Campden BRI food a nd d ri nk i nno vation 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%.