Tony Reed, until very recently, pulled the strings of a gargantuan bakery operation worth £1bn – amounting to almost a third of the value of the entire baking industry. So when he repeatedly spun his catchphrase “follow the money” to bakery suppliers at last month’s British Society of Baking Spring Conference in Birmingham, you could sense the assembled MDs and CEOs scribbling mental notes.
Promoted in March to operations director of 240 of Tesco’s stores in the north of England, the former Tesco bakery director presided over year-on-year growth in excess of 14%, having added around £400m to the bakery category over his four-and-a-half year tenure.
“Over the last two years, without the growth of Tesco, the bakery market in the UK would at best be flat and would probably be in decline,” said Mr Reed. “I am delighted that in a comparatively flat market the average supply growth in Tesco was 13% in 2005. We believe in Tesco that we can ‘turn on’ some markets and make them big markets. You have to follow the money.”
Tesco’s enormous influence means it can go it alone on health issues, as evidenced by its rejection of the Food Standards Agency’s recommended traffic light nutrition labelling in favour of its own guideline daily amount (GDA) system last month.
“We’ve done that because we’ve talked to customers about labelling and they don’t understand red, amber and green,” he explained. “We will take as much salt out of our products as we can. Where we can take hydrogenated fats out of our products, we will. We want to do it sensibly so that the product tastes right.” By the end of 2006, all Tesco own-label bakery products will have the new GDA labelling, revealed Mr Reed.
Simple health message
People intuitively view bread as healthy and the industry is well placed to make the most of this trend, he said. “We need to communicate to customers the health benefits of products in a way that is as simple and as memorable as the five-a-day advice for fruit and veg.”
That message could best be conveyed to customers through the benefits of wholemeal bread, which is growing at 16% at Tesco, while white bread is declining at –8%. “At this rate, in three years’ time wholemeal will overtake white bread,” predicted Mr Reed. “This year in particular we have tried to go after the wholemeals and the breads with bits,” he continued. “We launched a tranche of healthy eating lines in January and we will change the space we allocate for it in July.”
He said Hovis Best of Both had been a “phenomenon”, quickly followed by Kingsmill Wholemeal & White and Warburtons All-in-One, with Burgen’s January relaunch also a success. But bakers are not exploiting the same opportunities in morning goods. “Do you believe the product development in cakes, muffins or croissants is reflecting this massive change in customer eating habits?” he questioned. “We are still responding to customers rather than leading them.”
Meanwhile, organic is in “big growth”, he said, with consumers embracing its healthy associations. “It is a big priority for us this year, and you are going to see some changes at Tesco.” But the challenge for suppliers will be to reduce prices for organic, he added. “Premiumisation only works if you sell enough of these products to make a difference. But follow the money, get on the wagon – it’s a big opportunity.”
Tesco has over 100 bakery suppliers and has focused on developing a thriving own-label business, said Mr Reed. Its own-label cake, for example, is now the biggest brand in the sector.
The supermarket is also encouraging regional suppliers with contracts ranging from £5,000 a year to £210m. Within the bakery category Tesco has 37 regional suppliers, supplying over 360 dedicated regional lines, and regional products are likely to become more important.
“As customers become more sophisticated and challenging, our ability to respond to
demand, even at store specific level, is crucial in maintaining our commercial advantage,” he said.
Internet grocery shopping is fuelling this subtle store-specific shift and is in “huge growth”, accounting for as much as 10% of sales in some stores. “It’s going to get bigger,” he predicted. “For our industry it’s quite a challenge. If we haven’t got every product in stock at 5am, the pickers will substitute products, and it’s quite a frustration for customers.” Over time he believes there will be a gradual move to deliveries the night before to ensure availability.
Suppliers and retailers alike need to change to reflect these increasing requirements for convenience, he said. “Once upon a time, bakery, and sliced bread in particular, was symbolic of everything that was convenient and labour saving for our customers,” he reflected. “Convenience should be at the forefront of suppliers’ minds. We must make products fresher, they must last longer and they’ve got to be in stock at all times.”
His final words with his bakery hat on were to urge people to think of Tesco not just as a retailer. “Like you, we are bakers,” he said. “We have over 1,000 bakeries in the UK with 7,000 staff. At Tesco we are just as proud to be involved in this industry and to share the challenges that it represents. I’ve been very privileged and lucky to work in it.”
HIGHLIGHTS FROM THE OTHER FIRST DAY’S SPEAKERS
Prof. Jeya Henry, Oxford Brookes University:
Is glycaemic index (GI) a fad?
I don’t believe that GI is a passing cloud for three reasons. One is that, although we use the term ‘GI diet’, it’s not really a diet, but a lifestyle pattern. Also a GI diet does not in any way proscribe or prescribe what you eat – and you don’t get bad breath or constipation. Finally the scientific evidence is getting much stronger.
Will glycaemic loads (GL) replace GI?
Although GL combines quality (the GI value) with quantity (the amount of carbohydrate) it is a more complex idea to get your head around. My view is let’s get people to understand GI before we talk about GL. The GL is a concept that I think is useful to have, but in our analysis, and this is a bit of a sweeping generalisation, most foods that have a low GI also have a medium to low GL.
Sir Michael Darrington, MD, Greggs:
On Greggs’ growth:
We’ve had a tremendous record of growth and we intend it to continue. There might be a little bit of pick up this year. There are three key factors in our success: great tasting products; excellent value for money; and people – if you can help people enjoy what they do you are much more likely to have a successful business in the long term.
On Greggs’ European expansion plans
We think we can make a fist of it and we are learning all the time. With hindsight, we moved too far into takeaway in Belgium. Belgians were coming in and saying, ‘Where do I sit?’ We’re modifying our offer, listening to customers, seeing what they want and it’s getting stronger all the time. In the first few months of this year growth was around 20%.
Alex Waugh, director general, NABIM:
On future wheat pricing:
Once grain becomes an energy source it will have a big impact upon us. The major change has been the requirement for road fuel to include 5% renewable fuel by 2010. The result of that has been announcements in the UK of plans to build ethanol and bio-diesel plants. This could lead to a difference of £20 per tonne on wheat prices.
On organic pricing:
If the relationship between the cost of organic and non-organic is wrong, that might be because the cost of organic is too expensive, or it might be because the cost of non-organic is too cheap. I don’t think the cost of organic grain is going to come down; it is quite high because we have a shortage. Even if demand takes off we will still have a