KANSAS CITY, Mo. -- The fragmented nature of today's meat industry is keeping retailers from accurately gauging the department's profitability and, therefore, prevents the category from becoming a profit center, according to an economics professor who took an outsider's view of the business and presented his findings at the 2000 Meat Marketing Conference here.
Indeed, an informal study of the industry by Richard Levin, professor emeritus at the University of North Carolina School of Business Management, Chapel Hill, found that less than 20% of the supermarket operators evaluated meat-department profits using asset-based measures like return on net assets, cash return on net assets and related formulas.
"The sample I took was not encouraging," he said.
According to Levin, who spent 10 weeks as an industry "outsider" surveying supermarkets of different sizes and formats, most chains do not go beyond meat purchase costs, packaging and direct labor in calculating profitability. Similarly, he found standards that encouraged inconsistent definitions of cost, as well as unregulated inclusions and exclusions of some costs, all leading to an inordinate amount of inaccurate profit analysis.
"If you can't measure the costs and benefits accurately, you probably won't make the right business decisions," he said.
During his on-site visits to corporate offices and supermarkets, and through his interviews with retail executives, store-level meat managers, consultants and association officials, Levin developed several theories based on his extensive career in the field of economics as to what the meat industry needs to do to properly record, predict and, perhaps, boost profits.
Most important, he said, is the need for a unified industry, working as one, to implement a standard profit analyzation method that will put an end to the "disjointed" system in place today.
According to Levin, the retail meat department is currently 10 to 12 years behind other industries in implementing and using reliable profit-analysis protocols.
"This is due to several cultural and behavioral tendencies unique to many individual chains," he said.
Different attitudes, cultures and management perspectives seem to keep the individual retailer from incorporating new techniques for analyzing profits, said Levin. Two other barriers are at work as well -- "inertia," in which a company feels that the system it has in place is ample, and "inbreeding," in which businesses only work with internal ideas.
"A few chains are in the dark ages financially, a few chains know exactly what their meat-department profitability is and why," said Levin of his findings. "But most chains are somewhere in between."
By sampling retailers of varying stature, both physically and economically, Levin concluded that there was no correlation between size and sophistication of a store's profitability analysis, nor did the age of the employee affect the procedures, with some young managers being "clueless" and some older executives knowledgeable when it comes to profit analysis.
In offering a list of some possible solutions for meat retailers to more accurately track their profits, Levin said that businesses first need to acknowledge the issue as an industrywide dilemma, and create standard profit-analysis procedures, as well as cost definition and behavior, for all meat departments.
Levin also suggested that industry associations take a more proactive role, and that research and training programs be designed for all levels of management in order to educate everyone involved on the most effective methods for analyzing profit.
Making upper management aware of the need for such restructuring, as well as the creation of "how-to" programs for the use of more sophisticated analytical techniques, are also necessary, he said. He also suggested that store-level management be trained in the use of such profit-analysis systems, and that educational and developmental experiences be designed to improve the effect of the new concepts in smaller chains and stores.
Levin's presentation led off a full schedule of seminars at the conference co-sponsored by the American Meat Institute Foundation, Food Distributors International, Food Marketing Institute and Nationonal Chicken Council. Directly following Levin's seminar, a panel discussion representing all segments of the meat- and poultry-distribution chain focused on some of the issues he raised.
Jeff Farnsworth, director of meat operations for Copps Corp., Stevens Point, Wis., noted that there's a lot more to examine in managing the department.
"It's not just sales," he said. "As we look at profitability, how do we make our meat departments more healthy? More environmentally friendly? And how do we make them more fun and add entertainment? How do we build that into the value equation to make us a little more profitable?"
John Story, president of Ocala, Fla.-based John Story Consulting, said that Levin's conclusions "confirm to more of you, than it ever has before, that these [best practices] have to become part of our viable business day in and day out."
Speaking for the meat-processing industry, Greg Page, executive vice president of Cargill Inc., Wayzata, Minn., noted that the meat industry is one operating without a cost-of-goods-sold statement, and developing industrywide standards is not something that's easy to achieve.
"So, I have some respect for the difficulty where the meat department makes up 16% of the store's activity," he said.
"People have to go back and create that sense of urgency for a more reliable set of facts and to convince [the executive office] that there's an issue coming down the track facing the meat departments in our stores that requires the investment in this added information."
Case-ready product could be that issue, he added.
There are some products already in the meat case that denote progress, however. Tim Wensman, executive vice president of Gold 'n Plump Poultry, St. Cloud, Minn., noted that poultry processors are offering a fixed-weight, United Product Code bar-coded tray-pack line that allows retailers to accumulate stronger volume data.
"The point-of-sale scannable data is accurate, allowing you to pinpoint causal factors that affect your marketing program," he said. "Retailers with suppliers can determine schematics, price points, and promotions that maximize revenue; and profitability by region, by city, by store or by hour."