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At the time of this writing, we are experiencing some of the highest costs we’ve ever seen in the wholesale beef market, and they’re predicted to continue increasing.
We’ve seen the beef market go up before. The question we all have as retailers is, what do we do about it? Do we raise our prices, or do we wait it out and absorb the increases in the hope that they’ll come back down?
Personally, as a butcher and retailer, I’ve always tried to hold on to current retail prices until I’m convinced that an increase is unavoidable. Consumers never handle price increases well, and if it’s one that isn’t warranted or in line with the entire marketplace, it can be perceived as retailers trying to increase gross profit on the backs of the consumer.
Since the end of December, the wholesale cost of round and chuck subprimal cuts of beef have increased as much as $1 per pound — a 40 percent rise in some cases. 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 made two years ago, and because of those decisions, we may be stuck with price increases for the near term.
Here are some basic items that are important to know in these situations:
- Price checks will help you know if you have room to move within your retail market area without the perception of being overpriced. You might find an item whose cost didn’t go up but that had potential for increased profits, such as in chicken or pork.
- Cutting tests performed by your butchers should give you a better idea of the actual gross profit that they’re producing from subprimal beef cuts. Remember to produce only retail cuts that you’ll 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.
- Knowing the mix of what you actually sell over a period of time will allow you to know how a price increase will affect 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, with one addition: a meat department meeting to explain to our butchers what was happening. Back in the 1970s, when I first became a meat manager at a regional supermarket chain, we had similar cost increases. The district supervisor and meat specialist held a meeting for all of the meat managers in our district and told us that with the cost increases, we were no longer meat managers, but rather jewelry store managers, in that retail price increases would help only so much — the quality and consistency of our butchers and their products were much more important. In January, I relayed a similar message to my butchers, reminding them of the important role they play in the success of our meat department.
One last suggestion is not to be taken in by low-cost product that seems too good to be true. Know the trim standards of the packer whose product you’re buying. Extra trim (XT) does not mean the same thing to every packer. Trim standards vary enough from packer to packer that product will yield totally different gross profits.