One of the world's largest free range egg farm faces market saturation and stiff competition. Does it need to diversify its customer base or launch its own brand?
Over a near half-century, John Campbell has built Glenrath Farms into a very large free range egg farm and one of only two UK egg suppliers to Tesco. The firm, which he founded in the Scottish borders in 1961, now produces and packs 1.4 million eggs a day, 50 percent of which are free range or organic.
"All our eggs are in two baskets," Campbell says. "We have only two customers – 75 percent of our eggs go to Tesco and 25 percent to Asda."
Glenrath supplies 30 percent of Tesco's eggs for its UK stores, making nightly deliveries to depots as far south as Birmingham. It also delivers to 51 Asda stores across Scotland three days a week.
The business employs 200 people and has seen turnover more than quadruple from £9.2 million in 2000 to a forecast £45 million this year, when sales are expected to be 7 percent up on 2009.
There are numerous challenges ahead, however, the first of which is structural, with Glenrath in the process of completing a £43 million investment to comply with the European Union legislation by January, 2012.
Glenrath's story has been one of driving the free range trend in the UK but chairman John Glenrath says the UK eggs market is now in "turmoil". "When I started, every hen was in a cage," he says, "but for the last 20 years, demand for free range eggs has outstripped supply."
Indeed, the Campbells have seen a swing of 2 percent a year from cages to free range for the past 20 years. This has now increased to 5 percent a year.
More free range eggs are now bought in Britain as a percentage of total egg sales than anywhere in the world and Glenrath still believes they are the future. Despite typically being 50 percent more expensive than caged eggs, it believes the UK market will go increasingly free range and is planning to switch all its production over the next 20 years.
Free range's attractiveness, however, means the trend noted by John has recently reversed, with supply now outstripping demand for free range eggs in the UK. The Campbells also worry that farms in Spain, Italy and parts of France, may not comply with the new rules.
"Some of these countries cannot afford to invest this money," says John. "Animal welfare is not a barrier to trade and we're very worried that these eggs could arrive in this country in either shell or product form."
According to Glenrath, there are too many free range hens in the UK. "The market's been flooded with free range eggs. In the past, if someone had one hectare, they could only build one shed. Now they can have another shed of the same size without any extra land costs."
Glenrath's feeding costs also went up by £88,000 a week on October 1 when its latest annual contract for wheat took effect, reflecting this summer's price rises after Russia banned wheat exports.
Another issue is genetically-modified soya feed, which is £70 a ton cheaper than GM soya feed but still not acceptable to British retailers.
"The UK supermarkets want non-GM poultry feed and it is very difficult and very expensive to source it – we're finding it practically impossible," says John.
Glenrath would like to raise its prices but that is extremely difficult when there is oversupply in the market. "We are negotiating with the supermarkets about price rises," says John, "but it's difficult to get a price rise when the supply has outstripped the demand for free range eggs."
An alternative is to add value through branding, with one name mooted being Glenrath Scottish Eggs.
Until now, Glenrath's eggs have been sold under supermarket groups' own labels but its much larger rival Noble Foods has experienced huge success with its Happy Eggs free range brand.
"One of our biggest threats in the last year is that competitors have established their own brands and that's eating into supermarkets' own-label products with the result that we are losing sales. We have to reply to that and try to establish our own brands, which is very expensive for a small farm."
John points out the problem with such a plan, however. "We don't produce anything like enough for us to have national distribution," he says. "We haven't got national coverage and we can't put on promotions nationally. It's a huge drawback. Our share of UK egg production is only about 5-6 percent."
Another option for Glenrath is to widen its supply and it is in talks with other supermarket groups. Glenrath: "We predict that next year our turnover is going to be down. This coming year will be our most challenging. Until the southern European issues are resolved, it's going to remain a worry."
Related website: Glenrath Farms