Class action against bread producers

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Since the onset of the case with the Competition Commission for collusive behavior, three of South Africa’s major bread producers; Pioneer Food Group, Tiger Brands and Premier Foods, have found themselves under the spotlight. Earlier this year, Pioneer Foods was the last to receive judgement upon which they were ordered to pay a hefty sum in the region of R1 billion. However, the saga was not yet over.

Last week Friday consumer organizations, Cosatu and activist groups, as well as 5 individual consumers, applied for 2 class actions against the bread producers.

On Tuesday, in the latest development, the accusatory organizations pushed for certification as representatives of all bread eaters in the Western Cape. Some might recall that Tiger Brands’ official case was concluded in 2007, and the three year prescription period comes to a close on Friday, which made the application all the more urgent so that a summons could be served. However, the hearing has since been adjourned until next week Tuesday, effectively taking Tiger Brands out of the fray.

The motions against the producers are driven by claims that penalties already paid to the state did not do enough to compensate for the average consumer who also suffered due to the collusion. In particular concerns were raised for the impoverished who suffered severely as a large portion of whatever income they receive goes to buying bread as it’s a staple food for many of them.

Taking all this into account, what do the plaintiffs truly expect to happen? Is it realistic to expect these producers to pay out yet another large sum which would go to the consumers? And if so, how would this payment be administered and redistributed? After all, how much did the collusion really affect the prices paid by average consumers, with only a few cents being added per loaf here and there.

If successful a class action could be very costly, particularly for Pioneer Foods, who earlier this month revealed that they are looking to acquire KWV and expect to pay a premium for the prestigious winemaker.

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The 3 core principles behind Pick n Pay’s restructuring campaign, Consumer Sovereignty, Doing good is good business and Business Efficiency, are simple and straightforward and it follows that they therefore should be easier to affect and maintain. At the heart of the restructuring, as always with Pick n Pay, is the consumer and how their experience and interaction with the brand can be improved.

One the biggest changes is right at the top as the current Exco and Retail Management Board and Group Enterprises Board make way for a Group Executive consisting of accountabilities in Marketing and Sustainability, Buying, Operations, Supply Chain/IS, Franchise, Group Enterprises, Finance, HR, Transformation and Customer.

These are only the latest in a series of changes which began implementation in 2006. CEO Nick Badminton cites the most notable change as the fact that they are now a “more focused operation, having converted the Score stores to Pick n Pay and announced our intention to sell our Franklins operation in Australia.”
In addition, they have made substantial investments towards efficiency and sustainability. In terms of the latter, the retailer announced its intention to commit to zero waste to landfill by 2015 and dramatically reduce carbon emissions.

With regards to the sale of their Franklin’s operation, unfortunately the Australian Competition and Consumer Commission has chosen to oppose the proposed sale, claiming that if successful the deal would negatively affect competition in the retail sector. Furthermore they also cited an expressed interest in acquiring the Franklins chain by “unnamed parties.” Pick n Pay CEO, Mr Gareth Ackerman was surprised and disappointed by the decision and insisted that the sale of Franklin’s to Metcash would be in the best interests of Australian consumers.

Ackerman commended Badminton for his efforts and added that, “his restructuring is an important part of the total strategy of Pick n Pay. It positions us very well for the future.”

With all the changes in the pipeline it looks like Pick n Pay have a bright future however, some the sparkle may be lost if Franklin’s continues to weigh down the domestic giant. The sale would go a long way towards funding the extensive restructuring and without it said plans may have to be put on hold.

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Innovation In FMCG

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Innovation is key to survival in any industry. It is what keeps a product in the market, what keeps some competitors on their toes and others on top, essentially it is what drives a business forward.

Recently, I was among a number of privileged guests to attend the latest of TNS Research Survey's Breakfast series presentations where speaker Ray Crook, TNS Asia Pacific, Middle East and Africa Director for Innovation and New Product Development, addressed the issue.

Out of the blocks Ray hit us with some numbers: $190 billion is spent on the technology sector and $19 billion spent in the consumer sector; 90% of executives have come to the realization that innovation is crucial to building inertia; and over 90% of consumers have unmet needs. Apart from being an eye-opener this also revealed converging points in the market, most notably that executives and consumers have a large overlapping interest which could be mutually beneficial.

However whenever engaged in innovation there are certain risks, least of which is product failure. There is also a large personal risk for the creative team, if an innovation fails this could potentially be career limiting. Thankfully, Crook offered some advice to avoid this. Top of list, an obvious but often overlooked step: do your homework. Find out what the needs of the consumers are, look for future gaps, what are the must have elements for the innovation. Furthermore, he advises a move away from the mass approach strategy to a more focused and targeted approach, when it comes to retail, everyone is not equal; consumers have different wants and needs, different levels of income, different priorities.

Once a consistent need has been determined, a focused approach must be taken and detailed briefs, for strategy and continuity, must be drawn up. It goes without saying that original ideas are very important, but it is just as important to recognize exactly what consumers want, or more accurately what they need. They don't necessarily want something that is unique to the point of alienation, or something that is so far ahead of the competition that it's confusing. It is also important to address the issue of timing, just because you have a ground-breaking product it does not mean the market is ready for it.

When it comes to launch time one of the most important factors is excitement around the product. This can be done at various levels: digital campaigns; traditional advertising; in store promotion; word of mouth. The latter has proven to be very useful, shown to be twice as effective as traditional advertising. Get the word out, it's the only way to move your product.

Innovation is a fascinating industry and is among a small number of universal factors that account for the success of any venture. Therefore, familiarizing oneself with the subject matter is not merely an option but rather a necessity.

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Foodco's got game
This week marked the official launch of Game’s new ‘store-in-a-store’ concept with the opening of Foodco, at their N1 City outlet. After 4 decades of delivering “quality general merchandise and non-perishable groceries for home, business and leisure,” Game has earned a reputation as a quality discount retailer, and Foodco is no exception.

The vision is simple and straightforward, Foodco is a mean, lean one stop grocery brand. No frills, no fuss. After conducting extensive research, across the country, with numerous candidates, the brains behind the new brand came up with their new strategy and it can be summed up in four words, which is also the brand’s philosophy: fresh; fast; easy; value. And that’s exactly what you get. New stock will be delivered daily and Foodco’s private label, which goes by the same name, provides a host of alternative options to your favorite purchases at unbeatable prices.

Now, before anyone starts being cynical and pointing fingers and Walmart, stop. This project was in the pipeline before any foreign investment talks were even a whisper. So, hats off to Tyrone Vieira and Richard Millson who were in large part responsible for driving and launching the new brand. This is big step to take, and it goes without saying that the risk is also sizeable, but sticking to Game’s value driven guarantees, it’s hard to see how this could fail.

In addition to the new grocery brand, Game are also introducing Liquormart, stand-alone stores which will be found outside various Game and Foodco stores. Liquormart will offer an extensive range of alcoholic beverages at discount prices.

The launch only took place a few days ago, but the store has already been open for just over a week and to call it a roaring success would be somewhat of an understatement. A colleague of mine whose mother lives in the area, reported that she had been to the new store intending to do her grocery shopping only to find hordes of shoppers already swarming the new discount outlet!

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Defining Deflation
Coming off of an extended period of relatively high inflation, retailers are suddenly forced to contend with a new issue, deflation. What are the consequences thereof and how will retailers deal with this new obstacle?

An important distinction to be made early-on is the difference between disinflation and deflation. The former refers to a period during which inflation is still positive but decreasing over time. Deflation on the other hand, defines a period of negative inflation, i.e. Inflation is at, or lower than, 0%. Generally speaking, 2% inflation is regarded as a safe buffer against deflation.

Effectively what results during a period of internal deflation, is that the cost of keeping a SKU on shelf increases while its value decreases. This puts retailers in a difficult position as they literally cannot afford to drop prices to drive revenue. Furthermore, it may lead to consumers assuming that prices will continue to drop which in turn leads them to put off purchases, further exacerbating the situation.

Shoprite has managed to keep its head above water during increasingly trying economic times. Its turnover in the quarter ended September grew by 9.7%, and its core business, which includes the Shoprite chain, the U-Save Shoprite format and Checkers, grew turnover by 8.5% while internal food inflation averaged negative 1.5%. It has been a while since such negative growth has been experienced and it will certainly make efforts to stimulate turnover growth and increase gross profit margins more challenging.

Pick n Pay are facing similar problems as they admitted last week that “there had been significant pressure on the [their] margins as food inflation was below the growth in the consumer price index.” In August last year, internal food inflation was at 9.8% but has since fallen to 0.1%.

Although early signs are showing, it is yet uncertain if retailers are headed for full deflation. If the current rapid disinflation can be stemmed, it might be possible to disregard the former all together.


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