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The supply chain, an invaluable asset in meeting new consumer expectations
September 2017
PwC
September 2017The supply chain, an invaluable asset in meeting new consumer expectations •
Appendix 2 – Additional information
Simon BarbeauPartner, Strategy&[email protected]
Sabine Durand-HayesPartner, [email protected]
Baptiste BannierDirector, [email protected]
Habib BabadjiManager, Strategy&[email protected]
Julien BellynckManager, [email protected]
Dear readers,
We are pleased to present the new PwC yearly report on today's agri-food industry and itscooperatives. This year, we have chosen to focus our work on the challenges and changes facingagri-food industry players if they are to meet new consumer expectations, particularly as regardsresponsible sourcing.
Food products that are organic, traceable, environmentally-friendly, compliant with strict animalwelfare standards or allergen free are increasingly important for current consumers. They arewhat differentiate agri-food industry players from their competitors and are a genuine source ofvalue.
If addressing these expectations is possible and is achieved each day, it is not without itsdifficulties as it essentially requires an overhaul of value chains as far upstream as possible.Anticipating consumer needs, synchronising development times and distributing value withoutdisrupting their supply chain are all challenges facing current operators. Challenges which areincreasingly steep as products become segmented and their life cycles are shortened in line withconsumer needs.
It is our opinion that the successful structuring of supply chains – of the group of stakeholderslinked to the production, processing and even retailing of a specific product or limited range –constitutes a real opportunity. Supply chains offer a wealth of possibilities where sharing in thevalue around a project benefits its design and market launch.
To gain a better understanding of how supply chains work and identify the challenges facingstakeholders and the winning strategies, we conducted a series of interviews with around twentymarket operators. We were also able to draw upon other sources of information, including theknowledge and research of PwC experts in agribusiness, consumer goods, the consumer market,supply chains and change management.
We hope that you enjoy reading it!
PwC
September 2017
Summary: six key points of this report
The supply chain, an invaluable asset in meeting new consumer expectations •
Appendix 2 – Additional information
New needs are emergingLabels, a partial answer for consumers
Supply chain: segmentation upstream
• French consumer needs are constantly evolving. Today, customers want products that are more healthy, more respectful of the environment and society and, above all, that are traceable.
• In fact, 65% of French people are prepared to pay more (up to 30% more) for "sustainable" food products.
• The growing demand for organicproducts (+21% in 2016) reflects today's growing obsession with "healthy eating".
• Consumers are increasingly turning to labelled products that guarantee the origin, recipe, social commitment behind a product, etc.
• But these labels only relate to certain product attributes and can only partially respond to consumer expectations.
• Responding to these new needs impacts the entire value chain, from technical standards to traceability.
• Historical models, particularly those that result in the "commoditisation" of products, are not always relevant.
• The supply chain is an asset as it offers a reliable framework and commits all of the different stakeholders to a series of defined standards but also to prices and volumes. It offers long-term visibility.
What are the challenges? What are the best practices? What are the pre-requisites?
Knowing your customer to identify and anticipate their needs.
Aligning the time needed to develop a product with the time needed to market it.
Implementing a model for the distribution of value that is satisfactory for all stakeholders.
Managing the impacts on the supply chain of a more segmented offer.
Sharing of methods and practices and the long-term commitment of all stakeholders in order to harmonise development/marketing times.
Confidence, transparency and coordination to ensure the even distribution of value.
Identification of a tailored operational model and planning to make the supplychain more agile.
Collaboration upstream and downstream that encourages a sense of joint development.
Adherence to a joint project.
Definition of a long-term vision for the supply chain.
Full implication of all stakeholders and implementation of a change management process to suit the project.
Time: on average the implementation of a supply chain takes 3 years.
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01 02 03
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PwC
September 2017
Our sincere thanks to all of our contributors
CollectorsTransformer brands
Retailers
The supply chain, an invaluable asset in meeting new consumer expectations •
Appendix 2 – Additional information
PwC
September 2017
"Responsible products", sourced from changing consumer expectations
1
The supply chain, an invaluable asset in meeting new consumer expectations •
PwC
September 2017
New concerns amongst consumers
2
The supply chain, an invaluable asset in meeting new consumer expectations •
Section 1 – "Responsible products", sourced from changing consumer expectations
Today's consumers have new concerns as to the impact of food products on their health, on the environment and on society.
Characteristics linked to the impact of products on producers as individuals but also as economic stakeholders (origin, balance of power, remuneration, etc.).
Characteristics linked to the method of production and the impact of production on "nature"(animal welfare, impact on the environment, biodiversity, etc.).
Characteristics of products that have an impact on the end consumer (pesticides, animal feed, product ingredients, etc.).
• Nutritional value of products
• Impact of products on consumers and adaptation of products to consumer needs
• Responsible marketing and labelling
Health
• Impact of production on the water table, soil quality and biodiversity, etc.
• Impact of production on climate change
• Responsible farming and sourcing
• Employee welfare, health and safety at work
• Respect for human rights throughout the supply chain
• Fair pay for suppliers
• Development of communities
Environment
Society
1
2
3
Product
Production
Producer
Number of people who believed that what they ate had a probable negative effect on their health in 2016 (as a %)
0
25
50
75
100Source: TNS SOFRES
CS
R s
tra
teg
ies
wit
hin
th
e a
gri
-fo
od
bu
sin
ess
are
g
ener
all
y s
tru
ctu
red
aro
un
d t
hre
e co
re p
illa
rs…
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September 2017
Consumer concerns that differ according to type of product
3
The supply chain, an invaluable asset in meeting new consumer expectations •
Section 1 – "Responsible products", sourced from changing consumer expectations
Source: OCHA – CERTOP – CREDOC survey, 2016
Fruits and vegetables Meat Fish
Dairy products Cereals Industrial produce
9%9%16%
83%
Hygiene & freshness
OriginChemical products
Product characteristics
21%21%
40%40%
Hygiene & freshness
Animal feedAnimal welfare
Origin
15%
27 %32%
56%
Hygiene & freshness
Animal welfare
Chemical products
Animal feed
13%15%18%
43%
Animal feed Animal welfare
Hygiene & freshness
Industrialisation
10%
17 %
22%
49%
GMO ingredients
Product characteristics
Chemical products
Industrialisation
14%17%
37%
45%
Product characteristics
Balance of power for
supply chain stakeholders
Chemical products
Impact on the environment
Pesticides Antibiotics Pollution
Hygiene standards Pesticides, GMO ingredients Preservatives
: factor most cited by respondents : product : production : producer
PwC
September 2017
New needs that reflect these new concerns. Today's consumer…
The supply chain, an invaluable asset in meeting new consumer expectations •
Section 1 – "Responsible products", sourced from changing consumer expectations
Is interested in the intrinsic qualities of a product(nutritional value, taste, appearance)
Is conscious of their health(hygienic quality, pesticides, GMO ingredients)
Is committed to protecting the environment (pesticides, GMO ingredients, transport)
Favours practices that have the best impact on society(ethics, animal welfare)
Seeks supplier partners they can trust(transparency, commitment to obligations)
Consumers are not only concerned with the intrinsic characteristics of a product, but also with its impact on their health, on the
environment and on society.
Constantly in search of new information and greater traceability regarding the products they consume, they appear to have relatively little faith in major brands and more confidence in smaller or local players and consumer associations.
At the same time, new external influencers (NGOs, lobbies, government bodies) are raising awareness of sector stakes (animal welfare, biodiversity, etc.) through modern communication media.
4
And wants more product information and traceability
PwC
September 2017
These trends are reflected in the needs and expectations voiced by consumers
5
The supply chain, an invaluable asset in meeting new consumer expectations •
Section 1 – "Responsible products", sourced from changing consumer expectations
Source: GreenFlex-Ethicity survey, 2016
65% of French consumers
say they are prepared to pay more (up to 30% more) for "sustainable" food products.
60% of French consumers say
they regularly or systematically opt for more natural products.
89% of French
consumers say they choose products because they are healthy.
Ethical products
Less polluting products
Eco-label
products
Local products
New habits for new consumers means:
Healthy products
68% of French
consumers say that animal welfare is a criteria when it comes to choosing a purchase.
85% of French
consumers say they privilege companies that have a local presence.
PwC
September 2017
22
29
32
36
53
55
61
Impact of product on climate change
Impact on employment
Breakdown of price between stakeholders
Impact on biodiversity
Place of manufacture
Origin of raw materials
Product composition
Information on the labels that are considered to be very important for consumers (as a % of consumers)
Information on the origin and impact of products is increasingly essential for consumers
6
The supply chain, an invaluable asset in meeting new consumer expectations •
Section 1 – "Responsible products", sourced from changing consumer expectations
Source: GreenFlex-Ethicity survey
Environmental and societalcriteria are part of what drives the need for more information on consumer products
16%only of consumers consider that
companies provide enough information on product
manufacturing processes.
Traceability is a key criteria for consumers
PwC
September 2017
Government labels
AB: Organic Farming: the guarantee that at least 95% of ingredients are derived from organic farming practices, i.e., using farming methods that are more respectful of the environment and the welfare of animals, that prohibit the use of synthetic products and GMO ingredients, and that are subject to very strict standards and systematic controls.
AOC: Designation of origin (France) / PDO: Protected designation of origin (Europe) / PGI: Protected geographical indication (Europe): the guarantee that a product comes from a specific geographic location and is derived through specific expertise. To acquire these labels, products must be traditionally and entirely manufactured within the specific region and thus acquire unique properties.
Label Rouge: the guarantee of quality assurance in France which certifies that all stages of production and manufacturing are compliant with the standards set by the National Institute for Quality and Origin (INAO).
Association labels Certified product: the guarantee that each product meets strict quality criteria that are objective, measurable, traceable, promotable, verifiable and verified.
Federation labels Fair trade: the guarantee that products have been purchased at a fair price and
produced under conditions that respect human rights and the environment.
Consumers are increasingly turning to labelled products…
7
The supply chain, an invaluable asset in meeting new consumer expectations •
Section 1 – "Responsible products", sourced from changing consumer expectations
SIQO* products: €25bn (+14%)
15% of the agri-food market
Market in 2015
o/w:
AOC/PDO products: €20bn Market in 2015
Label Rouge:€1.4bnMarket in 2015
Organic products:
€7bn (+21%)
Market in 2016
Fair trade products:
€1bn (+43%)
Market in 2016
*SIQO: products with an official label in terms of quality and origin (e.g. PGI, Label Rouge, AOC/PDO, etc.)Source: INAO, AgenceBio, PFCE
As well as these labels, most companies have defined their own internal labels or charters with their own standards and requirements (various CSR criteria). Sometimes accredited by an external third party, these standards and requirements are used to support their CSR strategy or as a vector to improve the quality of their products. In some instances, they are also used as a communications tool and to differentiate their products for consumers.
PwC
September 2017
Label Traceability
Intrinsic quality Impact on health, the environment and society
OriginProduct charac.
Chemical products /
GMO ingred.
Impact on the
environmt.Animal welfare
Animal feed
Balance of power for supply
chain stakeholders
Government labels
Organic farming a a a a a
AOC / PDO / PGI a a a
Label Rouge a a a
Association labels Certified product a a
Federation labels Fair trade a a a a
… that still only partly meet their expectations
8
The supply chain, an invaluable asset in meeting new consumer expectations •
Section 1 – "Responsible products", sourced from changing consumer expectations
• Except for organic farming and fair trade (which are often combined), few labels require the use of "responsible" products. Labels are primarily dependent on the intrinsic quality of products and/or their origin.
• In all cases, they imply a degree of traceability which reassures the consumer.
Positioning of labels in relation to consumer expectationsResponsible products
PwC
September 2017
4,24,6
5,2
5,9
7,2
2012 2013 2014 2015 2016
Illustrating the trend: organic farming has risen sharply
9
The supply chain, an invaluable asset in meeting new consumer expectations •
Section 1 – "Responsible products", sourced from changing consumer expectations
+14%
+14%
+21%
Organic farming market in France (€bn)
17 217 017 0161165
2016201420132012 2015
Food and agricultural industries market in France (€bn)
"The question is whether organic products will continue to be a niche
market or whether they are destined to grow and become a mainstream
consumer requirement, which is what we think will happen".
Emmanuel Faber, Chairman and CEO of Danone
L’Usine Nouvelle interview, July 2017
Increase in demand for organic dairy products (+6%for milk and +26% for cheese) but continuous drop indemand for traditional dairy products (-5.5% for semi-skimmed UHT milk).
Sharp growth in demand for organic wines in the firsthalf of 2016, with sales up 10% and a strong increasein the number of producers.
In 2016, ¼ of eggs purchased by households in majorsupermarkets and hypermarkets were Label Rouge ororganically produced eggs (+15%), a figure which is setto increase as wholesalers commit to only purchasingfree-range eggs.
2016 saw a slight increase in meat consumption inFrance, particularly poultry. More than 70% of oven-ready chickens sold were Label Rouge chickens (61%)or organic chickens (10%).
+9%
• The organic farming market has enjoyed substantially higher growth than the entire agri-food industry put together.
• However, the profitability of organic farming is subject to mixed reports and there are no overall conclusions to be drawn in that it often depends on country and supply chain. Source: mescoursespourlaplanete.com
PwC
September 2017
New channels for easier access to labelled products for consumers
10
The supply chain, an invaluable asset in meeting new consumer expectations •
Section 1 – "Responsible products", sourced from changing consumer expectations
Source: French Society and Consumption Observatory (ObSoCo)
5 new retail channels are
emerging
Direct-to-consumer
e-commerce
Collaborative commerce
Traditional e-commerce
Private sales
Subscription services
1 in 2 French consumers purchased food products online in 2016
PwC
September 2017
Short supply chains and direct sales are becoming the new alternatives to traditional purchasing channels
11
The supply chain, an invaluable asset in meeting new consumer expectations •
Section 1 – "Responsible products", sourced from changing consumer expectations
Inputs
Production Processing Retailing
Producer
Trader
Primary processing
industry
Purchasing centre
Food industry
Consumer
Retailer
Short supply chains
Direct sales
• Short supply chains and direct sales are seen by consumers as providing more information on products thanks to the direct relationship with producers, and as having a more positive socio-economic impact.
• However, although meeting consumer expectations in terms of responsible products, short supply chains and direct sales are only feasible for products that do not require any industrial processing.
Wine: 25%Vegetables: 46% Fruits: 26%Honey: 51% Milk: 8%Poultry: 9%
Share of farms that sell their produce via short supply chains:(2010, as a %)
Source: AgenceBio 2016, Agreste, SSP Office of Statistics Agricultural Census, 2010
PwC
September 2017
The supply chain, a tool in the development of responsible products
12
The supply chain, an invaluable asset in meeting new consumer expectations •
PwC
September 2017
Massification and streamlining of flows
Limited investment capacity
Standardised specifications and products
Faced with new consumer expectations, historical models are increasingly less relevant
• New consumer expectations: information (traceability), environment, society.
• Expectations that are inconsistent depending on the types of products and, for the time being, primarily focused on products that require little or no processing.
• Optimisation of costs through massification and streamlining.
• Streamlining of logistics and processing in order to massify flows.
• Sharp volatility in prices
against the increasing deregulation of agricultural markets since the 1990s.
• Margins that are generally weak (even negative) depending on the supply chain and which limit any capacity to invest upstream.
13
The supply chain, an invaluable asset in meeting new consumer expectations •
Section 2 – The supply chain, a tool in the development of responsible products
Source: Insee
Ch
ar
ac
ter
isti
cs
of
the
his
tor
ica
l m
od
el
Ne
w c
ha
lle
ng
es
• Structuring of market and method used to set prices, definition of standardised specifications (bonus system to address other qualities).
• "Commoditisation" of basic products to make it easier to meet the needs of a mass/export market.
• Agility needed to address specific needs.
• Reconciliation between upstream processes and the consumer in order to identify trends.
• Adaptation of production modes to new consumer expectations (capacity to invest).
PwC
September 2017
The supply chain, facilitating the capacity to meet specific needs by defining a secure contractual framework…
14
The supply chain, an invaluable asset in meeting new consumer expectations •
Section 2 – The supply chain, a tool in the development of responsible products
A supply chain can be defined as:
• A group of stakeholders in the agri-food chain from production through to processing and even retailing.
• Centred around a product/restricted range of products.
• Having a precise set of specifications which are determined in line with client expectations and which match all upstream processes to processing and retail needs.
• Based on a contractual framework that aims to protect all stakeholders over the long term, as much in terms of price as in terms of volume.
Inputs
Production Processing Retailing
Producer TraderPrimary
processing industry
Purchasing centre
Food industry
ConsumerRetailer
Perimeter of supply chains (max/min)
Example: Intermarché supermarkets and their supply chain for swine
• 5-year contract with partner breeders to guarantee medium-term visibility.
• Guarantee of a minimum price: risk linked to a change in prices is shared between producer/retailer.
Example: Limagrain, from earth to life
• The Limagrain cooperative manages the entire supply chain, from the research that goes into new varieties through to industrial baking, notably with the acquisition of French company, Jacquet.
PwC
September 2017
Protect consumer health
… that meets consumer expectations
15
The supply chain, an invaluable asset in meeting new consumer expectations •
Section 2 – The supply chain, a tool in the development of responsible products
Improve the social impact of products
Limit the
environmental impact
For its ham supply chain, Fleury Michon is committed to ensuring that "95% of recipes have a level of nitrate that is lower than 80mg/kg, i.e., nearly 2 times lower than the European legal requirement, in order to guarantee the safety of our food and maintain our policy of reducing additives that began 17 years ago"
The McDonald’s Charter has the
following objectives:
• Reduce greenhouse gas emissions by 20% per meal served by 2020 (in relation to figures for 2005).
• Preserve water resources.
• Nurture biodiversity.
Compagnie Fruitière is committed to: "offering the best that nature has to offer to the men and women who consume our products while building a brighter future for the men and women who work with us"
• Participation in the improvement of health and education policies.• Integration of the company in its economic and social environment.• Prohibition of child labour.• Free trade unionism.• Fair compensation policy.
• Limit the use of pesticides.• Reduce the use of antibiotics.• Feed animals without GMO ingredients.• Promote animal welfare (partnership with the CIWF).• Promote nutrition (partnership with the association Bleu-
Blanc-Cœur).
"Improved production for improved nutrition"
PwC
September 2017
The development of new supply chains means numerous challenges for all stakeholders
16
The supply chain, an invaluable asset in meeting new consumer expectations •
Section 2 – The supply chain, a tool in the development of responsible products
Production Processing Retailing Consumer
Distribution of value
• Lack of transparency between the different links in the chain.
• Difficulty in anticipating trends and an increase in volumes.
• Difficulty in explaining and allocating extra costs.
Supply chain agility
• Allocation of products to guarantee the traceability and homogeneity of batches.
• Specific collection process for each supply chain, even each product.
• Loss of flow massification gains.
Consumer knowledge
• Diluting of information between retailer and producer; little or no coordination.
• Poor attention to and understanding of consumer needs upstream.
Alignment of development times
• Difference in the length of investment cycles/operating methods between stakeholders. Difference in projections and time scales.
• Unequal breakdown of costs and risks linked to the development of a supply chain between stakeholders.
PwC
September 2017
End consumer knowledge remains a challenge for upstream stakeholders
17
The supply chain, an invaluable asset in meeting new consumer expectations •
Section 2 – The supply chain, a tool in the development of responsible products
Inputs
Production Processing Retailing
Producer Trader
Primary
processing
industry
Purchasing
centre
Food
industryConsumerRetailer
• Where there is no supply chain, each stakeholder bases their product on the expectations of their direct client.• The more fragmented the chain, the longer and more difficult the transfer of information between stakeholders.• The inadequate circulation of information leads to little or no coordination in meeting consumer expectations.
"Customer knowledge is the joint responsibility of industry operators
(theoretical knowledge) and retailers (empirical knowledge)"
"Direct sales have the advantage of placing farmers in direct contact with consumers
and changing trends"
• Historically, customer knowledge was reserved for the most sophisticated segments but, today, this information is crucial for all segments, including at entry level. Upstream, consumer needs are rarely factored into processes and there is very little market feedback.
• As a result, stakeholders are faced with new challenges:
o Changing customer habits imply frequent changes to specifications.
o Specifications are becoming more and more precise and restrictive, including at mid and entry level.
o The increasingly early identification of trends is vital in order to address new consumer requirements.
"Consumer expectations are not factored into
upstream processes"
?
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September 2017
Production Processing Retailing Consumer
Short cycle
• Stock rotation
Adapting to changes in consumption is fast
Long cycle
• Capital recovery
• Change in production modes
• Stocks
Adapting to changes in consumption is slow
Long, even very long cycle
• Development of new agronomic practices
• R&D upstream (e.g. seed production)
• Change management (across a relatively disperse farming community)
Adapting to changes in demand is very slow
Le
ng
th o
f o
pe
ra
tin
g c
yc
le
The difference in timing between operator cycles hampers the coordination of the agri-food supply chain
18
The supply chain, an invaluable asset in meeting new consumer expectations •
Section 2 – The supply chain, a tool in the development of responsible products
Depending on their role, the different players have very different investment/operating cycles. One of the challenges for supply chains is the coordination of these different timeframes.
In order to develop a common approach across the entire agri-food supply chain, the differences in timing between each stakeholder must be addressed through commitments.
"We plan our purchases over several months"
"Gap of more than one year between the
marketing idea and the finished product"
"You need 10 years to develop a new
variety of seed"
"Customer requirements change according
to immediateconsumption needs"
PwC
September 2017
4
Adapting to new client expectations means unequal costs for different players in the supply chain
Examples of the impact of commercial
underperformance
Financial impact
• Development and adaptation times linkedto the farming production cycles.
• Inadequate capital recovery.• Heavier cost structure which can mean
lower returns.• Additional costs linked to transitional period.
• Unused ingredients and packaging.• Increase in fixed costs linked to the
insufficient use of the production tool.• Inadequate capital recovery on specific tools.• Heightened complexity of the supply chain
(traceability and logistics).
• Potential "sunk costs" linked to product development for retail brands.
• Erosion of margins as a result of cut-price sales.
• Products not sold.
19
The supply chain, an invaluable asset in meeting new consumer expectations •
Section 2 – The supply chain, a tool in the development of responsible products
"Certain cooperatives no longer want to be a part [of the supply chain] as the
specifications are too restrictive and the additional costs linked to
procurement are too difficult to justify internally"
"This type of procedure obliges us to compartmentalise production and
segment the supply chain […], which increases logistics costs"
"Planning over several years is not possible as it represents an
untenable risk"
Low High
PwC
September 2017
The sharing of value and risks is sometimes hampered by the lack of transparency and regulations
• The lack of transparency and communicationwith regard to prices and volumes for cultural, competitive and/or legal reasons.
• In order to respect the principle of fair competition, a supplier cannot legally impose a final sale price for a product on a retailer.
• Difficulty in anticipating the rise in volumes and consumer trends given the discrepancies in timeframes and organisational constraints for the different stakeholders.
• Difficulty in explaining and sharing all additional costs given the discrepancy in risk and investment for the different stakeholders.
• The net value generated is not fairly distributed.
20
The supply chain, an invaluable asset in meeting new consumer expectations •
Section 2 – The supply chain, a tool in the development of responsible products
"While segmentation can recreate value for retailers, this value may not be spread
across the rest of the chain"
"No one could have imagined the exponential growth in organic farming and the much
stronger appetite for healthy eating"
"The stakeholders are not exposed to the same losses. The bulk of investment is covered by the producer which has to
deal with very high sunk costs"
"Making sure you keep your promises is a key factor for survival"
• The credibility of stakeholders is subject to the traceability of products as well as the auditability of supply chain practices, both upstream and downstream.
• This answers the consumer's desire for more information and complete transparency.
PwC
September 2017
A lack of standardisation has a negative impact on a supply chain optimised for massification
21
The supply chain, an invaluable asset in meeting new consumer expectations •
Section 2 – The supply chain, a tool in the development of responsible products
Production
Transform-ation
Retailing
Storage
Transverse challenges
• Allocation of products to guarantee the traceability and homogeneity of batches.
• Allocation of production and storage to guarantee consistency and prevent contamination of processes.
• Information on the origin of products.
• Capacity to isolate batches in the event of health hazards.
Specific challenges
Traceability
Multiplication
• Multiplication of flows, manufacturing orders and references (product, packaging, labelling).
• Multiplication of labels/charters that are not clear for the customer.
Increase in complexity
• Broadening of product portfolios.
• Choice of specialisation.
• Specifications that are increasingly restrictive and include environmental, social and societal criteria.
• Specific collection process.
• Assessment of logistical organisation needed per output.
• Delivery by the producer to a specific storage location.
• Creation of cleaning/packaging tools for selective supply chains.
• Specialisation of production units and loss of flow massification gains.
• Segmentation of the supply chain is often synonymous with hidden costs.
• Reorganisation of shelving.• Decrease in volumes by
product reference.
PwC
September 2017
Key factors in defining the structure of a supply chain
22
The supply chain, an invaluable asset in meeting new consumer expectations •
PwC
September 2017
Agri-food operators have identified solutions to supply chain challenges
23
The supply chain, an invaluable asset in meeting new consumer expectations •
Section 3 – Key factors in defining the structure of a supply chain
Production Processing Retailing Consumer
Distribution of value
• Joint development of a shared strategy over the long term.
• Functional coordination at an internal (within a same entity) and external (between stakeholders) level.
• Trust and transparency.
Supply chain agility
• Vertical and horizontal planning of the supply chain.
• Follow-up and sharing of the operations of the different stakeholders.
• Identification and choice of operating model.
Consumer knowledge
• Anticipation, analysis and response to consumer expectations.
• Incorporation of CSR challenges/"responsible" criteria that influence consumers.
• Information to and even involvement of consumers.
Alignment of development times
• Commitment by supply chain stakeholders to a volume and rate of production through multi-annual contracts.
• Proactive and shared capacity to invest over the long term.
• Early sharing of emerging trends.
PwC
September 2017
Sharing consumer knowledge across the entire supply chain
Section 3 – Key factors in defining the structure of a supply chain
• When it comes to a supply chain, customer knowledge is no longer a competitive advantage held by a given link in the chainbut a value to be shared by the entire chain in order to be maximised and redistributed to the various players involved.
• Learning is mutual because it is necessary to:
o anticipate, understand and respond to consumer expectations,
o explain the production charter to consumers so that they understand the way in which prices are defined.
• In order to streamline the supply chain, it is necessary to inform consumers and to create a message around the product whichis more than just a loss leader for the retailer.
• Above and beyond information, certain initiatives already directly involve consumers in the definition of producerspecifications making them a stakeholder in the supply chain.
• Consumers reply online to a product questionnaire(specifications and impacts on the end price, see imageopposite).
• The product undergoes mass manufacturing based on all ofthe answers submitted.
• That way, the products sold in-store are based directly onconsumer expectations and criteria.
Example of a supply chain based on customer satisfaction: "C’est qui le patron"
24
The supply chain, an invaluable asset in meeting new consumer expectations •
Source: lamarqueduconsommateur.com
PwC
September 2017
Adapting upstream phases to consumer needs requires the implementation of different levers
Section 3 – Key factors in defining the structure of a supply chain
The rapid adaptation to new consumer expectations does not coincide with the time taken upstream to develop new products. Several levers could be used to shorten upstream cycles, notably:
• The development of investment capacity over the long term and through a proactive rather than reactive approach in order to benefit from improved visibility with regard to consumer trends.
• The sharing of development costs.
• Commitment by retailers to a lasting contractual framework (price/volume).• The early sharing of emerging trends with upstream operators.• The creation of direct links with upstream operators in order to accelerate the response to a
specific need.
• Greater collaboration between operational and R&D staff upstream of negotiations in order to shorten development times.
• The deployment of agile working methods in order to strengthen ties between stakeholders.
Example of the "J’aime" pork supply chain from Fleury Michon and Avril
• Fact: French swine products currently fall short of consumer expectations (use of antibiotics, GMO ingredients, etc.).
• Presentation of the offer to breeders with the proposal of a contract that includes an additional bonus on top of the purchasing price.
• Presentation of the project to retailers for first product sales.• From the start of the thought process through to the launch, 3 years were needed to establish
the requisite dialogue between the stakeholders of the future supply chain.
"The long-term commitmentof retailers is crucial"
"The creation of a supply chain requires a shared approach
and shared objectives"
"The inclusion of a broker in the supply chain was decisive"
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The supply chain, an invaluable asset in meeting new consumer expectations •
PwC
September 2017
Joint development, trust and operational transparency are vital to the success of the supply chain
26
Section 3 – Key factors in defining the structure of a supply chain
Source: Agreste, 2010
• Supply chains require a joint development process that integrates all parameters from the first input until the end consumer with a shared long-term vision in order to reconcile the different timeframes.
• Interbranch entities (particularly if they are transverse to the value chain) can have a role of facilitator that inspiresconfidence and transparency between the different stakeholders in the supply chain.
• Joint development makes it easier to collectively anticipate consumer trends (sharing of information, tools, transmission/distribution, etc.).
The supply chain, an invaluable asset in meeting new consumer expectations •
Costs and revenues linked to the segmentation of the offer are shared between the different stakeholders:
- Differentiated management
- Allotment constraints
- Drop in economies of scale
+ Differentiated product
+ Better fit with consumer expectations
• Functional coordination:
o between the company's different business units,
o between the different business unit functions (R&D, marketing, sales).
• Involvement and participation of employees in a joint project in order to foster a sense of belonging.
• Change management to facilitate and accelerate a change in practices that is sometimes contrary to past trends.
Between supply chain stakeholders: Within a same company:
PwC
September 2017
The supply chain must guarantee traceability and allow for greater agility
27
The supply chain, an invaluable asset in meeting new consumer expectations •
Section 3 – Key factors in defining the structure of a supply chain
Collector / Trader
1st level processing
2nd level processing
Procurement
Operations
Sales
Procurement
Operations
Sales
Procurement
Operations
Sales
Industrial and marketing strategy
• Coordination of product portfolios.
• Development of specialist assets (production/storage areas, even dedicated sites).
• Massification through consistent specifications for the highest constraints(“why do something complicated when you can do something simple").
"We chose to segment as late on in the process
as possible in order to preserve the gains linked to
the optimisation of our supply chain"
E2E (End to End) planning - External coordination
• Integrate suppliers and customers in order to synchronise order management, demand forecasts and scheduling.
• Cloud-based platform which facilitates the sharing of information between supply chain stakeholders (internal and external).
• Integration of workflows and commercial, environmental and social rules of stakeholders.
• E2E harmonisation, visibility and data security.
E2E tracking solutions
• All operations by all stakeholders are traced and tracked.
• Information can be transferred between supply chain stakeholders.
• Information is collected through a variety of systems.
• Data are directly or indirectly linked to business processes defined for ERP, CMS and CRM structures or other systems.
• Joint development of planning and forecasts in demand between different internal units (Procurement, Operations, Sales and Finance).
• Close management of product life cycles.
• Shared decision-making on the allocation of resources, production targets, service rates and target revenues.
Sales & Operations
PlanningInternal coordination
S&OP
"By specialising this small production unit
we have saved it from being
closed"
PwC
September 2017
In summary, joint development and stakeholder commitment are prerequisites for the success of a supply chain…
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The supply chain, an invaluable asset in meeting new consumer expectations •
Section 3 – Key factors in defining the structure of a supply chain
Long-term approach
• Lasting relations.• Factoring in of the time needed for
development.• Definition of a vision for the supply
chain.
Joint development
• Collaboration upstream and downstream.
• Integration of the constraints and risks of each stakeholder.
Confidence
• Transparency and sharing of information.
• Mutual dependency.
"We brought all of the upstream stakeholders (geneticist, collector and processor) together around the same table"
"The key was the involvement of the farmers and being able to get different communities to back the project, both internally and externally"
"The supply chain is a joint project which goes beyond customer-supplier relationships as part of a development rationale"
"Farmers are proud to belong to a supply chain. It is a form of recognition of their expertise and gives meaning to their work"
"Building a supply chain takes time. You need at least 5 years before it can be launched"
"We had to learn to get to know each other and take the time to build a relationship of mutual trust"
Buy-in
• Pride in belonging.• Notion of opportunities.• Management involvement.
… which requires a strong commitment from stakeholders and a policy of change management for the project (internal and external).
PwC
September 2017
Key feedbackAppendix 1
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The supply chain, an invaluable asset in meeting new customer expectations •
PwC
September 2017
• To gain a comprehensive understanding of the issues at play, PwC talked to stakeholders at different levels in thecreation of different supply chains, conducting a series of around 20 interviews.
• The interviews were aimed at analysing the positioning of the various stakeholders. They also helped to identify theapproach at the origin of the supply chains, the time needed to develop them, their impact on the existing supply chainand the success factors and obstacles encountered. Some of these factors are detailed in the following pages along withfeedback on a selection of supply chains.
Feedback on new supply chains to cater to new segments
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The supply chain, an invaluable asset in meeting new customer expectations •
Appendix 1 – Key feedback
Issues raised
in the interviews:
• Vision of the development of the new segments
• Impacts upstream of production
• Feedback on supply chain implementation
20 stakeholders interviewed
• People from different links in the value chain, including food producers, transformer brands and retailers
• 50% cooperatives
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September 2017
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The supply chain, an invaluable asset in meeting new customer expectations •
Appendix 1 – Key feedback
Time needed to develop the supply chain
The industrial and farming cycle was developed over three years. The most complicated aspect was developing the buildings.
Success factors and obstacles encountered
The marketing was developed extremely quickly as the message was simple.
• Control of the entire supply chain.
• Financing of farmer start-up projects and guarantee by the cooperative.
• Guaranteed market for 14 years.
• Ability to defend the administrative project.
• No support from the local government, elected representatives or media.
• Bad image of conventional chicken farming.
• No reflection of value-added in sale price.
Approach taken
Creation of a local supply chain:• Launch of a marketing product and offering.• Support for new farmers when setting up.• Development of a circular economy, with grain-based feed
and a protein-rich ethanol by-product produced locally anddistributed by the cooperative.
Inspiration for the initiative
• Finding: France's Midi-Pyrénées region imported more than 95% of its consumption, with 70% from abroad (Brazil, Germany, etc.).
• Decision: potential closing of an abattoir (300 jobs).
Impacts on the existing supply chain
• Increase in volumes (massification), with two ranges instead of one.
Example of a chicken supply chain: "Poulet d'ici", certified by Agri Confiance
PwC
September 2017
Example of a wheat supply chain: "LU'Harmony"
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The supply chain, an invaluable asset in meeting new customer expectations •
Appendix 1 – Key feedback
Time needed to develop the supply chain
Fast development with the support of millers, using farming specifications drawn up in collaboration with all supply chain stakeholders along with external experts such as Inra, NGO Noé, MNHN and Institut Arvalis. Farming practices can be converted from one year to another.
Success factors and obstacles encountered
The programme did not start as a marketing campaign. Only 16% of consumers are aware of the programme*. Exposure to our message raises a consumer's intention to purchase LU'Harmony products by 10 points**.
* Source: BHT 2015 ** Source: consumer test panel, 2015
• Control of the entire supply chain.
• Collaboration with all supply chain stakeholders (geneticists, millers, farmers).
• Strict specifications, which deter some stakeholders.
• Increase in sourcing costs with no impact on margins.
Approach taken
Creation of a local supply chain:• Specifications drafted on best farming practices.• Contracts signed with existing millers and farmers
based on a bonus system.• Initiative gradually extended and today covers all
nine LU production facilities in France and is applied by1,500 farmers in the surrounding areas.
Inspiration for the initiative
• Finding: 70% of the environmental footprint of LU biscuits was due to the raw materials, primarily wheat (in volume terms). There was a desire within the company to reduce this footprint.
• Decision: the initiative was led with LU employees to enhance the brand and notably included special consideration for biodiversity and work on each link of the supply chain.
Impacts on the existing supply chain
• All wheat batches had to be stored in silos; impact on millers, collectors and farmers: stock segmentation.
PwC
September 2017
Example of a poultry supply chain: "La Nouvelle Agriculture" by Terrena
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The supply chain, an invaluable asset in meeting new customer expectations •
Appendix 1 – Key feedback
Time needed to develop the supply chain
The industrial and farming cycle took five years to prepare for large-scale launch.
Success factors and obstacles encountered
The marketing was developed extremely quickly as the message was simple.
• Joint developmentof specifications with: • Farmers.• Suppliers.• Retailers.
• Commitment and involvement of teams from the farming and industrial sectors.
• Technical aspects are complicated.
• Product listing is difficult as supermarkets like to appropriate the value-added.
Approach taken
The range is positioned between conventional and organic poultry. The specifications were defined by farmers and the cooperative to stipulate: • No GMO ingredients in the animal feed.• No antibiotics.• Respect for animal welfare.• Animals born, reared and processed in France.
Inspiration for the initiative
• The "La Nouvelle Agriculture" label was launched ten years ago for rabbit. It is the product of strategic thinking by the group and its members on production techniques.
• An equivalent poultry label was introduced five years ago.
Impacts on the existing supply chain
• Increased batch segmentation to ensure consistency.
• Upstream batch sorting.
PwC
September 2017
Example of a cider apple supply chain by Agrial
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The supply chain, an invaluable asset in meeting new customer expectations •
Appendix 1 – Key feedback
Time needed to develop the supply chain
It takes seven to ten years to obtain a productive orchardand three years to develop a factory that runs smoothly.
Success factors and obstacles encountered
The marketing offering was developed in a few months (around one year).
• Eighteen-year contract with farmers.
• Significant product improvement achieved by structuring the chain.
• Development of strong brands such as Ecusson, Loïc Raison and Kerisac.
• Adapting the orchards to market demand.
Risk of overproduction potentially leading to grubbing-up.
• Producing uniform cider with a consistent taste.
Approach taken
Key steps:• Significant investment in industrial tools.• Change in agricultural production techniques to improve
productivity and adapt the varieties to downstream needs.• Commitment to producers on volume/price visibility to
enable them to invest: risk that Agrial is currentlyassuming.
• Parallel launch of an organic supply chain.
Inspiration for the initiative
• Finding: there were many small-scaleplayers/producers. The supply chain needed to bestructured.
• Decision: harness industrial tools and structure thesupply chain by bringing together producers.
Impacts on the existing supply chain
• Supply chain structuring: volume massification.• Segmentation with the creation of an organic supply chain.
PwC
September 2017
Example of a rapeseed supply chain: "Fleur de Colza"
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The supply chain, an invaluable asset in meeting new customer expectations •
Appendix 1 – Key feedback
Time needed to develop the supply chain
• One year was needed to develop the supply chain. While the product was innovative from a consumer perspective, it was based on pre-existing skills (e.g., bottling). It also required oil seed producers to master new crop specifications.
Success factors and obstacles encountered
• No upstream discussions with distributors. Listing was made easier by the lack of an existing product.
• The product's commercial success exceeded expectations.
• Creation of a strong, innovative brand.
• Joint development and coordination of the supply chain in order to foster a sense of belonging.
• Continuous improvement of commitments.
• Investment needed to manage small quantities, particularly during oil seed crushing.
Approach taken
• Storage organisations sought to assure the necessaryproduction and to identify motivated producers.
• Stringent specifications defined based on a process ofcontinuous improvement, covering traceability, supply chaincontrol, Omega-3 content, respect for the environment andbiodiversity.
• Bonus paid to participants for complying with thespecifications. Volume predictions shared with cooperatives.
• Ongoing supply chain coordination (specific events,improvements to specifications, etc.).
Inspiration for the initiative
• The project was launched at the initiative of the Avril group in order to promote rapeseed and respond to changing scientific research and consumer expectations.
• Data: 2004 launch, 1,000 partner farmers, 6 million litres sold per year.
Impacts on the existing supply chain
• Batch segmentation.
PwC
September 2017
Example of a ham and potato supply chain: "Préférence" by Nestlé France
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The supply chain, an invaluable asset in meeting new customer expectations •
Appendix 1 – Key feedback
Time needed to develop the supply chain
Very long development time (e.g., category of potato: ten years).
Success factors and obstacles encountered
No communication on the Préférence initiative for Herta and Mousline.The initiative was solely in-house.First communications campaign in mid-2017 for certain breakfast cereals.
• Joint development of the specifications with farmers.
• Consumer expectations factored into the production specifications.
• R&D in collaboration with public bodies (e.g., INRA).
• Lack of tangible recognition from customers (not just consumers).
• Higher sourcing costs.• Lack of a label between
the conventional and organic segments.
Approach taken
The supply chain was positioned between the conventional andorganic markets. The specifications were developed withfarmers to embed the procurement policy in a process ofcontinuous improvement based on:• Sustainable production (mitigation of environmental
impacts).• Agroforestry.• Animal welfare.• Sourcing close to production sites (to build producer loyalty).
Inspiration for the initiative
• Corporate commitment to responsibility.• R&D-oriented corporate culture.• Project led by Corporate and implemented by all
departments.
Impacts on the existing supply chain
• Batch segmentation.• Local sourcing.
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September 2017
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The supply chain, an invaluable asset in meeting new customer expectations •
Appendix 1 – Key feedback
Time needed to develop the supply chain
Development took four years, the time needed to convince farmers to produce organic goats' milk and form a group of farmers large enough to ensure sufficient volumes.
Success factors and obstacles encountered
Forecasting and planning of needs with the entire profession, a development process at the very centre of Biocoop's model.
• Control of the entire supply chain.
• Long-term commitment by retailers to the other links in the value chain.
• The small size of the food manufacturers, which enabled them to be more flexible.
• Difficulty uniting farmers around a collective project.
Approach taken
Creation of a local supply chain:• Identification and solicitation of producers and creation
of a group.• Commitment to farmers and food manufacturers on
volumes, duration and prices.• Marketing through Biocoop.
Inspiration for the initiative
• Finding: organic goats' cheese could not be produced inFrance because there was no suitable milk production.Despite this, there was growing consumption of productsimported from Germany and the Netherlands.
• Decision: create a supply chain.
Impacts on the existing supply chain
• Joint development of the entire supply chain.• Insourcing of logistics by Biocoop to meet the organisation's
expectations.
Example of an organic local goats' cheese supply chain: "Fromage de Chèvres"
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September 2017
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The supply chain, an invaluable asset in meeting new customer expectations •
Appendix 1 – Key feedback
Time needed to develop the supply chain
The development phase lasted five years. The supply chain was set up in three years but it took a long time to incorporate agricultural best practices due to lengthy farming tests.
Success factors and obstacles encountered
The programme was not developed for marketing purposes but rather spearheaded by the purchasing, quality and CSR departments.
• The size of the company, which gives it the ability to adapt supply chains.
• Contractually agreed prices, volumes and quality levels to prevent speculation on the wheat market.
• A partner-led, trust-based approach.
• Length of tests and difficulty in identifying farming best practices.
• Resistance to change.• Misunderstanding of
the initiative (requiring education).
Approach taken
Creation of a tailored supply chain:• Internal decision by the purchasing, quality and CSR
departments to take part.• Closer collaboration with cooperatives and
implementation of the supply chain based ontraceability and production requirements.
• Extension of the specifications to include agro-ecological best practices.
Inspiration for the initiative
• Finding: the hard wheat used to crumb food was importedfrom Italy and Germany as there was little-to-no Frenchproduction.
• Decision: create a French supply chain for hard wheat,which could be traced directly to the farm and complied withspecific agro-ecological requirements.
Impacts on the existing supply chain
• Reduction in flow massification gains.• More complicated supply chain management due to
traceability requirements (additional steps).
Example of a wheat supply chain: McDonald's
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September 2017
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The supply chain, an invaluable asset in meeting new customer expectations •
Appendix 1 – Key feedback
Time needed to develop the supply chain
The development phase lasted one year and required:- Informing and
convincing in-house teams.
- Convincing farmers.- Agreeing on the
operating method.
Success factors and obstacles encountered
Direct coordination by top management.The marketing offering was developed over the course of the project.
• Joint development.• Cost transparency with
consumers.• Simple, short, clear
and easily verifiable commitment.
• Leadership from the managers who led the project.
• Defensive communication from competitors.
• Involvement of in-house teams: need to change negotiation habits (open-book approach, three-year commitment to prices and volumes, etc.).
Approach taken
Key steps: • Definition of the range and of the commitment to
farmers and consumers (visibility, volume, price, open-book approach with a manufacturer and a retailer).
• Drafting of specifications with the farmers.• Setting of and three-year commitment to prices and
volumes.• Three-party contract (coop, manufacturer and retailer).
Inspiration for the initiative
• Three-way discussions between the Biolait cooperative, Système U and LSDH on the possibility of selling organic milk.
• Système U aims to become the leader in this segment.
Impacts on the existing supply chain
• Very high segmentation despite the tools and management methods defined for mass production.
Example of an organic milk supply chain with capless bottles
PwC
September 2017
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The supply chain, an invaluable asset in meeting new customer expectations •
Appendix 1 – Key feedback
Time needed to develop the supply chain
The development phase lasted three years and required:- Working with the
relevant certification authorities.
- Convincing in-house teams.
- Agreeing on the operating method.
Success factors and obstacles encountered
Advertising in sales outlets helped to convince clients (retailers), who saw an improvement in revenue and image.
• Insourced production.• Only minimal
differences between existing company CSR initiatives and Max Havelaar requirements.
• Joint development with our teams.
• Replacement of certain phytosanitary products.
Approach taken
Certification of a fair trade supply chain:• Internal decision by top management to commit to
the initiative.• Collaboration with certification authorities and the
internal communications department on the initiative.• Adaptation of cultural practices.• Certification.
Inspiration for the initiative
• Finding: the sale price of bananas was higher in Africa.African production needed to be differentiated andpromoted.
• Decision by top management: promote existing in-houseinitiatives and help maintain rural employment.
Impacts on the existing supply chain
• Additional segmentation, which increased complexity.
Example of a banana supply chain: Max Havelaar
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September 2017
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The supply chain, an invaluable asset in meeting new customer expectations •
Appendix 1 – Key feedback
Time needed to develop the supply chain
The development phase required three years of joint work with Avril. While the initial specifications were not fully met, a continuous improvement process has been implemented to remedy the situation.
Success factors and obstacles encountered
The marketing offering was developed in less than one year.
• The Avril group represents several links in the value chain.
• Joint development.• Flows were pulled by
consumer expectations rather than pushed by supply as is usually the case.
• Extremely scattered nature of the value chain.
• Difficulty initiating an "open-book" approach.
• Promotion of other pork cuts to smooth excess costs (e.g., lardons).
Approach taken
Key steps: • Meeting between Fleury Michon and the Avril group to
discuss findings.• Individual presentation of the offering to farmers
(27 initially): proposed contract incorporating a bonus in addition to the purchase price.
• Joint signature of guidelines by the two groups' top management (shared objectives and working framework for the teams).
• Presentation of the project to retailers to sell the first products.
Inspiration for the initiative
• Finding: the swine market in France was far from meeting consumerexpectations (antibiotics, GMO ingredients, etc.). There were a largenumber of intermediaries separating farmers and end consumers.
• Decision: develop a supply chain that does not use GMO ingredientsor antibiotics, which is a less radical approach than going fully organic.
Impacts on the existing supply chain
• Very high segmentation despite the tools andmanagement methods defined for mass production.
Example of a pork supply chain: "J'aime" by Fleury Michon and the Avril group
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September 2017
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The supply chain, an invaluable asset in meeting new customer expectations •
Appendix 1 – Key feedback
Time needed to develop the supply chain
More than one year ofR&D was needed from theinitial idea to the firstfinished product.
Success factors and obstacles encountered
The customer's marketingteam helped clarify demandin collaboration withproduction and R&D.
• Joint development downstream between the customer's marketing department and the production and R&D departments.
• Joint development upstream between the miller, the partner cooperative and R&D.
• Initially complex marketing brief.
• Production guarantee for the selected wheat.
Approach taken
• Clarification of demand with the customer's marketingdepartment.
• Identification of the most suitable wheat production supplychain and bread recipe as well as product appearance.
• Partnership with a grain cooperative to produce the wheat.• Launch of production, initially with a limited scope.
Inspiration for the initiative
• Finding: a customer wanted to add to its legitimacy as a"baker" by launching a new type of bread, backed by a wheat andflour supply chain.
• Decision: survey supply chain production options and createan innovative product format.
Impacts on the existing supply chain
Segmentation• New type of flour.• Volume commitment to the supply chain; forward-planning.
Example of a "Label Rouge" stone-ground flour supply chain
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September 2017
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The supply chain, an invaluable asset in meeting new customer expectations •
Appendix 1 – Key feedback
Example of a Berry green lentil supply chain
Time needed to develop the supply chain
The development phase of this quality selective supply chain lasted between one to three/four years (depending on CAPEX, R&D, etc.).
Success factors and obstacles encountered
The marketing approach is based on the product's premium status, from (traditional) production to retailing.
• Giving meaning to customers and supporters.
• Assessing impacts.• Sharing value.• Using in-house
marketing.• Promoting gluten-free
pulses.
• Anticipating upstream for agronomics and the supply chain.
• Overcoming preconceived ideas.
• Giving meaning to actions and changing habits.
Approach taken
Inspiration for the initiative
Impacts on the existing supply chain
• Finding: the boom in lentil production in the mid-1980s led tolower prices, reduced profitability and a near collapse inproduction.
• Decision: build awareness and structure the process upstreamto restore Berry green lentils to their former glory.
Development of a sustainable and quality-oriented supply chain that creates value for stakeholders, at the initiative of farmers: • Creation of a group of producers.• Drafting of Label Rouge/protected geographical indication
(PGI) specifications.• Search for a selective, differentiating and quality-oriented
distribution channel.• Contractual agreements according to a plan spanning several
years.• Support for the gluten-free market.
• Organisation of specific batching.• Implementation of a cleaning/packaging tool.
PwC
September 2017
Additional informationAppendix 2
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The supply chain, an invaluable asset in meeting new customer expectations •
PwC
September 2017
Amount of surplus products (€m, 2015) Amount of deficit products (€m, 2015)
1/ Beverages, wines and spirits 11,463 1/ Fish and shell fish (2,933)
2/ Grains 6,365 2/ Fruit and vegetables (2,884)
3/ Milk and dairy products 3,035 3/ Fruit and vegetable preparations (1,768)
4/ Living animals 1,749 4/ Coffee, tea, spices (1,744)
5/ Sugar and confectionery 1,064 5/ Tobacco (1,381)
6/ Cereal-based products 576 6/ Meat and offal (1,181)
7/ Grain mill products 576 7/ Meat and fish preparations (882)
8/ Floriculture (860)
TOTAL 24,828 TOTAL (13,633)
Most surplus products are raw products, generally with low value-added (milk, grains, animals, sugar) and must therefore be exported in large quantities to create a trade surplus.
For deficit products, there are large imports of costly, exotic products (coffee, tea, spices, tobacco, etc.) and a significant imbalance in terms of processed products (vegetable, fruit, meat and fish preparations.
France's agricultural balance of trade is dependent on raw products and beverages
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The supply chain, an invaluable asset in meeting new customer expectations •
Appendix 2 – Additional information
Source: Agreste, INAO
There are several main reasons for this situation:
- Higher unit labour costs in France versus competing countries.- Particularly restrictive French agricultural standards.- Historically, production choices focused on products that fetch the highest prices (e.g., grains versus fruit and vegetables). Today, machine progress means this type of strategy is no longer relevant.
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September 2017
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The supply chain, an invaluable asset in meeting new customer expectations •
Appendix 2 – Additional information
PoliciesPublication of white papers and policies: - "Forest Footprint Policy" in 2012- "Soy Policy” in 2014- "Palm Oil Policy"
Objectives2020: responsible sourcing of all direct raw materials 2025: responsible sourcing extended to non-direct raw materials, with 7 million acres covered
PlanThe Unilever Sustainable Living Plan (USLP) has three main goals:- Improve health and well-being- Enhance livelihoods- Reduce environmental impact
Food companies are catering to consumer demand for "responsibility"
Source: Behind The Brands benchmark
These companies are under external pressure to demonstrate their ability to manage environmental and social risks in their supply chains.
0-1: very poor | 2-3: poor | 4-5: some progress | 6-7: fair | 8-10: good
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September 2017
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The supply chain, an invaluable asset in meeting new customer expectations •
Appendix 2 – Additional information
0 10 000 20 000 30 000 40 000 50 000 60 000
Vins
Bovins
Lait, produits laitiers
Volailles (yc. palmipèdes gras)
Ovins
Fruits
Autres produits végétaux (hors vin)
Légumes (y c. fraise, melon)
Porcins
Grandes cultures
Huile d'olive
Autres produits animaux
Œufs
Caprins
Cidre
Number of farms per certification and product type
Labels with differing objectives: geographical origin or intrinsic characteristics of the product
Source: Agreste, 2010-2013
The certification of quality or origin varies significantly depending on the product type:
• For wine, certification above all aims to guarantee the geographical origin (AOP/PDO and PGI).
• For bovines and poultry, on the other hand, certification is more focused on the intrinsic quality of the product (Label Rouge and CCP).
Geographical origin of the product
Characteristics of the product
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September 2017
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The supply chain, an invaluable asset in meeting new customer expectations •
Appendix 2 – Additional information
75% of consumers are potential responsible food consumers
Source: Credoc
Large supermarkets Small stores
Brick and mortar retailing
Online retailing
E-shopping with deliveryClick and collect
HypermarketsHard discount stores
Frozen food storesLocal stores
Speciality storesNeighbourhood delisConvenience stores
Markets
Massifiers (30%)
Hard discount fans (26%)
Frequent flutterers (12%)
Local bannereclectics (17%)
Local independent circuit eclectics (15%)
• "Massifier" are educated high-income earners who frequently shop at hypermarkets and online.
• Low-income earners and isolated people shop more frequently at hard discount stores.
• "Eclectics" are sensitive to producer/ storekeeper contact and are not big users of connected services. They shop from independent, local circuits or, in the case of well-off city dwellers, at local banners.
• "Flutterers" are mainly elderly shoppers who make regular purchases from all circuits.
PwC
September 2017
Sustainable food
• Development of alternative agricultural production methods(agro-ecological practices).
• Increase in the number of organic farms (growing demandfor organic products).
• Rise in self-sufficiency with regard to plant protein foranimal feed, fostering the development or emergence of localsupply chains.
• Voluntary or regulatory limitation of food imports fromareas potentially subject to deforestation.
• Growth in the proportion of non-GMO ingredient productsin animal feed (20% in 2012).
• Continuous development of new supply chains to promotepulses, which are a source of protein for humans andanimals and of nitrogen for subsequent crops, etc.
Examples of trends and their impact on production
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The supply chain, an invaluable asset in meeting new customer expectations •
Appendix 2 – Additional information
Production
Food for health and well-being
• Improvement of nutritional aspects of food that may requirechanges in certain farming practices.
• Increase in the transformation of farming practices followingthe development of enriched food, particularly with respectto animal feed.
• Development of certain supply chains, such as for foods thatare coming back into fashion. One example is vegetables thathave nutritional benefits for humans and are used to makeanimal feed, such as alfalfa, flax and field beans, which arenatural sources of Omega 3.
• Greater selection of varieties depending on their nutritionalproperties, such as higher vitamin or mineral content.
• Rise in the production of crops used in gluten-free products,such as rice, chestnuts, chickpeas and buckwheat, to meetdemand for gluten-free food.
Source: CREDOC study
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September 2017
Examples of trends and their impact on food processing
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Appendix 2 – Additional information
Processing
Sustainable food
• Substitution of ingredients, changes in product recipesand/or sourcing to include ingredients from sustainablesupply chains.
• Standardisation of product eco-design.
• Development of new processes that more effectively preserveraw agricultural products.
• Increased communication with consumers about initiatives.
• Systematic publication of corporate social responsibilityreports that go beyond legal obligations for certaincompanies, aimed at consumers as well as investors andcustomers.
• Inclusion of CSR criteria in specifications drawn up bysupermarkets and pooling of requirements with suppliers.
Food for health and well-being
• Replacement of ingredients with more nutritionalalternatives.
• Creation of recipes for health/well-being containingingredients considered "healthy" because they are naturallyrich in vitamins, antioxidants, Omega-3, etc.
• Creation of enriched food ranges, such as certain vitamin- ormineral-enriched baby foods, or sports nutrition foods.
• Emergence of specific multi-product brands for the elderly,including for example calcium-enriched or low-cholesterolfoods, to cater to the ageing population.
• Development of new processes and ingredients to meetdemand for innovative health products.
Source: CREDOC study
PwC
September 2017
Examples of trends and their impact on retailing
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The supply chain, an invaluable asset in meeting new customer expectations •
Appendix 2 – Additional information
Sustainable food
• Reorganisation of retail space to meet demand for moresustainable products. Removal of certain products from theshelf (e.g., endangered fish species and out-of-season fruit).
• Increase in the number of stores or aisles dedicated tounpackaged products.
• Inclusion of sustainability criteria in private label productspecifications.
• Development of product ranges based on North-South andNorth-North fair trade.
• Development of higher quality and more expensive productranges that ensure producers receive fair compensation.
• Development of retail models that offer an alternative tosupermarkets.
Food for health and well-being
• Expansion of existing ranges of health products.
• Systematic implementation of specific aisles for gluten-free,lactose-free and other "-free" products in supermarkets withsufficient space, as is currently the case for diet products.
• Possible creation of organic and health food areas.
• Development of specific retailing systems with an increase inthe number of specialist stores (diet food stores).
• Emergence of health food retailing in other types of stores,such as pharmacies for products targeted to the elderly, orsports stores, as is already the case for certain energy drinksand bars.
Source: CREDOC study
Retailing
PwC
September 2017
Contacts & Authors
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The supply chain, an invaluable asset in meeting new customer expectations •
PwC
September 2017
Simon BarbeauPartner, Strategy&[email protected]
Habib BabadjiManager, Strategy&[email protected]
Grégoire AlaixConsultant, Strategy&[email protected]
Sabine Durand-Hayes Baptiste Bannier Nour TekayaAssociée Directeur, Consulting Business Development & MarketingResponsible for the Consumer Goods sector Responsable for the Agribusiness sector [email protected]
[email protected] [email protected]
Contacts & Authors
Julien BellynckManager, [email protected]
Claire DecampSenior [email protected]
Sylvain LambertPartner, Sustainable [email protected]
Jérémy HoussinManager, Sustainable [email protected]
Camille HenriSenior Consultant, Sustainable [email protected]
For more information