Consolidation in the U.S. broiler industry has a long history that goes back nearly a century. In the early years, the industry consisted of tens of thousands of small businesses. With the advent of vertical integration in the middle of the 20th century, those thousands became an industry of hundreds. Then consolidation combined companies to form the 40 odd firms of today’s industry. The importance of the top three firms has increased from less than 1 percent a century ago to over 50 percent today, a remarkable consolidation.
As this is written it appears likely that Gold Kist will be purchased by Pilgrim’s Pride. Pilgrim’s Pride offered $1 billion for the former cooperative last August 18th. The likely purchase of Gold Kist by Pilgrim’s Pride will mean that the top three chicken firms in the USA will, for the first time, surpass 50 percent of total U.S. chicken production. As can be seen on the accompanying graph, the top three companies held just 15 percent of the U.S. chicken market in 1975. If the Gold Kist acquisition is completed, the top three companies will produce 54 percent of all U.S. production.
If the acquisition goes through, the industry would consist of two large national companies, Pilgrim’s Pride with 24.5 percent of total U.S. production and Tyson with 22.2 percent of total U.S. production. Each company will slaughter more than two billion 5.5-pound average weight chickens per year. The production of these two companies alone will equal the total production in China, the second largest chicken producing country.
In a book called “The Rule of Three” by Jagdish Sheth and Rajendra Sisodia 2002, the authors noted that, more likely than not, the three strongest, most efficient companies eventually control about 70 percent of most markets. The authors contend that there is an evolution of markets into two complementary sectors— the generalists (usually three companies with a total of 70 percent of the market), which cater to a large mainstream group of customers; and specialists (many small companies with a total of 30 percent of the market), which satisfy the special needs of small groups of consumers. In this respect most markets resemble a shopping mall with a few large anchor stores coexisting with small specialty stores.
If “The Rule of Three” is correct, the process of consolidation is probably not completed in the chicken industry. If it follows the path of other industries, consolidation will continue until the top three companies produce about 70 percent of total production. Third place is now held by Perdue Farms, a smaller regional company that is responsible for 7 percent of total U.S. production. “The Rule of Three” would suggest a possibly larger role for Perdue in the future.
