Beef Posting Gains And Losses In Tough Economy

Affordable price holds top spot for consumers and remains a problem for beef industry

Published on: Sep 5, 2013

Although price remains the first concern of beef-eating consumers, healthfulness and convenience continue changing consumer behavior, too.

The latest research from the Beef Board and elsewhere confirms this, in addition to adding several interesting twists to the national consumer profile.

Overall, beef continues to suffer small price-related losses in addition to shifts in the type of beef products purchased. There also appears to be some shifting from home consumption back toward restaurant consumption of beef.

"There's price hesitancy but it's not taking people out of the market," says John Lundeen, executive director of market research for NCBA.

Affordable price holds top spot for consumers and remains a problem for beef industry
Affordable price holds top spot for consumers and remains a problem for beef industry

Most of this trend seems to be a trading down toward the quality and value offered by ground beef.

These trends were demonstrated in Beef Checkoff-funded surveys completed earlier this year. In one national study, consumers were asked to rank their attitudes about beef products and pricing on a five-point scale. Lundeen explains the rankings:

1. So inexpensive that you actually doubt its quality.

2. Inexpensive and worth it.

3. Just about right.

4. Expensive and worth it.

5. Too expensive and definitely not worth it.

Lundeen says this is one way of addressing consumers' sensitivities to price. The study asked about beef consumed in the home and in restaurants as separate categories.

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From July 2012 to February 2013, there appear small erosions in consumer attitudes about beef pricing. For example:

* The number of consumers who said steak is "too expensive" grew from 24% to 28%. These are consumers who probably traded out of the beef market.

* About 70% of consumers appear still willing to buy steak now versus 73% in July 2012.

* At the same time, the number of consumers who said ground beef is too expensive stayed about the same at 15-16%.

* About 80% of consumers appear still willing to buy ground beef versus 81% last July -- no significant difference.

These trends indicate a continued behavior Lundeen and other marketing researchers sometimes call "trading down." It says beef-eating consumers are eating a little more ground beef and a little less steak. Most of them, so far, are not leaving the beef market entirely.

A recent economic paper from Kansas State University says this fall and rise in beef purchasing tracks truly with the fate of consumers' disposable income and is further evidence of the strong link between beef buying and economic condition of the nation.

In fact, all proteins have suffered consumption declines since the recession/depression began in 2008. See the chart below.

Beef Posting Gains And Losses In Tough Economy

Foodservice shining

Interestingly, the foodservice/restaurant industry, which continues to sell about half the nation's beef, has been selling more beef since the bottom of its downward slide in 2009.

In fact, dollar value of beef foodservice sales in 2012 was $5.5 billion higher than the previous peak beef sales year of 2007, even though total beef volume is down 7.8% for the same time period -- about the same decline seen in overall restaurant traffic. This comes from the Beef Checkoff's annual Foodservice Volumetric study conducted at the end of last year.

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The trading down behavior seems clear in this sector, too, with ground beef tonnage five times that of steak and growing.

* Ground beef -- 5.1 billion pounds and $12.3 billion.

* Steaks -- 1.1 billion pounds and $11.5 billion.

* Roasts -- 700 million pounds and $5.2 billion.

Despite the popularity of ground beef in foodservice, steaks last year posted some impressive gains in volume with a 4% increase of 49 million pounds above 2011 sales.

"Steaks did remarkably well in 2012," Lundeen adds. "There's apparently a percentage of folks who've gotten through the recession in good shape and they're going to treat themselves to a steak."

Age differences

Amid all this, some interesting trends regarding beef pricing and consumer age have emerged.

Millennials, the youngest working generation now and generally the lowest on the economic totem pole, were much less affected by high beef prices in this latest survey.

When 31% of baby boomers said restaurant steak was too expensive only 21% of millennials said so. The generation X age group fell in the middle at 25%. For consumption at home, 34% of baby boomers said steak was too expensive versus 24% of millennials and 26% of generation X shoppers.

Lundeen thinks this is, in a sense, the function of long memories and long-term inflation.

"Millennials see today's beef prices with fresh eyes," Lundeen says. "They don't know what it used to cost."

For example, Lundeen adds, older consumers remember when gasoline prices were below $1 per gallon. That makes $3.50 or $4 gasoline look terribly expensive. If you are 20 years old, you likely don't remember gasoline priced much below $1.50 and it has been $2 or more all your adult life. Therefore $3 doesn't feel as high and $4 is just a little higher than $3.

Millennials are also more likely than other consumers by 23% to 7% to say they might reduce their consumption of red meat because of health concerns.

Beef Posting Gains And Losses In Tough Economy

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In these studies, beef roasts seemed to be the biggest losers. They suffer from consumer-defined issues of inconvenience, cooking angst and high price tags.

Generally, beef's market is not gaining but is shifting. Price-sensitive consumers who also put high value on convenience and sometimes worry about health are slowly shifting their beef-buying habits to match their wallets and fears.

Beef loyalty affects price consciousness

Another study of consumer attitudes about beef pricing suggests that loyalty may have something to do with beef buying habits also. It found that the more "loyal" beef consumers are, the less they are affected by price.

Those surveyed were asked to rank their attitudes generally about beef pricing and also were broken into four groups by their beef consumption habits.

The first group, termed Bucket 1 by the researchers, are heavy protein consumers who eat beef an average of three times per week and say beef's attributes strongly outweigh its negatives. This is 26% of consumers.

The second group, termed Bucket 2 by the researchers, say the positives of beef somewhat outweigh the negatives and eat beef an average of twice per week. This is 48% of consumers.

The third group, Bucket 3 consumers, typically eat beef only once a week and say the negatives of beef somewhat outweigh its positive attributes. They make up 18% of consumers.

Bucket 4 consumers, as defined by the researchers, say beef's negatives strongly outweigh its positive attributes and make up only 8% of the market.

Only 21% of Bucket 1 consumers – those who eat beef an average of three times a week – said steak at a restaurant is too expensive. This "too expensive" ranking implies refusal to purchase.

By comparison, 28% of Bucket 3 consumers said steak at a restaurant was too expensive. Of those who rarely eat beef, the Bucket 4 consumers, 54% said restaurant-prepared steak is too expensive.

The attitudes were not terribly different among those groups for steak purchases at the grocery store, although steak apparently looked a few percentage points more "affordable" to them at retail.

The Bucket 1 consumers said they had increased their beef consumption. Some 26% said they were eating more beef in the past six months and 16% said they planned to increase it more in the next six months.

That compares with all consumers in the survey of which 26% said they were eating less beef in the past six months and 15% said they would be eating less beef in the coming six months.