Horizons September 2017

A monthly newsletter on Australian and international trends, innovation and other insights relevant to the Australian food market

Making news

Dominos deflates – Investors wiped $1bn off Domino’s market value in August, as the pizza-chain was unable to maintain first-half sales growth, and future guidance was disappointing. Underlying net profit only rose 29% in 2017to $118.5m, short of guidance for 32.5% growth announced by CEO Don Meij in February. Net profit is expected to rise 20% in 2018, half the average growth of the past 2 years.

Domino’s has been a sharemarket darling, offering value meals and driven by delivery technologies and a quirky social media presence that has appealed to young consumers – essentially “feeding” off the tech buzz. However, scandals involving franchisees underpaying staff have tarnished Domino’s image. At the same time, ordering apps such as UberEATs and Deliveroo are rising in popularity, making ordering a larger range of higher quality meals much easier. Read more.

How quickly the gloss has come off. Maybe the fact that so many competitors off the tech buzz, but also people might want a bit more style in their food, as pressures on spending seem to be easing.

Amazon reveals Wholefoods vision – Amazon revealed intentions with its new retail baby, and lowered prices of a selection of Whole Foods’ best-selling grocery staples as much as 43% after assuming ownership of the upmarket chain. Lower prices are just the start, Amazon Worldwide Consumer CEO Jeff Wilke says the company is determined to make healthy and organic food affordable for everyone.

Amazon Prime will become Whole Foods Market’s rewards program, offering customers special savings and in-store benefits. Since the announcement of Amazon’s Whole Foods acquisition, there has been speculation the deal would be used to integrate physical and digital shopping worlds. These seem to have been confirmed when Amazon said it would offer Whole Foods’ private label products through Amazon.com and install lockers in select Whole Foods stores for pick-up of online orders. Analysts say Amazon’s newest addition to its portfolio is likely to drive “drastically different shopping behaviour in grocery”, saying survival of the fittest has begun in an era where most consumers are driven by price and convenience – and Amazon appears ready to invest in establishing its dominance.

Not so much about galvanizing the premium – reaching more with the illusion of competitive prices on popular lines. Amazon connects its digital channel to stores and looks set to overcome barriers and establish dominance.

DJs invests again at top end – Luxury department store David Jones (DJs) has opened its lavish new food hall at Bondi Junction, hoping to attract high-end shoppers with its marble counters, granite floors and leather banquettes. DJ’s chief executive John Dixon says the store offers a premium food offering, never before seen in Australia.

The multi-million-dollar renovation was developed with Australian celebrity chef Neil Perry and offers instore dining as well as premium food retail. Dixon is confident the food strategy will work – DJ plans to invest A$100m building a world-class retail food business over the next three years. The chief executive believes there’s a halo effect, which he saw when running Marks & Spencer’s food business for 5 years. The Bondi Junction food hall is a blue-print for the revamp of DJ’s existing food emporiums and for the 500-to-800sqm small-format food halls in suburban and regional stores it plans to open.

Going where they have failed before. Is the premium end of the food market getting any bigger and better to make the “foodhall” model work this time? Probably – with grocers focusing on shoring up the lower reaches of the demographic, maybe the needs of the affluent need some better attention!

Discerning consumers

‘What the Health’ debunked – The new Netflix documentary What the Health is yet another display of handpicked facts that suit a certain agenda and ignores context. Film makers us on a journey to prove how meat, fish, poultry and dairy are fattening us up, giving us cancer and Type-2 diabetes and poisoning us with toxins. The documentary’s call to veganism as the only way to eat is backed up by science – well sort of.

While acknowledging the good intentions of explaining links between diet and health and advocating for more vegetable and fruit consumption, a Vox analysis of the film debunks many of the overstated, misrepresented and cherry-picked facts it presents. The documentary claims eating processed meat is as bad as smoking cigarettes, based on a 2015 World Health Organisation review which linked processed meats to a 1% increase in lifetime risk of colorectal cancer – from 5% to 6% – if consumed every single day. Continuing the smoking theme, What the Health claims eating an egg daily is as bad as five cigarettes – based on an outdated understanding of the role of cholesterol. Claims that dairy causes cancer appear to rely on single studies, ignoring systematic reviews that have found no link, and evidence that dairy consumption can lower the risk of some cancers, as well as reducing risk of cardiovascular disease. The list goes, but the larger problem with documentaries of this type is that nutrition science isn’t as definitive as film-makers would like to present, and the gotcha moments involving health advocacy groups that work with the food industry in this latest effort just add to fear and distrust for consumers.

Another day, another scary food documentary. This analysis not only debunks some of the overstated claims in this latest effort, but also the limitations in nutrition science when it comes to understanding the impact of specific diets.

Why do we believe the worst? – “Eat this and die” headlines are ubiquitous these days, and a real problem for the food industry. CEO for the Center for Food Integrity Charlie Arnot points to the media as the obvious culprits; often publishing anything that remotely resembles science – but taking no responsibility to verify the legitimacy of these studies’ claims. “Fear your food” headlines are highly effective clickbait, but not so effective in helping consumers make informed choices.

While Arnot advises consumers to “do their own research” and be sceptical, author and risk-perception consultant David Ropeik points to a deeper bias in the media and the community. Ropeik points out that the general public is more likely to believe a study financed by public health advocates and environmentalists, who they perceive to be on “their side”, rather than a big corporation who is only “in business to make a profit”. Read more.

The media could do better, but the food industry itself has pushed fear-based “free from” marketing. Blaming #fakenews won’t wash.

Will there be a vegan future without GMOs? – While still representing a small minority of the population, veganism is growing in popularity based on concerns about animal cruelty and environmental impacts associated with livestock industries as well as health concerns. While a plant-based diet is the aim, giving up meat and dairy is tough – and many in the investment community are seeing the opportunity in providing close substitutes that don’t rely on slaughtering animals, and remove barriers to adopting a vegan diet.

Cultured meat start-ups like Memphis Meats have attracted high-profile investors such as Richard Branson and Bill Gates as well as beef and agribusiness giant Cargill. While still in the early stages of development and not scalable “clean meat”, cultured from animal-derived stem cells has been produced, although intellectual property claims and sensationalist reporting make its commercial viability hard to determine. Large bio-reactors will be required for growing meat and dairy substitutes – resembling present-day breweries – as well as non-animal serums to feed the cells – which would require transgenic yeasts. According to Pat Thomas, editor of the Ecologist magazine, one of the most depressing aspects of environmentalism is that “the pressing need for change is often turned into saleable products”. Market solutions to complex problems, according to Thomas, are simply a way of avoiding tough choices.

Finding commercial substitutes for meat and dairy could be critical in ensuring more people adopt a vegan diet in the future – but not without the use of GMOs. How does this square with the vegan world view?

Volatile world

Are water wars inevitable? – Water – long undervalued and squandered is becoming increasingly valuable, a limited resource that is meeting insatiable demand. Growing populations and climate change are set to make things worse – reaching a balance between supply and demand will be politically difficult. The unique aspects of water, it’s use, re-use and uneven distribution make this particularly challenging. Nine countries sit on 60% of all available fresh supplies, but China and India who account for a third of the world’s population have less than 10% of its water. In temperate climates, rain isn’t much needed for farming, but in other parts of the world such as the US, China and India farming takes between 40% – 90% of water for irrigation of farmland.

With a growing world population and 2bn people around the world about to enter the middle class, the only way for ag water demand is up. Anyone can create a borehole and while water might still come at a cost, the price doesn’t reflect scarcity. The rate at which aquifers and ground water resources are being depleted in countries such as the US, China and India is faster than the replenishment rate.

Water is vital for every aspects of food and industrial production, but it is uneven distributed and will need to stretch further in the future? How to manage this precious resource?

From recovery to stability – This year’s gathering of bankers from central banks in China, Europe and the US have  financial stability as an overarching theme. With the arrival of the first synchronised global economic upswing since 2010, rising concern about the risks of financial excess have inevitably followed. Over the past decade policymakers helped support economies, but by keeping interest rates low, investors rushed to buy up government debt from risky countries in search of larger returns.

The tension between growth and stability is most evident in China. The International Monetary Fund (IMF) warned China is gorging itself on debt, rising from 150% of GDP in 2007 to 280% in 2016, while simultaneously raising its growth forecasts. The People’s Bank of China has restricted supply of short-term liquidity to banks, which has paid off so far – overall credit growth slowed, even as nominal growth rebounded. In Europe, the wind down of the European Central Bank’s program of quantitative easing is being carefully managed. In the US, the economy has been expanding for years and the financial system looks robust. But share prices and investors risk-taking remains an issue for the Federal Reserve Bank. Its vice-chairman has opposed proposals form the Trump Treasury that “stress tests” of big banks should be softer.

Concerns about risk of financial excess are a sign that the global economy has recovered and stability is the goal. Has the global financial market learned the lessons of the latest downturn, and will cooperation be possible?

Evolving models

Walmart: slow food for fast people – In the latest instalment of Supermarket Wars, Walmart has opened a fast-casual Grown restaurant in one of its Orlando locations. The Grown concept was developed by Shannon Allen and her husband, two-time NBA champion and Olympic gold medallist Ray Allen – who are the “relatable” front people of the brand, with broad appeal.

The fast-food chainlet sells “slow food for fast people” and its menu boasts healthy, organic, farm-to-fork food, served in 100% compostable containers. The menu has smoothies, housemade falafel, organic cereal and gluten free French toast sticks for kids.  A representative for Walmart said operating a Grown inside a Walmart makes the store accessible to every family, regardless of income. While Walmart and other retailers before them have tried “the grocerant model” with limited success, Walmart is proactively taking steps to ensure market share in anticipation of Amazon-Whole Foods’ next move.

This is part of the supermarket response to the changing food retail landscape – moves to incorporate “grocerants” take on more meaning now that Amazon had declared its hand on what it will do with Wholefoods.

A force for good – When Starbucks opened its café in Ferguson, Missouri it was an economic dead zone. Thirty-seven businesses had been damaged in the rioting that followed Michael Brown’s shooting in 2014, 17 of them were destroyed. It would have been easy to get it wrong with a touchy-feely but ineffective strategy. A year later, the Ferguson Starbucks is profitable and growing, staff live within 5 miles of the café, and care for homeless customers and each other, community spaces are offered for training classes, there is close cooperation with local government and civic leaders and support for local suppliers. The café is one of 15 Starbucks has committed to opening in underserved communities across the US by the end of 2018, part of a larger social-impact agenda.

In 2013, the company pledged to hire 10,000 veterans and military family members, meeting the goal a year and a half early, before upping the target to 25,000 by 2025. In 20145, Starbucks launched another hiring initiative, aimed at unemployed “opportunity youth” between the ages of 16 and 24. In January in response to the Trump administration’s immigration policies, Starbucks partnered with trusted agencies around the world to hire 10,000 refugees worldwide. Global responsibility chief John Kelly says that senior leadership routinely asks itself “Why not us?” before taking on the years-long operational demands of any of these various initiatives.

While we love to hate Starbucks – for the coffee – but this purposeful initiative to bring opportunity to underprivileged communities can only reflect well on the brand. It is succeeding where governments have failed, and bringing other companies along with it.

Australia not-Asia ready – Research by Asialink Business, PwC and the Institute of Managers and Leaders has found that 67% of ASX 200 board members show no proof of broad experience operating in Asia and 55% demonstrate little to no knowledge of Asian markets. But it’s not only a lack of experience operating in Asia permeating Australia’s top 200 companies, research shows they aren’t tapping into the local talent pool of Australians who declare Asian lineage. Practice leader for PwC Asia Andres Parkers believes fear is holding back Australian businesses, with perceptions of high risk dominating thinking. Over the past 25 years Australia has sold commodities to feed a growing Asian middle class, but Parkers does not believe this will continue for the next 25 years. He is backed by Institute of Managers and Leaders chief executive David Pich who suggests a shift in industry mindset towards long-term growth is needed. Read more.

The idea that Australia has a walk-up start when it comes to doing business in Asia simply because of proximity may be behind this apparent gap in capability. If it’s not addressed more opportunities will be missed.

More from less

Container farms – Local Roots’ shipping container farms could make all the difference for communities that ship in fresh food, grown far, far away. The 40-foot containers house hydroponic farms, drawing on 20-75 litres of water per day to grow produce such as lettuce, strawberries or kale. The hydroponic farms are more efficient than traditional farms; produce is grown twice as fast, uses 97% less water and require no pesticides or herbicides all the while growing 3-5 acres worth of food. LED lights tuned to specific wavelengths and intensities, and sensor systems monitoring water, nutrient and atmospheric conditions contribute to the efficiency and sustainability of the farms.

Local Roots have already set up in Los Angeles and will be bringing a “farm” to Maryland later this year. CEO Eric Ellestad said his company’s farms could help supply 30million Americans living in food deserts with fresh produce.  He also said Local Roots’ farming systems may well one day be used to grow food in space on long-term deep space missions. Ellestad is talking with SpaceX about using Local Roots’ farms in space, proving the container farms could be used anywhere imaginable.

This is a cute idea and could be scalable, offering fresh produce close to urban centres, and providing a connection with healthier food production.

NZ Labour pits city v country about the cost of water – New Zealand’s Labour party leader Jacinda Ardern has cranked up city and country tensions, with a water policy which features a tax on irrigators in the lead up to the country’s general election in September. Not surprisingly, farmers are outraged, feeling they are being unfairly targeted when city dwellers are to blame for the degraded waterways in their midst. The issues are complex, but the Labour party has tapped into something – Kiwi pride, not to mention tourism is heavily invested in the country’s pristine landscape. A recent representative survey of New Zealanders found 77% believe agriculture and horticulture users should be charged for water. Labour has proposed the funds raised be returned to regional councils to help them clean up rivers.

While the farming sector’s response has moved from outrage over the impact on their own businesses, to sometimes overinflated estimates of the impact on food prices – it seems appeals to economics is not enough. More recently farm leaders have committed to “swimmable rivers” and taken the opportunity to highlight the steps already taken to reduce environmental impacts and improve water quality. Read more.

This may bring on a battle for the NZ public’s hearts and minds about how well farming cares for “pristine” resources, and whether sectors such as dairy have done a good enough job bringing their communities with them.

Disruptive technologies

Watts into food – Finnish researchers from Lappeenranta University of Technology and VTT Technical Research Centre have successfully created food using electricity. By mixing water, carbon dioxide and microbes into a small bioreactor and exposing it to electrolysis, they made crude protein powder. The powder is 50% protein and 25% carbohydrates, the remainder comprises fat and nucleic acid. It’s fit for human consumption and has the potential to help feed people in need. In a press release on the study, the researchers announced they are also developing the protein to be used as animal feed. But it may be a while before the electricity-created powder is made accessible to the masses. It currently takes two weeks to create one gram of crude protein powder. And according to scientists, it will be another decade before system is big enough to develop powders for wider use.

This could be a technology used to provide cost-effective nutrition to impoverished populations – but is still a long way from being scalable.

Hardly lightspeed – Wal-Mart has added more test markets to the trial of its Scan & Go app, which enables shoppers to simply scan bar codes, pay for their items and leave the store without queuing up. Wal-Mart’s director of corporate communications Justin Rushing is excited to offer the innovative service to Wal-Mart customers to improve their shopping experience. Some have likened Scan & Go to Amazon Go, which is in private beta with one prototype location near Amazon’s headquarters in Seattle.

The apps have similarities. Shoppers sign in to the Amazon Go app, enter an Amazon Go store and simply leave the store – the app able to detect shoppers’ selections and subsequently charge their accounts. Scan & Go trials began in 2013 in markets in Houston, Orlando, Fla., northwest Arkansas and most recently Dallas-Fort Worth and Nashville. While Wal-Mart rolled out Scan & Go to its wholesale arm, Sam’s Club, the retailer still hasn’t committed to a potential store-wide expansion.

The way big grocers are grappling with new tech. This app has been in trial 4 years! Says something about the resistance to technology either within the group, or the customer base.

Leaves down Sally – Engineers have found an alternative to unhealthy vending machines offerings. A robot vending machine that mixes a chef-created salad in a manner of minutes. Inventor of the salad-making robot Deepak Sekar says it solves the – admittedly first world – problem of not being able to customize packaged salads. The robot, called Sally, allows customers to choose their favourite fillings on a touch screen offering 1,000 possible custom salads. The robot is currently being trialled at the Calafia Café in Palo Alto, run by an ex-Google chef. Dicing the capsicum and chopping the onions is outsourced to a third party, which fill up the robot with salad filings.

At about the size of a mini-fridge, Sally takes up less space than a salad bar, avoids contamination from customers handling food, and minimises waste by keeping ingredients refrigerated. Sekar plans to scale-up to mass deployment by September or October – and the company plans to sell its machine to offices, cafes, hotels and maybe even to quick-service salad bars with lines out the door.

Sally makes fresh, customised salads in around 60 seconds – is this the end for salad bars as we know them?

Freshagenda’s Horizons September 2017 newsletter is a free publication on Australian and international trends, innovation and other insights relevant to the Australian food markets.

Our Horizons September 2017 newsletter describes Freshagenda’s megatrends, describing how tech and innovation is shaping the food industry around the world. Our megatrends are; Discerning consumers, volatile world, disruptive technologies, evolving value chain models and more from less.

Horizons September 2017 digs in to Freshagenda’s megatrends

Freshagenda identified a set of major megatrends affecting the future of food that combine to provide the key inputs to industry or enterprise strategic planning built on future scenarios.

In a paper outlining these megatrends, Freshagenda explains what they mean, how they are playing out, and how they fit together.  These forces might be nice to know, and great to stimulate thinking, but how do you harness them?

As shown in the process summarised below, understanding these forces, articulating how they are affecting your industry and business outcomes in future, and drawing insights from them to stretch future thinking, are a key component that can provide impetus and context to strategy development

 

Discerning consumers – A diverse set of influences

  • Increasing developing world affluence creating new consumers
  • New channels of influence on behavior and wants
  • More complex segments and preferences affecting value, ethics, health and indulgence
  • Competing demands driving greater needs for convenience
  • Aging demographics in developed world

 

Volatile world – Food markets are more complex and unpredictable

  • Climate change affecting stability of food supply
  • Food commodity markets more prone to price volatility and closely linked as intensification continues
  • Ad-hoc protectionism of farmers and consumers
  • Trade policy becoming more technical rather than fiscal
  • Geopolitical conflicts
  • Lingering economic and financial uncertainty post GFC
  • Resilience of traditional farming threatened by volatile returns

Disruptive technologies – Technologies rapidly reshaping life

  • Digital tools and platforms are changing engagement, behaviour and lifestyles
  • Advances in GE and GM know-how and applications
  • Advances in automation for production and processing
  • New substitutes (3D printing, synthetics)

Evolving value chain models – Redefining how to add and capture value

  • Shift in capital power
  • Risks being reassessed
  • Emerging preferences for capital investors
  • Emerging retail models
  • New forms of value chain integration

 

More from less – Limited resources and capacities

  • Growing populations – more mouths to feed over time from finite natural resources
  • Greater community concern for sustainable production systems
  • Sustainability agendas balancing “3Ps” changing value chain relationships
  • Policy unevenness and short-termism