Suppliers of commodity-based products are always slaves to the elements but the recent cataclysmic weather has been something else.
Just weeks after drought in Russia, Ukraine and other eastern European countries ravaged wheat crops sending wholesale prices into orbit, Pakistan saw devastating floods threaten to wipe out an estimated 2bn tonnes of another staple product rice.
The full extent of the damage to crops in Pakistan a major global rice exporter will not be known until October when the crops are harvested. But given the fragile state of the global economy and the precedent set by wholesale wheat prices, fears are mounting rice will follow suit.
The question in both cases is: with what impact on retail prices?
Since The Grocer predicted that food inflation could soar next year [Bitter harvest: get set for 10% food price hike, p4, 31 July], the national media has been awash with stories warning of massive retail price hikes. Yet to date, few have actually materialised. With rice at least, it may be some time before they do. Pakistan is a key exporter, but information is patchy about the scale of the damage to the crops, so it may not be as severe as feared.
Also, China is the biggest supplier of rice to the UK and although that too has been hit by floods, the late harvest is expected to offset the washed out early harvest, so there is not likely to be a net adverse impact on output.
The other factor to bear in mind is that good harvests last year mean there are still stock piles of rice stock piles that have prompted an 18% slump in wholesale prices over the past year.
The picture is very hard to read, says Veetee CEO Vikas Magoon. Wholesale prices could well rise, he says, but they won't necessarily rise massively. "Based on the information I have, rice prices are likely to start inching up. There is a big time lag for shelf price increases I can't say when. Fundamentally there is enough world stock, but it is a very thin market."
It could be a different story for wheat the principal ingredient in most of the noodles consumed in the UK. Commodity prices have shot up 55% year on year, according to the latest data from the National Association of British and Irish Millers.
"This may well be an overreaction," says Ian Hart, editor of commodities journal The Public Ledger. "Prices could ease for the rest of the year, but by how much will only become clear as harvests come in over the next few months."
Suppliers in the bread market, however, are already contemplating retail price rises (see news, p5). Who's to say noodle makers won't do the same?
If there are price rises in either the rice or noodles sub-categories, it could jeopardise category growth, which has already shrunk from 23.4% to 4% over the past year (see box left). Because it is such a mature category, the balance between value and volume is delicately poised. It doesn't take much of a price rise to put consumers off a product especially when there are plenty of other products on promotion.
Over the past year, deep promotions on bulk dry rice packs have helped drive volume at the expense of value, the former increasing 3.4% while the latter is up just 1.3% [Kantar Worldpanel 52w/e 16 May]. We could be witnessing a permanent change in the way consumers shop the dry rice category, believes Aamir Allibhoy, communications manager of Kohinoor Foods UK. "As a result of the recession and the value-seeking consumer, the 10kg SKU has stormed ahead and 5kg is making inroads within certain segments," he says.
Kohinoor is one of a fistful of smaller ethnic brands, including Veetee's Rozana and Badshah, which have price points lower than mainstream rivals and portfolios skewed towards larger formats. Allibhoy even goes so far as to suggest that Kohinoor is becoming "an instrumental player" in the market with its "fighter brand" Trophy Basmati, which recorded 877% volume growth [Nielsen].
He may be right. Both own-label rice, which accounts for 60% of the market by value, and the three biggest brands, have seen sales fall by more than 4% in value [Nielsen 52w/e 10 July].
Falls in excess of 10% for Tilda and Riso Gallo dry rice suggest price-conscious consumers are trading down from premium offerings. Tilda's senior category and insight manager Alex Condron admits the dried rice category has been "a challenge" over the past year as mainstream labels battle deals on bulk bags, which have helped to drive the average selling price from £1.85 to £1.69 per kilo.
"A selection of brands have promoted quite heavily and have essentially been at £1/kg. That's probably the key reason why there's strong volume growth and less value growth," he says.
Veetee's Magoon credits a willingness on the part of retailers to increase the space devoted to world food as a key driver of growth in its big format Badshah and Rozana brands.
"Growth in the 5kg and 10kg bags is coming from the ethnic consumer," he says. "Per capita consumption of rice in the UK is about 4.5kg per annum and within certain ethnic communities it is as high as 50kg per annum, so ethnic is very important and retailers are getting behind that."
Last year, Asda opened a dedicated World Food store in Hounslow, while other multiples are devoting more space to ethnic products in towns where demand is high. Regular deals such as £5 for 5kg of Badshah rice helps Asda, in particular, significantly overtrade in the rice category.
Winfield believes larger formats will soon begin to penetrate other sub-categories. Findus UK has already shown the way in the frozen aisle with the April launch of Findus Rice Bags a 1kg portionable ready meal available in Chicken Tikka with rice, Chicken Korma with rice and Chilli Con Carne with rice (preceded by a pasta range).
Beyond world food it's convenience, not size, that matters. Microwaveable rice has leapt by 16% in volume and 9.2% in value to £153.6m in the past year [Nielsen 52w/e 10 July]. Sales of Tilda's Steamed Basmati format surged by 22.4% to £18.6m in the same period, according to the company.
Ready-to-eat formats tick the box for consumers who want to reproduce at home what they can find in their local curry house. "Microwave rice falls into that category," says Condron. "They can have their exotic recipes but in two minutes."
Tilda is hoping to maintain the momentum of its convenience formats with the addition of two new Steamed Basmati variants in August Wholegrain Pilau and Sweet Chilli and Lime and a new four-strong range of Stir Fry rice designed to milk the twin trends for authenticity and convenience.
But it's not working for everyone. While it remains the giant of the microwaveable category with more than 65% market share, Uncle Ben's failed to grow value sales of its Express range last year, even though its aggressive promotional strategy saw it move 4.5% more volume.
As with big pack dried rice sales, much of the value growth in microwaveable is coming from smaller players, such as Veetee and Adora. Veetee's convenience formats, in particular, had a storming year with sales doubling to £15m and volume sales increasing 116%, thanks to a strategy of encouraging trial through promotional activity.
Magoon believes there's still plenty of headroom in the category and predicts that growth will "accelerate rather than reduce over the next two or three years" although "there will come a stage when the growth may have to come from dried rice".
If that is the case, family-owned Italian producer Riso Gallo could be ahead of the game. It recently relaunched its Risotto Pronto range in a compact wedge-shaped box, reducing the size from 250g to 175g and returning to its traditional green packet to "restate the authenticity" of the brand. "Although it was a convenience product," says UK director Michael Winfield, "the original design suggested commodity more".
He praises Uncle Ben's and Tilda for bringing consumers who "used to try and cook rice and ended up with porridge" into the rice category and maintains that the microwave format "is here to stay and here to get bigger".
But the dried savoury market is fighting back albeit with one hand tied behind its back by the retailers, according to Carine San Juan, head of category savoury at Premier Foods, which owns Batchelor's.
She believes the brand would stand a greater chance of competing with microwaveable if it were to sit on the same fixture, instead of inhabiting the space beside Batchelor's range of block noodles and pasta 'n' sauce. "Our research shows that dry savoury rice should be on the same fixture as the rest," she says. "People see it as the lynchpin between bulk and microwaveable."
Retailers have yet to be convinced, though San Juan is confident that a new planogram will be rolled out over the next 18 months or so. "Moving the fixture around is never easy," she says, "but where it has been trialled it's proven very successful."
If the rice category is all about size and convenience, with noodles it's all in the flavour. Brand owners agree that recently introduced variants such as Sharwood's Stir Fry Pad Thai Noodles, Amoy's Garlic & Coriander Straight to Wok and Blue Dragon's Chilli infused Quick Wok Noodles will be key to driving growth in the plain noodles category (which includes flavoured variants such as Amoy's but excludes products with sauce such as Super Noodles), which has risen 17.5% in value over the past year and 3.5% in volume [Kantar].
"Consumers are looking for new, interesting flavours and textures and a quick and easy meal," says Tracy Hughes, Blue Dragon consumer and trade marketing controller.
Flavoured wet noodles appeal to two distinct consumer groups, according to San Juan. "You've got the convenience guys who don't really know how noodles are cooked and want something you can stick in the microwave or throw straight into the wok, but you also have the guys who are becoming more confident with noodles and just want additional flavours."
San Juan believes that the ubiquity of restaurant chains such as Wagamama and Miso has helped bring oriental cuisine into the mainstream. "People are widening their repertoire and becoming more confident with noodles," she says.
Hoping to capitalise on the growing interest in Japanese food, Blue Dragon is launching an authentic Japanese range in December. Consisting of three yaki sauce variants, a katsu curry jar and a katsu meal kit, the range also features three new noodle variants ramen, soba and udon and contains everything consumers need to create a Japanese-style dish, according to Hughes.
New products launched in the past 12 months are delivering incremental sales to the category. "NPD trades people up, so that will have a proportionately higher impact on value sales," she says, alluding to Blue Dragon data that shows NPD has contributed £3.5m in sales in this period to the overall noodles category.
Volume sales, on the other hand, have been disappointing, something San Juan attributes to a change in the promotional dynamic. "The previous year, the category had more multi-buys, which encouraged shoppers to pick up more units whereas this year, it's been more around price points, round pound price deals, which has an impact on volume."
Despite its relative maturity, both San Juan and Hughes see significant growth potential in the plain noodles market, and not just in wet noodles.
"I wouldn't say the wet format necessarily has more potential than dry because you're talking about very different consumers," says San Juan. "Those who like to cook wouldn't want to use wet noodles. Dry still dominates the market."
Hughes believes there is scope to increase the number of usage occasions for noodles, claiming that shoppers remain "confused" about the best way to incorporate them in their diet. She believes suppliers should be educating consumers on noodle use, their convenience and suggesting recipe ideas. Nisa-Today's trading controller Rob Large suggests that in a "pretty saturated" market, the best thing suppliers can do to add value is to "support the brands through promotion and advertising".
But they don't appear to be heeding the advice. Sharwoods has reduced its advertising spend by 45% in the past year [Billetts 52w/e 30 May), while Premier's other noodles brand, Batchelor's, didn't spend anything in 2009/10, according to Billetts.
Instead, like Sharwoods, Batchelor's has concentrated on new products. Batchelor's launched Super Saucy Noodles in June in response to research that showed some consumers often added their own sauces to Batchelor's Super Noodles to intensify the flavour. "People want that taste hit and that was the insight that drove the NPD," says San Juan.
While Saucy Super Noodles, which Large says are "selling really well", came too late to significantly affect value sales of flavoured noodles, the category still managed to increase by 7.1% [Kantar].
Batchelor's isn't the only brand launching new products into the flavoured noodles sector. Symington's launched Golden Wonder: The Nation's Noodle on the back of a 50p promotional deal last August. A direct challenge to Pot Noodle, The Nation's Noodle was targeted at young men and students, but just four months later, they were taking on the other category giant, Batchelor's, with Golden Wonder: The Nation's New Noodle on the Block. A new Chilli variant was recently added.
Whether Symington's has succeeded in breaking the stranglehold of Pot Noodle and Super Noodles depends on your point of view. "The Nation's range has achieved a brand value of almost £6m in just a year which shows just how much potential the market has," says marketing manager David Cherrie. San Juan, on the other hand, is dismissive: "This stuff comes and goes," she says. "Symington's are in there, but it's not sticking."
The next 18 months may prove turbulent for both rice and noodles as raw material prices come under pressure. "A rise in commodity prices is always a potential threat," admits Kohinoor Foods' Allibhoy.
Ian Hart of The Public Ledger believes the rice market will remain in relative balance at least until the end of the year, but the same cannot be said of wheat. As Russia implements an export ban, noodles suppliers will be anxiously casting their eyes eastwards.
Focus On Rice & Noodles