Tim Fulton

A shift to home cooking and a slide in food service after Covid-19 is changing beef sales.

Chinese food service had resumed but was not yet back to normal, Alliance Group category director, beef, Darren Drury, said.

The trade had been hurt by social distancing requirements and restrictions on guest numbers, such as a maximum of three people per table. In response, Alliance had “pivoted away” from food service retail cuts or simplified manufacturing items, including new packaging, he said.

There was room to educate Chinese consumers who chose to cook meals at home and they were generally familiar with cooking pork, chicken and fish, but not so much with beef and lamb.

“One of the ways we can do that is targeting consumers with simple recipes that highlight the benefits of grass-fed natural beef. There is a real opportunity to create new eating habits,” Drury said.

E-commerce was growing and Covid-19 movement restrictions in January and February saw use of the sales channel increase dramatically.

Silver Fern Farms chief executive Simon Limmer said Covid-19 lockdown was changing the way people ate around the world.

With restaurants hobbled, SFF customers were sending product into retail, or home delivery, offsetting slack demand in food service. “China is recovering and consumer confidence is returning. We believe they are a good indicator of the potential for our sector,” he said.

Beef markets were mostly stable. While the United States, fast-food restaurant chains had cut purchasing, drive-through and home-delivery services were still operating. This had affected demand for grinding beef, Limmer said.

“At the same time, we are seeing increased demand from retailers, with much of the product being taken up to service the growth in consumer demand at supermarkets.”

China market insider, Gung Ho! pizza restaurant founder Jade Gray, said the Covid-19 crisis was a chance for New Zealand meat marketers to finally band together.

Gray’s 24-year career in China has gone from managing cattle breeding farms in the north east to butchery retail in the south west. In 2000 he stepped out on his own and set off as an entrepreneur that has cumulated in the restaurant group Gung Ho! Ventures, which owns several award-winning food and beverage brands including the Gung Ho! Pizza and Pyro Pizza chains.

In November 2019 the New Zealander sold his pizza restaurants in Beijing to his management. He’s still a director of those businesses and is helping them to navigate the Covid-19 economic turmoil.

Gray has served as a Trade and Enterprise (NZTE) government-appointed adviser, helping NZ businesses enter the China market. More recently he helped train senior civil servants as part of the NZ Government’s China Capable Public Sector Masterclass programme in Wellington.

Looking back, Gray said being a foreigner meant he often lacked a “sixth sense” for judging Chinese business risk. Only someone raised in the culture could always have that kind of intuition, he said.

“You have to get very used to that state of not really understanding what’s totally going on. But what you hope to get, is to have a good team around you that do fully get it, that you can trust.”

Gray recommends NZ companies give their China-based staff more freedom to make decisions, based on their natural feel for the Chinese market.

“It’s definitely a time to give a lot of autonomy to your local teams.”

He says they’ve got a perception that outside people never get, even at the best of times and foreign management teams are too hands-on.

They certainly needed to be attuned to company values and governance regulations, but most tactical and many strategic decisions had to be left up to the local team if the organisation was going to move at the pace required to be competitive in China’s rapidly changing landscape.

Chinese were a bit wary of economic conditions but had been through this sort of crisis numerous times. This was the fourth epidemic Gray could recall since he first went there in the mid 1990s: Sars, Avian Flu, Swine Flu and now Covid-19. Gray had no doubt that Chinese businesses would respond quickly with new business models including online buying based on social media marketing.

Closures of fast food stores

Social media numbers are going through the roof in China but it won’t change business direction because it was heading that way anyway, Gung Ho! pizza restaurant founder Jade Gray said.

“But I’d say it’s going to accelerate it by at least two to three years, in terms of the attraction of online retail.”

Kiwis in the market would have to adapt. Some of Gray’s entrepreneur mates in China had a couple of fast food stores while others had 30 or 40.

“What we’re seeing is mass closures.”

He can see the majority of SME-size restaurants typically closing 25 to 50% of their stores.

“And you’re going to get a lot that close completely.”

He said many malls would struggle to fill their real estate as food businesses closed.

There was a big push to malls in China in the last decade but many of those mega complexes, including department stores, were now losing out to online order and delivery.

“They were already on a knife-edge before this. Covid-19 is going to throw the whole mall industry into disarray in China.”

Any slump in the number of bricks and mortar eateries would hurt NZ’s food service sales and give meat marketers fewer places to showcase their wares as chefs and buying agents lost jobs.

These contacts were vital for NZ meat marketers, as they were usually loyal to particular products.

“They’re the true mavens (expert or connoisseur). They’re the true flagbearers of the product; they don’t change with what’s hot and what’s not. They find something they like to work with, they trust it, they learn the story and they stay with it.”

NZ beef had been sold in China since at least the late 1980s but awareness of NZ product was still dull.

Trade partners might recognise Kiwi “pasture beef” like Silver Fern Farms, Landcorp or Grand Farms (Alliance Group) product but few Chinese consumers would recognise those brands. Job losses in restaurants of previously loyal chefs and buying agents in the food service industry would hinder efforts to continue to differentiate Kiwi product.

Gray urged the NZ meat industry to respond by retrenching to the national story. He felt strongly that collectively, despite a worldwide slump, NZ beef and lamb could pull off a marketing coup by banding together.

“In the last five to 10 years there’s been a real push toward building brands, which is great and they have done an impressive job at it but I think now is a time to be coming together and saying ‘this is not a time for us to be flying our own flag’.”

The worst result would be a reversion to a commodity game based on the best deal to secure NZ product. Nor should anyone individually try to capture the top end of a market.

“You’re not looking for the flashest thing to put on a degustation menu because many of the high-end restaurants are not going to exist.”

The focus for the next few years should be keeping ‘Brand NZ Inc’ strong. “During a crisis it could finally be a chance for these guys to get out there and commit to working together, because they have struggled to do this in China to date.”

Millions of dollars had been poured into market support initiatives, from taxpayers and farmer groups, without a tangible market co-operation strategy to show for it.

“They’ve tried over the years and I don’t believe it’s got to a point it should have been at.” If done right, NZ traders could spend a couple of years working together on Brand NZ-type marketing, then go back to promoting their own brands.

China-based agricultural business consultant Michael Boddington also sees a new dawn rising in China.

More than 30 years ago Boddington started and ran Chinese operations for PIC, the world’s largest pig breeding business. He was also Alltech’s Biotechnology general manager in China and in 2007 Boddington founded Asian Agribusiness Consulting (AAC) and Asian Agribusiness Recruitment, Training and Development (AARTD).

Boddington, who lives and works in Beijing, said the Covid-19 outbreak would amplify huge changes in Chinese retail that started with the launch of China’s biggest retailer, JD.com, after the SARS outbreak in 2003.

During the latest Chinese New Year season e-commerce grew by more than 50% per week. Two weeks later as the country was in the Covid-19 lockdown it grew by more than 90%. Demographics were changing and older people were using e-commerce more often, Boddington said.

“My advice to the NZ beef industry is to embrace social media and increase investments in awareness, education and smart value-added ideas such as directing your followers to places where NZ beef is served or retailed.”

The industry needed better understanding of what type of e-commerce was needed to build brand and market share, Boddington said.

Rabobank NZ animal proteins analyst, Blake Holgate, predicted Chinese beef demand would rebound in the second half of the year, once a backlog of imported beef worked through the system.

China would still lack meat protein because of the impact of African Swine Fever on domestic pork production and Holgate expected the NZ beef industry to take advantage of increased food safety awareness in the country.

“I think the Chinese consumer has always been very food-safety, health-orientated. This will reinforce that and will definitely be a plus in NZ’s column, but when the supply hole’s that big, they will be looking to source meat from a number of producers (around the world).”

Americans go grilling

Rabobank NZ analyst Blake Holgate said the US market should hold up.

Americans were entering grilling season soon, so if people couldn’t go out because of Covid-19, they would likely eat more beef at home.

Drought and a lack of storage capacity for NZ beef continued to weigh on the industry, he said.

NZ’s biggest competitor to supply grass-fed beef globally would inevitably be Australia, which has been plagued by drought.

“Their beef exports will be down quite noticeably this year. Their national herd numbers have been coming down due to the drought over a number of seasons so their capital stock has reduced. Now that they’ve had rain they will be looking to rebuild.”

American herd rebuilding could also be a factor: US cow slaughter was reasonably high and earlier this year China reached agreement about buying American agricultural products, including beef.

“There’s a number of roadblocks there at the moment around use of growth hormones in the US, but potentially, if China does need to source protein later in the year, that US market is one to keep an eye on,” Holgate said.

ANZ agriculture economist, Susan Kilsby, said the worst of the Chinese supply disruption was over but China itself was facing an economic slowdown in Europe, US and elsewhere. “So, while its own economy might be improving, it’s under a dark cloud that’s lowering,” she said.

Kilsby expected US beef demand to drop as well. “The challenge with the States is very much in that hamburger market. While there is talk about doing higher-end products, that’s really challenging in the current economic environment.”

The restaurant trade, including fast food, could be difficult as countries imposed Covid-19 movement restrictions.

The only possible upside was drive-through operations, because a lot of Americans didn’t cook at home. “But you’ve got to say, consumption’s going to fall in general.”

Food exports were predicted to out-perform other commodities in the next few years but record prices for NZ goods were unlikely while the world was under the Covid-19 cloud, Kilsby said.

THE EXPORT STORY

MIA chief executive Sirma Karapeeva reported:

• In February, the impact of Covid-19 saw the value of exports to China drop by 45% to $75 million compared to February 2019.
• Provisional Statistics NZ data for the period from March 1-25, however shows that value of exports to China dropped by only 15% compared to the same period in 2019, indicating that trade is starting to recover.
• The global demand for protein remains strong, and as China begins to recover, we expect NZ red meat exports to continue to improve. China remains our top sheepmeat market and second-largest beef market after the US.
• Monitoring of Chinese social media shows that Covid-19 has created an opportunity for more consumers to turn to on-line shopping for food largely driven by convenience and health reasons (with strong demand for fresh or organic/natural products) and food safety concerns.
• In China the term organic often means product free from antibiotics and hormones as well as lean product which is preferred for family health reasons.
• In addition, we understand Chinese consumers have had more time to try new recipes at home due to the lockdown and are looking for healthier foods. Beef has natural associations with health and immunity building as per Chinese Traditional Medicine – and these are heightened since Covid-19. Beef appears to be gaining popularity at the expense of pork to some extent