| April 17
April 17 With the Chicago weather finally
getting a little nicer, Chris Anderssen wanted to grill some
burgers outside for a group of family and friends. When she got
to the meat aisle at her local Jewel-Osco supermarket, a case of
sticker shock made her change the menu: extra lean ground beef
was $4.99 a pound.
"Five adults, four teenagers, that's a lot of hamburger to
buy," said Anderssen, a 42-year-old mother of two who works as
an office manager. She bought chicken instead for $2.99 a pound.
Retail beef and pork prices reached all-time highs last
month, according to Bill Hahn, agricultural economist at the
U.S. Department of Agriculture's Economic Research Service.
That's prompting some consumers to pivot to less expensive
protein sources and driving the grocery, packaged food and
restaurant industries to adjust portion sizes, tweak their menus
and roll out new products in a bid to address higher food costs
without driving customers away.
Beef prices are higher because of rising feed costs and the
decline of the U.S. domestic cattle herd, now the smallest since
1951. Pork prices have been rising in part because of a deadly
piglet virus that began in Ohio last year and whose causes are
Prices for beef and poultry destined for home consumption
are forecast to rise as much as 4 percent in 2014, while pork
prices may gain 3 percent, according to the USDA. The retail
price for beef was $5.72 a pound in March, passing the previous
record of $5.58 in February. A year ago the beef price was
Pork retailed for $3.83 a pound in March, beating the former
record high of $3.81 set last October. A year ago, pork was
selling for $3.52, the USDA said.
Higher prices are benefiting producers including Tyson Foods
Inc, the largest U.S. meat processor, which said on Jan.
31 that higher prices for beef and robust demand for chicken
boosted its profits
Still, many consumers are sticking with meat.
Soaring prices "might dent the consumption a little bit, but
right now the reason prices are high is because demand is good
and supplies are low," Credit Suisse's New York-based food
analyst Robert Moskow said. An improving U.S. economy is
helping consumers stick with their favorite foods, said Wolfe
Research retail analyst Scott Mushkin, also based in New York.
"People grumble about the price of bacon but still eat
bacon," Mushkin said.
Edwin Laboy, known among his friends and family in West Palm
Beach, Florida, for dishes ranging from pork spare ribs to whole
roasted pigs, is among those unwilling to give up his favorite
"I accept it," the 36-year-old utility company supervisor
said. "I don't like it." Laboy said he and his brother decided
to team up to buy the hog they roasted for a recent holiday
Food retailers are responding to higher prices by offering
more small-sized fresh meat portions, said Phil Lempert, who's
known as the "Supermarket guru" and writes the Lempert Report, a
trade publication on grocery stories. "People are buying
smarter," said Lempert, adding that some home cooks are
stretching their food dollars by blending ground beef with
vegetables and other ingredients in dishes like lasagna.
Demand for protein is also growing as consumers shift away
from waistband-expanding foods featuring carbohydrates such as
processed grains and added sugar.
Consumption of processed protein foods such as sausage,
breakfast sandwiches, Greek yogurt and protein bars has grown 7
percent since 2009, according to Moskow. During that same
period, consumption of foods made from processed carbohydrates,
including snacks such as chips and crackers, have fallen 5
percent, said Moskow, who recently published a note titled
"Return of the Caveman."
Packaged food sellers including Hillshire Brands Co,
Hormel Foods Corp and Kraft Foods Group Inc
have begun marketing new protein snacks. Kraft's "P3" snacks
include small portions of cheese, nuts and meat in a package
resembling the company's own Lunchables meal packs for kids, for
which consumers are willing to pay higher prices because of
Raising prices for more utilitarian packaged meats, however,
has proven tricky.
Hillshire lost "fairly significant short-term market share"
after boosting prices on sausages and hot dogs in December,
months before rivals began following its lead, Moskow said.
Reluctant to take a similar risk, most traditional packaged
food makers are scouring their businesses for cost savings to
offset higher meat prices and lackluster demand for processed
U.S. restaurant operators, many of whom are swallowing
higher meat prices to avoid the risk of a consumer backlash, are
switching to smaller as well as lower-quality cuts.
Bloomin' Brands Inc's Outback Steakhouse and Darden
Restaurants Inc's LongHorn Steakhouse have promoted
smaller "petite" steaks as well as seafood and chicken dinners,
said ITG Investment Research restaurant analyst Steve West in
With chicken prices rising, the switch to poultry saves
restaurants only so much, so some are heavily breading meat to
add bulk while keeping menu prices in check, said Bob Goldin, an
executive vice president at consulting firm Technomic in
Buffalo Wild Wings Inc last summer started selling
its namesake chicken wings by weight instead of by the piece.
The pieces are never uniform in size, so the move should help
the chain more effectively manage their cost, West said.
Higher prices for steak, avocados and cheese convinced
Chipotle Mexican Grill, the popular burrito chain, that
it couldn't delay raising prices any longer.
"It's been nearly three years since our last company-wide
price increase, and while we want to remain accessible to our
customers, we are at a point where we have to pass along these
rapidly rising food costs," said Jack Hartung, Chipotle's chief
financial officer, on a conference call with analysts on
The moves are designed to help restaurants keep meat price
increases in line with those at the supermarket.
Meanwhile, restaurants have already lost their grip on
customers like Laboy, who doesn't order meat when he dines out.
"For the same price of steak at a restaurant, you can buy
two to cook at home," said Laboy. Instead, these days, he orders
(Reporting by Lisa Baertlein in Los Angeles and Theopolis
Waters in Chicago, Editing by John Pickering)