Select Committee on Welsh Affairs Minutes of Evidence


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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