It's The Margins That Matter
OPINION: It appears to be difficult for people who haven’t tried to run a business to understand the difference between assets and cash.
He told the recent NZ Co-op business leaders’ forum in Auckland that unless the industry moves away from commodities it risks being squashed by chicken and pork.
“Chicken and pork are cheap commodity items that have got cheaper per kilo over the last 20 to 30 years,” he says.
“The days of ‘winner, winner – chicken dinner’, when there was a special occasion for a chicken meal, are long gone; they are now our competitors.”
Hewett says a Barcelona housewife going down a supermarket aisle is no longer wondering whether it will be lamb chops or roast for dinner, but whether she will buy chicken or pork or something else for the kids tonight.
To compete in that sector red meat companies need to be “ruthlessly efficient”.
“To drive costs out of your business you’ve got to be right on top of your yields, be relentless about it and do it every day. The industry in NZ is good at that but there’s plenty of opportunity to improve.”
For SFF, 80% of its business fits into the commodity sector and Hewett concedes it can never get out of some products. “It’s hard to add more value to pelts and hides, other than having a pelt or a hide.”
Chilled products make up 15% of SFF’s business; they boost gross profit by 20-25%. Moving from chilled to value added products adds a further 25% to profit margins.
Hewett says SFF hopes to have 10% of total sales in value added by 2020 (this is now 5%).
Everything starts with the consumer for SFF: understanding what the consumer wants and then working that back to what the farmer does inside the farmgate is critical to extracting value.
“For too long the industry has been focused on product kill and then worry about selling it later on,” Hewett says.
