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PG's annual retail meat department study finds higher price points driving sales upward (profits, not so much), with a much-needed assist from top-shelf steaks and oven-ready crowd-pleasers.

Research by Debra Chanil

Analysis by Meg Major

While generated prior and feed the year, average higher costs steeper blunted supermarket dollar sales retail in discernible prices meat 2011 as a result volume department versus of fuel gains the for the majority of retail meat directors who responded to Progressive Grocers 2012 Meat Operations Review survey.

More than half (53.3 percent) of retail deli executives participating in this year's "state of the meat department" study reported higher sales in the 12-month period ending Dec. 31, 2011, while sales declined for a decidedly smaller 6.7 percent of panelists, with the balance (40 percent) indicating no jumps in either direction. All told, the overall meat department sales gain pushed the total net growth ahead by 5.5 points versus last year, which is consistent with the economics of higher retail meat price points.

As the only study of its kind in the marketplace, PG's annual retailer-driven Meat Operations Review is based on direct input from a diverse sample of retail meat executives from around the country who responded to our survey and who were asked to share benchmark estimates for their average supermarket meat department — inclusive of sales and profit performance, leading departmental challenges and opportunities, and meat sales by segment, among other issues.

As depicted on the adjacent charts, same-store meat sales during 2011 also increased among 52.6 percent of survey respondents, while 39.1 percent and 8.3 percent of participants, respectively, posted static and decreased comparable meat sales vs. the prior 12-month measuring period. All told, total same-store meat sales garnered a 5.1 percent gain.

Meat Department Sales Performance

As the centerpiece of many retailers' efforts to generate traffic and enhance their stores' brand and image, the meat department maintained its near 20 percent share of the overall supermarket sales pie. Meanwhile, total retail meat sales rang up to reach an estimated $91.2 billion, again illustrative of the market dynamics that are commanding higher retails at the expense of volume.

As such, there was little change in the meat department's 27.6 percent gross margin tally, which remained virtually unchanged from the previous year's report, again indicative of room for improvement to pick up the pace of meat department profits. Interestingly, although the vast majority of shoppers make their meat purchases from self-service cases, nearly 60 percent of this year's Meat Operations Review respondents reported having full-service meat cases, which speaks to a key trend that finds more consumers upgrading their meat-buying habits. Indeed, higher-quality grades strong last year with consumers, as a result of which more retailers stocked meat cases with higher-quality and higher-margin oven-ready options.

Meat Department Operations

Change in Meat Department Profits

However, there's no abatement of retailers' perpetual efforts to court the mainstay majority of shoppers on the other end of the buying continuum, who remain steadfast in their quest to stretch budgets with stock-ups on special-event promotions and more frequent purchases of smaller pack sizes, which are also increasingly popular among many of this year's panelists.

In Search of Meat Lovers

In the roundup of key challenges facing retail meat executives who were asked to rank the seriousness of various issues on a scale of one to six, the over-stored landscape in many parts landed competition in the top seed this year, followed closely by the conundrum of attracting more shoppers to the meat department as a leading concern.

The familiar challenge — elevating profits — held steady in the third slot, while the new meat nutrition labeling mandate factored as the fourth key issue on the minds of meat retailers. Customer confusion/ perception of meat-related issues and food safety rounded out the meat department worry list of perennial top-of-mind concerns.

Drilling down to the operational estimates for the combined fresh meat and seafood categories, this year's survey found the average supermarket employing an estimated nearly five full-time meat and seafood associates and two part-time staff members, good for 5.9 full-time equivalents working 227.8 total weekly hours. Weekly sales per employee hour, meanwhile, were found to tally $219, with 12.1 percent of total meat/seafood department sales equating to the average combined labor cost.

Problems Facing Meat Department

Rated on a Scale of 1-6, Where 6=Extremely Serious

Percent of Meat Sales by Segment

A breakout of costs relative to combined meat and seafood sales shows product costs far surpassing the remainder of items among nearly two-thirds, or 62.3 percent, of respondents. Departmental overhead costs were cited as the next-highest consideration among 20.8 percent, followed by labor and packaging costs, at 12 percent and 4.8 percent, respectively.

When examining meat sales by segment, fresh beef handily commands the lead, accounting for 42.7 percent of overall department sales, followed by nearly 25 percent for fresh poultry products, 17.5 percent for pork, 5.7 for lamb and 3.2 percent for veal, and the remainder of meat sales generated by an assortment of popular alternate categories, including specialty proteins, store-made signature specialty items and other protein options.

A look at the fastest-growing premium-positioned meat items finds steak and chicken breasts topping the leaderboard, followed next by oven-ready entrees, purely natural chicken and pork, pork tenderloins and store-made ready-to-eat smoked meats.

As for the fastest-growing value meats, value-pack chicken products were cited most often by the meat survey panelists, followed next by grinds (beef, pork), pork chops and turkey (ground, cutlets).

Stay tuned for the March 2012 issue of Progressive Grocer, which will feature a companion Seafood Operations Review study.

PC Director of Research

Debra Chanil can be reached at [email protected].

Combined Meat/Seafood Department Costs

Combined Meat/Seafood Labor Metrics

Combined Meat/Seafood Promotional Activities

Multiple Responses Accepted

Meat Department Category Performance

Total U.S., 52 Weeks Ending Oct. 29, 2011

Perishables Group Chart Analysis

Meat department categories experienced higher dollar sales across the board during the 52 weeks ending Oct. 29, 2011, versus the prior year. Of the department's 25 categories, only six declined in dollars. However, more than half of meat department categories decreased in volume, due to higher average retail prices.

Of the 25 categories within the meat department, all but seven increased or held steady in average retail prices. Fully cooked other meat in the fully cooked meat supercategory experienced the greatest decrease in average retail price, resulting in the department's largest increase in volume. The category also had a significant increase in dollars per store per week.

Six of the seven categories within the fresh meat supercategory decreased in volume per store per week compared with the previous year. This supercategory experienced large increases in average retail prices across the board, while its companion category followed a similar downward trend, with three of the four segments decreasing in volume per store per week. The other miscellaneous meat items and the marinade, sauce and seasoning categories also declined in dollars.

Fresh meat, pork, beef and turkey all increased dollar sales despite spikes in average retail price. Fresh beef, the largest category in the meat department, with average sales of $16,972 per store per week, declined 6.4 percent in volume driven by an 11.4 percent increase in average retail price, but posted dollar growth of 4.2 percent.

Less emphasis on promotion brought declines across the board within the five meat supercategories; of the 25 meat department categories, only five increased their percentage of volume sold on promotion.

Data provided by The Perishables Croup is for the traditional/conventional supermarket channel only. It doesn't include Walmart, club stores, small independent chains and alternative-format retailers such as Whole Foods Market and Trader Joe's. The data represents 62 percent all commodity volume (ACV) and 13,000 stores.

It is not projected to total 100 percent U.S. ACV.

BEEF

42.7

PERCENT

OVERALL SALES

Source:

Progressive Grocer

Market Research, 2012

POULTRY

24.7

PERCENT

OVERALL SALES

Source:

Progressive Grocer

Market Research, 2012

PORK

17.5

PERCENT SALES

Source:

Progressive Grocer

Market Research, 2012

EMPLOYEES

4.9

NUMBER OF

FULL-TME

EMPLOYEES

Source:

Progressive Grocer

Market Research, 2012