Bacon, a mainstay, suffers from cost pressures

August 10, 2011

Recent price hikes cut deeply into unit demand for refrigerated bacon.

Americans think sizzling bacon is a great way to start the morning. If that's not enough, there's the classic BLT sandwich for later in the day, bacon seasoning for salads, bacon bits for baked potatoes, and even bacon chocolate as a gourmet treat. 

But will households continue to buy bacon at a $6 per pound everyday price - which analysts say it could easily reach if pork bellies surpass the $150 per hundredweight (100-pound) level attained last August. Hog farmers cut back their herds due to high feed costs, and the price of pork bellies already shot past the $130 level this spring, CNBC reported.

While the prices of many corn-dependent foods have risen in 2011, an absence of bacon on family tables would be an emotional touchpoint. This is a nation, after all, that gave a military funeral to King Neptune, a 700-pound pig, which was integral to World War II fundraising efforts, according to National Public Radio. And bacon is a heavily consumed, versatile and flavorful food.

Recent Nielsen data point to a consumer price sensitivity that is already hurting the $2 billion-plus (annual sales) category in U.S. food stores that ring up $2 million and over in yearly sales (excluding supercenters). This creates opportunities for supermarkets to promote bacon prominently in its weekly circulars to demonstrate value. In last week's circular, for example, ShopRite offered one pound of private label bacon, any variety, for $1.99, and allowed shoppers to buy up to four packages on a single visit; this was its lead item on page one. Meanwhile, Stop & Shop promoted stock-up of a branded turkey bacon, six ounces for $1, up to 10 packages per visit, also on its front page.

Retailers are responding to a 10.1% equivalized unit volume (EUV 16-ounce basis) decline in refrigerated bacon in the 52 weeks ended June 11, 2011; this is a sharp turnabout from the 5.9% EUV increase posted during the prior-year period, the Nielsen data for prepackaged, UPC-coded products only showed. This latest fall was comprised of a 13.9% EUV drop in private label and an 8.7% EUV drop in brands.

Price hikes have been so significant that dollar sales give no hint of the underlying trouble. Dollar sales of refrigerated bacon in U.S. supermarkets were up 3.0% a year ago and 10.4% in the latest 52 weeks to $2.28 billion. Brands were up 10.4% in the latest 52 weeks, and private label rose by 10.1%, Nielsen showed.

Among different category segments, the highest percentage growth emerged in bacon with preservative claims, revealed Nielsen LabelTrends data. Albeit the smallest segment, EUV jumped by 21.0% a year ago and 31.9% in the latest 52 weeks. This performance was in sync with a 20.2% rise in dollar sales a year ago and a 48.3% bounce to $31.5 million in the most recent 52 weeks.

Another bright spot: turkey bacon. EUV gains for four consecutive years culminated in a 12.5% boost most recently. This correlated with a four year stretch of dollar sales advances, including a 14.9% jump to $134.2 million in the latest 52 weeks, Nielsen reported.