The saying goes that there’s a light at the end of every tunnel. It means that even the darkest of times will come to a bright, positive end. The cynical response to that saying, however, is that the light at the end of the tunnel sometimes ends up being a train.

One couldn’t blame the meat industry for believing it’s been hit by said train recently.

It wasn’t that long ago that flooding throughout most of the Midwest ruined the corn crop, leading to record-high prices for corn and other types of animal feed, leading in turn to higher costs for producers and processors, as well as higher prices for consumers.

When the light at the end of that tunnel appeared — estimates of a bumper crop for corn this year — many believed that there’d be some relief for processors and consumers alike. Then, the crippling, widespread drought of this summer hit the Midwest, leading to record feed prices, a reduced protein supply as herds were culled, and less money in everyone’s pockets.

And the worst may not be over. The real possibility of further increase of meat prices at the retail level would come at a most inopportune time, as many consumers are still feeling the pinch of several years’ worth of a struggling economy. Gary Karp, executive vice president of Technomic Inc., notes the economy and its impact on consumers as the biggest drivers of trends in the coming year.

“Most consumers are trying to make their food dollar stretch further,” he says, pointing out that shoppers are using several different techniques to maximize their shopping budget.

“One is to trade down to less-expensive cuts. Another strategy is to use the same products but increase the frequency for use of lower-cost meat products — for example ground beef — and decrease the use of higher-cost meat products — for example steak,” he says. “And a third strategy is to serve non-meat meals like pasta or salads.”

Ken Perkins, associate equity analyst for Morningstar Inc., points out that domestic beef consumption has steadily declined over the past couple of decades, and pork consumption has declined on a per capita basis since the 2000s. Although he does not believe that consumers are still trading down to cheaper cuts or proteins, he does expect the decline in red meat consumption to continue.

“We think the decline in red meat consumption could be due (in part) to consumers’ increased emphasis on improving their health,” he says. “With consumers eating less red meat, it is no surprise that chicken consumption has increased (per capita) over the last several years.”

However, Perkins says, as the economy has slowed and consumer growth has been sluggish at best, even chicken consumption has dropped.

“We think the slowdown is due to the fact that consumer income growth has not kept pace with meat price increases, as poor weather conditions have sent grain prices — and meat prices — soaring,” he adds.

John N. Frank, category manager, CPG Food & Drink at Mintel, notes that consumers are bargain shopping, forcing retailers to offer exceptional prices for products, thereby undermining sales growth. One side effect of the economy has helped beef sales, however.

“While it appears that concerns about the economy continue to discourage some from purchasing premium cuts, the cooking-at-home trend has helped to mitigate the impact of the recession on beef sales,” Frank says.

Americans continue to eat ground beef and inexpensive cuts of beef in large numbers, he notes. Frank recommends that retailers consider carrying more hormone-free, grass-fed and locally produced meats, as those represent potential growth areas.

“I think greater numbers of Americans will seek leaner cuts in the months and years to come,” he explains. “Hormone-free varieties are also likely to become more popular.”

Karp adds that he expects the trend of better-for-you products to continue into 2013, such as a drive toward lower sodium in processed meats. He also notes that Proposition 37 is California is worth watching. Proposition 37, or the Mandatory Labeling of Genetically Engineered Food Initiative, would require labeling on any raw or processed food item that is made from genetically modified plants or animals. It is on the ballot for the November 6 elections, and if Californians pass it, the proposition would prohibit that food from being labeled as “natural.”

A changing timetable

The consumer emphasis on health and wellness is one example of how evolving consumer preferences can change the way packaged food firms and retailers adjust their offerings, Perkins says.

“If CPG firms and retailers can anticipate evolving consumer preferences, they will be in a better position to develop products/services that drive traffic into stores, especially as the country’s demographics change over time,” he says. “Innovative products can also carry higher profit margins, which can help CPG firms and retailers to improve profitability.”

Given the length of time for a product-development cycle, it can be difficult for a company to anticipate a consumer need far in advance of a product launch. The temptation may be to rush a product out before it is ready, which can easily backfire if a company is not careful.

According to Sally Grimes, chief innovation officer for Hillshire Brands Co., new-product development at Hillshire Brands starts with a clear consumer insight and delivering against a need, and the company’s state-of-the-art innovation center is one of the key enablers for that process.

“Our portfolio of brands delivers a brand promise, and unless a new product delivers on that promise and a consumer need in a differentiated way, we not only don’t feel compelled to rush it — we simply won’t launch it,” says Grimes. “That said, we are aggressively pursuing opportunities to increase our speed to market.”

The company’s most recent product releases involved new additions to its Jimmy Dean brand and updated packaging for its frozen breakfast foods. The two newest products for the brand include Jimmy Dean Snack Size Ham & Cheese Biscuit and Jimmy Dean Snack Size Maple Sausage Biscuit sandwiches. Both are hand-held mini sandwiches that are suitable for any time of day.

The new look included everything from the functional (heating instructions in both English and Spanish) to cosmetic (a modernized logo, softer fonts, new product images) changes.

Grimes agrees that consumers are increasingly looking for products that fit into the “health and wellness” category.

“We are also seeing trends for more for ethnic foods among mainstream consumers — as well as food that leaves us feeling better about our bodies, our choices and the people involved in our foods’ making,” she says. “Finally, we believe the functional food arena will continue to grow — foods that do ‘double-duty’ — providing satisfying tastes and flavors but also packing super nutrients that provide the health benefits we need.”

Switching tracks

Although the types of products sold in grocery stores are subject to consumers’ changing tastes and trends, the health of the retail store itself is a concern for 2013. Supervalu, the third-largest grocery-store operator in the country, has closed about 60 underperforming stores across the country. As the company looks for a buyer, it posted a net loss of $111 million for the second quarter ending September 6, compared to a net profit of $60 million the year before.

The company’s chains, including Albertsons, Jewel-Osco and Save-A-Lot, have been losing customers to competitors like Wal-Mart and Kroger. Other shoppers are turning away from conventional retail stores entirely.

“The results of the club stores and specialty stores — Aldi, Trader Joe’s — are growing and taking share across most categories,” notes Karp of Technomic.

There are other alternatives to grocery stores, such as farmers’ markets, local butcher shops and cow- or pig-share agreements. Bruce Aidells, founder of Aidells Sausage Co. and author, has released a new book called Great Meat Cookbook. It not only provides hundreds of recipes, but it also walks readers through the various labels on meat such as “grass-fed,” “organic” and “heirloom breed” and educates them on where to buy meat.

“I think there’s going to be a little leveling of the playing field between commodity meat and what I call specialty meats — meat that’s sold and produced at farmers’ markets, as long as those people have access to more inexpensive means of feeding their animals,” Aidells says.

He notes that grass-fed beef may become more competitive with grain-finished beef, considering the high costs of feed for cattle. Additionally, smaller producers have the ability to be more creative with feeding their herds than larger farms/ He knows some hog producers who have worked out deals with local breweries to get spent grains or with local companies to get bread or cheese products, for instance.

Aidells believes that consumers will be making changes to their eating habits if meat prices continue to rise in 2013.

“I think people who want to put meat on their plate are going to have to look at some of the lesser, underappreciated cuts,” he says. “They’re also going to have to look at beef as a flavor ingredient or a condiment line other places around the globe — Mexico and places like that are using meat to flavor soup and pastas. I think people are also going to have to look at how to get the most out of what they make so they don’t throw anything away — how to utilize leftovers.”

He advises meat processors to turn back the clock to when there were more cuts of beef available to consumers.

“They might want to produce some steaks and roasts from areas that are traditionally just thrown into the ground [beef]. People are going to be eating them at restaurants, and they’re going to be looking for cuts of meat that are cheaper in price,” he says.

Further processors may want to look at a line of antibiotic-free or organic meats. While that segment of the market is filled with smaller companies, larger processors may want to use a branch within the corporation to penetrate the natural/organic market. Aidells notes that his old company is now part of the Hillshire Brands family, and Aidells Sausage products have expanded into the Whole Foods-type stores.

Playing chicken

The market pressures that are affecting the retail industry also influence the foodservice sector as well. Kathy Hayden, foodservice analyst at Mintel, notes that the rising commodity costs will affect menus in restaurants.

“What it means is a lot of the energy that has gone into QSR menu development for burgers — trying to keep up with better burger branding — has shifted to chicken,” she says, “so we’re seeing a lot of chicken sandwiches with the same flavor profiles of the Angus burgers that came out.”

One company that has adapted its menu to include more chicken items is Burger King. The company’s limited-time Fall menu included five new chicken items: Italian Basil Chicken Sandwich, Italian Basil Chicken Wrap, Chicken Parmesan Sandwich, Garden Fresh Salad Wraps and Popcorn Chicken.

“Over the past several months, we tested numerous product offerings and listened to our consumers with extensive trials of more than a dozen chicken products,” said Burger King Worldwide in a statement. “Based on our consumer feedback, Burger King launched a Fall menu to appeal both to our core BK fans as well as those seeking more fire-grilled chicken varieties and on-the-go options for different meal occasions.”

In announcing the new menu items, Burger King touted the premium ingredients used in the chicken items, such as artisan whole-wheat buns and shaved Parmesan cheeses. Those offerings were part of the brand’s growing commitment to using premium ingredients in its offerings, the company said.

“The BK fall menu offerings are made premium by their combination of superior ingredients with fresh-cut produce and seasoned white-meat chicken,” the company said. “We will continue to focus on our food and are constantly looking to enhance all our menu items to ensure they offer the best taste.”

Quick-service restaurants are not the only types of restaurants faring well, points out Technomic’s Karp.

“Fast-casual restaurants have done well during the recent past. Chains such as Panera and Chipotle are the best examples,” he says. “Many other concepts are refashioning their business models to behave more like fast-casual — for example, Sbarro.”

R.J. Hottovy, director-Global Consumer Equity Research for Morningstar, says that both quick-service and casual-dining restaurants have lapped menu price increases (generally in the 3 to 5 percent range) put in place in the latter part of 2011 to combat rising food commodity costs.

“With only modest menu price increases anticipated in 2013 — we’ve heard anywhere between 2 to 3 percent for restaurant operators that have announced pricing plans for next year, in line with current food-away-from-home consumer price index data — restaurant traffic and menu mix changes will take on greater importance in driving same-store restaurant sales growth in the periods to come.”

The foodservice trends that Hottovy sees for 2013 include new menu innovations, restaurant re-imaging efforts, increased daypart penetration and new marketing campaigns. He points to Taco Bell’s more upscale Cantina Bell menu and Red Lobster’s plans to broaden its non-seafood offerings as examples.

“This trend should continue into 2013, with QSR firms emphasizing healthier, more portable products, and [casual-dining] firms focusing on more value-oriented entrees and small-plate attachment dishes,” he says.

McDonald’s, Burger King, Jack in the Box and Olive Garden are just a few of the chains already involved in restaurant remodeling efforts, and Hottovy notes that the remodels generally result in a mid-single-digit life in traffic at re-imaged locations.

“We expect restaurants to increase hours of operation in 2013 to expand daypart presence, with QSR chains increasingly moving to 24-hour operations and [casual-dining] chains developing new lunch menu offerings,” he adds.

Given the success of casual restaurants, it is no surprise that the entire restaurant industry is becoming more casual, says Hayden, as it is still difficult for many consumers to justify fine dining. Higher-end restaurants are adding menu items like roasted chickens, which is a less expensive menu item but still prepared at fine-dining quality levels.

“Another thing fine dining has had to do to accommodate less disposable income is to develop bar menus that allow people to use the bar as a casual offshoot of fine dining,” she adds. “You get a lot of bar menus or off-peak hour deals, like happy hour or late-night dining.”

Hayden notes that slow-cooking entrees, such as roasted, pulled or barbecued chicken or pork, are popular with diners. Those types of menu offerings also allow foodservice operators to use less expensive cuts of meat or make use of the whole bird.

“People are getting clever with their protein usage. That’s a major trend,” she says.

Despite the trend to casual dining, consumer taste preferences are becoming increasingly sophisticated, and they are willing to try new things. Aidells says that there is a growing interest in charcuterie — the art of making cured meats — as well as sausage-making and salami making. He even devoted an entire chapter of the Great Meat Cookbook to sausages and cured meats. He notes that many fine Italian restaurants make their own salami and chefs are experimenting with unusual sausages and other cured meats.

“Another thing I’m seeing in restaurants is goat appearing on the menu,” he adds. “I don’t think it’s going to ever be very big, but it’s going to be a lot bigger than it was.

“That’s the result of a better meat supply,” Aidells continues. “There are small farmers raising meat breeds of goat, not just male dairy goats that get sold off or are imported from Australia.”

In some of the trendier larger cities, farmers are bringing their meat goats to restaurants, and more chefs are trying them out. A similar thing, he notes, happened with the bison industry, where consumers discovered they liked the taste and the lean quality of bison meat. Bison steaks and bison burgers are much more common now than they were years ago.

“As I understand it, the bison folks are pretty much at capacity right now,” Aidells says. “They just can’t expand the herd fast enough.”

With the increase in popularity of slow-cooked food, there are opportunities for meat suppliers to strengthen partnerships with their foodservice customers. One way is to provide a larger variety of products, such as smaller steaks that can be paired with fish for a smaller surf-and-turf entrée. Another aid would be to take some of the preparation away from the back of the house.

“I think as people are looking toward less-expensive meats and slow preparation styles, they should work with operators to help these from-scratch processes and develop signature flavors that can be delivered already marinated or ready for slow cooking, to make the preparation easier” Hayden says. “Foodservice operators need help providing distinctive dishes that are less expensive, and cooking preparation is the way to do that.”

The best thing processors can do is to really listen to their foodservice customers and help them innovate their menu without raising costs. Hayden points out that consumers are just starting to permit themselves even small indulgences like coffee or snacks, so any gains made by the foodservice industry are still tenuous at best.

“People are just barely getting back to the idea of spending money on restaurants,” she says, “so it’s not a good idea to be raising prices across the board obviously.”

With so much uncertainty still baked into the market landscape and consumers even unsure of what comes next, it makes sense for the meat industry to be concerned. With that in mind, instead of viewing the current economic situation as an unknown light at the end of the tunnel, maybe the meat industry would be better served to focus on a different, yet still applicable, saying: “If you’re going through Hell, keep on going …”

Read Sam Gazdziak's exclusive Consumer Trends Q&A with Andy Callahan, president, Hillshire Brands Co. Retail, by clicking here.