It’s no secret that over the years, consumers have become more interested in where their food comes from. This increased demand for transparency has caused the direct-to-consumer food business to flourish. People like to know the story behind their food—especially animal products—and to feel good about their purchase, knowing they may be directly supporting a local family.
The COVID-19 pandemic presented a unique opportunity for those already involved in direct marketing their beef. As COVID-19 cases mounted and packing plant workers became infected, the beef and cattle markets took a hard hit. Processing plant capacity drastically dropped, and the backlog of cattle to be processed grew tremendously.
The price spread between dressed fed cattle price and the Choice boxed beef cutout was over $279/cwt the second week of May—the highest ever recorded. The Choice boxed beef cutout peaked at $459/cwt, an increase of about 80 percent, according to USDA.
With beef prices in the grocery stores at record highs, consumers began to seek out alternative options for their beef demand. This came in the form of direct marketing. Although the beef and cattle markets have slowly returned to near-normal levels, it is uncertain whether the trend will continue, and with that, the increased demand for direct-to-consumer beef.
One thing is for certain: The COVID-19 pandemic vastly impacted the beef cattle industry, but may have increased opportunities for those already involved in direct marketing, or looking to get started in the business.
Getting started
Why might you want to get involved in direct marketing beef? Dr. Dustin Pendell, agricultural economist at Kansas State University, told WLJ there are a few reasons why the idea might be appealing. By choosing to directly market your beef, you are able to control all aspects of the supply chain.
“It all comes back to money, to get an increase in farm or ranch income.”
As a producer selling to livestock barns, you don’t fully have all of that control. However, if you are grass feeding or feeding out cattle yourself, you have more control over everything and also have access to specific data—in short, you get to call the shots. But one of the main reasons to direct market beef would be a price premium.
“It all comes back to money, to get an increase in farm or ranch income,” Pendell said. Direct marketing can do that for you, as long as you plan out your product accordingly.
In terms of where to start to get involved in the business, Pendell recommends getting educated about beef industry specifics before making any major decisions.
“If you’ve never done this before—depending on the degree you want to take, if you want to make it a big chunk of your business, you’re going to need to educate yourself,” he said. “Not necessarily how you’re raising cattle, but you need to know basic terminology like the USDA grading system, yields, rules and regulations.”
Pendell also recommends narrowing down your niche product. Are you slaughtering your cattle a certain way; feeding a certain diet like grass fed; not using antibiotics or hormones; marketing certain genetics or quality grade; or certifying organic? Consumers are willing to pay a price premium for a product, but it must align with their niche demand.
You also need to narrow down the answers to a series of questions to know if direct marketing might be a good fit for you.
• Who are your customers and your target market? Do you want to sell at farmers markets, or to retail outlets?
• What do your customers want? What niche product are they looking for?
• How do you price your product? What will your expenses be?
• How will you handle processing? Will you take your animals to a slaughter plant, or a facility that does both slaughter and processing?
• Where will you be selling, in state or out of state?
• What labels or packaging will you use?
• Will you be getting insurance?
In the wake of the pandemic, processing cattle has become difficult for large and small-scale processors alike. Pendell noted he visited with several plants in Kansas, and the earliest time to get an animal in was 10 months out due to facilities being overwhelmed by backlogged numbers. Having a good relationship with a processor and knowing their schedule is more important than ever.
Advantages, challenges
Pendell said one of the advantages of the pandemic for those already involved in direct marketing was having an increased opportunity to market their brand. Even post pandemic, making connections with new buyers could keep them coming back even after things calmed down.
“During the pandemic when meat was in shortage and prices were high, people started to look elsewhere. If you were getting into it, I think you really could’ve launched or solidified your brand,” he said.
Although the peak of the pandemic would’ve been the greatest opportunity to be selling beef directly, Pendell said he wouldn’t be discouraged. “Obviously the best time would’ve been a few months back, but I don’t think it’s ever too late to start direct marketing. If you understand how it all works, and this is what you want to do, and you know your target market, I think you can always jump in and do it.”
Most challenges arise from not being informed about your target market and rules and regulations. Pendell said not knowing the specifics about regulations such as whether you can sell your product across state lines can make or break you. He also emphasized knowing your production costs; a study by the Kansas Farm Management Association found there is a 32 percent difference between the most- and least-profitable farms in Kansas, just in terms of expenses.
Stemple Creek Ranch
Stemple Creek Ranch is a grass-fed beef, lamb, and pork operation in Marin County, CA. The fourth-generation farm is run by Loren and Lisa Poncia with their children. They have been involved in the direct marketing business for about 12 years. Loren Poncia told WLJ direct marketing is an entirely different business than ranching, with a different skill set required.
“You can’t be a full-time owner and a full-time sales person.”
“You can’t be a fulltime owner and a fulltime sales person,” he said. “Somebody has to own it and someone has to be running it.”
Poncia grew up on a dairy, and then a commercial cow-calf operation, but went to work in the corporate world. Realizing he wanted to be involved in the ranch again, he came back home with an idea to enrich the family operation, while staying self-sustainable. Loren and Lisa began to purchase Loren’s parents’ cattle over a period of three years, and leased their land, which they continue to lease to this day.
[inline_image file=”2f509f39cb4036973caff9dcdb45ba9a.jpg” caption=”The Poncia Family of Stemple Creek Ranch. Photo by Paige Green.”]
Ultimately, the couple decided they weren’t going to turn enough of a profit without controlling their own margin and decided to get into the direct marketing business. Poncia said they knew there was a market out there for people who wanted transparency about where their meat was coming from. The business has now grown to include 15 additional employees and has expanded to partner with cooperators on the west side of the country who supply the business with additional grass-fed beef.
Poncia was working a fulltime job, running farmers markets, doing the ranching, and facilitating all of the processing before he decided it wasn’t sustainable about five years ago, and went all-in to the ranch. Now he and his wife manage the ranch and have a full staff of employees for day-to-day duties.
Poncia said he talked with his parents about taking over the ranch, but they didn’t have a plan on how it could happen. He knew he needed to bring in a new enterprise in order to make it work. By having a separate business, but still leasing land at a fair market value and buying the cattle at a fair value, it ensured Poncia’s parents were able to get by, but the new business was also independent to operate on its own.
Grass-fed beef
With an abundance of grass on the ranch, choosing grass-fed beef as a niche was the easy choice. The ranch became certified organic, and then went a whole year without making any revenue, relying on income from the couple’s day jobs to keep the ranch funded. The operation then entered a partnership with Panorama Meats, a consolidator for Whole Foods Market. After selling beef to Whole Foods for a few years, the ranch was able to start selling beef under its own label.
[inline_image file=”5631a3805f35c9d5122b4da139a3a537.jpg” caption=”Stemple Creek Ranch boxed beef ready to ship.”]
During the peak of the pandemic, Poncia said it was not only difficult to get animals harvested, but they lost 99 percent of their restaurant retail business overnight. The ranch had to quickly adapt to getting carcasses cut for consumers, rather than the larger cuts for retail. Poncia said because he had formed a relationship with their processor, they were able to work out a deal to benefit both businesses by selling directly to consumers. As a result of consumers looking for new outlets for beef, online sales increased tenfold during the pandemic.
Poncia credits the Ranching for Profit School for the ranch’s success in a new venture. Poncia said they didn’t have the confidence to quit their day jobs and dive into the new business until he attended the school. It took six years of planning before they were ready to execute their plan, but Poncia said they were able to test all of their business principles.
Poncia recommends any rancher attend the school, whether they are looking to try something new or not.
“You work on the business so much that it will change every rancher’s life,” he said. “No matter if you’re 25 years old or you’re 85 years old, it’s worth going.”
Dakota Natural Beef
E. John Bruner is the owner and operator of Bruner Limousin in Miner County, SD. About 15-20 years ago, Bruner put together a branded beef program called Dakota Natural Beef. All of his beef products were antibiotic- and hormone-free and derived from majority Limousin genetics. Bruner had the idea to start a branded beef program when his children expressed interest in the business, and they were looking for a way for the family operation to increase revenue.
[inline_image file=”73ce7c1e1826d0d383057f600d82e6cd.jpg” caption=”E. John Bruner”]
Although Bruner said the business eventually lacked the labor and capital to be more than a “mom and pop” business and discontinued it about three years ago, he said his son has retained interest in the venture and does some direct marketing on his own.
The primary target for Dakota Natural Beef was the restaurant industry.
“When you sell to a restaurant, you need to provide them with the same product every week,” Bruner told WLJ. “We controlled the genetics and the aging process from start to finish.”
Natural beef
Although Bruner had degrees in animal science, he wasn’t familiar with the specifics of the meat industry when he first started out. He said he was able to form relationships with different processors, who taught him the ins and outs of the trade.
Bruner said he eventually created a unique aging process for his product, and guaranteed the tenderness of all of the primal cut steaks. He was able to follow through on this guarantee because he had total control of all of the production methods and was able to maintain consistency.
Bruner experimented with different products during his time marketing Dakota Natural Beef, such as different flavors of beef brats and smoked liver for dog treats. Although Bruner attended some farmers markets to sell products, he said the volume of sales was not enough to be sustainable.
“If we were going to do a program, we had to do it in a manner that we got a premium for our product, because my processing cost was going to be so much higher than the major packer,” he said.
Compared to larger packers, Bruner’s processing costs were 3 to 3 1/2 times higher. Larger packers also have a market for the hides and the less desirable cuts of meat, something a smaller facility often won’t have. This all factors into total processing costs and profits.
“Their menu prices were high enough that they could justify what we needed to get paid to make the product work, but they also demanded the premium product.”
Upscale restaurants were able to pay a price premium that was profitable for Bruner. He would visit with head chefs at restaurants and discuss putting Dakota Natural Beef on the menu.
“Their menu prices were high enough that they could justify what we needed to get paid to make the product work, but they also demanded the premium product. It had to be the same every week. The eating experience had to be high quality.”
Bruner said one of the most difficult aspects of direct marketing beef was the sales process.
You have to learn to accept rejection in marketing,” he said. “You’re going to be a salesman and if you only get one in 10 positive responses, and the other nine are rejections, it can be difficult.”
