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31 January 2011

Merino lamb shows cut of Silver Fern's marketing jib

 

The decision of Silver Fern Farms to work with Merino sheep farmers to create a special marketing category for Merino lamb meat, says a lot about Silver Fern Farms and its ongoing transformation into a brand-driven business.


Ten years ago Silver Fern (then trading as PPCS) would have rejected such a concept out of hand. Merino lambs make up a tiny proportion of New Zealand's lamb meat output and the company's focus was almost totally on the production of high volumes of a limited range of quality assured standardised products at least possible cost.

In a shift which began under his predecessor Stewart Barnett and accelerated under current chief executive Keith Cooper, Silver Fern has changed its business model. At a production level, a steely focus on quality and cost control remains. The transformation is at the marketing end, where Silver Fern has moved down the value chain so that it is as close as possible to the retailer or restaurateur... the players who make the purchase decisions.

In a drive to maximise market returns and to differentiate its offerings, one size no longer fits all. Retailers are increasingly accepting Silver Farm branded product on their shelves and a nimble Silver Fern is proving adept at providing each major customer with product and packaging that meets their needs.

In contrast, the co-op's biggest competitor Alliance Co-operative Group, has stuck with the low cost high volume model, with a heavy reliance on distributors to move standardised high quality product. It's efficient system that has served Alliance well, even if it is largely production driven.

Marketing professionals will warm to Silver Fern's greater customer focus. Differentiation and a move down the marketing chain has the potential to add great value to a quality product.

Value-added risks

But value added strategies also add cost and increase inventory risks. As suppliers to Fonterra know full well, value added strategies sometimes fail to match their promise. In particular, they can struggle for traction when the commodity market is in seller's favour, as it is now for many core dairy products.

But the world is changing and lamb is not milk. Formerly assured markets for lamb in England and continental Europe are shrinking while newly affluent markets are opening in Asia and the Middle East.

All things being equal, WHAM believes Silver Fern has adopted the right strategy for the times.

Unfortunately, all things are not equal. Silver Fern's expensive takeover of Richmond Meat in 2004 has saddled the co-op with far more debt than its competitors. It's also the least profitable of the major meat industry players - all of which struggle to make more than a derisory return - thanks largely to its debt burden.

For high country farmers, who have long argued that the finer-grained darker meat associated with their Merinos is a superior product, the partnership between the NZ Merino Company and Silver Fern Farms will be very welcome indeed. It may also sway a few of them to shift their loyalty (as well as their beef and venison production) to their new-found friend.

In the at-times bitter battle between the co-ops for farmer custom, every extra supplier counts.

Photo: Antonia Steeg

- Trevor Walton


What do you think?

Denver Legg
I totally agree. It's hard to believe any remnants of fortress PPCS thinking remain - but why couldn't they have had this epiphany years ago, before knee-capping Cervena?

Trevor Walton
Long memories among farmers and commentators are crosses that SFF has to bear, but there is no doubt that SFF has dramatically changed its culture. I suspect the co-op's former hostility to Cervena and other modern marketing concepts was in part a reaction to the publicity and plaudits garnered by former Fortex boss Graham Thomson at the expense of SFF and Alliance Group. When Fortex collapsed, many of the marketing concepts espoused by Thomson were sent to the slammer, along with their apostle-in-chief who was convicted of fraud.

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