Craig Armstrong
I recall an article by an executive coach calling for leaders to develop the habit of reflection. She wrote, "Action is useful. But so, too, is reflection”. If we can make sense and meaning of the last year, it can help us meet the next year a little wiser.
There is no escaping that this has been another year of disruption – cyclonic weather events causing widespread destruction and loss; affordability/cost of living pressures resulting from national and global inflation; and political and geopolitical shifts, again, nationally and globally.
Economists assure us that the worst is behind us, anticipating future improvements in interest rates, easing capacity constraints, and a more favourable market for employers. Freight charges are also easing, airlines and tourists are making a robust comeback, and Liam Dann recently highlighted the positive outlook by lowering cheese prices as a reference point. However, despite these positive signals, consumer confidence is worse than during the Global Financial Crisis (GFC). This downturn is reminiscent of the GFC. Building consents are minimal, business profitability and investment and investor sentiment are low, and margins are under pressure.
In 2023, business removals and insolvencies rose consistently, surpassing the levels of the previous two years. Regrettably, this activity impacted our food and beverage sector, particularly affecting smaller brewers (in line with similar patterns observed in the UK, US, and Australia) and more recently with the (heavily commentated) move by online grocery business Supie to go into voluntary administration.
This year, retail made a ‘comeback’ after embracing online browsing and shopping brought about by COVID-19. Notable shifts include consumers prioritising essentials, optimising budgets, reviewing how they shop (more often, smaller basket, store brands), eating at home more, opting for less the expensive, and discontinuing subscriptions in areas like food, health, television and gym memberships.
Thriving in this evolving landscape in New Zealand and globally (especially in key markets like the US and China) demands digital capability, particularly in social media content on platforms like Facebook, YouTube, and Instagram. Businesses must deliver a personalised experience to stay competitive and enhance their image and messaging. While 2023 will not be recognised as a year of increased customer and competitor sophistication, the emphasis on digital evolution underscores the importance of understanding customer behaviour patterns.
The ability to discern why, where and how customers make purchases and predict repeat purchases has become critical. This is evident in the challenges faced by the plant-based foods category in 2023, which is experiencing a shrinkage internationally and in New Zealand. The category struggles due to unmet non-negotiables of taste and price.
In the past year, I've witnessed the growing complexity of defining quality and preferences, evident in three key instances. Firstly, there's a notable surge in the demand for healthier options, particularly in non-alcoholic beverages, and a broader array of products addressing mental and emotional well-being. Secondly, there's a heightened emphasis on communicating the efficacy of ingredients in beauty and personal care products, supplements, and functional foods as customers seek assurance and value. Lastly, sustainability poses a significant challenge. According to the US-based Hartman Group, sustainability is at odds with consumerism and product consumption, making it challenging for many to identify truly sustainable products or companies.
That consumers associate recycling, reuse and reducing waste as a meaning of sustainability was amplified on Wednesday, 15 November, when PepsiCo was sued for endangering the environment and misleading the public about its goals to eliminate single-use plastic in its packaging. For most consumers, packaging is the most visible signifier of a retailer’s or brand’s sustainability efforts.
While consumers expect businesses to be transparent and clear, quality, price, and taste remain the primary considerations in food purchasing. This, along with convenience, shaped new product development in 2023. Noteworthy innovations, such as new flavours, packaging formats, and convenience features, benefitted key brands like Whittakers and Tegel. Despite these successes, industry partners Circana and Mintel observed a continued decline in new product development in 2023, extending a trend that began in 2019.
The challenge of new product development and the value focus for many businesses this year is influenced by factors like the shortage of shelf space, SKU reduction, and the rise of private labels. In Australia, NielsenIQ reported that 84% of shoppers were adopting cost-saving techniques, with Coles and Woolworths brands leading in the Product of the Year category awards. Many businesses are concentrating on cost reduction, supply chain efficiency, and enhancing the profitability of core offerings. Baskets are evolving, and businesses need to understand the demand, price competitiveness, shifts in brand loyalty, and where people are shopping (Memo to you: don’t sign exclusive contracts). As exporters, there's a compelling need to be actively present in the market. Events like the Fashion Weeks, Gulfood, Fruit Logistica, FHA, Foodservice Australia, Vitafoods, VinExpo, Prowein, and Anuga consistently reported increased foot traffic and demand throughout the year.
In Asia, I hear distributors say they are grappling with significant challenges, primarily from escalating costs and intensified competition. Like manufacturers' concerns, emphasising (re)building face-to-face relationships is crucial. The key goal is maintaining an on-shelf presence, as it is the ultimate prize. While new product development and brands are welcome, they must be innovative, disruptive, and have a clearly defined positioning compared to existing products. Efficient and effective strategies for marketing, promotion, and optimising shelf space and displays are imperative.
The increasing debate on ultra-processed food and HFSS products can significantly disrupt our efforts to reposition with retailers and consumers. I’m expecting reformulation to continue to be a top priority. Coupled with the frequently reported increase in demand for food parcels, addressing these health and social impacts necessitates enhanced cohesiveness across the food system and among policymakers.
As we conclude 2023, the cost of living, social polarisation, various environmental issues (such as extreme weather and natural resource crises), and geopolitical/geoeconomic confrontation and risks dominate the discussion. Not surprisingly, a recent MYOB survey indicates that just under 70% of New Zealand businesses anticipate the next 12 months to be more challenging than the preceding year.
As an industry, we are adapting to changing living and working conditions. Opportunities exist to deliver (affordably or with a well-told value story) healthy, convenient, quality products that taste good and satisfy the need for environmental and social interaction by a population using technology to reduce the burden of daily tasks and seeking to maximise human time and activities.
Easy to reflect. It is less easy to find meaning and action within increasingly complex situations.
Craig Armstrong
Independent Director | Chair
See more insights from the 2024 Buyer's Guide below:
