Tyson Continues to Tower Over Chicken Industry

This year’s meat surplus caused some upset stomachs in Northwest Arkansas, and, if things don’t improve quickly in 2001, the problem could prove fatal to some local companies.

Chicken king Tyson Foods Inc. of Springdale will stay at the forefront of chicken technology. Tyson became the leader in the industry with its superior fully cooked product distribution to both stores and restaurants, then took that division international.

“[Tyson] will always be the leader,” said one industry official. “They are always thinking, ‘What are we going to do with our chickens next?’ I don’t know what there is to do next unless they can get a chicken to lay dollar bills.”

While Tyson is more capable of withstanding the oversupply problem, smaller companies are having to weigh their options. Those options include merging with other companies or even selling out altogether.

There are 29 fully integrated poultry companies, and, in 1999, only five of those showed a profit.

The market for chicken has been weak for about two years because of companies taking their successful 1998 return on profits and putting it back into expansion. Simmons Foods Inc. CEO Buddy Pilgrim said the industry needed 2.5 or 3 percent growth “in order to sustain profitability.” However, 1999 saw a 6 percent growth, and 2000 estimates are for about 5 percent.

While opinions vary, there are those who believe the chicken numbers are not showing a decline in the companies’ total egg set and bird placement.

But most industry officials and analysts believe the end to the meat surplus is just a few months away.

“We would hope that we start seeing some market relief in the spring,” said Tyson spokesman Ed Nicholson.

Pilgrim agreed, saying that there would be only about four more months of “soft markets” in the industry.

But will spring be too late for some smaller companies?

Ken Gassman Jr., senior vice president of research for the investment brokerage house Davenport & Co. of Richmond, Va., said chicken companies that are too small to be niche players and not large enough to compete with ones as large as Tyson are “caught in the middle.”

Another industry official told the Northwest Arkansas Business Journal, “[Companies] like Tyson feel like they can handle the bad times unlike others. [Tyson] will just run the others out of business.”

He added, “If the biggest problem is too much meat on the market and you see bird placement going up or even staying the same, then why is anything getting better?”

Tom Cosgrove, editor of Poultry Magazine, said individuals from both the National Chicken Council and the Poultry Maintenance Symposium still believed production numbers would begin leveling off soon. Others believe the export market will be on the upswing.

A major step toward putting the entire chicken industry on the upswing would be for major meat outlets such as McDonald’s, Burger King and Wendy’s to return their advertising focus to their chicken products. Even KFC, primarily a chicken restaurant, has not been focusing its ads on its poultry products.

For now, those outlets are almost solely advertising beef products because they are purchasing beef at about 30 percent less than they did in 1999 and yet selling it at the same price.

As one official said, “Those companies don’t want to interfere with their huge markups on hamburgers and other beef products. If those prices go up, they’ll start running chicken ads. And you would be amazed at how much the chicken market could be cleared up just with national ads.

“This has nothing to do with the government at all. It’s all supply and demand.”

Cattle are expected to decrease in numbers in the summer, which should help turn the tide for the chicken market as beef prices rise.