UK supermarket boss takes swipe at “premium” products

Posted by Daniel Palmer on 22nd May 2009

The Chief Executive of UK supermarket chain Asda, Andy Bond, has criticised the ‘premiumisation’ trend, which he believes has been found out by the more prudent grocery shopper.

Mr Bond said that the critical lesson for businesses to come from the the past decade was that simply charging what you think consumers might be able to afford would end up coming back to bite.

“Through this period of what you might call ‘abundance’ – abundance of debt and abundance of consumption – many businesses lost sight of the basic principle of delivering good honest value in what they provided for customers,” he suggested. “Too many business focussed more time on margin enhancement and charging what people could ‘afford’ rather than providing added value.”

“This will be known as the fraudulent era of ‘premiumisation’ where the key mantra was manipulating people to ‘trade-up’. Getting people to pay substantially more for things that offered only marginal (if any) real benefit or added value,” he added. “Some things are definitely worth paying more for, but in too many cases so called premium goods have not offered a real difference – and customers are now walking away from these goods.”

Mr Bond singled out car manufacturers as a general example before arguing that the organic sector in the UK had met a similar fate.

“… Look at a simple example from the food industry – Organic food,” he told delegates at a lecture for the British Retail Consortium. “There may be some benefit of choosing Organics but they were launched by many retailers to a trumpet of celebration from investors as they were designed to provide massive margin gains – sell at a huge premium in other words.”

“So it’s not surprising that with wallets and purses now under pressure, the organic industry is down 30% year on year. Interestingly, by contrast Asda’s organic sales are still up 25% year on year – largely as we sell them at only a small premium and make less margin.”

Mr Bond advised retailers to look deeper into their business to discover where waste and excess can be removed. Retailing is about giving the highest possible value for a given price, he said.

“It’s not about being cheap, not even just about being low priced, but a belief and commitment to deliver the highest possible value at a given price – wasting nothing in the process of doing so,” he said.

The head of the UK’s second largest supermarket chain said his company had picked up on three trends. Firstly, consumers were “redefining the very essence of needs versus want”, which has led to a number of changes in the supermarket shopper.

“Behaviours such as reducing waste (frozen versus fresh food/bulk cooking), staying in to entertain rather than eating out with friends (dinner parties, DVDs etc)… and a general back to basics mindset,” he noted.

The second trend was a reduction in trust in many major institutions, which requires companies to improve communication with customers and solve problems for them.

The other trend was a “rebirth of families and local communities”, which will see more family meals cooked at home and a demand for local produce.Mr Bond believes that consumers will not revert to their behaviour of a couple of years ago in a hurry, with many permanent changes arising from the global recession.

“There will be some level of permanent change. For me this is best explained in the concept of ‘the constrained economy’ – the era of ‘abundance’ is over,” he said. “The future will see our natural resources, from oil to food, having some level of restriction placed on them.”

Businesses will need to show more constraint in the future in their own activities as consumers become more empowered with the assistance of technology.

“The reason that Barack Obama’s popularity is so great is that he has become the symbol of giving power back to the people and encouraging the people to create the new solutions,” he suggested. “Along similar lines, we all need to tread a fine line when it comes to constraining consumer behaviour in areas we think change is required – whether that be carrier bag usage, alcohol consumption or even the sale of food deemed unhealthy.””We’re starting to see the birth of consumer power – where big institutions will need to form a new bond with ‘consumer communities’ by exercising empowerment,” he advised. “The internet has provided people with the power to share ideas, ingenious solutions and at the same time to share commentary on who are the goodies and who are the baddies!”
“The consequence is, customers are shaping businesses rather than businesses shaping customers.”

Mr Bond ended with some simple advice for managers:

“Spend company money as if it were your own.

Choose standard class train travel and go off peak when possible. Choose black and white photocopying and don’t print things out unless it’s vital. Book hotels at the last minute, when it’s cheaper. Car share, cycle, and video conference rather than meet face to face. Encourage everyone in your business to save £1 a day.

It soon adds up – and it can be passed on to your customers in lower prices, which in turn mean increased business.”