Maple Leaf answering inflation with innovation

by Monica Watrous
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TORONTO — In response to increased pressure on pork prices, Maple Leaf Foods Inc. has accelerated new product development.

“One of the most important levers … is for us to engage consumers and protect volume for new product innovation that brings excitement and variety to the shopping and dining experience,” said Michael McCain, president and CEO of Maple Leaf Foods, during a May 1 call with financial analysts. “We consciously accelerated the launch of a number of new products to the first half of 2014, supported by extensive in-store promotions. Building excitement without price is important to help consumers over this short-term hurdle of pretty significant inflation.”

Maple Leaf has found a success story in its Maple Leaf Prime brand, which grew 28 percent between 2011 and 2013. Building on that momentum, the company is launching several new categories, including frozen chicken strips, nuggets and wings, and frozen entrees, such as Thai green curry chicken and turkey with home-style gravy. Maple Leaf also is extending its fresh line of Prime products to include individually portioned marinated chicken breasts, and cuts of fresh pork, including ribs and tenderloins.

“We’re very excited about all these launches, which we’re confident will build on the already successful Prime brand,” McCain said.

Another recent introduction leverages the trend of high-protein snacking. Currently available only in Canada, the Protinis product line contains ready-to-eat oven-roasted chicken strips paired with dried fruit in eight varieties. The company began testing the platform last year.

“Another one of our platforms for growth is centered around marketing to the increasingly diverse population in Canada,” McCain said. “The Mina brand aims to transform the halal food-shopping experience at Canadian retailers by offering trusted poultry and meat products.”

An additional focus of Maple Leaf’s product-development efforts are raised-without-antibiotic pork products, which McCain said is rising in demand from consumers.

“Maple Leaf is poised to be one of the largest suppliers of RWA [raised without animal by-products] pork due to our strong bio-security protocols,” he said.

The unexpected additional rise in live hog markets due to the porcine epidemic diarrhea virus (PEDv) has prompted Maple Leaf to reset pricing to be rolled out across the business in May.

“We expect that these price increases will be sufficient enough to restore margins and cover higher costs,” McCain said. “That said, the short-term and unpredictable risks attached to this action include demand responses from consumers, mix shifts and unpredictable competitive responses. We are aggressively managing these risks, and we believe they’re transitory, but they are real. We are reasonably confident that the entire market will react in similar ways in the first instance because the cost increases are an industrywide issue.”

In addition to renewed pressure from the spike in raw material costs, the company has incurred expenses related to the transition of its prepared meats network. During the first quarter, Maple Leaf increased production at its new flagship plant and improved performance at expanded plants while completing one of five closures planned for the year. Disruptions to manufacturing and distribution added to company margins.

“We’ve introduced a significant amount of change to our supply chain in a very short period of time, and this is collateral damage,” McCain said. “We believe that the margin restoration will occur largely in the third quarter, and the network transition impact will occur largely in the fourth quarter.”

For the first quarter ended March 31, the company reported a net loss of C$131,994,000 ($120,257,000), which compared with a net loss of C$14,742,000 in the prior-year period. Sales for the quarter totaled C$711,347,000 ($648,093,000), up 3.4 percent from C$689,353,000 the year before.

“What I want to reinforce is that there is a lot going on to build our ongoing market share growth as Canada’s leading consumer packaged meats company,” McCain said.

“It’s an exciting future that is underpinned by some of the best marketing, product development, and sales talent in this country.”
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