Nothing to do with grocery gets more media attention than food prices. In the past year I’ve had more calls from newspaper, TV and radio reporters asking me to comment on food prices than all the calls in the last five years.
The media’s interest is high because consumers are keenly aware of the cost of food and sensitive to price fluctuations.
Lately, consumers have even convinced themselves that prices are increasing faster than is actually the case. That, plus the media’s scrutiny, is a bad combination for anyone in the business of selling food.
Consumer and media attention is mostly focused on the prices of beef and pork. Several years of declining cattle numbers caused beef prices to spike in 2014. On the pork side, a virus called “porcine epidemic diarrhea” killed millions of North American piglets.
Pork production dwindled and prices skyrocketed. While the prices of all food bought in stores in Canada increased by 2.5% in 2014, prices of beef and pork rose 14%.
Higher prices were most noticeable in flyers. Feature prices on front-page staples, such as strip loin or prime rib, went from a bargain $4.99 to an astounding $7.99 or higher. Bacon prices got so high that processors turned the 454-gram pack into a 375-gram pack in hopes of making the price more palatable. It didn’t.
No self-respecting grocer takes pride in putting an $8.99 T-bone on the front page. It’s no wonder that beef features plummeted last year. My tabulation of beef features in Western Canada showed that during the first three quarters of 2014, beef was on the front of flyers about 60% of the time.
By the fourth quarter and into this year, beef was on the front page only 40% of the time. If a product cannot be priced attractively, it’s either taken off the flyer or loses front-page billing.
But while retail prices on meat did increase sharply, the cost grocers paid for meat rose even more. During the second quarter of last year, the year-over- year increase in pork costs were as high as 30%. Prices went up less dramatically for that other popular protein: chicken. Nevertheless, chicken processors recognized a good situation when they saw it. Soaring beef and pork allowed them to pump up chicken prices, too. Shoppers had little recourse. If they didn’t like the new chicken prices, they could shell out even more for beef or pork.
Regardless, most grocers played catch- up with their meat costs. My crude estimation of retail meat margins indicates that the meat case was a money loser for most of last year. The erosion in the value of the Canadian dollar only made a bad situation worse.
This year we’ve seen something of a turnaround. Pork producers have dramatically increased production and costs to grocers have fallen by about 50% year- over-year. In the meantime, with retail prices up sharply year-over-year, I estimate that margins on pork are very good now.
In addition, consumers may have cut back pork purchases due to the higher prices, but pork demand remains fairly strong. So while tonnage is down at retail, the dollars are up. Circumstances have changed for chicken as well, with more manageable wholesale prices.
The odd man (or meat) out is beef. While volumes for pork and chicken have ramped up, it will probably take two to three years before we see any serious increase in the production of beef. In fact, for most of 2015, production is likely to continue declining. This means grocers will still have to play catch-up on pricing as they try to recoup costs. Again, our sagging dollar won’t help.
Bottom line: the last 12 months of meat prices have been extraordinary for both consumers and grocers. No grocer, regardless of how long in the business, has ever seen anything like it. And the next 12 months won’t be “normal” either. Cattle and beef supplies will remain short while pork will try to get back to a “normal” trading range. Watch for grocers, consumers and media to stay focused on meat for a long time to come.