News

REGIONAL BRANDS: Staying local

08 April 2008 By db staff writer

d=”standfirst”>Small, independent producers and the giant multiple grocers may seem like unlikely partners – however, consumer demand is creating a niche in supermarkets for regional drinks brands. By Ben Grant

THE EMERGENCE of the supermarkets seemed, until recently, to sound the death knell for small-scale, localised, independent food and drink production. The philosophy that underpins the multiples is based on the unrelenting logic of economies of scale, and during the past two decades the four principal players have grabbed a massive share of the nation’s grocery spend by offering unbeatable prices combined with unparalleled convenience. It’s a compelling commercial model and just a few short years ago it seemed that any business that did not adhere to the basic principle – driving down prices through scale and consistency – would be unable to survive the onslaught. With the supermarket’s shadow over the UK’s retail landscape looming ever larger, the prognosis for independent players appeared incredibly bleak, with companies forced either to kowtow to Tesco et al, or be crushed under the wheels of progress.
It’s becoming increasingly evident, however, that this doomsday scenario is not becoming a reality. For, while consumers have certainly been seduced by the obvious benefits of the “big is best” model, they are increasingly harking back to the authenticity, variety and plurality of yesteryear. In issue 61 of the drinks business (August 2007) we demonstrated how the growth of the supermarkets has been the catalyst for a significant renaissance at the top end of the independent sector. The same principle seems to be ringing true for small-scale producers: a growing pool of consumers have become disillusioned with the consolidated, homogenous offering from the big brands, and are seeking the authenticity of traditionally-produced, locally-sourced goods. And they’re prepared to pay a premium for this perceived privilege.
The multiples are, of course, savvy enough to listen to their consumers. And this message has obviously been coming through loud and clear, for they have all been making a concerted effort to get local goods on shelf – even though such a move flies in the face of the philosophy upon which their success has been built. Whereas the supermarkets once looked set to destroy local production, they are increasingly making space for the little guys and there’s a compelling argument to suggest that – for the micro-brewing sector in particular – things have never been better.

Leading the way
Given the higher prices that such products tend to command and the type of consumer they attract it’s unsurprising that Waitrose was the first multiple to seize the initiative. The company launched the “local and regional sourcing initiative” in 2001. The reason, according to a company spokesperson, was “the belief that our customers wanted easy access to the best food and drink from their region – real food and drink, produced using traditional methods and great local ingredients”. There are now over 1,400 locally-sourced SKUs on-shelf, and they have been well-received by shoppers, with sales up by 60% during the last year. Beer lends itself well to the concept with over 230 local beers sourced from 124 independent breweries, and as a result, “from March 2007 every Waitrose branch has stocked at least one beer from its local area”.
It’s all well and good for the most upmarket multiple chain to make a success of local sourcing, but is the concept still commercially credible at the more value-conscious end of the market? For the time being this question remains unanswered, but the strategy that is rolling out in Tesco stores at the end of this month shows that the UK’s number one multiple grocer acknowledges the important role that local goods will play in the future of grocery retailing. In a statement issued last month the company predicted that its local food and drink sales will be in excess of £1 billion by 2011 – (which, incidentally, dwarfs the revenues generated by organic produce).
In 2004 there were about 40 lines of nationally available bottled ale on Tesco shelves. By the following year the company had doubled the number of ales listed, with a number of smaller-scale lines each made available in a total of 20-50 stores. The latest phase of expansion, which reaches completion at the end of April, will see 350 different beers on Tesco shelves – with at least one local offering in every store, and up to ten in some outlets. National ale and cider buyer, Ian Targett, explains: “We’re taking this very seriously… it’s about having the best beers on shelf.” There is, of course, a commercial imperative but, so Targett will have us believe, the strategy is about more than simply making money. Tesco, he says, wants to be “a destination shop, for consumers who are looking for the best British ales”.
It’s easy to see why beer fits into the concept of local sourcing so neatly. “The pub is the hub of the local community,” says Camra head of public affairs Jonathan Mail, “beer has strong roots in the local community.” The rise of the big pub chains massively affected this relationship, cutting the age-old ties between local pub and local brewery and bringing the ubiquitous national brands to the fore. But a combination of growing consumer demand and the Progressive Beer Duty (which places small volume producers on a lower rate of excise) has led to a real resurgence in the micro-brewery sector: in 2002 there were less than 400 in operation but this number had grown to over 600 last year. As well as the significant rise in interest among the off-trade, many beers are also making significant progress in the on-trade: the Society of Independent Brewers’ (SIBA) Direct Delivery scheme has already opened up 4,200 tied pubs to independent producers and this figure continues to rise.
“We’re seeing a reaction against the consolidation of the global industry. It’s a trend across the whole food industry,” says Mail. “Consumers want an authentic experience, and they get that when they buy local.”
Big chains are, of course, distinctly unsentimental organisations. While the marketing campaigns would have us believe that their support for the local producers is inspired by a desire to preserve and celebrate traditional practices, in reality the decision is driven by purely commercial realities. As Targett points out, increasing numbers of “people have been coming into our stores and asking for local products” – the retailers are simply responding to this demand. And fortuitously, it’s evident that not only are consumers keen to support localised production, but they recognise that it is worth paying a little extra for. Which is something of a relief for the retailers because, frankly, they’re not exactly the simplest of products to sell.

Sourcing and supply
The first challenge to overcome is sourcing – with a pool of over 600 potential suppliers the buyers certainly have their work cut out. Targett reports that, at Tesco, “we have our feelers out, and also receive a lot of cold calls”. But rather than attempting to get out and about and visit all of the breweries, most listings are secured as a result of bi-annual regional producer roadshows, where local suppliers (of all product categories) are invited to present their wares. Interestingly, the beer sector tends to be particularly well represented: “there are so many brewers out there, every time we hold a road show the beer people are the most subscribed”.
Once the list has been drawn up the supply logistics represent another major hurdle as, by definition, the producers cannot meet the kind of volumes that the multiples like to work with. Targett –
who worked on the supply chain before joining the buying team – diplomatically describes the process as an “administrative quagmire … Logistically, it would be much easier to stick with 50 lines of nationally selling beer and not to bother with local lines”. This is, however, not an option so Targett and his team have had to work hard to get a network in place that can deal with uncharacteristically small inventories. With this structure in place, however, Tesco does not make any further concessions to the local producers. “We treat them like normal producers – they are forecasted and ordered in exactly the same way as Stella Artois and we expect the same [consistency and reliability] as the big brands,” says Targett.
Having gone to such effort to get the product in store, the next conundrum is how to ensure that the message is projected loud and clear to shoppers. Having addressed the issue for rather longer than the competition, Waitrose has stolen a march in terms of communicating the message. Extensive point of sale coverage, customer magazines and the company’s website are all used to good effect, while a recent ad campaign underscored its local credentials. Tesco is in the process of playing catch-up and it’s unlikely that the obvious PR benefits of the local strategy will have been overlooked by the marketing department. In certain areas – notably Cornwall – where there is particularly high demand for local goods and a strong rostrum of producers, Tesco is even trialling a specific area in the shop devoted to local goods across various categories.
Clearly both demand and supply are currently riding high, and local goods have become a major trend in the current retail landscape. But is this just a trend – a popular fad, driven largely by the current media agenda – that is at the front of consumers’ minds at the moment but will soon be forgotten? Fortunately for those with either a financial or ideological interest in localised production, it seems that the answer is a resounding “no”. Camra’s Mail says that the support from the likes of Defra and Food for Britain has enabled independent producers to get up and running; as they have become increasingly successful they “are reaching a level where they can divert more resources into sales and marketing”, which will help them to safeguard their future and ensure sustainable growth. “I’m very positive about the direction that it’s going at the moment,” he enthuses, “this is definitely a long-term trend.” Targett is similarly optimistic, while his colleague Dave Peek, Tesco’s English wine buyer, pointedly remarks, “Just look at the size of the resource put in by Tesco. The local buying team is a big investment, which wouldn’t [have been committed] if it was seen as a short-term trend.”
At first glance the supermarkets and independent producers are, almost by definition, rather awkward bedfellows. By their very nature, the multiples have traditionally been anathema to the little guys, but a strong and sustainable relationship is rapidly emerging. Already, almost half of all off-trade real ale sales in the UK are rung through the multiple grocers’ tills – and the roll out of the new Tesco range will almost certainly ratchet this figure up even higher. It’s a hugely positive situation that looks set not just to safeguard the future of the independent beers, but to expose these quintessential English classics to a wider pool of potential consumers than they have reached in a generation.

English wine:
The English wine industry is still very much in its infancy – but securing a market among local consumers has been an important factor in enabling fledgling producers to upscale their operations. The likes of Three Choirs in Gloucestershire, for example, have anchored their success on links with the local community.
Julia Trustram Eve, marketing manager for English Wine Producers, explains that producers are reaping the rewards as consumers look closer to home for wines. “Whether it’s an understanding of provenance, bigger issues like carbon footprint or messages from the media, people really like the idea of finding something local.” Quality is critical, there’s no question that the wine must be up to scratch, but as long as the quality is there the idea of buying English and, indeed, from a local vineyard is highly attractive to more and more imbibers.
Pleasingly for suppliers, Tesco English wine buyer Dave Peek points out that “as long as the quality is there consumers are prepared to pay more. They recognise that the prices are reflective of a cottage industry … If two products are identical but one is produced by a small winery and the other comes from Constellation consumers are prepared to pay a premium price”.
Given the relatively small size of the English wine industry, few producers have yet managed to crack into the multiple grocery sector – but the top players are gradually beginning to make an impact. Peek currently works with four local producers – as part of a structure that “piggybacks” what’s going on in other areas of the Tesco business – but he stresses that he aims to add more products “in the foreseeable future”.