December 12, 2008

US Retail Meat: Promos focus on budget-minded shoppers

Most grocers' meat and poultry promotions this week focused on mid- to lower-priced items in an effort to attract budget-minded shoppers into the stores.


The economic crisis and numerous job layoffs are causing many families to trim their spending where possible, and for some that may mean cutting back on purchases of the higher-priced meat cuts in favour of a cheaper protein option, industry analysts said. They may still buy a product within the same category but drop down in quality and price.


In the middle of the gift-buying season, mall-weary shoppers tend to purchase more meals at fast-food restaurants or precooked items from their local supermarket to take home and eat. To compete with the restaurants, supermarkets may feature a few meat and poultry items at attractive prices to entice shoppers which then might result in additional impulse sales at regular prices.


The majority of the fresh beef products featured this week were ground items and roasts at US$2.99 or less per pound. A few premium steaks were promoted as well but usually only one or two of these cuts were included by any one chain and at reasonable prices.


This is not a time of the year when the stores would expect to sell large numbers of T-bone or strip steaks, analysts and meat brokers said. The weather is not right for backyard grilling, people are cash-strapped from gift buying, and the economy is a big concern. Therefore, grocers have to put attractive prices on the premium steaks to sell any of them.


Some of the more upscale grocers included holiday favourite beef cuts such as standing rib roasts. More of these items are expected to be seen in the advertisements the next two weeks.


Analysts said grocers are closely monitoring their inventories, especially for the higher-priced cuts because they don't want to have excess supplies. The buyers are confident they will be able to buy more products if needed at or near current prices so they are limiting their inventories, analysts said.


Packers have responded to negative processing margins by cutting back on production in recent weeks. The expected smaller output during the week of the Christmas and New Year holidays is causing some grocers to purchase the beef they need for now through the end of the year rather than wait and risk prices moving up.


Some grocers also may limit the number of beef items in the advertisements and offer shoppers more pork and chicken instead since those categories are lower in price.


The average price of the 15 cuts of beef in the Dow Jones Newswires survey this week was US$3.78 a pound, compared with US$4.01 a week ago and US$3.77 a year earlier.


The pork category has captured a few more advertising spots away from beef in the latest two weeks amid large supplies and attractive wholesale prices. Bone-in and boneless chops, butt roasts and steaks and of course smoked bone-in and boneless hams were among the most widely featured pork products this week.


Hams will be even more prominent in the weekly advertisements for the next two weeks since they are a traditional favourite for the Christmas holiday among many American households, analysts said. More ham is consumed between Thanksgiving and Christmas than at any other time of the year, according to industry analysts. Easter is the next most popular holiday for hams.


Weekly hog slaughters on average during the fourth quarter have continued to track closely with a year ago. Last year's final quarter was a record, and this quarter's tally is expected to be in a close race to set a new record. Even if slaughter slightly tops a year ago for the quarter, pork production could come in a bit under the same period last year due to a slight decline in carcass weights.


For the year, however, hog slaughter and pork production will easily set a new record, as will pork exports. International sales of pork and pork variety meats already exceeded those of 2007 and set a new record for the 17th consecutive year. That long string is in jeopardy of being snapped next year, though, due to the economic crisis, strength in the US dollar, and an expected decline in US hog herd and live swine imports from Canada.


For the balance of December and well into January, pork supplies are expected to be readily available to grocers and meat processors.


The 13 cuts of pork in the survey averaged US$2.18 a pound, versus US$2.49 a week ago and US$2.28 a year ago. The biggest changes from a week ago in the pork group were in ham prices since more of the items were featured this week.


Many of the grocers in the 10 cities represented in the Dow Jones Newswires weekly survey featured multiple chicken cuts and whole birds this week. After two weeks of red-meat dominated promotions following Thanksgiving, grocers went back to poultry in the form of chicken.


Several supermarket chains featured leg-quarters at some of the cheapest prices of the year. They were able to do that because wholesale prices have declined sharply since the beginning of the quarter and are now about half of what they had averaged throughout most of the summer and early autumn.


Eric Scholer, market analyst with EMI Analytics in Ft. Wayne, Indiana, said overall, the broiler industry is in a better position than it was a few months ago. Feed costs have declined and production is coming down as indicated by 6 percent to 8 percent lower egg sets in recent weeks. Prices for most chicken cuts are stabilizing and breast values could begin to move up after the first of the year, he said.


The downside for the industry is leg-quarter prices, which have declined sharply, Scholer said. The uncertainty of the Russian market with no agreement yet on quotas for 2009 and issues about the amount of chlorine to be allowed in the processing of chicken have left processors and exporters concerned that no sales will be made to Russia. For now, the picture looks grim unless an agreement on these matters can be reached within the next two weeks.


Scholer said the US Department of Agriculture is set to purchase chicken for use in the school lunch and assistance programs and will begin taking ownership of product in January. The program will run through March. No prices or volume estimates are available yet. The program, however, "could move a significant amount of product off the market," he said, which would be supportive for prices.


He expects egg sets to remain in the 6 percent to 8 percent lower area through most of January then they might move up to only around 3 percent to 4 percent below a year ago. Processors may need more chicken for late-spring and early-summer usage.


The four cuts of chicken had an average price of US$1.57 a pound, compared with US$1.47 a week ago and US$1.45 a year ago.

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