Examination of Witnesses (Questions 712-719)
MR DAVID THOMAS, MR GEOFFREY BROWN, MR PAUL FARROW AND MR MARK KERR
WEDNESDAY 10 APRIL 2002
Chairman
712. Gentlemen, thank you for coming. I shall start by asking the same question that I asked the previous set of witnesses. We talk a lot about the dislocation of food chains in the food industry—distribution and supply chains in the food industry—in the sense that we do not appear to apply the terminology to any other industrial sector. What is it about the industry that creates that problem? Is it because at one end you have a subsidised, independent, producer and at the other end a fiercely competitive retailing sector? I was not wholly persuaded by the view that just because it is big that that necessarily causes problems. Would you first introduce yourselves?
(Mr Thomas) I am David Thomas. I am Chief Executive of Whitbread. As chief executives tend to know very little about the detail, of which I am a good example, I have my experts with me. Geoff Brown is our Technical Services Director, Paul Farrow is Head of Food Procurement and Mark Kerr is our Public Affairs Director. I shall probably ask them to participate to a reasonable degree. In reply to your question, from our perspective the food service industry is a relatively new one and one that is growing rapidly. One of the elements of the issue is that the growing pains of this part of the food industry are mean that it has very differing needs compared with the traditional retailer. In a nutshell what we need in the food service industry is consistency. We publish menus that last for some six months or so and if you, as a customer, come into one of our restaurants and ask for your favourite dish and you are greeted by the fact that it is "off", that is a severe disappointment and ruins the occasion. We operate chains. Take Beefeater, for example. If you have a great sirloin steak in Brighton's Beefeater, when you go to Birmingham or Blackpool you will expect to have a steak that is identical in terms of size and eating quality. We want consistency. That is our promise. That promise is the essence of delivering success. The third aspect is that you expect to pay the same price. The farming industry tends to work on a weekly price basis, whereas we work on a six-monthly one. So we want price stability because then we can give the keenest price to our consumers and we can make a profit for our shareholders. In essence, the two factors that I would point to are that there is a great mis-match between what the farmer, particularly in the red meat area, is working towards and what we have to work towards in terms of the needs and the demands of our customers. Consumers' expectations are continuing to increase.
713. You have just said that the farming industry is living on prices that are very short term and that you have a longer perspective of six months. You want a steak in Brighton to be the same as a steak served in Blackpool. Why you have chosen two places that hold party conferences I cannot imagine. So how do you ensure that that happens? What do you do with your suppliers to ensure that the steaks are the same?
(Mr Farrow) We have to work very closely with our suppliers to ensure that they understand exactly the parameters of our tight specifications. We talk about the specifications and that our consumers demand repeatability, consistency in weight, size and shape. It is very important that our suppliers understand where we come from, so that they can translate that into their supply base both at home and abroad.
714. What is the nature of your relationship with your suppliers?
(Mr Farrow) We have a longstanding relationship where we try to build a strategic relationship so that they have a better understanding of where we are coming from and so that we can understand our respective businesses.
715. Mr Thomas, I cut you off in your flow. What is point B?
(Mr Thomas) Point B is the same point as was made by Joanne. Whitbread is a business with millions of consumers a week and our total focus must be on satisfying their needs. Food is something that is at the forefront of people's minds, whether they are buying it in a supermarket or whether they are having an eating-out experience. Unlike aerospace, it is a public debate subject. We are very conscious of being a part of that.
716. If you could design a primary producer who could best deliver what you want for your consumer, what would be the major element of that design? What kind of support may there be, and what kind of relationship may there be? I am asking the same kind of question. If we had farming without subsidies would that make a difference?
(Mr Thomas) I can answer on behalf of Whitbread. The industry in which we operate is very different in its structure from the grocery retailing industry in that it is highly fragmented.
717. We are interested in the comments of Whitbread.
(Mr Thomas) The key element from our perspective is that we are looking for scale on a national basis. The brands that we operate use a very consistent menu throughout the country. The volumes of business that the brands carry out require us to have availability to a very tight specification of significant quantities of specific products.
(Mr Farrow) Perhaps I can endorse that. The scale is key to us. We need to be able to build into and to take advantage of suppliers and farmers of scale who can provide us with various cuts so that they are almost soldier-like and regimented and so that they meet the needs of the consumer, whether that is in red meat or other meat.
(Mr Thomas) It is on a relatively narrow scale for farmers. Our menus are much more limited than the range that is available within supermarkets. To be frank, as far as COSTA is concerned, the key thing—besides a very good cappuccino which we produce just over the way—is to have the best croissants or the best Danish pastries. A brand may need to be best at only a handful of products.
718. If you talk about market signals, the market signals coming from Whitbread would be loud and clear. You have a clear product specification that you wish to be reproduced in large quantities. How is that market signal passed back? That is your perception of how differently that market signal will be received and responded to in a non-supported, as opposed to a supported, primary sector?
(Mr Farrow) The best way would be to invite our suppliers into the business, into the outlets to experience what the consumer needs are and to experience some of the challenges that we have operationally in the way that we cook, and cook consistently, so that they can take the knowledge and understanding back to their farming community.
(Mr Thomas) We have invited the farming community into our business and to see at first hand what are our needs. This purely an opinion, but I believe that that is one area that the representatives of farmers need to address. They need to encourage their members to get out and to understand the ultimate consumer and the interim stages such as ourselves better.
719. We have talked a lot about the food chain, shortening the food chain and getting the clutter out of the food chain. We have talked about beef and the subject of steak. Have you managed to shorten and to cut the costs out of that food chain, as far as you are concerned?
(Mr Thomas) In that area our food procurement people have been faced with some trials and tribulations over the past couple of years. Last year one of the threats to our profitability was the foot and mouth disease outbreak here and subsequently in Argentina as well. Again, Paul can tell you what we have done.
(Mr Farrow) An example of being able to reduce the number of members in the supply chain has been by working closer with bigger organisations. Traditionally, we have dealt with catering butchers who have more influence than we do on from where they procured the meat. They possibly used a whole plethora of different suppliers. We have aimed to work closer with the producers themselves, so that we have a tighter rein on standards and quality that we are using. That is an example.
(Mr Brown) It is important to emphasise that the nature of the specification, particularly in regard to steak, to which David referred, is such that we have to follow it through with our suppliers, back through to source, so that we can specify suppliers of raw material with whom we have a long-term relationship and knowledge of their ability to supply the product consistently.
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