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Pricing in the Meat Industry

Written By: Gargi Sarma

Meat is more than simply food; it's a sophisticated commodity with a complex web of factors impacting its price. It's a mainstay in many diets around the world. Customers' final price is shaped by a wide range of factors from the farm gate to the shop shelf. To fully comprehend meat pricing, we must examine this complex system and navigate the interactions between supply and demand, market structures, laws, and even psychological strategies.

Figure 1: The Growing Global Hunger for Meat (Source: Statista)

For many years, there has been an increasing global need for beef. The Food and Agriculture Organization of the United Nations (FAO) reports that during the 1960s, the world's meat production expanded fivefold. The FAO estimates that 364 million tons of meat will be produced in 2023.

The Intertwined Dance of Supply and Demand:

The basic economic concept of supply and demand is at the core of the price of meat. Animal availability and pricing can be greatly impacted by a number of supply-side factors, including weather fluctuations, disease outbreaks, feed costs, and livestock breeding cycles. Farmers may be forced to grow livestock to market weight earlier if feed prices suddenly rise, for example. This could result in a glut of smaller animals and possibly lower prices. On the other hand, severe winters may restrict the amount of feed available, reducing growth, and resulting in a drop in supply and subsequently higher prices.

Demand is also very important. The intake of meat can be influenced by cultural customs, consumer preferences, income levels, and even health issues. Increased demand for premium cuts, for instance, might result from rising disposable incomes, while customers may choose leaner choices due to greater health consciousness, which would have an impact on costs across the board.

Market Structures: From Farm to Fork:

Meat travels through a complex network of interconnected parties from farm to fork, all of whom have a stake in the outcome.

Farmers: The initial expenses of growing livestock, such as feed, land, and veterinary care, are borne by farmers because they are the primary producers. The industry's power dynamics and erratic market conditions frequently put pressure on its profit margins.

Packers and processors: These massive companies handle the killing, butchering, and packaging of meat; they also add to processing expenses and have an impact on the cuts and portions that are offered to customers. Over time, their consolidation has led to worries about possible price manipulation and diminished bargaining leverage for farmers.

Distributors and retailers: The final price at the checkout counter is further increased by the markups, marketing expenditures, and transportation charges that wholesalers and supermarkets add. The ultimate consumer pricing is also influenced by the degree of competition among retailers and their ability to negotiate with processors.

Control and Outside Factors:

In addition to market dynamics, the pricing of meat is significantly influenced by government restrictions and external influences. Trade agreements, import quotas, and food safety regulations can affect the supply and demand inside the country, causing changes in prices. Disease outbreaks, such as avian influenza, for example, might lead to import restrictions, which lowers competition and may drive up domestic prices. Similar to this, environmental laws about pollution prevention or animal welfare may increase producer costs, which will ultimately be reflected in the end product price.

Psychological Pricing: Gently prodding customers in the meat section

Even the price tag, which may appear simple, is skillfully designed to affect how customers behave. Charm pricing, which ends prices in nines, such as $4.99, is one technique that lowers costs and creates a sense of value. Anchor pricing emphasizes savings and portrays the final price more enticingly by presenting a higher initial price followed by a discount. When costly cuts are placed strategically next to less expensive options, customers may be persuaded to choose the more expensive options by use of comparison.

Challenges:

The meat industry faces a complex web of challenges when it comes to pricing its products. Balancing profitability with consumer affordability while navigating a volatile market requires careful consideration of several factors:

Demand Fluctuations:

Seasonality: Consumer demand for meat varies significantly throughout the year, impacting prices. Holidays and barbeque season drive up demand, while quieter periods see prices dip. Predicting these ebbs and flows accurately is crucial for setting optimal prices.

Economic Trends: Fluctuations in the economy can significantly impact consumer spending habits. During recessions, consumers might opt for cheaper cuts or alternatives, forcing price adjustments.

Dietary Trends: Growing awareness of health and environmental concerns has led to a rise in vegetarianism and flexitarianism. This shift in consumer preferences necessitates diversification of offerings and potentially lower prices for traditional meat products.

Reliable Transportation:

Perishable nature: Meat is highly perishable, requiring consistent cold chain logistics for safe transportation. Maintaining this infrastructure adds to operational costs, which may be reflected in pricing.

Fuel and labor costs: Rising fuel prices and labor shortages in the transportation sector can significantly impact delivery costs, putting pressure on meat processors to adjust prices accordingly.

Global disruptions: Pandemics, geopolitical conflicts, and natural disasters can disrupt global supply chains, leading to transportation delays and increased costs that may require price adjustments.

Wastage:

Processing losses: During processing, trimming, and packaging, unavoidable meat loss occurs. Minimizing this wastage through efficient practices and technology helps control costs and allows for fair pricing.

Spoilage: Improper handling or storage can lead to spoilage, resulting in lost revenue and potentially impacting future pricing strategies to compensate for these losses.

Consumer waste: Consumers may discard parts of meat due to improper storage or preparation, leading to overall industry waste and potential pressure on producers to lower prices to compensate.

Production:

Feed costs: The cost of animal feed fluctuates based on grain prices and other factors, directly impacting production costs and requiring adjustments in pricing strategies.

Animal health and welfare: Ensuring animal health and welfare often involves additional costs for veterinary care, improved living conditions, and antibiotic-free practices. These efforts might be reflected in higher prices for premium meat products.

Labor shortages: The meat industry faces labor shortages, leading to increased labor costs and potentially requiring price adjustments to maintain profitability.

Additional Challenges:

Competition: Intense competition within the meat industry puts pressure on pricing, forcing producers to find ways to differentiate their products and justify higher prices.

Government regulations: Environmental and animal welfare regulations can add to production costs, which may be reflected in pricing strategies.

Consumer price sensitivity: Consumers are increasingly price-sensitive, demanding value for their money. Finding the right balance between affordability and profitability is crucial for success.

Data & Analytics: Taking the wheel of pricing:

Meat producers and retailers are depending more and more on advanced analytics to guide their pricing strategies in the data-driven world of today. To forecast demand and improve pricing models, they monitor rival pricing, consumer preferences, industry trends, and even meteorological patterns. Through the examination of past data and current sales figures, they can dynamically modify prices, providing specific discounts or modifying markups in response to shifts in demand.

Produce Freshness Detector: Integration with POS Data - Retailers in the meat business can precisely monitor the sales performance of fresh produce by connecting the data from the Produce Freshness Detector with point-of-sale (POS) information. By optimizing revenue and decreasing waste, this integration enables dynamic pricing adjustments based on real-time freshness indicators.Teys Australia: This major Australian meat processor uses the "Shelf Life Predictor" system, which combines sensors, machine learning, and cloud-based analytics to assess meat freshness and predict shelf life. Integrating this data with POS allows for informed dynamic pricing based on real-time product quality.

In-Store Display: Integration with Demographic Detection Camera - Retailers can customize promotional content based on the demographics of the customers present by merging data from demographic detection cameras with information from in-store displays. For example, personalized advertising might be displayed based on the preferences of a certain demographic, such as meat varieties, to maximize sales and decrease waste.InContext Solutions: Integrates in-store displays with shopper behavior data, which could include pre-existing demo data.

Expiration Date Tracker: Integration with Inventory Data - Inventory management systems that integrate data from expiration date trackers guarantee proactive handling of merchandise that is about to expire. This integration reduces waste by enabling prompt restocking, markdowns, or targeted promotions to move out merchandise before it goes bad.Fishbowl: This popular cloud-based inventory management system (IMS) offers built-in expiration date tracking, batch and lot control, and real-time stock visibility to minimize waste and optimize product movement.

Demographic Detection Camera: Integration with POS Data and Electronic Shelf Labels - Retailers may learn more about how different populations purchase by combining POS data, electronic shelf labeling, and demographic detection camera data. Strategic price decisions, such as providing discounts or promotions during peak hours for particular consumer groups, are made possible by this knowledge, which maximizes revenue.Criteo: Specializes in retargeting and dynamic product ads, potentially benefiting from real-time purchase data from POS systems.

Electronic Shelf Labels: Integration with GS1 Barcode Data and Inventory Data - Accurate product information and inventory levels can be obtained by integrating GS1 barcode data with electronic shelf labels. By ensuring that the price on the shelf corresponds with the real product data, this integration lowers pricing errors. Real-time information on inventory levels also reduces waste by preventing stockouts and overstocking.RapidPricer: RapidPricer integrates electronic shelf labels with barcode data and inventory management systems which ensures accurate pricing and helps manage stock levels to avoid overstocking and waste.

GS1 Barcode Data: Integration with POS Data and Weather Data - When paired with real-time weather information and point-of-sale data, GS1 barcode data enables shops to modify prices in response to outside variables. For example, shops can use targeted promotions or discounts on particular meat products to increase demand and minimize wastage during bad weather.GS1 Barcode: When a product with a GS1 barcode is scanned at checkout, POS systems can immediately identify the product and link its sales data to real-time weather information. This allows retailers to implement dynamic pricing strategies or targeted promotions based on weather patterns.

Integration with Weather Data: Reduction of CO2 Emission - Effective supply chain management is made possible by the integration of weather data with inventory and transportation systems. Businesses can minimize CO2 emissions and fuel usage by optimizing transportation routes based on weather conditions. Furthermore, precise weather forecasts support demand forecasting by avoiding overstocking and the waste that follows.Microsoft Azure Maps: Offers various geospatial services, including weather forecasting APIs, that can be integrated into supply chain management and logistics software.

Benefits:

Strategic Pricing Decisions: Retailers may optimize income by making well-informed pricing decisions based on customer behavior, product freshness, and real-time considerations, thanks to the integration of these devices and data sources.

Reducing Wastage: By making sure that products are sold before they expire, proactive freshness monitoring, accurate inventory management, and focused promotions help to reduce wastage.

Minimization of CO2 Emission: The supply chain's integration of meteorological data optimizes transportation routes and cuts down on pointless stock movements, hence minimizing CO2 emissions and promoting sustainable practices in the meat business.

Case Studies: Unveiling the Pricing Puzzles:

The Chicken Conundrum: In the US, broiler chicken production is dominated by vertically integrated companies that control all aspects of the production chain, from breeding to processing and retail. This gives them significant control over supply and pricing, leading to relatively stable, but possibly lower prices for consumers.

The Wagyu Wars: Premium cuts of Wagyu beef, renowned for their marbling and intense flavor, command significantly higher prices due to limited supply and stringent breeding practices. Producers in countries like Japan and Australia rely on careful market segmentation and targeted marketing to justify the premium pricing.

RapidPricer: RapidPricer helps automate pricing, promotions, and assortment for retailers. The company has capabilities in retail pricing, artificial intelligence, and deep learning to compute merchandising actions for real-time execution in a retail environment. RapidPricer solution focuses on a strategic subset of products within the meat category characterized by limited shelf life and seasonal stability. To measure the solution's effectiveness, RapiPricer establishes clear Key Performance Indicators (KPIs) which aim to achieve the following objectives for the meat industry:

Reduce food waste through optimized pricing.

Increase net margin by minimizing losses.

Boost revenue by maximizing product sell-through.

Moreover, RapidPricer can work on data analytics with the above-mentioned partner ecosystem.

Figure 2: RapidPricer’s Solution

Conclusion:

To sum up, in the meat industry, efficient pricing techniques are critical to striking a careful balance between optimizing profits, reducing waste, and advancing sustainability. Businesses can make strategic decisions that align with consumer preferences and market dynamics by utilizing cutting-edge technologies like produce freshness detectors, in-store displays, and demographic detection cameras. These technologies can be seamlessly integrated with data sources like inventory, GS1 barcodes, POS, and weather information. By minimizing CO2 emissions and significantly reducing food waste, the application of such comprehensive pricing strategies not only maximizes financial outcomes but also helps to reduce environmental effects. As the meat business develops, adopting creative pricing strategies guarantees not only financial success but also a dedication to satisfying consumers' shifting needs and promoting sustainable practices for a healthier future.

About RapidPricer

RapidPricer helps automate pricing and promotions for retailers. The company has capabilities in retail pricing, artificial intelligence and deep learning to compute merchandising actions for real-time execution in a retail environment.

Contact info:

Website: https://www.rapidpricer.com/

LinkedIn: https://www.linkedin.com/company/rapidpricer/

Email: info@rapidpricer.nl