Introduction: How did a family of truck drivers pull goods become a leading global food giant with annual revenue of $47 billion and net profit of $3 billion?
Jin Mei | Author of Gravel Business Review | produce
For every 10 chicken products sold at fast food restaurants in the United States, 8 come from Tyson Foods. For every 5 chickens eaten by Americans, at least 1 comes from Tyson, and for every 20 chickens eaten globally, 1 in 1 comes from it.
It was it that invented McNuggle for McDonald's and the rotary electric rotisserie for KFC. Not only chicken, but also beef, pork, seafood and even the recently hot artificial meat.
How did a family of big truck drivers pull goods become one of the "Big Four" in the United States with annual revenue of $47 billion and net profit of $3 billion? Today, Tyson employs about 130,000 people in more than 400 companies and offices around the world, producing 1.8 billion chickens, 20 million pigs and 6.6 million cattle a year.
How did the Tyson family achieve this earth-shaking change through the efforts of three generations? After 86 years, how can it continue to grow in the midst of the crisis?
1
Tyson's founder, John Tyson, was born in Missouri as a truck driver who helped others haul goods and decided to settle there one day when his car broke down in Arkansas.
In 1936, he saw a business opportunity in the newspapers: Broiler chickens in Chicago were more expensive than in Arkansas. Because farmers were very scattered, there were no freezing equipment, and the roads were extremely bad, they could not be transported to long-distance sales, resulting in a price difference.
Tyson felt that with his intelligence and technology, it would not be so difficult to get chickens to Chicago. He used his savings to buy a truckload of chickens, loaded the chicken coop on the car, prepared water and feed and drove to Chicago, and managed to earn $235. Since then, the fate of the Tyson family has been rewritten.
In the 30s, the United States was still shrouded in economic crisis, but chicken as a high-end meat, the market enthusiasm did not abate. He then began expanding his radius, shipping chickens to places like Cleveland, Detroit, Memphis and Houston to open up new markets.
A year's experience of "dumping" not only allowed him to save some capital, but also made him have greater ambitions. Since the chicken is selling well, why not just raise your own chickens? The following year, he bought an incubator and officially entered broiler farming.
With food shortages in World War II, ration management began. Fortunately, chicken was not a daily food for Americans at that time, so broiler chickens were not limited by food quotas, but developed by leaps and bounds. John took the opportunity to continue to expand the chicken industry and continue to extend to the upstream of the industrial chain such as feed manufacturing.
In 1947, Tyson made more profit by selling chicks, feed, and shipping chickens to market. More importantly, Tyson reduces feeding risks by tightly controlling everything from hatchery to distribution. Not only that, it also changed the industry's habit of using purebred chickens, began to breed hybrid chickens, and improved the feeding performance of broiler chickens, which brought a huge shock to the industry.
In the 50s, due to the rapid growth of the chicken business, his son Donald Tyson dropped out of college to help his father run the business. It happened that a meat processing company was planning to build a factory in northern Arkansas, and the elder Tyson was going to provide them with land, but it didn't happen. Old Tyson only had some regrets about this, but Donald saw the infinite possibilities downstream of the industrial chain.
"Let's build our own factory!" Donald proposed with interest. Although his father was reluctant, the work began. However, after spending his father's $75,000 on the factory, the factory was still not built, and Donald, who dared to take risks, ran to the bank for a loan.
In 1958, Tyson's $90,000 slaughterhouse was finally completed, and the Donald era began. After becoming vice president, he embarked on a fascinating journey full of risks for the company.
2
In 1950, there were 1.6 million poultry farms in the United States, most of which were independently operated. After 50 years, 98% of them are gone, and Tyson is the operator of this vigorous integration.
Although the chicken market has developed rapidly, the fluctuation of the chicken market has become the "sword of Damocles" hanging over the heads of breeding enterprises. In 1955-1956, the price of broiler chickens fell by 28%, a price fluctuation that was enough to wipe out the farm's money. "It's not hard to raise chickens, it's hard to sell them when prices are constantly fluctuating." Donald grew up working on a chicken farm with his father and knows the pain of chicken price fluctuations.
The market's interest in broiler chickens has not decreased, but the fluctuating price has made many people discouraged from broiler farming. In the '60s, Tyson's feed and hatchery business declined, but they quickly found a commercial egg business to supplement the company's decline.
The increase in consumer preference for chicken is a fact for all to see, and the large-scale expansion is undoubtedly in line with the trend of the times, but the unstable profit situation has become a tight curse that cannot be removed in development. How to solve this seemingly irreconcilable market contradiction? Donald began to strategize for the company's rise.
If all these retail investors can be squeezed out of the market, the price stability of the broiler market will be improved. Tyson's first step was to grow his size, and in 1963, the company began issuing shares, and since then the company's size, along with the American broiler market, has ushered in phenomenal growth.
In 1965, Tyson, which already had a certain scale advantage in the market, ushered in a major turning point that affected its fate. Donald, who has completely taken over, made an important decision: within 6 months, no matter how the stock price rises and falls, his chicken will guarantee 5 jiao (sold by the pound, no longer by the pound), and will never change the price. Tyson's decision was enthusiastically supported by dealers, who rushed to order Tyson's sales skyrocketed, and it also allowed it to successfully remove the hanging sword above his head.
How does Tyson ensure that the low price of 5 Mao is still profitable, so as to break through in the price war he started?
After listing, Tyson expanded its scale and created a whole industrial chain of "breeding-food sales" through vertical integration of the upstream and downstream of the industrial chain. It avoids feed price fluctuations through the acquisition of feed mills, reduces the risk of breeding links by acquiring hatcheries and breeder coops, and improves profit points by acquiring food processing plants... Tyson, which holds the profits of the whole process in his hands, forms a risk hedge in the industrial chain, and successfully stays away from frequent price fluctuations in all links of the industrial chain, thereby forming stable profits.
In contrast, those breeding factories that rely on the faces of upstream and downstream suppliers to eat, once they join the price war, must only rely on reducing quality to seek profit margins, and eventually can only cut themselves off.
In the late 60s, Tyson further changed the habit of selling whole chicken, providing consumers with more convenient cuts of chicken and highly processed foods such as chicken hot dogs, turkey sausages, etc. These products not only reduce the cost of grocery stores and retail stores, but also reduce the waste of food for large customers. And the high price of deep-processed chicken products and less price fluctuations allow Tyson to obtain higher gross profit and more stable income.
In 1968, with the diversification of products, Tyson opened its own retail store "Chicken Hut", realizing the integration from production to retail.
Recalling Tyson's time of rapid rise, Donald was very painful. "I often think back to the '60s, when it was so difficult to get out the guts of chickens." He gestured as he spoke, placing his crooked fingers in his imaginary chicken belly. "When the workday is over, you'll be too tired to twist your fingers anymore," he said. Therefore, he began to look for a path of mechanization early on, reduce the difficulty of labor, and improve work efficiency.
Under the advantages of breeding and supply chain, the price of broiler chickens is constantly driven down by large enterprises such as Tyson. In the 70s, Tyson, who monopolized the original breeder and breeding technology, adopted a "company + farmer" approach to production, producing 72 million broiler chickens per year, constantly driving down the price of broilers. In 1963, chicken was half the price of beef, and in 1987 chicken was less than one-sixth of the price of beef. As chicken prices have fallen, more and more farms without a core advantage have been driven out of the market.
Coupled with the propaganda that eating too much saturated fat is bad for health, chicken dominates American tables almost irreversibly. From the 70s to the 90s, per capita meat consumption remained almost unchanged, but poultry replaced red meat as the main ingredient on people's tables.
In the early 80s, when the US economy was struggling, Tyson, who bore the brunt of it, once again found a new growth point, relying on deeply processed chicken foods and quick-frozen chicken. Driven by the cold chain logistics support laid across the country and the demand of national public food companies and military agencies, quick-frozen products have become increasingly popular because of their ultra-high cost performance, but Tyson's business has found long slopes and thick snow in the cold winter of the market, and the snowball is getting bigger and bigger.
In 1986, Tyson's chicken burger had a monopoly in all 50 U.S. states with unmatched cost and supply chain advantages. In 1989, it acquired Holly Farms Foods, which doubled in size to become the world's largest producer, processor and marketer of poultry food, with annual sales of more than $2.5 billion, while also beginning processing beef and pork.
In the 90s of the 20th century, Tyson Foods began to enter markets around the world, including Asia, Central America, South America, the Caribbean and countries around the Pacific Rim, replicating the deep industrial barriers it had built in the United States. Today, Tyson supplies 90% of its chicken at 100 of the world's top restaurant chains.
3
In addition to the cost advantages and supply chain advantages of large-scale farming, Tyson's breakthrough also contributed to the prepared food of fast food.
In the last century, Tyson helped McDonald's develop McNugget chicken, invented the golden roast and rotary electric grill for KFC, and found a new way to open up meat. Tyson's deep processing of chicken has improved the company's profit margins and provided an opportunity for Tyson to further suppress competitors in price.
The development of the fast food industry has done a lot of market introduction and advertising work for Tyson's product promotion. Thanks to the endorsement of these customers, Tyson has also become the main supplier of many famous school canteens in the United States. The competition in the school cafeteria is extremely fierce, but Tyson, who has "domesticated" the taste buds of students through big brands, always wins in the blind test of students.
Most of the products in fast food restaurants are supplied by Tyson, how to ensure that people do not get tired of these "close relatives" products? In the case of meatloaf, for example, Tyson will guarantee that Hardy's fast food and McDonald's pies have their own merits. It will make these pies come in different sizes, shapes, and even use different butters depending on the flavor to meet the restaurant's individual needs.
To become a winning general in the market, innovation is very important. Generally, the market cycle of chicken products is 2-5 years, but the market cycle of most chicken products is less than this period. To remain competitive, Tyson launches a new product every day. But Tyson's new products are not produced haphazardly, but have a strict internal process to ensure not only the perfection of the meal, but also a very competitive price.
What they provide users with is not a "new taste" that is knocked on the door, but a marketable "explosive product" that has been verified by the market.
If Tyson wants to market a new product to a fast-food chain, they will start developing it six months to a year in advance, and it will first test sell the product within the company's group, gain experience and then promote it to the outside world. Tyson will select several regions across the country for pilots, test whether its flavor is popular with consumers through questionnaires and other methods, and find the best price that consumers can accept.
After the successful test sale, Tyson began to promote the product to supermarkets, government agencies, and service organizations, and told the other party: "We have done detailed market research, this product can be sold in a certain way and profitably, much stronger than the product sold in your store..." These products that can always be a hit have laid a stable distribution channel for Tyson and become its moat.
Tyson spends $50 million a year on advertising, but unlike other food companies, it rarely runs TV commercials. It chooses magazines with cooking columns and radio ads that people listen to when they drive from work to boost sales, which it thinks is more straightforward.
In 2000, the third generation of the family, John M. H. Tyson rose to chairmanship of the board, and he led Tyson through another dramatic period of expansion through massive mergers and acquisitions.
In 2001, Tyson Foods acquired IBP, Inc., and Tyson surpassed the chicken business to become the world's largest processor and marketer of chicken, beef and pork (chickens are raised themselves, cattle and pigs are purchased from farmers and then processed).
The three different meat products have the complementarity of seasonal demand, so reasonable production planning can be carried out according to the characteristics of peak season and off-season, effectively improving capacity utilization, reducing inventory and improving turnover. The diversification of product lines not only increases the company's revenue, but also improves the company's cyclical risk management capabilities.
From October 2012 to September 2016, Tyson's share price rose by as much as 360%. The company's rapid growth in stock price and business could not have been separated from the largest acquisition in its history, which completed a major turnaround by acquiring Hillshire Brands from JBS for $63 per share for a total of $7.8 billion.
Hillshire Brands is a leading company in the United States that sells deli meats such as hot dogs and sausages. Its meat deep processing business is Tyson's weakness, and the profitability is better than Tyson's traditional business. The merger and acquisition burst out a huge industrial integration effect, making Tyson's influence further extended from the B-side to the C-end market of consumers, and the company truly began to transform into a manufacturer of packaged meat consumer goods.
Since then, Tyson has continued to expand packaged foods, fish, regional cuisine, etc. through acquisitions of AdvancePierre Foods, Keystone Food, BRF S.A.S. and others. As the world's largest integrated meat supplier, Tyson has established close partnerships with McDonald's, Yum Group, Walmart and other restaurant chains and retailers, serving bacon, hot dogs, sandwiches, gourmet chicken nuggets and pork and beef chicken. Due to the high proportion of food processing and long-term cooperation with large retail and catering, Tyson's profit margin is better than that of peers, and the volatility is smaller than that of peers.
In 2020, the continuous epidemic forced the closure of food processing plants, resulting in the blockage of the global supply chain, the production of many enterprises was interrupted, and even some well-known multinational companies were unable to retreat, but Tyson was not deeply involved. As the world's largest meat producer and supplier, its industry's top global high-quality meat resources and stable and flexible flexible supply chain make it a leader in the industry and a "chip" against the current.
Tyson has established supply bases not only in the United States, but also in Brazil, Thailand and South America. For example, more than 90% of Tyson China's poultry meat comes from its own global bases, which is not only efficient, accurate, traceable and flexible, but also can improve the flexibility and anti-risk ability of the supply chain by quickly adjusting the matching strategy of imported products after the epidemic.
After these raw materials enter China, Tyson will carry out deep processing in China in line with market trends to ensure unimpeded sales. During the epidemic, Tyson China seized the "stay-at-home economy" and consumers' increasing demand for food safety, and achieved leapfrog growth in the doubling of e-commerce business as early as possible in the layout of new retail formats such as e-commerce and O2O (online-to-offline). Recently, Tyson also launched the "collagen brine" series, targeting the halogen products market with a scale of more than 300 billion yuan.
At the end of 2021, Tyson Foods had full-year sales of $47 billion, up 8.9% year-over-year. From the annual revenue of 7.36 billion US dollars in 1999 to the present, the compound annual revenue growth rate of Tyson Foods is 8.79%, which has been in an upward channel.
4
But Tyson's growth has not been all smooth sailing. Although with its unremitting efforts, the price of chicken has been continuously reduced and flown into the homes of ordinary people, but in recent years, chicken and Tyson have also begun to become notorious.
In 2009, the American documentary "Food Company" on the topic of food safety was released, which caused an uproar. These modern production and processing methods, which are intensively farmed and have short growth cycles under commercial pursuits, will not only bring diseases, but also cause environmental pollution and other problems. Coupled with questions about the variants and hormones of chicken in the fast food industry, people are increasingly afraid of chicken.
In early 2017, Tyson began working on the transition to antibiotic-free products, but has not been completely successful in switching back so far. In addition, Tyson has been constantly criticized for water pollution, air pollution and other issues.
In recent times, rising cattle costs and lower retail meat prices have squeezed Tyson's profit margins. On November 14, Tyson Foods announced its fiscal 2022 fourth quarter results, with sales reaching $13.737 billion in the fourth quarter, up 7.2% year-on-year, compared with $12.811 billion in the same period last year, and net profit of $538 million, down 60% year-on-year, and $1.355 billion in the same period last year. Piper Sandler expects its 3-year average revenue to decline by 3.9% from 2023 to 2025.
Historical issues and current troubles aside, Tyson's outlook is equally cloudy. Although as one of the "Big Four" of American food, it and Cargill, Swift and National Foods account for almost all the slaughtered beef in the United States, the recent trend of vegetarian meat is a trend that cannot be ignored.
Beyond Meat's revenue in 2021 was $470 million, and although revenue was not yet a threat to Tyson, its growth rate from 2017 to 2020 exceeded 100%, stealing a lot of incremental markets. As the price of vegetarian meat continues to decline, it is estimated that it is expected to occupy more than 70% of the market by 2030, which is also in line with the general trend of zero carbon emissions. Although he once held a stake in vegetarian meat and began to join the ranks of vegetarian meat production, Tyson's future in this revolution is still in doubt.