A&W's hormone-free strategy irks Canadian farmers

Saturday, January 31, 2015

When the fast-food chain launched its new marketing strategy in 2013, emphasizing beef raised without hormones or steroids and sourcing some of its product outside the country, it raised the hackles of some Canadian farm organizations, who are still searching for a response  

by MARY BAXTER

Ian McKillop became aware of A&W's new marketing campaign six months ago after encountering one of the A&W Canada's new commercials on television.

The commercial would have been similar in tone to one on YouTube featuring affable, chubby and balding Allen Lulu, the actor who has become the face of this Vancouver-based company in recent years. In past advertisements, he played a restaurant manager who, in one commercial, chided an employee in a squeaky, helium-induced voice.

In the new campaign, Lulu is all business. He dons all-black garb and a conservative tie to quiz hip, earnest-looking urban millennials about their reactions to the company's products. After predictably favourable comments (this is, after all, an advertisement), he leans towards his interview subjects and announces, "Our beef is raised without the use of hormones or steroids." He counts off each attribute with his fingers, offering the impression of a hard-won debate.

"Really!" enthuses one man with a carefully groomed scruffiness. "That's very important to me," replies a spectacled woman exuding an air of studiousness and surprise that a fast food chain would even care about such things.  

McKillop farms cattle, eggs and cash crops in Elgin County near Dutton with his brother and their wives, and when he saw the ad he began to feel uncomfortable. So he visited the company's website – mentioned on the commercial – to find out more. What he found didn't allay his concerns.

"I felt they were portraying their products as being safer than conventionally raised products, whether beef or eggs," he says. Conventional approaches, including the use of steroidal hormone growth promoters in cattle, are fully recognized as safe and the products nutritious by Health Canada, the World Health Organization and several other food and agricultural organizations in the world. To suggest otherwise, "I think that's borderline misleading."

McKillop is far from the only farmer with concerns. Ever since Canada's second largest quick service burger restaurant chain (A&W has 814 outlets; McDonald's has more than 1,400) launched its campaign, it has generated questions and criticism from the farm community across the country. Initially, it was the message that provoked farmers' ire, especially when A&W's first advertisements described its product as "better beef." The company promptly responded to the concerns by adjusting its advertising, yet more than a year later, farmers like McKillop and the organizations which represent them remain uneasy. That uneasiness surfaced during an Oct. 30, 2014, Alberta Beef district meeting in Ponoka when producers proposed a resolution to launch an advertising campaign to oppose A&W's.

Greg Bowie, the organization's president and a beef producer in the district, says the motion was defeated. "It's not a practical way to try to get our message out there," he observes. Moreover, there are other issues besides the campaign's marketing content. "I think producers are frustrated with the fact that A&W didn't make much of an attempt at all to source their product from within Canada," Bowie explains, referring to the company sourcing a lot of beef from the United States and Australia.

Nor is it just cattle producers who are affected. Over the past year, A&W has also rolled out claims for other products it uses – eggs from hens fed a grain diet without animal byproducts and chicken, also grain-fed without animal byproducts and raised without the use of antibiotics.

"Farmers are concerned because they're worried that people are going to make the wrong assumptions," says Lisa Bishop-Spencer, manager of communications for Chicken Farmers of Canada. Her organization has fielded some calls about the company's claims about its chicken – not enough to say farmers are alarmed but sufficient to suggest that there is a raised awareness about the campaign. She points out that the company clarifies its statements with regard to chicken on its website. "They're talking about a (consumer's) choice; they're talking about the fact that the chicken is Canadian; they're marketing our product."

But how many consumers would actually visit the website? counters McKillop. What they see in the advertisement, "they'll accept that as the truth; they won't bother looking into the other side of the coin and they'll take that for face value." He's concerned it might contribute to altering their buying practices on the home front, too.

It's not just a fast food issue, says McKillop. "It just creates doubts about the whole food chain."

Shifting strategies
The September 2013 launch of A&W's campaign marked a radical departure from the company's previous marketing strategy that focused on price points. Company numbers suggest the older approach may not have been working. Although A&W was steadily increasing the number of its stores, same-store sales growth – a figure which only compares the sales at stores in operation for an entire 12-month period – had flat-lined. It dropped 0.7 per cent in 2012 compared to 2011; in 2011, it grew only 0.04 per cent compared to the year before.  

Susan Senecal, the company's chief marketing officer, doesn't mention falling sales when explaining the company's decision to shift strategies. Market research, she says, provided the impetus for a new direction. "What we really noticed was that – and this is a trend that has been developing over the past couple of years – there is a real genuine interest in food (ingredients) by Canadians."

The company focused on customer feedback, zeroing in on beef. "What we heard was that beef raised without the use of hormones and steroids was something that was certainly very important and of great interest. So we started to work in that direction."  

Bringing such a product to market wasn't easy. When researching on how to deliver on their promise, "some even told us it wouldn't be possible," she says.

It took 18 months to build a supply chain to deliver the specially raised beef in the volumes the chain needed. She claims the company did not have to change suppliers to obtain its products and noted it was A&W's beef supplier who "worked with numerous ranchers and industry leaders to help secure new and lasting supply of this beef."  

But the company did have to source some of its beef from other countries because it could not obtain the volume needed from Canadian producers. That's changing, says Senecal, noting that after launching their television campaign last year they were contacted by several farmers who wanted to become involved.   

She declined to say how many Canadian farmers now supply the company. "Whatever number I would give you today would be less than the number that we would have tomorrow," she explains. A&W identifies just one Canadian beef supplier on its website –  Spring Creek Ranch in Alberta, which has specialized in raising beef without added hormones and antibiotics since 2003 and states on its website that it works with other producers as well. She said the percentage of beef the company obtains that comes from Canadian producers varies, and the company is "continuously focused on ways to increase our supplies from Canada."

With the new attributes, traceability has become "a big piece" for the company, Senecal says. "We do have third-party partners that we work with as well, as do our suppliers, to ensure every product that we sell really has the traceability and the segregation and so on, so that we're able to make sure that we're delivering on what we want to do."

The new direction involves more expense; nevertheless it was decided to hold fast on current pricing. "It's an investment that we think is worthwhile for us and our guests will find worthwhile as well," Senecal says. Increased demand for product is expected to offset the added cost.

The strategy appears to be working. By Sept. 7, 2014, A&W had seen significant growth coming from Ontario and Quebec. The company's 2014 third quarter results showed same store sales growth up 5.8 per cent for the year's first three quarters compared to the same time period in 2013. Year-to-date royalty income increased by 10.5 per cent.

In a December A&W Revenue Royalties Income Fund news release, Paul Hollands, A&W Food Services' CEO, credits the restaurants' strong sales performance to "our ongoing journey to source simple, great tasting ingredients, farmed with care." (The fund is a limited purpose trust which owns and licenses the A&W trade marks to A&W Food Services.)

Unusual implications
John Cranfield, a University of Guelph professor and chair of the school's food and resource economics department, describes the company's marketing approach as having some unusual implications for the agricultural industry.

By reaching beyond Canada's borders to source its product, the company has thrust Canadian niche market producers into competition with niche market producers elsewhere in the globe. "There's a bit of irony there, isn't there," he says. "We're talking about food products that have got particular characteristics that you think might appeal to people who are focused on local."

While niche markets are usually associated with a premium to help cover higher costs, global competition to supply A&W means that premium is vulnerable to erosion. "If someone else can come along and do what these small number of farms are doing at a lower cost, I suspect A&W wouldn't be so married to a particular farm and (would be) willing to switch producers," he explains.

Cranfield questions the sustainability of A&W's approach. He likens the quick service restaurant industry to a "Red Queen's race," an analogy that refers to a scene in Lewis Carroll's Through the Looking Glass in which a main character in the novel runs but remains in the same spot.

In the same way, quick service restaurant companies must always be expanding their market and making money in order to maintain their position in the market, he says. Every so often one runs out ahead of the pack but then the others catch up and the edge is lost.

In A&W's case, the edge has been appealing to the "hip" millennial urban market by not only highlighting specific attributes of the products but also the products' provenance. And if the Red Queen race effect takes hold, the attributes A&W is promoting become an industry standard. The company, in turn begins to lose its edge and, at the same time, the attributes it has promoted become commoditized.  

"I think we're seeing that (effect) to some extent with organic. As organic becomes mainstream, we see it on large retailer grocery shelves. And as that happens and as we start to see a supply response – that is, more producers getting into organics – we would expect to see the price of those things fall because it is turning into a commodity. And then the question is what's the next big thing after that?"

Andrew Campbell, a dairy farmer near Appin in Middlesex County and a member of a group of 10 to 12 young farmers in Ontario who are using social media and Internet technology to educate the public about modern farm practices, says that even before A&W launched its campaign many businesses were trying to differentiate themselves by adopting similar claims. The launch of a campaign by such a large business with a national presence has "pushed the entire issue to the forefront."

He says its presence shows the need for farmers and those in the industry to assume more responsibility in educating the public about food and, in turn, how consumers need to make more effort in learning about what it is they eat.

They are challenging tasks, says the 29-year-old, who has also worked in journalism and communications. He references recent research from the University of Guelph which shows that only 30 per cent of people knew that it took a calf in order for the cow to start producing milk. "The challenge we face in agriculture is that people don't understand the complexity of the production system and a lot of that production system has been built on science," he says.

Understanding hormones
Rich Smith, Alberta Beef's executive director, says Canada's beef industry has long used public education initiatives to ensure people understand about the use of hormones in meat production. "Right from the beginning of our use of the products, we've been trying to make sure people understood that the beef produced with these products is safe, nutritious and healthy."

This year, Alberta Beef is working on developing a brochure to discuss the industry's use of hormone implants. Smith insists A&W's campaign has not prompted the brochure's development. "There's been information on websites, there's been information in news articles done. We haven't formally done this type of brochure in the past."

Beef industry players are also hoping the Canadian Roundtable for Sustainable Beef, made up of representation from all facets of the production chain and formed in June 2014, will eventually offer producers and the industry a proactive method to anticipate and tackle the many marketing and production headaches that a campaign like A&W's raises.

Fast food giant McDonald's was a founding member of both the Canadian roundtable and its global counterpart. And earlier this year, the company announced plans to buy verified sustainable beef in 2016 and the decision to locate a pilot project in Canada. But others have also been quick to grab a seat at the Canadian table, including Loblaws (one of the Canadian roundtable's founding members) and even A&W.

"Everyone wants to position around sustainability," says Dennis Laycraft, executive vice-president of the Canadian Cattlemen's Association. What the members of the roundtable hope to achieve is "a forum where we identify scientifically what are valid indicators of sustainability, how do we build programs around that and measure and monitor."

Deloitte LLP has been engaged on a study to determine what are the appropriate indicators to measure for sustainability, "different things we could do to advance that and then what are the production practices," he says. The study is expected to be complete early this year.

"You're going to see different campaigns, but I think what's going to become important is the credibility of the roundtable logo," Laycraft says. "When people take a look at that logo and there's some statements being made about sustainability, there's going to be a lot more credibility with that logo than without it."

Cranfield, however, wonders about the roundtable's effectiveness. He points out that everyone at the table has an outcome in mind, but likely not the same one. "What I'd be worried about is that some of these groups are so far wide apart that if you do end up with a compromise and get some kind of solution, it's not going to have any teeth and it's not going to accomplish a lot."

Proponents of the roundtable approach, such as Laycraft and Smith, say one of its strengths is enabling the industry to work with retailers and food service companies in advance to develop the product they're looking for.

That's the approach that was used to develop the industry's Certified Angus Beef marketing campaign that has been in effect for a number of years, Smith observes. Having the industry involved from the outset ensured that there were producers right across North America who were able to serve the market as demand grew.

Industry also spearheaded the marketing of Omega-3 eggs, notes McKillop, who has been involved with it for the past 10 years. From the farm perspective, the transition was easy, he says, and only involved some adjustments to records keeping and feeding.

Easy, however, is not the word McKillop would use to describe what farmers would have to do to accommodate A&W's feeding program or its stated goal of acquiring all its eggs from operations employing enriched housing by 2016. (Canada's egg industry is setting targets for the transition to such systems province to province; Ontario has not yet set a target.)

"Producers just cannot make a change that quickly unless their barn is ready to be retooled," he says. His own barns are relatively new and won't be retooled for a number of years.

In mid-October, McKillop sent A&W an email with questions about the campaign's egg promotion and related guarantee. By early December, he still hadn't received a reply.

He's not impressed, calling the lack of response "poor public relations" and revealing of how the company's guarantee about its food "doesn't extend to following up with consumers about issues that consumers might have with their guarantee."

He's been an occasional A&W customer in the past, but for now he's giving their burgers a pass. "I will not go as long as this campaign is on the books." BF

Significant consumer trends shaping the food industry
A&W is betting consumer aversion to the use of growth promotants and antibiotics in farm animals will be a significant trend in years to come. So what do others in the industry see as significant trends?

Lisa Bishop-Spencer, manager of communications for Chicken Farmers of Canada, says market research conducted by her organization shows that, although demand is currently small for chicken not raised with antibiotics, consumers are interested – as long as products are offered at the same price. "Does it impact consumptive behaviours? Not yet. It may." Animal care is another area where there is consumer interest that has not yet affected consumption patterns.

However, she says that, as demand grows, "the industry needs to evolve intelligently. In the meantime, if there's a demand for that, absolutely we will supply it. But at the same time, the choices we make as an industry in terms of how chicken is produced . . . need to be fact-based, and they need to be in co-operation with our major partner, Health Canada."

Research by the industry indicates that 56 per cent of Canadians have heard of chicken raised without antibiotics. "I expect that awareness will change after this A&W campaign."

Bishop-Spencer says 23 per cent of those surveyed have eaten chicken products raised without antibiotics and, of those, 26 per cent would eat it again (the latter group are those who would be most likely to actively search for the product.)

She notes that established trends of local and Canadian-grown product remain strong. Well over 80 per cent of consumers want to know that the chicken they eat is raised in Canada and a similar percentage want to hear about verification of on-farm food safety and approach to animal care directly from farmers' organizations "and not from the retailers and processors." That's because "there's a trust relationship that's been established between consumers and farmers." She says 61 per cent of consumers would prefer to have a quality assurance label on the package.

To that end, the industry has developed a Raised by a Canadian Farmer brand that is being used on chicken products in Sobeys and on Yorkshire Valley Farms products. It is also being introduced by other retailers and major brands. The brand stands not only for Canadian origin but also the industry's mandatory on-farm food safety program, audited animal care program and other standards.

Most people eat chicken at home, but the industry has also seen a growth in demand for chicken at fast food restaurants. "We've seen a huge shift in fast food with respect to more chicken choices being offered as healthy alternatives for consumers. That's been really big for us."

Sarah Caron, Egg Farmers of Canada marketing officer, notes that the type of egg A&W uses is regarded as a specialty egg and is included with many other egg types in that category, including organic, free-range and free-run eggs, as well as those enhanced with Omega-3. The category only represents five per cent of the eggs produced in the country, a share that has remained relatively stable, but "we watch that very closely."

According to Statistics Canada, from November 2013 to October 2014, the number of eggs sold for consumption in Canada was just under 585 million dozen. Caron notes that roughly two thirds of eggs are sold at the grocery store or at a retail market with the remainder going into hotel restaurant and industrial sales.

She says eating hardboiled eggs as a snack is growing in popularity. In turn, farmers and egg graders are beginning to offer hard-boiled eggs right at the grocery store, and they are also being offered at delis and lunch counters. There is also a trend that began in restaurants of eggs being added to burgers and even pizzas. "Consumers are doing that at home, too."

She says demand for eggs has been growing over the past seven years; in 2014 alone, by three per cent. The industry is beginning to adopt a traceability program that is implemented differently throughout the country. In Quebec, it's province-wide, she says; elsewhere it's "grader by grader."

John Cranfield, a University of Guelph professor and chair of the school's food and resource economics department, says the new A&W campaign reflects a significant trend in the industry towards the use of private standards dictated not only by quick service restaurants but also other food service companies and retailers.

For those involved in meat production, it means having to think about doing things differently – not only adopting traceability methods but also certification and auditing programs to ensure the products being produced have the attributes specified by the company buying them. At the same time, farmers have to think about how to capture value "so that we're compensated for our activities and the differences in our production practices that may carry a higher cost."

Another trend that has appeared – not at the farm level but closer to the end of the food production chain – is treatment of labour. "We saw what happened with the bad PR on the seasonal worker program at quick service restaurants," he says. "There are segments of agriculture, especially in Ontario, that do rely on seasonal workers. How they're treated, and the perceptions of how they're treated, could be very important."

It may not directly affect consumption, he says, but bad optics could tarnish the sector's image.

Cranfield also predicts consumers will begin to pay closer attention to how water is used in agriculture, not just in terms of quality but also the impact of agricultural practice on its quality.

Food waste may be another area that will foster interest. It's tied into the notion of socially responsible eating, he explains, with consumers becoming concerned about food waste in areas outside their control along the production chain. However, so far, his research shows that consumers do not see farmers as part of the problem for food waste.

"It's the stuff between the farm gate and the consumers' plate that they have concerns with." BF

Hormone implants in cattle and bone meal in poultry feed – safe and efficient
The practice of using hormone implants in cattle to improve their feed conversion ratio (the amount of feed an animal needs to produce a certain amount of mass) has been around since the mid-1950s. It makes the industry far more efficient in terms of how much feed it must grow to feed the animals (they can increase growth rate by five to 23 per cent and improve feed conversion efficiency by four to 11 per cent, according to one U.S. information sheet), and the technology has long been proven safe.

Andrew Campbell, a dairy farmer near Appin in Middlesex County and a member of the Dinner Starts Here agricultural advocacy group, questions A&W's decision to identify its use of beef products from cattle that have not been given added hormones as sustainable. "Is it," he asks, "if feed efficiency goes down?"

Similarly, Ian McKillop, who farms eggs, beef and cash crops in Elgin County, challenges whether the sustainability involved in A&W's decision to use eggs from chickens fed "a fully vegetarian diet" is any better than that involved in the more conventional practice of adding small amounts of meat and bone meal in layers' feed. Using animal byproducts this way is a good use of a rich amino acid, he says. It's also a phosphorus product that potentially keeps some of that nutrient out of the landfill, "so there are some real solid reasons why the meat and bone meal is put into the diet of regular chicken feed." BF

Hormone growth promotants – banned in Europe, approved in Canada
The European Union has banned the use of hormone growth promotants in beef and other bovine products since the 1980s over concerns of their potential to be a carcinogen. However, a 2012 fact sheet produced by Canada Beef notes the levels found in food products are too low to be of risk to human health.

Currently, Health Canada has approved three natural and three synthetically produced hormones for use as growth promotants in Canada, and their safety has been reviewed not only by the federal government department but also the World Health Organization and the Food and Agriculture Organization of the United Nations. All have confirmed their safety for use in beef production. BF

Demand for snacks, ethnic food and takeout growing in quick-service restaurants
According to 2014 studies published by NDP Group Inc., a consumer market research group, the fast-casual restaurant category, considered a middle-ground between quick-service and full-service restaurants, is growing. Here are some highlights of the quick service restaurant industry 2020 outlook as summarized by Robert Carter, executive director, Foodservice Canada with the NDP Group Inc. in recent issues of the Canadian magazine, Foodservice and Hospitality:

• The restaurant market by 2020 will be more competitive. The volume of overall customer traffic is not expected to increase, which means restaurants will be increasingly competing for the same customer.
• The influx of South Asian immigrants as well as baby boomers' and millennials' growing interest in food from around the world will make ethnic foods the fastest growing area on both quick service and fast-casual restaurant menus.
• Off-premise restaurant meals serviced through drive-through, delivery and take-out has increased five per cent in each of the past five years and is forecasted to grow by 10 per cent up to 2020. However, demand for some types of quick service restaurants, such as pizza establishments is falling.
• Demand for snacks is growing with the demand for morning snacks expected to grow by 13 per cent by 2020. BF