Reading the Meat Industry Report and thinking of HKScan Finland

 The Meat Industry Report (in Finnish) has been released. It does not come out too often, so let’s look at it for a while. The report covers Finnish meat industry structure, markets, typical features financial condition as well as the development needs and prospects. I have added here my own comments on HKScan and the report as well.

 

Fairy surprisingly, the report says that food industry as a whole is seen as a growth sector that will do well in international competition. Meat industry is one of the most important segments in the food industry and, the report says, growth can be achieved in the domestic market, through the internationalization of enterprises and also by increasing exports. The report states key factors: high quality, specialization and innovation.

The report lists factors on which success will be based on.  They are affordable raw materials, water of good quality, technologies and utilization of automation, human skills and availability of labor, effective self-monitoring, risk prevention, as well as the entire food chain collaboration and accountability. According to the report the meat sector also requires the support of research and development - and yes, there it is said - public funding

The report also explicitly states that meat industry is dependent on domestic primary production and that competitive advantage can be based on product features and image but not on price. It is optimistic by saying that there are international markets for special products and strong niche brands. However, by the same token it notes that the vast majority of exports will still be meat raw material.

Growth is in Asia, and the report tells that this autumn Chinese authorities promised to hasten their auditing of Finnish meat companies.  This would be a great thing for HKScan Finland. The sad fact is that HKScan’s export as a whole is currently not going well. The latest Q3 tells that ” The outlook has deteriorated mainly due to longer-than-foreseen export challenges and continuing low price levels in export sales.”  No doubt, HKScan is at least trying to export also processed meat and the range of brands is wide, HK, Via, Scan, Rakvere and Tallegg are represented.

In Finland, the report continues, food consumption will not grow. Growth occurs only through value addition. However, worsening general economy makes consumers prone to switch to less expensive food. This all means tightening competition, the report concludes. What’s more, the report tells also, that import of meat products is growing. If the report is right, it is probably safe to conclude that taking into account the bad economic situation, growing import means that even low-end products are imported, not only fillets.

HKScan Finland has not succeeded during this year.  Although meat product prices have increased up to 10 percent or even more in a year, HKScan Finland's sales show no increase at all.

What about trends? The report sees that health benefits and nutritional aspects are more and more important among consumers. HKScan's Rapeseed pork, which was also shortly quoted by the report, is a fine innovation to fulfill wishes of consumers on these issues, although its commercial success still seems uncertain. When it comes to local food, which according to the report is expected to increase and diversify, HKScan is definitely out.

The report notes that transparency and accountability, animal welfare and product safety are increasingly emphasized and social media has a growing influence on consumer behavior, the report anticipates. One can be sure, that a large company, such as HKScan is often in the firing line.

Organic food, in addition to local food, is a part of the Finnish national food strategy and organic food sales continue to grow faster than the sales of all foods, the report says.  There’s no doubt, HKScan is in.  One may even think that organic meat production needs a large network, smooth routines, top logistics and stamina to cope with painstaking specifications. In a word, one could argue, that organic food production is suitable only for large companies such as HKScan.

As noted in the report, Finnish retail trade is characterized by chaining and strict trade regulations. The negotiation and pricing power of the two large chains is great.  As a large company HKScan Finland, of course, has a relatively better position than smaller ones.

The report forecasts that multichannelling will increase and this can be seen for instance in online stores. So far, however, the report points out, meat product e-commerce is limited. HKScan is at least some way with this trend.  Quality meat delivered to your door.

Horeca trade, the report says,  is an essential part of the food chain and what’s more important, according to the report the sector is increasingly using a variety of semi-finished products, food components and prepared food to reduce labor costs and wastage. This should be supremely great for HKScan.  However, it is the worst competitor, not HKScan, who has recently told its own market share growth in the horeca sector. Apparently HKScan’s new Away from Home unit has not yet succeeded.

On the whole, meat industry is characterized by low margins and modest profitability and companies have sought profitability through efficiency programs, the report states but it also expects that automation and robotics will grow.  When Hannu Kottonen took the lead in the Group, HKScan definitely increased investing in them.

We will discuss HKScan later but on Friday, December 20^th we are going to look at Atria’s businesses.  “To make a Dadaist Poem” (Tristan Tzara 1920).

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