People have strange hobbies. For example, a Great Plains friend of mine once trained a chicken to play dead. Remarkably, on command, his chicken would take a whole-body flop that could have taught Steve Martin a thing or two about physical comedy.
Another friend, a retired professor, is — unsurprisingly, really — even more iconoclastic: he reads Securities and Exchange Commission corporate filings for fun. Honestly.
Why? Well, first because he’s a nerd’s nerd and second, because every now and then the professor stumbles across a brain-seizing gem like the one contained in the October 2021 SEC filing by Tyson Foods.
“Many of our customers,” reads Tyson’s 10-K, a legally-mandated report, “such as supermarkets, warehouse clubs and food distributors have consolidated in recent years, and consolidation is expected to continue throughout the United States and in other major markets.”
But “these consolidations,” it continues, “have produced large, sophisticated customers with increased buying power who are more capable of operating with reduced inventories, opposing price increases and demanding lower pricing, increased promotional programs and specifically tailored products.”
Wait an Arkansas minute, is Tyson Foods, the proverbial Big Chicken of Big Big Meat, warning shareholders of a possible market flop to newly “sophisticated consolidators” like “warehouse clubs” such as Walmart’s Sam’s Club and Costco?
Maybe, because worrisomely, “these customers also may use shelf space currently used for our products for their own private label products.”
There’s no “may” to it. Many are already doing it.
Indeed, in 2019, Costco began pushing the construction of a captive poultry supply chain — from contract chicken growers through its in-store chicken rotisseries — in eastern Nebraska for all retail stores west of the Mississippi River, including Hawaii.
At the same time and a day’s drive east, Walmart — as noted in this space in March 2019 — already had “Walmart-contracted truckers hauling Walmart-contracted milk to a Walmart bottling plant that Walmart will then process and haul to Walmart stores on Walmart trucks to sell directly to Walmart customers.”
Tyson’s public recognition that its market power is being bled away by some of its biggest customers rather than some of its fiercest competitors came just weeks before several poultry company executives went on trial in Denver federal court for alleged price-fixing in U.S. poultry markets.
Could these two events be simple serendipity or is there a connection between the meatpackers’ eroding pricing power and the systemic price-fixing the U.S. Department of Justice alleges occurred for several years between poultry slaughterers?
The DOJ doesn’t say, but according to an Oct. 25 report by Forbes, the department is more than emphatic in its investigation of “price-fixing on a mass scale … across the (poultry) industry’s top 18 companies, which are responsible for some 99% of commercial chicken sold.”
Some of Big Chicken’s biggest customers, however, suspected something was wrong in the poultry market and they were angrier than a flock of wet hens. The angriest, it appears, was KFC, the global chicken fast food chain.
According to early November testimony at the Denver trial, one prosecution witness “told of an alleged interaction between (one) KFC” official who told a poultry company’s “executives that ‘he was going to beat us down with a hammer and baseball bat’ as payback for three years of high chicken prices.”
Hammers and bats aside, end users like KFC, Costco and Walmart — unlike hog farmers, ranchers and poultry growers — increasingly have alternatives to giant meatpackers: they are establishing captive supply chains to provide their own customers with their own products.
And, sure, farmers and ranchers will still be part of those new chains, but they’ll still be “chained” to the same, now decades-old flow of market power — upward toward the retailer, not backwards toward the farmer and rancher.
But it may take time for Tyson, historically a chicken company, to get used to the ages-old farm idea that what’s good for the goose is good for the gander.