The Impact of Higher Beef Prices: What’s Really Happening?

by Mackenzie Jordan, Manager, Communication Content, National Cattlemen’s Beef Association, a contractor to the Beef Checkoff

Contributors:
Michele Murray, Senior Executive Director, Integrated Communications, National Cattlemen’s Beef Association, a contractor to the Beef Checkoff
John Lundeen, Senior Executive Director, Market Research, National Cattlemen’s Beef Association, a contractor to the Beef Checkoff

Summary
Much attention is being paid to the higher cost of beef, yet sales data and market research show consumer demand for beef remains strong. Beef continues to be a cornerstone of the retail meat case, it’s featured on almost every restaurant menu, and Americans continue to purchase beef, even at higher prices.  

Background
Americans are seeing higher food prices when shopping and dining out. But the rising cost of beef is not deterring Americans from buying beef at the store or enjoying a beef meal at their favorite restaurant. While consumers are price-conscious, other factors are becoming just as important when deciding what food to buy. Things like convenience, taste/product quality, and health are influencing purchase decisions.
Overall, 90 percent of Americans say they are still enjoying beef on a monthly basis, and more than 70 percent say they find steak prices acceptable at the grocery store and in restaurants.1 The demand for beef is strong and we are seeing this demand in the form of higher prices.
So the question is this — how are higher beef prices affecting retail and foodservice operators and consumers and how are they responding, and what is the outlook for beef?

Discussion

How are Americans responding to higher prices?

Americans are continuing to purchase and enjoy beef, and they’re willing to pay more for it. The most recent food demand survey conducted by Oklahoma State University showed consumers were willing to pay $7 for a steak and only $5.16 for a chicken breast and $4.02 for a pork chop at the store.2

Americans, specifically older millennial parents, are placing more importance on the value of food quality, taste and meal experience than the price of their food.3 Millennials are willing to pay more for high-quality foods like beef because it delivers on taste and quality like no other protein.

How are higher prices affecting retail operators?

When it comes to retail, dollar sales are king, and beef sales are vitally important to a healthy meat department. Beef is – and should continue to be – a focal point of every grocer’s meat department merchandising and marketing efforts. Not only does beef net more sales, pound for pound, than pork or chicken, it also makes up 8 percent of total supermarket sales and accounts for 49.5 percent of dollars sold in meat-case sales.4

Not only does buying beef generate sales for the meat department, research shows that shoppers spend more across the entire store when they buy beef. 

Beef drives traffic to stores and the meat case year-round, and particularly during the grilling season. And Americans say they’re twice as likely to visit a grocery store that is promoting beef for grilling, over a store that promotes any other protein.5 

In order to keep beef on the tables of Americans, retail operators are beginning to focus on consumer education, staff training and emphasis on customer service as a competitive differentiator. BeefRetail.org provides retailers the tools to enable their staff to offer better service and help shoppers navigate the meat case, and in turn, drive beef sales. The Beef Checkoff also provides resources for shoppers to use on the go, such as the 6 Ways to Save infographic on BeefItsWhatsForDinner.com, which offers money-saving tips for shoppers looking to buy beef. Some of these tips include considering the price per serving, buying in bulk or family packs, and looking for deals. In addition, the Interactive Butcher Counter on BeefItsWhatsForDinner.com offers a search tool for economical cuts for those interested in more budget-friendly beef cuts. 

How are higher prices affecting foodservice operators?

Beef’s performance in foodservice is remarkably solid despite operators’ higher food costs. In fact, beef volume increased by 79 million pounds in the past year*, to a total of 8 billion pounds.6 As the economy strengthens, Americans are going out to eat more often. Overall foodservice industry sales increased 3.2 percent to $682.3 billion in 2013 – and beef is their protein of choice. 

Restaurant-goers who order steak report a higher satisfaction with their meal, they spend more and they are very likely to continue visiting a restaurant. Research shows that Americans spend more at a restaurant when they order a steak as an entrée, resulting in a higher check (27 percent higher than ham/pork and 53 percent higher than chicken). Additionally, steak drives the sales of other menu items, like side salads, alcohol and desserts. Operators know this; nearly all (97 percent) of restaurant operators feature beef on the menu.7

And since the recession, foodservice operators are constantly evolving their menu to manage their food costs, while at the same time continuing to menu their mainstay steaks like Sirloin, Strip and Ribeye. 

One way foodservice operators can weather higher prices is by procuring and menuing a variety of beef cuts, learning how to fabricate cuts most effectively, and tapping into beef’s flexibility through profit-driving culinary applications. To assist operators in this effort, the Beef Checkoff provides tools and resources that educate operators on making the most of the beef they’re buying, menuing new beef dishes and understanding the current trends that drive millennials to purchase beef. Many of these resources can be found at BeefFoodservice.com

The Outlook

We’ve talked about what’s happening among consumers and retail and foodservice operators because of higher beef prices, but how are farmers and ranchers responding?

America’s beef community has faced detrimental challenges in light of the longest drought in recent history across the most productive U.S. cattle regions, along with an extended period of record-high feed costs. These factors, coupled with strong demand that’s grown every year since the recent recession, has led to the higher beef prices consumers are seeing today.

However, strong demand for beef has sent a signal to America’s beef farmers and ranchers to increase the beef supply by rebuilding their herds, i.e.  retaining or holding back more cows and young females (called heifers) for breeding instead of sending them to feedlots or to slaughter.

Increased moisture across many cattle and grain producing regions has made grass available for many farmers and ranchers to expand beef production, and feed prices have moderated, as well.  Therefore, after years of shrinking, the cattle herd is poised to expand.  

In the short term, this reduces available beef supply even more. Unlike some proteins, raising high-quality beef takes time; a calf born today will take about two years to enter the market, but it’s the critical step for longer term growth. 

Conclusion

Despite tighter cattle supply and the increasing cost of food across the board, beef demand is the highest it’s been in years. The wholesale beef demand index experienced a record high in 2014. Consumers have continued to pay more for beef, even in a time of higher prices.

Additional Resources
1. Consumer Beef Index, July 2014, funded by the Beef Checkoff.
2. http://agecon.okstate.edu/faculty/publications/4934.pdf Consumer Beef Index, July 2013, funded by the Beef Checkoff. 
3. FreshLook Marketing, Categorized by the VMMeat System, 2014.
4. Usage and Volume Assessment of Beef in Foodservice, Technomic, 2013.
5. CREST® year ending September 2012.
6. http://factsaboutbeef.com/2014/04/23/usda-chief-economist-beef-demand-is-strong-there-is-no-question-about-that/
7. Usage and Volumetric Assessment of Beef in Foodservice, Technomic, 2013.

 

Tags: Beef Issues Quarterly, Issues Updates, Winter 2014, Year in Review 2014

December 10, 2014