010115 Tyson Seen Giving IBP A Leg Up On Beef Branding

Chicago - Leading chicken producer Tyson Foods Inc. wants to take the bull by the horns and charge ahead of an emerging trend in the beef industry -- putting branded beef products on grocery store shelves.

Tyson, which years ago has dissembled the whole bird and sold its parts for premium prices, wants to do the same for the beef industry with its purchase of leading beef producer IBP Inc. After a bidding war with pork processor Smithfield Foods Inc., Tyson agreed to purchase IBP for $3.2 billion in stock and cash.

In part, the push behind the marriage is the desire for Tyson, which has relied solely on chicken to create its fortunes, to become a more diverse meat provider. That equation includes helping turn beef, long sold as a generic commodity product, into a more convenient food that time-strapped customers will associate with trusted brands.

“The game plan is to do to beef what Tyson has done to chicken,” said Prudential Securities analyst Jeffrey Kanter. “I think that's a big reason why these two companies are coming together.”

Beef, a highly fragmented industry that is made up of a disparate chain of producers, processors and distributors, has historically lagged its more concentrated poultry rivals in marketing innovation, industry watchers said. Since 1980, it has also progressively lost market share to chicken.

“There's a segmented, dispersed production system,” said Chuck Lambert, chief economist with the Washington, D.C.-based National Cattlemen's Beef Association, which represents U.S. cattle producers. “There wasn't any accountability.”

That is quickly changing. For more than a year Dakota Dunes, S.D.-based IBP, along with other large processors ConAgra Inc., Cargill, Hormel Foods Corp. and smaller processors around the country are steadily rolling out a range of branded products that free grocers from their traditional roles of butchering and repackaging bulky cuts of beef.

Tyson CEO John Tyson reiterated his company's strategy to analysts on a conference call discussing the pending merger earlier this week, stressing his desire for “creating convenience items...products that fit the changing customer marketplace.”

Branded beef products have in little more than a year grown to between 4 and 12% of the total market of more than 18 billion pounds of beef sold in retail and food service channels, the association estimates.

They include so-called case-ready meats, or those that have been packaged and branded for grocers to make readily available in their fresh meats section, and microwaveable prepared entrees such as individual prime ribs servings to full, family-sized pot roasts, that are creating a new category in the stores.

“You've got economies of scale, where the processor now dedicates facilities to the portioning of the meat, the packaging of the meat, the distribution,” said Steve Hunt, CEO of the Kansas City-based cattle producers marketing cooperative U.S. Premium Beef Ltd.

The cooperative recently took a minority stake in the fourth largest U.S. beef processor, Farmland Industries, to work on a joint initiative that includes production of branded, convenience-oriented beef products under the Farmland Family Entrees name. Year to date, those products have grown more than 36%, Hunt said.

IBP began its own moves to cash in on the trend with a line of products under the Thomas E. Wilson name, which includes fresh, case-ready beef and precooked microwaveable products. A representative for the division did not return calls seeking comment.

“It's just flying off the shelves,” said Scott Barger, an account manager with Minneapolis-based ad agency Fallon Worldwide's Duffy design unit. Barger's group, which developed the brand and packaging and helped prepare it for test market, said IBP has plans to take some of the foods nationwide by early 2002.

In large part, these changes have stemmed from pressure by large, consolidating supermarket chains looking to take cost out of their supply systems.

“When Wal-Mart and Kroger and everybody talks, you gotta listen,” said Prudential analyst Kanter.

Processors have already begun to form alliances with retailers such as an arrangement IBP has to provide custom packaged meats for Wal-Mart Stores Inc. Some have even created facilities just for specific retailers' needs.

Excel Corp., the beef-processing unit of privately held grain processor Cargill, has a plant outside Atlanta exclusively dedicated to preparing case- ready meats for national grocer Kroger Co.

Whether or not consumers are ready to take the leap and say goodbye to their regular butchers remains to be seen, but Tyson's pending marriage with IBP gives that processor a leg up on competitors. Said Kanter: “Whether or not it's successful will depend on consumers.”

RETURN TO HOME PAGE

E-mail: sflanagan@sprintmail.com