With multiple retailers increasingly sourcing foreign lines direct from producers, what does the future hold for specialist food importers? Richard Ford reports on global sourcing developments and the search for exciting new products
World foods was once about clear divisions of labour specialist importers and suppliers would scour the globe for the latest cuisine, and retailers would pick the most promising products to put on their shelves.
But the line between importers and retailers is becoming blurred. Faced with rising commodity costs and intense competition from rivals, the supermarkets are taking sourcing into their own hands in a bid to strip out costs and secure future supply. So how are different retailers approaching direct sourcing, and what does the future hold for traditional importers?
At Asda, direct sourcing is already big business. Its in-house supply business International Produce Ltd acquired by the retailer in October 2009 is the supermarket’s single-biggest supplier and sources all its fruit as well as corned beef from Brazil, Feta from Greece and fresh pasta from Italy.
Hot new talent
World food experts agree that Latin America is the place to watch for the next big global food craze. Brazil will receive a major boost from hosting the World Cup in 2014 and the Olympics in 2016, paving the way for an influx of Latin American fare into the UK. The similarity of some Latin American products to Spanish food which has an established following in the UK will ensure they receive a warm welcome here, says Simon Day, MD of Unearthed. “With the rise of Spanish and tapas, some of the flavour profiles are becoming quite familiar, which has prepared the ground a little bit.” ‘Authentic’ Mexican food will become more prominent on supermarket shelves, adds George Phillips of importer Grace Foods, and will offer an alternative to dinner kits such as those produced by Discovery and Old El Paso.
There are plans to expand IPL’s portfolio further into fresh salads, for instance and to increase turnover, which for the 53-week period to 2 January 2010, stood at £49.8m, fourfold within the next five years.
It’s a similar story at Tesco, which last year set up a Group Food Sourcing division. Headed by group food sourcing director Matt Simister, its remit is to extend Tesco’s direct sourcing capability from fresh produce, where it already sources products such as fruit directly, to other products such as canned goods and fresh and frozen proteins. Tesco is now setting up local sourcing hubs around the world to give it expertise on the ground in countries of particular strategic importance.
Direct sourcing can often deliver impressive cost savings for retailers, but IPL MD Nick Scrase says the benefits go far beyond creating efficiencies. Building direct relationships with primary producers is just as important, he argues. Asda, through IPL, has become involved in the development of fruit varieties, allowing it to more closely tailor products to what its customers want than it could have with traditional, third-party sourcing. “By controlling supply chains, we’re confident we can give our customers better food,” says Scrase.
Producers also stand to gain from direct sourcing, he adds. They can be more confident of getting paid by dealing with Asda than a smaller importer, giving them an incentive to invest in new equipment or supply chain infrastructure.
But not everyone is convinced direct relationships with retailers are good news for producers. “While some middlemen are just eating into the return reaching farmers, others like producer co-ops boost their bargaining power. In such cases, moving to more direct supply could be a backward step,” says Tom Macmillan, executive director of the Food Ethics Council. However, he concedes, growing price pressure, demand for traceability, and concerns over security of supply will give retailers more reason to source direct.
Andrew Godley, professor of management at Henley Business School, agrees the appeal of direct sourcing will only increase. Investment in direct sourcing acts as “insurance” that protects a retailer from the impact poor-quality food can have on their reputation, he says. “Retailers would be terrified of letting material come through on shelves that consumers would think isn’t good enough,” he says. “The investment [in direct sourcing] is an insurance policy to ensure the quality is consistently meeting their standards.”
With retailers taking an ever greater interest in direct sourcing, specialist importers are having to take a hard look at their own operations. Henry Amar, chairman of importer RH Amar, says a 25% fall in the value of sterling against the euro two years ago prompted his company to take a new approach to logistics. Knowing how hard it would be to push currency-related price rises through to its retail customers, RH Amar overhauled the way it packs containers when shipping olives, saving the business £22,000 a year.
Efficiency savings are admirable but they won’t be enough to stop many importers going out of business, believes Scrase. The gains the supermarkets make from direct sourcing are simply too good. “Asda lives by the mantra ‘saving you money every day’ IPL is a key tool to achieving that,” he says.
The big guns’ change in tactics is not necessarily bad news for traditional importers, however, says Amar. The retailers may be enjoying success directly sourcing large-volume items such as cocoa, rice and fresh produce, but specialist world foods suppliers can add value and offer savings when it comes to less commoditised products, he argues.
“We supply about 40 lines to some major retail customers,” he says. “Given the complex currency dealings, cashflow and distribution arrangements required for every product, it would be too much of a headache to source everything themselves.”
Specialist suppliers do still have a role to play, agrees Simon Day, MD of Unearthed, which supplies its branded speciality foods to Waitrose, Ocado and Abel & Cole. He says this is particularly the case in helping retailers enhance product categories. Importers are better placed to take a chance on unusual or unfamiliar items than risk-averse retailers, he says. They may therefore be able to secure listings for products that would otherwise barely get a look-in in the UK, he adds.
World foods specialists say they are also better placed to alert retailers to potential food trends, such as the predicted boom in Latin American cuisine. “In any industry, you need smaller players bringing different ideas,” says Day.
Predictions of the imminent demise of the import business should therefore be taken with a generous pinch of salt, recommends Amar. Sales at RH Amar are currently up 15% year-on-year, and he is confident the future is bright for his company and other importers.
“I came into this business in 1960,” he says. “I was told then that it was dying.” Whether the supermarkets will be minded to pay for importers’ specialist skills in another 50 years’ time, however, remains to be seen.
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