by Reg Clause, value-added agriculture specialist, AgMRC, Iowa State University, rclause@iastate.edu.
Profile updated May 2008 by Brianna Morrison, student, Iowa State University.
Overview
Only a few years ago, the way to plan for the future in beef production was to look back in time. Not any more. There has been a shift in the power structure of the beef supply chain, and branding is becoming the way of the present for beef… just as has been the case in most other products for some time.
Marketplace pressures are changing the emphasis of stakeholders throughout the beef supply chain. Today we find demand from end-use customers is pushing back through retail and food service and that demand is for differentiated and highly differentiated products. How is this different from our past as beef producers? The answer is that for years the packer held sway over the entire chain. The packer was the primary arbiter of supply and price within the chain. The packer was also the primary determiner of what size and leanness was required of the live cattle. They also largely determined the form of the products moving on into further processing and retailing.
Today the power has shifted to the business organizations that are the primary or near primary interface with consumers. That means the retailers and the food service distributors are demanding more from and different product forms from the packer. Those demands include source and age verification. In some cases, the demand is for specialty programs that can bring label attributes through to the consumer.
Increasingly, brand or programs (trade brands) are the means by which all levels are using to meet this demand. Clearly a direct marketer (producer or group) of beef products utilizes brand labeling to their own premium benefit. The claims may include intrinsic (measurable/testable) attributes on the label. For example, these claims might be antibiotic free; lean; highly marbled; breed specific; tenderness guaranteed. Another form of claim may be not testable in the product but is tied to the process by which the product was produced. This “process claim” might include grass-fed; hormone free; special processing like longer hang time. There are also types of process claims that are called “credence attributes” and these include organic; natural; family farm produced.
According to the National Meat Case Audit in 2007, 51 percent of all beef sold at the retail level was branded, up from 42 percent in 2004.
Now these claims represent an opportunity to differentiate that is recognized by the retailers and food service distributors. Evidence of this trend actually validating itself can be found in Safeway and its “Rancher’s Reserve” beef brand. This product is guaranteed tender, and Safeway partnered with Excel Corporation and certain feedlots to literally predetermine a vastly improved tenderness outcome to support the brand and avoid customer return of product. Safeway historically has been a large, conservative, mainstream food retailer. This represents a shift in their desire and ability to influence a major packer. That influence is to the benefit of the consumer as well as the beef producer. This branding with a specific consumer outcome in mind improves quality, which can then command a higher price over time.
SYSCO, a dominant food service distributor in North America, is made up of many separate divisions, but the company maintains corporate control of its SYSCO brand lines, manages major redistribution centers and oversees general quality control. Corporate SYSCO has advanced a project to interface with differentiated product lines that can come either from direct marketer producers or more conventional channels. This project is part of the push to support “sustainable agriculture.” But, mainly this is customer driven, and SYSCO is now trying to influence product development and form new relationships with their supply-side to meet what they see is new or changed demand. This push is certainly something new in the food chain especially when coming from the dominant player in their sector.
McDonald’s has long been the largest user of U.S. beef. To maintain total food safety management, they have a very sophisticated supply system with auditability. They have also responded to consumer demands for specific production systems that are more animal friendly. To date, this has not been a factor on the beef side, but the potential is there for the chain restaurant to use its muscle on the packer when they need to in order to gain other label attributes they see as important to advancing their store brand.
The retail and food service examples above are chosen to illustrate two things: (1) The power shift in the beef supply chain is real, and (2) The demand for differentiated products with supportable labels is on the increase. These are dominant companies in their sector, and yet they see the need to change so that they might meet demand.
Another area of retailing that is pressuring the old-line retailers such as Safeway and Kroger is the emergence of natural/organic-based competitors. Whole Foods is one example. With the opening of an 80,000 square foot store in Austin, Texas, this company is signaling its intent to grow. Because of the nature of their base clientele, this type of store can also include commodity-based products and command a higher margin. Organic is growing rapidly, but “natural” is growing even faster.
But, what about the organic beef market? Is there a market? Yes, and that demand is racing well ahead of supply. For sure, raising beef organically is a higher cost production system. For that reason, anyone going into this sector must be pricing the products accordingly higher, and if they are good negotiators, they can get the necessary price. Restaurants such as “Nora’s” in the Washington, D.C., area are high end and serve organic products. Being able to serve this sort of customer either directly or through a distributor is a solid business concept, assuming the producer can manage the higher costs and still have a margin. Organic has shown growth for two reasons: (1) There are consumers that hold the “organic” concept in very high regard. This is why it is considered a credence attribute, and (2) Other consumers who may not be so enamored of the totality of the organic concept will chose these products today because there is an implied quality assurance coming with the organic label. It may be that sense of “knowing where this food came from” that helps to create the brand identity.
New alignments have emerged whereby producer marketing groups have formed to supply specification cattle into a marketing stream. And it is often at a supply chain level and not simple alliances anymore. Today we see a Kroger’s (major retailer) working directly with Excel (major packer) who in turn procures cattle from Caprock and Friona (major feedlots) all in support of Kroger’s premium brand (Cattlemen’s Collection). This is a branding strategy at a supply chain level. This can be and is worked out at small levels as well as this very large-scale example.
Beef at the retail store level is the primary opportunity for a store to differentiate itself. Most other products are selling on the strength of national brands. Of course store branding is increasing. But, for premium differentiation, food retailers see beef and other meat products as a serious opportunity. This is driving product development, product improvement and the improvement to beef demand. It is all supported by branding, which must be supported by process control.
As we have looked at the issue of process control, certifications, affidavits or even a national ID system to support traceability, the point of view in the past has been largely defensive in nature. That is to say, these are things that were seen to manage liability or system wide failings. Things such as food safety or animal health issues were the main viewpoint on such controls. Today the viewpoint is shifting. Increasingly the stakeholders are seeing the opportunity to use quality management principles and methods to improve efficiency, manage the gates of market access and to differentiate in the marketplace.
On the regulatory side, there are controls in place that are an important part of the public confidence infrastructure. Hazard analysis and critical control points (HACCP) and “zero tolerance” have caused significant and measured improvements to food safety. Compliance has been solid since the financial risks to failings are significant.
As regulations tighten regarding specific antibiotic or hormone residues, system stakeholders are demanding process controls that bridge the handoffs up and down their supply chain. Just as costs and margins are rationalized in a market production system, so are the risks and liabilities. Producers and processors will struggle to control their processes through system management. But, when inevitable failings occur, two things must happen: (1) Containment of the issue should be sufficient to fairly distribute financial liability, and (2) The customers and general public need “assurance” that this is not a major system failing and that all efforts are in play to identify problems and improve.
These two issues can only be addressed by a solid third-party auditing of the system.
The USDA Process Verified program, administered through the Agriculture Marketing Service (AMS) allows livestock producers the opportunity to assure customers of their ability to provide consistent quality products by having written manufacturing processes confirmed through independent, third-party audits. Being USDA Process Verified allows a producer to market a product claiming to be a specific breed, or to have fed, raised or processed a product in a certain manner that was verified by USDA. This program used many of the same features as the International Organization for Standardization’s ISO 9000 series standards for documented quality management systems.
To qualify for the verification, one must submit documented quality management systems to the Audit Review and Compliance (ARC) Branch of USDA’s Livestock and Seed Program and successfully pass an onsite audit.
To ensure this transparency, animals may wear an electronic eartag that records the animal’s owner, sire, breed, birth date, birth weight, weaning weight, vaccinations, etc. The tag follows the animal through the processing chain, allowing for traceability back to the original producer of that animal. Other methods of ID and documentation can be equally effective, but the advantages of the electronic information capability offered by the EID tags are compelling.
Many producer groups are taking advantage of an alternative to the formal certification process through breed-specific programs to source verify the animal. These programs are generally conducted by the national breed associations. Marketing grids are utilized to reward producers for the breed type, quality grade and yield grade of the animal. Consumers are then guaranteed a more consistent eating experience, theoretically increasing purchases of that particular brand of beef.
Significant competitors such as Australia have upped the ante by tying their certified Angus program to the herd book. Hereford prime is another Aussie program tied closely to the genome to offer a tenderness guarantee.
Interest in obtaining USDA Process Verified status also increased after the Washington state BSE case in 2003. Process-verified status, although not a guarantee in itself, offers another security and traceability measure to the consumer.
Certified and/or verified beef programs may include a retail branded beef product. The meat industry as a whole is moving away from selling meat as an unbranded commodity and toward differentiating from competitors by branding meat products. Prepackaged entrees and other products that offer convenience and require little preparation continue to grow, especially in the meat industry. Convenience, freshness and sophistication are the principal trends in consumer food demand.
Research funded through the pork checkoff shows that consumers average four minutes to make a decision about purchasing meat. Once consumers start to consider a meat purchase, their decisions are most influenced by meat promotions, merchandising, advertising and convenience.
Certified systems with third-party auditing are a sustaining technology designed to meet stakeholder objectives. As they move to new product strategies for market share and growth, they replace those strategies with specific technology-enabled solutions.
Information technology gives companies the means to measure and respond effectively to change in their market. Certified systems support brand labeling and mitigate risk. This combination of hard (information) and soft (management) technology will lead smart companies to growth and profit.
Sources
Beef Contact Information and Individual Program Specifications, AMS, USDA.
Checkoff Shows Consumers Spend Four Minutes Making Meat Purchases, Pork Board.
National Meat Case Study, Beef Retail, 2007.
Process-Verified Program, USDA.
Quality System Assessment Program, AMS, USDA.
Standardization Procedure for Marketing Program Specification Development and Approval, AMS, USDA.
Profile written August 2005 and updated May 2008.