‘Horsegate’ was always going to hit sales. That was clear from the moment horsemeat was first uncovered in frozen burgers this January, and retailers and suppliers were forced to withdraw millions of products. As the scandal widened to frozen ready meals and meatballs in the following weeks, and consumers learned of the sheer scale of the Europe-wide fraud, sales took a spectacular hit.

In the four-week period immediately after the scandal, value sales of frozen burgers fell by 42.8% year-on-year to £3m, while volumes declined by 30.9%; frozen ready meals by 12.7% to £54m and 14.2% in volume terms [Kantar Worldpanel 4 w/e 17 February 2013]. The chilled ready meals category, on the other hand, remained relatively resilient.

But the situation has subsequently worsened in many key categories – with the hugely valuable chilled ready meals sector sucked into the horsemeat crisis. The latest Kantar Worldpanel data for the four weeks ending 17 March 2013 shows that whereas burgers were the focus initially, by February the scandal had taken its toll right across ready meals: frozen ready meals lost 18.7% in volume and 17.3% in value during those four weeks (see box p50), while chilled ready meals took a 10.8% hit on volume sales and lost 3.3% in value.

So, has shopper behaviour changed for the long term? And who are the winners of the horsemeat scandal?

Amid plummeting sales and numerous consumer surveys suggesting shoppers’ confidence in meat products has been seriously rocked, the situation is far from black and white. Indeed, there’s no doubt the horsemeat fiasco has also created arguably the biggest opportunity for the British meat sector in a generation, as much of the negative publicity has focused on imported meat.

“Consumers are looking to buy meat – and in particular beef – products from trusted sources”

James Knox, Yorkshire Dales Company

Farmers who have been nagging consumers to ‘buy British’ for years all of a sudden have a new, compelling argument in their favour. And the NFU was quick to take out ads to highlight the traceability of British meat, while meat promotion bodies Eblex and Bpex ran a joint campaign to promote the Red Tractor and the Quality Standard Mark.

But trying to work out exactly how much consumer appetites have been affected remains a somewhat inexact science. Because many product lines were withdrawn from sale, it’s impossible to say to what extent these declines are simply down to a lack of availability.

However, there’s no shortage of anecdotal evidence suggesting increased consumer engagement around provenance. Morrisons reported an 18% increase in sales of fresh meat in the four weeks following the scandal, and CEO Dalton Philips claimed in Morrisons’ annual results in March a “seismic shift” in consumer buying habits towards “food quality and provenance – and these are all areas where Morrisons has something genuinely different to offer.

“There has been a very clear revival in interest in buying from butchers’ counters, as people want to know that their meat has been prepared locally by skilled craftspeople,” he adds.

Independent butchers also report a booming trade. “Our members have seen a continued upturn in trade since the horsemeat scandal broke,” says a spokeswoman for the Q Guild, which represents 110 independents. On average, trade is up by 20%, but some butchers are reporting increases of as much as 40%, and traffic to the Q Guild website has soared by 77%, she adds.

Smaller suppliers with strong local provenance credentials also claim to have benefited. The Yorkshire Dales Meat Company, which supplies burgers,  meatballs and steaks to Asda in the North of England, says sales have soared 30% since the beginning of the horsemeat scandal, and the company has secured regional listings in 16 additional Asda stores since January.

Between 22 February and 26 March, sales of burgers increased from 80 cases per store to 295, cases of sirloin steaks increased from 229 to 306, ribeye from 269 to 340 and rump increased from 156 to 218, the company says. “Consumers are looking to buy meat – and in particular beef – products from trusted sources,” says financial director James Knox.

Shifts in consumer behaviour

Rival proteins to beef have also benefited from the scandal. “We have seen customers choosing to substitute some of the directly affected product groups with alternatives, such as fish and poultry,” Tesco reported in its latest annual results, and sales of vegetarian meat alternative Quorn are also up. In the four weeks to 17 March 2013, sales of Quorn fresh meals increased by 13.4% year-on-year to £3.7m and Quorn frozen meals were up by 26% to £3.3m [Kantar].

Quorn CEO Kevin Brennan says the brand cannot be certain the increases are  “a consumer response to the horsemeat contamination issue”, but the case for a link is fairly compelling.

Horsemeat: Impact on sales

Horsemeat: Impact on sales

Meanwhile, Morrisons says fish sales were “strongly up” in February, although it isn’t entirely clear whether there is a connection to the scandal as the sales boost coincided with some “great deals” on its fish counters.

Poultry suppliers are more certain of their advantage. Like Tesco, Tony O’Neill, convenience food and new business director at Moy Park, says the company has already seen shoppers switch from red meat to poultry, and believes the industry – which has a far quicker production cycle than beef, lamb or pork – is especially well positioned to meet increased consumer demand. “Moy Park is poised to respond to this demand, and we will be highlighting to customers the virtues of our traceability and controls,” he says.

Kneejerk reactions

But Richard Cullen, consumer insight manager at the AHDB, strikes a more cautious tone about long-term shifts in consumer behaviour. Shoppers are known for their kneejerk reactions to scandals, only to fall back into old behaviour once the headlines have calmed down, he says.

Even the BSE scandal – which was far more serious as it involved a threat to public health – did not cause a massive dent in beef sales, Cullen adds.

There was a short-term dip in mince sales, but overall beef sales actually went “through the roof”, he says, because retailers and suppliers threw in extra promotions to stop shoppers from trading out of the category.

Similarly, the slump in sales of chilled ready meals and chilled burgers in the immediate aftermath of the horsemeat scandal may turn out to be a short-term blip.

As ABP CEO Paul Finnerty points out, frozen burger sales have been declining by about 10% per year for the past five years, with chilled burger sales growing by the equivalent amount (see Big Interview, p44). “The trend is towards chilled and fresh as opposed to frozen, and it’s very hard to see those trends changing [in the long term],” he says.

If the jury is still out on shopper behaviour, one thing is clear: the scandal has undermined consumer confidence in products involving long and complex supply chains, says Richard Cattell, head of marketing at Red Tractor Assurance. And although it is possible to have short, well-managed supply chains across borders, many consumers – and retailers – prefer the reassurance of buying British.

Tesco – heavily implicated in the initial scandal through the ABP-produced Everyday Value frozen burger, which was found to contain 29.1% horse – is going 100% British on its fresh poultry from July, and has announced a “transition plan” for moving chicken in its fresh and frozen ready meals to UK and Irish sources, although it hasn’t set a time frame for this.

Philip Clarke speaking at NFU

Philip Clarke speaking at the NFU conference

And CEO Philip Clarke made a public commitment at the NFU conference in February that Tesco would source all its meat “closer to home”. “Where it is reasonable to do so, we will source from British producers,” Clarke said, adding Tesco was keen to work with British meat and poultry producers to increase the UK’s meat production capacity.

Less than a week later, 2 Sisters CEO Ranjit Boparan seized control of Vion’s UK beef operations.

And in March, The Co-operative Group unveiled plans to work with Dunbia to set up a dedicated Hereford cattle producer group to supply beef into its Truly Irresistible top-tier own label range. Other retailers, such as Sainsbury’s, Morrisons, Waitrose as well as Aldi, have also used the scandal as an opportunity to highlight their commitment to domestic sourcing.

But is the British supply there?

Although the true impact of these announcements on demand for British beef still remains to be seen (in some cases, retailers were already sourcing British but chose to reiterate their sourcing credentials), meeting increased demand could be easier said than done.

The UK, says Eblex, is currently only around 80% self-sufficient in beef. “Despite some improvement in herd productivity, the continued decline in cow numbers, which now sees the UK breeding herd standing 4% lower in December 2012 than December 2011, will make it hard to meet a growing demand without increases in carcase weights,” says a spokeswoman for Quality Meat Scotland.

Increased carcase weights are good for mince and diced lines but lead to challenges over the size of roasting joints and other cuts, she adds.  

Even if farmers are incentivised to produce more beef through price increases, the effect won’t be shown in the marketplace for another two and a half to three years – the time it takes to finish a cow, warns Peter Hardwick, Eblex head of trade development.

“The difficulty in the meat sector is consumers in Britain don’t consume the whole animal – we tend to eat less of the forequarter, less of the offal”

Peter Hardwick, Eblex

Timing is not the only challenge that an upsurge in demand would create. If production does go up, processors will still need to find a market for those parts of the animal that Brits don’t want, to make the economics of sourcing British meat worth their while, Hardwick adds. “The difficulty in the meat sector is consumers in Britain don’t consume the whole animal – we tend to eat less of the forequarter, less of the offal.”

It’s a similar story with pork, says Bpex – in 2012, Britain produced the most pigs since 2002, but it is still less than 50% self-sufficient and so must continue to rely on imports.

Then there’s cost. The horsemeat scandal has thrown a light on the steep price differential between British or Irish meat and meat from the Continent – a €270/tonne difference in the case of Irish versus Polish raw material in the case of frozen beef products – and that gap is only likely to widen if demand for meat from the British Isles soars as a result of the crisis.

At the same time, consumers’ budgets remain tight and food affordability is a growing concern – for some products, particularly at the budget end of the market, sourcing closer to home may simply not be an economically viable option.

O’Neill at Moy Park disagrees. Food is becoming more expensive regardless of where it is produced, and shoppers will have to come to terms with that, he says. “The days of cheap food are gone. Input costs, particularly feed and energy, are now determined globally and have risen dramatically. While economies of scale will offset this to some extent, it is likely that significant investment in farm capacity will be required, which will carry a higher depreciation burden that must be passed through the supply chain.”

Some of the messages from the British meat and poultry sector might sound surprisingly downbeat given the horsemeat scandal has arguably dealt them a perfect hand. But it would be wrong to suggest they are not up for rising to the challenge. O’Neill says Moy Park currently processes 4.5 million British chickens a year, and is determined to build on that. “We see the potential for this to increase substantially in the short to medium term.”     

Growth is also on the agenda for ABP, with Finnerty pointing out it has increased the number of UK cattle it processes by 20% to 400,000 a year over the past five years. “I would expect that to grow and possibly grow substantially,” he says. “We’ve grown over 20% in the last five years – you’d have to think that similar growth is easily achievable in the next five.”

“This must be an opportunity to support more locally produced food,” concludes Cattell at Red Tractor Assurance. But it will come at a price – the question is whether consumers will be prepared not only to demand more British meat, but also to pay for it.