Select Committee on Environment, Food and Rural Affairs Minutes of Evidence



Examination of Witnesses (Questions 720-739)

MR DAVID THOMAS, MR GEOFFREY BROWN, MR PAUL FARROW AND MR MARK KERR

WEDNESDAY 10 APRIL 2002

Mr Jack

  720. Do you operate your businesses outside the United Kingdom, either in the European Union countries or outside the EU?
  (Mr Thomas) Currently, we operate only within the European Union, primarily in the UK but also in Germany where we have the largest steak house restaurant chain in Germany.

  721. Do you notice any differences in the farmers responding to your requirements in Germany compared with in the United Kingdom?
  (Mr Thomas) In Germany we source all our meat from Argentina directly.

  722. Is that purely on price?
  (Mr Thomas) It is quality, consistency and scale. We can only get the combination for which we are looking in terms of consistency, availability and scale, from Argentina.

  723. Given that you are within the European Union able to procure steaks from the United Kingdom—roughly 30 per cent of what you use comes from the UK—within the EU, why does the poor old British farmer not get a look in in Germany, now that the restrictions on the export of on-the-bone meat have gone?
  (Mr Thomas) Because the reputation of British meat in Germany is so bad that we would be risking the success and image of the brand if it were known in Germany that we were selling British meat.

  724. Returning to the reason that I asked that question which is the difference in the supply chain, are you saying that German farmers are even worse than British farmers in responding to your requirements? If the German farmers could produce what you wanted, I presume that you would put it on your menus.
  (Mr Thomas) Yes, if it were what we wanted and at the right price. One of the drivers of our long-term procurement via Argentina is that the scale at which they produce a narrow range of products, enables them to deliver a price that certainly German farmers cannot deliver.

  725. The focus on Argentina is interesting. You are dealing with a non-subsidised agricultural sector and with an extremely competitive currency position. The implication of what you have said is that within Germany, and within France, they are not able to provide you with the volume and exact specifications at a price at which you can afford to sell to your customers. You can haul it 8,000 miles across the globe from Argentina at the right price and in the right quality. What message does that send to subsidised European agriculture?
  (Mr Thomas) In regard to hauling it across the globe, while that transportation is taking place the meat is naturally maturing. We need a period of time for that anyway. The incremental cost of haulage is in some way mitigated by that. I am not sure what we are working on now.
  (Mr Farrow) It depends on the type of cut, whether it is fillet or sirloin. It needs 20 to 25 days of maturation[2].

  726. What message does that send to European farmers? I am intrigued to know. You say that you have brought farmers into your business. There is a clear message from Germany that Argentina's source of supply is of good quality and at a low price and that no one in Europe can match that. Do you say to European farmers that the situation is terrible?
  (Mr Thomas) We as an organisation have the opportunity to source globally. It is in the interests of our shareholders and in the interests of our customers in terms of meeting their desires to look at every potential source of supply. We do not act negatively towards European farmers and we want to work with them as, indeed, we do. One alternative example is that in a brand in the UK like TGI Fridays, every single burger, every single piece of mince in that chain is sourced from the UK.

  727. It is often quoted to us that other people outside the UK do not work to the same animal welfare standards or the same production standards and so it must be bad because it is foreign. In Germany they probably ask even more questions about sourcing and safety than those in the UK do because that is the way that things are in Germany. How do you respond to that line of argument when explaining why you are procuring from Argentina?
  (Mr Brown) It is the same scenario as we mentioned in relation to the specification. Because of the requirement from an eating point of view in terms of quality and consistency, we work with a limited number of supply points. Through our suppliers we are also able to work with them on animal welfare matters to ensure that the animal welfare standards that they employ are equivalent to the standards that are expected of UK operations. Although we source on a global basis, it is a defined global basis. We do not just open our doors and bring things in. We have defined brands where, through our suppliers, we have developed long-term relationships and understanding of the total supply chain controls that are in place.

Paddy Tipping

  728. On trends in the sector, you said that it was a relatively new sector. It is a sector that is growing. Do you have a picture about growth in the future? Clearly, it is influenced by the economic cycle. How do you think that it will grow?
  (Mr Thomas) The three drivers of growth in the sector are, as you rightly point out, economic prosperity, demographic and life-style changes, and supply growth. The current UK split of what is called "share of stomach" is that the supermarkets have 70 per cent and food service has 30 per cent. In the United States it is broadly 50:50. Perhaps I could illustrate some of the examples in terms of demographic and life-style changes. There are now a lot more women in employment, which has created a group of people who are "money rich/time poor". One sees the development of a huge range of eating offerings that are convenient—small treats in the middle of every-day life—and provide an alternative to cooking at home. Examples of the home-meal replacement market is phoning up and getting a pizza delivered, or nipping out to the local pub and having a meal there. On the demographic front, there is a significant increase in the number of people aged over 55, which includes the "baby-boomers" and they will be typified as being "money rich/time rich". They look to expand their leisure experiences. We have seen the growth of such things as mini leisure breaks, garden centres and the addition of restaurants to those kinds of operations. In terms of economic prosperity, when I was a kid going out to eat was a once-in-a-lifetime celebratory occasion. Now children are often the determiner of the eating place and as they become youths we call them "restaurant cadets" and they are drivers of eating-out habits. If one considers the consumption of pizzas by age, over the age of 40 or 45 pizza consumption starts to drop off dramatically. Eating out is now something that starts at a very early age rather than in the mid-20s. In terms of supply growth, essentially when having a leisure experience, whether it be going to a cinema, a sporting event or leisure shopping, the consumer looks for an adjunct form of eating as well. When shopping it is often to rent space for an hour and a half so that the customer can sit down with the shopping bags and can then do another hour and a half shopping. Because of changes in planning regulations, the food service industry has been able to get into the high street more, into out-of-town centres and into cultural centres as well. Those are some examples of how the business is expanding. The break up of the family meal and the three-course big meal has generated a whole new opportunity for us to provide what I call the grazing needs of people, whether it is a quick bite to re-fuel or a one-course treat.

  729. What does that mean for "share of the stomach"? You say that it is 70 to 30 now, but where will it be in five or 10 years' time?
  (Mr Thomas) If the industry can continue to drive value in the eyes of the consumer, which is a challenge with rising property costs, rising wage costs and regulations, and can continue to get access to property, we would see within the next five years that there would certainly be a 40 per cent "share of stomach". The figure in the United States continues to rise. A key difference in the States is that there is a significant breakfast segment that is pretty limited in the UK, except for a coffee and a croissant.

  730. You said earlier that the sector was very fragmented. You are a big company and you have procurement policies, but the vast majority of the industry is pretty small. The opportunities for producers to sell into that must be quite difficult.
  (Mr Thomas) Alternatively, I would put the premise that the food service industry provides a huge opportunity for the entrepreneurial farmer. I have a personal acquaintance who has taken full advantage of that opportunity and he sells to a number of local restaurants. While for Whitbread selling something that is local is not practical, and does not give an advantage to us—we cannot charge a premium price—there are a lot of hotels, white-tablecloth restaurants that see local produce as a clear differentiator from a national brand and that will drive local loyalty as well. The nearest we touch on that is probably in our Marriott Hotel operation. For example, at Dalmahoy in Edinburgh we would positively go out and source locally because offering a Scottish menu adds to the whole experience if one is visiting Dalmahoy from America or wherever. Because the market is fragmented, it provides an opportunity rather than a threat. It may be a bit of a challenge.

  731. Can you give us a view on how to encourage entrepreneurial behaviour among farmers like your friend? Clearly, there are niche opportunities for high value local products, or perhaps for organic products. What policies should one develop to encourage that?
  (Mr Kerr) David mentioned earlier that we had a session with the NFU and that was very interesting. We spent a day with a number of chairmen from the various significant committees within the NFU, which gave them the opportunity to see what our business needs are. We travelled to a number of different outlets and visited our logistics centres and so on, which gave them the opportunity to see how they could meet those needs. I do not believe that it would be exaggerating to say that they were genuinely surprised about why it was so necessary to have a standardised specification and all the other consistency points that we have already made. They went away from that meeting very glad of the opportunity to learn a little more about what we are doing, but they were quite sceptical in their own minds that they were in a position to satisfy those needs. There were some opportunities, but it was going to be difficult. That was 18 months ago. I suspect that they have had other things on their minds in the recent past, but maybe they will return to us for some more discussions to see whether they can help in other ways. There is quite a big education gap to be filled when one undertakes that kind of exercise.

  732. There are opportunities there. Are you going to continue the discussion?
  (Mr Kerr) The ball is in the NFU's court. It is important to reiterate the point that David has made. There are some opportunities but in our businesses they are relatively limited, for all the reasons that we have already stated. In the case of Dalmahoy in Edinburgh that is an opportunity that they could seek to meet.
  (Mr Brown) We also have a regular and open dialogue with the Meat and Livestock Commission in terms of the development opportunities, new recipes and so on. We regularly have workshops to share information and ideas.

Chairman

  733. Have you had a session with the chairman of the MLC since the new chairman took over? I think he comes from the food industry.
  (Mr Thomas) Personally, no.

Mr Simpson

  734. I can concur with Mr Thomas about children driving eating-out habits. I have an 11-year old son and my wife has just been on the phone to say that they will be at a pizza establishment—not one of yours—at lunchtime today. Normally one is trying to find one that satisfies the parents' somewhat more sophisticated appetites. Leading on from what Paddy was saying, do you consider that British farmers, whether the NFU or individuals, recognise and are capable of adjusting to trends that you have been talking about in the eating habits and requirements of customers?
  (Mr Thomas) I can categorically say that they do not recognise those trends and that there is a lack of inquiry and interest, which, in our position, I find surprising. We spend millions of pounds researching our customers because they are our future. I do not know whether they can adapt. I believe that it comes back to the question of co-operation. If farmers were able to collaborate horizontally, I believe that there must be, within a group of farmers, all the necessary skills to be successful in marketing their produce locally, assuming that it is of the right quality and the right price. I am an optimist at heart, but clearly there will have to be some changes to the structure of the way in which they operate. I do not know whether culturally they will be prepared to do that.

Mr Jack

  735. One thing that is developing the dialogue is whether in some way the more that farmers can tell consumers about what they are doing and where the food comes from that that will in some way be their salvation. The growth of farmers' markets may be an example of that. In paragraph 5.3 of your interesting evidence you say: "Significantly nearly 40 per cent of people expressly did not want any information when eating out". What intrigues me is that if I look at the information in this paragraph it says that when people go out for what I used to call a meal, but you now call an "eating experience", somehow they are less sceptical, less demanding of information and more interested in having a good time than a forensic analysis of what is behind the menu and on their plate. What happens between them going to the supermarket to do their shopping and arriving at one of your "experiences" to make them less sceptical?
  (Mr Thomas) The core difference is their motivation. Their motivation is to enjoy themselves. It is indulgence; it is stress relief; it is an experience. Food is not necessarily the motivation. Eating is a factor, but it is actually meeting with friends; it is socialising; it is having a romantic occasion.

Mr Breed

  736. I remember them!
  (Mr Thomas) The FSA have reconfirmed our research with their research that says that 70 per cent of people do not ask for information. Our research shows that the prime interest in terms of anyone who asks is really about the freshness of the food, whether it will be on time, and details in terms of whether there are artificial additives, which is allergy related. I get a lot of customer correspondence across my desk, some of which is positive, but a lot of which is negative because we do not deliver perfectly on every occasion. Those issues are very seldom about the food; they are much more about the service that people receive or the facility. The mind set of our typical customer is that this is an enjoyable experience and they trust the brand. There is an element of trust: "I have been here time and time again and I have had continued good experiences, so why ask". Another factor is that people know what they are going to get. People come back and eat the same thing time and time again. That is another reason: "I have eaten it three or four times so why do I need more information?"

Mr Jack

  737. This inquiry is about farming without subsidy. If subsidies began to be unwound tomorrow, UK farmers would have to find ways to be more efficient to take costs out of their business. In terms of a large, 25 billion business, of which you are a major part, does that mean that farmers who wish to participate here may get an easier ride if they concentrate on supplying your sector of the market because they could dispense with some of the costly welfare issues? Pig farmers, for example, continually talk about having higher welfare standards, some of which are legally imposed and some of which are self-imposed, compared with our overseas competitors. The message that we receive from you is that you have a group of people in a relaxed frame of mind who could not care less about all that. Therefore, perhaps there is a message to farmers that you are an easier ride and you are a lower-cost route to market.
  (Mr Thomas) No.
  (Mr Brown) From the contact of 18 months ago with the representatives from the NFU regions, that may have been the perspective before they gained a full appreciation of our business, but I believe that the opposite impact was the case after they had been taken through that because of our specific demands on specification. Because we do not make the point about welfare does not mean that we, as a business, do not care about it.

  738. You have made some very powerful claims, Mr Farrow, about the rigour of your specifications. You said in the context of my question about Argentina that you looked at equivalents in terms of animal welfare standards, so it is not that you do not think about it. Have you carried out any trials in your restaurants to talk about the virtues of the products that you are using or supplying information to the consumers? You have mentioned the Scottish example, but almost by implication you are saying that there is something special about such a local offering, because it is wonderful locally produced beef. In a way you are tip-toeing up to it, but have you considered making a virtue out of necessity and telling people the positive story so that they say, "Yes, that is rather good"? The poor old farmer is flogging himself to death trying to produce high welfare standards and high environmental standards, but from looking at this evidence the message is that he is not being recognised for that, so there is no gain for him.
  (Mr Thomas) It is fair to say that virtually all of our experience indicates that it is not something that presses the button with the consumer. One direct example is that in Costa we offer a "fair trade" coffee at a small premium and the uptake is about 2 per cent. Some people will go in that direction, but I would not see it as a big opportunity in terms of the UK consumer being prepared to pay a premium price. As far as the reverse is concerned, we have high standards. We have standards that we impose on ourselves and standards that are imposed upon us. We are a PLC and we have a very strong feeling of our social responsibilities. We would not wish to cut those standards because the consumer was not overtly asking about a particular issue.

  739. Let me ask you about risk. We have had BSE and we have had foot and mouth. The red meat sector has taken the brunt of dealing with all the customer confidence issues associated with those matters. Your reply is interesting because you talk almost exclusively about steak and burgers, and lamb, pork and white poultry meat has not figured in your responses. Do you look at red meat as a more risky ingredient or raw material offering? Therefore, do you make a bias in any way to avoid risk, and do you develop menu ideas that involve red meat, organics, vegetarian and other things as a way of minimising risk? How do you deal with that scenario?
  (Mr Thomas) With a brand called Beefeater it is very difficult to move away from red meat! There are underlying consumer trends in terms of white meat which we will respond to. We will also be looking at our price value equation in the eyes of the consumer, because there is a certain level of price, however good it is, which our consumers are not prepared to pay. Perhaps Paul could add to that.
  (Mr Farrow) I can certainly say that our approach, irrespective of whether it is pork, beef, lamb, poultry, is exactly the same; the rigorous specifications we lay down are certainly the same. Our needs and some of the restrictions around carcass utilisation lead us, in the same way as beef with pork and lamb, to look to import, and all the other things we have said about beef apply to those other species.

 


2   Note by witness: Our requirements for the maturatation period of beef vary depending on the product type eg. Rump, Sirloin fillet. For UK produced meat our specification for Sirloin and Rump states that meat must be matured for a minimum of 28 days before use and cannot be used beyond 42 days. This criteria is based on our findings from extensive organoleptioc sampling in order to achieve the quality and consistency needed to meet our standards. In terms of Argentinian meat, our specifications again vary by product type and importantly also take into consideration the shipping time and the optimal storage conditions provided by the temperature controlled containers used to transport the meat. Therefore a minimum of 28 days maturation for Argentinian Rump and Sirloin would also apply, however the shipping time determines that the meat is first available for use into our business from an age of 42 days and as a result of the optimal storage conditions the meat can be used up to an age of 77 days.
 
Back

 
previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2002
Prepared 17 May 2002