Hamish Gow

Professor of Agribusiness &

Director of Business Strategy and Innovation

Te Puna Whakatipu

Unlocking the Value Puzzle –

What are grower’s options and their implications

• The Mega Trends

• Market Observations

• Consumer value

• Implications for the food industry

• Value disciplines

• Seeking alignment

• Conclusions

Presentation outline

The Challenge for Growers

The Megatrends

Food and Agriculture

Shift in economic and trade flows

Demographic and consumption

changes

Rapid urbanisation

Climate change and resource scarcity

Technology consumption

and breakthroughs

Source: PwC

Demographic and consumption changes Asia will drive the world’s population growth through to 2050

Sources: United Nations Population Fund Database; Food and Agriculture Organization of the United Nations (FAO)

• Supply chains will significantly alter • There will be unprecedented pressures on

infrastructures both hard and soft within these regions

• High potential for social and economic cost

42% or 1 billion of that

growth will come from Asia

Global population will grow from 6.9 billion in 2010 to 9.3 billion in 2050

The Middle Class Boom

Expect significant changes in

per capita consumption

Over the past 20 years, global consumption of protein has increased at a greater rate than population growth. This trend will continue.

Meat and Dairy

Meat

2010 2030 2050

Milk and Dairy

By 2050, Asian protein consumption will have grown by

128%

64kg 84kg 96kg

49kg 63kg 72kg

15kg 21kg 24kg

kg per person per year

http://cleanet.org/resources/42868.html

Rapid Urbanization

Asia beginning to dominate

Urbanization = Opportunity

No longer cooking at home

Global Economic Power Shifting Rise of the new Asian middle class

The Response…

Economic Colonisation

Embracing Complexity

Securing of Supply Chain through Technology

Active Engagement and Control of Critical Issues

Top retailers have gone global

With a population of 9.3 billion by 2050, the world will need…

80% more energy

55% more water

70% more agricultural

production

Climate Change and Resource Scarcity

World Land Grab

Technology is being leveraged

across the food chain

Precision Ag Satellites/ drones

Mobile and wearable

computers

Animal sensors

Genetically modified

plants/seeds

Cloud and Fog computing

2.5x 2020 internet

connected devices

1.7x 2020 internet

connected people

Innovating to Zero

b

Online is increasing

Would you say your online food purchasing has increased in the past year?

Source: Marketing Magazine.com.my

They want to share their experiences

Source: Marketing Magazine.com.my

So what are we observing in the markets?

Source: Hughes

What is the value proposition?

Global

High Tech

New and Improved

Ready-to-Eat

Low Price

Good For You

All Year

Large-Scale

Commodity Market

Open Supply Chain

Polarization of Markets

Local

High Touch

Traditional

Natural/Unprocessed

Premium Price

Naughty but Nice

Seasonal

Craft-scale

Speciality Market

Closed Supply Chain

We need to rethink how we view

markets, value creation, and strategy

Rapid Service Innovation:

Providing Convenience

Different trends,

Many Implications

Source: Rabobank 2015

Source: Deliotte 2015

• Does not mean that the Traditional drivers are no longer important – they will continue to be important for the foreseeable future for 49% of consumers

• The Evolving drivers encompass a broader set of purchase criteria and considerations

– these Evolving drivers are not driven by a certain region, age or income group

– they are pervasive across regions, age, and income

• which is either a good thing or a bad thing depending on your view of the world!

• Worse, consumers who place more value on the Evolving drivers in their purchase decisions appear more likely to use social media, mobile applications and devices, digital sources to acquire information about products or brands and are more prone to distrust the food industry in general

Deloitte. (2015). Capitalizing on the shifting consumer food value equation.

A pervasive change

The Hybrid Consumer

Source: Rabobank 2015

Nothing to be ashamed of….

Mid Market Beware

Source: Rabobank 2013

From Volume to Value

Huge Paradox

Consumers want different; Supermarkets offer more of the same

Implications for the food industry

• Food producers, processors, manufacturers and retailers need to determine what side of the new consumer value equation they seek to serve

– in the knowledge that an increasing number of consumers will be redefining the new normal

• Consumer tastes and preferences are expected to continue to fragment

• The middle is disappearing

• New “Retailers” role in influencing purchase decisions is increasing

• Smaller, newer companies will leverage new technology, third party relationships and better engagement to compete

• Larger competitors must adjust to fulfill new value propositions

Value Discipline Triangle

Product Leadership (State of the Art Technology)

Operational

Excellence (Lead in Price and

Convenience)

Customer

Intimacy (Tailor and Shape Offers

for Individual Customers)

Successful

Businesses Excel

in One Primary

Discipline or Boundary

Adapted From: Treacy and Wiersma, Harvard Business Review 1993

Product

Leadership

Operational

Excellence Customer

Intimacy

Products R&D, Brand Promotion

Costs Optimal Processes,

High Efficiency

Customers Problems

Understanding Needs,

Finding Solutions

What do I think about?

What do I focus on?

Branding Approaches

Product

Leadership

Operational

Excellence

Customer

Intimacy

New Technology = New Brands

“New Brands That Mean Performance”

Minimize Brands to

Maximize Efficiency

“Brands Don’t Sell

Products, Low Prices Do”

Customer Experiences and Needs

Drive Brand and Line Extensions

“Just the Product for You”

Brand

Proliferation

Brand

Minimization

Brand Optimization

Pricing Approaches

Product

Leadership b

Operational

Excellenceb

Customer

Intimacybbbb

Driver: Manufacturer Perceived Benefits Value to Customer

“Premium Price for Premium Performance”

Driver: Cost + Profit Expectations

“Low Prices Drive Volume Up

and Costs Down”

Driver: Channel and/or

Customer Perceived Value

“Programs for Everyone’s Needs”

Premium Pricing

Aggressive Pricing Variable Pricing

Channel Dynamics

Channel Captain

Adversarial Markets Shared Value

Product

Leadership

Customer

Intimacy

Operational

Excellence Standardized Norms

Open Markets

External Innovation

Licensing

Preferred Suppliers

Private IP

Open Knowledge Flow

Collaborative Partners

Co-Creation

“Stacked” Value Disciplines

Companies align around each other and attract

customers based on their value disciplines

OE

OE

OE

CI

CI

CI

Processor

Channel

Consumer

Supplier

OE CI

Alignment

Everyone has customers….

Good PL or OE Companies Are Customer Focused!

Give the Customer a Great Product That

Performs

Take Responsibility for

the Customers’ Success

Help the Customer Be

More Efficient or Cost

Effective

PL

OE CI

Address

Customers’

Concerns

The Support

PL

OE CI

Safety, Quality and Communications Critical to All Value Disciplines

Food Safety,

QA and ICT

Cut Waste and

Lower Costs

Brand

Protection

Agribusiness challenge

How do you build and manage dynamic sustainable biological production systems to meet consumers and channel partners changing expressed and latent needs and value disciplines within an increasingly volatile and rapidly shifting global market place?

Sears - Stuck in the Middle

Product Leadership (State of the Art Technology)

Operational

Excellence (Lead in Price and Convenience)

Customer

Intimacy (Tailor and Shape Products for

Individual Customers)

Target, Wal-Mart

Nike, Northface,

Calvin Klein

Nordstrom’s Sears

Cooler

Cheaper More Helpful

Sears - Stuck in the Middle

Product Leadership (State of the Art Technology)

Operational

Excellence (Lead in Price and Convenience)

Customer

Intimacy (Tailor and Shape Products for

Individual Customers)

Target, Wal-Mart, Aldi

Nike, Northface,

Calvin Klein

Nordstrom’s Sears

Cooler

Cheaper More Helpful

Fracture line

Implications for Growers

Product Leadership (State of the Art Technology)

Operational

Excellence (Lead in Price and Convenience)

Customer

Intimacy (Tailor and Shape Products for

Individual Customers)

Cooler

Cheaper More Helpful

Fracture line

• Understand your consumer and channel value discipline

• Need clear alignment, as in the earlier model from consumer to producer

• Not convinced that both consumer value drivers can be met by one business

• Choices need to be made – or they will be made for you

• The middle option is quickly disappearing

Clear alignment

Contact Details

Professor Hamish Gow

h.r.gow@massey.ac.nz

Thank you

Questions