THE CASE FOR INTEGRATED SUPPLY CHAINS

Author: Tim Shaw – Head of Research, Wheatsheaf Group

 

As consumer expectations around food production in the developed world are changing, businesses in the food chain can win new customers and strengthen brands through better information.

A nationwide survey of US food consumers by Deloitte  identified that buying decisions are no longer influenced by just cost and convenience; a more complex set of drivers are now at play. 

Concerns around personal health, environmental impact, welfare, safety and transparency are now guiding buying decisions more strongly than ever before. The consumer intelligence group, Nielsen , reported in its survey on Global Health and Wellness that Generation Z and Millennial consumers are much more interested in sustainably-sourced food and are willing to pay a premium for it, compared to the Baby Boomer generation.  

Greater access to information has been at the heart of this change. Moreover, in the social media age the consumer has more power than ever before to influence the buying decision of others. The speed at which a false food story can circulate creates a major reputational risk for stakeholders across the food chain. 
 
In order to gain customers and protect or strengthen brands in this new marketplace, retailers need to connect more intimately with consumers to understand their expectations and to address the information deficiencies within their supply chains to build greater trust and loyalty. 

 

Capitalising on the growth in grass-fed beef

The growth of the ‘health’ and ‘environment’ conscious consumer is none more evident than in the market for beef.

US per capita beef consumption has been falling for several decades, partly in response to price increases (particularly relative to pork and poultry) but also in response to increasing report around the negative impact of consuming too much red meat.  
  
However, even within declining markets there are segments that offer growth opportunities. According to analysis by the Wallace Centre of the Winrock Foundation, retail sales of US grass-fed  beef amounted to $400m in 2013, compared to less than $5m in 1998. Over the last decade they estimate demand for grass-fed beef has grown 25% per annum and yet, this still only represents 5% of the total US retail beef market.  

The first instance of BSE in the US4 in 2003, and the resulting increase in food safety concerns, may have helped to stimulate interest in the sub-category but there has also been a growing consumer perception for grass-fed beef to be more natural and therefore a healthier option than the grain-fed equivalent (higher nutrient content, lower fat). Irrespective of the scientific basis for these claims, such perception has seen US consumers be willing to pay well over double the price for grass-fed beef versus grain-fed. 

In addition to perceived health benefits, the grass-fed beef consumer does not so much as want, but expect their product to be free from antibiotics, hormones, additives and preservatives. They expect that compared to grain-fed cattle raised on industrial feedlots, grass fed animals are treated better, causing a much lower negative impact upon the environment over their lifetime.

A vision of the future

How should retailers and the underlying supply chain think differently in order to win over this emerging class of consumer in a category such as beef? 

Transparency and traceability will be core to the new way of thinking – but it requires the beef supply chain to become more tightly integrated when it comes to the flow of information; from ranch to fork but also, and crucially, from fork to ranch. A more health-conscious and sustainability aware beef consumer needs to be able to trust the retailer to be delivering a genuine grass-fed beef product that meets expectations. They want to be able to see that their choice of grass-fed beef has had the impact that they paid a premium for. 

What if every packaged portion of grass-fed beef came with a printed QR label that consumers could scan with their smart phones? Such scan could reveal the whole history of that product, providing a clear chain of information to verify that the animal had been raised and slaughtered to the standards expected by the consumer. Perhaps it could also give comparative statistics on CO2 equivalent emissions and water consumption versus grain-fed beef. Furthermore, as reliable metrics emerge, information could also be provided on the amount of carbon sequestered in the soil by using the land for pasture rather than for crops and applying a suitable grazing management system. 

Also, what if, the rancher and processor could access information from their smartphones detailing the exact qualities and cuts that consumers are demanding in order to tailor their systems to deliver a more consistent supply of what consumers are going to be asking for several months ahead?

 

Can this vision be made into reality? 

In order for retailers to raise their level of disclosure to consumers it is evident that traditional beef supply chains need to be transformed. 

Between the ranch and the slaughterhouse a retailer would currently have to connect with potentially thousands of small to mid-sized businesses. In addition to collating paper records and RFID tag information, a retailer would have to coordinate ranch-level audits to verify that each rancher had reared their cattle in-line with an appropriate industry standard for grass-fed beef. 
 
It is noted though, that what is considered the standard for grass-fed beef has become more open to interpretation since the USDA Agricultural Marketing Service withdrew its official definition for grass-fed in early 2016. One can still achieve verified status from the USDA, but it requires retailers to collaborate with the supply chain in order to set out minimum criteria and metrics.  

At a traditional slaughterhouse animals might arrive from multiple ranches, making the task of tracing the animal from one particular ranch through to the end cut very difficult

 

Coordinate your vertical

Creating this clear chain of custody and flow of producer/processor information to the retailer requires a constant coordination of activity and data recording. This is why so many food retailers and processors are seeking to create an integrated beef supply chain. 

An integrated chain begins with a clear vision of what the rancher, processor and retailer are working together to produce – a verified, safe, healthy and antibiotic free beef product. A vertically integrated chain can then seek collective agreement around the standards required in order to make these claims on the product label. These can then be approved as a USDA Process Verified Program .
  
In integrating their supply chain, retailers will seek to work with specific ranches and slaughterhouses that are willing to sign up to the program and adhere to its code.  
 
The key enabler to vertical coordination and the requisite regulatory approval is a strong document management system. Certification and trust cannot be attained without it. 

Retailers must think about what document management system they should implement in order to make the process of documenting how the animal is reared and slaughtered as seamless as possible for the program members. Creating digital, rather than paper records that can be completed on a smartphone, and connecting sensor data streams to a central data repository, are both choices that can deliver significant savings on time and labour. Uploading cutting plans and meat grades in real time can also increase the efficiency of inventory management. 

Finally, an electronic management system provides retailers with all the evidence they need to build trust, differentiation and customer loyalty for their products. FarmWizard, a Wheatsheaf subsidiary company has created the first commercially available protein value chain software that can deliver an end-to-end solution for integrated supply chains.

www.proteinvaluechain.com

About Wheatsheaf Group Limited
 
Wheatsheaf was established at the beginning of 2012 by Grosvenor Estate. Its remit is specifically to develop and invest in businesses that will contribute solutions towards meeting the global challenge brought about by a rapidly changing world population and its demands for food, energy and water in an increasingly resource constrained environment.

http://www.wheatsheafgroup.com/ 


About the Grosvenor Estate
 
The Grosvenor Estate represents all of the assets and business interests, including rural estates owned by trusts on behalf of the Grosvenor family headed by the Duke of Westminster. The three key elements are Grosvenor Group, an international property group active in 60 cities around the world
(including Vancouver since 1953); Wheatsheaf Group, which comprises investments in sustainable food and energy initiatives together with a number of trading companies in the North West of England; and the Family Investment Office which includes 5 rural estates in the United Kingdom and Spain and a charitable foundation. The Grosvenor Estate employs more than 1,100 people, whilst relating to many more through its ownership and management of land and property.

http://www.grosvenorestate.com/