With pork production costs and wholesale prices on the rise, retailers, analysts and industry groups respond with new ideas.
Rising production costs have led to huge increases in the wholesale price of pork, forcing retailers and pork producers to decide between cutting into margins and potentially alienating shoppers who remain cost-conscious during a weak economic recovery.
A Steiner Consulting Group report, citing U.S. Department of Agriculture data, showed pork wholesale prices have shot up during the past year. For the week ending April 8, prices for nearly all cuts were up 1 to 21% compared to the same period in 2010.
Altin Kalo, economist at Steiner Consulting Group, said the higher prices are the result of rising animal feed and energy costs, as well as demand from an improving U.S. economy and from growing foreign markets capitalizing on favorable exchange rates created by a weaker U.S. dollar.
Kalo expects overall pork cutout prices to be up 22% from 2010, and beef cutout prices to be 20% choice beef and 22% for select beef.
As wholesale prices rise, retailers face the pressure of deciding whether to cut margins or pass along some costs to customers.
Like many retailers, Boulder, Colo.-based Sunflower Farmers Market is watching to see what happens.
“We watch the competition very closely. It’s definite at some point, if the protein markets do not stabilize and hold their costs, retailers will be forced to take retails up,” Randy Ong, director of meat and seafood for the 33-unit chain.
“We have seen most of the major retailers moving a little bit, we are following in those footsteps, but us being a small market we try and wait until the last minute. We would rather not take our prices up.”
Some larger retailers like Supervalu take advantage of their size to shield customers from sticker shock in the meat case. “We leverage our size and scale to obtain the lowest prices possible so that we can provide the best price to our customers,” said Mike Siemienas, national media manager for the Eden Prairie, Minn.-based retailer and wholesaler.
Nationally, dollar sales of pork aren’t rising as fast as retail prices, which could indicate that shoppers are feeling the pressure as well, and buying less as prices go up. Retail pork prices, an average of everyday and promoted prices, are up approximately 10% in the latest 52 weeks ending February 26, but dollar growth is only up 2%, according to a recent report from The Perishables Group, West Dundee, Ill.
Furthermore, in the 13 weeks ending on Feb. 26, average retail prices rose even further, nearly 13% from the previous year, and pork dollars increased almost 5%. During that time and the past year, retailers sold around 7.5% less in total pork volume.
Despite the economy’s return to growth, frugal behavior that shoppers developed during the recession is still present, and Frey cautions the industry to watch for losing customers to rising meat prices. In addition to offering consumers meal ideas and focusing on the effectiveness of advertising and promotions, there’s an opportunity for retailers to offer smaller package sizes and thinner cut options, noted Sherry Frey, vice president of account services at the Perishables Group.
While thinner cuts cook faster, smaller packages can appeal to the smaller one- and two-person households that have become common among the millennial and baby boomer demographics.
“We know that 65% of [U.S.] households are one or two person,” said Frey. “So at the end of the day even if you have four chicken breasts or whatever in the package, do they really want to take it home and freeze one of those or freeze two of those?”
On the other hand, Frey also pointed out that bulk cross-protein promotions can keep meat at the center of the plate. In a Jewel-Osco promotion, customers could mix and match from different pork, chicken, beef, and seafood products for four meals for $19.99. A Sweetbay promotion offered a 25 pound “meat value pack” complete with chicken and beef for $36.99.
Patrick Fleming, director of retail marketing for the National Pork Board, agrees that cross-protein bulk promotions might be a good approach.
“I think that’s first step in trying to get customers around the sticker shock. I mean if you can show value by giving them a package deal, I think that’s a nice tool to use,” he said.
“Price points are hard to talk about right at the moment because they’re not the typical price points we’ve talked about for years. So merchandizing and package deals like that might be a nice way of getting around some of the sticker shock we have with some of the new ad price points.”
This month the Pork Board is starting the television, print and internet marketing for its new “Pork — Be Inspired” tagline and campaign that targets “pork champions,” the 28% of all US households that eat 68% of fresh pork consumed at home, and 50% of pork consumed away from home. The Pork Board will also being integrated marketing campaigns with large and mid-sized retailers, such as Kroger, who will use in-store radio as part of its campaign.
As reported last month by SN, the Pork Board has also revamped its website for retailers, porkretail.org, with merchandising materials and information on trends. In the trends section, for example, buyers and meat departments can stay up-to-date with current wholesale pork prices using the weekly USDA pork price summary compiled by the Steiner Consulting Group.
In addition, the Pork Board updated the tagline for its Spanish-speaking consumers. Starting early summer, shoppers in Texas and Southern California will hear the new slogan: “Pork. El sabor de mil platillos!” or “Pork. The taste of a thousand dishes!” to highlight the possibilities of pork.
Fleming called the new tagline a fundamental repositioning and an updating. “‘El cerdo es bueno’ [Pork is good] has been around for probably about ten years, and with the updating of ‘Pork — Be inspired’ on the [English] side, the Hispanic side was also updated with the new tagline, the new logo, new photography, that will also include in-store and radio and some print and some digital in the Southern California and Texas markets,” he said.
The marketing effort is coming at a good time. Despite shoppers’ continued frugality, many retailers are featuring fewer meat ads. Frey said promoted circular space is becoming more competitive as retailers try to find relevant promotions to bring in customers to the store. Pork loin, which contributed almost 70% of fresh pork sales, sold 4.4% less meat on promotion during the past year, compared to the year before.
Many retailers may find that rethinking their promotional approach, or partnering with a supplier on something new may help boost growth.
Sunflower is starting a new pork promotion this month in partnership with Farmland Natural Pork, Ong told SN. “We’re about ready to launch a brand new campaign with their natural pork program with a huge 50% off sale. So we expect pork sales to increase 35-40% in one week. But we’re hoping to change consumers’ views about the kind of pork we carry. And of course we’ve partnered up with one of the — we feel — best natural partners in the marketplace.”
Ong said Sunflower has always offered only natural pork before, but feels the new partnership will provide Sunflowers’ customers with the more information on the products via point-of-sale material, pamphlets, and Farmland’s marketing team and website. Sunflower said Farmland would help tell its pork’s story.
“We believe most consumers — once there’s a brand and a story to the products — their confidence level on what is natural and what is not, is raised,” Ong said.
In its marketing, Sunflower will emphasize the brand’s commitment to offer minimally processed pork, with no added hormones, no antibiotic growth promotants, and no artificial ingredients.
Meanwhile, Kalo at Steiner Consulting Group believes that prices will likely continue to rise this year.
Even with the corn acres that have been planted, “We’re going to have the tightest corn supplies in the US ever, I think, this year,” Kalo said. Since corn and feed prices have a major impact on input costs, pork producers are waiting to see how the corn harvest fares this fall before making any moves, instead holding onto hogs longer to sell them at a heavier weight, Kalo said. “They really don’t know how high corn prices are going to go this summer. They’re making some money now, even though the prices are at an all time record highs. They’re still barely making a margin.”
This year rising protein prices look like an inevitability. But, there are still plenty of ways to communicate value to shoppers.
- •One way to counter rising prices is thinner cuts and smaller packages with higher unit cost. Sherry Frey at the Perishables Group suggests that empty nesters and millennials living in one or two person households prefer smaller packages.
- • Bulk cross-protein promotions can also be a good way to offer shoppers value. In one Jewel-Osco promotion, customers could mix and match pork, chicken, beef and seafood products for four meals for $19.99.
- • Find a product you can tell a story about. Sunflower Markets is getting ready to launch a new campaign with Farmland Natural Pork, and highlight the brand’s commitment to raising pigs with no added hormones, no antibiotics and no artificial ingredients.