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Prime Future 033: the weekly newsletter highlighting trends in animal protein
Exhibit A: Walmart started a milk bottling plant.
Exhibit B: Costco built a chicken complex to assure supply for its signature $5 rotisserie chickens.
Exhibit C: 44 Farms teamed up with Walmart to create Prime Pursuits, a coordinated supply chain to deliver high quality beef to Walmart stores.
“By closing that loop and managing every link of the production-to-plate supply chain, Costco and Walmart now have direct control of their products’ production, quality, price and profit.”
There are multiple trends we could talk about here:
Retailers moving upstream. Who and what comes next? Amazon (Whole Foods) acquiring Bell & Evans? Kroger building their own pork plant? Whole Foods and <cattle genetics co of choice> teaming up to expand the Country Natural beef supply chain? Albertson’s buying a feedyard? This upstream expansion plays out amid the simultaneous trend of retailers expanding their footprint closer to the customer through grocery delivery and digital offerings.
meaninglessuntil somebody will pay for it. The industry has thrown around the t word for at least a decade with extremely limited success in finding the right use case & corresponding business case. Like all innovations, until the right business case surfaces it’ll never happen. However, coordinated supply chains likely are the business case that supports traceability particularly when the data flows in both directions so producers get better feedback on how animals perform in the feedyard/plant, and consumers get relevant cues about how the animal was produced.
“(S)he who owns the brand, owns the power.” Ok it’s not exactly an ancient proverb, but it’s increasingly true, is it not? Animal protein has been a volume game for decades and wow did the industry get good at that game. Lower costs, increased efficiency, max throughput. That shift to scale and lower costs is what created the opportunity for the pendulum to swing to create an opportunity for
differentiation, aka de-commoditization.
And all of the above trends support the rise of coordinated supply chains that drive end user value and producer profitability by aligning incentives accordingly, primarily in beef since vertical integration is the name of the game for most pork and all poultry.
ICYMI, in this Future of Ag podcast episode you’ll hear the juicy story of how & why 44 Farms and Walmart teamed up to improve Walmart’s reputation at the meat case. This isn’t the first coordinated supply chain in beef, its just an incredibly notable example because of who’s involved & the potential industry impact if it scales successfully.
So, how is a Coordinated Supply Chain different from a traditional/transactional/fragmented supply chain?
primary attribute of coordinated supply chains is incentive alignment
from first player to final player;
coordinated supply chains are strategic, long term, and oriented to increase value for all players by focusing on the deliverable to the end customer.
Coordinated supply chains are asset light, data capture heavy. So, when does a coordinated supply chain make sense?
Strategic importance, e.g. Costco chicken
Decrease cost, e.g. Walmart bottling plant
Increase value, e.g. 44 Farms/Walmart beef
(Yes, 2 of the above are vertically integrated supply chains but the outcomes are similar although the structure slightly different.)
For more color commentary from the Walmart beef example, below are some takeaways from my interview with Lamar Steiger on why the world’s largest retailer decided to shake up its beef supply chain:
“Senior leadership knew that Walmart had a well deserved bad reputation for being the place you don’t go for red meat. You can’t change that over night. Obvious beef is a very difficult supply chain, so you have to just get started.”
When Walmart execs sat down with ranchers, “Everyone was surprised at how authentic and open the Walmart leadership team was sitting down with ranchers, saying “we have a broken system that doesn’t work for Walmart or our customers” and ranchers saying “the system of marketing our cattle to the next stage of the supply chain is not working.””
"Sustainability without traceability is at best a good guess and at worst, fiction” (As an aside, IMI is the verification system for the program. If you are a producer capable of selling full truck loads of cattle and are interested in participating, reach out to IMI.)
“Walmart wanted to build the supply chain around Angus cattle. Not that Angus has any better quality than any other breed, it was about the size (# of head) and reputation that they have.” (Attn breed orgs & genetics companies - branding matters)
“We needed to find a packing plant that was not one of the 4 majors, to get some insights into how it works and how we can better work with existing suppliers. The beef business is so resource intensive that real vertical integration is a challenge. Walmart is not going to vertically integrate the supply chain, this is digital cooperation not vertical integration.” (Side note: imagine if you are Tyson/Cargill/JBS and suddenly your largest customer can call your bluff on a range of topics because they actually understand how your business operates….game changer?)
“Customers are demanding a change and demanding to know more, across all food segments. Professional ranchers know there needs to be change but none of us know how that will play out. I’ve been surprised by how little all of us know about the rest of the industry."
“Few people (in beef production) are paying close attention to what customers are telling grocery stores, while grocery chains just assume cattle people will send best cattle and that quality is most important to them. Except cattle producers get paid by the pound, not for quality. There’s friction in the idea that the more weight on the animals the more you get paid, vs the quality and how that affects the customer eating experience.”
“The market signal is that quality and consistency is more important than ever. Customers want to make their own decisions. That allows all of us to figure out which niche and which program we want to be with. We can get a premium for better cattle. I believe in the future the base price is going to be in a program and the rest will be in a commodity. If you’re not in a program, there will be a discount.”
How do you think about the juxtaposition of Walmart’s trademark focus on reducing cost with this example of increasing cost in pursuit of quality? “That’s the big dilemma, working to both manage cost and drive quality.”
I love the strategic exercise of re-imagining how a supply chain is organized and the potential impact, but it seems even more important that we turn loose of outdated mental models given that this week the first lab grown / cell cultured meat was approved by a regulatory body for commercialization. Singapore consumers will soon see chicken breasts & nuggets that are farm free, slaughter free, manure free, smell-and-neighbor-bothering free. While this doesn’t mean the sky is falling for farm-raised meat and poultry, it does signal that its time to get serious about solving the big problems in order to keep meat and poultry relevant for consumers. And by relevant, I mean keep the category as the go to food in the next pandemic…(like in 2420 or some time long after all of us are gone, knock on wood).
Part of the Singapore lab grown chicken case study will be about why Singapore - a country seeking to increase its food production capability to 30% of demand - is the first country to approve the sale of cultured meat, and how the product lands with consumers.
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Janette Barnard is the author of Prime Future and Managing Principal with Rock Road Consulting, working with animal health, animal nutrition, producers and processors to launch, source, and fund innovation. She leverages her commercial experience with agribusiness (Elanco Animal Health, Cargill, and McDonald’s Global Supply Chain team) and her entrepreneurship & strategy experience with tech startups.