Your Reading List

Consumers’ food spending switch

Prime Cuts with Steve Kay from the September 2016 issue of Canadian Cattlemen

All wealth of the North American beef industry comes from consumers. So how much they spend on beef and where they spend it is of vital interest to all participants, from cow-calf producers to processors and distributors.

One of the most striking trends in the U.S. protein complex this year is how lower beef prices have helped Americans rekindle their love of a good steak. As part of this trend, equally fascinating is the swing in consumer food spending back to the grocery store at the expense of restaurants.

The last seven years have been especially instructive in revealing the relationship between price and consumers’ ability to pay for the protein of their choice, whether at a grocery store or in a restaurant. The great recession and its aftermath had two key impacts on Americans’ protein-eating habits. First, they spent more of their food dollars at retail rather than at food service, spending that is normally about 50:50. Even a small percentage swing meant billions more dollars flowed into grocery stores in the late 2000s. Second, and related to beef buying, Americans who still wanted their “beef fix” cut back on buying the more expensive steak items and instead bought more ground beef.

What occurred next was a graphic example of how price can hurt sales and demand. Extreme drought from 2010 to 2012 shrunk the U.S. beef cow herd to its lowest level in more than 60 years. This pushed live cattle and wholesale beef prices to record-high levels that are not likely to be seen again for many years. Retail ground beef prices reached record levels and hurt sales. Consumers late last year also began to suffer from ground beef “fatigue” and retail sales have remained weak since then. Meanwhile, beef in 2014 and into 2015 became less and less competitive with pork and chicken throughout the retail meat case and in restaurants.

This year has seen a reversal of these trends for beef. Production is up on last year, by 4.4 per cent by the third week of August. Second, and more important, wholesale beef prices have been much lower than last year, especially this summer. Retailers have featured beef more aggressively than for several years and consumers have responded. Most retail chains report that their protein sales, led by beef, are up sharply so far this year on last year.

Restaurant chains, from hamburger to steakhouse chains, cannot make the same claim. Traffic and spending is static at best and expectations for the next several months are somewhat negative. Some restaurant equities analysts even forecast that the restaurant indicators portend a coming recession.

That seems overly alarmist. What appears to be happening is that Americans realize their food dollars go far further in the grocery store than in a restaurant. In addition, steakhouses and other restaurant chains have bombarded consumers with an endless succession of coupons this year. But these attempts to attract more patrons have instead confused consumers, who don’t know what’s a bargain and what isn’t. In the grocery store, Americans can recognize a good meat deal when they see one.

Hamburger chain Wendy’s in early August openly acknowledged the switch in consumer food spending. The widening gap between supermarket and restaurant prices is far and away the biggest driver for recent softness in the restaurant industry, noted Wendy’s CEO Todd Penegor. It’s gotten a lot cheaper to get beef at your local butcher and go home and grill it, he said. How true. But the beef industry needs strong sales at both retail and food service. Let’s hope the restaurant business gets back on track soon.

About the author


A North American view of the meat industry. Steve Kay is publisher and editor of Cattle Buyers Weekly.



Stories from our other publications