WEIGHING OPTIONS 2004-08-23 (2)

Matthew Enis

Not unlike the debate that case-ready meat triggered a few years ago, fixed-weight packaging is making waves in a growing number of supermarket meat departments. Fixed-weight products give retailers merchandising flexibility and better control of meat-case category management data. Yet some argue the innovations ultimately could offer customers a narrower range of cuts and weights, and further erode the service focus that once defined the majority of supermarket meat counters.

New processing technologies have expanded fixed-weight offerings beyond ground meats and chicken to whole cuts of pork and beef. On recent visits to Dallas-area stores, SN found that Kroger, Tom Thumb, Albertsons and Wal-Mart supercenters were all offering a selection of fixed-weight packaged meats, including beef tenderloin medallions, chicken medallions, center cut pork loins, and a variety of value-added marinated items. Wal-Mart Stores, which began offering case-ready products exclusively in May 2000, had by far the largest selection of fixed-weight items as well, with its mix of fixed-weight fresh cuts and ground meats supplemented with a broad range of frozen steaks, chicken and bulk hamburger patties.

Bruce Peterson, senior vice president and general manager of perishable foods for the Bentonville, Ark.-based chain, said SN's observations were a "fair assessment" of the company's fixed-weight merchandising mix. However, he declined to make further comment.

"To [Wal-Mart], it's an issue of inventory management. What they have tended to do is to push inventory management back to their suppliers in order to reduce their handling costs," said John Nalivka, president of Vale, Ore.-based Sterling Marketing.

Despite the costs of converting plants and using technologies that still generally necessitate a small percentage of product "giveaway" on their part, major processors that include Tyson, Swift & Co. and Hormel are making the transition to fixed-weight processing at many of their plants in order to meet growing retail demand.

As Nalivka pointed out, it's an essential move for these companies because Wal-Mart can easily find other suppliers that offer a better fit for its goals.

Another benefit of fixed-weight packages is superior data collection. By forcing retailers to cluster a range of weights into different data classifications, random-weight packaging creates challenges for category managers who wish to turn numbers into better merchandising sets.

"If your system groups '1 pound' packages in a range from 0.75 to 1.5 pounds, and '2 pound' packages from 1.5 to 2.5 pounds, what does it mean when a customer buys a 1.4 pound package?" asked Huston Keith, principal of Keymark Associates, a Marietta, Ga.-based packaging consultancy. "Fixed-weight is essentially one less data point that you have to worry about from a computer standpoint. That makes your life a little simpler."

By essentially turning meats into another bar-coded packaged good, fixed-weight items also reduce labor costs because -- unlike many random-weight, case-ready packages -- fixed-weight meats never require weighing, pricing or labeling at the store level. Preprinted bar codes can simply be programmed into scanning systems at an appropriate price. Specials can be rolled out in a similar fashion.

"Being able to change the price whenever you want to with no labor involved is a definite advantage, and we've seen other benefits in the service counter, where we've been able to advertise specials more easily," said Alan Warren, director of meat and seafood for Ukrop's Super Markets, a 29-store chain based in Richmond, Va.

"We don't have many fixed-weight items, but we do fairly well with the ones we have, such as two 5-ounce tenderloins for $11.99 and two 8-ounce strip steak medallions for $11.99."

Yet Warren expressed some reservations about moving toward a larger mix of fixed-weight products.

"I think there's a downside for customers," he said. "You could end up offering a smaller variety of thicknesses, cuts and package sizes." For example, he noted that Ukrop's currently offers pork chops in a variety of packs -- two, three, four and five to a pack. "If we went more toward fixed-weight, there would be little difference in sizes. They'd all be three to a pack or five to a pack. I think we'd be putting our customers at a bit of a disadvantage."

Ultimately, effective competition means offering customers a real point of difference from one's competitors, and Warren noted that price is not an effective way for smaller companies to compete with Wal-Mart.

"Nobody competes with Wal-Mart on price alone, so we definitely see the need to differentiate ourselves with products and services that they can't or don't offer, specifically in our beef program," stated Warren. Notably, the company's "Ukrop's Own!" private label is one of the only U.S. Department of Agriculture process-verified brands in the United States, offering customers a range of fully traceable beef, pork and shrimp.

"Wal-Mart might have more packages of the same cut, but we'll have much more variety than the typical Wal-Mart supercenter will offer," said Warren. "We think that our customers prefer that as well."

Joe Melton, meat director for Associated Wholesalers, Robesonia, Pa., agreed. "Independents are in a transition," Melton said. "They do still have the labor in their stores, especially in the perishables departments, and that's what they've built their business on. Obviously, we're not going to be competitive against Wal-Mart's pricing structure alone, but the independent can still offer a point of difference with service. If a customer goes into a Wal-Mart and wants a specific cut, they can't get it. And customers are looking for answers, such as 'How do I cook a leg of lamb?' Wal-Mart can still offer that type of advice in the form of a recipe on a package, but in terms of personal, professional service, that's still a strength of independents."

Associated currently offers its retail members a variety of case-ready products under the Shurfine and Certified Angus brands, but does not yet include fixed-weight items in the mix. Down the road, however, Melton wouldn't rule out the possibility of considering fixed-weight product lines.

While troubled with some developments that case-ready and fixed-weight packaging have brought to the industry, such as the use of solution injected into steaks to keep products looking fresher, Nalivka said the growth of case-ready has actually improved the service focus at many stores.

"As the industry has moved toward case-ready, the new variety caused customers to begin asking more questions about specific cuts," said Nalivka. "It forced retailers to get out and answer questions and do more merchandising. Case-ready brought the industry to the next level," he added.

It's been more than 40 years since Currier Holman and A.D. Anderson pioneered the shipping of boxed sections of meat rather than whole carcasses to supermarkets when they founded Iowa Beef Packers in 1961. Since then, the shift in production from store to supplier has pressed on, first with case-ready chicken and now with fixed-weight packaging for a growing variety of meats.

The National Meat Case Study 2004 -- an audit of 104 stores in 29 states organized by Lee and Co. and conducted by Texas Tech University, Cryovac and the National Pork Board -- revealed this month that case-ready penetration has increased significantly since 2002. Case-ready whole muscle beef cuts took up 8% more merchandising space than two years ago, while case-ready pork and ground beef experienced double-digit expansions of allocated merchandising space. Fixed-weight items seem likely to follow a similar growth pattern.

Yet considering that several of the industry's most successful independents, such as H.E. Butt Grocery, Wegmans and Straubs, make meat department presentation and service a key point of difference in their stores, it is clear the shift can create opportunities for companies that choose another route.

For example, Harps Food Stores, a 42-store, Springdale, Ark.-based chain, has used the growth of case-ready as a foil to promote its own meats. Starting in 1999, the chain began posting "No Solution Added" slogans on its grocery bags and paying for a series of "Where's the Butcher?" television ads, according to SN reports from the National Grocers Association's Supermarket Synergy Showcase in February. By aggressively highlighting its full-service meat departments, the chain, in Wal-Mart's backyard, has since raised meat sales from 15.5% of its business to more than 18%, according to Chief Executive Officer Roger Collins, who spoke at the NGA meeting. Company executives were unavailable for comment for this article.

"[Consumers] all have different value equations, so I expect what will continue for some period of time is that we'll continue to have a split market," said Keith of Keymark.