In the present stormy economic climate, the good news for the meat and poultry industry, if it can be called good news, is that people must eat. The bad news is that cost-conscious consumers are shying away from expensive, high-margin cuts and value-added prepared items. They’re not giving up the industry’s products, just focusing on the value-priced offerings and on specials. Savvy packers and processors will adjust production, pricing and expectations accordingly, says an industry analyst.
"Certainly we have seen trading down to some degree," Bruce Longo, a boxed beef price reporter with Urner Barry, told MEATPOULTRY.com. "That’s to be expected. In terms of meat supply, it has shifted where the processors are trying to get their profits from."
Longo points out that among the general economic wreckage there’s still some reason for optimism. While foodservice sales are under pressure in several segments, retail sales appear to be staying strong, especially for value stalwarts like ground beef and big family packs, because consumers are eating more meals at home these days than in restaurants. "Retailers have seen a consistency of business, no question," he said. "The family that used to eat out at a casual restaurant maybe one or two nights a week or a few times a month isn’t doing that anymore, but they’re still eating."
Foodservice, however, has seen some real change. "The whole paradigm has shifted," is Longo’s assessment. "Normally in a recession, the white-tablecloth trade is insulated because the recession isn’t felt as much by the wealthy and upper middle-class, which is the backbone of that business, but this time even the white-tablecloths are taking a hit." In the meat trade, Longo has seen a marked drop in middle-meat profits – not only is the white-tablecloth market for filets and tenderloins disappearing, but "processors fell short with middle-meats during the December holidays, too."
But the analyst thinks the foodservice segments that may have the most trouble are the casual and so-called "fast-casual" units. Even when families are going out to eat at Shoney’s or Applebee’s or The Olive Garden, they’re not ordering desserts and wine or beer, Longo noted, "and that’s where these places really make their money. Profits are going to be down, no question." The fast-casual places – Quizno’s, Subway and other stop-in-for-a-bite chains – are losing customers to quick-service chains, which comprise the lowest rung of the foodservice ladder. "McDonald’s, Burger King, Wendy’s – they’re doing okay at the moment, but they’re doing okay by virtue of the 99-cent value meal," he commented.
With consumers and shoppers so focused on value these days, the impact is beginning to be seen in prices. A new Marketbasket Survey released earlier this month by the American Farm Bureau Federation shows that the total cost of 16 basic grocery items, including four meat items, dropped one percent in the fourth quarter of last year from the third quarter. AFBF data, collected by 133 volunteer shoppers in 37 states, show the retail price of a sirloin tip roast to have dropped approximately 4 cents to $3.94 per pound on average, pork chops also down 4 cents to $3.58 per pound average, ground chuck down 9 cents to $2.86 per pound average, and bacon down 14 cents to an average $3.37 per pound. But AFBF’s chief economist, Jim Sartwelle, said these downward shifts did not indicate a major shift downward, adding that food prices may remain at present levels "for quite some time," according to a Bureau release that accompanied the Survey.
"It’s going to be important for processors to get more money and profit out of chucks and rounds – the retail-driven cuts," Urner Barry’s Bruce Longo told MEATPOULTRY.com. "When you talk about the consumer shifting, you have to talk about processors shifting."