Is Red Meat a Commodity Product, a Luxury Product, or a Lifestyle Product?
Part 1: How should red meat and the red meat industry be defined? What business is it in? I pose these questions because the way it is defined now, doesn’t have to be the way it is defined in the future. I ask these questions on behalf of producers who still report being challenged by low returns derived from a business model geared to commodity trading. Is it time for a rethink? The winds of change are certainly beginning to blow. 21st Century consumer behaviour is shifting and new trends are emerging. Their expectations and demands around nutrition and health, laboratory derived meat products (so called synthetic meat), eating less but higher quality, environmental concerns for the planet and a focus on animal welfare are all being significantly amplified. For these reasons, maybe it isn’t so crazy to consider luxury, lifestyle and red meat in the same sentence. How narrowly the red meat business is defined is likely to be linked to how narrowly the industry’s options are defined too. Commodity, luxury and lifestyle categories all have value propositions, they all have consumers and they all compete for a share of the consumer’s wallet. What differs is the goal of each category and the business model that the goal is applied and achieved through. Commodity platforms have proven themselves for shifting volume at low prices, could luxury and lifestyle business models prove a better proposition for delivering high prices?
In New Zealand, red meat producers are now acknowledging that competing for consumers in the commodity space isn’t ideal. It’s a space where the country’s producers have demonstrated they have no clear advantage. In fact, you could make a decent argument for the lack of scale being a significant disadvantage, particularly when the primary selling method is commodity trading. The United States, Australia, Canada, and South America all have far bigger hoof prints. Size isn’t everything though. The famous All Blacks rugby team and the Emirates New Zealand sailing team have both proved working out what your strengths are and ruthlessly executing them against competitors can make your side a dominant force. New Zealand’s red meat strength and future could be waiting in the luxury and lifestyle market wings where Craft Beef is becoming a thing. Premium consumers are definitely sending a different message and it offers the potential of stronger profitability and more secure futures for those who can tune in and hear it.
New Zealand’s strengths are never going to be found in scale, not in the red meat industry at any rate. The numbers don’t lie. New Zealand consulting firm Coriolis (2017) reports,
“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. In addition, a growing proportion of beef production is a secondary product of the dairy industry, not optimal for meat quality.”
This decline is further pressuring the existing business model, which relies on optimising meat-on-the-hook economies of scale to maximise returns. This isn’t a new problem by any stretch, but it does beg the following questions: Are New Zealand farmers really niche players? And if they are, why are they even trying to play on a commodity platform? Is the red meat industry trapped in a business model that is destined to endure an eternal struggle for profitability? Maybe, that’s for the producers, processors, and highly paid meat industry executives to decide. What I can say from a marketing perspective, is it looks like very hard work trying to push a very old model beyond its use by date, and the low returns suggest there is some validity in my argument. That’s my opinion anyway and it matches the opinion of many farmers I talk with on a daily basis. Happiness and returns are not two things they talk about in the same sentence.
In stark contrast, and for consideration, why can’t the New Zealand red meat industry look to add value to every single kilogram of red meat that leaves these shores for export markets? And that’s where luxury comes in. Research has clearly shown there is strong demand for the sort of luxury food products New Zealand could easily produce and manufacture if it chose to do so. For example, look at how much Pastrami gets consumed by New Yorkers every day. New craft butcheries like Fleishers established as recently as 2004 do a roaring trade every day and already operate in four locations across New York City. Being in the craft meat space is working for them. 1725 Meat in California retails Lamb Prosciutto (bone in) for USD $499. I could generate an enormous list of high value opportunities here, but I won’t. The luxury and lifestyle space appears to be an opportunity that has gone begging. And some fresh new packaging along with selling some choice cuts to a few high-end restaurants isn’t in my view a strategy with enough clout to seriously move the needle for the industry. It does provide some positive news for the media but the numbers still don’t lie. The underlying profitability of the industry remains problematic. Of course, I will be very, very happy to be proved wrong.
In my opinion, the luxury and lifestyle direction is a clear and present opportunity, which motivated New Zealand farmers could step up and grab with both hands tomorrow. Doing so successfully may mean some attitudes will need to change and shift towards genuinely embracing marketing over selling, which means listening to the voice of the consumer and acting accordingly. This makes good sense though, because consumers are the arbitrators of what products deserve a luxury price tag and what products don’t. Selling and pushing stuff at them with a bit of a story attached sounds good and it’s improving things slightly but overall the strategy is questionable and seems to be falling short. It needs to be remembered that much of the New Zealand provenance and narrative is built on, and based around, being champions of grass-fed beef, which is great but again, the numbers don’t lie. Coriolis reported in June 2017, “Grass-fed beef has achieved minimum consumer cut-through to date and sells at a discount to grain fed overall, despite healthy attributes.” Is marketing listening? I absolutely love the grass-fed story. I think it is the way to go for New Zealand producers, but the industry should not just ram the grass-fed story down consumer’s throats. That’s all about push, not pull and it’s all about selling, not marketing. The consumers are also the ones with the perceptions and the power. Ignoring either is not advisable. Plus, some of the best beef I have ever tasted has been American corn-fed and Australian grain-fed beef. Why can’t Kiwi farmers provide a range of options? Why can’t it be grass-fed and grain-fed? Luxury consumers and Craft Beef lifestylers are telling us loud and clear they want choice. And New Zealand can grow grain. For example, in 2017, Eric and Maxine Watson from Ashburton entered the Guinness Book of records for growing the greatest wheat yield ever, a staggering 16.791 tonnes per hectare.
While the debate rages, outsiders are busy moving into the high-value space and setting up camp. This has happened before in other industries and history reminds us that industry disruption and innovation often comes from outsiders. Look at Tesla and Elon Musk, Virgin and Richard Branson, Apple and Steve Jobs or Amazon and Jeff Bezos. Each one an outsider and each one a maverick thinker bent on disruption. Branson is currently investing in synthetic meat along with other high profile investors including Bill Gates and Jack Welch, who once famously stated, “If the rate of change on the outside exceeds the rate of change on the inside, the end is near.” Asking hard questions is never easy to do because it signals change whilst confronting the gravitational pull of politics, self-interest, and the inevitable patch protection and push-back from those at the top, the ones who are ultimately responsible for steering the ship.
To be continued….12, November, 2017.
By Jim Wilkes