W.IPG.2001 - Business Management at PAM

Summary

Lack of differentiation of fresh red meat products for sale in the wet market presents a challenge to capturing the intrinsic value of Australian Beef’s clean, lean, healthy image. PAM was formed in 2019 with a vision to play the game differently – a vertically integrated feedlot-to-consumer supply chain capitalising on modern retail channels. LEP partnering with PAM to explore marketing strategies across modern retail pathways provided essential learning that could potentially be applied across the entire supply chain to diversify and reduce single market risk, increase market share, and profitability.

LEP market research concluded that Indonesian consumers want convenience, high quality, and certainty when they purchase fresh Beef. More than anything, they are price sensitive. These insights, coupled with Australian Beef’s reputation as a quality, entry-level lean beef product, were incorporated into the ‘Healthy Beef’ brand development. A consolidated supply chain was identified as integral to decreasing fragmentation and maintaining control over the end-product, including consistent production levels, yield, and quality.

A modern website provides an online sales platform enabling consumers to order with immediate delivery via courier. Chilled and frozen Healthy Beef products are also stocked in supermarkets and available through resellers.
Feedback on Healthy Beef’s cuts, portion size, and preferred purchasing channels was accelerated due to COVID-19 increasing home cooking. PAM was able to pivot production to take advantage of sales data and refine the product offering.

Healthy Beef has delivered on generating demand for a high-quality Australian fresh beef branded product, and profit margin has been substantially increased compared to expected returns from traditional wet market retail sales. Production of chilled and frozen products has allowed PAM to capitalize on the increased investment in fridges and freezers by Indonesian consumers, with benefits flowing back through the supply chain. Access to refrigeration will allow consumers to purchase more products, different cuts, buying in bulk. Hence increase beef demand in the market.

Objectives

• New distribution channel for beef product.
• Increase profitability for the company.
• Increasing awareness and penetration of Australian cattle and Beef in the Indonesia market.

Key findings

Findings:
• Consumer’s perception of fresh Beef changed once they were educated and presented with aged products. More experience consumers preferred chilled Beef as they understood the value over frozen products.
• Retail consumers were still price-driven, though they are open to value add or boutique cuts.
• Halal is an absolute requirement.
• There is an increased awareness of food safety, presented through packaging and brand familiarity.
• Consumers still use the supermarket to get assurance of the product before switching to online for convenience.
• Resellers with good networking that the consumers trust and have good product education provide excellent sales channels compared to the digital marketplace, where many products are unbranded and consumers tend to be more price-sensitive. The ability to deliver the product instantly is vital to consumers in both channels.
• Value adds to 20 - 30% of the price that the consumer pays in packaging cost. Delivery is around 10-30% of the price and more if the consumer prefers instant delivery using a courier.
• The price competitiveness of FQ is challenged by imported boxed Beef and substituted products such as IBM.
• Advertisements attracted high traffic but did not translate into purchasing decisions. Consumers in the online marketplace are price-driven and had low brand loyalty.
• The main challenge to the beef/cattle trade is the fluctuation of cattle prices from Australia. This contributes around 70% to the cost production and, therefore, directly impacts the profitability prospect.
• Most cold chain stores are freezer facilities, and chilled hubs are difficult to outsource for retail, making chilled products challenging to handle. Consumers tend to treat the chilled product like frozen. Chilled purchases for immediate cooking are generally made in small portions.
• PAM identified that the most effective selling methods are WOM (word of mouth), trusted resellers, and having product samples.

Benefits to industry

The estimation of margin for the feedlot to processing the cattle and sell their beef product to the wet market was around 9-14% /kg live weight. With processing their cattle and value-adding the beef products, PAM generated AUD 2.7 million/ year, while when they were selling to wet markets, they were generating AUD 1.2 million/year. Net gain of AUD 1.5 million/year through expanding their business into beef processing.

LEP invested AUD 75,000 for the project during the 12-month project. The assumption was if the LEP didn’t support them, it was likely they would stop operations altogether during the pandemic (April -May 2020). The net gain that PAM will receive through expanding their business into beef processing would only be AUD 750,000 (6 months). This is the value of investment made by LEP. (1 AUD = IDR 11,000).

MLA action

Use the consumers insight and findings from the project for future projects related to beef production in Indonesia.

Future research

PAM identified that they have difficulty with cold chain logistics. As this was the key priority for chilled product delivery, it was important to identify and work with a competent logistic company/partner.
Despite the biggest market share being the retailer/modern market, the resellers showed significant growth during the project. PAM will need to develop marketing/promotion tools for the reseller to continue to increase growth.