Looking a decade ahead

by Bryan Salvage
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During a Webinar presentation I recently made focusing on industry trends, one attendee posed the question: given the continuing rise in grain costs, fuel prices plus the ever-increasing amount of what many consider to be mounting regulations, among other challenges, what will the US meat industry look like in 10 years? That’s a good question and the answer is likely..... smaller.

Companies of all sizes take a beating daily from many challenges – and some pop-up out of nowhere, such as the lean finely textured beef controversy that sucker-punched LFTB providers and ground beef manufacturers in recent weeks. Although LFTB has long been proven as safe, AFA Foods, a ground-beef processor, in early April filed for Chapter 11 bankruptcy, citing recent changes in the market for ground beef and the impact of the controversy over LFTB.

The hardest hit by daily challenges will continue to be smaller companies, but luckily some of the best-run companies I’ve seen are smaller companies owned and managed by seasoned, industry veterans. Medium-size and large companies also struggle during difficult economic times. Since December 2010, the US poultry industry was especially hard hit as chicken prices decreased last year. During this time, Cagle’s, Townsends and Allen Family Foods filed for Chapter 11 bankruptcy protection.

In recent years, companies that slaughter livestock have become a popular target of undercover videos being taken by animal activists trying to document animal mistreatment—which always results in some lost business for those companies targeted. Late in January, two pork production facilities in Oklahoma were targeted by undercover agents from the Humane Society of the United States. On Jan. 31 HSUS released video footage of pigs in gestation cages taken in late 2011, depicting what it called “prolonged suffering of pigs used for breeding who are confined in cages so small the animals can’t even turn around.”

There’s another significant reason industry will likely be smaller in 10 years: continuing acquisitions. Industry has been consolidating in recent decades and this trend will likely continue. Most recently, Land O’Frost acquired West Point, Neb.-based Wimmer’s Meats, a processor of sausages and hot dogs. Land O’Frost acquired all of Wimmer’s assets, including its entire brand portfolio, which includes the Wimmer’s, Basset’s, Fairbury and Ambassador brands, and its West Point, Neb., processing facility.

In November, Mexico’s Industrias Bachoco S.A.B. de C.V., a poultry processor, acquired OK Industries Inc., a US-based poultry processor with headquarters in Fort Smith, Ark. for approximately $95 million. OK Industries processes 2.5 million chickens per week and has annual sales of approximately $600 million. In June, Encore Consumer Capital has completed the sale of its portfolio company, Aidells Sausage Company Inc., to Sara Lee Corporation for $87 million.

Opportunities exist

There are many more examples of acquisitions involving packers and processors, as well as restaurants, supermarkets and industry suppliers. Indeed, the meat and poultry universe will continue shrinking.
But even during tough times, there are always opportunities companies can pursue. US meat and poultry exports will be good again this year and in the years to come, insiders predict, due to the growing world population and ascent of middle-income families. By 2050, Earth’s rapidly growing population will likely total around 7-9 billion people who will consume 73 percent more animal protein than it does today, estimates a recent Food and Agriculture Organization of the United Nations study titled World Livestock 2011.

Opportunity is where you find it. The need for convenient, high-quality meat and poultry will continue to be great demand in the US foodservice market for busy chefs, as well as at home for time-stressed consumers.

And more consumers want to eat healthier and many are taking better care of themselves. Leaner proteins as well as organic/natural meat and poultry continue to be pursued by those who perceive them as healthier alternatives. Many consumers and diners are looking for low-sodium, low-fat, no MSG, antibiotic-free and lower-cholesterol variations of meat and poultry products.

Despite the sputtering economy, the nation's restaurant industry is poised for impressive growth this year, predicts the National Restaurant Association's 2012 Restaurant Industry Forecast. Total restaurant industry sales are expected to reach a record high of $632 billion in 2012, up 3.5 percent over 2011, marking the second consecutive year that industry sales have topped $600 billion. Local sourcing will be among the hottest trends on restaurant menus in 2012.

A travel rebound, particularly in international visitors, is also helping US restaurant sales grow. Through the third quarter of 2011, international visitors spent approximately $126 billion on travel to and tourism-related activities in the US, according to the US Department of Commerce. This total is up 14 percent versus the same period a year ago. Basically, $1 out of every $3 in food and beverage sales is related to tourism. At present, all signs indicate a positive industry performance for 2012.

Inventiveness in seasonings, marinades and dipping sauce flavors will help maintain consumer interest in preparing or ordering more tasty meat and poultry dishes, particularly ethnic foods.

Insiders insist there still are untapped niches to be found that can hold great promise. For example, consumer sales data indicates the breakfast market is not yet saturated, which means there are sales opportunities for restaurants, retailers and suppliers in this category. The breakfast segment generates around $42 billion in annual sales. What opportunities doe this hold for breakfast meats?

Although no one knows exactly what the industry will look like in 10 years, demand for top-quality meat and poultry products should be greater than ever. Daily challenges will continue, but keep working to drive out inefficiencies, adjust quickly to market and regulation changes/additions, keep pursuing opportunities and listen closely to your customers and consumers. Consistently do this and there’s a good chance your company will not only survive but will be thriving 10 years from now.

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