While preparing a pair of foresight workshops for a new consulting client, I came across what on face value is a blatant challenge to one of my five Vectors of Change: diversity.
The diversity argument goes that in an an increasingly connected world of globalised trade, where increasing access to technology is lowering the barriers to market entry, you will see greater diversity at every stage in the supply chain. More manufacturers, more distributors, more retailers, and a greater range of products and services flowing from one end to the other. But this doesn’t appear to be the case in my client’s market, food. On the contrary, major retailers in the UK have been dramatically cutting their SKUs, the number of product lines and variants that they stock.
Is this the exception that proves the rule or a challenge to the very principle behind it?
Thankfully, it’s neither. Though to understand what’s happening you have to examine each stage in the food supply chain separately: each is at a different point in its evolution. To use Deloitte’s terminology from its 2013 report on the food value chain, there are four main stages: producer, processor, distributor and consumer.
The production side of food is very diverse but in an undeveloped state. The diversity vector was identified while focusing on developed markets where there has been consolidation and now the opportunity created by technology is driving a challenge to the established players. It’s clear that we need to consider the position of a market segment on a timeline of development when deciding whether it’s ripe for diversification.
Looking at the UK market, producers are under pressure and as this story highlights, going under at record rates. But technological innovation is starting to show where diversification could come from. Groups like Biospheric Studio are now producing high-grade ingredients in cities and close to their customers (mostly restaurants) using connected indoor ‘farms’. The price of this technology is collapsing and its accessibility climbing. I don’t think it’s long before it goes from maker grade to consumer grade: the ultimate diversification.
At the processor stage there’s no slowdown in the production of new products, as this article shows. This diversity just causes an accelerated shakeout of winners and losers as the products succeed, or mostly fail, when they enter the retail environment.
At the distributor level is where there appears to be an aggressive trend to reverse diversification, most extremely at Tesco, but also at other retailers and across categories. But is this about a reduction in choice? Or is it really a rather unsophisticated answer to the discovery problem?
The discovery problem is a natural consequence of Diversity: how do you navigate the variety of options? Given the cost that diversity presents up the supply chain for supermarkets, as well as in-store, it’s a natural step to try to slim down. But do consumers really want less choice? Or do they just want not to have to think too hard about which choice is right for them in the moment they are walking down the aisles? In other words, choice is great until it is hard work.
Some choices are clearly without value: no-one, I would argue, needs “three bays of air freshener.” But a gluten free biscuit option? That adds value. The consumer just needs a better way to find what is right for them, and the retailer needs to be smarter about what they stock.
Given the increasing diversity of retailers — about to grow by one as Amazon Fresh enters the market — the total number of lines stocked here in the UK is likely growing*. It’s just that individual retailers have learned that trying to be all things to all people (and taking payments from suppliers to stock their multiple lines) is counter productive. The lesson: diversity is real and it isn’t going away. But some approaches to tackling it can disguise its presence. And it is only in maximum effect in developed segments that have already been through some consolidation.
*This is perhaps a controversial argument given the loss of so many smaller stores in the face of the 80s and 90s supermarket onslaught. But IGD’s most recent few years of figures suggest a decline in the prevalence of the hypermarket model and a growing diversification. For example, inside the online channel is a ~£250m market for organic veg box delivery. Elsewhere there is an increasing range of ethnic food stores up and down UK suburban high streets.