Chicken, beef and pork: The shifting battle for market share

Chicken producers are in the catbird seat in the meat-proteins competition headed into 2014. With the supply of chicken in check for now and corn prices forecast to range around $4.50 a bushel, chicken producers expect to win consumer market share from beef while remaining profitable.

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Chicken's lead over beef in per capita consumption grew from 21.9 pounds in 2006 to an estimated 26.4 pounds in 2013.
Chicken's lead over beef in per capita consumption grew from 21.9 pounds in 2006 to an estimated 26.4 pounds in 2013.

Chicken producers are in the catbird seat in the meat-proteins competition headed into 2014. With the supply of chicken in check for now and corn prices forecast to range around $4.50 a bushel, chicken producers expect to win consumer market share from beef while remaining profitable. 

It's a fortuitous balance of supply/demand and costs that seldom align so favorably for poultry producers to profitably expand production and capture market share: 

  • Corn prices are forecast to average around $4.50 a bushel in 2014 -- in stark comparison to corn prices that rose near $7 a bushel in 2013
  • The retail price spread between beef and chicken continues to widen with beef prices ranging at historically high levels and chicken prices at attractive levels for consumers

Barring a drought or downturn in the U.S. economy, producers are positioned to extend chicken's lead in per capita consumption over beef in 2014. Chicken's lead grew from 21.9 pounds in 2006 to an estimated 26.4 pounds in 2013.

U.S. consumers ate an estimated 83.1 pounds of chicken, 56.7 pounds of beef and 46.9 pounds of pork per person in 2013. 

Beef was the big loser in per capita consumption from 2006 to 2013. Consumption of beef fell 9.1 pounds, from 65.8 pounds to 56.7 pounds. In the same period, chicken consumption fell 4.6 pounds and pork consumption dropped 2.5 pounds.

While chicken fared better than beef in per capita consumption from 2006 to 2013, consumption of all the meat proteins fell. During the seven-year period, per capita consumption of red meat and poultry dropped by 17.3 pounds, from 221.3 pounds to 204 pounds. 

Chicken poised to regain market share in 2014 and 2015

"The chicken industry has a window of opportunity while the supply of beef is down and beef prices are high to fill the gap by increasing chicken production," said industry consultant Paul Aho in an interview with WATT PoultryUSA. "Chicken producers could take more market share away from beef producers in 2014." 

Analysts say the chicken industry has at least a two-year window of opportunity to win consumption from beef producers.

John Keating, president, Cargill Beef, told listeners at the National Chicken Council (NCC) annual meeting that high beef prices will continue for at least two years. "It will take beef producers at least two years to rebuild the herd. We expect a very, very tough 2014 for the beef industry. Going into 2015, the retail and wholesale price spreads will continue to widen between beef, pork and poultry," he said. 

Reason for beef's loss in market share

There's a simple economic reason for beef's dramatic loss in market share: higher grain prices over the past seven years have driven up the cost of beef production more than chicken production.

Aho explained, "The high corn prices have been bad for beef producers because of the less efficient feed conversion of cattle -- 6:1. Because of the 6:1 feed conversion, there's a huge correlation with that industry's poor profitability in recent years. When the feed conversion is 6:1 and the cost of corn goes from $2 a bushel to $7 a bushel, it hurts profitability. Prices have to rise considerably to cover the cost of production."

Battle of the poultry and meat proteins beyond 2015

So how will the battle for market share shape up for meat and poultry producers over the medium- and longer-term?

The economic headwind faced by beef producers due to uber-high feed costs should now lessen. After cattle herds have been rebuilt, possibly by the end of 2015, beef producers should be in a better position to reclaim lost market share.

Poultry, nonetheless, retains its feed efficiency advantage over beef and pork. 

"When it comes to feed conversion, chicken is in the right spot," Donnie King, senior group vice president, poultry and prepared foods, Tyson Foods, told listeners at the NCC meeting. 

Commodity cycles favor chicken over beef

More than feed efficiency is a factor in the competition between chicken and beef in 2014. Chicken producers should be able to beat beef producers to the punch with production increases as grain prices fall. This means chicken producers can expand production to reap profits earlier, while poultry and meat supplies are at their lowest point and margins are most favorable. 

But there's another commodity cycle -- the one for feed grains -- that may favor chicken producers after 2015. 

"After having gone through a bullish period of rising commodity prices over the past five years, we are now in a period of falling commodity prices," Aho said. "That includes prices for corn, soybeans, oil and gold. In any given year there could be a drought leading to a bull market in a bear market for grains, but I think we are now in a three- to five-year period where commodity prices will be lower."

How might the commodity cycle for corn favor chicken producers over beef producers? It involves timing. Since it may be after 2015 before the cattle herd is rebuilt and beef production begins rising, beef producers won't be able to fully capitalize on the first two years of the predicted bear market in corn.

Consumers have final say in meat proteins' success

Being the most efficiently produced, lowest-cost protein won't be enough to ensure any meat protein's future success. Consumers have the final say in what is produced and purchased, and their behavior and demands are changing constantly.

"The consumer has choice and votes with his or her pocketbook every day with purchases," King said. 

"Consumers are not necessarily looking for beef, pork or chicken but are looking for meal solutions. Every one of them wants something that's better for their families. They want to be able to feed their families better and feel good about what they are feeding their families," he added.

Strategies to win share of stomach

Serving niche markets can be a lucrative means of differentiation for many poultry companies. "Smaller companies need to focus on unique competitive opportunities," Ed Fryar, OMP Foods CEO, told NCC listeners. But this strategy can also be utilized by the largest players in an industry. 

Poultry companies face a potential pitfall in focusing too exclusively on mature market segments in which they have strong competitive positions. Coca-Cola is a famous example of a beverage company for which market domination was no safety net. The company's arch rivalry with Pepsi was about market share, which was captured or defended by tenths of a percentage point. 

Coca-Cola executives measured success by share of stomach -- the number of ounces the average person consumed in a day and what percentage of it was filled with their soft drink. Eventually the focus backfired when bottled waters gained market share. The company did not pay enough attention to those competitors that were initially small players. In fact, the company's board rejected management's proposal to buy Gatorade in 2000. 

Are there parallels, today, for the poultry industry with the Coca-Cola experience a decade ago? After all, the rivalry between poultry and the red meats is less a zero-sum competition than ever. Farmed fish, for instance, is growing rapidly worldwide. And the makers of niche products -- free-range, organic, GMO-free -- are happy to have mainstream producers regard their product lines as "fast-growing but too small to be important." Finally, consumers -- and issue-advocates -- remind us that not every meal must include a meat protein. 

More consumers are choosing antibiotic-free poultry over time

Poultry producers must also decide when to fish or cut bait on issues such as hormones and antibiotics. For example, should consumer concerns simply be co-opted by marketers with the launch of "no antibiotics" products or should industry practices be defended? Should labels include the words, "no hormones"?

King said, "About 3 percent of U.S. consumers are purchasing antibiotic-free chicken today. About 0.5 percent of purchases are organic chicken. So the consumer segment is not big today, but it is growing. The most-recent 13-week perishables data shows the segment is growing between 24 percent and 25 percent year over year. 

"There's an opportunity to dispel consumer misperceptions about our industry and how we use antibiotics to treat sick animals, which is the right thing to do. 

"I'm not ashamed of what we do to treat our animals with antibiotics and how we do it judiciously, but we could do a better job of telling the story in a more proactive way," he concluded. 

What consumers care about in the meat they eat

Speaking at the National Institute of Animal Agriculture symposium on antibiotics usage in animals, Dr. Joe Cardador, chief research officer, Service Management Group, shared research data about what issues consumers care about in the meat they eat. 

Consumers in the 2013 survey cared the most about whether meat-producing animals received hormones, antibiotics, pesticides and GMOs. They were slightly less concerned over humane treatment of the animals, and significantly less concerned with the meat's potential impact on the environment.       

Find a niche and create new products

Today, Coca-Cola -- along with its now grown-up and diversified competitors -- is into beverages that were once niche products but are the source of significant revenue and profit. Juices, iced teas and functional and energy drinks are important business. In fact, companies are scouring the niches for the growth opportunities that make carbonated sales seem flat. 

A number of years ago, a Coca-Cola CEO concluded, "We believe there is value in those niches. It will not drive the volume number, but volume is something we've often chased to the detriment of the long-term business." 

Portfolio analysis tools offer framework

Corporate portfolio analysis tools, such as Boston Consulting Group's matrix analyses, offer a framework for evaluating potential strategies for meat and poultry companies operating competing divisions or product lines. For example, the growth-share matrix might have limited application to investment and marketing decisions involving traditional meat and poultry product lines versus niche lines such as free-range, organic and non-GMO products.

How should a poultry company evaluate these opportunities? The growth-matrix, which ranks market share and industry growth rate, might imply that cash generated from mature products be used to infuse faster-growing niche lines.

Whether or not a company has significant market share in traditional poultry products may make a difference in strategy. Firms with smaller market shares might choose to focus on the smaller, faster-growing segments rather than compete frontally with the larger players with superior economies of scale. This is a strategy already evident in the poultry and meat industries.

What will success look like in the future?

Total per capita consumption of red meats and poultry reached a high of 221 pounds in 2006. When might that level of consumption be reached again? Maybe never, according to some analysts and industry executives. 

Keating said, "Because of the concern about obesity in the U.S., I don't think per capita consumption of meat will return to the 221 pounds attained in 2006." 

If there is a limit to per capita chicken consumption, Aho says that limit has a precedent in history. "The all-time high in per capita beef consumption was 95 pounds in 1975," he said. "My hypothesis is that 95 pounds is the limit in per capita chicken consumption. In fact, I believe if the chicken industry tries to push production past 90 pounds per capita, it will experience low profitability." 

In a mature market with limited upside in consumer demand, what is the implication for the poultry industry? Its future may be bipolar, with the battle for market share intensifying among some companies/divisions seeking to protect economies of scale. Other companies/divisions, however, may be less volume driven and more margin-seeking through greater market segmentation.

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