Ingredients for Success

It's the economy, stupid!' was the catchphrase Bill Clinton used to beat off George Bush Sr in the presidential elections of 1992. And, proving that nothing is new and that Gordon Brown failed to end the days of boom and bust, as we stand on the cusp of 2011, it seems the economy is the issue that will again shape the next 12 months.

Unfortunately, things could be about to get even worse. The full impact of the government spending cuts will soon start to filter through and there has also been the increase in VAT to 20%, the throughput of which to consumers is yet to be fully realised. However, for the retail butcher there is little need to panic, according to most. Commentators agree that the unique selling points of expertise, traceable provenance and value could be the drivers that see the trade through the darkest recesses of the downturn.

Added value

One key difference rapidly expanding within the industry is the use of value-added products. The sector agrees that retail butchers have a higher level of expertise than their supermarket counterparts and, with the help of ingredients suppliers, they offer that intangible 'something different', which consumers can really tap into.

For Steve Derrick, sales development manager at Lucas Ingredients (part of the Kerry Group), the company has witnessed a return to tradition, with butchers and consumers alike seeking comfort in tried-and-tested favourites.

"We have seen a surge of interest in our ready-meal offers from Lucas Kitchen," he says. "The likes of our meatballs, pies and lasagnes have been selling really well. And, as ever, sausages are proving popular as a value-for-money meal. Consumers know that, in terms of the premium end of the market, they are better off going to their local butcher and that has seen an increase in sales of our sausage mix.

"That said, we keep an eye on flavour developments quite closely. We did introduce a peri peri product, but I think we were ahead of the curve on it. However, one product that is proving successful is our Thai-flavoured sausages, which include lemon grass and ginger."

More recently, of course, the company has been promoting a festive Christmas range. It features a selection of retail stuffings, cures for hams and gammons and a choice of seasonings for cured and non-cured pork pies. Lucas has seen a number of butchers use its products to create their own 'signature' pork pies, from turkey and cranberry to caramelised red onion with red wine.

Yet recessionary times are not all about tradition. For example, the Manchester Rusk Company (MRC) sees value in offering a wider range of products that cater for more exotic tastes.

The quality advantage

Stewart Niven, commercial controller at MRC, says he believes traditional high street retail butchers and farm shops have a number of important differences that will help them succeed in the face of the recession at the expense of the major retailers. Key factors, he believes, are the level of customer service and the quality of the product on offer, along with its traceability.

He adds that research by IGD has found that the customer thirst for something new is unabated. It is this desire for innovative and exciting tastes that MRC has tried to tap into. A recent IGD study found that 46% of the British shoppers it surveyed were 'actively' looking for new products, while over 36% purchased something new in the past month. To that end, MRC recently launched three new products in its value-added glaze range that are generating positive interest: Aromatic Thai, Oriental Salt & Pepper and Caribbean jerk. Niven is most excited by Caribbean jerk, a coating he predicts "will be everywhere next year".

He also believes consumers ask themselves five questions when making a food purchase: is it good quality?; is it healthier?; does it offer an alternative taste?; does it have an interesting flavour?; and does it make life easier?

"The great thing for butchers is that they can buy products that answer 'yes' to these questions," he says. "The selection of sauces, marinades and coaters available to the trade are a key point of difference from the supermarkets. They add value and something else that is vitally important in the current consumer environment convenience. What could be easier than choosing a freshly made curry or Thai kebab from your local butcher and then cooking it half an hour at home?"

MRC has also worked hard on creating what Niven describes as a "range of clean products". "We're completely free from MSG, artificial colours, artificial flavourings and preservatives," he says. "This is work we have undertaken in the past 12 months and has come at some considerable expense, which we have not passed on. But we've had to do this because this is what the consumer wants. It also offers another unique selling point to a butcher. They might not want to highlight it, but it could always be used should a customer ask what the product contains, etc."

As predicted last year, consolidation in the marketplace has continued, with bigger players continuing to enter the market. Witwood Food Products, a relative newcomer to the butchery ingredients market and part of the wider Witwood Food Group, was acquired by US giant Newly Weds Foods in June. The takeover will see production move from Banbury in Oxfordshire to Ossett in Yorkshire and has led to Witwood adopting a number of new techniques.

No doubt, economies of scale will come into play at Witwood in the future, as it encompasses the buying power of its new US owner. MTJ understands the supplier is to embark on a fresh round of new product development (NPD) work and will be launching new products throughout 2011. The group is also introducing a new loyalty system called 'The World of Great Taste', which will see butchers and distributors alike being kept informed of developments, new products and special offers, similar to a programme at MRC.

New year, new products

NPD is proving to be the lifeblood of the ingredients industry as we enter a new decade, and suppliers are concentrating their efforts in the area to gain a competitive advantage. MRC, for example, says that around 21% of its staff is employed in NPD and innovation. "We put a lot of resources and time and money into this sector of the business. You simply have to," explains Niven.

And it is not just the big boys. G2 Seasonings has introduced a new range of liquid-based marinades. A relatively new company that launched at the start of the recession in 2008, G2 has been carving a niche for itself in the highly competitive marketplace. For 2011, the company has great hopes for a new wave of Mexican flavours which, according to Taylor who founded the firm with partner Gary Evans are "lighter and more lime-based, with less heat".

"We have grown organically in the past two years, but it has not been without its challenges," Taylor says. "We started with the ambition of using quality ingredients and charging reasonable prices and I think we have been true to that aim."

Evans, a trained butcher, is used by the company as a resident expert, who is on hand to enter sites to offer training and product ideas to retail butchers. "To have that expertise is invaluable," says Taylor. "He will visit them on site and spend some time with them working through what they can do with the products. It helps to have someone who can do that rather than just leaving it to the distributor to do the selling. It can give the butcher an idea a springboard to go on a do something different."

It is that kind of experience that Verstegen also offers to retail butchers. For Peter van Cotthem, the group's UK general manager, one interesting facet of the ingredients business is how butchers innovate using their products. "They use the Verstegen products we have been supplying to the market for the last 10 years, but the ways in which they use them is always surprising," he says. "We have a product called Argentinian Fire, but it's up to the individual butcher how they choose to name it, how they use it and how they market it. Another major plus is how, by using ingredient products like this, butchers can create their own market. They are creating bespoke products that can have much better margins than selling the meat alone."

The company has also witnessed its butcher customers branching out into vegetables. Yes, Heather Mills, look away now. "Our world-grill marinades can be used on a number of items, and butchers often suggest this to their customers as well," van Cotthem adds. "They work perfectly well with potatoes, other vegetables and mushrooms."

Inflationary concerns

Like the consumers and butchers themselves, however, ingredients suppliers have not been isolated from inflationary pressures. With the cost of raw materials increasing in 2010 and set to rise further in 2011, companies within the sector have been hard at work trying to absorb the increases and not passing them on to customers. For example, Verstegen increased prices by just 3%, following a two-year price freeze, according to van Cotthem.

One stark illustration of the problems facing suppliers is the increasing cost of the colouring ingredient cochineal. The cochineal is a scale insect that lives on cacti in Mexico, South America and the Canary Islands, and it is harvested for carmine, an ingredient that adds a natural red colour to Chinese glazes, for example. A poor harvest has seen the cost of the cochineal increase by a staggering 900%, from 60/kg to 600/kg.

The problem, says Graham Taylor of G2 Seasonings, is the lack of an alternative. "The consumer wants a natural product, so that is what we have to provide. There are other natural alternatives, but they are based on beetroot and give a more purple colour. But what will people do if the cost of their Chinese ribs suddenly becomes too expensive? In the current economic climate, they will go without, so that is a cost or a problem we have to overcome."

That said, cochineal is just one of a number of ingredients that has seen huge cost increases in 2010. The one that grabbed the headlines was wheat; as it advanced in price, speculators aimed to benefit from poor crops. In August, Russia, the world's third largest wheat producer, banned export of the product, an exercise which at that point saw the price surge by 70%. The country was hit by its worst drought in 120 years and production stalled by 20%. Predictably, headlines around the world spoke of price increases at UK supermarkets.

Unfortunately, however, there has been little let-up. As Meat Trades Journal Extra went to press, the cost of Liffe futures wheat was hovering around 190/ton a record high. To put this into perspective, it cost around 70/ton back in 2006. The market predicts a futures price of around 159/ton for November 2011 a price decline that is bound to be hit by a number of variables, according to Martin Deboo, analyst at investment bank Investec. "After a first glance at the predicted futures cost, one may think the price will be coming down in 2011," he says, "but it's definitely our view that price pressures remain in place. 2011 will see the UK launch its first two wheat-ethanol plants, which will be used to power cars. This will absorb some 10% of the UK's wheat usage and see the UK move from a net exporter of wheat to a net importer.

"Then there is the great imponderable, the weather, which was the main cause of price pressures in 2010. If the crops fail again, as they did in Russia this year, then it will affect prices. There is also the growth of protein-eating countries like China, which has forced up costs of late. The safest prediction, it seems to me, is that structural pressures in wheat will keep prices high."

As Taylor at G2 concludes: "A lot of cost pressures increased in 2010. This is something with which we might have to contend even further as we move ahead in 2011."Ad