Research: The Significance of Business Policy from 1997

Navigation: Home Page   Comment   Education   Videos 


The Significance of Business Policy to Food Policy: A Discussion Paper from 1997


Background


This first section starts by examining why the late 1990's might be an important era in environmental terms, for Business Policy and Food Policy. Taking, Britain as an example, Lowe and Goyder (1983) and Peattie (1995 p.5) have identified the 1880's, the 1920's, the late 1950's, the early 1970's and the late 1980's as stages in environmental concern. Each stage represents the end of a sustained period of economic growth.  These intervals have been presented as a cycle of environmental concern (Downes 1972).  Arguably, this cycle is shortening with the late 1990's as the next landmark epoch in environmental terms.  Media coverage and societal concern should increase (Peattie 1995 p.75).  It is unclear what may cause another cycle of concern to begin. Although, it could be food miles causing air pollution and asthma. Alternatively, there may be a realisation that pesticides can be linked to cancer. Finally, BSE highlights the problems with factory farming. However, it is apparent that the concern of the late 1990's contrasts with the interest of the early 1970's:'' The emphasis now is on current underlying problems rather than on future forecasts. Moreover, it is significant that a decline in economic growth may not now reduce enthusiasm for environmental issues as would have been the case in the past. Finally, more businesses are now being affected by green issues than was the case in the early 1970's. SustainAbility suggest that environmental concerns started to influence  Agriculture and The Supermarkets from the 1980's while the Meat Industry was affected in the 1990's (Peattie 1995).


It could be that the advantages of supermarkets are beginning to be outweighed by their drawbacks (Independent 10/1/95). This leads to scenario 1 of a blighted high street. Many independent retailers are sent to the wall and with this traditional competition destroyed; the supermarkets can start exploiting their monopoly power by raising prices. The customer therefore loses (Independent 27/2/93). Alternatively, there is scenario 2 whereby the big supermarkets overreach themselves. They build far too many stores as competition intensifies and so they start to lose money. The value of their assets, mainly stores and land, plunges. Consequently, their balance sheets are shot through. The shareholders and the banks lose and the countryside is littered with decaying supermarket shells (Independent 27/2/93). The recognition that the costs of business may exceed its benefits could cause the nature of Business Policy to change. Arguably, Business Policy focuses on Total Customer Satisfaction having previously emphasised shareholder, employer or employee satisfaction. However, the focus could move to Total Stakeholder Satisfaction (Covey 1995). If the basis of competition changes, towards higher quality, as envisaged by Planet Organic then the importance of Stakeholder Theory will have been demonstrated. "There is no such thing as good, cheap food and the reality that producers, retailers and the public are finally faced with is that the nation will suffer at the hands of poor quality food (Retail Week 25/4/97). There is a need to recognise the environment as a stakeholder. "When the environmental trends change, the once successful response may no longer be appropriate" (Covey 1995). Competitors are also important stakeholders. There is a need to stop seeing them as opponents which is relevant to the second scenario. The problem is that Business Policy is based partly on concepts that originate from military warfare. The word "strategy" derives from the Greek word "strategos" which roughly translates as "the art of the general". "Concepts of ... eradicating the enemy and disregarding the environmental consequences, are seen as acceptable in business, just as they are in battle. However, the business and warfare analogy is flawed" (Peattie 1995 p.142-3). For example, The Marketing Director, of one of the supermarkets, describes his main competitor as "public enemy number one" (Marketing 1/5/97). This is unsurprising but it does not specifically address the problems of the old and poor who have problems over where to buy their food (Independent 10/1/95). Increasingly households, in inner cities, are without easy access to shops selling fresh food. These areas are described as "food deserts" where local shops are struggling against supermarkets (The Times 5/11/97).


A system is needed which allows food retailers to regard fellow grocers as colleagues rather than competitors.  If a shop sold much more than another then it could damage its prospects and those of its employees.  Should the fellow grocer go out of business it would make life difficult for people who found it more convenient to shop with them (Douthwaite 1996).

 


The importance of Food Policy


 

From the above analysis it is clear that the food industry does not operate in isolation. Food retailers need to look at the broader issues, such as the environment, as these will help explain the decline in consumer confidence. It is suggested that "consumer confidence in food is at rock bottom and (that) something positive has to be done to improve confidence". Although food retailers feel that they have been doing a good job they believe that they have been let down by MAFF (Marketing Week 22/5/97). The food industry has realised that it is not in its interests to tolerate lax regulation regarding intensive agriculture (Marketing Week 22/5/97). This demonstrates the interdependent nature of the food industry and underlines the importance of the stakeholder concept.

 

Also, the progress that the food industry has made can be questioned. Since the war an attempt was made to reduce the dependence on imported supplies of food. "The wartime realisation that the country could not feed itself, food rationing and no longer being able to rely on cheap imports from the Empire all encouraged Industrial Farming" (World News No. 3). In the late 1990's the same dependence on imports is occurring again with organic food being introduced. "Nearly 70% of our organic food ... is imported (because) only 0.3% of Britain's farmland is organically certified" (World News No. 4). Consequently, Sainsbury's has encouraged more of its suppliers to convert to organic farming methods (The Food Programme 4/8/97). The problem is that food retailers have been lobbying the government for increases in organic farming when they could have contributed to funding themselves.

 

However, the supermarkets are constrained by financial short-termism which hinders future investment. Retailers are encouraged to stock profitable products such as vitamins which have a long shelf life, low space usage and high margins rather than organic food.  The problem may be that Business Policy has emphisised diversification and acquisition. However, acquisitions take up an inordinate amount of top management's time, which is taken away from the main business (Peters and Waterman 1982). Diversification has moved supermarkets away from their area of distinctive competence; food retailing (Ogbonna 1992). This may explain why the supermarkets have not invested in their own suppliers. This leaves them in a weak position if the consumer demands more organic food. Asda's view could leave them exposed. "At the moment, we don't think the demand for organic goods justifies the effort in sourcing. If our customers generally wanted it, then we'd source and supply it". However, in the future it may be difficult to supply the demand given the small level of organic farming being done at present (Retail Week 4/7/97). Already, Sainsbury is suggesting that the U.K. is behind in satisfying demand (SuperMarketing 1/8/97).

 

The risk is that people may suspect that they are only getting the appearance of quality and are being denied the underlying goodness of the food. This may lead to a scenario 3: Food scares encourage consumers to demand more organic food which the supermarkets are unable to provide. This results in increased imports and higher prices than if the food was grown in Britain. 

 

The Issue of Consumer Sovereignty

 

The marketing concept has been criticised for being unrealistic.  For example, if the marketing concept was widely held and effectively put into practice, consumers would not need to mount campaigns against products or companies in order to achieve satisfaction (Peattie 1995 p.99). Marketing can also be criticized from a social perspective. Tomlinson (1990) suggests that "many people on low incomes are effectively disenfranchised from the consumer society". Also "issues of marketing style have overwhelmed issues of substance so that real performance differences between products are masked". A second criticism of the marketing concept is that it is too reactive. For example, a chief executive of one of the major supermarket's has said: "our shoppers want to buy it (beef) ; the industry should stop squabbling and get on with giving customers what they want" (Independent 16/5/96). The criticism is that marketing of this kind is not being sufficiently proactive. For example, it is not investigating the provision of organic alternatives. Moreover, it assumes that business knows what the customer wants. Yet one moment the consumer sees cheaper meat as an index of progress, the next they are unhappy at the hidden impact of animal welfare (Independent 3/9/95). There is a need to challenge the assumption that businesses really care about customer needs and understand how to meet them (Peattie 1995 p. 101). The rhetoric that a marketing strategy is what the consumer wants needs to be seen in the context of the reality; that "the dream for business: is not choice but predictability of consumer behaviour". Proctor and Gamble and Unilever have influenced The Supermarkets thinking on consumer behaviour. "The most important lesson was how to change customer attitudes and behavior and what to do when customers are going in one direction and you want them to go in another" (Observer 8/12/96). Although large grocers wish to portray themselves as serving the customer ; there is also the element of wanting to lead the consumer. The problem is that The Supermarkets may want to lead people away from organic food if they are having problems satisfying demand. Thus there could be a conflict between the aims of the grocers and the framework in which they operate.  


The assumption that consumers always know their needs is another assumption which needs to be challenged. "In relation to environmental issues, consumers' lack of understanding of the problems and potential solutions makes it difficult for adequate consumer led initiatives". The inference is "that companies should make information and product alternatives available to consumers to allow them to make a choice - an informed choice. At present, food labelling often gives consumers a false impression of the fat and sugar content of foods" (Peattie 1995 p.101).


To summarise, the issue of consumer sovereignty; "marketing is concerned with the satisfaction of consumer needs for the organisations' own ends so it is blind to the well being of customers. The answer to this blind-spot is the societal marketing concept and the introduction of the concept of corporate social responsibility" (Peattie 1995). This returns the discussion back to the theme of Total Stakeholder Satisfaction (Covey 1995) which seems to be an improvement over the idealised model of consumer sovereignty. "For consumers to be sovereign, they would have to have a wide range of options, an unlimited amount of information and an unlimited amount of money. They would also have to be immune to temptation". Furthermore, the abundance of information may cause an overload which will not enhance decision making (Lang and Gabriel 1995).

 

References


Arnold, Helen, (Going back to our roots- SuperMarketing 1/8/97) p.18-20

Bentley, Stephanie, (A Grubby Business - Marketing Week 22/5/97) p. 38-41

Brown, Chris, (Out of this World News - No. 3 / September 1996) p.8

Brown, Lynda (Out of this World News - No. 4 / February 1997) p.9

Covey, Stephen, (3/95), Executive Excellence p.3-4

Douthwaite, R.(1996) , Short Circuit, Green Books, p.342

Downes (1972) in Peattie (1995) p.4-5

Elliot, Renee (Retail Week 25/4/97) p.8

Elliot, Valerie (The Times 5/11/97)

Hosking, Patrick (Store Wars: will we all be losers ? Independent 27/2/93)

Independent (16/5/96)

Lang and Raven (Cheap Food at a Huge Price - Independent 10/1/95)

Lang and Gabriel (The Unmanageable Consumer, Independent 3/9/95)

Lang and Gabriel, 1995, The Unmanageable Consumer, Sage, p.36-8

Lee, Julian (Marketing 1/5/97) p.2

Lowe and Goyder (1983) in Peatte (1995) p.4

Ogbonna, Emmanuel, (1992 in Reassessing Human Resource Management edited by Blyton &Turnbull) ch. 5

Peattie, K. , (1995), Environmental Marketing Management, Pitman

Peters T. and Waterman R., (1982), In search of Excellence, Harper Collins, p. 293 Porter, John (Retail Week 4/7/97) p.12

SustainAbility in Peattie (1995) p.74


Core Ideas:  The extent to which food retailers are proactive

Supermarkets can be classified in 3 ways regarding this issue:-

 Proactive strategies

Environmental issues are not compromised to increase sales or profits. Rather, green strategies are used as a basis for competition. For example, organic food is sold to differentiate the company on the basis of quality.

 Cautious strategies

Attempts are made to sell some environmentally acceptable products because there is awareness that green issues may become increasingly important. Therefore policies tend to be "bolted on" as organisations take the view that "we may change if customers want it" e.g. more organic food.

 Opportunistic strategies

Environmental products or foods are only sold because rivals are selling them. The goods that are sold are confined to popular products and do not include perishable premium items; for example, fresh organic meat, fruit and vegetables.

Sainsbury's is perhaps the only major supermarket which can claim to be proactive. It believes that consumers should be aware of the true cost of organic produce which is reflected in the retail price. However, its approach is reactive to the customer (Food Programme 4/8/97 - see Cautious strategies). Tesco's approach is more cautious as organic food is priced equivalently to conventional produce. This approach has been criticised by the Soil Association who believe that consumers should be prepared to pay more for healthy food to avoid the hidden costs (SuperMarketing 1/8/97). Also, it is unclear how long Tesco will accept the lower margins on organic food.

 

Do environmental strategies exist throughout the organisation or do they operate in isolation?

 

It is difficult for Sainsbury and Tesco to claim to be environmentally proactive through selling organic food. This is because there may environmental problems elsewhere in the organisation.  For example, there is criticism of out of town supermarkets. One analysis suggests that "the social subsidy for an out-of-town store compared with one in a town centre is £25,000 a week; equivalent to more than £1 billion a year nationally (Independent 10/1/95).  This suggests that out of town superstores are less environmentally acceptable. David Sainsbury suggests that it would be too difficult for shoppers to use buses from city centre supermarkets (Guardian 3/11/94).  However, the alternative is to use the car, which causes the problem of the social subsidy mentioned earlier.  Therefore, the supermarkets can be classified depending on the extent of their out of town operations.

It was suggested that grocers could set the standards for food production (Sunday Telegraph 31/3/96).  However, to save money, The Supermarkets could transfer too much of the responsibility for food safety on to the consumer.  This could be achieved through the introduction of "food hygiene weeks", to inform customers of the importance of cooking food thoroughly.  This is helpful as the customer can act as another line of defence in food safety.  However, the danger is that the consumer "appears that they are the only line of defence" (Independent 16/8/97).  The problems throughout the production process remain.  This suggests that initiatives such as 'food hygiene weeks' are insufficient.  Food retailers need to encourage less intensive methods of farming instead.

How much importance do supermarkets give to food? Do food retailers’ strategies diverge?  For example, in the proportion of space allocated to food


The importance of this is derived from business policy.  Peters and Waterman (1982) suggest that focus leads to outperformance. This is relevant to practitioners although it may also have implications for customers and society in general. If supermarkets focus less on food then households may spend a lower proportion of their income on it. This could have health implications.

One example, of divergent strategy, is the difference between Asda and Sainsbury. Asda's aim to devote more floor space to music and video comes at a time when Sainsbury is distancing itself from non-food and focusing on its food offering. This raises an important issue in food policy. The problem is that profit margins on non-food are higher than profit margins on food. Therefore the importance of food, compared to non-food items, may be declining.


A different basis for competition: Food Retailing in the 21st Century


Previous research, in this area, identified a clear shift in the basis of competition among British supermarket chains. The shift was away from price towards meeting customer needs. This involved the major grocers moving to out of town sites, attempting to improve customer service and selling organic food (Ogbonna and Wilkinson 1988). This article discusses the importance of organic food. However, out of town shopping and customer service will be briefly examined. The purpose is to suggest that these two aspects may become less important and that attention should focus more on organic food.


The development of out of town supermarkets is problematic in three ways. Firstly, planning approval for new food superstores has slumped. Sainsbury and Tesco have accepted that superstore saturation has effectively arrived so forcing the supermarkets back into the cities (Guardian 3/11/94). Also, out of town supermarkets can lead to increased air pollution and congestion. It is suggested that peripheral superstores impose external costs of £25,000 a week (Lang et al 1995). Finally, home shopping could hinder the present trend towards out of town supermarkets. Sainsbury aims "to be the first to mass market grocery home shopping (Times 30/10/97). However, the potential movement from out of town supermarkets to home shopping is unlikely to be swift. It is unlikely, in the short term, that supermarkets will want to jeopardise their store portfolios by investing in home shopping. To summarise, the difficulties associated with out of town superstores could encourage grocers to look elsewhere for growth.


To improve customer service employees have been encouraged to identify themselves with the organisation. This identification could be described as the formation of a strong culture. Employees become "members" or "colleagues" of the organisation rather than mere "workers". In 1988, it was forecast that supermarkets would need to have a resilient culture to be competitive in the 1990's. This appears accurate since Asda's profits increased while it encouraged greater identification.  Also, its success can be attributed to its products being "sold with personality" (Asda Report 1995) showing the importance of service. However, the emphasis given to strong cultures can be questioned. Increasingly, a clinical approach has been applied to selling food; the most basic commodity of all (Independent 1819/96). Strong cultures are part of this clinical approach. The problem is that money spent on strong cultures is investment that is not being made in food quality.

 

Customer service, based on a strong corporate culture, will be insufficient to maintain competitive advantage in the 21st century. As food quality becomes a priority then there will a different basis for competition. Competitive advantage will increasingly be achieved through providing the customer with high quality food as people aim to avoid food scares. The emergence of this trend, towards higher quality food, is already noticeable. The market for organic food has doubled in the last two years while 75% of all shoppers are sympathetic to the idea of buying organic food.  It is expected that the organic market will double again before 2001 (Independent 25/11/97).


If this trend does emerge then the strategies of supermarkets will have to change. The food market can be described as consisting of three different groups of customers. In 1987, David Sainsbury said that there are customers who are only interested in price; probably 10% of the market. At the other end of the market there are people who are only interested in quality and will pay anything to get it. Finally, you have the majority of people in the middle range. They are interested in both price and quality. Sainsbury's target this group with the slogan "good food costs less". The implication is that Sainsbury's quality is good but not unique. This is because their food does not command a premium price which is the ultimate test of quality (differentiation). Sainsbury's compete on cost but they try and make sure that their food is as good a quality as anybody else's. Sainsbury want comparable quality to competitors such as Tosco and Marks and Spencer (Johnson and Scholes 1993).  However, the problem for Sainsbury, like the other supermarkets, is that the quality conscious group is likely to increase. To offer comparable quality, at a competitive price may not be good enough to maintain competitive advantage in the future.


Arguably, it is possible to have both quality food and low prices. But this analysis is limited. Supermarkets can sell high quality conventional food cheaply. The high market share gives buying economies so the consumer con be offered a lower price. However, the conventional description is a misnomer since current conventional farming techniques have been dominant only for the last 50 years (Blythman 1996). Also if organic food is the only "quality" food then having quality conventional food is a contradiction.


Recent events indicate that the supermarkets are taking steps to improve the quality of their food. For example, Sainsbury sponsored 10 suppliers of conventional produce to attend the Soil Association's national conference on organic food production (Sainsbury Report 1997). Also, Asda has swiftly taken a higher quality stance. In July 1997 they suggested that the demand for organic food did not justify the effort in sourcing it. However, by November it was reintroducing a range of pesticide-free fruit and vegetables.


References

Arnold, Helen, SuperMarketing 1/8/97, Going back to our roots, p.18-20

Cowe, Roger, Guardian 3/11/94, Sainsbury accepts the ... centre ground 

Lang, T and Raven, H Independent 10/1/95, Cheap food at a huge price Nicholson-Lord, David, Independent 10 /1 /95 .

Peters,T. and Waterman R. (1982), In Search of Excellence, Harper Collins, p.293

Standing, Jonathan, Independent 14/9/97, Tesco plans giant stores Streeter, Michael, Independent 16/8/97, Farming "A danger to health"


British Grocery Retailing in The Late 1990's:  A different basis for Competition?


During the 1980's competition shifted away from price, although price remains important, towards meeting customer needs. This involved shifting location to convenient greenfield sites. Moreover, supermarkets were designed with modern layouts. Secondly, attempts were made to transform the culture of the organisation so that customer service could be improved. Finally, the range of goods on offer was extended to include exotic and organic food (Ogbonna and Wilkinson 1990). However, the demise of Shoprite and the change in strategy by Kwik Save suggest that price, as a basis for competition, may be declining in importance. Although it may seem that the supermarkets compete strongly on price, arguably it is only commodity items which are cheap; the known value items (Independent 10/1/95). Modern layouts are important as shopping has been described as Britain's foremost leisure activity (Out of this World leaflet) Strong cultures remain important as products are described as being "sold with personality". (Asda Report 1995). However, with the possible saturation of the supermarket industry, see scenario 2 strong cultures that are helped by rising profits may be more difficult to maintain. If those profits decline the human relations of the organisation may suffer. Therefore, the future of competition could lie in store layouts and the range and quality of the food.  The trend towards home shopping may negate the importance of store layouts.


The Excellence Literature, from authors such as Peters and Waterman, has suggested that strong cultures are beneficial. Consequently, strong cultures are important to the supermarkets as they are used to gain competitive advantage (Ogbonna and Wilkinson 1988), One retailer's profits increased while this method was being used (Asda Report 1995). Therefore, other supermarkets may have wanted to introduce a strong culture. It could lead to better customer service, higher sales and increased profits. However, these developments can be criticised. A clinical approach has been applied to selling food; the most basic commodity of all (Independent 18/9/96). Strong cultures are part of this clinical approach. The trouble is that money spent on strong cultures and customer service is investment that that has not been allocated to food quality.


References


Asda,  Report and Accounts, 1995, p. 10

Lang and Raven, Independent 10/1/95, Cheap Food at a Huge Price 

Ogbonna, E.  and Wilkinson B. , Personnel Review 19,4, Corporate Strategy and Corporate Culture, 1990 

 

Comments