Supply Chain Evolution Push Pull National Cattlemen’s Beef Association Jan. 27, 2004
Where is the Consumer Going? • Family income, in real dollars, peaked in 1990. • Consumers are trying to shift time from food preparation to wage-earning activities. • Looking for quick, easy and low-cost first. • Demographics will accelerate these trends.
More Family Members Working = Less Meal Preparation Time • More householders working: • 32% adult women in 1960 => 65% in 2000 • 4.4 million single households in 1960 =>15 million in 2000 • Meal preparation time shrinking: • 1960, average dinner preparation time = 2 hours • 2000, average dinner preparation time = 30-45 minutes
Baby Boomers & Echo Baby Boomers are Entering Age Groups which Spend Less Time on Meal Preparation
Half of Growth Will Be in Food Service and Deli U.S. Meat Expenditures, Wholesale Value by Distribution Channel 80 - 70 - 60 - 50 - 40 - 30 - 20 - 10 - 0 - Foodservice 17 16 Retail Deli 13 5 Retail, Processed Self Service 10 4 3 6 2 6 6 Retail, Fresh/Frozen Meat Dep’t. 6 48 60 40 46 1990 1996 2002 2007
Growth in the Retail Meat Department Will Be Fueled by New Products · · Heat & Eat Foods Ingredient Meats: - Prepared meat & poultry - Case-ready meats - Breaded & sauced entrees - Marinated or prepared entrees - Finger foods (nuggets, wings, etc.) - Ground Beef & fresh) - Meal kits - Chicken breast ( IQF - Refrigerated/frozen entrees & dinners
Summary - Consumer Wants to Spend Less Time Cooking • Products with lower preparation time will be the ones on consumers’ radar screen • Products must fit time (labor) criteria before other factors will influence decision: • Safety • Health • Taste • Cost
Where are Retailers &Restaurant Operators Headed? · · Retailers are struggling to support Food service operator facing the demand for more prepared more competition foods: Labor - availability tightening and - Number of restaurants reaching costs going up saturation point - Experience with food preparation - Consumer gravitating toward limited niche concepts Labor tight and inexperienced - - Food safety issues loom on the horizon (harder to execute niche - Margin management is an issue, concepts) especially w/ HMR
Where are Retailers &Restaurant Operators Headed? (Cont’d) · · Retailers looking to suppliers for Food service well ahead of solutions to: retail, but still looking to suppliers for help with: - New convenient products - New niche products - Easier, idiot-proof preparation - Easier, idiot-proof preparation - Lower cost - Lower cost - Built-in safety - Built-in safety - Help with pre-pricing and margin management
How Will Processors Meet These New Demands from their Customers? • The flow of information from the customer to the processor/producer is more efficient in some operations than in others. • This is where most supplier/customer relations are working and the most money is being recouped. • Some processors are more focused on the customers’ primary requirement – ease of preparation. Others are having trouble prioritizing product attributes.
Push to Pull Commodity... Follows a give’ em what you got strategy, product is what it is Food Manufacturers Farmers Food Distribution Food Retailers Consumers Commodity Processors Branded... Follows a give’ em what they want strategy, product has personality, the customer is empowered to control this product experience Procurement Marketing Food Manufacturers Farmers Food Distribution Food Retailers Consumers Commodity Processors An integrated coordinator and supplier. Quality Control Distribution
Consumer Responses – theIntegrated Poultry Model • Marketing and product development are focused on one thing - • How do we sell more chicken profitably? • - The company owns assets through all stages of production: • -- Feedmill, hatcheries & growout • -- Slaughter, cut & bone • -- Further-processing • -- Cooking & meal preparation • -- Marketing & distribution • -- The shared goal of maximizing returns to these assets, therefore, focuses on • pulling more product through the whole system. • -- Marketing & product development identify new products that consumers want. • -- The rest of the company figures out how to make & distribute new products. • The company looks at what the consumer wants, and then looks within its organization to figure out what needs to be done to get the customer what he wants.
Consumer Responses – A Non-Integrated Meat Packer • Marketing at a beef or pork packer is focused on - • “How do I get the highest price for the meat that I produce?” • - The company assets are all in one stage of the supply chain - slaughter and boning. • - Goal number one is to produce products at the lowest cost. • - Efficiencies come from long runs of standardized products. • - The shared goal of maximizing returns to this asset, therefore, focuses on pushing more of the standard set of products off to the next stage of the supply chain. • - The whole idea of finding out what the consumer wants, and reconfiguring the products that the processor makes to fit the attributes that create consumer pull runs counter to the goal of producing standardized products at the lowest possible cost.
Evolving Retailer Requirements Large Corporate Chains (regional in scope) 1. Specification Driven 2. Consistency and Uniformity A. Trim B. Size of Primal C. Packaging D. Color E. Apparent Freshness 3. Trace back capability 4. Service 5. Product origin 6. Brand name
Evolving Retailer Requirements ( Cont ) 7. Health and Safety Issues 8. Price A. Cost Plus Models B. Formulas 9. Benchmarking 10. Low Cost Producer 11. Risk Management Strategies 12. Case Ready Product 13. Private label Driven
Medium Corporate Chains (Regional in Scope – Independent and Distributors) 1. Brand Driven 2. Quality at a Price 3. Consistency From a Commodity Point of View 4. Money or Promotional Driven From a Leverage Point of View. 5. Case Ready 6. Private Label
Regional Distributors and Independent Grocery Stores 1. Commodity Driven 2. Price Driven 3. Do not Understand Cost at Store Level or at Distribution Level.
Retail Issues in General 1. Nearly all of our customers are developing case-ready and pre- packaged programs – both private label and branded. 2. Good meat cutters are hard to find. 3. Product liability is becoming an increasingly important factor. 4. Primal cuts are getting too large. 5. Risk management and pricing programs.
SYSTEM ANALYSIS IDENTIFY OBJECTIVES ESTABLISH COMMITMENT IDENTIFY ACCOUNTABILITY DEVELOP STRATEGIES DEVELOP ACTIVITY LIST ESTABLISH REVIEW TIMETABLE FOR ACTIVITY LIST REVIEW RESULTS