Tyson Foods continues the shift away from commodity meat

by The City Wire staff ([email protected]) 157 views 

Tyson Foods Inc. is known as one of the largest meat processors in the U.S. with a growing global presence. It operates more than 70 plants across the country that slaughter chicken, pork and beef while it processes those raw commodities for sale in retail and food service channels. But that reality is slowly changing.

During the last few years Tyson has began to focus less on commodity production and more on value-added sales. More recently, Tyson announced plans to expand its prepared foods division. Tyson operates 23 plants that are dedicated solely to prepared foods that produce items such as tortillas or pizza toppings. This prepared foods segment comprises roughly 10% of Tyson’s annual sales equaling roughly $3.2 billion.

In mid-November CEO Donnie Smith announced the company was separating the prepared foods segment from its poultry division and named Donnie King to head up the prepared foods unit’s major expansion goals. 
King will devote his talents to our growing value added foods business and creating an integrated sales and marketing organization to deepen our relationships with customers, Smith said.

It also looks as if Tyson is returning to its early roots as it continues to buy birds on the open market, in lieu of growing them out. Tyson began this buy versus grow practice two years ago in the face of record grain costs which roiled the entire industry. This is a page right out of Tyson’s history book, as founder John W. Tyson Sr. made a name for himself by selling live chickens which he hauled from Springdale to larger markets in Chicago and St. Louis during the mid-1930s.

It was some 22 years later before Tyson built its first processing plant at the urging of second generation poultry pioneer – the late Don Tyson. While Tyson grew exponentially through acquisition over the next 35 years, more recent corporate expansion efforts have been linked to prepared foods and valued-added meats that carry higher margins than the pennies per pound gleaned in commodity chicken, pork and beef.

Smith told analysts in November that the company would continue this buy-versus-grow practice as it focuses on expanded value-added sales by 6% to 8% annually. During fiscal 2013, Smith said value-added sales increased by nearly 6%. Tyson declined to give the total revenue associated with those value-added sales, but in 2012, Fitch Ratings estimated Tyson’s value-added sales totaled $15 billion – some 45% of the company’s total annual revenue.


Tyson management is also focused on expanding sales (retail and food service) in nontraditional markets such as dollar stores and drug stores. Tyson recently declined comment to The City Wire about its plans to expand its prepared foods segment, citing its quiet period, as allowed by the Securities and Exchange Commission ahead of its corporate earnings release Jan. 31.

The meat giant already does huge volume with mini-marts and gas stations in deli meats, cold cuts and pizza toppings and a recent interview with Meat & Poultry Tyson executives detailed efforts underway to tap more sales in the convenience store and deli channels.

“Who would’ve thought several years ago, you’d be going to your local drugstore to grab a sandwich,” Eric Le Blanc, vice president of marketing for deli and convenience stores at Tyson Foods told Meat & Poultry.

He said Tyson brings more to the table for these venues than just chicken because of its expertise in foodservice and retail, two very different sectors. Le Blanc added that Tyson is striking a balance between delivering what consumers want and what foods the retailers can handle with a limited production platform is the goal.

“Americans are looking for what they want, when they want it,” he said.

This convenience store channel consists of roughly 150,000 locations in the U.S. To put this in perspective, a report from Neilsen said there are more convenience stores than
than warehouse clubs, supercenters, dollar stores, supermarkets and drug stores combined. Neilsen said there is one convenience store for every 2,000 people in the U.S. As a segment annual sales topped $123 billion in 2012, growing 4.9%, a better market when compared to a $310 billion grocery segment which grew just 1.5% year over year.

One of the fastest growing segments within convenience stores is fresh food, such as pizzas, wraps and sandwiches made onsite. Neilsen reports this type of fresh food has increased 38% in sales among convenience stores in the past year.

Le Blanc said much of the convenience store opportunities lie in densely populated urban areas. These consumers who shop convenience stores for food options tend to be urban, single males. In rural areas the shoppers tend to be females, including busy working moms often middle-to upper income households.

Tyson said it will adjust its marketing strategy to appeal these different customer demographics as it works to build brand awareness using social media as well as targeted television advertising.

Analysts consider Tyson a marketing machine, despite the fact many of its products do not bear the Tyson brand, such as the taco shells sold at Taco Bell or the pizza toppings and crust used by Pizza Hut. The most recent social media initiative was launched last week in conjunction with the popular New Year’s resolution to eat healthier.

“Just Add This” is a motivational social media campaign on Facebook where consumers can find tips that help them lead a healthier lifestyle while making small changes in their daily routines.

Consumers can join the "Just Add This"  conversation online.