As summer grilling season heats up, retailers look to boost meat department sales without sacrificing too much margin
Summer is finally here, and retailers are hoping that the warming weather might help take some of the chill out of the economy. To be fair, supermarkets have weathered the recession better than many other businesses. To save money, consumers are cooking and eating at home more often, and meat department managers are hoping that this trend will translate into a good season for summer cookouts, possibly even offering opportunities to move premium cuts like steaks. But as one retailer noted, you've got to be on top of your game to ensure success in this climate.
“They've got to make sure that they've got all of the basics in place,” said Kelly Mortensen, corporate meat, deli and seafood director with Associated Food Stores in Salt Lake City. “It's like squeezing blood out of a turnip right now. There's no margin for error. They've got to have everything in place, they've got to be in stock and have good customer service. We've had some good years with protein, but it's kind of come to a screeching halt. Chicken sales are still good, but beef and pork are hurting.”
Shoppers have been hesitant to buy steaks, Mortensen said, adding that Memorial Day sales had been off quite a bit from a year earlier, a discrepancy that he attributed partly to poor spring weather.
“We weren't able to get it to the retail that it was last year, because middle meats were more expensive at that time. But [shoppers] are still trading down. We're trying to find a combination to perk them back up. I think it goes back to price. We have some good promotions planned for Fourth of July week — really good price points. So, we're hoping it will rebound at that time.”
Wholesale prices for middle meat cuts of beef are currently at levels last seen in 2005 and 2006, due to a combination of factors. Most notably, U.S. consumers are eating at restaurants less often, driving down demand for steak and other meats in the foodservice sector.
During the 13-week period ending April 26, average retail prices for beef declined about 4% vs. the same period a year earlier, said Randy Irion, director of channel marketing for the National Cattlemen's Beef Association, Chicago, citing data from the FreshLook Marketing Group. Channel marketing and consumer response has been very positive, Irion added. Total retail beef sales were up 5.7%, sales of rib cuts were up 12.1% and loin cuts experienced a 6.1% increase. The NCBA contracts to manage retail promotional programs through the national Beef Checkoff program, and has been urging retailers to consider reducing their average prices for rib and loin cuts to boost sales.
“They give up margin, but are rewarded with not only higher pound sales, but higher dollar sales as well,” Irion said. “I've got to believe that in the long run, for most retailers, that's a very positive scenario.
“I'm not saying that it's easy out there,” he added. But given current wholesale prices, “retailers have an opportunity. People are eating at home more.”
NCBA and the Beef Checkoff program have developed a variety of tools and promotions geared toward boosting sales in the coming months, including a “Retail Pricing Matrix,” to help retailers determine price points for middle meats, gauging gross margins based on current wholesale costs and commonly used cutting techniques. Their on-pack recipe labeling program called “Easy Fresh Cooking” includes recipes geared specifically toward steaks for the summer grilling season. A “Beef Alternative Merchandising” program includes cutting guide videos and point-of-sale materials geared toward developing merchandising programs for ribeye, top loin and top sirloin cuts that address price sensitivities. And the NCBA has renewed summer promotional programs with several partners, including Kraft's A.1. steak sauces and marinades, and Anheuser-Busch's Budweiser brand. More information is available at beefretail.org.
Price promotions have been paying off so far at Phoenix-based Sunflower Farmers Market, where the motto is “Serious Food … Silly Prices.”
“We are having a very successful season,” said Randy Ong, director of meat and foodservice. “We are leading a lot with beef — $1.97 ground beef, $1.77 ground beef, $1.67 boneless skinless [chicken] breasts. We've done $4.97 and $3.97 steak promotions for New York strips and ribeyes. Those also have done very well. As far as dollar retail, they all do just as well, but as far as tonnage, consumers are certainly picking up more of the cheaper items. Most definitely when we go to the under-$2 or under-$1 retails. Consumers are picking up a lot more of that than they used to.”
However, Ong said that customers don't seem to be buying large quantities of product on sale and freezing it at home.
“I really have not seen that,” he said. “As a matter of fact, I think it's the opposite. They're coming in more often, buying just what they need. They're not stocking up as much as they used to, I think, because they're trying to keep their cash flow free.”
Mortensen said that sales are generating increased activity at Associated Food Stores as well, and noted that, with wholesale prices down, the challenge now is to find the right price to help boost sales without sacrificing too much margin.
“Our ad items are way up,” he said. “People are shopping the ads, buying more when products are on sale and not buying the regular-priced items. I'm not sure if that's our fault or what it is. I was looking at our price structure today, and although beef has come down, I'm not sure we've lowered our retails to where they should be. I'm not sure we're taking full advantage of the market, and that's something we're really going to look at. As commodities come down, you've got to change retails, but in years past we haven't changed them as quickly. But, it's getting tough out there.”
The Perishables Group recently completed a study on trade-down behavior using scan data, in-store interviews and loyalty card data from 200,000 households. The results indicated that, while the economy certainly has most shoppers on the lookout for bargains, the recession has not affected all consumers equally, and different shoppers may be defining “value” in different ways.
“Consumers are focused on value and they're shopping for value, but you have to segment the customer base somewhat,” argued Steve Lutz, executive vice president of the West Dundee, Ill.-based research consultancy.
“What we found was that trade-down behavior, not surprisingly, doesn't spread across all segments of the population,” Lutz said. “Consumers that are the most economically stressed — those who are having their discretionary income pinched — those are the people who are most aggressive trading down within categories. But there's also a significant number of consumers who, while they may be concerned about their stock portfolio or the value of their house, are still employed, their job situation hasn't changed and their food-purchasing behavior has not changed significantly from what it was before. However, all groups tend to be very focused on value, and value can mean a lot of things.”
As an example, Lutz noted that lobster prices were down substantially in the fourth quarter of 2008, but at about $9 per pound, the delicacy was still one of the most expensive items in retail seafood departments. Regardless, sales and volume were very strong, because many shoppers recognized the lower price as a value.
“I guess the point is, consumers are focused on value, and if they think that a steak represents a particularly good buy, they'll still pick it up. They'll still trade up from chicken or other cuts to secure the value. That ‘value-focused consumer’ takes on different manifestations depending on the type of customer you're talking to.”
Low-income consumers are changing their behavior most significantly, shifting purchases from fresh meats and other perishables to canned and frozen alternatives. They're also shifting retail formats, from supermarkets to dollar stores and supercenters, Lutz said. But conventional supermarkets tend to draw shoppers from different demographic segments, from low-income to high-income, and retailers should keep mid- and high-income shoppers in mind with some of their promotions.
“There's a tendency, when [retailers] think in terms of price points, to say, ‘I've got to identify all of the items that have lower price points, and that's where I focus my discounting behavior.’ So, there's a conscious effort about promoting those items that are already at the lower end of the price scale. And what that does is shift consumers down who may be willing to pay a reasonable price for a more premium item. It creates additional price pressure at the lower end of the spectrum.
“What we believe is that you've got to have a promotional strategy that includes discounts and value plays in all segments of the department — from the premium items to the mainstream items to the bargain or lower-priced items. If you only promote the mid- and lower tiers, it creates this gravitational pull to pull people down to the lowest level.”