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BEEF producers and consumers often wonder about menu prices for beef entrees like New York strips and other steaks because the price seems to be a hefty premium to what producers are paid for their cattle and even to what packers are paid for their beef.
However, the food system's work is not yet done when the beef leaves the plant. "The reality," according to Mark Polzer, is that a product "doesn't go right from the packer to the plate. There are important steps in between."
Polzer is vice president of Certified Angus Beef LLC (CAB).
The in-between steps take place at the distribution and restaurant levels, according to Ron Becker, president of Stock Yards Meat Co., and Rock Cassara, owner of John Q's, an upscale restaurant in Cleveland, Ohio. Stock Yards is a division of U.S. Foodservice Inc., the second-largest foodservice distributor in the U.S.
Aggressive costs
Distributors cut and package steaks to their customers' specifications and provide market-related advice such as new products and price trends, Becker said.
They also focus on food safety and quality control, conducting inspections of delivery trucks, monitoring temperatures and assigning tracking numbers, he said, noting that "we have full traceability on every case."
They also age beef, normally for 14-30 days, he said, explaining that this means that beef inventory might be tied up for as long as a month, representing a significant amount of money.
Customers can request the brands and even packer sources they want and specify how they want beef cut, diced, trimmed or marinated, he said.
Customers also can enter orders as late as 5:30 p.m. for next-morning delivery, Becker said. They can wait until after lunch to determine how much and what kind of product they will need the next day, but there are expenses for distributors, including operating multiple shifts and running smaller trucks to make late-night or early-morning deliveries, to provide such an "aggressive service platform."
Food safety and workplace safety require special vigilance, he said, and aggressive service and vigilant attention to safety and other specifics create expenses, including liability insurance and pay and wages.
There also is the growing issue of "bad debt" when customers are not able to pay their bills or close, he said, noting that the National Restaurant Assn. estimates that 17,000 restaurants will go out of business this year.
All of this confines distributor profit expectations to 3-5%, Becker said.
More than plates
Restaurants generally go on similar margins, Cassara said, adding that the economics of business for a restaurant "is not just a plate of food" and its price but involves costs for food and other items from that plate to the dishwasher and oven, as well as specially trained workers from the chef and dishwasher in the back of the house to the manager and wait staff in the front of the house.
Price also involves ambience, or atmosphere, and the finer the dining experience, the higher the price needs to be to create that atmosphere, he said.
Accordingly, menu prices may be marked up two or three times the costs of beef and other food items coming into the restaurant to achieve basic margin, Cassara said.
He suggested that the restaurant business is one of a few businesses "where we not only see the finished product, but we manufacture it (just before selling it) as well. We get in raw goods at the back door, make it in the kitchen and then bring it out and sell it. It takes a lot of capital to do all those things."
Menu prices represent a lot of risk and work, he said.
Vested issue
The situation is similar for meat case managers in retail stores, according to CAB retail director Al Kober. Retail beef prices aren't based only on the costs to purchase the product but on the cost of operations and other overhead, including what can be more than $100,000 worth of equipment for cutting, grinding and wrapping meat.
There's also the balancing act between having enough inventory and overstocking because meat cases need to be stocked with enough product to be inviting without a store having too much product on hand due to the short meat case shelf life, which is normally three days, added Randy Irion, channel marketing director at the National Cattlemen's Beef Assn.
Meat departments have to sell everything in the case or it will spoil, he said, but at the same time, too few products will make the meat case look "rummaged over," almost as if there's something wrong with the meat.
All segments of the food system need to be profitable, Kober said. However, each segment has its own interests to manage, he said, and every segment has a vested interest in each segment's profitability. | 
