Special Report | July 2013 | By Mary Avant

The Beef Goes On

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Beef farmers are improving their operations to answer demand for sustainability.
Ranchers at Meyer Company Ranch in Montana keep a watchful eye on Red Angus cattle.
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Cattlemen are also placing increased emphasis on perfecting practices and processes that guarantee cattle are as healthy and well maintained as possible, for their own sake as much as for the animals and consumers.

“Humanely raised beef contributes to the bottom line of producers,” Gebhart says. “The less stress on an animal, the more efficient that animal is in converting its input into something the consumer can use. So I don’t think good animal handling techniques add cost; they save costs for producers.”

That’s why some on the conventional side of the business say that, despite consumers believing they want all-natural beef, the marketing terms sustainable and humanely raised are coming to mean less both in reality and to consumers.

“It’s important to recognize that the word sustainability or sustainable is not an attribute of a product, but it’s a process and it’s about efficiency,” Gebhart says. “We’ve got a rich tradition of [efficiency]. The beef industry is not setting on its laurels. We’re becoming more and more efficient every day.”

Don Berchtold, chief operations officer of burger brand Fatburger, says “natural” and “sustainable” designations don’t register with the brand’s customers. “You look at how many brands now have different ways they’re marketing their product, whether it’s all-natural, whether it’s grass-fed, whether it’s grain-fed,” he says. “That’s for the customer to choose what their taste profile is, and … that’s what a brand is built on, a taste profile. That’s what attracts a customer to that brand in the end. It’s the product, and it’s the quality.”

Whether hormone- and antibiotic-free or not, the problem in the beef industry may not be a lack of customer demand or efforts toward sustainability. Instead, the difficulties mostly lie in tight supply and rising prices. Thanks to 2012’s severe drought that ravaged many beef-producing areas in the U.S., sky-high feed and input costs forced many farmers and ranchers to cull herds in order to stay afloat financially. And the trend has continued in 2013. Jim Robb, director of the Livestock Marketing Information Center, says the beef cowherd was down in the first half of the year and will likely continue to drop through the remainder of 2013. The industry, he says, could experience a 13 percent decline this year in terms of production of beef like that used to make burgers.

The latest numbers from the USDA’s Livestock, Dairy, and Poultry Outlook for June 2013 expect nearly 26 billion pounds of beef to be produced in 2013, down from 26.2 billion in 2012 but more than next year’s estimate of less than 25.5 billion.

Because the life cycle of a beef cow is rather lengthy—it can take up to two years to raise cattle to the point at which they’re ready for slaughter—more ranchers are selling off cows or sending them to slaughter early to survive financial hardships. Robb says this means the beef supply will likely not tick upward until 2016.

Shake Shack’s Amoscato says restaurants, even those in the limited-service industry, may be forced to cut portion sizes and focus on a “less is more” mindset in which the emphasis is placed on “getting a better product, not a bigger product.”

Smaller supply and expensive feed mean beef prices, both for brands and consumers, will likely continue to rise. According to the USDA’s Consumer Price Index, prices for purchases of food away from home are expected to grow by 2.5–3.5 percent this year, while beef prices will grow an estimated 3–4 percent.

“I think that with the price of inputs, specifically corn, we’ve hit a new level of pricing on beef,” Gebhart says.

This is forcing many quick-service brands to take a look at the supply chain and determine how to cope with these price increases. Because Fatburger buys a fresh beef product, Berchtold says, the brand can’t hedge the markets based on price.

“We have to have the consistency in the product, so we’re not a brand that goes out on the spot market and buys just anything,” he says. “We buy a specific trim type of beef, so we have to really stay abreast of the marketplace and look ahead.”

Though the concept is doing everything it can to cut costs down the supply chain, including cutting unnecessary utility costs and training employees to upsell when engaging with customers at the counter, Berchtold says the brand has been forced to make minor adjustments to prices and strategically create limited-time offers.

No customer welcomes a price increase, Berchtold says, but it certainly beats a drop in product quality. “Core customers understand it,” he says, “and core customers can tell when the product changes.”

To stay ahead of the market, Shake Shack works with its suppliers and ranchers to secure its beef supply 18–24 months ahead of time. Even with these precautions, though, the brand is concerned about rising beef prices.

“At every conference or meeting that I go to, nobody ever has any good news right now about beef prices coming down,” Amoscato says. “And because we’re so tied to one protein, when that continues to go up, we don’t really have relief elsewhere.”
While the brand considers developing alternative proteins in the future, Amoscato says, beef is and will continue to be the focus on the menuboard. “We’re the Shack Burger, we’re all-natural beef,” he says. “We’re not going to just go add a salad to the menu to help offset beef [prices].”

Amoscato says Shake Shack introduced a small price increase to its menu in January, and has taken a look at operational efficiencies to ensure it doesn’t have excessive waste in the restaurant. The chain is also working with suppliers to guarantee that all product is of the highest quality in order to get 100 percent utilization.

Though a burden, rising beef prices do have one advantage for Shake Shack and other brands like it. “For the consumer, as beef prices have gotten higher and higher, that gap between the conventional and all-natural [beef] has kind of come closer together,” Amoscato says. “So now you’re spending a lot of money on beef. It doesn’t matter what kind it is at this point. You’re going to demand a higher-quality product if you’re going to go spend the money on beef.”

He says consumers also enjoy feeling as if they’re contributing to the sustainability movement—at a low cost, at least. “They’re able to be part of that natural, no-hormone product without having to pay 10 times as much.”

Regardless, the pricing situation has many brands, especially those that specialize in beef as a protein, worried that customers may not visit quite as often or choose to visit concepts with a focus on alternative proteins. Gebhart says he’s spoken with everyone from independent restaurants to big chains like McDonald’s, “and they’re all concerned about the substitute effect on consumers turning from beef and going to something else.”

But supply and pricing aren’t the only problems the beef industry has in store moving into the future. To keep consumer interest in beef as high as possible and to make customers feel better about the beef they’re consuming, the industry will feel pressured to find a way to tell and sell the story of beef, Robb says.

The good news, Gebhart says, is that consumers like to know that their food comes from family-operated farms and ranches, as is often the case in the beef industry. In fact, according to the Beef Checkoff’s CSR, 97 percent of beef cattle farms and ranches in the U.S. are family-run operations.

“It’s not the story of the pork and poultry industries in the world, or let alone the United States,” Robb says. “From a beef industry perspective, … they are the family farms. They are not Mr. Tyson. They are not Smithfield.”

Meyer’s Anderson says the industry has an obligation going forward to focus on educating consumers so they understand everything that goes into the production process. “It’s not about catchphrases. It’s not about certain claims versus others,” he says. “It’s really just an education process. I think the beef industry by and large should become more attuned to that and just have a better ear for it.”

And though brands like Shake Shack and producers like Meyer would like to see the entire restaurant industry shift toward chemical-free, natural beef in the future, it’s a move that must be made gradually.

“It really comes down to having all types of parties involved, because you have a whole carcass to use,” Amoscato says. “If a big player came in, like a McDonald’s, that just wanted a certain portion of the animal, that could really throw the industry out of whack right now, because you can’t just all of a sudden move a bunch of all-natural all over the place. It needs to be a gradual growth and kind of have a coordinated, but not necessarily organized, approach to it.”

Nonetheless, he says, Shake Shack would like to see brands across the board develop an even better burger—the best, perhaps, made using top-notch and more responsible practices—in the coming years.

“You’re getting a better supply chain of product coming in, so a better way of that cattle being raised, a shorter distance that the cattle has to travel, better utilization of the land,” he says, adding that the burger of the future would even go so far as to feature GMO-free buns and cheese from RGBH-free sources. “That would be the better burger for everybody, if we could all achieve that.”

 

 

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