Blue Sky Meats, which sells chilled and frozen meats under two B2B brands, is on track to roll-out direct to consumer products in 2019 and is market-testing a strategy that may try to make a virtue out of being a minnow.
Sales rose 7 percent to $104.5 million in the year ended March 31 while expenses were little changed at $100.8 million, resulting in pre-tax earnings of $3.7 million from a loss of $2.6 million a year earlier, according to its annual report released at the weekend.
The company's biggest shareholders are China's Binxi Cattle Industry Co with 19.8 percent and Hastings-based meat processor Lowe Corp with 17.95 percent but they own a very small player in a commodity market where rivals have vastly more capacity to add value to their brands. Silver Fern Farms had sales of $2.2 billion in the 15 months ended Dec. 31, 2017, for a loss of $6.6 million, and markets oven-ready chilled cuts through its retail range - although, like the bulk of the industry, most of the volumes are still wholesale or commodity products.
Alliance Group, which has a September balance date, had 2017 revenue of $1.5 billion and recorded a profit before tax of $16.7 million. It spent $7.4 million on sales and marketing, selling meat under the Pure South and Ashley brands as well as premium-priced Te Mana lamb, which is part of the Omega lamb project that was funded through a primary growth partnership with the Crown.
Blue Sky Meats chief executive Todd Grave says in an industry of thin margins, "the big guys are much better resourced" but that when he was hired from marketing at Fonterra in 2016, "my recruitment was a very conscious effort to find a way to create a distinctive brand."
"We have to be careful. We'll probably work with a handful of farmers - a couple of markets, a couple of channels a couple of customers," he said. At this stage, Blue Sky plans to self-fund the branding work and won't seek to raise capital.
Currently, Blue Sky makes sales through a sales team in Auckland, in what is "very much industrial B2B. It's like logs going onto a ship - we're not adding value," he said.
Chairman Scott O’Donnell also flagged the company's plan to "create a value-added, differentiated brand position to further increase profitability," in his annual report comments. He also indicated the sort of values the company's new brands might espouse.
"We already know that being southern New Zealand, our pastures are farmed with care and integrity by our suppliers, but due to the increasing nature of agriculture in New Zealand in general, there’s a lot of pressure on our environment,” he said. “As a nation and as an industry, we need to be looking at ways of taking pressure off the environment while still making sure we’re continuing to be profitable and achieving better returns.”
Grave said O'Donnell meant that New Zealand's land base was finite "and we can't keep increasing volume" so it has to be more value. "We're a small supplier. We need to find our story, our provenance. We need to find the advantages of being a small, single-site processor with a catchment of Southland and Otago - southern New Zealand."
"We see the brand having two audiences - the consumer with the meat on the plate and the farmers. It is a sellers' market. We have to give them a reason to stay with us."
Blue Sky declared a dividend of 5 cents a share, the first such payment since 2015.