Examination of Witnesses (Questions 720
- 739)
TUESDAY 7 APRIL 1998
MR GEOFFREY
MOLLOY, DR
TONY HEANEY,
MR ANDREW
PRESTON, MR
EDDIE HONEYWELL
and MR PETER
KIRBY
720. And the quality that you buy at is not
as high?
(Mr Preston) It depends on how you define
quality. We want a meat that we can manufacture. We do not need
a meat that Tesco's or Sainsbury's can sell, but we need a meat
that we can manufacture, and at the moment we get that consistency
of product from New Zealand.
(Dr Heaney) Could I just make one comment
about this word "consistency"? In the scale of manufacturing
which we represent, consistency of the raw material is very important
to us. When we set up our operations and set up our mincing systems
and blending systems and so on, there were aspects of the meat
which were very crucial, textural aspects, fat to lean ratio,
all of these sorts of things, and for us to run consistently and
be efficient in doing so, that supply had to be consistent. So
what we try and avoid wherever it is relevant to do so is incurring
major shifts in those attributes which influence the manufacturing
process, so we need to look for a consistent product from one
or more suppliers or a product which comes from only one supplier,
but which we know is a very high consistency.
Mr Livsey
721. The statement you have just made there,
Dr Heaney, is that because the supermarkets themselves are specifying
that particular consistency which you have just referred to?
(Dr Heaney) I cannot answer that question.
I do not know the answer to that. I do not know if any of my colleagues
have any knowledge of that.
(Mr Honeywell) Whatever you supply, it
has got to be consistent. The whole industry now works under very,
very tight controls of traceability and everything has got to
be the same all the time. We have long runs of product and everything
has got to be 100 per cent to do it. If there is a slight problem
with anything, you cannot run it, so it is very, very important
when all our raw material comes in that it all goes through a
checking system and it is all on positive release, so we know
we are 100 per cent certain before we set off. All specifications
where we are supplying supermarkets are agreed with them and the
product has got to be 100 per cent the same every time we make
it.
722. You state in your memorandum that lamb
and pork is increasingly used in meat products. Why is this and
do you expect that trend to continue?
(Mr Molloy) We think it is a trend certainly
and it is probably one or undoubtedly one which has been accelerated
by the BSE crisis and I think perhaps it is easier for one of
our producer members to answer that question. Dalepak, for instance,
do sell a lot and increasingly, I think, now.
(Mr Kirby) With BSE, supermarkets dropped
beef like a hot potato, to coin a phrase, and we overnight got
far bigger listings for pork and lamb products and far more than
we enjoyed before. The spin-off immediately with that raw material
was that it cost us 30 per cent extra about one week after BSE
for pork, lamb, and poultry, so it has a huge spin-off in terms
of price increases for the first three to six months when the
consumer moved on to buying them on a more regular basis mainly,
I think, because the public perceive lamb and pork and poultry
more healthy, especially pork, and poultry I think as far as pork
is concerned, sales probably improved more dramatically than lamb,
I would think, over the last year.
(Mr Honeywell) Beef is less than half
the volume we process now compared to, say, five years ago where
it had been 90 per cent of what we sold. So there has been a move
away from beef into pork and lamb.
723. How much of the other 50 per cent is lamb
and how much is pork?
(Mr Honeywell) Lamb would be the biggest
part of the 50 per cent, about 30 per cent and pork would be ten
per cent and poultry would be ten per cent because we are not
a big poultry processor. I would think poultry would be more than
half of the total market, but in our particular case it is not.
Mr Paterson
724. You say not only that your members' burgers
and grills are made of British meat but that they "are positively
promoted as such". Firstly, what is the increase in your
marketing and promotion budgets on beef as opposed to other meat
products such as lamb and pork?
(Mr Honeywell) You must bear in mind
our size. We have increased our marketing strategy out of necessity
to try and support the market by something like 400 per cent in
the space of two years. I would think at least 50 per cent of
that has gone into beef because that is where we have seen it
needs to go.
725. Is that from a very low base? Was the product
selling itself quite happily before that?
(Mr Honeywell) Yes. We were not big enough
in a branded way to spend a lot of money on marketing and advertising.
What we are spending now is significant as part of our general
turnover and very significant as part of our profit.
726. What proportion of the retail price do
you think is devoted to promotion and marketing?
(Mr Honeywell) I would not like to try
to answer that question. It will vary enormously.
727. Have you had more collaboration from some
supermarkets than others?
(Mr Honeywell) Yes. Where you have got
something that is of interest, as with the beef crisis where we
said we are trying to go for more premium product, yes, some supermarkets
were very very supportive. As of late people like the MLC have
been interested where in the past they have not been so interested,
but in the last 12 months or so we have had a lot more support
from them in terms of cash and in terms of managerial support
and advice.
728. If you take a cursory look at supermarket
shelves, it seems that very few frozen products, including burgers,
are marketed as British beef. Is this because the beef is not
British or because British beef is not perceived to appeal to
the consumer? There does not seem to be a lot of marketing.
(Mr Honeywell) These things take their
time. On frozen food it takes you a long long time to change anything.
You have got to get the customer in the first place to agree to
that change. Immediately after the BSE crisis we introduced a
product called "Dalepak Gold" which we thought would
go to the top of the market. It took us a long time to get that
into the market. That was made from Scotch beef. We went on TV
with that and that has been accepted by most of the retailers.
It has taken us almost two years to get it established as a line.
That would apply to most things. The choice that supermarket buyers
have to fill limited space is great. We have just started to put
on "Made from British pork" and again that has taken
12 months to get it moved through, get the packaging changed,
get people to agree to it and get listings. With any new product
we could go along to eight of the major multiples and only one
might list it and if it is successful in there we will persuade
another one to list it. Nobody is there snapping your hand off
for products. It is a hard slog, particularly in this market which
is not seen as being an excited market or a "sexy" market.
It is hard, difficult selling.
(Dr Heaney) We are in a slightly different
position in Birds eye and marketing lamb products is not a major
feature in what we do at all. It is a very insignificant part
of our product range. The depression in the post-BSE period was
very severe. We had nothing to build back on. We did start to
try and offer more products into the marketplace based on lamb,
pork and so on. Not having the initial base to build upon meant
it was quite a difficult task and probably on balance it has not
been wonderfully successful. We have still got this major depression
in our range. Our business has consistently poured very large
sums of money into advertising. You cannot not have seen our television
advert. It is a consistent feed particularly in the red meat business
which was very substantial prior to the BSE crisis. There were
large sums of money going in to support what in those days you
may remember as the Steak House brand. The reason why we have
to do this is simply because we are selling, as my colleague said,
to the supermarkets. They are our customers. They are only interested
in buying if we are undertaking substantial advertising and promotional
campaigns in the marketplace which interact with the consumer.
So the consumer sees the advertising, the consumer looks for the
product and quite often offering new products to the supermarkets
means you get total rejection if the amount of money you are prepared
to throw behind this is not high enough in advertising terms.
As far as the red meat area has been concerned, the post-BSE crisis
left us with some very massive cost problems to try and cope with
and they are not over yet. We have very expensive plants sitting
doing absolutely nothing. Therefore, we changed our tack in advertising
and we focused much more on trying to build a commitment to quality,
a commitment to British beef. We are now at the stage where we
are ready to start back into the larger-scale marketing of the
red meat products. For example, a campaign that is just about
to be launched is costing something of the order of £1.5
million and it is covering no more than a couple of months of
activity. So we are talking millions.
729. What would be the proportion of the retail
price?
(Dr Heaney) I do not have the answer
to that. If that is of interest we can establish that for you.
730. Do you think you have now established that
saying something is British is a plus when promoting a product?
(Dr Heaney) I think it is, yes.
731. So you think we are over the hump on consumer
confidence, do you?
(Dr Heaney) Confidence is probably rebuilding,
but the BSE crisis has caused a different range of reactions in
the consumer. There are those who probably eat more beef than
before because they are damn well sure it is not going to influence
their eating habits, whereas at the other extreme there are those
who have stopped eating meat entirely. It is a difficult market
to analyse even though we do undertake market research. It is
difficult to unravel the huge range of consumer reactions to the
BSE issue. I think on balance there is a desire now for aspects
that were linked to close sourcing, tight sourcing, traceability
and by focusing in on British sources—the consumer sees
that as being more easily controlled.
(Mr Molloy) On this question of consumer
confidence, it may well be true that it has been re-established
to a considerable degree, but unfortunately many of the products
that are made by our members, particularly burgers and grills,
have been one of the most badly hit by the whole BSE crisis. The
general feeling I get from our members is that having re-established
from an immediate post-BSE level of about 25 per cent of what
sales used to be to about 65 per cent or so is really getting
as far as it is going to go. We have to accept that beefburgers
and grills will not recover to the pre-BSE levels. I think that
is something that has changed. It will be the factor in the marketplace
that is permanent to that degree.
(Dr Heaney) Yes, that is true. I think
initially we lived in the hope of being able to re-utilize all
our assets again, but we are beyond that stage now. We are looking
at a much different level of the market entirely whilst still
sitting on the assets.
Mr Livsey
732. You have answered part of my question,
but there are a couple of specific points which I would like to
cover with regard to raw material specification which you say
for burgers has changed dramatically, and you say that your members
have made deliberate efforts to improve quality. Why, for example,
is the majority coming from steer beef?
(Mr Preston) Because there is nothing
else, there are steers or heifers. Heifers mainly now go into
the retail trade. We are not allowed to buy cows any more. Everything
has to be under 30 months of age.
733. There are a lot of heifers in the market.
There is a huge slump in heifer prices. They are very difficult
to sell.
(Mr Preston) As a company we draw no
distinction between steer and heifer. Our meat tends to come from
steer because that is what the abattoirs that we use tend to purchase.
Again, we are buying cuts from the forequarter and we are buying
flanks. We buy a mix of those two cuts to make the burgers. The
market is still governed by what the fresh meat sector wishes
to take from it, that is in terms of all the loin meat, the steaking
meat, the thick shoulder meat for stewing, for brazing and for
the steaking muscles and hindquarter and the roasting muscles.
We take the byproduct.
734. So your specification is for a byproduct
from steers?
(Mr Preston) Steers/heifers, we draw
no distinction. People like supermarkets, because of size, because
of texture, will draw a distinction because of what they want
to sell, but we do not.
735. You talk about the specification being
about quality. Is it not more about the fact that the price is
an absolutely vital aspect of the product?
(Mr Preston) The price is part of the
business, it has to be, especially after the trauma we have had
in the last two years where the price has to be right for us to
be able to produce and to sell.
736. So is this because the supermarkets, for
example, are demanding that you only supply a product at a certain
price to be competitive?
(Mr Preston) I am not qualified to answer
that but I can get you an answer on it.
737. I would be very grateful if we could have
an answer.
(Mr Honeywell) If you are not competitive
you will not get the business. It must be seven or eight years
ago since we had a price increase on anything at all and all the
time you are trying to generate interest in that market to make
your product attractive which you can do with promotion by reducing
the margins.
738. So it is all concentrated on price. Quality
has gone out the window, has it?
(Mr Honeywell) You have got the quality
base, but we have got specifications which we cannot waiver from.
It is our job to get that product at the cheapest price we can.
We get the best price we can when we buy and we get the best price
we can when we sell. Sometimes we are not very good at it and
it is reflected in our company results, but that is what we attempt
to do.
739. So that policy really has had a direct
impact on the price that farmers have had for their cattle in
the last 12 months, has it?
(Mr Honeywell) Not in the last 12 months,
forever and ever. We have always worked like that. We buy at the
best price we can buy at and we sell at the best price we can
sell at, as I am sure do the farmers.
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