Lockdown boosts AACo as Australians embrace their inner MasterChef

Palates are becoming more refined as foodies cook restaurant quality food at home, helping buoy beef producer AACo.

Cattle from AACO Westholme. Image: supplied

“Pivot” is emerging as one of the buzz words for chief executives in 2020 as they battle the fallout from the COVID-19 pandemic, and Australian Agricultural Company is no exception.

Chairman Donald McGauchie told shareholders at AACo’s annual meeting on Wednesday that while 2020 had been a milestone year for the company, with its branded beef strategy delivering record sales and value, 2021 would generate new challenges.

Mr McGauchie said the pandemic had “decimated the global service and entertainment industries”, key customers for AACo.

“AACo ended the reporting period just gone under the uncertainty of COVID-19. It has effectively shut down restaurants of all types, significantly impacting those who rely on them for employment,” he said.

“This devastating impact demanded swift and decisive action from AACo. I am pleased to report that this was precisely the response your leadership team delivered.”

Chief executive Hugh Killen said the company had been able to divert products destined for the food service sector into retail and direct to consumer channels.

“I think the most used word in 2020 will be ‘pivot’ after coronavirus. The two go hand in hand I suppose,” Mr Killen said.

AACo CEO Hugh Killen. Picture: Naomi Jellicoe

“The impact of coronavirus in FY20 has not been material but we have been pivoting our business to deal with coronavirus and retail is obviously an area that we focused on.

“A number of distributors global ... have worked closely with us to direct the food service business to direct-to-consumer and that’s working really well. We’ve seen that happen in Australia, in Asia and the US.”

Retail sales represented about 45 per cent of AACo’s $230m in beef sales in the latest year. The company has been working on growing that percentage in the past three months and Mr Killen believed the direct-to-consumer trend would continue after the pandemic.

“Direct-to-consumer for food service quality products is probably going to stay with us after the coronavirus pandemic. It’s one of those strategic pivots that are going to stay because the rise of the home chef has been prevalent for some time and lockdown has driven that harder.

Willing to pay for quality

“What we are seeing in those channels is the desire to get the world’s best food stuff so people can cook it at home. I use home chef intentionally because people are highly educated in food and can access food that they would normally access only in a restaurant.”

And consumers are willing to pay top dollar. US retailer Goldbelly’s website is advertising six AACo’s Westholme-branded wagyu steaks for a combined $US529 ($738).

Overall, AACo generated record wagyu sales for the year, with a 19.7 per cent rise in volume, and an 8 per cent lift in price per kilo. North America recorded a 34 per cent increase in sales, comprising 7 per cent of total wagyu sales.

Meanwhile, Australia posted a 16 per cent lift, making up 15 per cent of AACo wagyu sales.

But Asia took the lion’s share of beef sales, representing 66 per cent of the company’s global beef sales in 2020.

Political tension

However, Mr Killen said the company wasn’t reliant on China, with him purposely keeping its revenue contribution to 10-15 per cent, given geopolitical tensions. Instead, AACo has a strong focus on South Korea, which generated about $70m in beef sales, as well as in Hong Kong and Taiwan.

Nevertheless, he believed the Australian-Chinese trade relationship would continue, despite it hitting a nadir in past months.

“With the geopolitical tensions that are going on at the moment and while any global supply chain is best having a good diversified portfolio of countries to go through, China will, over time, remain a very material and significant destination for Australian agricultural exports.

“I’d be suggesting that over time — hopefully in the not too distant future — it will iron itself out because China is a valid place for us to send our product to. They pay a high price per kilo, they have a growing population and a growing affinity with high quality food.”