Gluten-free food supplier faces competition from the supermarkets

by Philip Smith - 05/05/2010

"Chris Hook is not looking forward to 2011. It is the year when the main four supermarkets are hoping for 80pc of sales in the specialist area of food for coeliacs coming from their own-label products, he says."

That might be good news for the growing numbers of shoppers who are buying the pizzas, pasta, pasties, bread, biscuits and other items made without wheat. But it's not so good for Hook, who has spent the past eight years developing two brands, sourcing and supplying such products aimed at coeliac shoppers.

"We are four months into our financial year and already we are behind budget for retail sales," says the 52-year-old founder and managing director of Warrington-based Nutrition Point. He knows he has to find new ways to reach his customers and combat the rising tide of lower-priced gluten-free products. And to rub salt into his wounds, Hook is fighting to maintain margins eroded by a weak pound as much of his range is made overseas.

Ofgem threatens power suppliers with competition investigationWith a background in sales and marketing, Hook formed Nutrition Point when he became weary of hunting for wheat-free food for his coeliac wife and son. The business began by importing mixes, selling via home delivery and working with local coeliac groups to raise awareness of the business and its own brands; "DS" (dietary specials), which includes the frozen and chilled meals, bread and mixes, and "Trufree", offering snacks and biscuits. "We had an in-house team to develop the recipes and then we went to a third-party manufacturer," he says.

Buoyed by a listing in Sainsbury's, Nutrition Point blossomed – helped by financial backing from the Italian gluten-free food business Dr Schär, from where it now sources many of its products – and last year it saw £500,000 pre-tax profits from a £25m turnover.

But its success is the cause of its own plight, says Hook. "When we went into Sainsbury's we were the only gluten-free product on the shelves," he says. "Now our biggest challenge is getting shelf space. It's the incredible growth of own-label gluten-free products. It's getting harder and harder to get listings."

Nutrition Point is even seeing some products getting delisted. "I can understand a delisting if a product isn't selling well," says Hook, "but our gluten-free bread was delisted by Tesco and that was a best-seller."

The issue is that if a line sells well, the retailers want to capitalise and create an own-label version. "The generic term now is "free from" and all the retailers tend to use that as their brand. There is a Morrison's Free From, an Asda Free From, Sainsbury's, and so on." But Hook is adamant Nutrition Point won't supply such own-label products. "Tesco has said we like what you do but we want it in own-label. But we don't do own-label. I have spent a lot of time building DS and Trufree and want to focus on them. We do our own brand and that's the issue. People trust it and we have invested a lot of effort and money in developing it. It's a bit like Kellogg's – they don't make cornflakes for anybody else. It's not being arrogant, it's that we offer the consumer a lot more in terms of dietetic support, cookery demonstrations and talking to coeliac groups. These are things a retailer would never do."

But those own-labels taking shelf space previously displaying DS and Trufree is an issue that worries Hook. With supermarkets giving advance notice the trend will only continue, Hook is now pondering his options.

There are an estimated 600,000 people in the UK with coeliac disease or a gluten intolerance, and most will be seeking wheat-free products. And even though just under half of the company's income derives from Glutafin – a brand from the Dr Schär camp and which is a prescription-only product available via pharmacies – retail is still the main route.

"Not everyone who buys gluten-free products is diagnosed as a coeliac. There is a growing band who feel they want to follow a gluten-free diet and feel better for it. These are the people who are driving the 'free from' sales," says Hook.

With only 5pc of Nutrition Point's retail business coming from web sales, Hook has to develop new retail routes to replace the supermarkets. If he can get Nutrition Point brands into other retailers such as chemists, health shops and pub chains, then he can retain market share. But that will mean coming up with new ideas.

"We are looking at new ranges. We have spent a lot of time producing frozen ready meals and convenience foods such as Yorkshire puddings. It's very difficult for someone who is restricted in what they can eat to manage their diet. If you come home late you can't just stick something in the microwave. Most coeliacs are fed up with eating baked potatoes as the only fast food available."

Expert view

Hugh Robertson, founding partner and CEO of marketing agency RPM

Nutrition Point has done well at establishing its reputation as a trusted supplier of coeliac-friendly products. However, if the business is to stave off the threat of supermarket own-label products and succeed in paying down its debts, Chris Hook will need to diversify his sales channels and invest in building the Nutrition Point brand to differentiate it from the competition.

The success of the business is reliant on building a community of long-term advocates who will not be promiscuous with the brand. Hook should create a clear set of definable values that connect with consumers on an emotional level – Nutrition Point feels like a cold name, so a rebrand could also be a good option.

He should also to look at refurbishing the company's website with a view to growing online sales, and develop new distribution channels and other retail listings – in specialist stores or otherwise. He could also look at a micro-marketing and create bundled incentives to encourage increased basket weight.

Clive Lewis, Institute of Chartered Accountants

When you deal in foreign currency you have a few options – (a) expose the business to potential huge uncertainty and risk by taking no preventive measures (b) take out forward currency deals to reduce the risk (c) try to match the need for a particular currency to pay suppliers with currency receipts from customers.

In this case Nutrition Point's currency problems arise from purchasing products from Dr Schar in euros but it does not have significant sales generating revenue in euros which rules out the third option.

So Chris Hook has two choices – either carry on taking no preventive measures or managing the foreign currency exposure. If he decides on managing the risk he has two options. Either he can fix the exchange rate to pay for purchases by booking a forward exchange contract. Alternatively he can use flexible products. A currency option will offer the potential positive benefit if the sterling/euro rates move in his favour but can provide protection against adverse rate movements. For the flexibility offered by this second option the bank will require for a premium. Probably the best option for Hook is to use a combination of the two.

Dan Sullivan, founder and president, Strategic Coach

Nutrition Point has done a great job of building trust with the coeliac community by serving their genuine needs, not just with quality products, but by helping them live better lives by providing variety, convenience, direction and education. This passion to help coeliacs improve their quality of life is where the unique value and growth potential lie in the business, not in its products, which are rapidly becoming commoditised.

I would advise Chris Hook to shift his focus to leveraging the relationship and trust they have built into new revenue streams. New products and brands from supermarkets will create more choice, but also more complexity for coeliacs trying to make safe, healthy choices amid a sea of new options. With its well established reputation, Nutrition Point is uniquely positioned to help coeliacs navigate this complexity and find solutions to the challenges they face daily, of which individual products will play a part. Packaging together its brand, reputation, and expertise will enable the provision of overall solutions that offer higher margins than product sales alone, and also the opportunity to escape from a commoditisation game where the supermarkets hold all the cards.

More Details: http://www.telegraph.co.uk/finance/businessclub/7674019/Gluten-free-food-supplier-faces-competition-from-the-supermarkets.html