Episode Summary: "Butchers" - The Economics of Everyday Things

Podcast Information:

• Title: The Economics of Everyday Things
• Host/Author: Freakonomics Network & Zachary Crockett
• Episode: 75. Butchers
• Release Date: January 6, 2025

Introduction

In Episode 75 of The Economics of Everyday Things, host Zachary Crockett delves into the intricate world of butchery, exploring the economic dynamics that transform a 1,400-pound cow into the steaks and beef products that grace American tables. The episode focuses on Flannery Beef, a family-run butcher shop and meat distributor, highlighting the complexities and challenges faced by modern butchers in a highly segmented and controlled industry.

The Role of Butchers Today vs. the Past

Crockett opens by painting a vivid picture of Flannery Beef’s operations in San Rafael, California. Inside their warehouse, abundance and precision are evident as workers trim various cuts of beef using vertical band saws.

Brian Flannery, co-owner of Flannery Beef, emphasizes the skill required in butchery:

“We’re not, generally speaking, a Tuesday night dinner. We’re an anniversary, a birthday, a holiday, a celebration when it’s natural to get a big steak.”
(00:17)

The episode contrasts the current state of butchery with historical practices, where butchers were multifaceted experts handling everything from slaughtering to cutting. Katie Flannery, Brian’s daughter and co-owner, notes:

“In the past, a butcher would be incredibly knowledgeable from slaughter to final product. Nowadays, I think there's more segmentation between the slaughter side and the butchering side.”
(05:09)

Family Legacy and Business Expansion

The narrative traces the Flannery family’s deep roots in the butchery business. Brian Flannery Sr. started in a San Francisco meat market before opening his own reputable butcher shop in 1963, reputed even to have supplied steaks to Alfred Hitchcock.

Brian Jr. expanded the business by establishing Flannery Beef, a distribution company serving over 400 high-end restaurants nationwide. His daughter, Katie Flannery, brought the business into the digital age, enhancing their e-commerce capabilities for home deliveries.

Understanding the Beef Supply Chain

Crockett breaks down the beef supply chain, illustrating how a cow progresses from a farm to the consumer’s plate. This segment features detailed explanations from both Brian and Katie Flannery:

1. Cow-Calf Operations: Ranches breed and raise calves until they are mature enough to be sold.

2. Backgrounder Ranches/Stockers: Calves are fed to reach a weight of 800 pounds.

3. Feedlots: Cattle are fed grains to bulk up to 1,400 pounds before being sold to slaughterhouses.

Katie Flannery describes the industry structure:

“I think a really good way to look at the beef industry in America is to look at it as an hourglass. You have a lot of people at the top of this hourglass who are raising animals for beef production. And at the bottom of the hourglass, you have a lot of people who are consuming beef for dinner. The choke point are the slaughterhouses.”
(06:14)

Slaughterhouses: The Choke Point

The episode highlights the dominance of four major firms—JBS, Cargill, Tyson, and National Beef—in controlling slaughterhouse operations. These conglomerates manage numerous regional slaughterhouses, centralizing the butchering process and influencing beef distribution across the country.

Katie Flannery analogizes the butchering process to an assembly line:

“It’s like an assembly line, except instead of putting something together, you’re taking it apart.”
(07:31)

Primals and Yield: Primals are the initial large cuts from the cow, such as rib chuck and short loin. The slaughterhouses pay for the entire weight of the cow but extract only about 450-500 pounds of saleable meat, with a maximum of 80 pounds classified as steak.

Quality Grading and Pricing

The quality and pricing of beef are significantly influenced by USDA grading, which considers yield and tenderness. Brian Flannery explains:

“The way that they grate is they look at the eye of the rib and they determine the quantity of marbling and the positioning of it.”
(09:04)

Katie Flannery adds that technology aids in grading:

“They actually take a picture and they’ll analyze and they’ll spit out this percent of fat to this percent of lean to then help you make that decision.”
(09:13)

Prime grades are rare and highly valued, constituting only about 10% of assessed beef. Different sub-rankings like Prime 1 and Prime 3 further segment the quality based on marbling and fat content.

Economic Insights:

• Revenue vs. Cost: A $20 short loin can yield $600 in revenue when optimally butchered into porterhouse and bone-in New York steaks.
• Price Fluctuations: Prices vary due to factors like seasonal demand and supply chain disruptions. For example, in the fourth quarter, prices for prime beef can rise by 25-28% (16:13) due to holiday demand.

Modern Butchery Challenges

The episode delves into the operational challenges faced by Flannery Beef:

• Trim Loss: During dry aging and butchering, significant weight is lost. Katie manages this by applying a trim loss multiplier to sales projections.
• Discarded Trim: Previously, Flannery Beef sold trim as hamburger meat, but increased USDA regulations have made this financially unviable. Now, most trim is either repurposed into products like soap or discarded, representing an overhead expense.

Brian Flannery discusses the financial impact:

“It’s taken a big percentage of potential profit off the table because that was a way to recover the cost of some of that trim.”
(21:20)

Dry Aging Process

Flannery Beef specializes in dry aging, enhancing flavor and tenderness by allowing meat to age in controlled environments. During a visit in November, Crockett observes:

• Fresh Meat: Bright cherry-red meat indicating recent processing.
• Moldy Meat: Unique mold growth contributing to a distinctive flavor profile, described by Katie as "buttery, nutty, kind of warm."

Katie Flannery explains:

“We really kind of lean into the mold. I think it gives a phenomenal flavor profile to dry, aged beef that you're missing if you don’t have that.”
(17:35)

Pricing Strategies and Market Competition

Flannery Beef sets prices based on detailed financial calculations, balancing demand and supply. For instance, a 10-ounce filet mignon may sell for around $50 due to its limited supply—typically 12 per animal—and high consumer demand.

Competitive Pressures: Large retailers like Costco can significantly impact the market by purchasing bulk quantities, thereby driving up prices and creating supply shortages:

“They’ll come in and they’ll order a million units of filet. So boom, it just sucks all the air out of the market.”
(16:25)

Operational Costs and Profit Margins

Running Flannery Beef involves high operational costs, including labor, rent, and utilities for maintaining freezers. Despite these expenses, the company maintains a net profit margin of approximately 8%, which is commendable given the volume of 10,000 steaks sold weekly.

Brian Flannery reflects on the business:

“When you’re selling 10,000 steaks a week, it’s not a bad living. And let’s just say it comes with some pretty juicy perks every week.”
(21:20)

Personal Reflections

The episode concludes with personal insights from the Flannery family. Katie Flannery appreciates the dynamic nature of the butcher’s role:

“There’s something new coming up. You get to be creative. You’re constantly thinking, moving forward, adjusting. It’s exciting. It’s definitely not a static job.”
(22:11)

Brian Flannery humorously critiques certain cuts:

“Filets generally have minimal flavor. They’re very, very tender, but they have minimal flavor.”
(23:07)
“It’s one of the worst looking steaks.”
(23:13)

Conclusion Zachary Crockett wraps up by highlighting the intricate balance of tradition and modern economics in the butchery industry. The episode provides an in-depth look at how family-run businesses like Flannery Beef navigate a complex supply chain, maintain quality standards, and manage economic pressures to deliver premium beef products in a competitive market.

Notable Quotes:

• Brian Flannery: “Anybody can pick up a knife, but people that can do it correctly are not easy to find. To cut portions, you've got to look at that piece of meat.”
  (02:10)

• Katie Flannery: “You can have something that’s browned out a little bit and there’s absolutely nothing wrong with the product.”
  (11:10)

• Brian Flannery: “It’s like an assembly line, except instead of putting something together, you’re taking it apart.”
  (07:31)

Production Credits:

• Produced by: Zachary Crockett and Sarah Lilly
• Mixed by: Jeremy Johnston
• Additional Help: Daniel Moritz Rabson and Sam Anderson

This detailed summary offers a comprehensive overview of Episode 75, "Butchers," capturing the essential discussions and insights into the economics and operations of modern butchery, particularly through the lens of Flannery Beef.