Frank Luby analyzes the retail market and consults with companies on pricing for a living, and what he sees ahead for brand-name meat and poultry processors such as Tyson, Smithfield and Hormel are challenging times that may last past the official end of the current recession, whenever that may arrive.

"The retailers are in a very good position right now. They’ve got a lot of leverage," Luby, who is a partner in Cambridge, Mass., with Simon-Kucher, told Huge chains like Wal-Mart and Safety, he said, "have been pushing private-label products very heavily. There’s been huge growth in private-label. So not only can the retailers play value-priced private-label products against the brand-name suppliers, but they’ve got the private-label manufacturers over a barrel too. Where else are those manufacturers going to go?"

He said that what’s especially interesting about retail pricing trends in this recession "is that whatever’s happening in the meat case, the same exact thing is going on three aisles over in a completely different product category. Any industry with high energy costs and high commodity costs, that has done some hedging to control those costs and that’s involved in a conversion of some kind, making one thing from something else, is in the same boat."

Moreover, the recession has put consumer dynamics in flux as far as food purchasing is concerned. "Are consumers more likely now to stock up their pantries? To trade brands? To shop more at club stores? We don’t know all those answers yet," he said.

Luby added that the shelves in stores don’t look the same, either. "Store-brand products don’t look like store brands anymore. Sometimes it’s really hard to tell" that a store-brand product isn’t a brand-name item. "The store-brand marketing is much improved." That’s a big change, he said, from the last deep recession, in 1981-82, and the retailers are using it to their advantage.

Still, he sees meat companies making smart plays in a tough game. "My advice is to continue on the path you’re on, because you’re doing some good-sense things like reducing production rather than price to build up demand." Brand-name meat companies should also spend heavily on brand promotion and consumer communication.

"Consumers are rethinking a lot of their decisions. At some point this recession will end, and a lot of consumers are saying, ‘Let’s not look at tomorrow or the day after, let’s look at when things do pick up, where do we want to be?’ When the economy recovers, people will return to old habits. Studies show that this is when private labels tend to fall back."

At the same time, Luby told, "the big question is when are people going to get comfortable indulging again? We don’t know. When things turn around, a lot of people may be focused on trying to fix their personal financial situation and building up their retirement funds again before they start spending extra for a night out in a restaurant or for higher-cost food products in the store. That could last well into the recovery."

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