Wednesday, 27 October 2010

Addressing the Beef Pricing Problem

The short answer to the problem of low farm gate prices is to get demand to outstrip supply.

The balance this year is particularly out of whack. Between April, when prices started to plummet, and August (latest published data), around 9% more cattle were slaughtered in Great Britain compared with the same time last year. Demand in the grocery trade over the same time grew by just 1%. So we cannot be surprised that prices have dropped.

The issue of oversupply might ease. According to the National Beef Association, dairy beef finishers will drop out of the market next year as profits suffer through low prices and high feed costs. Longer term, industry experts forecast that global demand for beef will outstrip supply.

Meanwhile, what can be done about demand.

There is no shortage of advice. We have heard the NBA call for supermarkets to follow America’s lead and be creative about developing high value cuts from the forequarter, and to stop selling mince at cheap prices because they cannot be bothered to think up other ways of selling meat from the front end.

Peter Allen, respected head of Midlands based catering butchers Aubrey Allen says the answer is to create a beef brand that will deliver guaranteed quality, and so command a higher price which can then be passed back along the chain.

John Cross, EBLEX chairman, reckons the answer is to export more, and that EBLEX is ideally placed to lead the charge across the channel and beyond. It’s true that exports are growing fast, up 20% this year, but at 56,000 tonnes compared with over 300,000 tonnes sold through supermarkets it will not solve the problem.

One thing is clear – raising the price of beef to consumers in the hope that some of the increase will be passed back to producers will merely dampen already fragile demand. We should be pleased that people are buying mince because at least that keeps them in the beef market rather than turn to cheaper pork or chicken.

What also needs to be recognised is that vague calls for “the industry” to grow demand will not work. Stimulating demand requires focus, funding, and clear accountability for performance.

Producers do not have this type of clout. Neither do industry bodies who can influence and campaign, but do not have the sales and profit responsibility that brings with it a hunger for results.

It is processors, who are best placed to drive demand and it is they who should shoulder the main responsibility for growing beef sales. A creative processor, who understands what consumers want, and has close relationships with the outlets they supply, should be able to develop products which build sales and profits for all in the supply chain.

Flashes of inspiration do exist, but mostly supermarket shelves and food service menus are filled with the same cuts that were available decades ago.

The role of the processor is rarely mentioned in the beef pricing debate. Processors need to come forward, raise their game and add some dynamism to a sluggish market.

Monday, 11 October 2010

Food for Thought from Marks and Spencer

Last week, after years of lacklustre performance, Marks and Spencer announced that in the last 16 weeks food sales have grown by 5.2% on a like for like basis. This is a better result than Sainsbury, or Tesco, or Asda. With a 3.7% market share Marks is still tiny, but what makes them worth watching is that historically they have set the pace in food innovation. What Marks started others followed, and food buying has been transformed as a result. They were, for example, pioneers in ready meals, leaders in getting exotic fruits and vegetables in the shopping bag, and the company that made a sandwich lunch something special.

They then lost their creative edge, and competitors not just copied but improved on what they had done.

Does the recent food performance mean they have got their edge back?

Marc Bolland their new chief executive said that growth was down to a combination of aggressive price cutting offers and innovation, with 370 new lines being launched in the last three months.

Certainly they are promoting heavily. A wall of special offers greets the shopper. In the meat area, there were bacon, chicken, sausages, small beef joints, and the ever present mince all priced at 3 for £10. There were offers in fruit and veg, fish, ready meals, desserts and wine. In this they are no different from any other supermarket.

What about the innovation? The offer is certainly more exciting than it was, with ever more exotic combinations of flavours in a ready meal, and even more indulgent biscuits and cakes. There were also some new ideas such as “One Pot Casserole” where diced beef, ready peeled and chopped vegetables, and a cook in sauce could all be purchased for a fiver, thus encouraging shoppers to try something other than mince, with minimum hassle.

Importantly, the merchandising was good, with green coloured “new” stickers highlighting every new product.

The question is whether enough has been done for Marks to regain its position as leader in food, and the answer just now, is probably not. What is on offer is a variation on a theme rather than a genuine breakthrough. There is a limit to the amount of exotic and indulgent food that people will buy, either through monetary constraints or the inability to stomach yet another fancy meal.

It will be interesting to hear in November how Mr. Bolland intends to take the business forward. Premium indulgence leavened with price cuts is fine, but more will be needed to keep M&S food sales moving ahead.