Creating a market

In 1950, Bernard Matthews bought 20 turkey eggs and an old incubator – a total investment of £2.50. Today, Bernard Matthews is a multi-national company with a turnover in excess of £400m, employing over 6000 people world-wide. While the core business remained turkey production, Bernard Matthews decided in 1992 to enter the pre-packed sliced cooked meat market. At the time, it seemed an enormous risk. The capital investment required would be substantial, the market was already dominated by supermarket’s own label products and there were very few poultry products available.

Background to the decision

Although a market leader in the frozen turkey and other poultry markets during the 1980s, this position increasingly came under threat from competition during the early 1990s. In 1992, Bernard Matthews Plc’s turnover dipped after a period of steady growth. Further examination of the data might suggest that the mature stage of the product life cycle had been reached and that some sort of extension strategy was needed. Faced with such a situation, a firm can adopt a number of strategies. Firstly, it has to decide whether to persevere in the same market or to try to enter a new one, developing a new product or staying with the existing one. The various strategy options are shown below in Ansoff’s Matrix.

Bernard Matthews Plc decided to consolidate within its present market and develop its product portfolio, specifically prepacked sliced meats. This strategy of product development, it was hoped, would spread the product base and hopefully provide a more secure business.

Firms may try to reduce their dependency on one product because of variations in demand which can be both seasonal and cyclical. The market may have become too competitive or merely saturated. The demand for some products, those with higher income elasticity, is likely to be more adversely affected by a downturn in the trade cycle than others.

Product development can be seen as a method of generating internal growth, often undertaken when the opportunities for organic growth of the core business appear exhausted. Developing new product lines enables a firm to find new applications for its expertise and resources. If successful, this allows the firm to spread the risk and grow, but it must also be aware of harming its core business through a misunderstanding of the new market, redirecting too many resources and the possibility of diseconomies of scale.

Resources audit

Having undertaken a full resources audit which examined the physical, human and financial resources as well as those intangible assets such as customer goodwill, Bernard Matthews decided to implement the product development strategy. The Company already had a number of strengths on which to build i.e. a strong brand identity and an easily recognisable brand name and it was hoped that consumer loyalty would remain strong. Bernard Matthews Plc is unusual, it is one of the few firms in the UK that can claim to be a fully vertically integrated company, controlling all the production processes from the breeding and rearing right through to the end product. This means that Bernard Matthews products bought in a supermarket could be traced right back to the factory packing line and from the factory, it is possible to trace the farm, egg or parents of the egg. This gives the company complete control over the quantity and cost of all its raw materials, but most importantly, it allows a complete guarantee of quality.

The firm already had a well developed distribution network and all the necessary contacts within the food retailing industry. This core of competences and skills within the company, both managerial and technological could be employed and further developed. The firm possessed good internal communications which would allow for the smooth introduction of new products. However, possibly the most important advantage that Bernard Matthews possessed, was a company philosophy that was very much market orientated, tailoring products to the needs of the customers. The management kept a close eye on market developments for any opportunities.

There are a number of stages in the development of a new product:

1. IDEAS – the creative process of innovation/brainstorming
2. SELECTION – the screening and evaluation of the ideas/ selection of one
3. ANALYSIS – examination of the idea with respect to all the internal functional areas of the firm
4. TECHNICAL – taking the idea and designing both the
5. DEVELOPMENT – product and manufacturing processes
6. TESTING – test marketing/ market research
7. PRODUCTION AND LAUNCH – selling to the public
8. FEEDBACK – collecting evidence and reactions to feedback to all stages

Product development is by no means easy. It is hoped that combining two or more product lines will be more efficient, a synergy effect. However creating a broad product range can be extremely expensive and risky – the vast majority of all new products fail, even those from well-established firms.

Initial market research did not look at all favourable, suggesting that consumers were not really looking for a branded manufacturer in this market. Mintel, the independent market research agency investigated the sliced meats market in 1989 and decided that it was stagnant,

“with few manufacturers making a serious effort to stimulate the market by new product introductions.”

The British consumer was thought to lack adventurousness and that this was unlikely to change in the future. However, the research did highlight the emphasis placed by the consumer on quality. This was seized on by Bernard Matthews Plc, giving it the confidence to try to create a market for the products. Quality was to be central to the marketing strategy, the key to building up consumer confidence and loyalty. Further market research revealed that consumers judged cooked meats by three criteria:

1. Visual appearance – its shape, colour, texture, fat and wetness.
2. Quality -with the price considered to be the main differentiating factor. i.e. a relatively high price must mean higher quality.
3. Packaging – the more visible the meat is, the better the product is perceived to be.

Despite gloomy forecasts, Bernard Matthews Plc firmly believed it had identified a consumer need and was confident that it could satisfy this need successfully. However, Bernard Matthews Plc was not the first to identify these opportunities; other manufacturers had been trying to break into this market, but with little success. There are technical difficulties in slicing and pre-packing cooked meat, in particular the risk of bacteriological infection at any stage. Other firms had tried to overcome these by cooking the meat in a bag and selling these to the supermarkets whole for them to slice. For the supermarket, however, this means additional labour and packaging costs and, once sliced, the meat has a short shelf life. Wastage can therefore become extremely costly as consumers will not buy unless the meat looks at its very best. Bernard Matthews Plc believed it had the expertise and the technology to overcome these problems.

Bernard Matthews Plc is recognised throughout the food industry as an innovator. It carried out extensive market research, remodelling the product whenever it was deemed necessary. Key to the company’s success was the construction of a ‘high risk/low risk’ state of the art factory, using highly efficient automated systems to produce to the highest possible specifications. Bernard Matthews Plc uses a Hazard Analysis Critical Control Points system (HACCP), which enables it to assess the risk of contamination at every stage in the production process.

Potential hazards, whether they be micro biological, physical or chemical, can be identified and avoided using very detailed codes of practice. Highly sophisticated air-filtering systems were installed to reduce contamination risks. These changes could only be implemented with the full co-operation and involvement of all the relevant personnel in order to satisfy a fundamental company belief in Total Quality Management. In order to achieve these quality objectives and work to the HACCP system, detailed studies of each stage in the production process have been carried out and are constantly reviewed and updated. All staff receive extensive training, pass the Food Hygiene Certificate and undergo regular health screening. At no point does the raw meat come into contact, or even close proximity to the cooked meats. All suppliers of raw materials, including packaging and meat, have to undergo regular quality auditing of their production facilities by fully qualified Bernard Matthews Plc personnel to ensure that the rigorous standards are met. By these procedures, Bernard Matthews Plc can be assured that every single product, at every single production stage has gone through every possible safety check, surpassing all the criteria laid down in the Food Safety Act 1990 and the more recent Pennington Report. This commitment to quality at the production stage gives Bernard Matthews’ prepacked meat products a shelf life of up to 21 days – a considerable advantage over its competitors. The technology saves time and effort, wastage and most importantly therefore, cost.

Investment in marketing

Of critical importance to the success of any product development strategy is the investment in marketing. Bernard Matthews Plc accepted that, although it had a well-known brand name, it had no credibility in the cooked meats market in 1992 and consequently, had to re-examine all aspects of the marketing mix. Promotional activities included a two year consumer press campaign, production of two television commercials and the placement of advertisements in supermarket magazines and newspapers. Different techniques of merchandising were employed; in-store presentations and other point of sale materials were provided and particular attention was paid to the packaging to reinforce the brand image, using colour and bold flashes. Pricing had to be carefully considered given the consumers’ perception that the price provided a significant indication of quality.

Bernard Matthews Plc recognised the importance of creating a brand name and a brand identity. This can be a vital part of a firm’s marketing strategy, giving a competitive edge. Multiple product branding should allow the strengths of one product to influence consumers’ perceptions of another, enabling other products to be introduced under the brand name umbrella. The objective is to create brand loyalty amongst consumers to encourage repeat purchases of established products and to try new ones. In the supermarket environment, where the consumer may be faced with a very wide choice of products and purchase decisions are made rapidly, it is important to differentiate the firm’s product from the others nearby. Branding may also give the firm greater flexibility in its pricing strategy. Consumers may be prepared to pay a price premium for a branded product, particularly when the price is perceived to be an indication of quality. The first television advertisements, which appeared in the early 1980s, concentrated on the founder’s personality and the reinforcement of the brand using catch lines. The packaging of all Bernard Matthews products emphasises the brand identity, carrying the easily recognisable gold quality seal printed on each label. The cooked meats are sold in clear packs to allow the consumer to inspect the quality of the meat. These reflect lessons learnt from the extensive market research carried out by the company.

The capital investment for the new hitech factory in Norfolk was £6.5m in 1992, making this the company’s most expensive production line. This was followed by two further factories, one in Norfolk and the other in Hungary, at a total capital cost of around £20.5m. Although this spending may initially have been difficult for the Board of Directors to justify to the shareholders, they have since been well-rewarded for their risk taking. The total value of the market for cooked meats has increased by 36% in six years to nearly £1bn, but more importantly for Bernard Matthews Plc, its share of that market has grown. One of the most significant changes within the market has been the growth in pre-packed meats against loose meats – probably a result of recent food scares and the danger of having cooked and uncooked meats at the same counters in supermarkets. The prepacked sliced cooked meats market is currently worth £504m and is growing at a rate of nearly 13% per annum. The supermarkets’ own label products still account for over 80% of sales, but the market has also witnessed some noticeable shifts in consumer taste.

In 1992, the year Bernard Matthews Plc entered the market, pre-packed wafer thin sliced cooked meat was virtually unknown, but by 1997, it accounted for nearly 36% of total sales. Although ham remains the consumer’s first choice, there has been significant growth in the market for other meats, notably turkey and chicken. Prior to 1992, turkey products in this form had been virtually nonexistent, but it now accounts for nearly 20% of sales and are growing at a phenomenal rate of 33.6% each year. Within this sector, Bernard Matthews Plc has come to dominate the market. Although supermarkets have been quick to recognise these trends and create ‘me-too’ products, Bernard Matthews Plc produced 49% of all sliced cooked poultry sales in 1997, with its nearest rival, a national supermarket own brand, providing just 13%. Bernard Matthews Plc supplied 66% of all prepacked sliced cooked turkey products with its nearest competitor supplying just 7%. It could be argued with some justification that Bernard Matthews created a new market and was responsible for ‘changing the face of the cooked meats cabinet’.

Future developments

Bernard Matthews Plc recognises the need to develop and grow. All businesses must guard against complacency and have clear strategies for the future. Bernard Matthews Plc aims to keep one step ahead of the retailers by keeping a close eye on consumer trends and introducing new, innovative products on a regular basis. In particular, Bernard Matthews intends to try to extend its distribution network in all areas and extend the range of turkey products. Chicken and pork products will extend the Matthews brand name into other cooked meats sectors. Sliced ham remains the most popular cooked meat product with 52% of the market and this could become an attractive target. Special branded products are under development for the delicatessen end of the market. Plans are already in place to expand into other countries, with test marketing underway in France, Germany and Italy, and in the future Austria and Switzerland.

Profit in business is often considered to be a reward for taking risks. Sometimes firms take risks even when the initial prospects do not look encouraging – they believe strongly in their product and the firm’s strengths and capabilities. The Bernard Matthews experience emphasises the value of a strong brand. Used prudently, the brand name enabled Bernard Matthews Plc to ‘umbrella’ product category development and develop its portfolio profitably.