Spring planting season has not yet begun for most of North America, but already, concerns about significant food price inflation are spreading. A combination of federal ethanol mandates, low inventories and other factors has sent the price of corn soaring.
For meat and poultry producers who rely on corn-based animal feeds, this is a problem reminiscent of 2008, when the economy was mired in recession and food prices experienced a sudden, severe spike, led partly by historically high corn prices. For beef, the pressure may prove even more acute this year, since the U.S. cattle herd population has declined to its lowest level since the late 1950s.
“We're looking at basically all proteins, across the board, going up this year,” said Jerry Kelly, national retail account manager for Sealed Air's Cryovac brand. “It may be one of the most expensive years on record. People are going to be watching their food dollars in 2011 more than they have in a long time.”
On the bright side, 2008 was not so long ago. Meat departments should have plenty of ideas ready for helping their shoppers through this pending spike.
“We lived through this once,” said John Lundeen, executive director of market research for the National Cattlemen's Beef Association. “We lived through this with the recession. Now, we've got to be ready to react again.”
During the recession, consumers tended to trade down, opting for ground beef instead of steaks or roasts. Lundeen noted that as consumer confidence has risen and the economy has improved, some shoppers have been going back to higher-end cuts. But, rising prices could be a big issue going forward. Even if beef prices remain stable, broader inflationary trends and rising energy costs could have a similar impact on meat departments.
“What's going to happen to gas prices?” Lundeen said. “When gas prices go up, people have to bite into their food budgets.”
Sherry Frey, vice president of account services for the Perishables Group, West Dundee, Ill., took a look back at sales data and loyalty card information from 2008. In addition to trading down, Frey noted that a lot of shoppers also began buying less per trip. And, a few bought large packs to stock up.
“We did not see consumers leaving the [meat] category completely, but we definitely saw them shopping very need-based,” she said. “They actually were not waiting for deals like you would have expected … the frequency and volume per-trip was based on need.”
The situation this year is somewhat different. Although food prices are being pressured higher across the board, the U.S. and world economies are in better shape, and U.S. consumer confidence has improved. The hunker-down mentality of 2008 may not resurface in 2011, but many U.S. consumers are still in dire straits economically, and even for those who are doing well financially, Frey noted that the recession is still very fresh in their minds.
“We pay more attention to prices, and you continue to see — year over year and month over month — customers paying more attention to coupons, more attention to selecting products based on price. The continued growth of private label is another area where you see [consumers] trying to make sure that their total shopping basket stays at a reasonable level.”
NCBA is approaching rising prices with a playbook similar to the one it used during the recession. The association is looking for value-added partnerships, such as the ones it developed with companies like Kraft Foods and Anheuser-Busch in recent years. Shoppers who buy a bottle of A.1. steak sauce or a 12-pack of Bud Light, for example, get a coupon for their beef purchase.
“We're looking for opportunities to [give customers] coupons where the price of beef is defrayed to a certain extent,” Lundeen said.
NCBA is also encouraging butchers to experiment with pack sizes. Some shoppers — especially those with children — may see more value in large packages with the lowest price per ounce. Others — such as single-person households and empty nesters — have expressed a preference for smaller packages in a number of recent consumer surveys. The price per pound may be higher, but these shoppers may be primarily concerned with freshness and potential waste. For these shoppers, case-ready suppliers and store-level butchers may want to find ways to reduce portion sizes. Cut filets out of a ribeye or strip steak, for example, Lundeen suggested.
“The majority of households in America now are smaller households,” he added. “That can be another way to give them a solution where the package price isn't as much.”
Since preference for small packs or large packs is driven largely by household size, the popularity of each could vary store-by-store or channel-by-channel.
“When you look at package size, I think it's very important to break it down between the various segments,” said Kelly. “Supercenters have a different demographic than club stores, for example. You'll have larger families, generally, that are shopping supercenters, and they will — just by need — have to buy larger packages.”
At Williamsville, N.Y.-based Tops Friendly Markets, Director of Meat and Seafood Jim Lane said that there has been a more pronounced increase in jumbo pack sales recently, although smaller packs have held their own or grown somewhat at Tops locations that serve more affluent neighborhoods.
“When you really look under the hood and see what customers are buying, it really is the value-related items,” Lane said. “We've seen double-digit increases in chicken. We've seen increases in jumbo packs of ground meat. The customer is just looking for value, and it goes across all stores.”
Lane's customers are looking to stretch their food dollar, and Tops continues to offer various promotions, such as 10 for $10 deals, BOGO ads, and the company's own Super Coupons and Coupon Doublers.
“Couponing in Buffalo is like a sport,” Lane joked.
But, Tops has also started experimenting with a new type of inter-department promotion that is proving very popular. Recently, for example, Tops' customers who purchased a chuck roast of 3 pounds or more were offered potatoes, carrots, onions, dinner rolls and a beverage for free. Buy the roast, get all the accompaniments you need for a family-sized meal.
These promotions are relatively new, but Lane said that the chuck roast bundle “was extremely successful for us. We got a lot of good feedback from customers. … We're just experimenting with it right now, but we're very happy with the results so far.”
Meal deals, bundled offers and coupon partnerships with grocery suppliers could serve a dual purpose as the year progresses. First, they help defray rising costs, and give shoppers the sense that they're still getting a good value. Second, these deals can also offer ideas for home meals, which may be increasingly important as shoppers begin returning to restaurants.
“Restaurant tracking trends are showing that consumers are heading back to restaurants, especially [in comparison with] 2008 levels, when they really scaled back,” noted Frey. “The competition for retailers continues to be creating that easy meal solution for consumers that presents a better option than going to a restaurant.”
Frey praised meal offers — such as the chuck roast promotion at Tops — that incorporate products from multiple departments, and suggested that the next step might be developing recipes with an eye toward versatility. What other dishes could shoppers prepare with a similar list of ingredients? By offering a solution that can be used for more than one meal, supermarkets could encourage return traffic and larger initial purchases, give their customers ideas for leftovers, or both.
Lane agreed that providing innovative, value-focused solutions for shoppers would be a key priority in the coming months.
“That's really going to be the story of the year — the customer's quest for value and how we fit that bill,” he said. “That's our challenge this year.”