Coriolis Chart Watch Q2 2003

Chart Watch is an online publication featuring a brief view into our latest thinking on the evolving food and fast moving consumer good industry. It is sent to subscribers four times per year.

Top Line: The total value of imported commercial coffee machines has more than tripled in the last nine years, and premium Italian models continue to dominate the market.

So what? First, some background.  Thanks to the introduction of the supermarket scanner in the 1970's, grocery manufacturers and retailers have operated in a data rich environment.  "Our sales compared with those of our competitors by account by month?"  Done.  "Sales of UPC 4114302890 on Tuesday by chain by region?"  Done.  Think of a question and Nielsen or IRI or Aztec can provide the answer.

In fact we've got it so good that we sometimes forget that this isn't the case in the rest of the business world.  Major sectors of the economy, such as construction, automobiles, computers and financial services, make do with a lot less hard data.  In these sectors, major decisions are made using estimates based on secondary sources, government data, and market gossip.

Unfortunately all this rich data isn't helping to grow core grocery sales in supermarkets.  Sure, supermarket sales are growing overall, but this disappears once you remove the effect of inflation and new departments (created by either by deregulation, such as beer, wine, and liquor or pharmacy), or expansion into new goods and services (such as fuel, one-hour photo and banking).   As a result, companies in core grocery categories are struggling to achieve even modest growth against well run competitors and the emerging strength of private label.

So the strategic initiative on everyone's agenda is alternative channels.   All of our clients are saying the same thing: "We need to do a better job in alternative channels."  But the innocuous phrase 'alternative channels' seems in many cases to encompass a wide range of outlets.  We've heard it describe everything from convenience stores run by the main oil companies to the concession stand in the movie theatre, from global fast food chains to catering in prisons, from discount department stores to the corner hardware store.

The first thing to do is define the different alternative channels.  We made a first attempt to do this for the New Zealand market in this document.  But different companies will need to use definitions that make sense with their products.  Clearly pet food has a different logical customer set than bakery supplies.

Now comes the hard part: getting together some comparable data on the same key metrics as those used in the supermarket side of the business.  "Our sales in upmarket restaurants by month by region?"  What?   "Our market share in theatres versus our key competitors?"   Good luck.  In alternative channels there are no readily available sources of scanner quality data.  Period.  End of story.

So what do you do?  We've seen three responses by clients:  First, denial.  "Someone must have the data, we just need to call around until we find them."  Second, resignation.  "Well, let's just assume we're probably got about the same share as in grocery."   Finally, creativity.  "We'll poll all our major ingredient suppliers on a monthly basis and track the results."  Most companies get stuck at the second option because thinking creatively about hard data sources is difficult.

One of the ways we try to differentiate ourselves from other research firms is by helping our clients think outside the square.  If we can't measure something, can we find a proxy for this measure?  What potential data sources, when analysed, will give us the answer we're looking for?

Which brings me to coffee and the chart above.  Our client came to us with a problem: they wanted to know what was happening in the foodservice coffee market.   If you've been following the story so far, you'll be aware there is no scan data for the cafe market.  But we realised there were a number of other relevant measures that would allow us to build up a coherent picture of the changing foodservice coffee market.

What we found, among other things, was that the foodservice coffee market was becoming more sophisticated and more competitive.  As a result of our research, our client re-evaluated their strategy and considered alternatives.

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