food and drink innovation

Campden BRI

37th Annual Campden Lecture

3 June 2015

Charles Wilson

Chief Executive

of Booker

Charles Wilson joined Booker as Chief Executive in November 2005. In 2005 Booker was in

trouble, today it is a “Top 200” UK Plc. He joined Booker from Marks & Spencer where he was

Executive Director for Property, IT and Supply Chain.

Charles started his career in 1986 with Procter & Gamble. From 1987 to 1991, he was a

consultant with OC&C Strategy Consultants. In 1991 he founded Abberton Associates. In

1998 he joined Booker plc as Executive Director responsible for branches, supply chain, strategy

and systems.

In 2000, he was appointed Managing Director of Booker Cash & Carry, within the Iceland

Group plc. From 2001 to 2003 he was Executive Director of Arcadia Group plc, responsible

for strategy, property, supply chain and systems.

Charles helped co-found the Institute of Hazard and Risk Research at Durham University and

was President of the Institute for Grocery Distribution (IGD).

37th Annual Campden Lecture - Wednesday 3 June 2015

Growth outside the

Supermarkets

by Charles Wilson

Chief Executive of Booker

It is a privilege to be here at Campden BRI. At Booker we are lucky to have a wise sage running our food

technology and innovation. His name is Ken Glauch and if there is a food scare, a change in the legislation,

a new allergen standard, a way of reducing salt in a biscuit, a new processing system or ingredient, he is the

man we speak to. Ken and his team know everything on food and drink technology and standards. And if

Ken does not know, he would usually speak to Campden BRI. It is therefore a special honour to address

many of the heroes of the UK food and drinks industry. It is you who are responsible for the innovation

that powers the UK.

Because some of you may not be familiar with Booker, I thought it useful to first say a little about the

company. I will then consider growth outside the supermarkets and how this presents opportunities for

innovation.

Booker has been around for a long time. We were founded in 1830 as sugar merchants by George Booker

in Liverpool. Booker was going before canned groceries, before refrigeration, before the barcode, before

modern distribution systems and long before the supermarkets. We have witnessed the innovation at all

stages in the food supply chain. In the 1950’s Booker moved into food wholesaling and we later acquired a

number of wholesalers including Fitch Lovell and Nurdin & Peacock. These businesses had their own long

histories. James Fitch started as a cheesemonger in the City in 1784 and Paul Nurdin and John Peacock

were egg merchants in Wardour Street. We have been wholesaling sugar, cheese and eggs to shops and

caterers for generations.

Today Booker Group is proud to serve 400,000 independent catering businesses, 123,000 independent

retailers and 780,000 small businesses. We serve a broad church of caterers including; 40,000 pubs, 20,000

nursing homes, 8,000 schools and 4,000 coffee shops. We also serve a diverse group of retailers including

4,000 deli’s and 2,000 farm shops and 20,000 corner shops. We also have the Premier franchise, 3,000

independent convenience stores that trade under the Premier franchise. Premier is the UK’s leading symbol

group. We are also in the process of teaming up with Budgens and Londis businesses in Great Britain and

look forward to serving those retailers.

Our customers serve communities up and down the land. From the rural village pub to the urban night

club. From the shop at the caravan site to the convenience store in the heart of the city.

So when you are supplying Booker, in reality you are reaching the consumer via hundreds of thousands of

independent businesses.

1

We are also privileged to serve many national accounts. We supply virtually all the cinemas in the UK, as

well as the prisons in England and Wales.

In 2012 we launched a business called Chef Direct. It combines the benefits of Booker’s scale, our supply

chain expertise and some of the catering know how from our Ritter Courivaud speciality foods company.

We were very proud to be awarded the Aramark contract in 2013. Aramark serves 250,000 meals a day,

a huge logistical operation. We also supply restaurants such as Loch Fyne, Angus Steakhouse and

Wagamama. We also supply most of the Michelin Star restaurants in the UK.

In 2008 our sales were £3 billion. Today they are £4.8 billion. £1.1 billion of our growth was due to

like-for-like growth and we acquired Makro in 2013, bringing a further £700 million of sales.

Much of this growth has been online. In 2005 we sold £110m via the web, this year it was £870 million.

During that time the number of our customers using .co.uk has increased to 410,000.

We also operate six business centres in India. We launched Booker India in 2009 and now serve over

15,000 Kirana stores. We have learnt a huge amount through operating in this low cost, high growth

economy.

Overall Booker is making good progress. In September 2005 we had £361 million of borrowings. Our

sales were £3 billion and dropping at 6% and we had no profits. In fact, many in the trade worried about

our future. Today we have £150 million of cash in the bank. Our sales are £4.8 billion and we are growing

well. Profits are circa £140 million as a result of the sales growth. We have moved from being nearly bust

in 2005 to being one of the top 150 companies on the London Stock Exchange today. We have come a

long way, but we have a long way to go.

I hope this explanation of Booker helps. We have been active in the trade for nearly 200 years, we have

seen much change and innovation. We also serve a broad range of catering and retail businesses. And we

have embraced the web as a route to the future. It is from this perspective that I will now consider growth

outside the supermarkets.

Let’s look at what is happening to the supermarkets and why growth is moving elsewhere.

The first self-service grocery store opened in Memphis in 1916. Piggly Wiggly allowed customers to browse

isles and pay at the cashier.

In the 1950’s supermarkets reached the UK when Sainsbury opened its first self-service store in Croydon

and Express Dairies opened a supermarket in Streatham Hill.

By 1968 Tesco had launched the first “super store” in Crawley. Today it has over 500.

In 1973 electronic point of sale systems were launched which accelerated the growth of multiple

supermarkets.

By the 1990’s supermarkets and then hyper stores had come to dominate the UK retail scene.

So why was this format so successful?

2

The supermarket worked perfectly in a baby booming generation. A family of 4 could do their weekly shop

at the supermarket, saving time and money.

Suppliers saw the growth and invested in the supermarket sector to build their brands. This allowed the

supermarkets to extend range, lower prices and build lots of stores.

This trend was accelerated by the property market. A supermarket could buy a plot of land, obtain the

licences, build a store and make a huge property profit.

The consumer, suppliers and property market, along with some brilliant people in the supermarket industry,

pushed the rapid expansion of the sector.

By 2010 UK supermarkets and hypermarkets have grown to dominate the retail scene, with £107bn of

turnover, employing hundreds of thousands of staff with a brilliant supply chain. The supermarkets have come

a long way since Sainsbury’s in Croydon in 1950.

But, the world is changing.

Since 2000 we have seen enormous change in the global food markets.

Billions of people in China, India, Latin America and latterly Africa are better off. This is increasing demand for

oil, proteins and carbohydrates. Today the world is consuming 2.5billion tonnes of cereals a year.

At the same time we are seeing production pressures, with changing weather patterns, water

shortages/flooding and increasing energy demands.

Add in the technology changes.

Combined these forces are changing the global grocery market and driving innovation at an unprecedented

rate.

Just look at the growth in China and India.

Everybody knows that they have huge populations. But life expectancy is rapidly catching up with the UK.

Diets are changing and aspirations are booming.

Go to these countries and see the Coca-Cola, Unilever, Heineken branding and you see international suppliers

have plenty of growth opportunities outside the UK supermarket sector.

Probably the starkest warning at the challenge to come is in Steven Emmott’s book 10 billion. He warns that

“simply to feed ourselves in the next 40 years, we will need to produce more food than the entire agricultural

output of the past 10,000 years combined”.

Now there has been some criticism of this Cambridge Professor’s estimates. But it is clear that we, in the

food industry, face some massive challenges in the years ahead.

The global food market is changing, which will impact all the UK grocery market.

3

In the UK, things are also changing. After 60 years of strong supermarket growth we have seen the sector

slow down and even contract. In the next five years, according to the IGD, the supermarket and hypermarket

sector will grow by 8%, online 98%, Discounters 65% (which I suspect is an underestimate), Convenience 29%

and out-of-home 18%. The multiple grocers are attempting to play in these higher growth sectors, but it is

not easy for them.

The consumer is becoming more diverse. Diets, household sizes, food tolerances and many other dynamics

mean that food markets are fragmenting. We are seeing demand for Mexican, Peruvian, Chinese and Korean

foods. New countries, flavours, diets and intolerances mean more innovation and more standards and

controls. This pushes growth to new formats.

So where is the growth going? Well more food is being cooked by professionals. Whether in fast food

outlets, restaurants, the work place or institutional catering, people will continue to eat out of home, or have

cooked food delivered to their home.

Operators like McDonalds, Subway, Wetherspoon, Hilton, Costa, Nandos, Loch Fyne, Carluccio’s and

Aramark will continue to prosper.

However, the independent caterers are also doing well.

As a new generation of entrepreneurs coming into the industry with lots of new ideas. Consumers are

looking for new flavours, cuisines and formats, independent businesses are responding to the challenge.

For example, we are seeing a big growth in street food, snack wagons and coffee shops.

The convenience sector is doing well and is forecast to grow by 29% over the next five years.

A Premier retailer is growing faster than any of the multiples.

The multiples are opening more local stores; however, these are taking sales and customers from their

supermarkets and shifting them into convenience locations. As Tesco, Sainsbury’s etc come into the local

communities, so they free the consumer from the supermarket, allowing the consumer to shop around,

thereby helping independent operators.

We can also see the rapid growth of the Discounters. The IGD forecast this sector to grow by 65% in the

next five years.

Last year we introduced a local discount format called Family Shopper, allowing independent retailers to benefit

from the shift to discount. We have opened 30 stores in the year and are very pleased with the performance.

Aspirational retailers have also been doing well. Marks and Spencer and Waitrose. The expansion of

wholefoods show the Premium chains are doing well.

This shift to premium quality is also encouraging new formats to emerge. The size of these sectors is poorly

defined, but we see customers prospering. We supply one thousand farmer market customers, two thousand

farm shops and thousands of deli’s. These sectors appear to be flourishing. The consumer can re-connect

with the producer, obtaining outstanding quality and value. We are also serving more nutri-specialists who will

design a diet plan for your needs and deliver it to your home. Customised diet solutions appear to be

booming. All these sectors are growing faster than the supermarkets and demonstrate the innovation within

the trade.

4

Technology is also providing growth opportunities outside the supermarkets.

Operators like Ocado have shown growth over the past fifteen years and My Supermarket.com has also done

a great job of helping customers find better value.

Technology is also bringing new players with new ways of thinking into the grocery sector. For example,

whereas a typical supermarket carries only 30,000 lines, on-line players like Amazon carry millions.

To put this in perspective look at the market capitalisation of these businesses. In 1980 Sainsbury had one of

the largest market capitalisations on the planet. Sainsbury and Tesco are now dwarfed by Amazon and

Alibaba, the Chinese on-line power. These on-line players have huge financial strength to take growth from

the traditional supermarkets.

The big technology firms are transforming the market, but small independent players can also do well on-line.

In our branch in Pune, India our largest customer is an on-line grocer. The business delivers groceries to the

consumer, taking the order today for delivery today with free delivery.

Around the world new on-line formats are emerging which will revolutionise the food shopping experience.

The combination of changing global food markets, the growth of foodservice, convenience, discount, new

formats and on-line, is putting a huge pressure on the supermarket model. Combined Tesco, Sainsbury’s,

Morrisons and Asda have spent approximately £12bn of capital expenditure in the UK in the past three years.

Despite this, their combined market share has fallen and profits have slumped. The supermarket is an

increasingly challenged economic model as the growth shifts elsewhere.

So what does this mean for suppliers? In this new grocery landscape there will be some huge opportunities

for astute suppliers.

Quite simply, suppliers need to go where the growth is. Better to put your best products, best people and

channel support into the growing sectors of on-line, foodservice, convenience, discount, new formats and

emerging countries.

To date the supermarkets have been able to offer suppliers scale and market-beating growth. However, as

the growth shifts elsewhere, those over exposed to this sector will see profit deterioration.

These new channels will help you reconnect with your consumers. Farm shops are a wonderful model as

they allow the producer to re-engage directly with the consumer.

We can also see suppliers stepping outside the supermarkets. Take Nestle Nespresso. This is a fantastic

product and brand that has totally side stepped the supermarkets.

Then look at the QR code and other on pack/smart packaging technology that allows the brand to reconnect

with the consumer. Investing money and innovation in the consumer pays a much better return than investing

only in the supermarket.

I’m sure that Booker along with independent retailers, caterers and licensed premises will be able to help

suppliers re-connect with their consumers.

In this new world choice will continue to proliferate. Take milk. But, back in the 1970’s you had two choices,

5

gold or silver top. Now a consumer can buy whole, semi, skimmed, fat free, Cravendale, Soya, Almond,

Coconut etc etc.. There are hundreds of milk SKUs and this choice will continue to expand as people have

special dietary needs. This “longtail of products” will not fit on a supermarket shelf. Suppliers need to be

smarter at locating the right pack, product and innovation into the right channel if they are going to win in

this new world.

I suspect we will continue to see ownership of the grocery manufacturing base moving off shore. Many UK

suppliers had too much exposure to the British supermarkets. In some cases ownership has passed to

international groups, who have longer term investment horizons and are less exposed to the UK grocery

trade. We will continue to see China, India and Brazil and other food superpowers becoming more active

in the sector as they secure assets which could be useful for their international ambitions.

So what does this mean for food and drinks technology and innovation? As food markets fragment, food

technology and innovation becomes more complicated. New channels, dietary needs, technologies and

legislation will mean that most of the people here and Campden BRI will be very, very busy in the years

ahead.

So in summary. Booker has been around for a long time and we have seen a lot of change. We believe

that the future is very exciting as suppliers “go where the growth is”. Suppliers will have to refine their

trade strategies, but the rewards will be substantial as there is plenty of growth outside the supermarkets.

This will increase the needs for food and drink research, safety and innovation, which is good news for the

people here.

So on behalf of all at Booker, a big thanks to the suppliers and customers who are here today. We have

come a long way and really appreciate your support and look forward to building on this partnership in the

future.

Also a big thanks to Campden BRI for the support it has given our trade.

Finally, a big thanks to you all for your attention.

6

Recent European legislation on foods R.F. Giles (ClerkAdvisor to the Select Committee on European Legislation).17.5.79

Food research in the UK in the 1980's Professor R.F. Curtis(Director Institute of Food Research, Norwich). 22.5.80

The problems of the food industry in the 1980's - can

technology help? K. Durham (Chairman, Unilever). 21.5.81

Talking is profitable

A. de Angeli (Editor of the Grocer). 19.5.82

The structure of the food industry

Sir Adrian Cadbury (Chairman, Cadbury Schweppes). 2.6.83

The UK food industry - has it anything to learn from Europe?

M.G. Heron (Operations Member and Deputy Co-ordinatorFood and Drinks Co-ordination, Unilever N.V.). 30.5.84

The case for publicly funded agricultural and food research

The Earl of Selborne (Chairman, Agriculture and FoodResearch Council). 5.6.85

The challenge of change G.T. Pryce (Chief Executive,Dalgety). 5.6.86

The scientist in contemporary society

Professor D.M. Conning (Director General, British NutritionFoundation). 27.5.87

Towards a food policy Sir Dennis Landau (Chief ExecutiveCo-operative Wholesale Society Ltd). 8.6.88

The food industry: past, present and future R. Buckland(President of the Food and Drink Federation). 7.6.89

The role of the Priorities Board in the 1990's

Dr B. Smith, CBE (Chairman of the Priorities Board for R&Din Agriculture & Food). 13.6.90

Food safety and nutrition: burden or opportunity?

Dr A.J.F. O'Reilly (Chairman, President and Chief ExecutiveOfficer, H.J. Heinz Company, USA). 5.6.91

Europe 1993 - risks and opportunities

Lord Plumb DL MEP for the Cotswolds. 3.6.92

Science and technology: matching the market

Professor W. Stewart (Chief Scientific Adviser, Head of theOffice of Science and Technology). 9.6.93

Current issues in a major European food company

A. Riboud (Chairman, BSN (Danone), France). 8.6.94

Consultation not confrontation in food-related policy

Professor M. Gibney (Director of Institute of European FoodStudies at Trinity College, Dublin). 7.6.95

What's ahead for the global food industry

W. MacMillan (retired Chairman, Cargill). 12.6.96

What biotechnology can do for the food industry

Professor Derek Burke (Chairman of the AdvisoryCommittee on Novel Foods and Processes). 4.6.97

Food and the public interest Christopher Haskins (now Lord Haskins) (Chairman of Northern Foods). 3.6.98

Partnership and innovation in food supply: key ingredients

for success Sir Richard Greenbury (Chairman, Marks & Spencer plc). 9.6.99

Science advice, policy making and public confidence

Sir Robert May (now Lord May) (Chief Scientific Adviser tothe UK Government). 7.6.00

Is food safe? Professor Sir John Krebs (now Lord Krebs),Chairman of the Food Standards Agency. 6.6.01

Whither food and agriculture? - trade and technology

Dr. Robert L. Thompson, Chairman of the InternationalPolicy Council on Agriculture, Food and Trade; SeniorAdvisor, Agriculture Trade Policy, World Bank. 12.6.02

Globalisation: opportunity or threat? Sir Donald Curry, Chair of the Sustainable Farming and Food Group. 12.6.03

The role of food in social change Iain Ferguson, GroupChief Executive of Tate & Lyle plc. 9.6.04

Creating the European Food Safety Authority

Geoffrey Podger, CB, Executive Director, European FoodSafety Authority. 8.6.05

Serving customers Sir Terry Leahy, Chief Executive, Tesco plc. 7.6.06

The science of food regulation Dame Deirdre Hutton CBE, Chair, Food Standards Agency. 6.6.07

Food and health Justin King, Chief Executive of Sainsbury’sSupermarkets. 4.6.08

Sustainability through food security Jonathon Porritt, Founder Director of Forum for the Future and Chairman ofthe UK Sustainable Development Commission. 3.6.09

Food in the future Ross Warburton, President of the Foodand Drink Federation. 10.6.10

Current challenges for business Miles Templeman, Director-General, Institute of Directors. 9.6.11

A sustainable future?

Fiona Dawson, President, Mars Chocolate UK Ltd. 12.6.12

Towards a global food strategy - from discourse to dialogue

Michael McCain, President and CEO, Maple Leaf Foods Inc.,Canada. 6.6.13

PepsiCo Global R&D transformation journey:

a strategic corporate partner enhancing PepsiCo’s business

today and tomorrow

Dr Mehmood Khan, Executive Vice President and ChiefScientific Officer of PepsiCo Global Research andDevelopment 11.6.14

Previous Campden Lectures

Information emanating from this company is given after the exercise of all reasonable care and skill in its compilation, preparation and issue,

but is provided without liability in its application and use.

The views expressed in this publication by non-Campden BRI contributors do not necessarily represent the opinions of the Campden BRI.

food and drink innovation

Campden BRI

Campden BRI • Station Road • Chipping Campden • Gloucestershire • GL55 6LD • UK

Tel: +44(0)1386 842000 Fax: +44(0)1386 842100 information@campdenbri.co.uk www.campdenbri.co.uk

Nutfield Site • Campden BRI • Centenary Hall • Coopers Hill Road • Nutfield • Surrey • RH1 4HY • UK

Tel: +44(0)1737 822272 Fax +44(0)1737 822747 information@campdenbri.co.uk www.campdenbri.co.uk