In a nutshell
Ahead of our new Food for Thought series of roundtables, we recently hosted a discussion with Dr Clive Black, vice-chairman, head of consumer research at Shore Capital. Clive shared his take on changing consumer priorities, innovation, the food sector’s role in tackling the obesity crisis as well as emerging disruptors such as generative AI and GLP-1 weight loss drugs.
Clive, thank you for taking part in our inaugural Food for Thought roundtable. The theme of our event is ‘How to win in the new normal’. What do you see as the main challenges FMCG manufacturers face in this ‘new normal’?
From a demand perspective, the big challenge will be navigating a market where inflation and costs are stabilising. They’re not going away – there are still plenty of cost pressures and uncertainty – but it does look like we may be going into a period where things are a bit more stable.
So, how is the shopper going to react once living standards are rising again? Are volumes likely to increase and will mix improve? After a long period of firefighting and worrying about cost mitigation, manufacturers will need to be ready to manage a different set of circumstances.
What will drive success in these new circumstances?
Shopper insight will be critical. The shopper mindset of two years ago isn’t the mindset of today. The businesses that will succeed are the ones that truly understand their customers, what’s driving them and where they’re going with their lives.
This may sound obvious, but the last 18 months have shown that many big branded businesses have reams of shopper data but clearly fail to extract the right insight – or perhaps they simply don’t listen to what the data is telling them. Otherwise they wouldn’t have been content to push through the amount of inflation they did.
For own label to gain five percentage points of market share in two years, that is a wake-up call. It suggests many brands simply don’t understand the shopper.
The hype around alternative protein is another case in point. Investors with a vested interest created a narrative that drove businesses to rush into the market and launch sub-par products, only to be disappointed when they didn’t sell.
Understanding the shopper, their values and their lifestyles is key. This doesn’t mean you have to buy lots of data and reports. Gut feel and talking to people can be just as important.
Loyalty schemes have become a major focus for grocery retailers over the past two years. What are the implications for manufacturers?
The rise of loyalty schemes is hugely significant and ties in with my previous point about shopper insight.
I see an urgent need for manufacturers to get a better handle on the specifics of different retailer schemes. How do they work, what are the different capabilities and limitations, what’s the nature of the data I’m being sold?
Most retailers have third-party data in the mix in a variety of ways, but some retailers’ loyalty data is proprietary. Now, I would want to understand such proprietary data, but I would not want to be beholden to it. Because for a client to dominate your customer insight, that’s very dangerous.
You’ve also got to remember the CMA [Competition and Markets Authority], which isn't going away. It's exceptionally interventionist and indeed is looking at loyalty schemes at the moment.
Where does innovation fit in with all this and what does it take to drive growth through innovation in the current climate?
Innovation is always important, but we often equate innovation with new product development, which is just one part of the story. The most successful businesses I see look for opportunities to innovate in every single aspect of their operations: product formulation, process innovation, engineering, packaging, logistics, you name it.
Incidentally, being good at innovation doesn’t mean you have to be the first mover. I think it’s much more about making innovation a constant theme across your business with the goal of ‘how do I maximise the value my shopper takes from my product while delivering this in the lowest-cost way possible?’
What about artificial intelligence and generative AI in particular? How much time and energy should FMCG manufacturers spend on getting to grips with emerging technology?
Generative AI has the potential to be a game-changer, but it comes with lots of noise and distractions. I fear it will be very easy for businesses to waste time and money on the wrong technology initiatives in the next few years.
Manufacturers will really need to get a grip on where technology is going and what it means for them. Not just AI but also VR [virtual reality], automation and digitisation. These are all different, but they’re interconnected and they are going to condition your customers and your competition. So, where are you in all that? This is one of the biggest challenges facing executives because there’s so much unknown.
The same goes for the new generation of GLP-1 weight loss drugs. There are many unanswered questions and I don’t expect these drugs to become mainstream as quickly as some are predicting, but the implications for the food industry are potentially significant.
So, whether it’s AI or GLP, if you are a captain of industry you need to make it your business to ask the right questions – and figure out what you need to pay attention to and what you can safely ignore.
We’ve talked a lot about challenges so far. Where do you see the biggest opportunities in 2024?
Despite all the gloom and doom, I do think shoppers are in a better place. Employment is full and living standards are rising as inflation eases. Consumer confidence is improving.
Just look at the Christmas trading figures of the food sector – there’s a country that really went out and had a good time, and the food industry was at the heart of that. A really significant macro opportunity, therefore, is to cater to that improving shopper mindset.
In terms of specific opportunities, the single biggest theme that represents an opportunity for food makers is health and wellbeing. And I do believe this means playing your part in improving public health and tackling the obesity crisis.
Do you think more government intervention in this area is inevitable?
I don’t think we’ll get to a situation where food is as heavily regulated as tobacco, but I do expect we’ll see more intervention in time. The regulatory environment around food is on a one-way journey.
One can’t, in a free society, tell people what to eat, but there does need to be a conversation so the penny drops and more people understand their lives can be better if they have an evolved diet. Plus, there will be growing pressure to protect the public purse and safeguard the future of the National Health Service.
Changing the nation’s health won’t happen overnight and changing the food environment won’t happen overnight either – it’s more glacial than revolutionary. But I do believe we’re on a one-way journey.
How does the growing debate about ultra-processing fit in with demand for healthier food?
I do see a desire for simpler, more wholesome products.
‘Going back to the future’ is a big theme. Synthetic, overengineered foods reached their zenith about a decade ago and then people started realising how many additives and preservatives were going into ready meals.
I expect the future of food to be much simpler. The products that resonate with consumers will be much closer to Mother Nature than what we’ve seen in recent decades.
Sustainability remains a strategic priority for manufacturers. Will it also be a significant driver of demand?
Sustainability in the main is about compliance.
The UK has a commitment to net zero by 2050 and therefore businesses have put in place their own commitments, processes and practices around net zero, plastic reduction etc. But that’s about meeting government requirements and demonstrating good practice, not because there is a strong demand pull component to sustainability.
Sustainability is also very vulnerable to changes of economic circumstance. During economic downturns, it drops down the list of priorities very quickly. We’ve seen it before with the UK organic market, which contracted by 35% during the financial crisis of 2008-2011, and we’ve seen it over the past two years with products closely related with sustainability, such as plant-based alternatives.
The reality is, the core purpose of food is nutrition and comfort – that’s why people eat and drink, not because they want to save the environment.
You recently wrote an article for New Food Magazine calling for a Minister for the UK Food System who directly reports to the Prime Minister and coordinates across departments. What prompted this?
I’m seeing a growing level of frustration and fatalism from captains of industry about work in the UK, which concerns me.
The reality is food touches every single government department. Yet instead of joined-up thinking and a clear direction of travel, we’ve seen enormous amounts of time and resources being wasted on public consultations that result in policies that don’t go anywhere or – which is worse – have their implementation cancelled. Whether it’s HFSS [products high in fat, salt or sugar] or DRS [deposit return scheme], these are policy initiatives that have cost businesses a lot of money.
Immigration employment legislation has been another immense source of frustration, especially for sectors such as horticulture and livestock; the planning regime is broken; the list goes on.
There is also growing concern about food security.
Absolutely, food security is a big worry. During the pandemic, countries looked after their own citizens first, and now we’re facing more uncertainty with the Ukraine war, what’s going on in the Red Sea and potentially with Taiwan. The government has the responsibility to defend and feed its population and we have not strategically thought about the risks of that not happening.
I want to be realistic and I know change takes time, which is why I’ve not proposed an entire new government department but essentially a minister with a secretariat. But we need to be having more of these conversations and keep pushing for something better.
If we could harness the full potential of the British food system – farming, manufacturing, retail, hospitality, process engineering, everything – we’d not only improve the health of the nation, we’d grow our GDP and build a more prosperous country as well.
The Newton view: 2024 is the year to level up on innovation
James Watson, director at Newton, writes:
‘The most successful businesses look for opportunities to innovate in every single aspect of their operations.’
Perhaps more than any other of Clive’s observations, this one hit home.
The food and drink sector thrives on newness and innovation, but it’s all too easy to focus on your product pipeline at the expense of innovation elsewhere.
Our FMCG clients consistently see the biggest wins when they look beyond NPD and work with us to apply an innovation lens where it will have the biggest impact, from the factory floor to right across the supply chain.
Clive’s emphasis on extracting the right insight from shopper data also struck a chord with me. Analysing data is hard and requires expertise. There is a huge level of complexity involved in identifying trends across multiple data sources, but if done right, it is where manufacturers can unlock the biggest real-world value.
Industry leaders must also use the coming months to level up their understanding of external disruptors. As Clive points out, in the era of ChatGPT and Ozempic no manufacturer can afford to be complacent about emerging technology. Crucially, understanding which technology to use and how to apply it across the business is key when emerging from a period of uncertainty.
Our teams are already fielding a growing number of questions from clients about the practical implications of generative AI and GLP-1, topics which we are likely to cover in future ‘Food for Thought’ roundtable discussions.
Once again, a big thank you to Clive for being so generous in sharing his thoughts and taking part in our roundtable.
