Food & Grocery Retailing in the Global Recession
The United Kingdom's (UK) "Approved Food & Drink" is an online, e-commerce grocery store and home delivery service with a unique twist. That unique twist is that unlike the e-commerce shopping and delivery operations of leading UK food retailers such as Tesco, Wal-Mart-owned Asda or the online-only grocery and delivery service
Ocado, at which consumers order the same types of food and grocery products featured in supermarkets and then receive home delivery,
"Approved Food & Drink" specializes strictly in closeout items and non-perishable food, grocery and beverage products that are either near or recently past the products' "best buy" code dates.
The online salvage grocer offers food and grocery products ranging from major global brands like Nestle, Heinz, Coca-Cola and Pepsi, to natural, organic, specialty and gourmet products, including iconic British specialty brands like Walkers, Marmite, Bovril and most others. "Approved Food," as it is called for short, offers the items at about 20% -to- 60% less than non-salvage items offered in UK supermarkets.
"Approved Food & Drink" is similar to what are commonly referred to in the United States as salvage grocers or close-out supermarkets -- accept it is an online operation, as well as the sister to a brick-and-mortar operation. These U.S. salvage grocers are brick-and-mortar retailers, such as the California-based
Grocery Outlet chain and others like it, along with numerous independents located throughout the county, that specialize in selling "short-coded" goods, as well as manufacturer's overstocks and products with slightly blemished or mislabeled packaging. They sometimes are referred to as "Scratch & Dent" grocers.
The code-busting online salvage grocery store sells overstocks and blemished food and grocery products as well. But is specializes in the "short coded" and even past-"best buy" code date products.
Most salvage brick-and-mortar grocers in the U.S. don't sell food and grocery products that are past the "best buy" code dates, generally pulling any of the expired goods from the shelves and displays once they are past the date on the package. [We aren't aware of an online salvage grocer in the U.S. comparable to the UK's "Approved Food & Drink." If you are, let us know.]
The UK's "Approved Food" actually has an affiliation with a British version of a brick-and-mortar salvage grocer. The e-commerce grocer is the online division of Crag's Cash & Carry, a UK brick-and-mortar food and grocery wholesaler and retailer of salvage groceries and near and past-"best buy" code date expired goods. [You can learn more about Crags's Cash & Carry at its
Web site here. You can learn more about "Approved Food & Drink's" philosophy at its
e-commerce site here.]
Differing industry practices, differing social norms
Natural~Specialty Foods Memo (NSFM) readers not familiar with the norms and practices of food and grocery retailing in the UK might find the notion of an e-commerce grocer specializing in the selling of goods near, and particularly past the "best buy" package code dates bizarre.
However, the practice of marking down both fresh and shelf-stable packaged foods on a daily basis is a common one among UK supermarkets. Fresh foods like meats, produce and baked goods get marked down each day in UK food stores, often by as much as 50%. The same is the case with non--perishable, packaged food and grocery products. As the packaged goods items near their "best buy" code date, the grocers mark them down as a way to sell them and "salvage" some economic value on the items, as a regular practice.
In the U.S. supermarkets do some mark downs, particularly on fresh category items like meats, bakery and produce. But it's generally done on an ad-hoc and store-by-store (and even store department-by-department) basis rather than as a common industry practice, as it is in the UK. Some U.S. supermarkets also mark down shelf-stable grocery items, but generally only when a particular items is being discontinued, and often not even then.
The practice of marking down non-perishable packaged goods by U.S. supermarkets as a matter of policy is nearly non-existent. Instead, such items, as well as most all perishable products, are donated to food banks or food pantries (or thrown away) when they near their "best buy" expiration code dates rather then being marked-down. Some U.S. chains even have a company policy against stores doing any product markdowns at all.
Part of the reason the U.S. supermarket industry doesn't do markdowns on a systematic basis, as is the case in the UK, has to do with U.S. food safety laws. Retailers in the U.S. generally fear lawsuits if they sell food and grocery items that are close to or near the package expiration date.
Another reason has to do with the cost of labor. U.S. supermarket chains, many of which are unionized and pay a premium hourly wage, generally don't believe the benefit of having store employees devote time (and the company's money) to marking down products pays off in terms of the reduced profits and outright loss of profit that the sales of such products bring, particularly once the labor cost is factored in. As such, they prefer to donate the goods to food banks right from the start.
Additionally, most U.S. consumers, unlike most UK consumers, have a less liberal attitude towards buying goods near their expiration date, and an even stronger attitude against purchasing those past the expiration date. Although in the current recession that is changing as business at U.S. salvage grocers, those that sell near expired code date goods as well as the closeouts, is up considerably, as shoppers search for bargains.
So there are cultural differences between UK and U.S. consumers that account in part for the differences in the two countries regarding the practice of supermarket industry mark-downs. We think in the UK the severe food shortages the nation experienced for many years during two World Wars accounts in large part for the mark-down system in that country -- the concept that wasting food is culturally (and economically) wrong.
The U.S. also suffered some food shortages and had rationing during World War II, for example, but it wasn't as near-severe as what the UK experienced.
We think the two allied nations came out of that experience with different points of view. Two generations of UK consumers (post World War I and World War II) came out of the war experience stressing the relative importance of not wasting food, hence in part the adoption by the UK supermarket industry of the mark-down system, focused as the nation was on the severe shortages of food over a long period of time.
In contrast, the U.S. came out of the war experiences with an attitude of abundance, that the country would produce more food than it needed, which it has, and that food waste was a part of that abundance rather than something to be concerned with in an serious way. As a result, the concept of daily markdowns never caught on within the mainstream U.S. supermarket industry.
An additional reason for this cultural and industry difference we believe is the simple fact that the U.S. grows and produces so much food. It need not import any food if it chose as a matter of policy not to. On the other hand, although the UK produces a great amount of food for such a geographically small nation, it isn't able to be a self-producing nation like the U.S. is under current demand conditions.
None of this is to suggest food isn't wasted in the UK, as it is in the U.S. According to statistics publish by the British government, it's estimated that UK consumers throw away about 4.1 tons of food each year after they purchase it at the supermarket. That's lots of food waste for the population of the UK. What we are saying is that food and grocery items go through a formal, industry-wide step in the UK, the markdown process at the supermarket, that doesn't systematically occur at U.S. supermarkets and other food stores.
There is one exception to this rule though. UK-based Tesco, which operates about 111 small-format Fresh & Easy Neighborhood Market grocery and fresh foods stores in Southern California, Nevada and Arizona in the Western U.S., has brought the UK supermarket industry's "mark-down" process with it across the pond to America.
As part of the retailer's policy, Fresh & Easy store employees mark down near-expired fresh foods -- bakery, produce, meat, prepared foods -- each day, reducing the retail prices from about 20% -to- 50%, depending on how close to its expiration date the product is and how fast they want to move it. The stores regularly do the same thing with shelf-stable food and grocery products nearing their expiration dates. We haven't seen the Fresh & Easy stores selling any items that are past their "best buy" dates however.
Business appears to be booming at 'Approved Food'
The brief explanation of the markdown process and practice in the UK supermarket industry better helps explain the "Approved Foods'" business model, we think. We also think it demonstrates the model's potential to do well, particularly in bad economic times like the present.
The e-commerce, home delivery-based salvage grocery store was doing a steady but not earth shattering business until about September-October of 2008, when the financial-credit crisis and economic recession began to get severe in the UK, as it did in the U.S. and elsewhere throughout the world.
Along about that time the volume of orders to the Web site started to pick-up considerably. "Approved Food & Drink" says it's experienced an about ten-fold increase in business since September-October, 2008. And over the last few months that volume has kicked-up even higher. So much so in fact that on February 4 the online salvage grocer put a notice on the front page of its Web site in
red font saying this:
Important information:
Due to the large number of orders that we continue to receive, there is a temporary backlog of about a week.
For those who plan to place an order with us we would like you to be aware of this delay for the time being.
The store is open daily for local customers who may wish to shop in person.
We ask for you to continue to be patient over this period whilst we work around the clock, literally, to ensure orders are sent out to you ASAP.
Thank you all for your support, especially Martin Lewis and all the Money Saving Experts at www.moneysavingexpert.com
Please visit Approved Foods again and feel free to register for our newsletter.
Regards
The Approved Food Team
[
Click here to view the Web site front page.]
The e-commerce-based salvage grocer also has been so busy of late it has at times closed down for a day or two in order to catch up on its back orders, pulling workers from various parts of the operation to help fill the customer order backlog.
Additionally, "Approved Food" has recently put a notice on its Web site to UK-based food and grocery suppliers and supermarkets, letting them know it's looking to buy large quantities of closeout products as well as food and grocery items with short expiration "best buy" code dates.
In the UK, as in the U.S., the code dates don't mean the product has spoiled. Rather the dates mean just what they say -- that the product is "best" if purchased by that date. That's the legal definition in both countries.
Food retailing, economics and society
How people obtain their food and where they shop for it is a psychological, anthropological and social phenomenon as well as an economic one. But economics is arguably the most significant determinant of how and where most consumers get and buy the food they eat in bad economic times like the present. This is a cross-cultural and cross-societal phenomenon as well.
For example, in both the U.S. and UK the
sales of fruit and vegetable seeds and plants are up considerably over about the last six months to a year. Numerous retailers are reporting sales of the fruit and veggie seeds and seedlings at the highest levels they've ever seen. Increasing numbers of consumers are taking to home gardening as a way to grow some of their own food and thus save money.
At retail, there's a significant shift going on from consumers shopping at higher-end and mid-range supermarkets, to discount food retailers.
In the U.S., chains like discounter Wal-Mart and Aldi USA (the U.S. division of Germany-based Aldi International) are doing well, for example. In terms of growth, both chains recently announced plans to open numerous new stores this year, and are even pushing into new market regions, while numerous higher-end and mid-range supermarket chains are struggling, postponing new store openings, in some cases closing stores, and even in a couple instances beginning to layoff employees. One of those examples is the privately-held Bashas chain in Arizona. Bashas, which operates about 159 supermarkets in Arizona, laid off 300 employees, or about 3% of its total workforce, last week, saying in a company statement that it had to do so because of the economic recession and increased competition in the Arizona market.
Wal-Mart said this week in a statement it plans to open about 125-145 new stores at home in the U.S. in 2009. The global retailer just acquired a food and grocery chain in Chile, is expanding its Asda chain in the UK, and is pushing into Russia, as well as growing its joint-venture retail operations in India, among other growth plans plans.
Germany-based Aldi International announced recently it plans to open about 100 new stores this year (on top of the about 1,000 it currently operates) in the U.S., and nearly that many new stores in the UK in 2009.
Aldi USA also is moving into New York and Texas this year, two brand new markets for the small-format, hard-discount grocery chain. Aldi USA entered the Florida market for the first time in late 2008, as well.
The same is the case in the UK. Hard-discounters Aldi-UK and Lidl (also a German small-format, hard-discount grocery chain) are
picking up market share largely at the expense of British chains like Tesco, Waitrose, Marks & Spencer and Sainsbury's. Wal-Mart's discount-focused Asda supermarket chain also is picking up share in the UK in the recession as it cut and continues to cut prices considerably.
Further, the use of manufacturers "cents off" coupons is at about an all-time high in usage among consumers in the U.S. and the UK, which is another indicator of how shoppers are striving to save even pennies at the supermarket in these tough economic times.
In the away-from-home eating space, global fast food chain MacDonald's is having one of its best years in recent times due largely to its low-price model, and recently announced it plans to open about 1,000 new stores globally this year. Meanwhile, higher-end and even mid-range restaurants are struggling as consumers throughout the world have cut back on meals eaten away from home.
It's in this recessionary socio-economic environment in which the UK's "Approved Food & Drink" is finding its business of selling salvage groceries, including those items with near-expired and even expired "best buy" dates, apparently booming.
It's all part of a new trend we've been observing among consumers that we call the "new frugality." It's a new frugality created primarily out of need (economic) rather than out of desire or choice. But it's a reality, despite the primary motivating cause. And from a historical perspective it isn't anything new. It's just new in the era of consumption.
It's also our analysis and view that this "new frugality" could last long after the recession ends because in prolonged periods of economic struggle like this one looks to be such new behavior patterns like frugality and searching out discounts tend to take stronger hold in terms of consumer behavior.
This changing consumer behavior is currently reshaping food and grocery retailing in numerous ways. The majority of those ways have to do with retailers of all formats having to more strongly and aggressively compete against one another other for fewer food dollars and among more tight-fisted shoppers, and as a result having to lowering prices, offer stronger promotions, and cut expenses to the bone.
Meanwhile, alternative format retailers like UK e-commerce salvage grocer "Approved Food & Drink," and the numerous brick-and-mortar salvage grocers in the U.S., are taking a greater piece of that food dollar pie as consumers seek out stores (and e-commerce grocers) where they can get more for their money (perceived or real) -- even if the food and grocery products happen to have nearly-expired or expired "best buy" code dates. And this phenomenon in turn adds an additional element to the ongoing reshaping of food and grocery retailing in these recessionary times.
Above is a photograph of one of the Toys "R" Us "R" Market store-within-a-store grocery and packaged goods sections located in the front of over 260 of the chain's U.S. toy superstores. The retailer has done a pretty good job of basing the item selection in the grocery sections on the Toys "R" Us overall format, striking a balance between essential items geared to mom and dad and items focused on the kids. The "R" Market sections contain about 1.300 SKUs, according to the retailer. [Photo courtesy of Toys "R" Us, Inc.]
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