How changes in consumer behaviour and retailing affect competence requirements for food producers and processors

1. How changes in consumer behaviour and retailing affect competence requirements for food producers and processors Klaus G. Grunert MAPP - Centre for Research on Customer Relations in the Food Sector The Aarhus School of Business Denmark

2. Overview 1. Trends in consumer food choice and in food retailing 2. Implications for the attainment of sustainable competitive advantage and for competencies to be developed by food producers and processors 3. Implications for the organisation of the food chain

3. hedonistic attributes hedonistic + health attributes hedonistic + health + process attributes increasing importance of convenience attributes Dynamic, complex and heterogeneous consumer demands

4. Importance of quality dimensions of food

5. Consumer food quality perception • Dominated by experience and, increasingly, credence characteristics • Increasingly multidimensional • Perceived trade-offs and incompatibilities between dimensions • Cultural differences • Different consumer segments

6. Example of subjective trade-offs

7. Example of cultural differences

8. Example of segments

9. Food retailing: What does the private label trend mean?

10. The private label trend • Changes in channel dominance • A higher proportion of value creation • An increased emphasis on positioning in the mind of the consumer

12. Changing criteria for retailers‘ choice of suppliers • More emphasis on own branding function implies responsibility for product development, quality control, market communication • Importance of product-specific consumer knowledge

13. Lower relative costs Complex, difficult to imitate competencies Competitive advantage Superior customer value Implications for the attainment of competitive advantage

14. Implications for the attainment of competitive advantage • Dynamic, complex and heterogeneous consumer demands create new opportunities for creating superior customer value... • …but also increase the likelihood for failure • Retailers‘ urge to have a larger share of overall value creation in the food chain puts producers under pressure… • …but opens up possibilities for creating superior customer value in cooperation with retailers

15. Market-related competencies Competitive position Relative costs Perceived value Production-related competencies Market- related competencies

16. Market orientation as a key success factor “ Market orientation is the organisationwide generation of market intelligence, pertaining to current and future customer needs, dissemination of the intelligence across departments, and organisation-wide responsiveness to it”

17. Market orientation as a key success factor • Marketorientation implies the understanding of buyers, both at the retail and the consumer level • Market orientation implies the development of market-related competencies • Market orientation allows the development of more value-added products • Market orientation establishes customer relationships • Market orientation increases increases switching costs for customers and imitation lags for competitors

19. Three market-related key competencies • Understanding consumers • Development of new products • Managing relationships

20. Understanding consumers • Understanding the formation of consumer preferences • Concentration instead of spreading in the selection of markets • A core competence: To be developed in-house

21. Development of new products • High failure rates • Comprehensive research on key success factors in new product development provides guidelines for • Management and organisatio of NPD • Market orientation of NPD • Contingent development of physical product and communication

22. Managing relationships • Downstream: joint value creation with retailers, becoming an indispensable partner • Upstream: The higher up in the value chain differentiation and adding value occurs, the higher the need for traceability, segregation and information flow from end users • Changing governance structures for food chains

23. Matching raw material characteristics and end user demands

24. homogeneity heterogeneity The orange juice example heterogeneity Farm FOJC industry bottler retailer consumer

25. Major messages • Changes in consumer food choice create new possibilities for gaining competitive advantage by differentiated, value-added products • Exploiting these possibilities requires market-oriented competencies, especially consumer understanding and new product development • These competencies are complex, difficult to imitate, and develop slowly

26. Major messages • Changes in food retailing create new opportunities for long-term partnerships with food retailers • Exploiting these opportunities requires competencies in managing relationships as well as competencies in developing differentiated, value-added products • An increased emphasis on differentiated, value-added food products will have to change the governance structure of the food chain

27. http://www.mapp.asb.dk