Grinding It Out

Ingrained frugal spending habits are keeping meat retailers on their toes as they jockey to refine valuethemed tactics while striving for healthier margins, finds PG's annual "state of the meat department."

As consumers continue on their determined quest for value and mealtime solutions that mesh with their flavor, nutrition, convenience and budgetary needs, retail meat executives are optimistic about stronger results in 2011, but concerns about last year's performance weigh heavily, according to the findings of Progressive Grocer's 2011 Meat Operations Review.

To be sure, the frugal spending habits developed during the peak of the recession appear to be deeply ingrained in consumers'food spending patterns, including while shopping the all-important meat department, which finds them making continual trade-offs among price, protein options and convenience. Retail meat directors, in turn, have worked diligently to monitor and understand the evolving behaviors of different consumer segments and fresh meat purchase drivers and occasions, and respond to each, category by category, in the best ways possible to curtail the full brunt of skittish shopper behavior.

While the average retail meat and seafood department managed to hold its own during the study's 12-month measuring period ended Dec. 31, 2010, the majority of category leaders responding to this year's annual "state of the meat department" survey again cited the prevailing trends of trading down to cheaper cuts and buying on-ad items as the most marked characteristics of value-seeking shoppers.

When taking a closer look at the meat survey findings, 44.4 percent of survey panelists estimated total meat department sales increases during 2010, with 22.5 percent reporting decreases, rounded out by a full one-third (33.1 percent) whose meat sales remained the same, collectively good for a net 4 percent growth rate in overall department sales for 2010.

PG's annual "state of the meat department" survey again evaluated benchmark sales and operations trends of the collective input of a diverse range of retail meat executives surveyed in late December 2010 from around the country. In addition to polling a cross-section of national chain, regional and independent meat retailers about overall category performance and demand trends over the past year, the survey also probes same-store sales and profits, pressing departmental challenges and opportunities, and production and labor considerations, among issues.

As depicted on the adjacent chart, same-store meat sales during 2010 increased among 40.1 percent of survey respondents, while 25.5 percent and 34.4 percent of participants, respectively, saw either decreased or status quo comp meat sales vs. the prior 12-month measuring period. All told, the total same-store sales sum represents a 3.6 percent year-to-year gain, which is on par with last year's same-store sales sum.

Retaining its near 20 percent share of the overall supermarket sales pie, total meat department sales amassed an estimated $86.5 billion during the study's measuring period - roughly $4 million higher than the previous year's survey - while the current meat department 27 percent gross margin tally remained flat with the previous year's report, indicating there remains room for improvement in terms of moving the meat profit needle forward.

The survey once again brought forth a strong; consensus that targeted valuethemed items and promotions, downtrading, and smaller pack sizes are the key volume drivers.

Indeed, meat department profits took a hit during the past year among 29 percent of survey participants, while 31 percent of respondents reported higher profits — over 3 points fewer than last year — and the remaining 40 percent noted that meat profits remained unchanged.

And though prices have always been an influential issue when shopping the meat department, the past year's survey once again brought forth a strong consensus among participants that targeted value-themed items and promotions, down-trading, and smaller pack sizes are the key volume drivers, while higher-end protein purchases continue to be elusive for many.

Wanted: More Meat Shoppers

In the roundup of key challenges facing retail meat executives — who were again asked to rankthe seriousness of various issues on a scale of one to six — "Attracting more shoppers to the meat department" continues to top the list, paced closely by competition, ranked as the second foremost concern. Profits, ranked in the third slot, factored higher in the minds of meat retailers during the last year, while customer confusion/perception of meat-related issues ranked as the fourth-leading concern. Food safety and country-of-origin labeling, meanwhile, rounded out the meat department worry list.

Make Way for Meat Labels

The countdown has officially begun in both the meat buyer and seller communities for the industrywide adoption of the U.S. Department of Agriculture's long-awaited final labeling rules for meat and poultry, packages of which will feature Nutrition Facts labels by January 2012.

While most fresh meat products already have such labeling, consumers will soon see nutritional panels with the number of calories and grams of total fat and saturated fat on 40 of the most commonly purchased single-ingredient cuts of beef, lamb, poultry and pork, including boneless chicken breast, brisket, and ground meats like hamburger and turkey.

Additionally, any product that lists a lean percentage statement, such as "76 percent" lean, on its label will also list the fat percentage to help make it easier for consumers to understand the amounts of lean protein and fat in their purchase.

Specifically, the forthcoming rule requires retailers to provide nutrition information for "major" cuts of meat and poultry, either on the label or at the point of purchase (POP). Other cuts of single-ingredient raw products are not required to bear nutrition labeling, but if plants or retailers voluntarily provide nutrition information for those cuts, the information will have to comply with the requirements for the 40 specified cuts accordingly.

The rule also establishes parameters for nutrient content claims for fat, fatty acids and cholesterol content, stating that a lean percentage claim may be used on the label or in labeling of ground or chopped meat products when the product does not meet the criteria for "low fat," provided that a statement of the fat percentage is contiguous to and in lettering of the same color, size, type and on the same-color background, as the statement of the lean percentage. POP information can be provided by various methods, including posting a sign or by making the information readily available in brochures, notebooks or leaflet form in close proximity to the food. The information may be supplemented by video, live demonstration or other media. Making a nutrition claim on POP requires that all of the regulatory requirements regarding format and content apply. In addition, for POP materials, a nutrition information declaration may be presented in a simplified format.

Although officials at the Washington-based American Meat Institute (AMI) were somewhat disappointed by the 12-month implementation period vs. the 18-month implementation timeframe the trade group originally sought to avoid potential major challenges for retailers, Mark Dopp, AMI's SVP of regulatory affairs and general counsel, says the new labeling requirements present unique opportunities for the industry to educate customers.

"Many consumers don't fully appreciate the nutrition value of meat and poultry, and the many lean choices in the meat case. The new labels and point-of-purchase information may help correct some misconceptions," Dopp notes.

For example, explains Dopp, skinless, boneless chicken breasts are widely recognized as lean, with 165 calories and 3.57 grams of fat per 100-gram serving. But many consumers, he adds, don't know that there are many lean pork and beef cuts that offer similarly good nutrition. Ditto for a serving of beef eye of round roast, which Dopp says has 166 calories and 4.87 grams of total fat, while a serving of pork tenderloin has 143 calories and 3.51 grams of fat.

"I think there may be some pleasant surprises for many consumers in the meat case," Dopp notes. "In addition to helping consumers compare meat and poultry cuts, the labels will also help showcase the high protein, vitamin and mineral value in all meat and poultry products."

When evaluating operational estimates for the combined fresh meat and seafood categories, this year's annual survey found the average selling space of both departments comprising approximately 2,375 square feet total, 86 percent of which is dedicated to fresh meat (all species), while the remaining 14.2 percent is devoted to seafood, the latter of which appears to be picking up more space in the frozen section over the fresh service seafood case, vs. previous years'studies.

The average supermarket, meanwhile, employs an estimated 4.6 full-time meat and seafood associates and 2.2 part-time staff members, good for 5.7 full-time equivalents working 224 total weekly employment hours, with weekly sales per employee hour totaling $209. As a percent of total meat/seafood department sales, the average combined labor cost was found to be roughly 11.8 percent.

A breakout of costs relative to combined meat and seafood sales finds product costs, not surprisingly, garnering nearly two-thirds, or 67 percent, of the total pie. Departmental overhead costs were cited as the next-highest consideration among 15.6 percent, followed by labor and packaging costs, at 11.4 percent and 6 percent, respectively.

In terms of percent of meat and seafood sales by segment, fresh beef far and away led the pack, accounting for 37.7 percent of overall fresh meat department sales, followed by nearly 20 percentforfresh poultry products, 17 percent for pork, 12 for seafood, 5 for lamb and 3 percent forveal.The remaining 5 percent of meat and seafood department sales are generated by an assortment of increasingly popular alternate meat department categories, including hams; alternate/specialty proteins (i.e., bison); store-made signature specialty products; and oven-ready value-added items for multiple convenient protein options.

The March 2011 issue of Progressive Grocer will feature a full overview of our annual 2011 Seafood Operations Review.

Meat Prices Top 2010 CPI

The costs of meat, poultry, fish and eggs were among the leaders in consumer price inflation in 2010, with a 5.5 percent increase from December 2009 to December 2010, according to the U.S. Department of Labor's Bureau of Labor Statistics (BLS).

Leading price inflation were energy costs, with a 16.5 percent increase for fuel oil and a 13.8 percent jump for gasoline, BLS said in its most recent "Consumer Price Index" (CPI) report for urban consumers.

Among food categories, the CPI increase for meat, poultry, fish and eggs was followed by a 3.7 percent increase in dairy and related products. Food consumed at home increased 1.7 percent in the one-year period, while the cost of food consumed away from home experienced a 1.3 percent increase. The food index overall increased 1.5 percent after dropping a half-percent in 2009, which ran counter to an overall slowing trend in price inflation, noted BLS.

"The rate of increase in the CPI slowed in 2010 as the December-to-December increase fell from 2.7 percent in 2009 to 1.5 percent in 2010," according to the agency, which said December 2010 showed an overall increase of 0.5 percent in consumer prices, the largest monthly increase in the past 18 months.