Carving a New NZ Niche: The Rise and Rise of Craft Beef
Identifying an opportunity can sometimes come from nowhere. Along comes a lightbulb moment and all is revealed…boom, there it is. The Craft Beef (that’s beef, not beer) movement is one such phenomenon. It’s a trend gaining some traction and it’s becoming a real ‘thing’, which is interesting, because in many ways it’s an old ‘thing’. By that I mean the momentum has been developing and shaping the scene for some time. Following in the footsteps of other influential craft food trends including beer, wine and cheese, the craft beef revolution is looming as the next big thing. It has the potential to really add some much-needed sizzle to the beef industry. It also brings some real hope of relieving pressure from the well acknowledged commodity battlefield the red meat industry operates in.
Deconstructing existing price chains and having an innovative look at what’s happening in the channel is both an interesting and illuminating experience. It is very straight-forward to see who is making what…where. Part of the answer to achieving higher prices is likely to come from the disruption of traditional channel power dynamics. And the potential to achieve that goal changes dramatically when the word ‘craft’ is used. Look at the Sierra Nevada Brewing Company in California. In fact, pick any craft brewery. The good operators are all enjoying hockey stick growth and scaling businesses, which in many cases started off in the founder’s garage. Just like two other upstart disruptor businesses we know…Apple and Amazon. It comes down to vision and willpower in the end. Jobs and Bezos had plenty of both. I think red meat distributors sometimes forget that it’s actually the farmers who raise the stock they sell to fund their Maserati purchases. Have you ever seen or met a poor distributor? Ironically, it’s not the producer or the processor making the money and yet, they are the enterprises shouldering the lion’s share of risk and performing most of the work. The business model needs to be flipped on its head, and anything is possible if the will is there. Taking back some control (and profit) where possible makes sense. I’m always amazed by what happens when you start asking questions with ‘why’ in front of them. It’s a very good way to pressure test myths and assumptions made about consumers and channels and markets. Who says it has to be business as usual? These days it is more likely to be disruption as usual, and I think that’s a better club to belong to. And, isn’t it better to be the disrupter, rather than the disrupted?
Insightfully and intimately understanding what will persuade premium consumers to reach deeper into their pockets is a very good place to start and the craft beef movement offers a fantastic opportunity to get closer to consumers. This will help marketers grapple with the challenge of reengineering how the value in high-quality meat can be better allocated and captured in the channel. Meanwhile the craft beef conversation grows louder. The world’s discerning consumers are getting tired of products without character and personality. They’re ready for something new. Is this it? Is this what the red meat industry has been waiting for? Look at the evolution of craft beef, particularly in the United States, which is where the vibe behind the craft beef movement emanated from. I’m predicting this market is going to grow very quickly. It’s been burbling away under-the-radar for quite some time, particularly in foodie hot spots like Seattle, where Caroline Saunders (2017) reports the king of craft food, Kurt Beecher Dammeier says:
“There’s no doubt in my mind that grass-fed beef is the Hefeweizen and Wagyu is the IPA of Artisan beef. If you look back 10 years from now, the beef category will look very different than it does today.”
Big statement and very likely to be true. Why are things the way they are? Why can’t they be changed? There you go…that’s two why’s to get started with. It doesn’t matter what industry you belong to these days, disruption is coming your way. The craft meat movement has the potential to generate enough momentum to bifurcate the beef market. Certainly, high-end chefs and premium consumers have already developed an acute capability to see straight through non-genuine attempts at packaging ‘narrative’ and ‘provenance’ as a reason to pay a premium. The modern market has honed and evolved the premium consumer’s perception. They value scarcity over volume, and it’s a hard habit to shake. That’s also a real clue for marketers.
Maybe the opportunity is to develop some truly stand-alone artisanal brands. Of course, many will argue this is already happening, and it is…to an extent, but would you buy a Lamborghini or a Ferrari from a Kia dealership? It just wouldn’t feel right. That type of purchase is experiential and immersive, not utilitarian. Craft beer consumers are unlikely to spend freely buying Budweiser. As a result, some of the current red meat strategies feel like they lack the laser focus on consumers required to really cut-through the clutter and wow them, and maybe that’s because the producers and processors mostly rely on in-market distributors to get the job done. Once the product is beyond the reach of the first in-market distributor how strongly does the story of origin really hold up? I’ve done some limited research into this area and the results are mixed at best. Many countries produce wonderful meat and have great ‘origin’ stories.
Developing ‘skunkworks’ programs to support the development of genuine ‘Lamborghini’ Red Meat farmers could provide processors and producers with significant premiums. Think Kobe Beef. Japanese producers managed to make high levels of fat in red meat the sexiest option in the industry. Quite a marketing feat. There will always be lots of competition, but there is always a way through, and being small like New Zealand or Ireland should translate into good things like collaboration, agility and responsiveness. A UK restaurant menu last week was offering its diners the option of enjoying steak from four different regions. The UK, Pampas in Argentina, Darling Downs in Australia, and Kansas in the USA. The feeding options were 150-day corn fed, 270- day corn fed, and grass-fed. Surely that’s craft and customer choice combining right there. These subtle, but potentially seismic shifts in consumer behaviour, trends and markets are potentially signalling an advanced warning to incumbents that disruption is coming. The big beer companies completely missed the craft movement, but have managed to buy tickets to the show by using their balance sheet strength to acquire their own craft beer portfolios.
Craft beef could provide an opportunity to boost both the premium and volume sides of the market with the halo impact from high-value offerings filtering through every industry layer. It also potentially offers significant opportunities for cross sector collaboration and further premiumization of the New Zealand food and beverage portfolio. The large processors are positioned where they are in the market because of their relentless pursuit of optimization, and most are simply brilliant at what they do. Keeping those hooks loaded is key. These truly amazing processing operations are technological marvels replete with robotics, state-of-the art processing equipment and even Augmented Reality is beginning to find a place.
The Danish Meat Institute has been trialing ‘AR’ technology to assist novice operators come up to speed quickly, preventing wastage and maintaining production yields. Automated technology is also part of the processor efficiency tool kit. This technology is developing rapidly and is available globally. This is also part of the problem because it means every competitor has access to the same optimization potential. For example, installing automated technology has allowed the Brihanmumbai Municipal Corporation (BMC) in India to reduce the time to slaughter and package sheep and goats by 50 percent. It is a testament to the seemingly endless human ability to innovate. Do you think they will increase their retail price? Again, this is part of the problem. Heading down the efficiency rabbit hole can blind strategists to other options for increasing price. My point: the optimisation lemon is being squeezed pretty hard. What else is there?
The marketing law dealing with commodities is pretty straight-forward. It states, if one product looks like another product, price becomes the clearance mechanism. You don’t want to play here; it is very hard to win. Current sales negotiations have a whiff of ‘gladiator’ about them, along with a certain inevitability concerning their outcome. The sales process begins with a strong claim around quality, origin, food security and includes some adept maneuvering around provenance and brand, but when push comes to shove, the sales process ultimately ends up in a negotiation around price, which overwhelmingly favours the buyer, aka, the distributor. This has to stop and craft beef offers a new option to investigate. Who knows where it might lead? They laughed at the craft brewers too.
The research, consulting and strategy firm Coriolis (2017) highlighted some headwinds to reaching premium beef prices. The firm reported, “NZ is a minor global producer of beef (~1%). NZ beef breeds (e.g. Angus) have declining numbers and are not generally finished on grain, as is preferred by key premium markets.” They also reported, “Grass-fed beef has achieved minimum consumer cut-through to date and sells at a discount to grain fed overall, despite healthy attributes. This low-fat beef is however valued for patties in food service (e.g. supplying MacDonald’s).” Ok, fair enough, tell us something we don’t know. Frankly, what that means to me is NZ can’t win the scale war. It has to work smarter and maybe craft beef could be one more tool in the box.