Making the grade

by MEAT&POULTRY Staff
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A spike in the amount of Prime graded beef available in grocery stores and warehouse club stores this year could become the norm, rather than just a temporary change as a result of the current business recession, according to retailers, meat processors and brand managers. In the past, virtually all Prime beef has been sold to fine-dining restaurants.

Brand managers and retail meat buyers, as well as beef slaughterers and processors, agree Prime beef will become more prominent in upscale steak restaurant chains, in addition to well-known independent steak houses around the U.S. While much of the current ebbing of Prime meat from restaurants to retail grocery stores and warehouse clubs will return to fine-dining establishments as the economy recovers, a segment of Prime that migrated to retail will likely become a permanent part of retail meat cases.

A recent story in The Wall Street Journal did plenty to alert consumers about Prime beef becoming available at Costco, notes Al Kober, retail director for Certified Angus Beef in Wooster, Ohio. The story pointed out Prime was priced as low as $8.99 per pound, nearly half the usual price of the beef. Kober explains there is really not more Prime beef available today, but the site of its sale has shifted, at least for the time being. "There is no real surplus of Prime beef on the market right now, nor has there been for many years...any significant increase in the availability of Prime beef," Kober points out. "The only noticeable change is where it is being sold." Kober says from 2000 to 2009, the average percentage of Prime produced by the entire U.S. cattle production industry was 2.77 percent of all cattle. In 2008, it was 2.61 percent and so far in 2009, it is up slightly, at 2.75 percent. For the last two years, the percentage of Prime is below the nine-year average. "As you can see, it’s a very small percentage of the beef produced in this country," he says.

Kober also dispels the notion the industry can quickly change grades of beef to cater to "demands" for a higher quality in the market. "Changes to significantly impact the quality of beef begin at least 760 days – more than two years – from the time you decide to change the end product until you have it in the market. Cattle can change hands five times before it even gets to the packer. And you get into things like ‘Expected Prodigy Differences, the genetic makeup of the bulls and cows. So the industry cannot ‘manufacture’ or produce any quick changes in quality, it’s a long process," he points out.

But there has been a decline in the supply of Select grade beef because more consumers are demanding more tender and juicy beef, containing the great flavor coming with higher-quality meat.

To explain the shift of Prime to retailers, Kober notes high-end, white-tablecloth foodservice sales are down almost 10 percent. But because the total production of Prime beef has only declined a small amount, and foodservice demand has decreased, more of the Prime beef is available on the market.

"The foodservice industry, restaurants, always had the ability to out-bid retailers for existing supply of Prime beef. But now, retailers are purchasing what’s not being bought by foodservice," Kober says. "At the same time, consumers are becoming more concerned about how they spend their money, yet they still want a great beef-eating experience. So that premium consumer has switched some of their purchases from upscale foodservice restaurants to the retail store. Also, there has been some cutback from corporations, taking clients out to fancy steakhouses," he points out.

Purchasing by retailers is allowing them to sell a higher quality of product to consumers, more of whom are eating at home. "We have the opportunity to sell it to our members and we try to capitalize on that," says Bob Fields, senior director of fresh meat, poultry and seafood for Sam’s Club. "There has been a slight increase in USDA Prime-grading percentage of about 15 basis points this year, with the highest increases coming in February, March and July. With high-end foodservice establishments down in both sales and traffic, some as high as 23 percent to 25 percent, and a slight decrease from lack of demand on the export of Prime beef, this helps us also," he says.

CAB’s Kober points out that 40 percent of all beef sold is Select, which is the lower end. "But most beef sold is ‘Choice,’ about 50 to 55 percent. That’s most of what grocery stores sell to consumers," Kober says. "Then there’s a smaller amount of Select. What’s left is the very small amount of Prime, beef with lots of marbling. And for USDA Prime, the animal can be up to 42 months old. CAB Prime only allows cattle up to 30 months of age," he says, and the average age of CAB Prime is about 18-20 months.

Interestingly, many meat plants could be grading more cattle as Prime, but don’t.

"Many avoid doing it because the cattle are not yet sold, and they’re concerned about the chances of selling them if they were to be graded that way," Kober points out.

Unprecedented imbalance

Herb Meischen, vice president of strategy for Cargill Beef, says a unique set of circumstances has contributed to a supplydemand imbalance never seen on the market before. "In 2006, various regions of the country experienced extreme drought causing producers to bring their cattle to feed earlier than normal and keep them on feed longer. And last year, despite record-high corn prices, producers were encouraged to keep cattle on feed longer with the promise of higher contract prices. The result was increased grading of meat in all categories – Prime, Choice and Select," Meischen says. "The Prime increased in some cases to as much as 5 percent of all cattle. Steakhouses like Morton’s and Ruth’s Chris, catering almost exclusively to business travelers, found themselves with fewer patrons as the recession deepened. But we’re calling this a ‘dislocation.’ Prime beef essentially lost its traditional home, but found a new home at retail."

Meischen calls this dislocation "a win for consumers. Now ‘real people’ have the opportunity to buy Prime beef in their local supermarket. This is a gourmet menu in their meat case," he says. But Meischen also thinks the shift is a "win" for everyone in the meat industry. "We’re able to give our customers a new product to help grow their businesses. Our retail customers now have something new they can use to differentiate themselves. And we have another opportunity to grow our business with key customers."

Sam’s Club’s Bob Fields points to costs as proof sales of Prime beef in retail and shopping club settings is permanent, not a temporary fluke hinging on the state of the economy.

"To get a good steak dinner in a fine restaurant, depending on where you go, it could cost anywhere from $30 to $40, or even $75 or more in top-end restaurants," he says. "But let’s look at the costs we can offer consumers. A 12-oz. ribeye steak for $7.50, baked potato for 42 cents, four ounces of asparagus spears costing 65 cents, fresh baked roll and butter at 27 cents. Cost to customer for the total plate would be $8.84. If we’re talking about a 12-oz. strip-steak plate, it’s $10.25. An 8 oz. fillet-mignon plate would be $7.58. And a 16 oz. top-sirloin plate would come in at $6.20."

Fields predicts the shift to retail from foodservice will last. "As the economy improves, our members will start dining out more frequently, no doubt. But how many members will continue to grill USDA Prime in their homes vs. paying two to three more times for it by dining out? That will be interesting to see," he says.

Degrees of Prime

But not everyone agrees with the idea that once people learn how to cook Prime beef and steaks at home at a fraction of the price they pay at high-end restaurants, they’ll just stay home. Todd Allen Hatoff, president of Chicago’s Allen Brothers, a steak-cutting company since 1893 for national steakhouses, believes foodservice business at big steakhouses is rebounding already. "I believe we’d hit our bottom earlier this year, and the signs of life are that we’re coming back.

"Yes, the glut was unusual, because business on the foodservice level earlier this year had dried up, people weren’t going out to eat," Hatoff says. "So the packers dumped the Prime beef on the retail market, as they had to. What else were they going to do?

But there’s no longer a glut on the retail market, I really think it ended in May," he says. "And for us, not all Prime is equal; it’s not just USDA Prime. The Prime retailers have is not aged, nor is it cut like what we do. Plus, where did it come from? We’re in this business 52 weeks a year, not just when there’s an opportunity. They [retailers] can get rid of the product in a few weeks. In our case, if people weren’t going to restaurants, we passed the savings on Prime to our wholesale customers’ contracts. We have more flexibility than some of the other people in the meat business."

Allen Brothers also has a retail side to its business, Hatoff says, through online sales, as well as traditional foodservice sales, enabling him to create new customers outside his normal circle.

But another retail meat buyer, Steve Claassen, meat manager for Associated Food Stores in Helena, Mont., agrees that the traditional home for Prime beef may never be quite the same again. Many of Claassen’s customers see the height of their business during the summer when most tourists visit the state. Meanwhile, his year-round markets are benefiting from the changes taking place in the, including the spike in retail sales, and particularly sales of Prime beef, not only in Montana, but in Salt Lake City, the company’s regional headquarters for a number of surrounding western states. "A lot of my accounts are rural accounts, small-town people, farmers and ranchers," he says. "And it’s easy to see out here that while we still have the dude ranch accounts, with the tourists coming out here during the past few months, in the summer, the people who live in this state are downsizing. Rather than going out to restaurants, they’re making meals at home. There are a lot more cooking classes than there used to be, people are learning how to cook meat, steaks. I don’t think that’s going to change, at least not for a while," he says.

Claassen says "the availability of Prime beef at a lower price could get imbedded in the minds of a lot of people, in their thinking process and buying habits." He characterizes consumers’ eating interests as moving in different directions, as well.

"When the economy bounces back, you’ll have the business travelers back on the road and eating at the top restaurants, if they’re supported by their expense accounts," he says. "But the people who’ve brought home Prime and cooked it for the first time, whether on the grill or inside – they’re going to like to continue doing that."

Grocery stores are changing, he notes, with more now having a chef on duty, not only to make food to be consumed on premises, but to show consumers what they can do at home with Prime beef bought at the store. "I predict this category will continue to grow," he concludes.

Bernard Shire is M&P’s Washington correspondent, feature writer and a contributing editor based in Lancaster, Pa. With a background in editing and writing for daily news publications, he also works as a food safety consultant and writer for Shire & Associates.

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