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FEELING THE HEAT

As grilling season heats up, producers are sweating the rising cost of animal feed, which, along with other factors, has caused a spike in prices and a decline in supplies of chicken, beef and pork products. Several retailers have either cut back on grilling promotions this year particularly promotions on the most premium cuts of beef or have focused their promotions on less expensive products, such

As grilling season heats up, producers are sweating the rising cost of animal feed, which, along with other factors, has caused a spike in prices and a decline in supplies of chicken, beef and pork products. Several retailers have either cut back on grilling promotions this year — particularly promotions on the most premium cuts of beef — or have focused their promotions on less expensive products, such as chuck steaks and flat iron steaks. Others however, told SN that they have not yet been affected to the point where promotions or meat selections have had to be cut.

The average price per pound of beef was at $3.85 in the four weeks ending May 27, 2007, a 6.1% increase over the same period a year ago. Chicken was at $2.04 per pound, a whopping 11.7% increase, and pork was up 4.4% to $2.70 per pound.

“There were increases in price, but supplies tightened up a little bit as well,” said Randy Irion, director of retail marketing for the Centennial, Colo.-based National Cattlemen's Beef Association, which contracts to manage retail programs for the Beef Checkoff.

“Total meat supply was down 5.3%, beef supply was down 4.7% — so our supply was not down as dramatically as some of the other proteins, but even with the reduced supply, our dollar sales volume was up over 1% from a year ago, and I think what that shows, with the reduced supply and the higher prices, is consumers' demand for beef remained very, very strong. Even with the tighter supply and the higher pricing, retailers are continuing to feature meat, and beef in particular,” said Irion.

“I believe one of the reasons for that is that one of the major ways a retail operation can distinguish themselves today is by their fresh meat department. The perimeter of the store is really what distinguishes you from the competition.”

As a result, retail promotional activity has remained steady, with the number of industrywide beef promotions up 1.0% in May, compared with last year.

“Promotions are similar to other years,” Maria Brous, spokeswoman for Lakeland, Fla.-based Publix Super Markets, told SN, noting that while fuel and feed costs have affected overall pricing, they haven't led the Southeastern chain to modify or cut back on promotions.

At Food Lion, the rising costs of chicken, pork and beef have somewhat affected its promotions from an advertised retail perspective, but the company is still regularly focusing on grilling promotions in weekly ad features, said Kimberly Blackburn, spokeswoman for the Salisbury, N.C.-based retailer.

This includes recurring annual features, as well as a new selection of lower-priced items, Blackburn told SN.

“We have, however, introduced several new cuts that we classify as ‘Great for the Grill’ that carry everyday retails far below the everyday retail of a traditional grilling steak like New York strip or rib-eye,” Blackburn added.

“These ‘Great for the Grill’ cuts include western griller, petite sirloin, chuck strip steak and flat iron steak.”


Flat iron steak, also known as beef shoulder top blade steak, and beef shoulder petite tender, in addition to six others, are categorized as “beef value” cuts by the NCBA and have grown in popularity. Because it comes from the chuck, it is less expensive than middle meat, but is the second most tender cut after the tenderloin, Irion told SN.

Retail sales of flat iron expanded in the third quarter of 2005, increasing 579% to more than 1.1 million pounds sold in the fourth quarter of 2006, according to a release put out by the NCBA and Midan Marketing, Chicago. Many retailers, including Kroger, Publix, H.E. Butt, Food Lion, Shop 'n Save and more, have featured beef value cuts in the last seven months.

There have been challenges, however, particularly for retailers who tend to emphasize the high-end, premium cuts that have faced the most acute shortages and price increases recently.

“I usually try to have one item per week on feature, whether it's prime beef or choice beef, and now I'm probably down to [running features on beef] about once a month,” said Boyd Oase, meat and seafood director at St. Paul, Minn.-based Kowalski's. Oase noted that, while it may not be the case for commodity-type programs, premium beef prices have increased approximately 12%-15% this year over last.

“Most of my problem is due to availability as much as anything,” he said. “We're on a natural choice program and a natural prime program, and availability's just been lower this year on those items. As a result, due to feed costs and supply and demand, the costs have been way too high to do much with promotions.”

In response, Kowalski's has been promoting more pork and poultry, rather than focusing promotions on less expensive cuts of beef, Oase told SN.

“Pork and poultry can still drive a lot of sales that we're missing in beef, but if we promote lesser cuts during the summertime, it just doesn't drive a lot of sales.”

In light of these increased costs, the NCBA has been working to keep interest in beef high this summer, through the Bold Flavors of Summer promotion it developed with Wisconsin Cheese and Samuel Adams beer. The program offers booklets with beef recipe ideas and cooking suggestions, as well as a coupon for $2 off a beef purchase when Samuel Adams beer is purchased.

“Those are another great way, in light of the increased costs of beef to the consumer, for us to help offset some of those costs and keep demand very strong,” said Irion, adding that a number of retailers are tying into the program.

Another promotion involves radio tags, which this year offers 70 different retailers in the top 42 markets a chance to tag a particular beef item being featured any given week for 30 seconds on top of the famous Sam Elliot creative. Retailers, in turn, are expected to run an incremental beef promotion in their stores.

“Safeway appreciates the support that the National Cattlemen's Beef Association provides through the Beef Checkoff,” John Beretta, group director, corporate meat for Safeway, told SN.

“The radio tags are a great way to expose and remind our customers that beef is perfect for summer grilling. They really kicked off our grilling season.”

Although there have been many recent reports about the rising cost of feed, the current price of meat — including the items currently featured in ads — were dictated months ago, industry experts and retailers told SN. With the current rising costs of feed, retailers and consumers can expect to see an even greater impact further down the road, according to Bill Hahn, economist for the U.S. Department of Agriculture's Economic Research Service.

“The increases in corn prices in late 2006 were kind of a surprise for many of us, and by ‘us,’ I also mean livestock producers, not just ‘us’ in Washington,” Hahn told SN.

Since the ethanol boom has had the greatest impact on demand and pricing for corn, and federal mandates and tax breaks will ensure that this demand continues to grow for the next several years, Hahn expressed little optimism for relief in the near term.

“The high price for corn does not help livestock producers. But current prices for beef and pork have more to do with what producers thought would happen some time ago, rather than what is happening now,” Hahn said. “The current high price of corn is going to lead to cuts in beef and pork production and even higher prices in the future.”

TAGS: Marketing