The next time you chow down at Ken-tucky Fried Chicken, take a moment to reflect that each bite comes out of beef's hide. Then, take one more moment to reflect on Tyson Foods, the poultry giant leading the industry's assault on beef.
Tyson's spectacular rise illustrates how the chicken industry has eaten beef's lunch. But the lessons learned from Tyson's growth can also provide a blueprint for winning market share back in much the same way that American car makers learned to make better cars from their counterparts in Japan.
Tyson's story starts in the midst of the Depression, when John Tyson started hauling chickens by truck from Arkansas to Kansas City, St. Louis and Chicago. Back then, chicken was an also-ran in the meat business. Beef was undisputed king.
But over the next six decades, Tyson's tiny business became a $7-billion/year titan of its industry. He did it through vertical integration, which means that it controls every phase of the chicken business. Today, Tyson excels in genetics, chicken hatching, feed manufacturing, chicken processing, advertising, exporting and, most importantly, the development of value-added chicken products.
The beef industry with its roughly 1 million players ranging from cow/calf operations in the West to the meat packing giants of the Great Plains lags far behind. Getting players in the beef industry to agree on anything is almost always difficult, often impossible. But in the chicken industry, consensus isn't a problem. Companies like Tyson call all the shots.
At one time, of course, the chicken industry was fragmented much as the beef industry is today. "We had separate feed mills, separate processing plants, separate hatcheries and independent chicken farms," says Paul Aho, a poultry industry consultant. "Each was a profit center and they fought with each other over the price. In the '50s, they experimented with vertical integration and they discovered it was more efficient."
Vertical Integration Was The Start Vertical integration put Tyson and other chicken producers on top of the protein food chain. This is because vertical integration allowed Tyson and other operators to push for better genetics, then make sure they were put to use.
Improved genetics led to dramatically lower production costs. "When I was an undergraduate, it took seven weeks to grow a 4-lb. broiler," says Kevin Roberson, Extension poultry specialist at Michigan State University. "Now they say 39 days." Meanwhile feed conversion - pounds of feed per pound of gain - has been cut in half from 4 lbs. to 2 lbs.
Lower costs helped make chicken a cheaper buy for consumers, giving chicken a day-to-day marketing edge over beef. Genetic improvements gave chicken uniform quality and helped avoid bad eating experiences.
"The most common thing we say to anybody after they've had a steak, was 'how was your steak?'" says Harlan Hughes, a livestock economist at North Dakota State University. "We don't say that about chicken. To me, that's indicative that there must be some eating experiences with beef that aren't favorable, or we wouldn't ask."
Vertical integration also helped develop the value-added products that allowed chicken to gain market share, up 16% since 1976. By creating niche products, plain whole chickens were transformed into an appealing array of offerings ranging from frozen microwave dinners to chicken nuggets, now a staple at the nation's leading hamburger chains.
And when it comes to value-added products, no one beats Tyson. These niche products, in turn, helped Tyson dominate the chicken market, where it controls about 27% of the business. Of the top 100 restaurant chains, Tyson sells to 90. Of the top 25 supermarket chain deli departments, Tyson is in 17. And Tyson sells to every one of the nation's 100 largest school districts.
Tyson's dominance, experts say, stems from controlling every step of the chicken business, starting with genetics. Breeding stock is developed by geneticists in Tyson's Cobb-Vantress Division.
"When Tyson has board meetings for the marketing guys to say what kind of products they need, the geneticist who is going to make decisions on how to achieve that is sitting at the same table," says Allan Rahn, a poultry economist at Michigan State.
Then, Tyson makes its 7,400 contract growers raise only chicks from Tyson's own hatcheries. The birds are fed special diets from Tyson's own feed mills. Tyson also provides veterinary care and technical expertise to its growers. When the birds are ready, they are processed at Tyson plants.
"You have to control the entire process," says Ed Nicholson, Tyson corporate public relations manager. "The fact that an entire flock of birds is hatched the same day, fed the same feed and taken to market on the same day allows us to achieve uniformity not only in taste but in size."
Then comes product promotion. Unlike the beef industry, the chicken industry does not have a checkoff-funded promotion program. It's up to each chicken company to push its own products and Tyson is very good at it.
"I think Tyson is synonymous with chicken, period," says Harlan Ritchie, professor of animal science at Michigan State. "I think the public has that perception as well. Their advertising and promotions are very effective. They're pervasive at the retail level. They've done their homework."
One other point to note, chicken companies such as Tyson emphasize brand name products. Brand names are growing but are still a rarity in the beef industry, which remains largely a commodity business.
Of course, chicken does enjoy some built-in advantages over beef. The chicken life cycle is short, so the industry can make rapid progress in genetics. The logistics of raising chickens also offer certain economies of scale. For instance, growers can put one chicken house per five acres of land. Each house holds about 30,000 birds. Since the feeding cycle is short, growers can run six or seven batches of chickens through each house in a year - five acres can yield 200,000 birds.
But these advantages only partly explain beef's loss of market share to chicken. Economists attribute much of chicken's success to the development of value-added products by Tyson and other aggressive operators.
"As late as the '60s, beef actually had more products to offer the consumer than the poultry industry did," says Ritchie. "All poultry had in the '60s was whole birds.
"The chicken people worked hard on lowering their costs, took the profits and put them into new product development. In the '70s and '80s, they came out with new consumer-oriented products," Ritchie says.
"Those of us in the beef industry, and to some extent the pork industry, weren't aware of what was going on until the late '80s. Then we saw we were getting our lunch eaten by the new products evolved by the poultry industry," he says.
Can beef do the same? Perhaps. Some beef factions, including U.S. Premium Beef, have created vertical marketing programs involving meatpacking, feeders and cattlemen, which emphasize brand-name products and improved genetics. The beef industry recently unveiled a new checkoff promotion campaign emphasizing value-added precooked pot roast, prime rib, meatloaf and meatballs that can be microwaved in ten minutes. And more new products are on the way.
It's getting late to reverse beef's fortunes. But perhaps by taking a page from Tyson's play book, beef will rebound. After all, as the Yankee's Yogi Berra once said about the game of baseball, "It ain't over till it's over."