The Changing Shape of Meat Eating

The British Pig Executive (BPEX) has published data about meat consumption comparing the year ending 25th January 2009 with the previous 12 months, and the figures give an interesting insight into how consumers are coping with the twin challenges of rising prices and recessionary nervousness.

Faced with some whopping price rises on red meat*, and a conscience led move towards buying more welfare friendly chicken, I thought that consumers would just cut back on the amount of meat, fish and poultry they bought. In fact total consumption of these foods has remained the same as last year at just under 3 million tonnes.

There are though quite big changes in the types of protein bought.

Up are sales of burgers (+6%), sausages (+3%), frozen fish (+4%), pastry based meats (+2%) and fresh fish (+1%).

Down are sales of canned meats (-5%), lamb (-4%), beef (-3%), pork (-2%), and chilled ready meals (-5%).

Poultry is still by far the biggest meat bought, and sales are level with last year.

Within the red meat sector there has been a well documented trend towards buying cheaper cuts. Lamb mince has seen the biggest rise in sales followed by pork loin, stewing lamb, beef mince and stewing beef. The biggest falls have been in roasting cuts of lamb, beef and pork shoulder, and also in beef steaks. What seems to be happening is that people are buying red meat less often, and when they do buy, they buy less at any one time.

The trends make sense. Consumers are managing their budgets carefully. They have turned to meats such as bacon, sausages, and burgers which are not just cheaper but allow for stricter portion control, and so less waste. They are prepared to spend time at home now, cooking those cheaper cuts, rather than go out and pay restaurant prices. The trend towards frozen foods is being seen generally, not just in fish, again because of price. And the move away from ready meals reflects unwillingness to pay high prices, but also the rise in home cooking.

Perhaps the most surprising thing is that these shifts in consumer behaviour are large, and have happened very quickly. They can have a dramatic effect on profitability, for example in red meat where demand for expensive cuts has plummeted and best cuts are either being minced or sold off at vastly reduced prices. They forcibly illustrate the need to keep a very close eye on trends, and to be prepared to change tack to meet consumer needs.

* Notes on price rises

The data shows that in the last year prices per kilo have risen as follows: beef +11%, lamb +9%, pork +10%, bacon +11%, sausages +7% and sliced meats +8%. These rises are averages and reflect the trend to cheaper cuts. Like for like comparisons on each cut will show much higher increases. Price increases are accelerating, for example in the last 12 weeks, beef has gone up by 16%, and lamb by 11%, compared with the same period a year ago. Further changes in the patterns of consumption are therefore likely.

Essential Waitrose - All a Bit Confusing

To Waitrose, keen to see what the new “essential Waitrose” range is all about.

Billed by the Waitrose press office as “designed to make shopping for staple groceries easier for shoppers”, I found it all rather confusing.
Perhaps the problem was expectation. I had expected to find a new range, displayed alongside existing products, but with a cheaper price and an easy to understand reason about why it is cheaper. Similar to Tesco’s Value, Sainsbury’s Basic and ASDA’s Smartprice.

Not so. Much of the new range is being sold at the same price as existing products. This is true of meat, where the new range and the old were being sold side by side, and fruit. What makes it more difficult to understand is a sign above the meat and fruit shelves saying “all the quality you would expect from Waitrose at prices you wouldn’t.” Which means the price conscious shopper will probably feel put out because prices have not been reduced, and the quality conscious consumer fret that the product is not as good as it used to be.

And then there is that word “essential”. On shelf today were blackberries from Mexico, blueberries from Chile and raspberries from Morocco. Hardly essentials. Essential branding on the meat shelf is being used on rump and sirloin steak, not just on cheaper cuts like mince and braising beef. And I see from the press photo that there will be an essential farfalle. It’s a pasta apparently, but to most people probably not an essential purchase.

On a less critical note, it is easy to see an opening for a bog standard yoghurt, because at the moment all you can buy are speciality flavours and ranges like Seriously Fruity or Probiotics. Also, an offering of free range eggs that do not come from a specific breed like the currently sold Columbian Blacktail could be cheaper, and understandably so. The milk, jam, and biscuits are not yet on shelf so we do not know what sort of products they will be.

Waitrose is a great business, to be wholeheartedly admired for its commitment to quality, and its exemplary animal welfare standards and reputation for fair dealings with its farmers. Clearly it does need to tune its strategy, along with every other retail operator, to manage through the current economic challenges.

But to work, an initiative needs to have a clear and simple message easily picked up by consumers. I think the issue Waitrose faces is that they tried to combine two elements – a pack design change with the introduction of cheaper products. And its hard enough to communicate one new message to shoppers, let alone two.

I really hope it’s just me who finds the offer confusing.

Diversification Trends - DEFRA Survey Shows More Farms Involved But Income Down

DEFRA has just published its annual analysis of farmer diversification activities in England, and the income generated from them. (Diversification being defined as “The entrepreneurial use of farm resources for a non agricultural purpose for commercial gain.” )
The survey is peppered with statistics and makes for dry reading. But for those happy to delve into the detail there are some useful insights to be had.

Income from diversification fell sharply to £400m in the year to April 2008, compared with £430m in the year to April 2007, and dropped from 21% of total income to 15%. The fall is not due to less farms being involved in diversification. Indeed there were 29,600 diversified farms in 07/08, compared with 28,700 in 06/07. Rather, the drop is due to a fall in the amount of income generated per farm. In 06/07 the average income per farm was £14,500 compared with £13,700 in 07/08.
The survey figures are not sufficiently robust to draw hard and fast conclusions about the reasons for the drop, but anyone considering diversification might want to think about the following factors, which boil down to the size of the market opportunity, competitive conditions, and costs to operate.
For example, is there now so much competition that diversifiers are having to reduce prices to get business. Or, are the new businesses being established very small because most of the market has been mopped up by existing players. Or, have costs now risen sharply, but competitive conditions mean that prices cannot be put up to offset them, and so margins are squeezed.
Another factor is that the drop in diversified income coincided with a rise in income from core farming excluding subsidies, so it could be be that diversification loses focus once financial circumstances improve. This is in itself dangerous as business once lost will be difficult to recapture.

The survey also compares the number of new and discontinued enterprises, and shows that the number of new enterprises exceeded discontinued ones in all areas except food retailing and processing. 3,100 farms started diversification in 07/08, compared with 2,200 discontinuing. The biggest jump was in sport and recreation, and tourist accommodation and catering (although the survey says the sample size for tourism is small, and may not be totally accurate). By contrast, 1,100 food processing and retailing enterprises were discontinued, compared with 800 start ups.

Letting of farm buildings accounts for just over half of all diversification enterprises, and 68% of diversified income, and has the highest profit margin.
Letting buildings gives a margin of 83%, compared with 62% for sport/recreation activity, 58% for tourist enterprises, and 25% for processing/retailing. It is perhaps no wonder that letting of buildings is so attractive given the high margins and low hassle factor.
The average enterprise incomes per farm are as follows:
Letting of buildings = £13,000
Processing/retailing
of farm produce = £9,800
Sport/recreation = £4,700
Tourism = £10,300
These look like healthy returns, but they are average figures which disguise the fact that most diversified enterprises are small. 56% of all enterprises have an output (turnover) of less than £10,000 and 15% have an output of less than £1,000.

It is often thought that small farms are more likely to diversify than larger ones, but the opposite is true, with 66% of the very largest engaged in diversification compared with 42% of the smallest. Less surprising perhaps is the fact that the largest make considerably bigger profits than the smallest, averaging £25,100 per farm versus £10,900 for the smallest.

Reading through the survey results reminds us that diversification requires thorough research about the size and profitability of a market opportunity before proceeding, and constant attention to consumer trends and competitive activities once up and running. It also reminds us that most diversifications are small.

But encouragingly, the survey shows that just 2% of diversified businesses made a loss in 07/08, which indicates that diversification can be a very useful addition to farm income.