Walmart creates an angus beef supply chain, bypassing Tyson
|Toronto Star 24 Apr 2019 at 10:10|
The meat aisle has become a key element in Walmart’s efforts to boost its grocery business, the chain’s biggest source of revenue, which has provided a buffer against the encroachment of Amazon.com Inc. and German discounters like Aldi. (Timothy Fadek / Bloomberg)
The move comes two years after Walmart upgraded its steaks and roasts to higher-quality Angus, part of a broader push to improve the quality of its fresh foods amid intensifying competition in the $840 billion grocery sector.
Tyson Foods and Cargill currently provide Walmart with most of its beef, and will continue to do so. But Scott Neal, who runs Walmart’s meat business, said the retailer also wanted to form its own supply partnership in response to customer demands to know more about who actually grows the food found in supermarket aisles and where it comes from. The company estimates the effort will trim costs and create about 450 jobs.
“We are creating a supply chain from the cow-calf side all the way through to the customer,” Neal, the retailer’s senior vice president of meat, seafood and fresh quality control, said in an interview. “This is an opportunity to look at it from end to end.”
Despite the growing popularity of plant-based substitutes like Beyond Meat, which is now widely available at U.S. supermarkets, Americans’ appetite for the real thing hasn’t abated. The country’s beef consumption should rise to 57.6 pounds per person this year, the most since 2010, according to the U.S. Department of Agriculture.
Demand for Angus — whose marbled, tender cuts have become synonymous with quality — has been particularly robust. Sales volumes last fiscal year reached a record 1.21 billion pounds, according to Certified Angus Beef, about double the amount seen a decade ago.
With a strong economy putting more money into Americans’ pockets, and barbecuing enjoying a resurgence, shoppers are choosing beef over less-expensive meats like chicken and pork. The quality of U.S.-produced beef has improved as ranchers have received a strong signal to produce steaks and chops with more tasty, fatty marbling. Even fast-food chains like McDonald’s, Burger King and Carl’s Jr. now offer Angus burgers.
But that’s put pressure on meat suppliers like Tyson, Cargill and JBS, who are also rushing to meet increased demand for pork and other meats in the wake of a virus that’s decimating China’s hog industry. Separately, the three meat giants face claims that they conspired to drive down the cost they pay for live cattle, according to a proposed class action filed this week in Illinois federal court.
Tyson shares fell as much as 2.2% in New York Wednesday following the news. They had been up as much as 0.6% ahead of the report.
“Five hundred stores isn’t huge but it is a meaningful footprint,” Tim Ramey, a Tyson analyst at Pivotal Research Group, said by phone. “It’s congruent with steps by other large retailers to get more visibility into their meat supply chains.”
The big beef companies will continue to provide some types of the meat to Walmart’s 500 southeastern U.S. stores involved in the supply-chain effort, as well as supply its other locations. Walmart is Tyson’s biggest customer, accounting for 17% of its revenue, according to Bloomberg data.
“Walmart is a great business partner of Tyson Foods and we are fully supportive of the project,” said Jason Nichol, a Tyson senior vice president who oversees the company’s business with the retailer.
Walmart’s Neal said Tyson and its other meat suppliers are “integral to our success.”
Walmart spent about two and a half years building its consortium. It includes rancher 44 Farms and Mc6 Cattle Feeders in Texas; Creekstone Farms, a Kansas-based slaughterhouse; and a Georgia packaging plant owned by Walmart that will be operated by processor FPL Food. The partnership will create more than 250 jobs at Creekstone’s facility and an additional 200 at the packaging plant, Walmart said.
Retailers are increasingly taking control of the production of the food they sell to better respond to demand in a market where consumers’ tastes are changing rapidly. Walmart last year opened a milk processing facility in Indiana to supply its Great Value store brand, and warehouse chain Costco Wholesale Corp. is building a plant in Nebraska to produce its popular $5 rotisserie chickens.
The meat aisle has become a key element in Walmart’s efforts to boost its grocery business, the chain’s biggest source of revenue, which has provided a buffer against the encroachment of Amazon.com Inc. and German discounters like Aldi. Walmart has unveiled its own line of prepared dinners, cultivated a sweeter variety of cantaloupe that can be sold year-round, and is improving its deli counters as well. The meat case is the biggest contributor of sales of fresh products in a supermarket, followed by produce, deli, bakery and seafood, according to data tracker Nielsen.