75. Butchers

Summary

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

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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.

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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)

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Production Credits:

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

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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.

Transcript

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[Zachary Crockett]

Inside a warehouse in the Northern California city of San Rafael, you'll find a spectacular abundance of bovine flesh. There are giant walk in freezers full to the brim with rounds, flanks, chucks and loins in various stages of aging. In the prep station, workers use vertical band saws to trim hanger stakes and ribeyes.

[Brian Flannery]

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.

[Zachary Crockett]

That's Brian Flannery. He and his daughter Katie run Flannery Beef, a butcher shop and meat distributor. They specialize in beef, which they source, cut and trim for restaurants all over the country. On average, Americans eat around 83 pounds of beef per year per person. Before all of that meat gets to their tables, it passes through the hands of a butcher like Brian, Katie or one of their 12 employees. And turning a 1400 pound cow into an edible and economically viable product is more challenging than it might appear.

[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. You've got to gauge the size and the shape. They're thick, they're thin, they're round, and each piece is different. It really takes a lot of thinking.

[Zachary Crockett]

For the Freakonomics Radio Network, this is the economics of everyday things. I'm Zachary Crockett. Today butchers Many decades ago, before supermarkets became ubiquitous, buying groceries was a very different experience. You'd go to a separate market for each of your needs. A grocer for vegetables, a fishmonger for seafood, and your neighborhood butcher for meat that's the environment in which Brian Flannery's dad, Brian Sr. Got his start.

[Brian Flannery]

He just got out of high school, got a job in a meat market in San Francisco, and over a course of, I guess probably 15 years, worked up from sweeping the floors to actually being the general manager. At their peak, they had 80 butchers processing 120 head of cattle a week.

[Zachary Crockett]

In 1963, Brian Sr. Opened his own butcher shop in San Francisco. They gained a reputation for their beef, and according to family lore, they even sold steaks to Alfred Hitchcock.

[Brian Flannery]

My mother worked there, my sisters worked there, my two brothers worked there. So that's how I got introduced to it.

[Zachary Crockett]

When Brian Jr. Inherited the meat shop with his brothers, he broke off and started his own arm of the business, a distribution company called Flannery Beef. And eventually he talked his daughter Katie into joining too.

[Katie Flannery]

I actually got as far away as I could. I decided to go to the east coast to study art history. But with family businesses, you're always part of that orbit.

[Zachary Crockett]

Today, Katie's all in on the business. She even has a piece of beef as the background on her phone. As the company's co owner, she's helped usher Flannery Beef into the age of E commerce. You can go on their website and order ribeyes, porterhouses, New York strip steaks and filet mignons for home delivery. But the bulk of the company's business is selling steaks to more than 400 restaurants around the country.

[Katie Flannery]

They're mostly accounts that the industry would call white tablecloth restaurants. So it's your high end steakhouse style experience. It's not a Outback Steakhouse or Applebee's, anything like that.

[Zachary Crockett]

Flannery beef sells around 7,500 pounds of meat every week. Something like 10,012 ounce steaks. And the role they play is very different from that of the neighborhood butcher shop Katie's grandfather started 60 years ago.

[Katie Flannery]

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.

[Zachary Crockett]

In the old days, butchers would actually go to the slaughterhouses themselves and buy whole cow carcasses. They'd hang them on big hooks and cut them up in the back of their shop. Today, the supply chain of America's beef is a bit more complicated.

[Brian Flannery]

The first step in the cattle industry is what they call a cow calf operation. And that's basically a ranch or a farm that does the breeding. And they will keep the cow and the calf together. Until the calf is mature enough to be able to be weaned off of the cow. That type of operation will put the calf up for sale.

[Zachary Crockett]

After six to nine months, calves reach a weight of 400 to 600 pounds. Some are killed and processed for veal. Others are sold alive for around $2 per pound to an operation called a backgrounder ranch or a stocker.

[Brian Flannery]

They will take that same calf and then they will isolate it and feed it a formula and raise it to a much larger animal, probably 800 pounds.

[Zachary Crockett]

From there, the cow often goes to a specialized feedlot where it feasts on grains and bulks up to as much as 1400 pounds. Around a year and a half into its life, it's sold to a slaughterhouse. And this is where things get a little tricky.

[Katie Flannery]

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.

[Zachary Crockett]

This part of the supply chain is almost entirely controlled by four big JBs, Cargill, Tyson and National Beef. These firms own dozens of regional slaughterhouses, and they have a tight grip on the way that beef is sold in America. Cattle from all over the country are funneled into these slaughterhouses where huge teams of butchers break them up for distribution.

[Katie Flannery]

It's like an assembly line, except instead of putting something together, you're taking it apart. They eviscerate guts out, hide off, split it down the middle. The carcass will chill, then it'll go down the production line to be broken down into the smaller primals.

[Zachary Crockett]

Primals are the first big cuts of meat from the cow during the butchering process, and they follow the natural muscles and seams of the animal. They have names like rib chuck, round loin, brisket, short plate, and flank. A slaughterhouse pays for the full weight of a 1400 pound cow, but at the end of their butchering process, they're left with much less.

[Brian Flannery]

That'll be around 450 to 500 pounds of saleable weight for that entire carcass. And of that max is 80 pounds of steak.

[Zachary Crockett]

As all of this beef makes its way through a slaughterhouse, it's also inspected by an official from the U.S. department of Agriculture. As a part of that inspection, the plant has the option of paying for its meat to be graded. If you've bought beef at A supermarket, you've probably noticed there's a sticker on there that says prime, choice or select. These are grades assigned by the USDA based on the yield, the amount of usable lean meat on the carcass, and also quality, the tenderness, juiciness and flavor. The latter has a lot to do with the meat's marbling or the way that the natural specks of white fat are distributed through the meat.

[Brian Flannery]

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.

[Katie Flannery]

That's where the computers have come into play. 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.

[Zachary Crockett]

Prime is considered the best grade. It's only assigned to around 10% of all assessed beef. But not all prime cuts are of the same caliber. There are different sub rankings based on how much yield a buyer can get.

[Brian Flannery]

Prime one would be the holy grail. It'd be beautifully marbling with no excess fat. Prime 3 would be beautiful marbling with a ton of fat, which is a loss from a producer's point of view.

[Zachary Crockett]

Slaughterhouses sell a large portion of this meat to distributors, who in turn sell it to grocery stores. Some of it is sold as primals, which are cut up and sold over the counter. But the role of the supermarket butcher has changed significantly in the past few decades because much of the meat you buy at the supermarket today isn't fully butchered on site. It it's what's called case ready. It's cut, trimmed, packaged and labeled either at a slaughterhouse or a third party processing plant. Then it's sent to the store ready to sell as is.

[Brian Flannery]

They're doing a little bit of on site cutting, but very little. It's a much, much reduced version of the old fashioned butcher shop.

[Zachary Crockett]

Many of the stakes sold to supermarket chains are less pricey. Select grade cuts. And instead of paying to get the meat graded, some retailers come up with their own branding. For years, Safeway sold some of its beef under the name Ranchers Reserve.

[Brian Flannery]

A lot of them will come up with unique branded names because they don't want to say this is USDA select.

[Zachary Crockett]

The prepackaged steaks at supermarkets also use some tricks to keep meat looking fresh, like pumping packages with carbon monoxide.

[Katie Flannery]

The color of meat is very dependent on the presence of oxygen. So that's where this modified air packaging comes into play because the consumer associates bright red with fresh, good meat and it's not entirely true. Like you can have something that's browned out a little bit and there's absolutely nothing wrong with the product.

[Zachary Crockett]

Of course, not all beef ends up at supermarket chains. Slaughterhouses also sell directly to mid sized independent butcheries like Flannery Beef, and the meat that goes there experiences a very different journey before it gets to your plate. That's coming up. The Economics of Everyday Things is sponsored by Rosetta Stone. As you set resolutions for 2025, consider how learning a new language with Rosetta Stone can enrich your life, whether through travel, career advancement or cultural appreciation. With courses in 25 languages, including Spanish, French, German and more, you can choose a language to learn that unlocks new places, connections and experiences. And Rosetta Stone's immersive approach means no English translations. Learn to think in your new language from day one. Plus the mobile app makes it easy to learn on the go so you can conveniently fit in lessons on your own schedule. Start the new year off with a resolution you can reach today. The Economics of Everyday Things. Listeners can take advantage of Rosetta Stone's lifetime membership for 50% off, visit rosettastone.com economics that's 50% off unlimited access to 25 language courses for the rest of your life@rosetta stone.com economics today.

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[Katie Flannery]

I can tell my rep at the slaughterhouse I need 50 cases of boneless ribeyes. I want 100 cases of bone in ribs, I want 30 cases of briskets, I want them all prime, et cetera, et cetera.

[Brian Flannery]

We'll order ribs, we'll order short loins, we'll order chucks for our grinding, we'll order tenderloins, the filet. So you're buying cases, and they're roughly on average, 80 pounds per case.

[Zachary Crockett]

The USDA posts a weekly report of the going rate for 100 pounds of various primal cuts of beef. But the prices are constantly in flux and they can be affected by a wide range of factors like droughts, grain prices, cattle supply, and even the time of year.

[Katie Flannery]

Fourth quarter of the year is when prime beef goes absolutely through the roof, especially ribs. Everybody is thinking Christmas, everybody's thinking rib roast. So. So your prices will go up, you know, three, four bucks over a month or two.

[Brian Flannery]

That's equivalent to about a 25 to 28% rise over what it was last month. I mean, that's major.

[Zachary Crockett]

The competition to score the best cuts has gotten fiercer.

[Brian Flannery]

So like a Costco as an example, I'm not picking on them. 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. So we have to anticipate, not only is the price gonna go crazy, but it's gonna be the question of whether you can get the supply at this time of year.

[Zachary Crockett]

When Brian and Katie do manage to get the cuts they need, the beef is transported to their warehouse in a giant refrigerated meat truck, unloaded and put out onto racks. Flannery Beef specializes in dry aging, a process where meat is left out in a temperature controlled room, typically for a period of two weeks to a month. During this process, enzymes in the meat break down, making it flavorful and tender. When we visited the Flannery beef warehouse in late November, we walked through a freezer with $135,000 worth of beef in it. In various stages of the dry aging.

[Katie Flannery]

Cycle, you'll see one rack that has that kind of bright cherry red meat on it, and that's fresh product. So that's product that has just recently been opened and put onto the rack.

[Zachary Crockett]

We also saw something we didn't expect.

[Katie Flannery]

You'll look at a different rack that's got much darker, moldy meat on it. And the mold is really unique to our process here. Partly our process, partly our location, 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. It's like a buttery, nutty, kind of warm smell. I know that sounds crazy.

[Zachary Crockett]

Once the Primals are appropriately aged, they have to be cut down into individual steaks. And a skilled butcher can break down a particular piece of meat in a few different ways. Take for instance, the short loin, the big piece of beef that comes from the back of a cow.

[Katie Flannery]

The anatomy of the short loin is that on one end of it, it has the muscle that makes up the New York steak and the muscle that makes up the filet mignon. So if you cut it and it has both the section of the New York and the filet mignon, that's considered a porterhouse. The difference between a T bone and a porterhouse is the width of the filet. So from the short loin, you could get a porterhouse, a T bone, a bone in New York. There's a ton of different ways that you can work that one primal.

[Zachary Crockett]

A butcher has to know what kind of dollar value they'll get from each Primal cut. Flannery beef might buy a 20 pound short loin from a slaughterhouse for around $290. If it's shaped just right, they can get three 32 ounce Porterhouse steaks and five bone in New York steaks out of it. Those steaks might add up to around $600 in revenue. Setting prices for those steaks also involves a complicated financial calculation. A 10 ounce filet mignon, for instance, runs around $50, more than double the price of a flatiron steak. That's partly to do with demand, since it's prized for its tenderness, but it also has to do with supply.

[Katie Flannery]

You have two tenderloins per animal. Out of each tenderloin, you'll get maybe six center cut steaks so you'll get 12 filet mignon steaks per animal. That's it. That's insane. And think of how many people are out there ordering filets when pricing their steaks.

[Zachary Crockett]

Flannery Beef also has to account for product loss throughout the butchering process. During the dry aging stage, a cut of meat loses 10 to 15% of its weight. And when that meat is cut up into steaks, anywhere from 20 to 50% of its weight is lost from all the tendons and excess fat that gets trimmed off. That 20 pound short loin that they paid $290 for might only yield 10 or 11 pounds of meat.

[Katie Flannery]

I take our sales at the end of every single week, every single skew that we have. I have like a trim loss multiplier. So if it's a portion cut New York, I know that our guys trim loss is about a 33% when they're.

[Zachary Crockett]

Cutting New York's, all the leftover scraps from meat are called bench trim. Flannery Beef used to grind it up and sell it as hamburger meat, but Brian says that's no longer financially viable. Trim that's intended to be resold is subject to additional USDA testing. It requires meat to be traced back to its origin source. And for mid sized operations like Flannery Beef, the extra manpower and paperwork isn't worth it.

[Brian Flannery]

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.

[Zachary Crockett]

Sometimes Flannery Beef will pay a tallow company to come collect all of their trim, and it's used to make soap. But much of the time it's just thrown away. Trim is considered an overhead expense in the business, and it's not the only one. There's labor, rent, and a $13,000 monthly utility bill for all the freezers. At the end of a typical month, Flannery Beef's net profit margin works out to around 8%. That may sound pretty small for all the work, but 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.

[Katie Flannery]

There's something new coming up. You know, it's a different problem to solve. You get to be creative. You're constantly thinking, moving forward, adjusting. It's exciting. It's definitely not a static job.

[Zachary Crockett]

Do you guys eat steaks like seven days a week?

[Katie Flannery]

No, because it's like you don't want too much of a good thing, you know, a really good steak. I'm happy with like two, three times a month. Honestly, that's it. I don't want to overdo it for.

[Zachary Crockett]

The economics of everyday things. I'm Zachary Crockett. This episode was produced by me and Sarah Lilly and mixed by Jeremy Johnston. We had help from Daniel Moritz Rabson and Sam Anderson.

[Brian Flannery]

Filets generally have minimal flavor. They're very, very tender, but they have minimal flavor.

[Katie Flannery]

They're also ugly as hell.

[Brian Flannery]

It's one of the worst looking steaks.

[Zachary Crockett]

The Freakonomics Radio Network the Hidden side of Everything Stitcher.

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