Who’s in charge now!

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The shift in power from businesses to consumers is a powerful trend that is really starting to change the market dynamics for many well established businesses and a number of practices that they have pursued in past years. In the past month we have seen a number of examples of how powerful this trend is. Here are three of particular interest.

Example 1

In the UK there has been a boom in the coffee shop market. In the year 2014 market growth in this niche was 10%. The niche includes large global players such as Starbucks, Costa and Café Nero as well as a lot of smaller ‘smart’ specialist operators. Ethical Consumer Magazine recently published a survey of how 14 significant businesses in this niche ranked in terms of their business ethical status. The giant Starbucks chain was scored second worst and in last place was a chain by the name of Harris and Hoole. The reasons why Starbucks in particular ranked so low included their highly publicised tax avoidance practices, removing paid lunch breaks for staff, political lobbying and not using sustainably produced raw materials. This has put off Starbucks customers and resulted in the company recording a significant sales drop off, in particular after their tax avoidance practices became public – a loss of their competitive advantage

Coffee Rankings

Example 2

The use of artificial sweeteners in Diet beverages now appears to be less accepted by growing numbers of consumers. This is reflected by a 6% drop in sales for Diet Coke during the first quarter of 2014. Diet Pepsi sales also suffered a 5.2% decline during 2014 and the company has recently announced it will no longer use aspartamine as an artificial sweetener. Consumer concerns about the possible negative health impacts of aspartamine are reported to be the main reason for the drop in sales. Interestingly, at a time when consumers are increasingly focused on choosing products with natural ingredients, Pepsi plans to substitute asparatamine with another artificial sweetener, sucralose. It is safer, but still artificial. The Wall Street Journal questions whether the change will be enough to halt the decline in Diet Pepsi sales.

Example 3

It’s a weekly column that was relatively recently introduced into one of New Zealand’s top circulation and online newspapers, the New Zealand Herald. The column is written by a highly regarded author and promoter of natural products and lifestyles, Wendyl Nissen. Each week she critiques a processed product bought off the shelf in local supermarkets. Recently she critiqued a chocolate cake available in one of the country’s largest supermarket chains, New World. The headline for her article was ‘Hormone disruptor lurking in cake’. The label on this particular product listed propyl paraben, the ‘hormone disruptor’, as an ingredient. It has been banned in food products in the EU since 2006 due to experimental evidence that indicates it reduces sperm counts in rats. The product label also listed propylene glycol, otherwise known as anti-freeze. It gained a high profile some years ago when it was discovered as an illegal additive in some wines from Austria.  A third label item that caused concern was the artificial colouring agents used, some of which are subject to health warnings or bans on use in the USA and Europe. As a result of this column the major supermarket chains have told their suppliers to remove propyl paraben from the product and now assure customers that this is the case.

What does this mean for businesses?

The trend reflected by these three examples illustrates that customers are becoming more concerned about the products that they consume and the ingredients they contain as well as the practices business pursue. It reflects a desire for things more ‘natural’ and a declining desire for things ‘artificial’, not only in food but in many other product lines. It also reflects a growing disapproval of the accounting and taxation practices large global corporate groups are pursuing in order to pay minimal amounts of tax in the companies they operate in. For example, between 1998 and 2014 Starbucks paid only £8.6 million in taxes in the UK. News of that has impacted upon their sales as consumers react negatively to their practices. Directors and senior executives need to ensure that the businesses which they oversee do not do things that will alienate their customers. After all, without customers there is no business!


About

Ian is an internationally experienced businessman and consultant and an investor/partner in several businesses internationally. He is fluent in several languages and has worked with clients in many different sectors in more than 40 countries over the past 25 years.

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