ORLANDO, Fla. -- The successful experience that U.K. supermarket chains have had with chilled "ready meals" programs holds important lessons for U.S. operators, said a panel of British industry players convened at the Atlanta-based Refrigerated Foods Association's annual conference here.
While the panel -- brandishing the experience of such U.K. retail giants as Tesco and Marks & Spencer -- acknowledged there are big differences between the business in the United Kingdom and the United States -- not the least of which is the effect of geography -- the U.K. representatives said the basic tenets that carried them through the trial stage to the lucrative present can translate very well to this side of the Atlantic.
One such tenet: the need for the total commitment by retailers' top tier of management. Another requisite to success in the United Kingdom was exceptional levels of cooperation between retailers and suppliers, the panelists said.
U.S. retailers must also accept the need for long-term investment in their meals programs -- and that includes accepting realities such as over-runs and out-of-stocks.
Doubtless aware that such tenets may be hard pills to swallow for American supermarket chains, the U.K. panelists described in detail their "ready meals" business history and fielded many questions from the audience.
Richard Hull, trading manager for Tesco Stores, a leading U.K. chain, said that nobody, retailer or supplier, made a profit for the first five years that chilled, prepared foods were marketed in the United Kingdom. Hull had also been an executive with retail chain Marks & Spencer, the meals pioneer in the United Kingdom.
After the panel session, one industry executive with extensive prepared foods experience in the United States remarked that the five years without a profit would sound unrealistic, and even misleading, to retailers here because Hull was describing a time when retailers were literally starting from scratch and investing heavily with their suppliers in huge manufacturing facilities. "There was labor intensity and lack of expertise that resulted in an inordinate amount of shrink. It wouldn't require as large a capital investment here because there are a number of manufacturing facilities that could be modified," he said.
Speaking of his tenure with Marks & Spencer as the chain virtually created the category, Hull explained that "I had to work closely with suppliers because there was nobody doing this when we got into it in 1975.
"At Marks & Spencer, the direction came from the top. They drove their investment. The average margin was 30% to 35% and shared by the manufacturer, and the margin was reinvested in people," Hull said.
"Retailers realized quality meals would have a halo effect. Customers perceive that if you're convenient, and your [prepared] foods are good, your other products also will be," Hull said.
Hull and Stephen Draisey, business director of Geest PLC, a manufacturer of chilled foods, spoke of the continued tightness of their relationship as retailer and supplier, which they said characterizes the business there.
"It's significant that I only deal with six retailers," said Draisey. "I can talk to them, and I can continue to develop more business with those six. Some of you [manufacturers] here deal with a hundred or more retailers."
Hull stressed that the evolution of the business in the United Kingdom involved constant cooperation between the players: retailers, product manufacturers and cold chain distributors.
"New product development and upgrading of products are targeted. You have to keep up with what the consumer wants," Hull explained. "We share our sales information [with suppliers] and also what we know [about the industry], for example about what's going with restaurants."
Draisey said another reason to keep close contact is to prevent supplier and retailer from duplicating efforts. Geest and Tesco, working together, have found economies of scale and have fine-tuned the order cycle.
The distribution process has been easier to set in place in the United Kingdom than it would be in the United States, they admitted, given the size of the market (a five-hour drive from one end of the United Kingdom to the other) and its domination by six large retailers.
Michael Heywood, chief engineer and controller for product and market sector development for BOC Distribution Services, said his firm finds economies of scale because it distributes by full pallets by the truckload, and also backhauls.
"We work with multiple retailers," Heywood explained. "A truck goes to a supplier or suppliers, cross docks at a central distribution center, and then may go to another retailer or to the nearest supplier."