Wal-Mart Stocking US Stores With Higher-Quality Beef

Copyright © 2011 Dow Jones Newswires
By Marshall Eckblad & Miguel Bustillo and Curt Thacker
November 8, 2011
November 07, 2011- CHICAGO -(Dow Jones)- Wal-Mart Stores Inc. (WMT) is stocking its refrigerator cases with higher-quality beef in a bid to boost food sales, sending strong ripples through the U.S. beef market.
The world's largest retailer confirmed Monday that it is now selling choice-grade beef at all of its 3,800 U.S. locations after ramping up selections for the past three months. Wal-Mart traditionally has sold only select-grade beef, which is of a lower quality, keeping with its focus on low prices.
Because of Wal-Mart's unparalleled size -- more than half of its $260 billion in U.S. sales last year came from groceries -- its strategic shift is having a pronounced effect on the wholesale beef market.
Choice beef has gotten more expensive, while select has become cheaper. The result is the price difference between the two grades of meat has exploded to 19 cents a pound from 3 cents a pound just a few months ago, helping to make the higher-quality beef more costly for all shoppers.
Wal-Mart said the decision to add choice-grade beef is a response to customer demands for a broader selection of cuts. The Bentonville, Ark., retailer stressed that it is still offering lower grades of meat for value-conscious consumers.
"It was important to flesh out a range of offerings to meet everyone's needs," said company spokeswoman Tara Raddohl. "The early results have been positive."
Still, Wal-Mart has found it tricky to draw in customers who aren't focused on price alone. Steps to attract shoppers with organic foods stumbled, and an attempt three years ago to attract higher-income consumers by removing clutter from stores and offering more upscale merchandise alienated Wal-Mart's core audience.
Wal-Mart just logged its worst U.S. sales slump ever -- nine consecutive quarters of sales declines at stores open at least a year -- and has brought back more low-priced merchandise, as well as former best sellers such as guns and fishing tackle, to win back its traditional customers. The company said last month that it had notched three straight months of positive same-store sales, and is poised to finally end the losing streak when it reports earnings Nov. 15.
Choice and select ratings are placed on beef by federal inspectors on a voluntary basis. About 63% of meat graded for quality is classified as choice, while 29% is classified as select. The remainder is prime -- the highest rating -- or one of several lower grades.
Choice beef has more internal fat, or marbling, which makes the meat tender and more flavorful. It's sold widely in supermarkets and often is used by restaurants. Select beef is tougher and sold mostly in grocers catering to middle- and low-income customers.
The interest by Wal-Mart in higher quality meat is being welcomed by cattlemen who raise choice animals. They haven't always been rewarded for the higher feed costs and better animal genetics it takes to produce choice beef.
The shift by Wal-Mart has translated into a noticeable jump in profits for ranches such as Mushrush Ranches, in Strong City, Kan. Ninety percent of the cattle it produces achieve the grade of choice.
"It's like gravy. They're the biggest beef retailer in the world. When they upgrade their product, it's going to ripple through the market," said Daniel Mushrush, a third-generation partner in the business.
Wal-Mart started to stock up on choice-grade beef in August as a prolonged heat wave stressed cattle in much of the U.S. Under withering temperatures, the animals ate less and burned fat, curbing supplies of choice-grade beef.
Analysts said the wide gap in prices between choice- and select-grade beef isn't likely to grow further now that Wal-Mart's demand is a constant factor in the market. Still, the spread isn't likely to narrow anytime soon as supermarkets stock up on higher-quality beef ahead of the holiday season and strong demand from export markets continues.