Table of Contents:
- The Bearish Math On The Beef Industry Doesn’t Add Up
- Drivers of industry size
- Efficiency advantages of competitors
- Consumers less willing to settle
Profitability in the beef industry is influenced by many factors, but none more so than the number of consumer dollars coming into it for our products.
We always talk about the efficiency advantage of poultry, pork and even foreign countries from a cost-of-production standpoint, but we tend to forget the takeaway lessons. A large part of the efficiency advantage of pork and poultry results from integration and their ability to maximize profitability from that total systems view.
They don’t have the beef industry’s segmentation that leads to a vicious cycle where maximizing short-term gains leads to declining demand and being less competitive in the long term. We must look at efficiency from a total systems approach, just like we must look at value and quality from a total systems approach or we will make incorrect decisions.
Secondly, our competitive advantage is, and will likely always be, that we are the low-cost producer of high-quality, corn-fed beef. We must maintain and broaden our perceived quality advantage; we can’t compete with other countries on a grass-fed basis. Those who advocate differently are arguing that the future of small retail is competing with Walmart on the basis of price, or that American manufacturing will grow by being lower cost than China.
Ground beef is, and always will be, a big part of our market. Thank goodness for McDonald’s, Taco Bell and Hamburger Helper, but nobody in their right mind wants to start grinding flat iron steaks or middle meats! In fact, the industry’s best-case scenario is to need to import lean grindings to meet demand; that means we’re selling our product for more value.
I love hamburger, but nobody can make a living making solely hamburger meat. The “too expensive” argument simply is not backed by the data; again, demand has not been weakening at these higher prices.
Certainly, we have to be more customer-centric, and the industry needs to be commended for making the changes it has to stop the decline in beef demand. The demand trend from the mid-’70s to the early ’90s wasn’t sustainable.
Plus, it isn’t possible for us to buy back the market share that our competitors won from us. Price beef competitively with pork and poultry and you won’t see a shrinking beef industry but a non-existent one replaced by foreign competitors.
Chicken lowered costs, improved quality, uniformity, consistency and convenience, while we were putting out a subpar product that did not deliver on the value equation. Beef will always cost significantly more than chicken; the key is that we can justify those higher price levels.
The bears use the same trend line that occurred in the last 25 years and project it out and say that beef consumption will be 30 lbs. in another 25 years. Why that is untrue would take pages to explain, but suffice it to say that chicken and poultry won’t have the kind of efficiency gains they’ve enjoyed in the past; nor is beef today strictly a commodity product that doesn’t respond to consumer needs. We’ve invested millions in promoting and improving our product, and we are now grasping the opportunity to greatly improve efficiency.