Mktg Direct to Consum 08.pub

Sheep Home Study Course

Profitable Sheep and Lambs

Updated 2008

Program of

the College of

Agricultural

Sciences

Marketing Meat Animals Directly

to Consumers

Written by William R. Henning

Associate Professor of Animal Science Extension at Penn State University

Selling directly to the consumer may sig-

nificantly increase profits and prices above those

received in conventional markets. Small-scale

operators and part-time producers, in particular,

have the opportunity to market additional services

or special aspects of their product and realize sig-

nificant price premiums. Four types of activity are

generally considered as direct marketing of live-

stock:

• Selling directly to a packer or buyer on a live

or grade and yield basis. This is the textbook

type of direct marketing.

• Setting up a slaughter facility and merchandising carcasses or retail cuts directly to

the consumer.

• Selling the live animal to the consumer who has the responsibility of making

slaughter arrangements.

• Selling all or part of the carcass to the consumer after slaughter by an established

and inspected butcher shop. This option, often referred to as producing for the

freezer trade, is the primary focus of this publication.

Advantages of Direct Marketing

The following discussion covers some ad-

vantages of this practice in relation to other sell-

ing methods. Potential for increased costs and

other considerations are discussed under other

headings.

Penn State Extension in Bedford County

Penn State Extension in Fulton County

120 W. John Street, Suite 2, Bedford, PA 15522 - 814.623.4800

216 N. Second Street, Suite 2, McConnellsburg, PA 17233—717.485.4111

One method of direct marketing is to sell

meat by the half or quarter.

These packages of ground beef are one portion of a

beef carcass that was sold through direct marketing.

Higher prices for small groups

By selling directly to the consumer, the producer sets the price and doesn’t experience

the price discrimination generally encountered when selling small groups of animals. In con-

trast, most packers/buyers want large enough groups of livestock to pay costs of buying and

trucking the animals; they are unlikely to make a trip to the farm to offer a bid on three or four

steers. Even in auction markets, small groups of livestock tend to bring lower prices.

High prices for leaner and lighter weight animals

Small -scale producers can market animals to their own specifications without the large

discounts experienced in markets involving packers/buyers. This may allow the producer to

purchase and feed the smaller framed breeds. In conventional markets, for example, a steer

weighing under 1,000 pounds may have been fed well and properly finished but bring as much

as $5 per hundredweight less than a similarly finished steer weighing 1,200 pounds. However,

in many localities, families prefer to buy the leaner and lighter animal fed in their area.

More net profit

A combination of higher selling prices, no sales company

or buyer commissions, and lower purchase prices can

help improve profitability. Small-scale livestock produc-

ers often have distinct disadvantages in production costs.

Their fixed costs generally are spread over fewer ani-

mals, and feed costs tend to be higher because current

technology is not used to the extent that large producers

use it. When selling directly to consumers, producers

may set their selling price at a level that ensures profit-

ability (if they know their production costs).

Better cash flow

By setting their own price and standards for the number fed and sold, market weight,

and amount of finish, producers may know the market price prior to selling and perhaps even

prior to purchasing or producing the feeder animals Marketing can coincide with cash needs

(such as taxes) or accommodate a year-around schedule without the seasonal price fluctuations

normally experienced in other marketing situations.

Identifying Your Market

Many areas of the Northeast have a very large population of

consumers. You need to identify your potential customers and learn

about their needs. Recent consumer surveys show some current con-

sumer needs and concerns are:

• Flavor (palatability)

• Freshness (wholesomeness)

• Health enhancement (lower fat content)

• Variety and flexibility

• Convenience

• Ease of preparation

• Portion size

Many consumers are more satisfied with

locally purchased meat.

Identify the market

where you plan to sell

your animals.

Value

Your initial customers will be people you know: friends, relatives, and business and so-

cial acquaintances. These people will help you decide if you are producing the right product for

your market area. They will also help your business grow by spreading the word about your

product.

Deciding What To Raise

Once you have identified your market, it is much easier to decide what to produce.

While the breed, finish, weight, or type of animal may vary with your personal preference, these

factors influence other decisions.

Breed

You may have already decided which breed you want to

raise. Consumer needs related to palatability and composition are

not so much related to breed as they are to management and nu-

trition. The primary consideration with respect to breed is the

size of the animal and resulting carcass when finished and ready

for market.

Size is a concern for two main reasons. The first is eco-

nomics. Large meat purchases such as sides or quarters are major

investments for most consumers. The beef animal that fits most

consumer needs is no more than 1,100 pounds and preferably

less than 1,000 pounds. Producing finished beef animals under

1,000 pounds may be difficult with the larger Continental breeds

but easily attained with the small British breeds. You may wish

to consider feeding heifers because they finish at a lighter weight than steers. Beef side weights

should be no more than 300 pounds (most are sold under 250 pounds) and quarters no more

than 150 pounds. Pork and lamb are often marketed at heavier than average weights. Consum-

ers are not so concerned about the total cost of these as they are with beef. Producers often find

consumers are satisfied with hogs as large as 250 pounds live (175 to 180 lb carcass) and with

lambs up to 135 to 140 pounds live (75 lb carcass). The major complaint with heavier carcasses

is that they often have more fat than do lighter carcasses. Extra fat is undesirable to the con-

sumer from the health aspect as well as the economic aspect. The second consideration of car-

cass size is individual portion size. The major problem with heavy beef carcasses is the large

size of the steaks. To make large steaks a desirable weight, they must be cut thinner which in

turn makes them more difficult to cook without overcooking.

Sex

Your operation may dictate which sex (or sexes) you should be feeding. But if you pur-

chase animals to feed, consider the initial savings possible by purchasing heifers or bulls (or

rams). With proper management and nutrition, there is no discernible difference in final palat-

ability characteristics in the intact (uncastrated) males, except in boars. In addition, bulls (or

rams) have a higher growth rate, less fat, and better feed efficiency than steers (or wethers).

Whatever you produce, supply your consumers with consistent products; no one likes surprises!

Choose a breed to match the

needs of your customers as well

as your production goals.

Natural and organic

Many consumers are concerned about the wholesomeness of the food supply and may

believe that meat from animals fed antibiotics and growth stimulants is less wholesome to eat.

You know this is not true, and that good conventional management practices call for castrating

male animals, promoting growth with implants, and using feed additives to improve feed effi-

ciency. But in some areas there is a demand and a ready market for a “natural” product. You

may wish to eliminate the implants, antibiotics, and feed additives, and offer that type of prod-

uct to your customers. Producing an “organic” animal increases production costs at least 10 to

20 percent. To produce a truly “chemical free” animal you must be concerned about all poten-

tial sources of contamination. These increased costs should be reflected in the selling price.

Choosing a Meat Processor

Finding the right meat plant to process your meat is generally the most important key to

your success. In effect, you form a partnership and place your trust and reputation in the hands

of someone else. In turn, your customers put complete trust in both of you; first-time customers

are buying sight-unseen. Here are some of the qualities to look for:

Reputation

Your reputation is no better than the butcher who is processing your meat. The meat

processor and staff you work with must be honest, dependable, and live up to their word.

Facilities

Facilities should be clean and inspected. They should present the image you wish to pro-

ject. No consumer wants to buy in a dirty or smelly place. Facilities also should be USDA In-

spected as well as being clean inside and outside. Meat sold directly to the consumer must be

slaughtered under federal (or state in those states that still have it) meat inspection. If you wish

to retail the meat yourself through a store or farmers’ outlet, the retail facility must be inspected

and approved by a state or local agency. The Pennsylvania Bureau of Food Safety inspects

Pennsylvania retail establishments.

Facilities should be capable of aging the carcass for at least seven days to ensure maxi-

mum tenderness. Freezers should be capable of rapidly freezing large quantities of meat. Insist

that your customers take their meat after it is frozen. Home freezers are not designed to freeze

large amounts of meat, and slow freezing can adversely affect the final quality of the meat.

Meat can spoil in a home freezer (if large amounts are piled in the freezer, the meat freezes on

the outside and insulates packages of meat on the inside, allowing spoilage in the center). Pack-

aging should be done with airtight, high-quality freezer paper that is permanently marked with

the name of the cut, date packaged, and customer name. Current technology should be used if

possible. New developments such as electrical stimulation ensure maximum tenderness.

Location

The processing plant should be convenient to both your farm and your customers.

Transportation costs have increased over the past several years and can affect your profit if you

have to haul animals long distances to processing facilities.

Relationships

You should have a good working relationship with the meat processor. Make sure you

both understand what is expected of each other, and that you are both giving the same informa-

tion to the customer. Decide who should obtain the cutting instructions. Become familiar with

the order forms and cutting methods of the meat processor. The people at the meat plant should

be polite, personable, and willing to answer consumer questions.

Decide who is going to explain to consumers that they are paying for hanging carcass

weight, and that a normal cutting loss is at least 25 to 30 percent of the hanging weight, depend-

ing on the degree of finish and the methods of cutting and trimming.

Deciding What Products to Sell

Consider the following factors when making a decision on what you will sell and how

you will sell to your customer.

Sides (half carcasses)

This is the most common and generally the most appealing way for you to sell beef

(whole carcasses in the case of pork or lamb). However, a decreasing number of consumers can

buy a side or even a quarter of beef at one time. Increasingly, families lack freezer storage for

large quantities of frozen meat. Current trends indicate that people are eating out more often

and preparing fewer meals at home, especially meals such as roasts that require long prepara-

tion times. Offering lighter weight animals and wrapping cuts in smaller packages sometimes

overcome these objections.

Quarters

Rather than selling individual front and hind

quarters, some producers use a practice known as

splitting sides. It involves an even division of steaks

and roasts from the entire side. The conventional

method of selling fronts and hinds often results in an

excess of front quarters no matter how inexpensively

they are sold; grinding excess front quarters for ham-

burger can be a better alternative.

Bundles

In some areas, consumers find bundles are a

good alternative to sides. They get a variety of cuts of

uniform quality at an attractive price and have a smaller total cash outlay. Types of bundles

could include (a) an economy pack that has most of its cuts from the chuck and round to pro-

vide more roasts than steaks or (b) a deluxe bundle that has most of its cuts from the loin and

rib to provide more steaks than roasts. You and your meat cutter may need to experiment a

while to find the feasibility, sizes, types and prices of bundles that generate uniform sales vol-

ume for all parts of the carcass.

In order to avoid an excess of front quar-

ters, some producers will sell a mixed quar-

ter with cuts from both the front and hind

Specialty products

A profitable direct marketing option could be the processing and selling of a specialty

product. This might be nothing more than selling cull cows as hamburger or selling cull sows as

whole hog sausage, or developing a special recipe for lamb bologna using cull ewes. This ap-

proach might be taken in conjunction with a more conventional approach of selling sides and

quarters.

Specialty products sometimes sell well at farmers’ markets, especially after a reputation

has been developed. In some cases, the entire production has been successfully marketed with

this approach.

Pricing

A variety of pricing methods and factors should be considered. Be aware of current local

prices of other producers and retailers, but remember that you are selling more than just a com-

modity. Other services and aspects of your product might include:

Processing costs

Charges currently vary from 40 cents to 50 cents per pound of carcass weight for cut-

ting, wrapping, and freezing of beef and $50 to $60 each for lambs. Additional charges are

sometimes added for making patties, sausage, smoking, or rendering lard. Not included in proc-

essing charges is the slaughtering fee that ranges from $25 to $30 per head, with the processor

often keeping the hide. You and your processor decide whether these charges are included in

your price.

Quality

Many factors influence the concept of quality. They could include increased freshness or

increased tenderness or decreased fattiness. These qualities may be related to special practices

used during aging and processing of the carcass, or because of particular genetics programs, or

a freedom from antibiotics and feed additives.

Consumer information

You might provide advice on new uses for common cuts, improved cooking methods,

new recipes, or information on cutting procedures that better fit the needs of a particular house-

hold.

Delivery

The convenience of having purchases delivered is very important to some consumers.

You should consider adding delivery and other convenience costs into your pricing system.

Services

You might offer other services such as public speaking for community organizations.

This is a good way to promote your product and inform potential customers of the positive as-

pects of eating red meat.

Integrity and dependability

Many people are willing to pay slightly more for products they know and trust. You

may want to have them present when their meat is being cut and wrapped. Additionally, you

might provide a list of all packages and contents in their order.

Comparison prices

You may wish to compare your prices and local retail prices. Tables 1, 2, and 3 have

been provided for that purpose. You must remember these tables contain only averages; your

values may be higher or lower than these because of the type of animal and cutting services in-

volved. They will, however, give you a place to start and allow you to give an honest answer

when asked for a comparison. The following example uses local prices and the calculated aver-

age retail price of beef obtained from the table below..

Calculated from reports produced by USDA’s Economic Research Service in cooperation with the Live-

stock Marketing Information Center: October 2006 - March 2007.

Using the above example, if you charged your customer $2.90 per pound of carcass

weight (plus processing costs), the consumer would be getting meat for a price equal to that

available in the local retail store (not considering higher quality meat or services provided by

you). On the other hand, you may wish to compare your alternative market prices in order to

calculate what your break-even price would be.

Item Example Your situation

Average retail price

(calculated) *

$ 3.35

Cost of Slaughtering (per

head)

$ 30.00

Cost of Slaughtering per lb.

(30/600 lb)

$ .05

Cost of processing $ .45

Break-even prices ($3.35-

.50)

$ 2.90

Item Example Your situation

Live weight 1, 000 lb

Live value/cwt $ 95.00

Carcass value/cwt (at 60%)

$95.00/.60

$ 158.33

Advantage of selling direct

($290-158.33) x 6 cwt

$ 790.02

You must then decide if this is enough of a premium to justify the extra time and effort

involved in the freezer beef, pork, or lamb business. Consider other costs such as trucking for

both the animals and meat. These costs are reduced by minimizing the trucking and carefully

timing your deliveries.

Financing

Because a quarter or side of beef represents a sizable investment for most families, you

may be required to wait for your money. Perhaps you want to avoid payment delays. Producers

in some areas have been very innovative in respect to financing. One producer, for example,

advertised for custom-feeding of freezer beef and encouraged owners to come to the farm once

a month to view their steers. Owners began paying as soon as the feeder steer was purchased

and continued monthly payments until the steer attained finish weight; at that time the steer and

the processing charges were totally paid. Other producers have asked for a portion (up to one-

third) of the total cost a month in advance, another portion when the meat is picked up, and the

remainder a month later.

It is difficult to collect for a product that has been consumed. If you can’t collect for

your product, it doesn’t matter what the potential profit might be. Some finance companies are

willing to finance meat sales. When selecting one, you should consider whether the company

upholds the image you are trying to maintain.

You will need to develop a system that works for you. Try to find what works for oth-

ers, adapt it to your situation, and improve on it.

Customers

Remember that customers make a business. A good philosophy is that the customer is

always right. You should establish a policy for dealing with customer complaints. You will cer-

tainly have some. When they arise, you must listen to them carefully. It is generally a better

policy to replace the meat than to refund the money. Dealing with customers directly takes a

great deal of time and patience. Many of them know little about meat. Try to deal as fairly as

possible and always give the customer the benefit of the doubt. You may find marketing di-

rectly to the consumer is a rewarding and profitable method of merchandising our livestock.

Table 1. Worksheet for estimating the retail value of a beef side (300 lb).

Retail cut Pounds/side Price/lb Total $

Round

Round steak 20.4

Tip roast (or steak) 8.5

Rump roast (or steak) 6.4

Stew and ground beef 12.2

Fat and bone 20.8

Loin

Porterhouse and T-Bone 16.0

Sirloin steaks 20.0

Stew and ground beef 2.4

Fat and bone 12.5

Flank, Kidney, Fat

and Hanging Tender

Flank steak 1.7

Ground beef 7.4

Fat and suet 15.9

Rib

Rib steak 11.7

Rib roast 6.0

Short ribs 2.3

Stew and ground beef 3.0

Fat and bone 5.6

Chuck

Blade roast 20.3

$Arm pot roast 11.1

Cross rib pot roast 10.2

Stew and ground beef 15.9

Fat and bone 15.1

Retail cut Pounds/side Price/lb Total $

Plate, Brisket, Shank

Short ribs 11.2

Stew and ground beef 13.0

Fat and bone 17.1

Other

Oxtail 1.6

Liver 5.0

Heart 2.0

Tongue 1.0

Retail Wt

(excl fat & bone)

218.3

Total Retail Value

Retail Value/lb of

Hanging Carcass

(Total $/300 lb)

Summary of cuts Pounds

Roasts 81.5

Steaks 59.8

Ground beef 33.7

Stew 20.2

Misc. 23.1

Source: American Meat Institute and USDA

Table 2. Worksheet for estimating the retail value of a lamb carcass (55 lb).

Retail cut Pounds/side Price/lb Total $

Leg 13.2

Loin chops 4.4

Rack (rib) 3.9

Shoulder 11.0

Ground lamb 9.4

Fat and bone 11.9

Shrink 1.1

Retail Wt

(excl fat & bone)

41.9

Total Retail Value

Retail Value/lb of

Hanging Carcass

(Total $/55 lb)

Summary of cuts Pounds

Roasts 24.2

Chops 8.3

Ground lamb 9.4

Table 3. Worksheet for estimating the retail value of a pork carcass (165 lb).

Retail cut Pounds/side Price/lb Total $

Ham

Cured hams (2) 29.7

Loin

Blade roast 8.0

Center chops 17.3

Sirloin roast 5.6

Side

Cured bacons (2) 18.6

Spareribs 6.4

Shoulder

Blade roast 7.3

Blade steaks 4.2

Arm roast 7.7

Various

Trimming for sausage 20.8

Misc.

Neck bones, feet 3.5

Fat, skin, bone 32.7

Shrink 3.5

Retail Wt

(excl fat & bone)

128.8

Total Retail Value

Retail Value/lb of

Hanging Carcass

(Total $/165 lb)

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Summary of cuts Pounds

Cured pork 48.3

Roasts 28.3

Chops and steaks 21.5

Misc. 9.9

Sausage 20.8

Source: American Meat Institute and USDA