by Reginald Clause, value-added agriculture specialist, AgMRC, Iowa State University, rclause@iastate.edu.
Revised June 2008 by Diane Huntrods, AgMRC, Iowa State University.
Overview
Going into a category such as “natural” requires a lot of planning and execution for success. These markets, as you will see in the industry quotes below, are becoming more competitive. So, while there is considerable growth in the category, there is growth in supply as well. The trick for producers is in either selecting an established company to produce for, or in creating a brand of your own. Branding can be an expensive proposition and it takes a long time to establish. Consider carefully which strategy can work for you. Refer to the Business Development section in AgMRC for guidelines on branding and establishment of a business strategy.
"Natural" Standards
“Natural” does not have the same strict interpretation as organic does. According to the USDA Food Safety Inspection Service, all fresh meat qualifies as "natural," but those labeled "natural" cannot contain any artificial flavor or flavoring, coloring ingredient, chemical preservative or any other artificial or synthetic ingredient; and the product and its ingredients are not more than minimally processed (ground, frozen or smoked, for example). Some companies promote their beef as "natural" because cattle were not exposed to antibiotics or hormones and were totally raised on a range instead of being "finished" in a feedlot.
Various claims can be made on the label, but remember that label claims are generally regulated by FDA and must be verifiable through an audit should these claims be challenged. A challenge could come from competitors or consumer watchdog groups as well as FDA. There is precedent in the courts regarding such challenges.
Besides the need to manage for the possibility of a label challenge, a company selling a “natural” label product needs to be aware that larger players will tend to push the price of these products down, making the sector act more like a commodity than a differentiated product. One way to manage label liability and gain differentiation in the market is to look at a certification system such as USDA Process Verified. This system gives a company some third party verification through audits and is a solid business decision. Check it out at: http://processverified.usda.gov/shield.htm
Industry experts estimate there are a total of about 375,000 to 425,000 head of cattle in the United States who fit the natural product regime.
Marketing
Research conducted at Kansas State University has shown that consumers tended to associate natural beef with local, family farms and perceive an increased value from that aspect. Research shows that some suburban, higher income consumers in some regions are willing to pay more for natural beef cuts from the loin. This is a growing market, but still a small percentage of total U.S. meat sales.
The National Cattlemen’s Beef Association monitors beef sales through scanner data at the retail level. This scanner data, purchased through FreshLook Marketing, indicated that natural and organic beef sales comprise 2.5 percent of all fresh beef sales in retail supermarkets. The natural and organic beef share of sales is trending upward, from a low of 1.1 percent in 2003 to its current high of 2.5 percent in 2007. FreshLook data estimates that natural and organic beef sales in retail supermarkets during 2007 were $388 million compared to $290 million in 2006, indicating a 34 percent increase in natural and organic beef sales.
Prices for all beef products offered in retail supermarkets averaged $3.67 per pound compared with natural and organic beef products that averaged $5.50 per pound, indicating that consumers were willing to pay a premium of $1.83 per pound for natural and organic beef. The selection of natural and organic cuts available at retail, which tend to be the higher priced rib and loin cuts, may partially explain the higher average price for these niche products.
However, the BSE scares caused people to be more interested in where their beef comes from. According to this quote in “Stagnito’s”: “Natural beef is gaining popularity due to the health aspects,” says Jack Gridley, meat and seafood director at Dorothy Lane Market, a Dayton, Ohio-based operator of three grocery stores that only carry antibiotic-free and hormone-free beef, pork, poultry, and lamb. “Interest still is increasing, even though the category has been growing for fifteen years.” This tends to indicate that a label such as “natural”, while maybe not as robust a certification as “organic”, can have a lot of brand value beyond the product attributes. In this case you are selling the “food with a face” concept, giving a tacit assurance that consumers find re-assuring.
Producers involved in raising natural beef have several marketing options. Producers direct market to consumers through the Internet or local advertising. Others market beef directly to local foodservice outlets, supermarkets or natural food stores. Large food service companies such as SYSCO, which is the largest in North America, has a very strong corporate interest in sourcing these products particularly from small/medium sized producers.
According to USDA’s Economic Research Service, increased sales of organic and natural food products are being driven by health-conscious consumers. Natural foods supermarkets and other specialized retailers are benefiting from this trend. Food products offered by natural foods supermarkets tend to be less processed and frequently are free of preservatives, hormones and artificial ingredients.
Industry Players
Laura’s Lean Beef of Lexington, Kentucky, founded in 1985, markets its products to almost 5,000 retail outlets in 44 states. The company states that it produces “Naturally lean beef from cattle raised on natural grains and grasses. Neither growth hormones nor antibiotics are used in the raising of the cattle.” In 2005, the company projects that retail sales will top $100 million. Laura’s Lean Beef reports that its products are being sold in about 5,000 stores across the United States.
Another significant purveyor of natural beef is Coleman Natural Meats of Denver, Colorado. The company states that "Our animals never receive antibiotics or added growth hormones from the time they are born. Any animal requiring therapeutic treatment is treated and removed from the herd. No antibiotics are ever added to the feed, only vitamins and minerals." Beef is now marketed in supermarkets, club stores and natural food stores in 41 states and the District of Columbia. The firm has about 700 family-ranch partners in 17 states.
Coleman was recently quoted in Stagnito’s: “Natural beef may eventually become a commodity because of private-label programs,” says Mel Coleman Jr., Coleman Natural Foods chairman. “Retailers could start bidding on beef and purchase the cheapest items instead of trying to develop a product line that will allow ranches and farmers to make a fair margin.” Coleman says his company’s beef sales increased 38 percent in 2004, partly because more mainline grocery stores are carrying the natural items.
Another major player in “natural” is Maverick Ranch. Rex Moore, president and chief operating officer of Denver-based Maverick Ranch Natural Meats, agrees natural beef is likely to be commoditized and that prices will decline, particularly if mergers and acquisitions among suppliers creates more deep-pocketed producers.
“The bigger players are going to leave money on the table because the only way they can get new business is to undercut the established suppliers,” he says. “Some companies will sell their natural beef too cheap. Instead of marketing programs on merit, they’re going to emphasize the price.”
The following information was gathered through companies’ Web sites on the Internet. Table 1 shows a list of 10 selected companies.
Table 1. Selected companies producing natural beef in the United States.
Sources
Fresh Research Exposes Rapid Growth of Natural/Organic Meat, National Cattlemen's Beef Association.
Natural and Organic Beef, National Cattlemen's Beef Association.
Where's the Beef? Small Farms Produce the Majority of Cattle, Agricultural Outlook, Economic Research Service, USDA, 2002.