BRAND VALUE

ROSEANNE HARPER

Whether it's promoting thicker cuts, bundling products that spell convenience, showcasing a product's natural or nutritional qualities, or branding, innovation has been the name of the game for retailers and suppliers hoping to attract shoppers to the meat case as prices continue trending upward.

This past fall, men in cowboy hats stood inside the door at Stew Leonard's, offering customers flavorful bites of grilled Naked Angus Steak. That's what they called it.

SN was there, and asked what constituted nakedness in a steak. The answer: The animal that produced the steak was never given hormones or antibiotics, and was never fed animal byproducts.

“Stew Leonard [Jr.] actually came up with the [brand] name Naked Beef. We're producing the brand Black Angus Naked Beef exclusively for his stores,” said John Butler, chief executive officer, Beef Marketing Group, a Great Bend, Kan.-based cattle producers' cooperative.

The co-op also has developed proprietary brands, with particular specifications, for other supermarket chains across the country.

“We worked closely with Stew Leonard's on this one for about seven months before the launch in the fall,” Butler told SN.

“Together, we identified a consumer that would want this product, and we were right. Integrity and consistency are a must. This is a terrific product. We don't want to lose ground to pork or poultry.”

With commodity beef prices expected to continue climbing, there is a segment of consumers who are no longer satisfied with commodity beef, Butler said.

“The value equation has never been more apparent. Featuring by price to make the meat case a destination, I think, is limited.”

Research reports just released by Mintel, a Chicago-based market research firm, underscore the importance to retailers and suppliers of getting proactive by adding value to products, in the face of forecasts by U.S. Department of Agriculture economists and other industry sources that show commodity meat prices on a steady, long-term climb.

For instance, the new Mintel research found that 55% of beef eaters would pay 10% or more extra for beef without antibiotics, and an even more impressive 58% said the same about beef without hormones.

Beef is getting the most attention, since commodity prices were higher vs. the previous year than for pork or poultry, and retail sales were almost flat, even with the lift provided by the grilling season.

While a bigger-than-usual pork inventory in 2007 kept commodity pork prices from rising much, beef was up significantly this past year.

“Right now, the [commodity] price for choice beef is $4 a hundredweight higher than last year, and the stage is set for higher prices over the next couple of years,” Kenneth Mathews, agricultural economist at the USDA, told SN.

“Feed prices are high. Ethanol demand certainly is the primary driver of that. Corn, wheat prices are up. In fact, all grain prices are high, and the Southeast has been constrained by dry conditions.”

With all that, plus less inventory with heifer calves being retained, and a possible increased demand for exports, the price of commodity beef isn't about to go down, Mathews pointed out.

PRICE RESISTANCE

Branding is one way retailers are looking to ease customers' potential price resistance at the meat case. While four-unit Stew Leonard's, Norwalk, Conn., is promoting Black Angus Naked Beef for $12 to $14 a pound, Publix Super Markets, Lakeland, Fla., with 900-plus units, last year introduced its own propriety brand, Steakhouse Cuts. The thick cuts, touted as “restaurant quality,” appear to be about an inch and a half thick. They're priced the same as Publix-brand premium steaks.

Even hamburger is getting its day in the sun among brands. Cargill introduced its first branded ground beef, Meadowland Farms, last June, and accompanied its launch with a blitz of point-of-sale materials, case dividers and promotional opportunities for retailers — just in time for the height of grilling season. The product is produced at just three strategically located plants. And, its particular specifications are aimed at creating consistency and integrity, said Ivan Brown, brand manager, Cargill Meat Solutions.

Industry sources told SN that branding definitely can boost sales, especially in today's market.

Jack Allen, professor emeritus, Michigan State University, and marketing team leader, Partnerships for Food Industry Development, Winter Park, Fla., is a particularly strong proponent of branding.

“Consumers will be more cautious in investing in a beef product when it is priced at levels appreciably above the recent past,” he said. But, he added, a brand can ameliorate sticker shock.

“I expect they will be responsive to assurances of a successful eating experience conveyed by reputable and credible brands, be they the stores' or processors' brands. Certified Black Angus is an excellent example of a brand that has earned a great deal of consumer trust.” He mentioned other brands, including Cargill.

“Processors and retailers also have collaborated in developing proprietary brands that are consistently superior in eating qualities. These products can play much stronger roles in this environment of higher prices,” Allen added.

While pork inventories are high this year and broiler production is cycling up, value-add merchandising is becoming more and more prevalent in those categories as well. Single-serve packages of fresh chicken parts and freezer-to-oven products are finding a place in the market. And the 2007 National Meat Case Study showed 23% of pork in meat cases is value-added, up from 12% in 2004.

Commercial pork production is projected to increase by 2% in 2008, according to Mildred Haley, primary swine economist at the USDA.

“More supply typically means lower prices, but where we fall off is when we try to discuss pork as a uniform commodity. It's not,” Haley told SN. “There are so many different cuts, some smoked, and the export market is going to bid hard for pork cuts.”

Prices for commodity pork have been relatively low and are expected to stay that way through the first part of 2008.

“Retail pork prices averaged $2.88 a pound in 2007 and will be $2.92 in 2008 — just less than one and a half percent higher, not a huge increase,” Haley said.

That's compared to the average retail prices being up 2.5% in 2007 compared with 2006.

When it comes to broilers, “We're looking at steadier production in 2008,” said USDA agricultural economist Dave Harvey. “But it won't show up in January or February. It'll be later in the year that we'll see stabilized or lower prices.”

While the export market for chicken will be stronger than ever, it won't affect prices here, Harvey pointed out. “That is mostly frozen leg quarters.” Not what's in demand in the United States.

Harvey sees prices for broilers and turkeys going down in the short term as a result of increased production, but he said that in the long run they will climb. “As energy costs and feed costs keep going up, producers [of poultry and of other meat] won't be able to offset those costs.”

Richard Lobb, spokesman for the National Chicken Council, a trade association for chicken companies, underscored that point.

“It's out of our control. The biggest factor is the price of corn, and that comes from the ethanol business,” Lobb said. “The ethanol mandate has been preserved in the new energy bill. Corn prices are bid up, and I'm told the price of farmland in Iowa is at an all-time high.”

Lobb pointed out that corn, a major feed ingredient not only for poultry but for other food animals, has doubled in price. “There's no end in sight, and if the Midwest gets drought conditions, and they could, we're in for big trouble.”

THE DRIVING FACTORS

Branding and value-adding of meats has been prompted by the price outlook provided by USDA economists and others in the industry. Feed and fuel costs take the headlines, as do shorter supplies in some cases. The U.S. dollar's diminishing value is a factor, too. It's making other countries hungrier than ever to import our products — meat and poultry included, since it represents such a good value.

The Environmental Protection Agency's mandate that a certain percentage of ethanol be added to gasoline certainly puts stress on the corn crop, since corn is the primary ingredient in making ethanol in this country.

In fact, that situation has sent National Turkey Federation lobbyists looking for assurances that enough of the nation's corn crop will be available to feed turkeys, said Sherrie Rosenblatt, spokeswoman for the National Turkey Federation, Washington. New ways to promote turkeys for everyday eating are being considered.

Some industry sources suggested a variety of ways retailers can keep traffic headed to the meat case regardless of what happens to prices.

Allen pointed out that new research shows restaurant traffic is flat, and actually down in restaurants that aren't QSRs. This could represent an opportunity for retailers, he said. No matter the price of a steak in the supermarket meat case, it is going to cost the shopper less than one he might consume at even a moderately priced restaurant. “I would point this out to customers in some way,” he said.

Allen also suggested focusing on consumers' love of hamburgers. Hamburgers in different sizes, packaged differently, seasoned, could be a draw, he said.

Also, sampling cooked hamburger or steak bites at a staffed station could be very effective, much in the same way Stew Leonard's made a big thing of bites of grilled Naked Angus Steak.

Bill Pizzico, president and CEO of Prizm Consulting, Blue Bell, Pa., suggests that any addition that makes a cut of meat “kitchen-ready” or convenient would be a plus. “Actually, ground beef, ground sausage and boneless chicken breasts are still pretty reasonable, and they're convenient.”

Less expensive cuts of meat and some less popular ones could be spotlighted to make the meat case a destination.

Industry sources told SN the market for exotic meats such as ostrich and bison is wide open. Ethnic cooking, too, is on the rise as television cooking shows gain popularity and Hispanic influence increases. Oxtail, tripe and tongue are finding a place — albeit a small one — in retailers' meat cases.

Red Meat Sales

Poultry Sales

USDA Outlook for Beef, Poultry and Pork

Poultry/eggs: With broilers, strong exports have partially countered increasing production, and stocks have remained below year-earlier levels. Continued large gains in chick placements are expected to translate to higher broiler meat production, especially compared with last year's declines. This will eventually begin to place downward pressure on most broiler prices. Turkey, meanwhile, is at somewhat lower levels than the previous year and has boosted cold storage holdings above those for the same period in 2006. Prices for whole birds are expected to decline seasonally in December and into the first half of January 2008, but not as much as in 2006.

Hogs/pork: The USDA forecast for fourth-quarter pork production was revised to reflect larger-than-expected slaughter numbers in November and December. Fourth-quarter commercial pork production is expected to be 6.1 billion pounds, almost 8% higher than a year ago. The USDA released the Quarterly Hogs and Pigs report on Dec. 27.

Cattle/beef: Total commercial cow slaughter continues to be heavy and, along with heavy calf slaughter, could lead to reduced supplies of feeder cattle and add to the potential for reduced beef supplies in 2008 and 2009. Feeder cattle prices are declining because of a lack of wheat pasture this winter and the negative profit picture for cattle feeding. Retail beef prices are above last year's, because total net supplies are below 2006 levels.

Source: U.S. Department of Agriculture's Economic Research Service, Dec. 19, 2007