The Agribusiness World Today

Ken Shwedel
Investigador de Agronegocios de Rabobank, México
28 de Julio - 1 de Agosto de 2008

The World

Upscale coffee: the next salad strategy? That is what McDonald’s hopping for. The fast food chain has been developing an “upscale coffee strategy with plans to have all of the company’s 14,000 restaurants selling lattes and cappuccinos by next year”. Most analysts believe that McDonald’s has been fairly successful with their strategy of offering healthier meal alternatives. By way of contrast, the general opinion is that the gourmet coffee is a mistake. Consumers’ perception of McDonald’s is of a chain that offers quality at an affordable price.

This is all well and good, but quality is not the same as gourmet. There are questions as to whether the market segment for lattes is the same as for a Quarter Pounder. Not only would the gourmet offering confuse consumers, but a potential lack of compatibility may drive long-term loyal consumers away and dissuade possible new consumers from McDonald’s. This opinion, though, is not unanimous. We are being told that “the tastes of U.S. coffee consumers has changed” and McDonald’s “is well suited to bring ‘gourmet’ coffee into a recession-acceptable price point.” Management, for their part, points to the fact that just awhile back analysts were saying the same thing about their move towards “healthifying” their menu. While we tend to fall into the pessimist camp, we do believe that it is important that companies continually attempt to reevaluate their strategy and core business.

What’s in a name: No this is not about Shakespeare, but rather about Cargill’s strategic initiative to sell beef to a market that is increasingly looking for value. Cargill has found “that as many as 30 percent of shoppers [in the U.S.] were cutting back on beef purchases.” While this isn’t much of a surprise in a market with economic problems. What has Cargill worried is that as consumers begin to trade down, they will run into cuts of beef with which they are unfamiliar and have strange names such as ball tip, top round, etc. To encourage consumers to continue consuming beef, they have initiated a campaign around the tag line: “Beef up your menu”. They are not, though, just relying on a catchy tag line. They are “introducing a line of eight value-priced beef cuts with brand names more appetizing than traditional labels for cuts”. For example, they are branding skirt steak as Marbello steak and ball tip is being branded as Cabrosa steak. Obviously, Cargill’s strategy is not just to get consumers not to abandon beef as they trade down, but to move towards consumers to Cargill’s branded beef. You can be sure that the industry will be closely watching Cargill’s results. And to the extent that Cargill is successful we will see more branded beef on the market, not just at the mid-level pricing point, but across the entire price spectrum.

Mexico

Slowdown in sales favors supermarkets: According to ANTAD, same store supermarket sales in June grew 2 percent. By way of contrast, sales of general merchandise and clothing contracted during June compared with the same month last year. What is of particular interest is that total supermarket sales (including new stores) grew by 9.6 percent. INEGI data through May shows a one percent contraction of food, beverage and tobacco sales. This is important since it suggests that supermarket penetration is growing faster than previously projected and is well on its way to become the dominant retail food channel.