Current Approaches and Alternatives to Direct Marketing Beef in Virginia

1. Current Approaches and Alternatives to Direct Marketing Beef in Virginia Denise Mainville mainvill@vt.edu Direct Marketing Beef workshop February 13, 2008 Weyers Cave, Virginia

2. What do I mean by �direct market� beef? �Sales of products which retain the identity of the producer all the way to the consumer.� Generally this refers to farm-to-consumer Also branded sales, etc.

3. In Context Why direct market beef in Virginia?

4. In Context How do you compete? Commodity versus Differentiated products Cost versus Quality competition Price versus Value

5. How Does the Market Work? Commodity versus High-value markets �Cutting out the middleman� High-value versus value-added

6. Summary: Sources of Value Quality differentiation on tangible & intangible attributes Value over price High-value more important than value-added

7. Current Situation:Direct Marketed Beef in Virginia Data Survey of farmers direct marketing beef Contacted all potential respondents 42 completed responses Very high & enthusiastic participation! Questions What are the characteristics of farms that d.m. beef? What production systems are used? What processing & distribution systems are used What marketing strategies are used?

8. Marketing Beef Every respondent sold direct to consumers 51% is sold on-farm 29% is sold at farmers markets Primals and sub-primals are marketed similarly

9. Marketing 72% use pasture-fed as the main attribute 46% use �local� to get the customer�s attention

10. Pricing Top quality steak Average: $13.72/lb Range: $4.50-$20.00/lb Roast Average: $5.30/lb Range: $3.50-$7.99/lb Hamburger Average: $4.17/lb Range: $2.50-$5.25/lb

11. Pricing Producers tend to under price their products! �Cost +� is fine for determining break even pricing (i.e. minimum you must charge to have a sustainable business) But �cost +� doesn�t take into account demand for unique product attributes! Demand-driven pricing focuses on what consumers are willing to pay�

12. Potential for Expansion? Is there potential to expand sales direct to consumers through farmers� markets? Approximately 110 farmers� markets in VA Range from very small to very large Success of farmers� market depends on having selection, quality, volume At least 2 producers/type of product is ideal, depending on size of market

13. Strategies for Entering or Expanding Market Start with demand: Who can you sell to (demographics) and what attributes do they care about? Consider supply What attributes can you supply at reasonable cost? What access do you have to processing & distribution resources? What is the appropriate market outlet? Start-up costs, customer access, need for your product

14. Production and Marketing System Direct marketing Small scale Time intensive Diversity in production system

15. Alternative Market Outlets for Beef? Why? Interest in scaling up high value beef production in VA Perceived demand

16. Interviews Kroger Serves six states 130 stores Food City Serves three states 92 stores Ukrop�s 29 stores, Concentrated in Richmond area

17. High Value Beef Currently Kroger is selling Coleman�s Beef and Laura�s Lean brands Ukrop�s is currently selling their own All-Natural Beef brand as well as organic fresh ground beef from Organic Prairie Food City doesn�t have any high value beef products but (at time of interview) was getting ready to launch own pasture-raised beef brand

18. Ukrops Big push on local marketing-great tools and displays Anti-hormone free is the selling point Also see potential for organic Kroger Don�t see a demand for local Significant demand for �natural� Potential for organic Food City Emphasizing locally raised in new product

19. Opportunities Customers wanting local, healthy, anti-hormone products General lack of interest in PFB except for Food City Perceived demand for organic at all locations

20. Entry Requirements and Constraints Volume Requirements Supply all stores in regional area in most Supermarket scenarios 10-20 head per week 2 cases per store per week for Ukrop�s organic ground beef Consistency in quality, volume, service Insurance, certification of safe post-harvest practices, etc.

21. Entry Requirements and Constraints cont. Seasonality of beef demand Summer vs winter preferences for beef Juggling of prices to balance supply and demand and sell entire animal Promotion and marketing of the product Suppliers may have to help fund the promotional activities for the product

22. Conclusions Potential for Virginia producers who can Meet volume, consistency, service requirements Stay afloat financially Locally oriented stores�e.g. Ukrops, Food City, willing to work with suppliers to develop program. Other stores (e.g. Kroger) if brand provides a unique selling point

23. Conclusions Potential consumer demand for Virginia beef depends heavily on market outlet Issues Volume capacity of suppliers Ability to meet quality, service, other requirements Producers� ability to offer a strong program with volume, quality, & service

24. Summary Identify & develop sources of value Develop a business plan! Look to market outlets that match your capabilities, and be careful not to overwhelm existing markets

25. Retailer Perceptions of pasture-finished beef potential Interviewed three supermarket chains active in Virginia Customers wanting local, healthy, anti-hormone products No demand for pasture-fed beef in particular (with one exception) Natural beef important, but generally supplied at national level Perceived demand for organic at all locations

26. Entry Requirements and Constraints Volume Requirements Supply all stores in regional area in most Supermarket scenarios Consistency of supply 10-20 head per week 2 cases per store per week for Ukrop�s organic ground beef Seasonality of beef demand Summer vs Winter preferences of beef

27. Entry Requirements and Constraints cont. Juggling of prices to balance supply and demand Must sell entire cow Promotion and marketing of the product Suppliers may have to help fund the promotional activities for the product

28. Virginia Producers Some supermarkets�especially Virginia or regional, willing to invest in programs to support the local farmer Potential for producers joining together to meet the demand so a consistent supply can be met

29. Summary of Retail results Consumer is mainly concerned with the healthiness of the product with mild concern about it being raised locally Main constraint to the buyer is price and ensuring the proposed program will be successful Supply side is faced with the obligation to meet the volume and consistency requirements

30. Direct Marketing Beef in Virginia Denise Mainville mainvill@vt.edu