What You Can Do When Tyson, Merck & Chipotle Talk Higher Prices

CreekstoneBeeffiletAmericans eat more beef, about 54 lbs per capita, than we eat of pork, veal and lamb combined. Three major announcements in the past week seem to portend higher beef prices down the road.

We have some suggestions for chefs and restaurateurs on how they can control their food costs and better protect their profits.

First, the Headlines…

Tyson Foods (NYSE:TSN), which provides 26% of the U.S. beef supply, notified cattle feeders that as of September 6th, the company would no longer purchase animals that had been given Zilmax (zilpaterol) a drug added to feed which accelerates weight gain by as much as 30 pounds just before slaughter. http://www.reuters.com/article/2013/08/09/us-livestock-tyson-idUSBRE97805G20130809

Chipotle Mexican Grill (CMG) is considering bending its rules on serving only “naturally raised” beef amid a supply shortage of beef raised without antibiotics. http://www.businessweek.com/articles/2013-08-14/there-arent-enough-antibiotic-free-cows-for-chipotle

Merck & Co.’s (MRK) animal health division said Friday it would temporarily suspend sales of its widely used feed additive Zilmax in the U.S. and Canada following Tyson’s announcement to no longer purchase cattle that have been given Zilmax. http://www.nasdaq.com/article/merck-suspends-sales-of-cattle-supplement-zilmax-in-us-canada-20130816-00280#ixzz2cEZqJmwO

How does this all mesh together?

There’s an interesting dichotomy between the needs to meet consumer beef demand, the growing demand for naturally raised beef, and the need for beef suppliers and retailers to make profits.      

U.S. cattle numbers have dropped to their lowest level since 1973 on the heels of a record-setting drought that decimated feed supplies and forced producers to cull animals.Beef production in the U.S. will decline 4.9 percent in 2014, retreating for a fourth consecutive year according to the USDA. Yet we are producing more edible beef today than sixty years ago in part because of the use of beta agonists like Merk’s Zilmax.That is helping to keep beef prices in check, albeit with lower quality beef because of the drug.  

Suzanne Collett, owner at Fortune Cattle Company, says, “Meat quality is important but losing 15 to 30 pounds off of a Fed Steer makes a huge impact on the supply. If this product (Zilmax) and competitor (Optaflexx), are completely taken off the market this would effectively take away about 5.7 million (and more) peoples’ ability to consume beef at 54 pounds each per year…that’s more than the entire city of Chicago’s population. If all packers follow suit…the impact is much greater. Isn’t it amazing what one product can do…diminish meat quality but feed so many people?”

All Natural beef already commands higher prices than commodity beef. Naturally raised cattle cost more to produce, and they take longer to reach the desired harvest weight. Consequently, few beef suppliers are willing (or able) to sustain on natural beef alone. Hence one of the reasons that Chipolte is  considering bending its rules on serving only “naturally raised” beef amid a supply shortage. With 900 restaurants and growing, Chipoltle’s demand for beef will continue to grow.

If all beta agonists are taken off the market, we’ll have less beef or longer time on feed to get cattle to harvest weight. Both outcomes mean higher commodity beef prices down the road if demand remains the same.

What You Can Do About It

Buedel consistently helps chefs and restaurateurs drive profits in their business with tailored fine meat programs. Here are three suggestions we have to help you preserve profits and control food costs in the face of rising prices.

Use Menu Profit Lock-Ins vs. Weekly Price Shopping Many people we talk with run their businesses by shopping for the lowest price of the week. They assemble the weekly price sheets from vendors, put them all in a spreadsheet and compare prices by item by vendor. Then they buy the lowest priced items from multiple suppliers to control their food costs. While this may ensure you get the lowest price for the week, you will still be subject to the weekly movement of commodity pricing.

Our suggestion is to lock-in menu item profits for blocks of time versus weekly price shopping. To do this, you need to determine your minimum acceptable food cost for the menu price of an item and then work with your purveyor to lock-in a price for a specified block of time. Then you can forget about the weekly price movement because you have your desired profits locked in place.

Doing this may require that you pay more than the current market price for the item at the start, but ensures you won’t pay more when prices rise above the lock. If the prices fall below your price lock point, you still make your desired menu profit. Use your purveyor’s knowledge of the market to your advantage and partner with them to develop a win/win program. 

Embrace the Power of Portion Control Last year I wrote a blog entitled, Should I cut my own steaks or buy pre-cut portion control steaks? which talked about the hidden costs many operators miss when cutting their own steaks or chops. If you’re serving steaks or chops on your menu and cutting them in your kitchen, you’re probably letting profits slip away with unaccounted for costs. 

There are many portion control, or “steak ready” cuts that eliminate the hidden costs of waste and labor. We help our customers quantify their yielded costs of finished goods, and then compare that measure to their desired target profits. Take an educated look at portion control.

Use Small Reductions in Portion Sizes When prices are on the rise a small reduction in portion size can mean large cost savings and higher profits. For example, let’s say you sell a tenderloin filet on the menu for $20.00. Just a small change from an 8 oz portion to a 7 oz portion at a cost of $10/lb increases your menu item profit by 4%! (Of course, we recommend this only when weight is not noted on the menu.) That small 1 oz portion change will be virtually undetectable in size and shape of the filet.

When all three of these suggestions are combined, you will have a strategic and powerful set of tools to put your operation in the best position against higher prices. If you’d like to hear more ideas, contact us: info@buedelfoods.com.

From the desk of  John Cecala   @BuedelFineMeats   Fan Page   Slideshare

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