Characteristics of demand in agri-food chains
Variability in consumer demand
Variability in consumer demand was a feature of all of the chains studied; however,
there were significant differences in the degree of variability and in the causes of
variability.
Where end-user demand was highly variable, managers often argued that
seasonality or unpredictable events such as weather changes were the reason.
Although such events undoubtedly do have an impact, the research suggested that for
many fresh food products, high variability in weekly consumer demand was most
commonly caused by promotional policies. An example is shown in Figure 2, which
shows the demand pattern for sausages. It might be expected that consumer demand
for sausages, as indeed for many other standard food items, would be fairly consistent
throughout the year. The chart, however, shows a very variable pattern. The high peak
around week 8 was due to the seasonal increase at Christmas, whilst the three peaks at
points 24, 30, 40 and 49 were related to retailer promotional activities.
Figure 3 shows the demand for a 2.5 kg pack of organic white potatoes and
demonstrates another common effect in the demand for food products, namely the
impact of interdependent demand for complimentary products. Again it might be
expected that consumer demand for potatoes would be fairly level week by week,
perhaps with some seasonality, for example, if more potatoes are eaten in winter.
However, the chart shows quite considerable variation in weekly demand for this
particular SKU. This was largely due to the fact that the demand for organic potatoes
was affected by the demand for other types of potatoes. The retailer had some 20
different potato types or pack sizes on display. At any one time at least one type or
pack size would be on special offer, thus creating erratic demand for alternative
products. The chart also shows an important impact of high variability in demand in
terms of product waste. The lines at the base of the chart show the level of price
mark-downs as product approached sell-by date and the level of disposals as product
passed its sell-by date. Taken together these two figures averaged 7.5 per cent of sales
by value (12 per cent of sales by volume) and in consequence wiped out the profitability
of this product line for the retailer.
The effect of promotions was strongly exemplified in one meat chain where the
retailer had abandoned its policy of promoting meat products. The chart in Figure 4
shows the pattern of demand for pork chops over a two year period. The most strikin