in Germany and 1.9 in the US.
According to Eurostat, we're 17th in the list of EU states measured by business innovation.
That's for the whole economy … and from the 40 companies I visited last month, I'm confident that doesn't apply to our industry but even so, now is the time to recommit to transformational change.
But that's easy to say and difficult to do.
So I've been thinking about how we can increase the rate of breakthroughs and I've come up with a five point plan.
First, we need to get even closer to shoppers tailoring range to the locality more than ever before.
Call it crowdsourcing or consumer democracy but now we have a way to untap ideas from millions of customers and use them as a test bed.
The “My Starbucks Idea” website shows what's possible attracting more than 26,000 suggestions for new coffee-based drinks alone!
Ben and Jerry's raised over 10,000 ideas for new ice cream flavours through their "Do the world a flavour" campaign.
And the Migi-pedia platform from Migros has over 20,000 users who criticise and praise, suggest improvements and vote for new products.
Point two is to build a stronger culture of experimentation.
People are the make or break factor in any plan.
We need to unlock the creativity and invest in the skills of all our people.
A few projects won't be enough we need great everyday teamwork, rooting out any last tunnel vision.
We need to align our objectives, KPI's and reward systems behind experimentation and not only this year's bottom line.
Next we need to work on total solutions.
We need better functioning chains not just better products and stores.
How we grow food, how we run our production lines and how we manage our supply chains are in constant need of attention too.
When IGD worked on 33 food chains from end to end, we found that 20% of all costs in the average chain add no value for consumers.
So the spirit of teamwork needs to extend to suppliers, customers, third parties and sometimes even our competitors.
We need a clear distinction between where we compete and where we can safely collaborate for the greater good.
Point four is to focus fanatically on resource efficiency.
If we don't keep producing more with less then all our efforts to build growth will be undermined by rising costs.
We need to treat every resource as precious with a cradle-to-cradle philosophy where there's no such thing as waste, only another resource to use.
Above all, point five, we need to take leaps of faith rather like that bakery store which lets its customers pay whatever they want.
Not that I recommend that for everyone but we can all emulate their courage!
We have to back our judgment with real investment.
This is not an ordinary downturn it's a time of fundamental change and no-one can afford to get left behind.
The breakthroughs will surely come, the only question is from where?
Will they come from big companies or small companies always a fertile source of ideas or will they come from the developing world?
Think of all those Japanese companies that learned from the West, built up domestically and then conquered the world.
This could be repeated with China, India or Brazil.
But the breakthroughs will come.
Our industry has so many strengths and we will get through these testing times.
It's at moments like these that the best companies make the fastest progress and gain the greatest advantage.
Already, UK food and grocery is highly advanced but now we have the chance to be trailblazers and role models across the world and across the economy.
We have the skills, we have the ingenuity, let's break through.
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