Meat merchandising guru Joe Gordon sees a transformation in how to market beef in the next century.
It's depressing but true. Beef's market share is in the dumper. In 1970, beef controlled 44% of the market. By 2003, experts predict that to tumble to a measly 29%. Compared to pork and poultry, beef is taking its lumps.
"We're absolutely going to struggle in the next five years to kill beef and make a profit," says meat merchandising guru Joe Gordon. "If you're in the commodity business, you'll have to add value."
Gordon, senior meat consultant with Sparks Companies, claims that by the year 2005, a whopping half of U.S. beef marketed will be branded. By then, he also predicts larger retailers will have a two-tiered system that will include a commodity and a branded beef product.
Gordon is no stranger to the foodservice business. He spent seven years with Sara Lee working in their poultry division. After that, he clocked four years with Spartan Stores - a 500-store, co-op grocery chain - as their meat marketing manager. For the last two years, he's been a meat consultant with Sparks Companies and continues to consult with Spartan to develop their branded beef program. In addition, he's now also a member of the National Cattlemen's Beef Association long-range plan advisory board.
Winds Of Change The decline in per capita beef consumption is a worrisome trend to meat retailers, Gordon explains. Compared to poultry, beef is a high-ticket retail item. To capture the same amount of dollars with lower-priced poultry, significantly more poultry must be moved. "Retailers would rather sell higher-priced beef cuts," he says.
Unlike 10-15 years ago, Gordon says retailers, not packers and processors, are now driving the beef sales process. And that, he adds, is why the proliferation of branded products will continue to build and be successful.
"We know the beef business is not going to survive as a commodity. Just look at all the models out there that are driving businesses from a customer's perspective, like pork and poultry. In fact, poultry is probably more branded than anyone ever anticipated," he says. "While I was at Sara Lee they had specs in place and producers had to meet them or go out of business.
"Poultry has taken costs out of the system and they've understood the requirements at the retail level and have spent R&D dollars to get there. Unfortunately, with beef it's a slower process and more difficult to do because ultimately the R&D responsibility now ends up at the packer level. And so far, I'm not sure the retailers are willing to pay for it," Gordon points out.
The pork industry has made big strides in producing branded products. Today, they only have about two non-branded products that are commodity driven: loins and butts. And now, Gordon says, you're seeing those products being branded, too.
"They've zeroed in on the market and identified where they can make money. Instead of 50 breeds, they're down to about three or four to meet the requirements," Gordon explains. "That hog producer who is building a 1,200-sow unit isn't doing it because it's fun; it's because he's making money."
Spartan Listens To Consumers Staying profitable is what keeps businesses like Spartan Stores viable. About five years ago, Gordon says Spartan came to the conclusion that their beef sales were deteriorating.
"Beef was about 45 percent of sales in the meat department. Revenue generating, however, it was much more than that," he says. "So, we surveyed our member co-ops and realized that if we didn't do something different we'd continue to lose market share."
As a result of its surveys, Spartan found that consumers wanted:
Unlike many food retailers in the grocery business, Spartan Stores responded by developing a branded beef program based on 85-90% Choice, 70% 1s and 2s, with no outliers or dark cutters. They also chose a composite of 51/48 Angus (preferably Red) plus 31/48 English (preferably Hereford).
When testing in their stores in 1996, they expected to initially sell about 10% of their beef volume as branded. Right out of the chute, though, they hit 20-25% branded.
"And if we can figure out how to market it better and include it with meals, we think we can soon be at 50 percent of our business," Gordon says.
At the retail level, the high-end branded product sells for 44 cents/lb. more than commodity beef. Of that, 24 cents is diverted to a promotion program, paid by the retailer, to drive the product through. "We provided the product to our stores and it was the retailer's responsibility to move it," Gordon says.
"We did, however, set up the marketing plan that changed the process from a push concept (commodity driven) to a pull concept using price value," Gordon points out. "Commodity products are always driven from the price viewpoint, while branded products are driven by marketing."
Besides specifications for the retail branded program, their system also includes specs for the export market, foodservice (HRI trade) and commodity beef.
For the producer, that markup means about $45-50/head more than selling strictly as an animal destined for the commodity market.
Today, Spartan is marketing about 100 head/week through their system.
Packer Buy In Everyone in the chain - from producers to packers to retailers - needs to work together to turn beef's market share around, Gordon says.
"Regional niche packers are already in a branded mode to stay in business," he says. "In fact, I don't think the big packers are going to supply the demand if they don't get into a branded program."
Gordon believes the growing trend toward producer alliances with packer involvement is positive and necessary. And, he thinks they'll be successful if everyone involved keeps their eyes on the customer and keeps the supply pipeline full. "Alliances will come apart if everyone in the chain doesn't understand each other and make money," he says.
For a copy of Sparks Companies new "Where is the Meat Industry Going to be in 2005" report, contact Joe Gordon at 800 Monroe N.W., Ste. #304, Grand Rapids, MI 49503 or call 616/742-1515.