1. The lamb market – a retailer’s view
Steve McLean
Head of Agriculture & Fisheries

2. Some context…the grocery retail market
Customers seeking value
Customers expectations are high
World markets have an impact
Food security for retailers is important
CHALLENGES AND OPPORTUNTIES
Competitive market place - growth in discounters continues (Big 4 struggling to maintain market share, profits under pressure)
NGO pressure on how food produced
Commodity volatility, international climate change and population growth will impact world markets - China consumes a third of all the world’s soya and half of world’s metal

3. Who we are 900+ UK stores 480 international stores (230 Food)
32 Countries
Around 33 million customers purchase from us each week
Around 4% market share of grocery market

4. Who we are Established 132 years
Grown from single market stall to international multi-channel retailer
Employ 85,000 people
Split 58% food and 42% general merchandise (clothing, homeware)

5. Who we are
Revenue £10.3bn
Food revenue £5.2bn
Group profit before tax £600m
One of the most trusted brands in the UK and beyond…

6. Our values Inspiration In Touch Integrity Innovation
We will engage, excite and inspire our customers.
We will create a deeper connection with our suppliers, our customers
and their communities.
Inspiration
In Touch
We will always strive to do the right thing. We will lead our sector in sustainable consumption
& production.
We are restless in our aim to improve things for the better.
Integrity
Innovation

7. Integrity Essential to Foods business Runs through all activity
Delivered through our Farming for the Future programme
Integrity is absolutely central to what we do in M&S Foods business
Covers sourcing standards, audits, food safety, provenance, traceability, sustainability, animal welfare
FFTF is part of Plan A, which is our eco- and ethical- approach to doing business

8. Key drivers Security of supply Brand protection
Right raw materials, right volume, spec
Brand protection
Sourcing with integrity & ethics from the right partners
Product differentiation and innovation
Where appropriate

9. Integrity We source from M&S Select Farms we know and trust
Codes of Practice covering all key areas
Raw materials sourcing from M&S Select Farms we know and trust
These farms must operate to our Codes of Practice and are audited annually to check compliance
Codes of Practice cover welfare, farm standards, feeding, environmental performance, ethical standards, water use, pesticide use, etc.

10. Our lamb sourcing Historically supply split between UK and NZ
Lamb sourcing model reviewed
Going forward all lamb in Scottish stores will be from Scotland throughout the year, replacing NZ supply.
Historically operated UK supply chain for part of year and NZ for part of year, with UK speciality lamb lines available all year
This was so we could offer new season lamb reared on grass at all times
All sourced from Farm Assured Select Farm approved farms. Non-breed specific, male & female lambs, under the age of 12 months, 16-21kg deadweight or 38-43kg liveweight

11. Speciality lamb
Committed to buy British lamb out of season through our Speciality Lamb range.
Small-scale family farms
Lamb Pledge in average UK market price plus an additional 15p per kg.
Specially selected to provide the best tasting product by following the season as it moves through the country - this includes lamb from the Cotswolds, Swaledale lamb and early New Season lamb.
All of the lambs are traditionally reared and come from small-scale family farms based around the UK
As part of this commitment we introduced a Lamb Pledge in we currently pay our farmers the average UK market price plus an additional 15p per kg.

12. Lamb sales Key cuts sold in M&S
Special occasion product - Mother’s Day, Easter, and Christmas
More price sensitive than other meats
Lamb leg steaks, Rack, Liver, Leg, Chops
If prices rise then consumers trade out into other meat

13. Lamb prices Source: AHDB
Having trailed behind last year up until May, lamb prices are now strongly ahead (405 vs 350 yr on yr)
Source: AHDB

14. Sales trends –M&S Lamb value up 5.4% year on year
Lamb grills up 3.8%
Organic lamb up 26%
Speciality lamb up 2.4%
Has an impact - lamb overall volume up 0.6% year on year
Lamb grills actually down 1.5%
Organic lamb up 47.3%
Speciality lamb up 9.3%
Sales growth being achieved in M&S but primarily through organic and speciality lamb. Overall lamb sales actually down in volume terms but showing small growth due to higher prices.

15. Demographics – life stage vs product mix
Spend (£000) | Scottish Fresh | Scotland | 52 w/e | 14-Aug-16 | Demog % of Total Demog
Lamb primarily purchased by older demographic in Scotland.
© Kantar Worldpanel

16. Issues with lamb supply chain
15-18% of lambs arrive too heavy and are therefore out of spec
If it is too big it doesn’t fit in retail packs
Consistency really important for fixed weight sales
May/June procurement
Out of spec seems to be an industry-wide issue (also affects beef!)
If it is too big it doesn’t fit in retail packs and doesn’t allow us to hit retail price points
Specs are there for a reason!
Procurement can be challenging in May/June time during the cross over between hogs and new season lambs

17. Issues with lamb supply chain
Key customer complaints are around toughness and gristle
Carcase imbalance
Lamb appeals to older consumers – need to broaden appeal
Product innovation - lamb kebabs and lollipops!
The UK market is predominantly driven by leg business meaning we experience carcase imbalance of legs vs shoulders and loins
Lamb appeals to older consumers – need to broaden appeal
We’ve put a lot of work into innovating products for our summer ranges, including lamb lollipops and kebabs to drive sales

18. Summary
M&S committed to Scottish supply and broadening appeal of lamb through innovation
Lamb remains price sensitive
Consistency and specifications are important
Provenance is key
Whole supply chain must work together
Retail market remains highly competitive and value driven - Lamb remains price sensitive
Farmers must deliver consistency and animals that meet spec to achieve maximum returns