Most shoppers will look at the brand, the recipe, the price, the promotional offer and probably the country of origin of the meat used when buying sausages, but far fewer will give a moment's thought to the casing.
Yet sausage casing manufacturing is a huge international industry, comprising companies ranging in size from small family firms to multinationals with production plants and sales offices in virtually all parts of the globe. Competition for sales and for the raw material used is fierce, described by one leading supplier of natural casings as "a war of attrition". There is the added dimension of two main and distinct types of casing on the market - natural and collagen.
Collagen comes from the inner lining of cattle hides, while natural relies on intestinal material from sheep, pigs and cattle. There is, however, an elephant in production and sales rooms around the world, from which it is difficult to get away - namely, China.
China makes a significant and growing contribution to casings manufacturing, and demand for raw material. It is also developing a fast-growing taste for eating sausages. Covering 3.7m sq miles and with a population of 1.35bn, China is the world's fastest-growing economy. Now undergoing what has been described as a second industrial revolution, it became the world's second-largest economy in February last year, overtaking Japan. Its growing wealth and increasing affluence means the Chinese middle classes are moving from a soya- to a protein-based diet, but this is proving to be a double-edged sword. On the one hand, it presents opportunities for manufacturers to sell into China, so it is attracting huge inward investment; but on the other hand, as a significant producer of casings, it is hoovering up a large chunk of the world's available raw materials.
One leading casings manufacturer says: "The Chinese will always play the market, come what may. Whatever the trend is, they will jump on the bandwagon, irrespective of their availability and production. They'll just pay the market price. Which comes first, lack of availability or demand [is open to question], but the lack of availability creates an almost hysterical reaction in the buyers anyway, so it is self-perpetuating."
Collagen
Collagen manufacturer Devro says China is important because of its sheer scale. Existing sausage users are moving over to collagen casing, it claims, and whole sections of the population are now able to afford sausages when they had not been able to do in the past. During 2011, Devro set up an office in Beijing and strengthened its sales and technical teams in Hong Kong. Although 2011 sales volumes in China were very limited, Devro says it has trialled products with all of the leading sausage manufacturers, with a view to developing business this year and next. As a result of this work, there has been more activity throughout south-east Asia, particularly in Thailand, Indonesia, South Korea, Taiwan and the Philippines.
Last month, Devro announced proposals to relocate some of its senior central management staff to a new office in London as part of a plan to focus on growth of the company as a global manufacturer. While the company will retain its headquarters in Scotland, it says that a London office will enable it to explore new market opportunities for growth outside the UK and provide an overarching global strategic plan by bringing together members of the finance team, who will operate independently of any one regional operation. It is also recruiting a new strategy and marketing director to head up the team.
Viscofan already has a plant in China and is about to build another. Vince Minchella, area sales manager with the company, says: "We are a global company and we see it as strategically important that we have a footprint on continents around the world where our products are going to be required. Obviously, China is one of those economies and it's a way into Asia as well."
A new extrusion plant will be located alongside a converting plant that opened in September 2010 in Suzhou. Extrusion plants extrude raw material into casings and on to a reel. Converting plants convert flat casing from a reel into shirred sticks. Extrusion operations are expected to start in 2013. The complex will be the fourth collagen extrusion plant of the group, complementing ones in Germany, Spain and Serbia, and will be the first located outside Europe.
One company with a foot in all the casings camps is Danish-based DAT-Schaub. As well as claiming to be the world's largest single-company producer of hog casings and a key player in the sheep casings industry, it also represents some of the main companies trading in alternatives to natural casings, including Viscofan, Naturin and Visko. Recent activities underline the importance of the Chinese market and the global nature of the casings sector.
DAT-Schaub managing director Bengt Landquist says: "China is coming." However, he acknowledges that, from a quality viewpoint, it has some way to go. The DAT-Schaub Group, which has annual sales of â¬340m (£285m), is an active partner in two Chinese joint ventures and, last autumn, it increased its joint activities with UK and Ireland food industry supplier TruNet Packaging Services, acquiring 50% of the shareholding in the Derbyshire-based firm.
Hog casings
DAT-Schaub's UK subsidiary has been active in the UK since 2006, selecting hog casings at large slaughterhouses throughout the country. Last year it used material from 350 million pigs, sourced in the UK and elsewhere, to produce 700 million metres of hog casings. The closer links between the two companies will involve not only the casings business but the entire range of food production sundries in the UK and Irish markets with DAT-Schaub utilising TruNet's strong UK specialist knowledge.
Both natural and collagen manufacturers have been hit by higher prices. Material for hog casings has stabilised over the last couple of years, but those relying on sheep gut for natural casings have been hit hard. Rob Weschenfelder, a director with UK-based family business W Weschenfelder & Sons, produces natural casings and supplies collagen. While big increases in sheep gut prices have resulted in some sausage manufacturers changing from natural to collagen casings, the switch has not been as pronounced as he would have expected, he says.
Of the increase in sheep gut prices, he says: "To use the word 'unprecedented' sums it up pretty well, and it has gone beyond unprecedented. Price rises have been sustained over a long time. The full term of the price increases has been longer, as far as we're aware, than at any time we can remember. The peak of the price increases is probably higher than it has ever been. For three years, the industry has seen a 200-300% increase. There has been a lot of movement on a global basis. It's more to do with a reduction in availability around the world rather than rising demand."
There has been a wholesale reduction in sheep slaughtering - in New Zealand, Australia and even the Middle East, he says.
"We are in a world market, it's a world commodity and that is one of the reasons the price has gone up, because there's a shortage of New Zealand casings. A lot of farmers have gone into dairy."
Another reason for price increases is the number of foreign buyers now purchasing British sheep material. Collagen manufacturers claim to have been hit by price rises too.
Raw material prices
Viscofan's Minchella says: "Collagen is used in many other high-value items, such as surgical and skincare products, potentially impacting on the price of raw material. It is used in plastic surgery, it is now used increasingly in beauty and skincare products and, in Asia in particular, it is even used in drinks products, so there are other more variable outlets for the raw material, which puts pressure on us because we have to have collagen of a certain standard - and the market price is the market price. There is increasing demand for collagen and competition for the raw material."
Lee Hamilton, a sales director for Devro, admits: "We use the middle layer of the hide, but hide is subject to its own demands in the leather industry. Consequently, China in particular is generating a demand that means tanneries have other places to sell to. We've experienced raw material price increases and, as a result, we have had to absorb that, applying price increases where possible. But we've absorbed as much as possible through increased efficiencies."
The company has been working on so-called 'lean' manufacturing techniques. It is investing £12m in its Bellshill plant in Scotland, replacing old manufacturing lines with more efficient modern lines and an extension to increase capacity, speed and efficiency, with planned benefits of both lower costs and higher output. Similar upgrades are planned or being considered at its plants in the US and the Czech Republic.
Hamilton says: "We are at full capacity; it's a very nice problem to have, with the demand coming from emerging markets and gut conversions."
Part of the need to increase the efficiency of the Bellshill plant is said to be the success of a new casing developed by Devro, called Select, designed to replace sheep gut in premium sausages.
Hamilton says: "Select is literally a casing we've developed for gut conversion for the wiener and frankfurter markets, which are huge in Germany and Eastern Europe. The UK and Ireland are mature collagen markets, whereas Germany is traditionally only a small market for collagen. In the UK, the fresh sausage obviously rules. The wiener is a processed application that uses sheep gut. We've effectively managed to replicate that to give not just transparency and mouthfeel, but to replicate the 'knack' or snap noise that you get with sheep casing. It's a very successful product for us in Germany and Poland."
Devro
Although it is a new product, Select represented 4.3% of Devro's total sales in 2011. Devro's revenue was £227.7m last year, an increase of 6.6% on 2010, while pre-tax profits rose by more than 22%. Innovation is difficult when dealing with what is effectively a commodity raw material, but developing new markets, new sausage-style products and traditional, older-style products with a new twist does provide opportunities.
Minchella says: "There are increasing markets now in areas such as pots of pre-cooked cocktail style sausages, for example; it's all part of a food-on-the-go development. The food-to-go market is now getting heavily segmented, with new products and opportunities along the way. Traditional, older-style products, such as black pudding, are coming back into fashion too. Offal is fashionable again."
Viscofan's revenue increased 4.8% to just over £471m in its casings division.
In a recession, consumers clearly hold less disposable income and have had to become more 'savvy' with their purchases as a result, says Hamilton.
"Over the last year or so, sausage activity has been affected by promotional activity in supermarkets. People have been taking advantage of promotions by buying more and freezing some of it. There's definitely a more 'savvy' consumer out there, aware of deals as and when they are available. The internet and television means people are aware of promotions quickly."
In the UK, strong supermarket discounting and the promotion of certain segments led to a slight reduction in the share of sausages sold in collagen casings. The resultant effect on Devro's sales volumes was offset by improved UK pricing and the opportunity to export a greater proportion of its UK production to meet growing demand in other markets.
Devro has invested in research to 'prove' to customers, who are moving from gut to collagen, that sales are not affected.
"We commissioned an independent study by Kantar Worldpanel that indicated that consumers do not consider 'skin type' when purchasing a sausage," claims Hamilton. "Instead, they opt for factors such as meat content, fat content, flavour, price and so on. So not only does a move to collagen have no impact on a consumer's 'purchase decision', it allows the sausage manufacturer to generate savings that can then be reinvested into the attributes that consumers really do put a value on."