Examination of Witnesses (Questions 668
- 679)
TUESDAY 7 APRIL 1998
MR GEOFFREY
MOLLOY, DR
TONY HEANEY,
MR ANDREW
PRESTON, MR
EDDIE HONEYWELL
and MR PETER
KIRBY
Chairman
668. Good morning, Mr Molloy, and thank you
and your colleagues for coming this morning. I think you are aware
that we are looking into the crisis in the livestock industry,
obviously particularly within Wales; it has hit Wales particularly
badly. One of the reasons why we asked you here today is because
during the examination of the farming unions, they were very concerned
about, firstly, what they saw as excessive profits being made
by retailers and also the sourcing policies of retailers and we
then took that forward to food processors and frozen food producers,
such as yourselves, and that is why we would like you to clarify
some questions for us and allow us to establish the facts of the
matter, particularly with regard to sourcing. I wonder if you
could begin by telling us a little bit more about your Association,
how many members you have and do they include all the manufacturers
of frozen foods in the UK?
(Mr Molloy) Yes, thank you, Chairman.
We are the UK Association of Frozen Food Producers. We represent
producers only of frozen foods and the majority, but not all,
of manufacturers are in membership. I would guess that we probably
represent between our membership about 75/80 per cent of the total
frozen food turnover. That is a market that has consumer values
of something over £5 billion and it consists of a very wide
range of foods because if you can eat a food, pretty nearly always
you can freeze it, and anything you can freeze, we make and that
includes not only meat, but fish, vegetables, bakery products,
meals, desserts, all of those things. Meat is still an important
part of the sector partly as meat products themselves, burgers
and grills, things of that sort, and partly of course in a range
of products which you might describe as meals, snacks, bakery
products, pies, pizzas, flans, quiches, all of those things, ready
dishes, roast beef and two vegetables, all are meat-containing
to a degree, to a smaller or larger degree of course depending
on the product. We have in membership, I think, a range of names
which will be familiar to the Committee. Apart from Birdseye Walls
and Dalepak which are represented here, we have Campbell's who
make the Freshbake brand, we have RHM, who make the Tiffany's
brand of frozen products, Fribo Foods which are own-label producers,
Nestle« which produces the Findus brand, Hazelwoods Foods
which is mainly an own-label producer, Heinz which makes the Weightwatcher's
brand, McCain's who are large in pizzas, apart from chips of course,
and United Biscuit Frozen and Chilled Foods with the McVitie's
brand of pizzas, so there are a wide range of large, well-known
companies which I think would be familiar to the Members. I would
like to say please at the outset because you have raised the question,
Chairman, about profitability, that we would like to say that
this industry was particularly badly hit by the BSE crisis. We
saw ourselves as being squeezed in the middle of that crisis.
It is one that affected immediately not only the sales of meat
products, especially burgers and grills, but also all existing
stocks because when the over-30-month ban came into force, anything
that was made of over 30-month-old beef, irrespective of the real
risk or the real quality of the product, was unsaleable and it
had to be brought back and our members had to write off not only
their own stock, but a lot of stock we took back from retailers.
We tried very hard to get compensation and I actually saw the
ministers at the time and representatives, on our behalf, of the
FDF saw the Prime Minister to try to seek compensation, which
we did not get, from either retailer or from government sources.
We estimated at the time that the cost to the industry was getting
on for £70 million and in fact it was £40 million for
one company alone in stock write-off, lost sales and restructuring
of production in the first year alone. Two of our members went
out of business and others had to restructure at very substantial
cost, so it has been a very hard fight back from those levels
and we have not actually got back yet because sales levels of
all those products are still below the pre-BSE level particularly
for burgers and grills and they are probably still only about
two-thirds of the pre-BSE level which we do not really expect
to recover, so that has been very bad for the industry and it
has been particularly bad for margins, but we can explain all
of that later in more detail, if you wish. You raised the other
question about sourcing and we would just say that it is a matter
of faith with our members to restore consumer confidence in beef
and particularly British beef, so we are committed to the support
of British beef. I think I can say on behalf of all our members
that their production of burgers and grills is now, in beef terms,
all British, unlike some distributor own labels and non-members'
products, and fast food products in some cases, but there are
products where we find it impossible to source in the UK for largely
technical reasons. We have made the point in our memorandum and
one is cooked meat, which we can explain about later, and the
other one is lamb where we find that the technical qualities of
New Zealand lamb lend themselves much better to manufacturing
than British. That is really all I want to say by way of introduction,
Chairman, but I hope it helped to set the scene.
669. It did indeed and thank you very much.
You have probably answered at least two of our questions in that.
(Mr Molloy) I am sure you have more.
670. Well, we probably need the others expanded
on. Mr Molloy, could your colleagues from Birdseye Walls and Dalepak
briefly describe how their companies fit in the market and, particularly,
as we are the Welsh Affairs Committee, their presence within Wales?
(Dr Heaney) Good morning, Chairman. Birdseye
Walls employs about 5,300 people. It is a business which sells
nationwide, substantially through all the major supermarkets now.
I guess that 75 per cent of our business is through the major
multiples nowadays. The products, under our two major brand names
of Birdseye and Walls, are available nationwide. I guess they
probably sell broadly in the proportion of population distribution.
The business has a turnover of around £707 million. We are,
if you look at the icecream market and the frozen food market
together which is our total business, responsible for about 19
per cent of that total frozen food market. We have factories based
in Hull and Grimsby, Lowestoft and Gloucester, where all the icecream
is focused. We have no manufacturing operations in Wales at all.
However, the supermarkets we deal with who sell our products on
to the public are of course widely distributed within Wales, but
no direct manufacturing. Within the burger and frozen grill market,
we are the largest branded manufacturer. We do not undertake any
own-brand work for supermarkets at all, and I think the old phrase
is, "If it doesn't have our brand, then we didn't make it".
At the present time our burger business is now about £43
million of turnover which within that particular burger sector
in the frozen market is about 35 per cent market share and of
that, about two-thirds of our burger volume is beef-based. I think
that is probably it, unless there is anything else you would like
to know.
671. Just to clarify that £43 million of
burger sales, how does that compare with pre-BSE?
(Dr Heaney) Can I just quote that in
broad tonnage terms? We used to produce about 25,000 tonnes and
that has now dropped to 15,000 tonnes and, as Mr Molloy said earlier,
the consequences of that dramatic shift over a very short time-frame
have been very substantial for our business and we have had to
accommodate some very severe internal difficulties resulting from
cost increases and actively trying to develop the market and rebuild
the confidence. As you may well be aware, we took a very dramatic
early step in the whole event by concluding quickly that we, as
a major brand, had to do something to try and help the consumer
confidence problem in the immediate aftermath of the BSE announcement
in March of 1996, and our strategy was indeed to remove our products
from the marketplace because we clearly felt that they were not
selling and we felt that it would not be a particularly sensible
way of proceeding, coupled with a strategy to concentrate totally
on British-sourced beef and then return to the marketplace with
a completely new range of product offers. However, of course we
were trying to get back into a dead market which meant of course
that we had to do whatever we could at considerable cost to try
and stimulate that dying market. We have had some success in that
and we have particularly been running what we call our "Commitment
to Quality Campaign" which is to try and get over to the
consumer what our brand means in terms of the confidence that
they can have in the products that we produce.
(Mr Honeywell) We are Dalepak Foods and
we are based up in North Yorkshire. Prior to the BSE crisis two
years ago, we were a public quoted company on the stock market,
only a small one, but we were on there as an independent company
making branded products under the Dalepak and Ross brands and
supplying own-label into supermarkets. Like Birdseye, the bulk
of our sales goes through the big multiples in this country. Since
the BSE crisis, we have changed ownership twice and now we are
part of Northern Foods as of last week, so that is yet to have
an impact on us, but perhaps I can just sort of paint a picture
around Dalepak and leave out the other major players in it. Beef
is and indeed was a very big part of our business. We were hit
hard by BSE and had a lot of stock to write off in terms of finished
stock where we had to reduce the price in order to move it on
and we also had to reduce the price considerably of the stocks
of beef which we had in store with consequently a huge loss to
us. We had to rationalise the whole business. Out of a work force
of about 500, we had to lose something like 150 jobs, so it had
that sort of impact on us. Since then, along with the rest of
the industry, we have fought back mainly by trying to put some
sort of better quality image into the products and to that end
we have taken all sorts of steps forward. The bulk of the beef
we use now is Scotch beef which comes under the Farms Assurance
Scheme and all of the beef we use is farm-assured and is traceable
back to the farm. You have to bear in mind here that what we basically
use are the off-cuts of the primary beef industry and we are using
the by-products, but we have still managed to latch on to those
schemes. We have taken the MRM out of all the premium products
and we are trying to upgrade the products at the top end of the
market. We have increased meat contents. We have had to invest
in additional QA and QC facilities in the factory to put more
traceability in again in order to try and put more reassurance
into the processes that we use, and particularly we have strengthened
the technical and R&D teams on the basis that we have got
to be more inventive and we have to get something out there which
is going to appeal to the public. Also for a small company with
a relatively small turnover of about £35 million a year,
we have put a lot of money into marketing in our terms and we
have increased by about 400 per cent. We have also tried to home
in on the country of origin where appropriate and we have now
got lines out with "Scotch beef" on and we have got
lamb products "New Zealand" and we are just launching
a range of pork products with "British pork" on, so,
where it is appropriate, we have gone for that labelling and the
clearer we can get that, the better, but it has been difficult.
The whole market has been destroyed and it takes a lot of fighting
to get back often the only way you can get back in, apart from
trying to improve the quality, is to go with the price deals and
indeed we do a lot with promotional activity which is very good
and a lot of it moves out making no profit at all and that is
where we see ourselves in order to survive.
672. Can I now just ask a few technical questions
which are probably obvious, and, firstly, can you tell me, when
you make burgers and grills, do you still use fresh meat or can
you use frozen meat?
(Mr Honeywell) We only use frozen meat.
We are not butchers and we do not employ anybody to butcher, but
we buy the meat in ready to process and all the meat we use, whether
it is beef, lamb, pork or poultry, is all frozen.
673. Does that apply to the others?
(Mr Molloy) I would think that was true
of the industry generally, that all meat products would be from
frozen meat.
674. So you would use it from frozen and then
make the product and refreeze it?
(Mr Molloy) Yes, though it is only partially
thawed in the process.
(Mr Honeywell) In the process, the product
is not properly thawed, but it is kept below freezing point.
675. That would be for things like burgers and
grills?
(Mr Honeywell) Yes.
676. If we move on to the ready-meals market,
the cooked sector, is that the same, that you use frozen meat
for that, then cook it and refreeze it?
(Mr Molloy) Yes is the answer to that.
(Mr Honeywell) For mixed products you
use frozen blocks in essentially the same way as you do for burgers,
but if you are then looking at pre-cooked meat, that pre-cooked
meat comes in frozen and then it will get conditioned to be packed,
so you bring it from a frozen temperature of minus 18 to a temperature
of around about minus 5 and in that way you can dispense it, but
some people buy fresh meat in and cook it as fresh meat and then
freeze it, and people like Hazelwoods, who are not part of our
group[1],
use meat that way, but there is a variety.
Mr Caton
677. Your memorandum states, "To our knowledge,
all our members' burgers and grills are made of British meat and
are positively promoted as such", and I think in your introduction
you said that you think that that is the situation. It does sound
a little bit like a disclaimer. Why are you uncertain?
(Mr Molloy) Only because if I said absolutely
certainly 100 per cent, somebody would find one small member somewhere
who is actually not using British meat, but we do believe that
to be true, that our members use British meat in their burgers
and grills across the board.
Mr Livsey
678. I wonder if you could help us actually
to define the specification of a burger. I notice that Mr Honeywell
mentioned the percentage of meat in a burger. Could you give us
some run-down as to what actually is contained in a burger and
you must have some kind of specification for it? What is a burger,
in other words?
(Mr Honeywell) A burger is a manufactured
meat product where we have taken meat, we have minced it and reformed
it back into a shape again. The meat content can vary and there
is legislation which covers it, so we can go from products of,
say, 60 per cent meat up to nearly 100 per cent, 98 per cent meat.
679. Where you have got 60 or 70 per cent meat,
what is the other 30 or 40 per cent?
(Mr Honeywell) It is probably cereal,
rusk, and possibly soya as well.
1 Note Hazlewoods are members of the UKAFFP, but not
members of either Birdseye Walls or Dalepak groups. It may be
possible that Mr Honeywell referred not to Hazlewoods but to Northern
Foods, of which group Dalepak is now a part. Back
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