Walmart has recently dived into the beef business by opening a case-ready beef plant in Thomasville, GA. The move came as a result of customers wanting more transparency in what’s in their food and where it comes from, according to a Walmart press release.
The plant will cut and prepare steaks and roasts from the company’s own Angus supply chain. A total of 500 stores in Florida, Alabama and Georgia will receive the chain’s products.
CoBank, part of the U.S. Farm Credit System, put together a report analyzing the effect of Walmart’s new venture on beef production and the market. The report overall concluded Walmart’s new beef plant is “more sizzle than steak, for now.”
Will Sawyer, the leading economist on the report, compared Walmart’s move into the beef market to its venture into fluid milk in 2018, and to Costco’s chicken plant opening in 2019. Sawyer notes there are some differences between Walmart’s latest move and the two others. Walmart’s beef supply chain is partly designed to appeal to consumers, and it does not own its supply chain down to the farm level such as is the case of Costco and its chicken plant. Sawyer suspects the beef strategy is just a test for Walmart that could lead to larger, more significant investments in the future.
Walmart has announced its supply chain partners which include: 44 Farms to source cattle; Mc6 Cattle Feeders to feed them out; Creekstone Farms to process cattle; and FPL Foods to operate the packing facility. All beef in the chain will be from non-hormone-treated cattle.
“Beef is an important purchase for our customer… It’s likely the most expensive item on their plate, and they are treating themselves when they buy it,” an official Walmart statement read. “Creating this supply chain allows us to treat our customers by giving them unprecedented quality and transparency.”
In addition to meeting consumers’ demands, Sawyer says Walmart’s supply chain is strategic in that it allows the company to see firsthand insights regarding traceability and visibility, as well as chokepoints and profit pools.
However, he questions whether the company’s consumers are willing to pay a premium for higher grade, hormone-free, traceable beef.
Walmart’s mark
In its current state, Walmart is unlikely to make waves for the industry—Sawyer doesn’t see the company shifting the price or dynamic of U.S. beef production. CoBank estimates the supply chain will account for less than 5 percent of Walmart’s beef business, and less than 0.5 percent of U.S. beef production.
“However, the fact that the largest U.S. food retailer and beef buyer has entered secondary beef processing reveals the state of the industry overall as a complicated and opaque supply chain, but with climbing packer margins,” Sawyer noted.
He continued to say Walmart has seized opportunity to move up the supply chain at a time of historically high margins for beef processors.
What’s next?
Sawyer said if Walmart’s venture is successful, it could allow the company another step up the supply chain toward the producer. It could be in the form of harvesting fed cattle, as Costco did with chicken, or in a partnership with a current packer.
In order to be successful with its new stake in the beef industry though, Walmart will need to show its consumers that buying the premium beef will be worth it.
Other retailers are likely to watch for success. “However, only the strong have survived beef industry consolidation over the past few decades, and any new entrant will need to bring something new that enables it to disrupt the industry and do so profitably,” according to the report. — Anna Miller, WLJ editor
