In pursuit of premium: How supermarkets are getting classier
It’s a race to the top as grocery retailers compete on quality. Graham Medcalf finds out what the rising international trend of specialist offerings, boutique-style spaces and higher profit margins looks like in the supermarket sector.
The rise of smaller-format premium grocery stores in New Zealand has heralded a growing interest in high-end retail from our established supermarkets.
Kiwi player Farro Fresh was described in GE’s most recent mid-market report as “a substantial business at the top end of the mid-sized market,” and this retailer more than any other has ridden the ‘premiumisation’ wave in New Zealand.
It’s a trend that started way back in the 1990’s in the UK with Tesco’s ‘Finest’ range. The range’s creation was a pivotal moment for the pursuit of premium within mass-market food. Other UK chains like Waitrose soon began to increase their focus on quality and taste.
In Australia, Coles latest ‘next-generation’ store in Sydney’s Macquarie Centre appears to be the first antipodean nudge towards a premium offering from a major player. The new Sydney store has dry-aging cabinets for beef, baristas, pastry chefs and sushi chefs.
As retail consultant Kevin Moore, from Crossmark Asia Pacific recently said: “Suddenly retailers are not simply stocking their shelves, but ‘curating’ their goods, finding the best cuts of beef, the choicest free-range chicken or the freshest local produce.”
The attraction to this philosophy is obvious. Food connoisseurs are likely to spend up to twice as much on food as regular shoppers, and are prepared to pay a premium. It is these consumers that retailers like Farro Fresh and its competitor Nosh are trying to attract. Price-focused supermarkets continue to prevail but premiumisation is gathering momentum and is starting to offer a lucrative return on investment.
The Farro Fresh and Nosh customers falling into the premium added-value category may be seen as more discerning and more inclined to pay a premium for quality produce. Quality and good taste go hand in hand, but these are not the only criteria for these so-called ‘foodies’. Food connoisseurs and ethical consumers apply a wide range of values to their purchase decisions. Value for money still remains the primary driver in the purchase decision, but discerning consumers look to food to give them pleasure and satisfaction. They will support local New Zealand products and those marked as fair trade, organic or free range – they like to know where the food comes from.
There is no doubt that at the volume end of New Zealand supermarketing, price is the overriding factor. Pak’n Save still places an emphasis on having “New Zealand’s lowest prices”, while Richard Manaton, general manager strategy and corporate affairs at Countdown, insists that “price remains the main driver for Kiwis when deciding where to shop”.
Manaton goes on to say, “At Countdown, our focus is on delivering lower prices for our customers through our ‘price drop’ and ‘price lockdown’ programmes, which have saved Kiwis more than $70 million on over 1,000 everyday products.”
That doesn’t sound as if premiumisation is a priority, and the closest Manaton and Countdown come to the topic is to say: “We work hard to deliver our customers quality products. Where possible, we also locally source our fresh produce. For example, 100 percent of our fresh chicken, pork and milk is sourced from New Zealand farmers. That being said, we are always looking to improve our ranging, whether that be by tailoring ranges to particular stores in particular areas, or by increasing our offering of products that we know our customers value, such as health foods and international foods.”
To be fair, Countdown has developed its in-store services. A number of Countdown stores have sushi chefs, pharmacies and florists. The stores also offer barista-made coffee in Countdown’s Auckland Metro store.
Over at Foodstuffs, which has the Pak’n Save, New World and Four Square brands, there is a growing acknowledgement that customers expect quality products at good prices. Murray Jordan, managing director, Foodstuffs North Island Ltd, regards the pursuit of premium as “an interesting trend”. He believes the movement appears to be driven by several factors, which include increasing consumer optimism and, possibly, emergence from the austerity of the global financial crisis. He maintains that Foodstuffs is at the forefront of this opportunity and is challenging its supplier base to deliver appropriate products to satisfy consumer demand. In addition, Foodstuffs’ private label strategy continues to work towards satisfying this consumer demand.
“Customer research tells us there are a range of specialist offerings that fall into the premium space,” says Jordan. “Customers want a diverse offer and many view ‘premium’ differently. We are seeing clear needs emerging that are directly related to how people live their lives, where their interests lie and how they like to socialise with friends and family.”
According to Foodstuffs’ research, most people see themselves falling into a specific group. The ‘young and upwardly mobile’ are looking for natural, locally produced products that are organic and environmentally friendly. The ‘adventure’ group want an authentic, exotic food experience, one which has real flavours and ingredients. ‘Sophisticated’ consumers like to treat themselves and impress friends and family. This group know good food and are looking for a real gourmet offer that is refined and classy. The ‘control’ group often have specific dietary requirements such as gluten free, dairy free and organic.
Those interested in ‘wellbeing’ take more of a holistic approach to food and nutrition. These consumers want natural, simple food choices that are as close to nature as possible – fresh and locally sourced is key. Finally those in the ‘special everyday’ group want to be able to add special treats regularly. ‘Fresh’ and ‘homemade’ items appeal to this type of shopper.
Jordan acknowledges that across the Foodstuffs’ brands, the company needs to adapt and sculpt its offer to meet the changing needs of the more discerning customers. “To achieve this,” he says, “we are broadening our store repertoire and focusing on the areas our customers tell us they want, such as ‘fresh’, which includes produce, butchery, seafood, bakery and deli.”
Country of origin labelling has been in Pak’n Save, New World and Four Square stores for some time, and in August 2014, Foodstuffs announced that the Health Star Rating system would be rolled out across 1,400 Pams and 315 Budget lines.
Foodstuffs has a number of smaller-format stores throughout the country, including Four Square, New World Metro and Raeward Fresh. They are all unique in their individual offers. For example, Raeward Fresh in the South Island has a reputation for its specialist fresh foods, meat and local produce, all of which are sourced locally. The Raeward Fresh brand is recognised as the ‘cook’s shop’. Customers shop there for ingredient-type foods not found anywhere else – chutneys, spices, dried beef, aged beef and specialist butchery cuts.
However, Jordan believes that shopping in smaller-format stores is really only an everyday option for a small segment of the population. Most consumers have some kind of budget constraint, which is where New World and Pak’n Save come in.
“We offer everyday grocery solutions at sharp prices but by tailoring our offering our shoppers know they can get high quality premium products should they need them. Added to this our owner-operators are very skilled at knowing their individual communities’ needs and wants – each store’s offer is unique because so is every community.”
The New World Metro strategy is not much different from the traditional New World strategy. It gives customers an offer specifically designed to meet their shopping needs. At a Metro store customers are likely to see an expanded lunch offer, sandwiches, salads, sushi and a great deli offering, but importantly they can still get all their everyday groceries so they have complete convenience to top up their weekly shop as required.
Farro Fresh is at the pointy end of premiumisation. The company was founded by husband and wife team Janene and James Draper in Auckland with the opening of their first store in Lunn Ave, Mt Wellington. Today with the addition of stores in Grey Lynn and North Shore, Farro Fresh ‘your everyday fresh market’ employs more than 250 employees. The concept of a large store specialising in New Zealand produced artisan food has proved to be highly successful.
The idea for Farro Fresh arose out of the passion Janene Draper had for food and cooking, and the couple’s enjoyment of Moore Wilson in the three years they lived in Wellington. Moore Wilson began life as a general wholesale merchant, a family business, managed day-to-day by the Moore family. Built around the food service and hospitality industry, Moore Wilson is where chefs shop and has a focus on fresh, top quality ingredients, which are available to the general shopper.
The Drapers realised there was nothing like this available in Auckland, and so the concept of Farro Fresh was born.
“The first couple of years were hard,” says Janene Draper. We wanted to specialise in New Zealand artisan [products] and we felt they were not being fairly represented in the big supermarkets. It was very difficult for smaller suppliers to get listed and get on the shelves – particularly with the supermarkets being price point driven.”
She went through the ingredients in every recipe in her array of cookbooks and listed all the basics that were needed, then looked at the availability of artisan products in the country.
“The idea was to tempt your taste buds with a little bit extra,” Draper says. “We have always driven the company by having fabulous fruit and veg, great meats and everyday products like pastas and sauces. We’ve based it on good value for premium products of the highest quality.”
In the small and frugal New Zealand market, getting the customer traffic necessary to succeed is a challenge and it was only with the opening of the second store in Constellation Dr on the North Shore that the critical threshold needed to succeed was reached.
“What we have done is stick to our core principles and we have really worked with our artisans,” says Draper.
Farro Fresh runs taste sessions on a monthly basis. “We taste everything and it has to be delicious. We don’t even look at the price points. Taste and quality come first, then we look at the back story and whether it is marketable at the price.”
Farro Fresh is aimed at people who like to cook, so having professional and knowledgeable staff on the floor is a priority. Consumers can even meet the growers and hear the stories behind the product.
“We offer a different experience. We are all about taste and flavour,” says Draper. “It is critical for us as a company to be innovative and first to market with new products. We deal directly with over 500 suppliers compared to about 40 direct suppliers to the majors. Our category managers go around farmers markets looking for new products and we exchange supplier information with Moore Wilson in Wellington, although strangely enough not with Nosh.”
Location of store is undoubtedly a factor when discerning whether a premium offering is going to be successful. The Drapers found this out the hard way - Farro Fresh Hamilton only lasted 18 months before it had to be closed down. The next Farro Fresh store to open will be in Epsom, and with that demographic, it will no doubt be a roaring success.
Towards the end of 2014, Farro Fresh introduced ‘Food Kits’. Customers can choose from an online menu with a choice of four or five meal kits that can be delivered five days a week. There is also the added bonus of having other grocery items delivered at the same time.
“We personally shop and pick off the shop floor,” explains Draper. “We have MasterChef New Zealand judge Ray McVinnie as our food consultant and recipe designer.”
In a similar vein, My Food Bag is a service branded around MasterChef winner Nadia Lim and backed by a group including former Telecom CEO Theresa Gattung. The initial idea came from group chief executive Cecilia Robinson. Home deliveries of fresh food are the norm in her native Sweden.
With My Food Bag, customers order a week’s offering of Lim-designed recipes, and the ingredients to make them. These are delivered on Sunday in brown paper shopping bags. There are three choices: Classic; which contains recipes and ingredients for five evening meals for four to five people; Gourmet, with four fancier meals for two; and Family, which is designed to please fussy eaters. Special add-ons such as fruit and childrens’ lunchboxes are also on offer.
My Food Bag was born out of the idea that healthy and delicious food can also be convenient and exciting. Every week Lim and her team of test chefs dream up exciting and nutritious dinner recipes. As they state on their website: “Our goal is to bring inspiring, nutritionally-balanced tasty recipes and the best of New Zealand seasonal produce together and deliver it to your door.”
My Food Bag now has around 20,000 New Zealand customers and turns over more than $60 million per year.
A number of stores in the Foodstuffs group also provide a range of meal solutions for their customers. At selected New World stores in the North Island, for example, you can find ‘Fresh Meals Made Easy’. With this initiative, customers can pick up a simple, fresh meal with all the ingredients and recipe offered at one easy location.
As a family-owned business, Farro Fresh has a very hands-on approach, so it will be interesting to see how competitor Nosh deals with a change of ownership.
The Nosh chain was established in 2006 by Clinton Beuvink and Chris Moore, and was the pioneer in the premiumisation space in the New Zealand market. Positioned as ‘a little gourmet everyday’, Nosh has five Auckland stores plus one each in Matakana and Mt Maunganui. The stores offer a curated range of products with high-quality food for food lovers.
Now owned by Veritas Investments, Nosh will open a brand new store in Pakuranga mid-August and more new stores in 2016.
Its recently-appointed general manager, Rod de Vries, maintains the future is bright for Nosh. “Yes there have been a couple of ownership changes in the past few years,” he says, “but this is not a reflection of the brand. Nosh is a brand that shoppers have come to know and appreciate, a very strong retail brand with a great future.”
De Vries and Nosh propose building on some of the cues from the likes of UK supermarkets Tesco and Waitrose, who have been successful because they have a point of difference. Waitrose attributes its success to employee engagement. Employees at Waitrose are called ‘partners’ and while they don’t hold shares directly, they participate in full profit sharing. In addition, Waitrose is seen as a ‘caring’ retailer. Its on-shelf assortments, especially Waitrose-branded ones, are often environmentally or socially responsible – products such as line-caught tuna through to fair trade chocolate make them different. In line with this, de Vries says Nosh will continue its focused approach to ranging in each category with “better to best offerings”.
“Shoppers continue to be focused on premium brands,” says de Vries, who believes Nosh is at the leading edge of all of these trends. “The frequency of shop is increasing. Top-up shopping is the norm nowadays. Concerns about health and wellness are also continuing to drive shopper behaviour. The shift towards more at-home consumption continues but with more premium/gourmet products and ingredients.”
De Vries and Nosh marketing manager, Brook Milbank, have a stabilising job to do over the next six months. In particular, they will need to refocus on customer service, strengthen supplier partnerships and transform store environments. Online ordering and delivery are part of the longer-term strategy for Nosh.
Online shopping is bound to accelerate the trend towards premium offers. “Increasingly, retailers are introducing ecommerce models that make it even easier for tech-savvy, time-crunched consumers to get the items they need,” says a recent report on Nielsen’s Newswire. “Across the globe, we’re seeing a resurgence of the home-delivery model from the past—with a twist. Consumers aren’t just picking up the phone to order; increasingly, they’re pulling up the retailer’s webpage or using their mobile app.”
There is a specific but lucrative demand for organic foods from a growing consumer segment.
Commonsense Organics is a good example of a local independent family business that sells organic and allergy-aware food, environmentally friendly products and fair trade goods. Based in the Wellington region, Jim Kebbell and Marion Wood have shops in Wellington city, Kilbirnie, Kapiti, Lower Hutt and Johnsonville.
Kebbell says his stores have the largest selection of organic foods in the Wellington region, but in a recent Kim Hill interview on Radio New Zealand, he maintained that “conventional food is too cheap”. Organics retailers are finding it difficult to compete as they are squeezed between the farmers markets at the one end and the supermarkets at the other.
For the record, Commonsense Organics stocks environmentally sound products, and has a great range of groceries and goods that are clearly labelled for allergy-aware customers. It does not knowingly stock any food that contains genetically engineered ingredients, and “aspires to model a different way of doing business based on a respect for our dependence on the land and its resources”.
So what are some of the emerging trends? Foodstuffs North Island Ltd’s managing director Murray Jordan has seen a move away from consumers feeling ‘price sensitive’ to ‘price aware’, which means consumers are prepared to pay for products that deliver real value to them. Key trends in this space include health-conscious consumers who read the ingredients list, want to see the ‘heart health tick’ and are looking for organic, free range or gluten free products. Then there are the so-called ‘real consumers’ who value ‘fresh’, no preservatives or additives, packed recently, and sourced locally.
Provenance consumers want food that comes from a trusted source. New Zealand grown and made is the gold standard for them. Other consumers want ‘authenticity’, products that have as close to the real flavours as possible – real taste and flavour without the additives.
Kiwis are no longer a meat and three veg nation. We want to try new things and we want them to taste good. The trend towards ‘real food’ is gaining traction and this is expected to continue into the future.