From Meat Manager to Jewelry Store Manager
At the time that I am writing this we are experiencing some of the highest costs in the wholesale beef market that we have ever seen and they are predicted to continue to increase. We have all seen the beef market go up before. The question we all have as retailers is what to do. Do we raise our prices or do we try to wait it out and absorb the increases in the hope that our costs will come back down?
Personally as a butcher and retailer I have always tried to hold on to current retail prices until I am convinced that an increase is absolutely necessary. I would rather make one necessary price increase than overreact and increase retails several times. I do not want my customers reacting to an unnecessary price increase. Consumers never handle price increases very well and if it is one that was not warranted or was not in line with the entire market place it can be perceived as us, the retailer, trying to increase gross profit on the backs of the consumer. I know that I do not have any more insight into the future of wholesale beef prices than you do, but there are many analysts predicting that these price increases will hold. Since the end of December the wholesale cost of round and chuck sub primal cuts of beef have increased as much as $1.00/lb. In some cases this was a 40% increase. Producers have been trying for several years to find the right combination of herd size and demand that would yield wholesale prices that they believe are necessary to ensure their profitability. Today’s herd sizes are the result of decisions that were made two years ago and because of that this does not seem to be something that is going to go away anytime soon.
These are some very basic suggestions that I’m sure you are already performing:
1. Price checks will help you know if you have room to move within your retail market area without being perceived as being over priced. You might find an item that’s cost didn’t go up but had potential for increase profits, maybe in chicken or pork.
2. Cutting tests actually performed by your butchers should give you a better idea of the actual gross profit that your butchers are producing from Sub-Primal beef cuts. Remember to produce only retail cuts that you will be able to sell during normal business. If you use merchandising cuts in your cutting test, the tests may not reflect the actual gross profit that a primal is yielding in your store.
3. Knowing the mix of what you actually sell over a period of time will allow you to know how a price increase will effect your bottom line. If you have room for a small price increase on a high volume item, it will yield more gross dollars than a large increase on a low volume item.
As our costs increased this past January we did all of the items above, but we added one more step, a meat department meeting to explain to our butchers what was happening. Back in the 1970’s, when I first became a Meat Manager working for a regional supermarket chain, we had similar cost increases in the beef market. The district supervisor and meat specialist held a meeting for all the meat managers in our district. One thing they said to the group has remained in my memory all these years. He told all of us with the cost increases, it could be said that we were no longer Meat Managers but Jewelry Store Managers. He told us that retail increases would only help so much but the quality and consistency of our butchers was much more important. I relayed this to my butchers and reminded them of the important role they play in the success of our meat department.
One last suggestion is to not be taken in by low cost product that seems too good to be true. Know the trim standards of the packer whose product you are buying. Extra Trim, XT, does not mean the same thing to every packer. Trim standards vary enough from each packer that product will yield totally different gross profits.
Bob Buonomano
bob@helpsavethebutchers.com
