Branding Beef as Natural or Organic: A Look at the US Marketplace

Clinton DobsonLivestock Market Analyst

Market and Consumer Analysis UnitJune 19, 2008

2

Niche or meat market of the future ?

Source: http://www.marketofchoice.com.

All Natural, Branded (Painted Hills), Oregon Raised, 100% Vegetarian and antibiotic-free

3

Natural and organic beef sells at a premium

• In 2007, natural and organic beef retailed at an average $5.50/lb, a $1.83/lb premium.

• 58% of those that eat beef would pay an extra 10% for beef raised without hormones, and 55% said the same about beef raised without antibiotics.

Source: Mintel, US Red Meat, 2007; FreshLook Marketing; NCBA, 2008

4

Natural / organic beef sales are on the rise

Lbs

US$

Quantity

Value

30.2%70.6 million54.2 million

33.9%$388 million$290 millionTotal Sales

1.7%1.3%

2.5%1.9%Share of Total Beef Sales

% Change(06 vs 07)

20072006

Source: NCBA, 2008; FreshLook Marketing;

5

Why consumers buy natural / organic meat

Reasons for Purchasing Natural or Organic Meat (200 7)

47.2%

47.2%

40.4%

38.9%

36.8%

30.6%

30.1%

23.8%

14.5%

3.1%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0% 50.0%

Other

Better Price / Value Question

Better Appearance

Prefer to Purchase Organics for My Family

Less of an Environmental Impact

Freshness

Better Taste

Better Health and Treatment of the Animal

Better Nutritional Value

Positive Long-Term Personal Health Effects

% of BuyersSource: 2008 The Power of Meat

Animal Welfare

Environment

Quality

6

Need to target those with a higher income

% of Respondents by Income that have Purchased Natu ral or Organic in the last 3 months

57.1%

35.6%33.8%

18.8%15.8%

18.4%

13.9%

8.5%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

< $15,000 $15,000 to$25,000

$25,001 to$35,000

$35,001 to$50,000

$50,001 to$75,000

$75,001 to$100,000

$100,001 to$150,000

> $150,000

Income Bracket

% o

f Res

pond

ents

Source: 2008 Power of Meat

7

The largest market is our nearest market

% of Respondents by Region that have Purchased Natu ral or Organic in the last 3 months

25.2%

19.2%

13.4%

18.1%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

Northeast Midwest South West

Region

% o

f Res

pond

ents

Source: 2008 Power of Meat

8

Asian buyers are more likely to purchase natural / organic meat

% of Respondents by ethnicity that have Purchased N atural or Organic in the last 3 months

19%

32%

18%19%

0%

5%

10%

15%

20%

25%

30%

35%

Caucasian African-American Asian Hispanic

Ethnicity

% o

f Res

pond

ents

Source: 2008 Power of Meat

9

Chicken leads the way

Frequency of Purchase for Natural/Organic Meat and Poultry in Past 3 months

7.8%11.4%

19.7%

25.4%29.0%29.5%

48.6%

72.5%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

Chicken Beef GroundMeat

Fish Turkey Pork Lamb Veal

% o

f Pac

kage

s

Source: 2008 The Power of Meat

Because natural/organic chicken is available and beef is not.

10

Beef lags the rest of the meat industry

% of Packages Labeled Natural in the Meat Case

22%

2%

7%9%

61%

17%

22%

15%

29%

4%

25%

15%

67%

16%

27%

6%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Meat Beef GroundBeef

Pork Chicken Turkey Lamb Veal

% o

f Pac

kage

s

2004 2007

Source: 2007 National Meat Case Study - (excludes value-added products)

Demand > Supply

Wow!!!: 48.6% have purchased natural/organic beef while only 4% of beef is natural/organic.

11

There is very little organic meat in the meat case

Natural beef represents 4% of products, organics < 1%. Natural is used on 67 % of chicken packages vs 2 % organic.

% of Packages with the USDA Organic Stamp in the Me at Case

0%0%0%

1%

0%0%

0%0%

0%0%0%

2%

0%

1%

0%

1%

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

1.8%

2.0%

Meat Beef GroundBeef

Pork Chicken Turkey Lamb Veal

% o

f Pac

kage

s

2004 2007

Source: 2007 National Meat Case Study - (excludes value-added products)

12

Assuming all natural / organic meat is branded

Note: Data presented is calculated on the assumptio n noted in the figure

% of Branded Packages that are labeled Natural or O rganic in the Meat Case

30%

39%

19%

67%

13%

28%

5%

12%

42%

17%

72%

20%

64%

8%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Beef Ground Beef Pork Chicken Turkey Lamb Veal

% o

f Bra

nded

Pro

duct

s P

acka

ges

2004 2007

Source: 2007 National Meat Case Study - (excludes value-added products)

Assuming that all natural or organic meat are national or store branded products and not unbranded.

13

In the US, natural dominates over organic

• 78% of respondents have used some form of natural food or beverage vs 54% for organics.

• Only 39% of respondents in the US think that organics are healthier than natural foods and beverages.

Source: The Natural Marketing Institute, 2007.

14

US consumers say Natural more important

0%

5%

10%

15%

20%

25%

30%

35%

40%

Certified Organic Certified Natural

Somewhat important Very Important

Source: Agriculture and Rural Development, 2008

15

Hormone free is the leading natural claim

Source: 2007 National Meat Case Study

2% of beef packages were labeled hormone free vs 53% of chicken packages.

3% of beef packages were labeled antibiotic free vs 13% of chicken packages.

Hormon

e Fre

eAnt

ibiot

ic Fre

eVeg

etar

ian F

edNo

Artific

ial In

gred

ients

Stero

id Fre

eFre

e Ran

geCer

tified

Hum

ane

No Pre

serv

ative

s

Chicken 53% 13% 6% 1% 3% 1% 0% 0%Beef 2% 3% 2% 0% 0% 0% 1% 0%Ground Beef 3% 3% 0% 1% 0% 0% 0% 0%Pork 2% 1% 0% 1% 0% 0% 0% 1%Turkey 1% 0% 0% 0% 0% <1% 0% 0%Lamb 0% 0% 0% 0% 0% 0% 0% 0%Veal 0% 0% 0% 0% 0% 0% 0% 0%Other 0% 0% 0% 0% 0% 0% 0% 0%Total 62% 20% 8% 3% 3% 2% <1% 1%

16

Natural is a complicated term !!!

• How natural? Last 90 days, 100 days or ‘never ever’ ?

• No Antibiotics, no hormones vs never processed and no additives?

• Many firms are marketing ‘natural’ as being minimally processed. For example, product is being labeled ‘natural’ if it has not additives and is just fresh beef.

17

NE3

• A shift to “naturally raised”• On Nov 28, 2008 the AMS published the

definition of ‘naturally raised’ as the proposed standard for USDA-verified programs.

• The Never Ever 3 program – No antibiotics, growth promotants and no animal by-products - Ever.

18

There are numerous brands of natural beef

• Brandt Beef – The True Natural• Certified Angus Beef – Natural• Coleman Natural Beef• Creekstone Natural Angus Beef• High Sierra Beef• Laura’s Lean Beef• Maverick Ranch Natural Beef• Meyer Natural Angus Beef• Montana Legend Premium Angus Beef• NatureSource Natural Angus Beef• NatureWell Natural Beef• North Shore Cattle Company• Northeast Family Farms• Premium Gold Natural Angus Beef• Wolfe’s Neck Farm Naturally Raised Beef

There are many more local and regional brands

19

The industry is already consolidating

• What was once 3 natural companies is now one.

• Meyer Natural Angus buys competition� December, 2007 – buys Laura’s Lean Beef � April, 2008 - buys Coleman Natural Foods beef operations.

• Meyer’s will likely have more than half of the natural beef market in 2008 and be well positioned to establish a national brand (estimated sales of $US450 million).

Source: Cattle Buyers Weekly

20

Meyer Natural Angus

• No hormones or antibiotics ever• Verified origin (born, raised, fed and

processed in the United States)• Vegetarian diet• Angus breed• Certified humane (recent development)• 200 ranchers in the US (pre-merger).• Selling Natural Beef since 1979.

Source: www.meyernaturalangus.com/

21

National Beef® has 3 natural brands

No antibiotics in last 300 days, no added hormones - ever

No Antibiotics or added hormones –ever

No antibiotics or added hormones for last 120 days

Vintage Natural Beef

NatureSourceTM

Natural Angus Beef

Naturewell®Natural Beef

Now JBS

Source: www.nationalbeef.com

22

Harris Ranch has 3 ‘Natural’ Brands

• Harris Ranch Premium Natural Angus Beef• Harris Ranch Natural Black Angus Beef• Harris Ranch Natural Beef

Only the Premium Natural brand claims no antibiotics or hormones – ever. The other two brands use ‘natural’ in reference to minimally

processed and no artificial ingredients.

Source: www.harrisranchbeef.com

23

Going from a commodity to branded product

Source: Natural Beef Advertisement

24

Niman Ranch – “Raised with Care”

• All natural• No antibiotics – Ever• No hormones – Ever• All vegetarian feed• Humanely raised on sustainable U.S.

family farms and ranches.• Angus

Sells the bulk of its steaks to over 1,200 foodserv ice operations across the US

Source: www.nimanranch.com

25

Nolan Ryan All-natural Guaranteed Tender

• No antibiotics or growth hormones during the last 100 days prior to processing

• The Texas Rangers announced that all burgers served at the general concessions stands and casual dining locations in the stadium will be Nolan Ryan's beef. (April 22, 2008)

• All products are raised and processed in the U.S.A.

• Open to all breeds of beef cattle with a preference for cattle with visible signs of Bos Indicus influence.

Source: www.nolanryanbeef.com

26

Restaurants are leveraging natural beef…

Black Angus Steakhouse (75 locations)• Switched to all natural (hormone and antibiotics)

and corn fed beef in March, 2007.

Chipotle Mexican Grill Inc (730 locations)• 100% of restaurants use natural pork, 84% use

natural chicken and 59% use natural beef. Are working at sourcing enough beef and pork to go 100%.

27

Conclusions

• Consumers are concerned about meat safety.

• Natural beef is a proxy of food safety. • Attributes serve as the basis to begin

branding beef products and creating brand loyalty.

• Organic has tough competition when consumers are satisfied with natural.