Chicken Little

MATTHEW ENIS

Supermarkets have weathered the recession better than most other retail businesses. After all, people have to eat, and it still looks like shoppers are passing on restaurants and preparing more meals at home in their efforts to save money. Yet despite these trends, supermarket meat departments have been grappling with stagnant pricing and a slump in enthusiasm for special promotions for poultry during the past 18 months.

Dollar sales of chicken declined 0.6% during the 52 weeks ending May 29, but volume sales were up 3.9%.

Dollar sales of poultry were flat during the 52 weeks ending May 29, 2010, according to data from The Perishables Group, West Dundee, Ill. It wasn't all bad news. Wholesale prices eased, and supermarkets basically passed along the savings to their recession-battered customers. Chicken, which has always tended to offer shoppers the biggest bang for their buck in the meat case, remains as popular as ever. Dollar sales may have declined 0.6%, but volume sales are up 3.9%.

“The poultry business is strong. Compared with some of the other proteins, it's been doing well,” said Kelly Mortensen, corporate meat, deli and seafood director for Associated Food Stores, Salt Lake City.

Overall, Mortensen said that meat department sales had been similar to last year, if not down a little.

Due to ongoing economic difficulties, “overall, it's still hard to get customers excited … compared with years we've had before,” he said. “You can have great ads, and they like that, but it doesn't seem that they're buying like they used to.

“I think they're leaning to promotions — anything on promotion seems to work. Everyone's shopping the ads, and anything that's a value they'll pick up on it. And, chicken is pretty much a value all the time compared with the other proteins, particularly now.”

One promotion that has enjoyed a lot of success recently at Associated has been a deal developed with St. Cloud, Minn.-based Gold'n Plump. Shoppers who buy $25 worth of Gold'n Plump chicken can get $10 off with a special coupon.

“It's one of our better promotions, and it works well for us,” Mortensen said. “Our stores get full markup … and Gold'n Plump moves a lot of chicken. It was a little slow at first. We used to do it one time per year, then it was two, and now we're doing it three times per year. Every time we do it, it seems to get better.”

PROMOTIONAL CHALLENGE

But, Mortensen's assessment of shopper response to ads is right in line with national trends. Generally speaking, consumer response to meat department promotions has become more subdued as the recession has worn on. During the 52 weeks ending May 29, 2010, chicken promotions generated 196.3% lift in total volume for the category, according to The Perishables Group. That's a lot, but it's still 11% lower than the same period a year ago, when promotions generated 207.4% lift in volume.

Similarly, beef promotions led to a 181.1% lift, compared with 185.2% lift in the same period a year earlier. Only pork saw promotions become more effective during this timeframe, generating 194.7% lift during the latest 52 weeks, up 1% from a year earlier.

All told, 40.8% of chicken was sold on promotion, compared with 43.7% in the same period a year earlier. Chicken promotions were the most aggressive in the meat case, with an average 27% discount level during the latest 52 weeks, compared with a 19% discount for beef, and a 25% discount for pork.

And, while Mortensen noted that “trading down” behavior seems to have leveled off in the meat department, he said it has been a challenge to boost sales of value-added products, and that many shoppers appear to be buying smaller packages, possibly to save money on their total shopping bill each trip.

“Things like our family pack chicken has slowed down, while the smaller packs have gone up,” he said. “So I think people may be buying a little less, looking for a smaller unit cost.”

Another retailer agreed that shoppers are always looking for the best values lately, but said that his pricing strategy, his company's store format, and the way his departments are organized, have helped his meat departments grow sales of value-added products despite the downturn.

“People are watching their pennies. That's one of the reasons they've been turning to poultry,” said Randy Ong, director of meat and seafood for Phoenix-based Sunflower Farmers Market.

Poultry still offers shoppers the cheapest dollar value per pound in the meat department, which is one key reason for the category's recent growth, Ong said. Another reason may be health-related, he added, noting that boneless, skinless chicken breasts have overtaken ground beef as the leading item in Sunflower's meat departments.

“I still think that red meat consumers are continuing to look for healthy alternatives,” he said.

For customers who are focused on finding the best possible deal, Sunflower offers lower-priced cuts like boneless thighs, but what really sets the company apart from its competitors is great deals on value-added items.

“We always focus on value added … it's our answer to home meal replacement,” said Ong. Sunflower stores feature a 28-foot case of prepared and value-added meats, and generally, about 50% of the meat department's weekly ad focuses on value-added products, he added.

For example, the company's Aug. 18 circular featured teriyaki-, lemon garlic-, sweet and sour-, barbecue- or baja-marinated chicken breasts for $2.99 per pound. Or, for the same price, shoppers could pick up fresh pollo asada, or just opt for plain all-natural boneless skinless chicken breasts.

“We're known for not upcharging too much for value added,” Ong said.

Nationally, the continued growth of chicken wings may indicate that value-added products still have potential, even in a challenging economy. Pricing actually strengthened for chicken wings during the 52 weeks ending May 29, with dollar sales up 4.3% on 0.8% volume growth.

By comparison, total chicken volume was up 3.9%, despite an average 0.6% drop in dollar sales per store, per week. Volume sales for chicken breasts were up 3.5%, sales of whole chickens rose 3.3%, and sales of thighs rose 2.5% on falling prices. And volume sales of chicken legs and drumsticks rose more than 9%, which was sufficient to move dollar sales into positive territory, where they posted a 1.2% gain.

One analyst said that a recent analysis of loyalty card data indicated that shoppers appear to be opting to purchase chicken occasionally, rather than other proteins, based on price.

“We saw that consumers were choosing between different proteins,” said Sherry Frey, vice president of account services for The Perishables Group.

“The indications were that “they were saying ‘beef is a little too expensive, so I'm not going to get the steak. I'll get the pork or the chicken.’ Customers definitely seemed to be watching the price point.”

LOOKING AHEAD

Eventually, prices will strengthen for poultry, as well as other proteins, which should help boost performance for promotions on commodity products, and help departments that focus on value-added meats further distinguish themselves from the competition. But in the near term, flat or declining prices and rising volume may be the norm for chicken.

“We don't really try to analyze prices, but the fact is that red meat is quite expensive, relatively speaking, and this gives some support to chicken prices,” said Richard Lobb, director of communications for the Washington-based National Chicken Council.

Lobb added that during the recession, traffic at casual dining restaurants took a real hit. Since casual dining is a big part of the foodservice channel — which accounts for 40% to 45% of the chicken market — demand for chicken also took a hit, and wholesale prices softened.

“Some of this demand indeed shifted to the retail channel, but not all, and overall demand was definitely down,” Lobb explained.

In response to these trends, as well as high feed prices, poultry producers cut production. The NCC expects production this year to exceed 2009 totals, but regardless, production will still be below 2007 levels.

Feed prices fell sharply after a giant spike in the grain futures markets in 2008, but they remain high on a historical comparison basis. Lobb noted that these prices are expected to remain high, as long as federal mandates for ethanol fuel production continue.

“About a third of the corn crop is going into ethanol, and that isn't going to decline, because there is a federal mandate for ethanol. Unfortunately there is no federal mandate for chicken!” he joked.

Still, feed prices affect beef and pork as well, Lobb said. All things being equal, chicken remains a relative bargain in meat departments.

“Chicken has a very competitive cost position compared to the other major proteins. I'm sure retailers are alert to the opportunities to feature chicken in this time of relatively high protein prices across the board.”

The U.S. Department of Agriculture's Economic Research Service expressed a similar near-term view for poultry in its Aug. 18 “Livestock, Dairy & Poultry Outlook.” An increase in broiler production is expected during the second half of 2010, and that end of the year stocks are expected to be up 9% compared with 2009. A recent export ban to Russia caused prices for leg quarters to fall 16% compared with a year earlier, and prices for boneless/skinless thighs fell 22% compared with 2009. These factors have placed downward pressure on broiler prices, but demand for chicken should continue growing, due to rising prices in the beef and pork sectors.

This type of situation “does have an impact on the bottom line if you're maintaining the same profit margin,” noted Mortensen. “It does negatively impact sales when prices go down. Sad to say, but it's a more robust profit margin when prices are headed up. We have seen some inflation on the beef side and pork side this year … that has helped a little, and by the same token, if [prices] get too bad, then people stop buying altogether.”