Bringing home the bacon?

Buoyant value sales in the UK retail bacon market over the past year are masking stagnant volume sales, supply shortages and potential recessionary woes. Alyson Magee reports

Tightened supply in the UK and EU saw bacon retail values climb by 12% to almost 1.2bn in the year to 22 February (TNS Worldpanel), driven by price increases, with some retailers finally passing rising production costs on to consumers. Volume growth over the same period was only 0.5%, to 196,051t, representing a slowing of the 3.5% growth between 2006 and 2007, boosted by retail discounting.

Prices have been running higher, says Tony Fowler, senior economic analyst at the Agriculture & Horticulture Development Board (AHDB). Most meat prices are well up. Retail prices for bacon were up 6% in 2008, year-on-year, to an average of 633p/kg, and the trend is continuing with both average unit price and expenditure on bacon rising 11% in the four weeks to 22 February to 666p/kg.

While an easy correlation could be drawn between rising prices and struggling volume sales, a small return to volume growth has emerged for the dominant pre-packaged bacon sub-category over the three-month period to the end of February, with sales up over 4%, and value rising by 15%.

Pre-packaged bacon represents over 90% of value sales and, year-on-year, has seen value growth of over 13%, dwarfing volume growth of just over 1%. By contrast, loose sales were down by over 6% in volume but saw a very small value lift, as a result of the boosted prices prevailing across the board.

Bucking the recession

Bacon does seem to be riding out the recession better than some other meats. More people are realising just how versatile bacon is, using it for quick convenient hot or cold meals, as well as for the traditional great tasting bacon buttie; a great comfort food in times of a recession, says Sophie Colquhoun, Tulips group marketing director. Despite the current economic climate and inflationary pressures on price, bacon is still perceived by the consumer as offering good value for money.

Further, industry reports suggest that although some trading-down is apparent, the premium bacon category is performing well in comparison to other meats. Bacon has held up pretty well, says Bill Thurston, managing director of the pork business unit at Vion Food Group. Bacon is a product people love; it holds that special place in the heart of UK consumers and were fortunate weve got that behind us.

With the economy, there has been a trend in other proteins to trading down but there are always exceptions to the rule and some of Vions standard-plus and premium lines are performing well, but it is not universal. There has been some pick-up for middle and streaky rashers, but in the context of back bacon continuing to dominate rashers.

Tulip reports a slowing of growth in premium sales rather than any dramatic decline. Standard and Standard Plus products are growing at 8.6% and 20% in value respectively, according to the Danish-owned manufacturer, although the biggest winner in the current financial climate has been value ranges, growing by 47%. The premium sector has shown little change over the last year, but still only accounts for around 5% of the total market, adds John Howard, marketing director of the Danish Bacon & Meat Council (DBMC). According to Matthew Southam, research and insight executive with the AHDB, organic bacon is actually experiencing significant market growth against a decline in the overall organic market.

Domestic produce only accounted for 42% of UK organic bacon and ham sales in 2006, down from 70% the previous year, according to the most recent annual figures published by the Soil Association. However, while many UK pigmeat producers are said to be deterred by the cost of both conversion and organic feed also subject to fluctuating availability the Duchy and Helen Browning brands are growing in sales, with the latter securing a listing for its hand dry-cured back bacon in Tesco last year.

Link to health

Bacon has received negative press coverage in recent years, following a report published by the World Cancer Research Fund claiming consumption of three rashers of bacon a day could increase the risk of bowel cancer by a fifth. However, few people eat such quantities of processed meat on a daily basis, and average per capita consumption of bacon has fallen from 8.2kg in 1998 to 7.3kg in 2008. BPEX claimed the scare had little impact on sales, with TNS Worldpanel data indicating retail bacon sales actually climbed week-on-week immediately following publication of the warning.

In 2008, the Food Standards Agency (FSA) came under industry criticism for revising its 2010 salt reduction targets for bacon, from an average salt content of 3.5g to 3.25g per 100g, while adding a new goal of 2.88g for 2012. According to BPEX, bacon has been unfairly demonised and, in fact, accounts for just over 4% of the average household purchase of salt, and less than a quarter of typical salt consumption from ambient bakery products. Similarly, bacon represents only 1.9% of all fat purchased by consumers on average.

Division of spoils

Looking at the different cuts, bacon rashers account for three-quarters of the market, following by joints with 15%, steaks with over 9% and chops with less than 1%.

In the year to February 22, rashers garnered the greatest value boost, up by almost 13%, despite a 0.5% drop in volume sales. Joints were boosted by value growth of over 10% but, again, driven by rising prices, with volume growth of only 2%. The winner in terms of volume growth, meanwhile, was bacon steak, up by almost 7%. Value growth sat slightly higher, representing a small price lift, with the growth mainly driven by affordability.

Chops fared less well, dropping by 9% in volume sales, but with little impact on the total market, due to their negligible share. Price rises in the category meant a value loss of only 4%.

Modest volume growth of just over 1% has propelled smoked bacon sales to a value boost of almost 13%, while unsmoked bacon climbed by almost 11% in value on a flat volume performance. Smoked represents just over a third of bacon sales, with unsmoked the best-selling sub-category.

Supermarkets dominance of retail bacon sales shows no signs of weakening, with independent butchers volume market share falling by a fraction (0.2%) in the year to 22 February to 5.3%. Value share for the retail sector is slightly lower, at 5%.

Butchers volume share of the rashers market, however, remained stable, while value returns for both rashers and all bacon rose by 12% and 8% respectively, in line with the wider retail trend and reflecting improved pricing.

Tesco leads the retail bacon market, with a value share of a quarter, around a tenth more than its nearest rival, Asda, and followed by Sainsburys, Morrisons and Somerfield. Sales are also reportedly picking up for discounters such as Lidl, aided by the current financial climate.

In addition to retail volumes, around 120,000t of bacon goes into the UK foodservice sector. Bacon is more commonly used as an ingredient in breakfasts and sandwiches in the sector, says Tony Goodger, BPEX foodservice trade manager, rather than as a centre plate protein, leading to the dominance of cheaper imports.

While BPEX is keen to promote greater origin emphasis on foodservice menus, limited British supply can be a barrier to raising its profile through the larger pub and restaurant chains.

However, independent pubs are more likely to shop at local butchers supporting British Quality Standard Mark bacon, and BPEX has been working with the public sector to source regional bacon, recently aiding links between Yorkshire City Council and Cranswicks site in the area.

Opportunities exist for chefs to gain greater returns from bacon, says Goodger, whether making greater use of the more widely available British streaky bacon as an ingredient or sourcing directly from farmers to cut costs in the chain.

And, while foodservice is suffering in the current economic climate, opportunities also emerge, according to Vion communications controller Robert Smith, such as a lift in pizza deliveries and the possibility of greater sales through the channel this summer if more British consumers holiday at home.

Healthy supply

Shortages in the bacon market show no sign of abating, with the latest census figures from both the UK and EU highlighting a continuing downward trend in total and breeding pig numbers. Producer prices are climbing accordingly despite some alleviation of the stratospheric input costs prevailing over the last few years and, together with a weakened sterling, pushing up retail prices.

British pig numbers fell by 2.6% to 4.6m, and breeding sows by 2.8% to 504,000 head, in 2008, according to figures from the December 2008 census, published by Defra mid-March.

In the EU, meanwhile, a 6% drop in the breeding herd to 14.2m head was recorded in the December 2008 census, with a further decline of 4% forecast for the first quarter of 2009. Total EU pig numbers have fallen below 160m. Previous declines in the breeding herd and farm backlogs created by FMD-related restrictions pushed clean pig slaughtering down by 2% to 9.083m head in 2008, with a further drop to 8.75m forecast for 2009. British bacon production, meanwhile, fell from 196,600t in 2007 to 178,700t last year, and is expected to decline further to 168,000t in 2009.

However, despite the downward trend continuing in the UK, the AHDB has tentatively identified a turnaround in the English pig herd over the second half of 2008. Breeding sow numbers climbed by 4% between June and December 2008 to 354,000 head, as producers responded to lower feed costs and higher market prices. Sow productivity also improved in 2008.

Industry is hopeful that the lift in breeding stock represents a return to confidence in the beleaguered sector, which, last year, saw a march on Whitehall as part of the National Pig Associations Pigs Are Worth It initiative, backed by MTJs Save the British Pig Farmer campaign.

Although chairman Stewart Houston acknowledged that it would be wrong to believe everything in the garden is rosy, BPEX has signalled the sector is no longer in crisis, by restoring its levy charged to pig producers and processors to 1.05p as of April 6, up from 75p per pig in 2008.

Producer prices rose by 17% year-on-year to 126.3p/kg in 2008, reaching the highest average since 1996. The market is certainly picking up a bit, with production prices at their highest since 1996, says Tony Fowler, senior economic analyst at AHDB. There was a decline in feed prices from autumn 2008, although its a little bit surprising how quickly producers have responded to that.

Lower feed prices enabled net margins to shift from a negative to a positive position, albeit limited, according to Fowler. However, feed prices have risen again in early 2009, creating challenging conditions again for the pigmeat sector. Feed represents around 65% of pig production costs. There is always a lag in passing those costs through the chain which, in itself, puts pressure on the sector, says Bill Thurston, managing director of the pork business unit at Vion Food Group.

Retail prices were up 6% to 633p/kg last year, and have since climbed to 666p/kg in February 2009. However, most of the major grocery chains have come under continued criticism for failing to support British farmers or pass on rising retail prices to producers, and devaluing the pigmeat category through deep discounting.

A number had already pledged greater support for the British sector, however, ahead of the furore at the beginning of 2009 surrounding the Jamie Saves our Bacon TV programme (see panel, page 25).

Waitrose leads efforts with a pricing structure based on production costs, retail prices and market rates. The high-end retailer also moved from 90% to 100% British bacon in 2008.

The Co-operative has also moved to a 100% British own-label bacon and gammon proposition at the beginning of February, having previously sourced Danish product. All of the own-label lines are produced to Red Tractor standards as minimum, with its premium own-label range additionally sourced only from Hampshire breed pigs, reared on Freedom Food-accredited farms. Animal welfare is identified as a priority in the retailers recently launched Food Ethical Policy.

Morrisons introduced Dorset producer Denhay Farms new RSPCA Freedom Food-accredited Spoiltpig bacon line into 200 of its stores in late 2008. Discounter Lidl, meanwhile, converted 40% of its bacon stock to British, in February of this year.

The weakened value of sterling is exacerbating shortages and high prices in the UK, through the dual impact of making export markets more attractive for British pig producers and importing bacon into the UK less so. Exports of British bacon rose by over a third to 33,000t in 2008, according to BPEX, with further buoyancy forecast for the market this year, due to the devalued sterling.

While the biggest declines in EU pigmeat production are forecast for Eastern European member states and Spain, key importers into the UK, such as Denmark, the Netherlands and Ireland, are also suffering. The Irish pork dioxin scare put a further dent in imports from the country.

Despite higher prices, most Danish producers are still not at break-even point, but the British producers position has benefited from the decline in sterling over the last 12 months, says DBMCs Howard. Nonetheless, bacon imports continued to rise in 2008, up 4% to 289,000t.

PROCESSOR PROSPECTS

Suppliers into the UK bacon market are maintaining an upbeat approach to prospects, despite several closures and lay-offs already this year.

Having purchased Grampian Country Food Group in 2008, Dutch group Vion embarked on a plan of restructuring at the start of this year. Competition and over-capacity were cited as factors in the closure of its abattoir and butchery, and a scaling-back of retail operations at Haverhill, while cooked meat processing was moved from Malton to Haverhill, leaving the Malton site to focus on fresh pork and bacon. In certain parts of the industry, there is over-capacity and it has an impact on the market, says Bill Thurston, managing director of the pork business unit at Vion Food Group.

In an industry that is historically production-driven, our focus is the market and delivering what it wants and we have the feedmills, farms, curing and processing capacity to do that. Much progress has already been made in integrating the Grampian business, according to Vion, with Case & Sons recent overall title win in BPEXs Britains Connoisseur Bacon competition cited as an example of its success.

Also in January, Danish-owned Tulip announced the closure of its Bromborough site, and an end to cooked bacon production at Thetford, blaming the economic downturn. Tulip-owned Dalehead Foods also announced the closure of its Cambridge abattoir the same month. However, Tulip is optimistic about prospects, citing Danepak sales up by 200% over the past year, and now accounting for 24% of branded retail sales with a value of 30m, driven by significant investment, both above and below line. The Tulip bacon brand will unveil new, modern packaging this year in a bid to boost its profile across the UK.

Pork specialist Cranswick, meanwhile, reported profits up 5% in the six months to September 2008 on the back of buoyant sandwich and bacon sales.

THE GREAT LABELLING DEBATE

The Jamie Saves our Bacon programme on C4 in January placed a national spotlight on the well-worn industry issues of welfare and origin labelling. The celebrity chef set out to champion the British pig industry and the superiority of its welfare practices over, for example, the sow stalls used by some European producers. Supermarkets also came under criticism for failing to support British pig farmers in crisis and clearly labelling country of origin.

The debate was also played out in the political arena, following the January publication of an Environment, Food and Rural Affairs committee report, attributing the British sectors problems to excessive legislation, high feed prices and the failure of retailers and caterers, including public sector procurers, to support domestic product. Only 29% of bacon used by government departments, hospitals and prisons, and 75% by Defra, is British. In January, environment secretary Hilary Benn publicly condemned supermarkets labelling of foods such as bacon produced in another country but processed in the UK as British. And the following month, Benns shadow secretary Nick Herbert criticised the government for insufficient action on the issue, pledging the Tories would introduce mandatory country-of-origin labelling across meat products.

Tesco announced changes to its country-of-origin labelling on its standard own-label bacon and gammon lines, following criticism in the trade press adding Produced using pork from [country] to the front of its packs and replacing back labels reading pork from the UK, Denmark, Holland or Sweden with Packed in UK.

And the RSPCA launched a Rooting for Pigs campaign, urging UK retailers to help develop a voluntary labelling agreement to ease consumer confusion over claims such as outdoor bred or free range. Jamie Oliver has lent his support.

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