Even prior to the outbreak of the global pandemic, the European meat sector faced uncertainty. Emerging concerns around sustainability, animal welfare, and public health fueled changes in consumer behavior. The already thin profit margins declined from 2.5% EBIT in 2016 to 1.6% EBIT in 2019, underscoring a structural imbalance between demand and supply. However, the pandemic caused the dynamics in the industry to shift, damaging sales in some product groups and channels, but also boosting others.
The retail channel offers the best growth opportunities for meat companies
As illustrated in our 2021 fall edition of the trend report, the meat industry proved to be resilient in a declining market. Consolidation provided an answer to rising costs in the value chain – still enabling growth for companies. Especially retail-focused companies benefitted from this strategy, providing even more resilience in COVID-year 2020.
However, not all product groups showed the same resilience to the pandemic. In particular, beef (especially premium beef) and poultry experienced negative effects on growth rates. Pork, however, had a good year thanks to strong exports and favorable price levels, offsetting demand decline in the domestic market. A player that was able to capitalize on this was Vion. The company showed that a well-crafted geographical spread can remedy regional pandemic impacts. It was able to profit from well-priced exports to Asia, while Europe was under pressure.
Performance Quadrant 2020 - Grouped
Profitability for foodservice focused companies was surprisingly good in 2020
Even though the retail channel offers the best growth opportunities, it is also the channel with the lowest and most pressured margins due to the strong negotiating power of large retailers. This effect is also felt by the poultry segment, which has a strong focus on the retail sector. The margins within the product group are on a downward trajectory: the EBIT declined from 2.6% in 2019 to 2.2% in 2020.
Still, there are prime examples of both large and small companies having managed their product and channel mix well during the pandemic managing to sell to retailers when foodservice was closed. Subsequently, when demand in foodservice started back up, suppliers could profit from good prices.
However, the most proven strategies to remain profitable are added-value strategies that tap into quality and taste from the basis of animal race, origin and production process. They boost premium results – especially Spanish and Italian players demonstrate this.
Want to explore the strategies of the 2020 fast growing companies? And know all the effects of the pandemic on the margins of different product groups and companies?