With grain prices soaring, Guy Odri, chief executive of French poultry giant Groupe Doux, has urged domestic retailers to raise prices. Any public disagreement on price between supplier and retailer is rare but, speaking to Dean Best this week, Odri explained why the time had come for poultry processors to demand help in absorbing the rising cost of cereals.
Guy Odri removes his glasses and fixes his gaze at just-food. “I am not saying that I want to make money. It is just to reflect the commodity price increase onto the final product. We’re not looking for more margin. Here we are just saying we have a price increase at the entrance and we want that price increase to be reflected on the final product.”
Odri, the CEO of French poultry processor Groupe Doux, is a man who is clear in what he wants. And he is clear that he is right in asking for it. Last week, the Doux boss went public with his demand that a clutch of France’s largest retailers (chains that represent 40-50% of the local market) should accept his request to push up the price on his company’s products in the face of rising grain costs.
Tense price negotiations are a fact of everyday business life but it is rare that a supplier would take its case into the public domain. However, for Odri, the time is right. Poultry processors, he argues, can no longer be the “buffer” between cereal traders and retailers. The poultry industry, Odri says, is suffering and it is the responsibility of its largest players to stand firm and demand their retail customers accept their fair share in the battle against volatile commodity costs.
Speaking to just-food at the SIAL food-industry exhibition in Paris this week, Odri launches a passionate defence of his belief that retailers must accept price increases. Fifty per cent of Doux’s costs, he says, are based on grain. And, with the cost of the cereal commodities soaring, the three unnamed French retailers who have so far refused to accept Doux’s demands must accept “the reality of the economy”.
“It’s a limited number of retailers. Ninety per cent of retailers have accepted the fact that we have an increase on cereal prices and that it has an impact on the final product. The French retailers, they are pretty strong, they have long experience and today, three of them are hiding behind the fact that they are protecting consumers,” Odri says. “Those three retailers represent 40-50% of the total distribution in France. Now, having said that, we are selling to 130 countries in the world and everybody has accepted the price increase – except those three retailers.”
Odri is adamant that the problem affects the entire industry and not just Doux. He is equally adamant that his demand for higher prices would not materially affect consumers. Processors, he argues, should not be painted as the villain of the piece.
“When you look at what [the price demand] represents, it represents EUR1 per consumer, per month,” Odri insists. “We’re not asking for something important in terms of cash-out for the consumer. One euro per consumer per month – based on the fact that the consumer is consuming 25 kilos of poultry meat a year.
“I’m not fighting against the retailers. I just want to make the message very clear. You have somebody at the bottom end [of the chain], saying ‘I am protecting the consumer against the wolf – and the wolf is the manufacturer’.
In fact, I am in the middle of the story and there is nothing I can do on cereal prices. I am not a producer, I am not a cereal trader. I still see young boys behind their computers, playing with the cereals” – Odri fixes his gaze again on just-food – “It’s pure speculation and nobody is pointing the finger at them.”
Odri first went public with Doux’s demand last week and he tells just-food that he is “very confident” of being able to reach a deal with the three French retailers by the end of this week. He accepts that there is “a media game” played on all sides but says that, once both sides sit down and discuss the situation, there will be agreement.
“We are talking to reasonable people and, as soon as you explain the reality with honesty and transparency, they step back and say ‘Ok, let’s work properly’. There is a media game but when you’ve got over this media game you go back to the reality – and the reality is we cannot we survive like this. The industry is already starving. It’s a big industry but the industry is not in such good shape.”
Doux is Europe’s biggest processor of poultry and poultry-based products; the business sells lines from whole chickens and breaded products to nuggets and marinated chicken. However, the company is unlikely to take part in the consolidation of the sector – in the short term at least. Odri believes the poor financial health of some of the smaller poultry players will force them to sell up or join forces with the industry’s larger processors but he wants Doux to focus on developing its business through organic growth.
“We are not contemplating any external growth. If we were to acquire something, we would have to restructure that company. A good acquisition means good integration. Because we have done a lot of work internally on a proper supply chain and proper customer relationship management, we would have to integrate this new company into our business model. It would take time. You need to reorganise. It is quite expensive to reorganise a company and socially it is a headache,” Odri explains. “We are thinking about organic growth rather than external growth. We still have room to increase. We are not, as they say in England, pedal to the metal.”
Export markets is a growth driver for Doux. Outside Doux’s two domestic markets – it counts Brazil as a domestic market, given its local business there – the company’s exports grew 12% in the first half of 2010. That performance followed a year when Doux maintained its share of the market thanks to Russia and the Middle East, where it grabbed more of the Saudi Arabian poultry market and entered Iraq, Iran and Jordan.
Odri says Doux’s success in regions like the Middle East, which now accounts fore 31% of sales (France accounts for 33%) is based on investment in R&D and marketing. Success, he argues, does not simply come from being the biggest player in a sector; success demands a focus on meeting the “priorities” of consumers.
“I never considered that you are the leader because you are the biggest company. The leader is the one that everyone follows. People are going to follow you provided you have the right R&D and you are properly addressing customer needs and customer priorites. When I came on board eight years ago, I said to my people that we were not a manufacturing company anymore. We were a marketing company.”
Investment in R&D and marketing at home and abroad gives Doux “a strong competitive advantage” over its rivals, Odri says. He points to Le Choix du Chef, a line developed for France’s so-called ‘classic’ chicken category and a product that, the Doux boss says, has been “a big success”. Demand for ‘classic’ chicken has risen in France during the recession, while sales of free-range and certified poultry, sold at a premium, has fallen back.
Odri says Doux’s investment in R&D and marketing was maintained during the “three major crises” of recent years – Asian flu, the rise in cereal prices in 2007 and the global recession. The volatility of commodity costs is likely to become a fact of life for food manufacturers. Odri describes it as “a given”. However, he insists Doux is no longer going to automatically swallow any rise in prices.
“Cereal cost is a given so I’m not going to say that my business model is subject to cereal prices. It’s part of the equation,” Odri says. “What is different from the past is that today we are saying it’s a given – but that I will not absorb the shock as I used to do. Before I always the buffer between cereal producers and retailers. Today I am saying ‘no way guys, I’m not the buffer, I’m not the shock absorber’. I’m transferring downstream what’s going on upstream. It’s a major difference with the past. By saying so and showing to the entire community that I am acting, it means that my business is less volatile. The more I am developing the less fragile I am.”
And, with an implicit warning to retailers, Odri adds: “This industry generates 70,000 direct jobs and more than 100,000 indirect jobs – so let’s grow the business.”