More Cash, Less Cow

Weather, illness and consistent demand amid dwindling supply have conspired against grocery shoppers’ efforts to get the most bang for their protein buck at the supermarket meat counter, putting increased pressure on retailers to deliver economical center-of-plate solutions to consumers.

“Shoppers are contracting their protein purchases, but they have not stopped buying,” says Kelly Mortensen, meat director for Salt Lake City-based Associated Food Stores. “Consumers are extremely selective when they make their purchases. Tight budgets are chasing the value items, but they still want quality, as natural and organic sales are outpacing some of the other commodities — if you can find them.”

Dollar sales are steady due to price increases but volume is down or flat, Mortensen observes. “Chicken has been the big winner in the latest turn of events, but we can’t get enough to meet our demands,” he says. “Poultry is trying to react to an 18 percent increase in sales, but they are doing it with a 2 percent increase in production. We thought pork would be our savior early this year ... It is hard to get a break in the protein category.”

Sales data from Nielsen’s Perishables Group indicate that for the 13 weeks ending July 26, 2014, consumers traded down to chicken products as prices increased, notes Kent Harrison, VP of marketing and premium programs at Dakota Dunes, S.D.-based Tyson Fresh Meats. For fresh beef, volume sales decreased 5 percent compared with the same period a year ago, as average retail prices increased 10.3 percent. During the same time period, volume sales for fresh pork decreased 11.3 percent on an increase of 18.6 percent in average retail price. Chicken was the only category up in pounds: Volume sales increased 2.4 percent, even with an increase of 4 percent in average retail price.

Quality Versus Quantity

“With meat prices on the rise, retailers must make sure they are differentiating themselves from competitors,” Harrison says. “One way to do this is through branded meat programs. Retailers have an opportunity to pull consumers in and secure their loyalty with strong brands that provide value to consumers.”

Retailers also need to make sure they have the right product mix to meet their consumers’ needs, he asserts: “We continuously work with our retail partners to provide them with the right cuts to make sure they have the best product mix possible in their meat cases.”

But as Mortensen notes, that can be a challenge under current market conditions.

“Although price is a big issue, an even bigger issue is supply,” he declares. “Proteins are all connected, and when one is in stress, it is reflected in the others. We have lost protein, and demand has not come off to equal out the shorter supply. It is now who can outbid the other for what protein is remaining.”

Unfortunately, this scenario doesn’t bode well for cost-effective solutions, according to Mortensen. “We are not going to compromise quality to sell inferior product, even if it was available. We do not think that is a long-term solution,” he says. “We can’t have consumers having a bad experience with our products, or we will lose them completely.”

That’s a concern not just for individual retailers, but also for the entire category.

“Consumers are highly price sensitive when it comes to purchasing meat,” affirms Michael Uetz, principal at Chicago-based Midan Marketing, a marketing and communications firm dedicated to the meat industry. “If we do not pay more attention to consumers’ needs, we will continue to see our customers buy less and less often, and begin looking for alternatives for their protein and for their center-of-the-plate food.”

Retailers and suppliers alike need to stay on top of the demands of Millennial shoppers, an increasingly important demographic with spending power poised to surpass that of Baby Boomers in the not-too-distant future. Uetz says this is a concern in light of increased carcass sizes for all proteins.

“With larger animals come larger cuts and package sizes, and with that, even higher per-unit prices,” he says. “We’re seeing shifts in large segments of the population, who are now looking for smaller package sizes and smaller cuts. This is especially the case with Millennials and Boomers.”

Selling the Whole Package

Indeed, packaging will play a key role in making sure budget-minded shoppers keep coming back to the meat case.

According to the “2014 Power of Meat Report,” an annual survey of consumer attitudes and purchasing habits regarding retail meat and poultry, commissioned by the American Meat Institute (AMI) and the Food Marketing Institute (FMI), price per pound and total package price remain the top two factors influencing consumer purchase intent and volume, notes Jerry Kelly, national retail account manager for the food care division at Elmwood Park, N.J.-based Sealed Air Corp., which helped sponsor the report.

“As natural and market factors continue to escalate meat prices to record highs, retailers face added pressure to deliver additional value in the meat case to drive continued consumer spending,” Kelly asserts. “Given these unique market conditions, there is great opportunity for retailers to leverage packaging innovations to help consumers achieve greater product quality and meal-planning flexibility, and offset the impact of higher prices.”

Among the innovations: vacuum packaging, which can preserve the taste, lengthen the shelf life and enhance the visual appeal of meat products.

“Since this format is freezer-ready, customers can store proteins longer without concerns surrounding quality or freezer burn,” Kelly says. “This enhanced flexibility also gives consumers the ability to stock up during meat sales, while also being more inclined to purchase expensive cuts, knowing they can store and cook them within a longer timeframe.”

Even with higher prices, Kelly says, “the profit potential for retailers is significant,” citing a 2013 Sealed Air/Beef Checkoff study that found purchase intent increased among consumers who understood the benefits of vacuum packaging. “Additionally, with less wasted or unsold products, there comes a potential reduction in shrink for retailers, which is essential for maintaining a healthy bottom line,” he adds.

Further, grocers who understand and proactively pursue their growing roles as educators can influence protein purchases through in-store cooking and storage guidance. “Consumers may be especially unwilling to spend more on a product they ultimately may not be able to fully enjoy. However, the potential for retailers to capitalize by helping consumers achieve a tasty, quality final product are evident,” Kelly says, pointing to the “Power of Meat Report,” which reveals a strong demand among shoppers for such guidance from grocers.

“The more comfortable that consumers feel with preparing meat, the more likely they are to purchase and experiment with different cuts and proteins,” Kelly concludes — perhaps regardless of the market’s current escalated prices.

Prices Up, Profits Down

For the foreseeable future, cow herds and the number of cattle coming to market aren’t going to increase significantly, due to the continuing effects of the drought in the Southwest, Tyson’s Harrison says. “However, there will be some herd-rebuilding efforts, which will likely lead to a pricing plateau at retail for beef products at some point in the distant future,” he observes, warning that “2015, however, looks like another year of high cattle and high beef prices.”

On the pork side, Harrison adds, as the effects of PEDv (porcine epidemic diarrhea virus) are mitigated through vaccine usage and adjusted biosecurity practices, “we will see an increase in pork supplies that will help create a more traditional balance between supply and demand.”

Associated’s Mortensen concurs that prices will remain elevated for the time being. “The question is, when will the consumer say no to meat protein and try and get it elsewhere?” he asks, adding: “The latest trends in diets all place a very big significance on protein, so I don’t see demand falling sharply. The nutritional aspects of protein are finally getting some respect in at least some medical and dietitian discussions.

“Meat is still center of the plate, and I believe most grocery stores acknowledge this and still try and bring consumers into their stores with meat features,” Mortensen continues. “We are not making the profit on these items that we once were. Some of these features are a loss leader or are subsidized by other commodities in the stores.”