Examination of Witnesses (Questions 603
- 619)
MONDAY 9 MARCH 1998
MR BARRY
MARTYN AND
MR TONY
COMBES
Chairman
603. Welcome, Mr Combes and Mr Martyn representing
Safeway. If you would like to introduce yourselves please do so,
and tell me what your role is in the company.
(Mr Martyn) I am the fresh meat buying
director responsible for all areas of fresh meat, fish, poultry
and also a large amount of fresh further processed goods such
as pizzas, pies, sausages, bacon, ready meals, etc.
(Mr Combes) I am public affairs manager.
I tend to look after agricultural interests including animal welfare
and meetings with farmers.
604. From your memorandum we deduce that fourteen
of your 455 stores are in Wales and you employ 2,500 people. What
is your turnover in Wales?
(Mr Martyn) Just over £250 million.
605. How much of that is related to meat?
(Mr Martyn) I would prefer not to quote
that actual figure. We are happy to give it to you afterwards,
certainly.
606. We will look forward to that. Thank you.
As I have pointed out to your other colleagues, the general perception
to people outside might be that a price spread increase from 37.8
per cent to 55 per cent for lamb and a price spread increase from
44.5 per cent to 54.1 per cent over the last two years to December
1997 might be considered by the lay person as taking excess profits
at a time when red meat is suffering from all kinds of problems—in
beef particularly a very fragile market. What would be your answer
to that?
(Mr Martyn) The first statement I would
make is that we are not making any more profits year-on-year in
those areas. If we look at lamb to start with, our own figures—and
we were looking at February and trying to understand the total
picture—would show that the live price was down about 43
per cent, in fact, and, tracing that through, our buying price
is down about 20 per cent; our retail price is also down about
20 per cent.
607. So you would say you are taking your share
of the pain compared to the farmers?
(Mr Martyn) I would say we are broadly
maintaining a normal profit margin.
608. So in a sense, then, you are taking less
of the pain because you are maintaining your own margin and the
farmers are taking a cut in their income of in the region of,
we have heard from the farming unions, say 50 per cent?
(Mr Martyn) I would agree with that statement.
I would point to why the price is so low and I do not honestly
think we are responsible for such low prices in the market place.
We are passing on all cost price reductions that we get.
609. In relation to beef, your memorandum emphasises
the additional abattoir on-costs and the decline in fifth quarter
values. To what extent are these costs reflected in the price
you pay to your suppliers?
(Mr Martyn) They would be pretty well
fully reflected in the price we pay to our suppliers. In our written
evidence we submitted that this equated to, at retail price, about
38 pence per kg. Our latest figures on that, examining that closely
with suppliers, now come up to about 44 pence per kg.
610. Also your memorandum shows there was a
small reduction in retail prices for beef between 1995 and 1997.
As I said before, it is very difficult for farmers to be reassured
that you are not profiteering at their expense. We understand
you may be prepared to give your profit margins in confidence.
(Mr Martyn) We are happy to give you
whatever information you wish in confidence. We have a fairly
detailed breakdown of the way a carcass is broken down that we
are happy to share with you.
Mr Paterson
611. You do not mention the price spread for
lamb in your memorandum. Can you give us some details on that?
(Mr Martyn) It was lamb I was quoting
just now. We would estimate in February, when we looked at the
figures, that prices for lamb were down 43 per cent and retail
prices were down 20 per cent. Our cost prices, the price we pay
for the finished product, were also down about 20 per cent. On
lamb it is important to say, in common with the other retailers
you have spoken to, that we are buying a finished product. The
product you see on our shelves is the product we are buying.
612. How much of your total lamb is UK sourced?
You mentioned 15 per cent is Welsh.
(Mr Martyn) Of fresh lamb, outside of
the New Zealand season, 100 per cent is UK. If we take into account
the New Zealand season, that would amount to about 14 per cent.
613. Given the glut of lamb at the moment, I
have heard prices as low as £26. Do you see opportunities
for increasing that?
(Mr Martyn) Without a doubt, on UK source.
We are not protective in any way towards New Zealand. Firstly,
on frozen lamb, we have openly said that if there are any UK farmers
or processors who can supply us with British or Welsh frozen lamb,
we would be very pleased to talk to them. Secondly, on fresh lamb,
you have already heard evidence about eating quality and, again,
we would be very pleased to try to work with farmers and producers
to see if there are ways of improving that quality so that we
do not feel the need to import fresh New Zealand lamb.
614. Do you have active schemes planned? You
say you are prepared to help.
(Mr Martyn) We have spoken to the Farmers'
Union of Wales and the NFU about frozen lamb and the ball is in
their court—or your court, if you like, for the people in
this room. We are very happy to discuss that. Other than opening
the door, I am not sure there is more we can do at this stage.
(Mr Combes) Can I add that sales of New
Zealand fresh lamb are incremental. What tends to happen is customers
will stop buying lamb because they do not think the quality of
the British lamb or the Welsh lamb at the time we are selling
New Zealand lamb is as good so, rather than them go off and buy
something else, we say "Stick with lamb by buying New Zealand
lamb", so these are incremental sales.
Mr Caton
615. As I understand your answer to the Chairman's
first question you are saying basically that you are not exploiting
the situation of low farm gate prices but you are maintaining
your profit margins. If, as you say in your letters provided to
us and to farmers and growers, you have a commitment to UK agriculture,
do you not think you should prove that at this critical time—firstly,
by being prepared to cut into your profit margins if necessary,
and also to increase your purchase of UK produce?
(Mr Martyn) Taking the second part of
your question first, yes, we have done that. On the first question,
I think it is for us to work with producers and the industry to
try to improve the market—not just to slash our own profit
margins. We need to find ways together of improving the market.
Ms Jackie Lawrence
616. When you wrote your memorandum, you said
that 80 per cent of your beef came from the UK and 20 per cent
from southern Ireland—although this was less than you bought
three years ago. You now say you are getting all of your beef
from the UK. What was the reason for the change?
(Mr Martyn) Let me give you some background
on the historical reasons—and it may be familiar ground
to what you have heard. We have dealt with southern Ireland for
about twenty years. The key reason is that we can buy from southern
Ireland anything we want so, if we are going to promote sirloin
steaks in the summer, we can buy sirloin primals, boneless, to
go through our retail packing plant. When we promote an item our
sales go up four, five, six-fold. As many of you know, prime steaks
represent only about 5 per cent of the animal. That gives a major
problem on imbalances so, historically, we have always kept a
toe in the water—perhaps more than that because we are not
a business that dives in and out of a supplier—so we have
always had a level of business with southern Ireland in order
that, when we want to buy in particular cuts, we can do that to
promote. I think those purchases for promotions have actually
helped the whole UK because we have been able to promote when
we would not be able to. Now you ask what has made us change our
mind? Well, we have had farmers and consumers talking to us saying
"We want to know where products are coming from and we would
like you to buy British". Mr Caton asked whether we could
do more to help the situation and we have switched to 100 per
cent British sourcing. I am delighted to say that we can do that
at this moment in time. I would have to be honest and say that,
in the height of summer, if we are promoting steaks and at Christmas
if we are promoting topside joints, I find it difficult to see
how we can get sufficient products but I am very pleased we can
do that at the moment.
617. I am delighted to hear you responded to
the pressures from the consumer who seem to be wanting British
beef. What percentage of that beef comes from Wales?
(Mr Martyn) It is about 9 per cent.
618. Just to follow on from what was said before,
can you let us have a similar percentage that comes from Northern
Ireland, a source from Northern Ireland and the rest of the UK
so we can make a comparison?
(Mr Martyn) Certainly[7]
Chairman
619. Where do you source your processed beef
and lamb?
(Mr Martyn) That is a trickier subject.
I think our long term goal is clearly that meat in processed food
should be to exactly the same standards that we have currently
in fresh foods—that it is farm assured, etc. At the moment
a fair proportion would be that way—I can quote individual
products: pies in Scotland are Scottish beef, sausage rolls are
all sourced from the UK, etc. It is a very big subject: we are
competing on processed foods from some large branded manufacturers,
particularly on frozen foods which is not my area, and it is something
we are going down the route of and pushing the boundaries further
and further back. We have a lot of work to do on that at the moment.
7 Note from witness: The percentage of Safeway
Fresh Meat sourced from Northern Ireland in February 1998 was
12%. The balance was made up of Wales 9%, Scotland 34% and England
45%. Back
| 
