FRESH FOOD: Beef: Where's the sizzle?

By now grills across America have doubtless cooled, but this past summer, beef for some retailers was apparently not as hot as it could have been, with price hikes and other factors tempering demand. Market watchers are predicting better performance on the horizon, but it's becoming clear that more than ever, beef demand is being driven as much by the state of the economy as by consumer appetite.

In essence, Americans want to have their steak and eat it, too, and price is still king when it comes putting the sizzle in beef sales.

The recently concluded, all-important grilling season left many retailers feeling hungry for several reasons, paramount among them near-record-high prices that were set in motion by tight supplies, a lack of access both to export markets and live cattle from Canada, and escalating fuel costs.

It didn't help that the U.S. Agriculture Department confirmed a second case of mad cow disease in the country in late June, although many observers say that didn't especially hurt, either, indicating that consumers are less concerned about the malady than previously. Stiflingly hot weather probably had a stronger negative impact on beef consumption, while production difficulties resulting from drought conditions made feeding cattle difficult for many ranchers.

Some recent historical context: Beef was the No. 1 protein in America in 2004, a year in which consumers spent $70 billion on the protein, setting a new record. Consumer demand for beef has increased a healthy 25 percent over the past six years, with per capita beef consumption hitting the 66-pound mile marker last year, when per capita spending for beef increased to $240, up some $40 from 2001.

Given the cyclical nature of the business, however, industry players had already steeled themselves for a letdown, realizing that the dramatic growth in demand during late 2003 and early 2004 would be difficult to sustain.

The chickens came home to roost, so to speak, in the summer. "Throughout the course of the summer, prices were not only expensive, but they also jumped around a lot, and from what we're seeing, demand is definitely off," says a senior retail perishables executive at a Midwest chain, who requested anonymity. "In the latter part of summer, we were grateful to see the costs beginning to come down a bit, but I think a lot of what's going on here relates directly to the economy and the changing buying habits of consumers."

The executive is convinced that beef demand is being driven directly by the economy: The more disposable income they have, the more people will buy beef.

"The unfortunate truth is that when times get tight, a lot of people don't seek to cut back on eating out for any extended period of time, because a lot of people simply don't consider preparing meals at home as an alternative," he says. "For our target customers that do prepare meals at home, the rising fuel costs have translated into having less money to spend at the supermarket."

Consequently steaks and other beef products are among "the first things crossed off the list. Now, with costs back in the ballpark of where they were last year, some things are happening that should set the stage for more volume. However, it still won't be enough to offset the sales we projected a year ago."

Relief is on the way, says Randy Irion, director of retail marketing for the National Cattlemen's Beef Association in Centennial, Colo. He recommends retailers keep the faith and prepare for brisk beef sales in the fourth quarter.

"Currently we're facing an increase in the nation's beef supply," says Irion. "This offers a great opportunity to increase retail featuring. As the beef supply grows, so will the opportunity to plan for holiday features, with the knowledge that there will be ample supply."

Irion's comments resonate with former retail consumer affairs specialist Mona Doyle, president of Philadelphia-based Consumer Network, Inc./The Shopper Report. "When beef prices are lower, demand will go right back up," says Doyle. She notes "a more elastic scenario" for beef demand based on composite Shopper Report panel feedback her organization has tracked in recent years.

"Consumers aren't quite as beholden to meat as they used to be," explains Doyle. "If there are suddenly good deals to be had for meat," regardless of the protein, "they're going to buy it," she adds. "Otherwise, they're just going to make their meals around different things and eat less meat. Certainly, the days of having meat so many nights a week are over. I think people are pretty flexible -- even the big red-meat eaters, who will just eat more of what's more readily affordable and available, be it pork, chicken, fish, or pasta."

Bullish on beef

Some retailers remain bullish on retail beef sales, claiming they've been able to ride out the cycle comfortably, thanks to proactive merchandising and promotion tactics established well in advance of the dubious 2005 grilling season.

Sales of beef at 40-store Farm Fresh are up "dramatically" in both dollars and tonnage, according to Ron Dennis, president of the Virginia Beach, Va.-based chain. "We've seen a dramatic increase in the growth of our beef category for the simple reason that we're the only one in our market that exclusively features USDA Choice beef," notes Dennis. "The majority of competitors today are selling a two-tier program and/or select or no-roll [not graded] program."

Recently named Certified Angus Beef's Retail Advertiser of the Year, Farm Fresh features its fresh meat program on a consistent basis, according to Dennis, which serves a dual role of driving sales and providing educational information to develop brand loyalty. "We really feature the fact that all of our meat is fresh-cut in stores daily," he explains. "I feel very strongly about the direction we're going in with our meat program, and we're having some very good success."

Despite higher costs, Salisbury, N.C.-based Food Lion says it has also been able to position itself well to keep beef lovers stampeding through its doors. This summer the chain made its mark with the spring debut of a signature line, Butcher's Brand Premium Beef.

Opting to pay it forward by investing in both the brand and customers, Food Lion absorbed higher wholesale beef costs throughout the year and didn't raise its retail prices.

"Since we launched our exclusive Butcher's Brand Premium Beef line in April, we have held our prices steady," confirms Jeff Lowrance, spokesman for the 1,200-store chain. We wanted to enhance our program with a better product without raising prices," enabling consumers to "identify and connect only Food Lion with the consistent quality of this beef."

To date, Lowrance says the chain has been "very pleased with customer response. We've had good sales since the product launched, which took us through the big summer grilling period. We've emphasized beef quite a bit in our weekly ads, and have enjoyed good sales."

Geography might be on Food Lion's side. Lowrance says the chain's Southeast and Mid-Atlantic marketing territories are "strong beef-eating regions. Our customers tend to buy a lot of meat in general -- this is something they've always had an interest in." Having a good beef program not only helps Food Lion differentiate itself, but also reinforces its meat program across the board. "If you do beef well, it helps [sales] in all other proteins, as well."

Working with a select number of Midwestern beef suppliers to develop new product specifications for marbling, texture, and age, Food Lion guarantees to customers that Butcher's Brand cuts will be tender, flavorful, and juicy. In development for over a year, the line encompasses all cuts -- including ground beef -- which are hand-trimmed at the store.

Customers are encouraged to ask questions, and stores welcome special requests, adds Lowrance. Cooking and grilling tips are tucked underneath every peel-back package label, while take-home recipes are made available near the meat case in all stores.
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