SOFHT Annual Lecture 2008

20/11/2008, Millennium Mayfair Hotel, Grosvenor Square, London W1K 2HP

The society's annual lecture was held on the 20 November 2008 at the Millennium Mayfair Hotel, Grosvenor Square, London.

Justin King, Chief Executive of Sainsbury’s plc gave the keynote address entitled "Exceeding Customer Expectations for Healthy, Safe, Fresh and Tasty Food"

“EXCEEDING CUSTOMER EXPECTATIONS FOR HEALTHY, SAFE, FRESH AND TASTY FOOD”
By Justin King, Chief Executive Sainsbury’s

Introduction
Good morning. Thank you Jonathon for your kind introduction.

It is a great honour to be here today to address such a knowledgeable audience.

At Sainsbury’s we are pleased and proud to have been members of the Society of Food Hygiene and Technology since it was established in 1979.

Like many of you, my whole career has been spent in the food industry. I have a passion for food. I also have a passion for serving customers quality food. Therefore, I think I have one of thebest jobs in the world as chief executive of Sainsbury’s.

You will have noticed that the title of my lecture today is: “Exceeding customer expectations for healthy, safe, fresh and tasty food”. I thought this would be entirely appropriate for this audience.

As it happens, the title of my lecture also describes our goal at Sainsbury’s. In fact to complete the goal, I need to add “making customers lives easier every day”.

A key part of making customers lives easier every day is allowing them to trust us. Consumer trust is important. The Society of Food Hygiene and Technology and all of you here today play a crucial role in ensuring consumers can trust the food they eat.

Sainsbury’s heritage
Sainsbury’s heritage lies in customers trusting that we will provide food that is healthy, safe, fresh and tasty.

Most of you are probably familiar with the story of Sainsbury’s and how we began in 1869 in Drury Lane in the West End, which was then a deprived part of London.

What is probably less well-known is that John and Mary Sainsbury started their business to provide fresh, quality food at affordable prices with a focus on dairy products.

This was at a time when tainted and adulterated food and short measures were often the norm.

For example, milk was often contaminated as it was sold straight fromthe bucket or churn into customers’ jugs. The milk therefore became polluted with smuts from the filthy London air; and it was soured by dirty churns. It was also common for milk to be watered down and for yellow colouring to be added to make the milk look creamier.

So it was a welcome innovation for John and Mary Sainsbury to start selling fresh, clean, unadulterated milk and other dairy produce. The history of Sainsbury’s is called “The Best Butter in the World” for this reason. One of our butter suppliers has actually been supplyingus for 125 years.

Other historical food scares such as arsenic in drinking chocolate led to the development of other brands that we can trust, such as Cadburys.

Next year at Sainsbury’s we celebrate 140 years.

Our colleagues are proud of our heritage which is probably why someone who had just retired after 40 years with Sainsbury’s recently pointed out to me that our business was set up 7 years before Custer’s last stand at the Battle of Little Big Horn!

We have grown a lot in almost 140 years. We have over 800 hundred stores, of which just over 60% are supermarkets and the rest are convenience stores. We have over 150,000 employees and 40 depots. And we serve around 18million customers a week.

We have five Corporate Responsibility principles that underpin the

way we do business at Sainsbury’s:
-we want to be the Best for Food and Health
-we commit to Source with Integrity
-we aim to Show Respect for the Environment
-we want to Make a Positive Difference to our Community
-we want to be recognised as a Great Place to Work.

We sum this up by saying that “Our Values Make Us Different”. You may have seen this in our advertising.

Impact of the economic downturn
I know that some commentators are talking about consumers focusingonly on price because of the economic situation.

There is no doubt that consumers are adapting to the pressures on household budgets. They are changing their habits. They are “eating out at home”. They are buying less convenience food and doing more cooking. We see this in our stores. But this is also a general trend for the industry.

Last month the Institute for Grocery Distribution published some interesting consumer research about the emergence of the “smart shopper” in response to the economic downturn.

This research showed that, as you might expect, over the last six months, the majority of UK food shoppers have been economising on their food shop and spending more time bargain-hunting.

But this is definitely not the same as down-trading.

Compared to the preceding six month period, 22% of those surveyed hadalso bought more products with high animal welfare standards; and 17% had bought more Fairtrade products.

So shoppers are definitely not compromising their values.

If we are facing a recession, it is important to note a major difference between now and the last recession in the 1990s. The IGD found that since the 1990s there has been a huge surge of consumer interest in the provenance and ethics of food.

It’s clear therefore that shoppers are not prepared to go back on their principles. They are still looking for value. And they want toretain their values.

These findings present both a challenge and an opportunity for all ofus. The challenge is to stay true to what you believe in whilst being responsive to changes in the economy.

From Sainsbury’s point of view, the IGD research has reassured us that our strategy is the right one - giving our customers value that matches their values.

How is Sainsbury’s responding?
At Sainsbury’s we have seen the way that “savvy customers” are takingadvantage of the range of products and offers in our stores.

In the summer we introduced what we have called our Ways to Save. This has three elements.

Our Switch and Save campaign encourages shoppers to try our own-label brands. Around 51% of the products sold in Sainsbury’s stores are own-brand. Customers do not see this as down-trading. Our customers know that they can save at least 20% if they switch to Sainsbury’s own-brand products but still get quality.

Almost a third of customers told us recently that they had transferred to own-brand products as a result of the pressures on their budgets and would not be switching back. They also told us that they trusted the Sainsbury’s brand more than any other supermarket brand.

Own brand often comes with promises that major brands may not deliver– at least in the minds of consumers - because they have a direct relationship with retailers that they do not with manufacturers. Through our own brands, we communicate with our customers aboutissues such as health; animal welfare; Fairtrade and wider ethical sourcing issues. They trust us to get these things right on their behalf.

In the summer we also brought in our Spend and Save campaign with thousands of half-price promotions on branded goods.

Finally, under our Cook and Save strapline we brought in our Feed Your Family For a Fiver and Love Your Leftovers campaigns. Demand isup by 30 per cent compared to last year for our Feed Your Family For a Fiver cards. And sales of simple meal ingredients for recipes suchas cottage pie, fish pie and meatballs have also shown strong growth.

I said that the IGD research shows consumers are still interested in ethics as well as price. They know that we have an impact on local communities and the wider world.

Consumers also realise that businesses like Sainsbury’s are in turn impacted by global events and developments.

Global supply chains, global markets, global challenges
It is the global nature of the food industry that is so marked today.Although of course we have been a global trading nation for hundredsof years.

You don’t need me to tell you that global supply chains and globalmarkets bring challenges.

One consequence of this globalisation, combined with the impact of the economic downturn, is that food has never been such a political issue as it is now.

It seems every week – sometimes every day – there are headlines about food prices, or food scares – real or perceived. Quite often it issuggested it’s all the fault of the supermarkets!

My post bag regularly contains letters from politicians or tradebodies or lobby groups asking me to get together with our suppliers and other retailers to discuss prices or other competitive issues – something that would, of course, be illegal if we agreed to do it.

Interestingly, my post bag rarely contains letters about food safety. Consumers trust Sainsbury’s and the other supermarkets, to get food right first time. And, on the whole, they believe that we do so. Quite often we do this without regulation – or sometimes more quicklythan regulation can deliver. And I will say more about that later.

The cost pressures currently being experienced throughout the food supply chain undoubtedly create the risk that unacceptable practices may be adopted at some stage in an attempt to make savings.

At a product level this may include the use of non-authorised, cheaper ingredients, adulterated ingredients or non authentic ingredients. At a factory level it may involve reducing cleaning time or labour on the line to inspect the quality or safety of a product. At a worker level it may be through the adoption of improper labour and recruitment practices.

Whilst the potential for this to occur is an ever present risk to businesses, it is even more pronounced in the current economic climate.

I am not for one moment suggesting that this will happen, but all of us in this room recognise the risks. And we all have a role to play in ensuring that we have policies and processes in place to ensure that consumers can continue to trust our products.

The current concerns relating to melamine in milk products fromChina, in the wake of the Sudan I contamination of spices from India, demonstrate how vulnerable everyone is to the pressures inherent inthe supply chain. We must all be vigilant to such threats.

Consumers expect us to ensure the integrity of the entire supply chain. They are paying us - and you - to do that on their behalf.

We have only to look at the tragic deaths of babies in China, to feelgrateful for the standards of food safety and regulation in this country. It is remarkable how quickly melamine seems to have passedinto recent history in the minds of British consumers, thanks in large part to the prompt and decisive actions of the FSA and EU authorities, as well as the industry.

In passing, I’d also like think that an official at the FSA must have had their day brightened when he or she had to review novel chocolate products imported by Ann Summers sex shops from China, before deciding to withdraw them because of melamine, as a precaution!

Regulation versus voluntarism
Regulation is, of course important, but as I mentioned earlier, the way in which industry responds can often be far quicker and more powerful. Let me give you some examples.

Three years ago, when the Sudan 1 crisis hit us, the supermarkets were in the firing line. The reason for this is that we were able quickly to identify the products that were impacted. The FSA therefore had the information on their website, and newspapers were able to publish it to help inform consumers.

But Sainsbury’s and other supermarkets were able to move very quickly to reformulate our products to remove Sudan 1. We moved so quicklythat the information on the FSA website was out of date. We had journalists coming into our stores with the FSA list, asking why products that had been impacted were still on our shelves. In fact we had pulled the products off, reformulated them and put them back on our shelves so quickly that the regulators could not keep up.

We had to move quickly because we needed to retain the trust of ourcustomers - they expected nothing less.

Interestingly, whilst we in the food retail and manufacturing sectorswere in the spotlight and being branded as the “bad guys” in relation to Sudan 1, the food service sector was largely ignored. I’ll come back to the food service sector in a moment.

Labelling is another area where the industry has moved first to helpconsumers.

As many of you will know, there is currently no legal requirement to show nutritional information on products. But 10 years ago, through the IGD, the food industry developed Guideline Daily Amounts. This is probably one of the most significant steps that has been taken towards helping consumers to eat more healthily.

There has still been no formal process of approval for GDAs within Government but, in the meantime, showing GDAs on back of pack is now widespread industry practice.

And, of course, GDAs are now being recommended by Brussels, for use across the EU. So the UK industry is leading the way, again.

Front of pack nutritional labelling is another industry-leddevelopment.

Commentators often talk about a split between those of us using multiple traffic lights and those using GDAs. But the good news is that both systems use GDAs. And the so-called split is largely abouthow the same information should be presented.

Unfortunately, with one or two notable exceptions, the food service sector is taking little action to provide product information toconsumers. I would like to see more action here.

I would also like to see the food service sector coming underpressure to reformulate their products to be healthier, for example to reduce the salt content.

As many of you know, food retailers and manufacturers have made greatstrides in reducing the salt content of our products. In some cases we have already met, or gone beyond, the FSA’s 2010 targets. We recognise our role and our responsibility to do this.

But I think I can speak for most retailers and manufacturers when I say their concern is that the FSA is now trying to move the industry too far with its proposed new salt targets. In some cases it seems we have gone too far already for consumer tastes – we have moved too quickly and consumer palates have not caught up.

This means that consumers are rejecting some of our reformulatedproducts and replacing them with saltier products, or adding salt at the table, or both. This, of course, defeats the policy objective.

Significantly, to date, the FSA has not targeted the food service sector to reduce salt. I know that the FSA is beginning to do so. But there needs to be some recognition that while consumers have access to meals outside the home that are high in salt, they will not adapt their palates and the overall salt consumption of the population will remain high.

This is an issue where the industry and the FSA needs to move in step, educating the consumer along the way so that they can make informed choices about healthier products.

More regulation?
In the current climate, there will undoubtedly be calls for more regulation, as there have been calls for more regulation in the banking sector. Indeed some may want to re-visit the Hampton principles. I believe this would be a retrograde and unnecessarystep.

As I have already indicated, food retailers are trusted by consumers. It is in our interests to get it right first time and to maintain that trust.

In addition, in the current economic climate, when we are striving todeliver a good deal for our customers in the face of higher costs,the last thing we need is more regulation with unproven benefits forconsumers.

The Grocery Ombudsman proposed by the Competition Commission is an example of regulation that may be imposed on us with no clear benefits.

We broadly support the Commission’s recommendations to strengthen the Supplier Code. However, we do not support the establishment of a newregulator in the form of an ombudsman. We do not believe that this measure is necessary, or that it would lead to consumer benefit. Nordo we believe that it would be an effective form of regulation.

We believe that the widened and strengthened Supplier Code will be sufficient to address the limited issues identified by the Commission. The new Code will triple the coverage of groceryretailers.

At the very least, the new Code should be allowed to bed in for a couple of years and its effectiveness reviewed first before deciding whether an ombudsman is needed.

I am not against regulation in itself. However, I am against regulation that will be ineffective and will add burdens to business with no benefits for consumers.

Like most business people, I am a committed free-marketeer. But I also recognise that we need some regulation if we are to ensure consistent standards that consumers can trust.

However, I want regulation that is based on evidence, is proportionate and takes a risk-based approach – in line with the Hampton principles. I say this not just as a supermarket chief executive but also as a British tax-payer interested in the most efficient use of scarce resources.

At Sainsbury’s we welcome moves to streamline enforcement through the establishment of the Local Better Regulation Office and the piloting of a Primary Authority approach - provided this gives us the consistency and risk-based approach that we are seeking and thatconsumer’s benefit.

And – like many of you – we have real concerns about “Scores on the Doors”. I will support anything that improves food safety and leadsto better and more accurate information being given to consumers. An informed consumer, able to exercise choice, should always be our aim. But I am concerned about the confusion surrounding Scores on the Doors and the inconsistency involved in marking.

What I do not support is regulation that fails to take account of the realities of consumer behaviour, or does not allow industry to respond quickly to the market, or that creates an unlevel playing field.

Conclusion
In conclusion, you will have gathered that I believe trust is crucialto our relationship with our customers. They trust us to get things right on their behalf, whether it is about reformulating products to be healthier, or sourcing ethically, or maintaining scrupulously high standards of food safety.

Regulation is important for setting the framework within which wemust all operate. But much of what we do in the food industry to meet consumer expectations is done voluntarily.

We can move more quickly than regulators and we can innovate in ways that go beyond regulation. I have no doubt that we have achieved much more for the consumer through a voluntary approach, as I have outlined in this speech.

Regulators need to trust us to continue to get this right for consumers without more, burdensome and costly regulation that will have no real benefit.

This way, we can continue to exceed customer expectations forhealthy, safe, fresh and tasty food.

Thank you.

ENDS