BIF How to satisfy the 21st century beef consumer

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BIF How to satisfy the 21st century beef
consumer!

• Paul Heinrich
• SYSCO Corporation
• April 19, 2006

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Agenda

• Background on SYSCO
• State of the Food Service Industry
• How to satisfy the 21st century beef consumer
• Identify
• Trends
• Needs
• How you can deliver

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SYSCO Corporation

• Founded over 35 years ago
• Mission Statement Helping our Customers Succeed
• FY 05 Sales 30.28 B, 4.0 B Meat
• 47,500 Employees
• 8000 Sales men women

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SYSCO Corporation

• 400,000 Customers
• White Table Cloth
• QSR
• Health Care
• Schools
• Casual Dining
• We offer the widest variety of beef products in
  the industry

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SYSCO Corporation

• 166 Distribution locations throughout North
  America
• 18 dedicated meat processing facilities
  throughout the USA and Canada

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State of the Food Service Industry

• 483 billion market

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State of the Food Service Industry

• Since SYSCOs existence, we have seen tremendous
  growth from families spending more time and money
  eating away from their home.
• In 1970 less than half of women worked outside
  the home. That number has changed to 2 out of
  every 3.
• Federal Reserve Bank of Kansas City

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State of the Food Service Industry

• More disposable income
• Less time to prepare meals

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State of the Food Service Industry

• Last year was the first year on record that more
  independent restaurants closed their doors rather
  than opening them.
• Alarming trend in the wrong direction.

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State of the Food Service Industry

• High fuel cost and more consumer debt has reduced
  the amount of disposable income in our customers
  pocket book.
• Disposable income spent on food has declined from
  14 in 1970 to 11 more recently.
• Center for the Study of Rural America

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State of the Food Service Industry

• An article appearing in USA Today on March 1,
  2006 claimed that on average families spent 568
  more than they earned in January 2006.

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State of the Food Service Industry

• High food cost have hurt as well. FY 05 SYSCO
  saw 7 inflation overall.
• Over the past three years, our inflation for beef
  has been closer to 15

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State of the Food Service Industry

• Trend moving away from mid-level restaurants and
  going towards the QSRs (cheaper meal).
• White table cloth continues to do well as more
  and more entertainment is occurring.

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SYSCO Goals For The Beef Industry (Stated at NCBA
Strategy Workshop)

• Improve Eating Quality of Beef
• Improve Consistency of Beef
• Reduce Cost
• Reduce Size
• Reduce Fat
• Reinforce Safety

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Who is the 21st century consumer?

• Matures gt60 yrs (45.8 million)
• 72.2 know before 3 pm whats for dinner.
• 67 say that they are making a sustained effort
  to eat healthy
• 73.1 say they usually stick with familiar
  choices.
• New American Diner Study

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Who is the 21st century consumer?

• Baby Boomers 40 59 yrs (73.6 million)
• Harshest judge of food quality
• Less likely to use the drive-thru
• 26.7 say they always tell management if they are
  dissatisfied with a meal.
• NADS

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Who is the 21st century consumer?

• Gen X 30 39 yrs (43.2 million)
• More value conscious.
• 56.1 described themselves as adventurous
• 40.4 describe leisure dining as quality time
• NADS

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Who is the 21st century consumer?

• Gen Y lt 29 yrs (118.8 million)
• 47.5 know before 3 pm whats for dinner.
• Nearly 3 out of 10 prefer eating away from
  restaurant.
• 39.5 use the internet to make eating choices
• NADS

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Comparing the GenerationsAmount spent on food

• 75 (gt 60 yrs)
• 102 ( 30 - 39 yrs)
• 123 ( 40 59 yrs)
• NADS

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CattleNetwork.com

• While the largest financial spot for new food
  products is the aging baby boomers, the biggest
  demographic change is the browning of America.
  The fast growing population of Latinos and Asians
  are bringing their own taste of foods that will
  soon become standard American fare.

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CattleNetwork.com

• Consumption of food labeled as Mexican has
  jumped 400 in the last 20 years.
• Sales of salsas surpasses ketchup!
• Tortillas will soon outsell white bread!

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CattleNetwork.com

• Tyson Fresh Meats, Inc. introduced a new premium
  thin sliced beef product (rebanado delgado).
  This product is produced from the chuck, round,
  sirloin, skirt and sirloin flap.
• Four, six and eight millimeter slices

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The Land of the Clueless Shopper

• Andrew Zimmerman, a Minnesota based chef and TV
  personality stated that the meat counter at the
  supermarket confuses 99 percent of the people, in
  my estimation.
• Cargill took that statement to heart releasing
  their consumer friendly labeling that informs
  whether or not the cut is right for the grill,
  skillet or oven.
• Yahoo.com

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Trends

• Why is the meat industry changing? Consumer
  demand is shifting toward food products that are
  easy to prepare while also promising safe eating,
  improved nutrition and greater consistency.
• Center for the Study of Rural America

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Trends

• Natural and/or Organic
• Convenience
• Take-out, Catering
• Pleasure
• Cost
• Diet
• Menu Changes
• Labor Force

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Natural and/or Organic

• National Beefs research shows that close to 70
  of American households are interested in some
  kind of wholesome, healthy and natural food
  products.
• Cattle Buyers Weekly estimates that the natural
  beef segment is now worth over 1 billion.

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Natural and/or Organic

• The Organic Trade Association says sales of
  organic products will increase 18 annually
  through 2008
• 2/3s of American consumers have bought organic
  products at least once and up to 20 purchase
  them on a regular basis.

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Who is buying Natural/Organic?

• Consumers between 45 to 54 are most likely to
  purchase organic goods.
• 45 of teens who find All-Natural motivating.
  (BuzzBack)

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Convenience

• 52 of drivers who say they eat while in the car.
  (Mason-Dixon polling and research)
• 73 note that it is easier to go to a restaurant
  than to have a home cooked meal.

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Convenience

• Dont know what they are having for dinner!
• - 89 at noon
• - 62 at 4 pm
• Technomic 05

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Take-out

• Top 10 Casual Dining Takeout Sales
• - 1.628 Billion (Up 17) - - growing over
  twice as fast as dine-in.
• Takeout frequency 2.6 times/month
• Next 5 years 27 surveyed will use takeout
  more.

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Take-out

• Most recent type of food ordered for takeout
• - 2 steak
• - 31 burgers

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Take-out

• For some chain operators, curbside pickup now
  accounts for as much as 9-11 of sales.

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The Takeout Challenge

• To help items such as beef journey out of the
  restaurant, chefs cook the product to only rare
  or medium rare temperature.
• Reason - Juiciness, flavor, palatability
• Problem Bacteria still present
• Nations Restaurant News

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The Takeout Challenge

• Some restaurants are starting to use better
  ingredients for take-out orders.
• Improving packaging also helps.
• Nations Restaurant News

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Catering

• Most popular serving equipment last year was
  chafers. Warmers was a close second.

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Pleasure

• 3 out of every 4 consumers rank dining out among
  their favorite activities.
• North American Diner Study (NADS)

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Restaurant Traffic

• Customer traffic will be flat or down in 2006
  forcing many concepts to boost menu prices to
  maintain growth. Menu prices are expected to
  grow 3.2 this year.
• Technomic

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Cost

• What one change would increase the number times
  you eat out? 55 of the respondents said If
  they had more money.
• NADS

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Dieting

• Three studies in the Journal of the American
  Medical Association showed that women who ate
  less fat and more fruits and vegetables did not
  reduce their risk of cancer or heart disease.
• High protein diets of 2004 have quickly vanished.
• Many big food companies that spent billions
  re-configuring their products to be low-carb are
  now doing the same thing to become low sugar.
• RI

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Menu Changes

• 31 of women who say they often share a
  restaurant entrée with a dining companion. (RI)
• 75 of consumers who say they would like
  restaurants to provide information on safe
  storage and reheating of leftovers. (American
  Dietetic Association)

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Menu Changes

• 32 of men who say they always finish their
  restaurant entrée vs. 9 for women. (American
  Institute for Cancer Research)
• 51 of Americans believe that portion sizes are
  often too large. (NADS)

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Menu Changes

• White table cloth downsizing beef entrées
• - Subprimals too large
• - Prevent increase menu cost
• QSR increasing portion sizes
• - Taking advantage of higher menu prices
• Most restaurants are featuring more pork, seafood
  and poultry
• - Not taking beef off of the menu, but
  redirecting focus

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Labor Force

• 32 of hospitality-industry workers who say they
  plan to pursue opportunities outside the industry
  by year-end. (Careerbuilder.com)

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Location, location, location

• Beef is more likely to be the entrée of choice in
  rural areas,75 lbs per person/year vs. suburban
  areas, 63 lbs pp/y (USDA Economic Research
  Center)
• 14.8 of adults who say that if they were going
  to a restaurant tonight, chicken most likely
  would be their entrée of choice, versus 22 for
  seafood and 20 for beef. (RI)

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SYSCO Goals For The Beef Industry (Stated at NCBA
Strategy Workshop)

• Improve Eating Quality of Beef
• Improve Consistency of Beef
• Reduce Cost
• Reduce Size
• Reduce Fat
• Reinforce Safety

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Improve Eating Quality of Beef Why?

• Continue to romance customers (entertainment)
• Eliminate cost aspect from consumers mind (taste
  buds vs. pocket book)
• Eliminate doubt!
• Keep them coming back for more!

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Improving Eating Quality of Beef

• Increase tenderness, juiciness and flavor
  (overall palatability).
• Decrease dark cutters, poorly marbled cattle and
  cattle that have higher amounts of connective
  tissue.

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Improving Eating Quality of Beef

• Hot Topics
• Still seeing USDA Standard carcasses
• Lack of USDA Prime beef
• Lack of predictable tenderness score
• New cuts of beef
• Warm Topics
• Bruising on subprimals
• Injection site blemishes

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Improve Consistency of Beef

• Accurately predict eating experience
• Accurately determine the proper way to cook

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Improve Consistency of Beef Why?

• Customers dont want to take chances.
• Better educate consumers/chefs/cooks on cooking
  mechanisms, quality and cut. (Make it fail-proof)

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Improve Consistency of Beef

• Hot Topics
• More accurately label No Roll beef
• Lack of uniformity in the box (size, yield,
  marbling, tenderness, juiciness, flavor)
• Warm Topics
• Guaranteed tender claims
• Genetic markers for tenderness

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Reduce Cost

• Keep profit margins intact for all parties and
  focus on reducing the inefficiencies that is
  costing our industry money.
• Businesses losing money generally cut corners!
• Product quality, service suffer

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Reduce Cost Why?

• Beef cost considerably higher than either pork or
  poultry.
• Beef has more variability in eating quality
  versus pork or poultry.
• Imported Beef, considerably cheaper.
• Other protein categories growing twice as fast as
  beef in foodservice.

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Reduce Cost

• Hot Topics
• Survivability of food service establishments
• Prevent an erosion of purchasing lower grade
  products, thus reducing product quality and
  dissatisfying customers.
• South America, Australia, New Zealand, Mexico
  Canadian imports. Lower quality but cheaper!

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Reduce Size

• Reward for smaller weights
• Give the customer what they want

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Reduce Size Why?

• Product too inconsistent in size.
• Hard for food service establishment to gauge
  portion sizes. Lowers profit. Labor force is an
  issue in our industry.

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Reduce Size

• For five years now, Sysco has been sending a
  strong signal back through the packer that we
  want smaller product. Our customers will only
  pay a slight premium. If we arent giving the
  customers what they want and they wont pay
  enough for that difference, lets face the facts
  and start doing something as an industry to cut
  and market meat differently

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Reduce Size

• We are seeing a growing trend of restaurants,
  particularly high end establishments reducing
  portion sizes on steaks and roast.
• If the food service industry reduces portion
  sizes of beef, we need customers eating beef more
  often to maintain consumption.
• May be able to maintain menu price levels thus
  increasing profitability.

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Reduce Fat

• Reward For Less External/Seam Fat Eliminate the
  YG 4s 5s

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Reduce Fat

• Restaurants are yielding considerably less than
  they have in the past five-ten years meaning
  lower profits.
• Increasing external fat also increasing seam fat
  thus making the product less desirable. Ex.
  Kernel fat.
• Lean trend, especially at Universities, Colleges
  and upscale neighborhoods.

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Reinforce Safety - Why?

• Customers need to consistently be aware that beef
  is safe. Words like BSE, Foot Mouth should be
  used frequently to alleviate fears within our
  population.
• Consumers 50 and over have 70 wealth in the U.S.
  This trend is fueling the healthy, organic and
  natural products.

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New Kind of Producer Alliances

• New generation alliances
• Fixed membership
• Everyone agrees on exactly
• - what product will be produced
• - how it will be produced and marketed
• - and in some cases how it will be processed and
  sold.

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In conclusion

• What we need from you (beef industry)
• Increase quality
• Make the product more predictable
• Position yourself ahead of the curve to capture
  market share
• Maintain positive margins for all parties
• Reduce inefficiencies