Roadmap to Success

Getting more value out of beef.

A new calendar year may have arrived, but value is still on the minds of those who produce, purvey and purchase beef.

On the production side, tight cattle supplies and continued strong export demand led the U.S. Department of Agriculture (USDA) to recently reduce its projection of total red-meat production for 2014 and estimate that beef production will remain about the same as 2013, a year that saw record beef prices at the midyear point.

“We have the lowest total U.S. cattle herd since the early 1950s, and will have to reach further inside the fed-cattle supply to get grind for hamburger. It will be a slow, long rebuilding process, so therefore we’ll have very tight supplies,” notes John Ginzel, livestock and meat analyst with the Chicago-based Linn Group, explaining that higher prices will accordingly come into play in 2014 and likely beyond.

Mike Miller, SVP for global marketing and research for the Centennial, Colo.-based National Cattlemen’s Beef Association (NCBA), says the nature of the industry means that relief is already on its way, even if it isn’t immediately apparent. “In order to grow, we have to shrink a bit more. We’re working through that process, and we have a lot of signals that the producers are beginning that process,” he explains, adding that the supply situation should ease noticeably within 18 months to two years.

Concurrently, while there have been glimmers of good news in the housing market, the stock market and a budget deal in Congress to avert another government shutdown, the U.S. Commerce Department reported in late 2013 that overall consumer spending is hovering around a relatively anemic growth rate of 1.5 percent. In a Reuters poll released in mid-December 2013, the country’s top economists predict that the U.S. economy will grow 2.6 percent during the 2014 calendar year.

Even with some welcome news in both supply and demand — including lower feed prices, a slow rebuilding of the beef supply, and higher consumer confidence — value remains a top-of-mind issue and a driver of purchase intent.

In addition to looking at other proteins like chicken and pork, many shoppers are browsing the meat case for different beef choices. “People are buying less expensive cuts of the animal for affordability,” observes Burt Flickinger, retail analyst at the Strategic Resource Group, in New York.

The Daily Grind

To Flickinger’s point, ongoing interest in, or concern about, value has translated to behavior at the meat case. According to a consumer research study published in 2013 and funded by the Beef Checkoff, lower-priced proteins like chicken breast and ground beef are the most frequently consumed cuts of meat. The study found that nearly seven in 10 respondents eat chicken (72 percent) and ground beef (67 percent) at least once a week.

The study’s other findings underscore the popularity of ground beef: 86 percent of respondents report eating ground beef for weeknight dinners. Ground beef tends to be purchased in fresh form, with 75 percent of survey participants saying they prefer to buy fresh versus frozen ground beef. In addition, many shoppers (56 percent) report buying ground beef in bulk form, some of which they can freeze at home for later use.

Even within the ground beef subcategory, value is on the minds of consumers, at least in terms of purchase behavior. According to research published by NCBA, sales are highest of value-priced beef in the more affordable 70 percent to 77 percent lean segment.

Industry analysts say ground beef is a longtime favorite in any economy, but note that the high beef prices in the marketplace in the past year have made it even more of a staple. “Ground beef is still a leader, because of its versatility and the fact that there are price considerations to make when feeding a family,” remarks Gary Morrison, market reporter for the meat industry publication Urner Barry’s Yellow Sheet, based in Bayville, N.J.

Flickinger agrees. “People are moving more to grinds,” he observes, adding that the ground beef category is also affected by general supply-and-demand factors. “Before there was a drought and prices started moving higher, people would trade up to ground sirloin, but now we’re seeing trades from ground sirloin to ground round and ground chuck.”

At the same time, though, there’s burgeoning demand for leaner ground beef. The checkoff-funded study, for example, shows that the third-highest sales of ground beef come from the 90 percent to 95 percent lean subcategory. “Most of the trends we’ve seen over the last few years are toward leaner varieties of ground beef,” Miller notes.

As interest in lean beef grows at a time of tight supplies, lean finely textured beef (LFTB) is an option to provide consumers with lean beef that’s affordable and available. “The inclusion of that product probably enhanced the value proposition for most retailers,” adds Miller.

On the Cutting Edge of Beef Value

In addition to ground beef, beef producers and retailers are delivering value to consumers through other beef products.

Like ground beef, some of those beef cuts have long been popular among shoppers for their value-related attributes. For example, according to the checkoff-funded study on beef consumption, sirloin and top round steaks are eaten two to three times a month, similar to chicken tenders, chicken thighs and rotisserie chicken, whereas higher-end cuts like ribeye and tenderloin are consumed about once a month.

In recent years, the beef industry and processors have responded with new value cuts. Nearly four years ago, NCBA’s Beef Innovations Group introduced new cuts from the beef round to help processors and retailers maximize yield and add versatility with cuts of lean steaks and roasts like the Round Petite Tender, San Antonio Steak and Santa Fe Cut, among others. Additional more recent concepts for main meals include beef tenders (3-ounce strips of tender beef), flash-in-the-pan steaks (thinly fileted steaks that cook quickly), and a boneless beef filet (a thin, lean and tender beef chuck akin to a boneless skinless chicken breast.)

Miller says the industry refers to underused cuts as “opportunity cuts” and notes that such products represent a point of differentiation for grocers. “Progressive retailers are always looking for that opportunity to create value. And because we have so many different cuts and varieties, there are always new opportunities to present to retailers,” he remarks.

As 2014 begins, increasing beef’s value proposition remains a focus for many in the gate-to-plate chain. So is determining what, exactly, value is for today’s shopper. “Value is made up of a lot of different things. Some consumers focus on one aspect of it, and others focus on the value balance,” says Miller of simultaneous consumer interest in price, convenience, ease of use and taste. “As we work on the entirety of beef, we work to make sure we are thinking of all of those aspects.”

“Before there was a drought and prices started moving higher, people would trade up to ground sirloin, but now we’re seeing trades from ground sirloin to ground round and ground chuck.”
–Burt Flickinger, Strategic Resource Group