RETAILERS FIGHT OFF HIGH-PRICE BEEF WOES

LYNNE MILLER

NEW YORK -- Like their diet-crazy shoppers, retailers have decided to consume more beef -- but they're eating price in an effort to minimize sticker shock at the meat case.

Retailers are spending more for beef, but to remain competitive, have absorbed some of the extra cost, operators told SN.

"The retails are not keeping pace with the cost of the product," said John Bocke, perishables buyer for Niemann Foods, Quincy, Ill. Bocke observed that consumers are spending from 10% to 15% more for beef at Niemann, though the company's costs are 25% to 35% higher this year.

"You've got to be very careful about raising retails," he noted.

Niemann, which operates 51 stores, is only one of many retailers facing similar challenges in satisfying consumers' hunger for beef during a period of increased prices. In her online column, Mary Ellen Burris, senior vice president of consumer affairs for Rochester, N.Y.-based Wegmans Food Markets, noted Wegmans in the last month increased beef prices, including a 30-cents-per-pound hike on ground beef.

Winston-Salem, N.C.-based Lowes Foods, with more than 100 stores, stated on its Web site that the chain is doing everything possible to keep costs as low as possible. Nevertheless, the company said it had no choice but to increase the retails on beef in response to higher wholesale prices.

Penn Traffic Stores have experienced a range of activity, from no change in sales to sharp drops of as much as 40% to 50% in sales of items that saw the highest price increases, said a spokesman for the 211-store chain based in Syracuse, N.Y.

The increase in demand is only partially caused by the popularity of high-protein, low-carbohydrate diets. It's also a time of unusually tight supply. An ongoing, mad cow disease-related ban on Canadian imports has cut off a key source of red meat, while in Australia, severe drought conditions have restricted export volume. The end result? Some experts predict per-capita inventory this year will be the smallest in three decades.

The effect on prices has quickly become obvious to consumers and retailers alike. Average retails for fresh beef were up more than 11% for September 2003, compared to the same period a year ago, according to Cattle-Fax, an industry marketing information service. Average retail prices for choice grade products were even higher, up 12.5%.

Consumer response to the higher prices has been mixed. At Niemann stores, consumers have not stopped buying beef, and complaints have been minimal, Bocke said.

"Our beef demand is still really good," he said. "There's so much hype and media out there on low-carb diets. Atkins is a big part of it. I also believe the beef industry has done a good job over the last year to two years promoting their products."

At Wegmans, Burris wrote that consumers should consider other proteins for dinner, or smaller quantities of beef, including the retailer's new "Perfect Portion" line of steaks and roasts cut in smaller-than-normal sizes.

The industry itself is trying to stem consumer defections to alternative proteins by publicizing its new line of "value cuts" -- new single-muscle items at mid-range price points. The value cuts, including flatiron steaks and roasts, were not created specifically for times of tight supply and high prices, but to boost sales of underutilized cuts. However, the National Cattlemen's Beef Association is currently re-focusing its value-cut message to appeal to the budget-conscious. The line is being rolled out on a chain-by-chain basis, an NCBA spokesman said.

For its part, the NCBA believes its multi-year campaign to reinvent red meat may finally be hitting home -- and in a big way. An initiative last year began comparing lean beef to boneless skinless chicken breasts. As part of that comparison, the industry introduced individually wrapped, quick-frozen, ready-to-cook steaks that were developed to compete directly with IQF chicken breasts.

Sustaining demand is key. The industry succeeded in stimulating new desire for its products, even during the recent economic downturn, noted an NCBA official.

"If you look at the retail meat case, you see different product offerings," said Mark Thomas, the trade group's vice president of global marketing. "You find branded products. There's a lot going on here."