COST Costco Wholesale Corporation

By Micah Maidenberg 

Walmart Inc. is pushing into the meat business, the latest retailer to seek greater control and profits in the steaks and rotisserie chickens that fill grocery-aisle meat cases.

The Arkansas-based chain will develop a network of cattle ranches and meat-processing plants to provide Angus beef products exclusively for its stores, a move Walmart said will provide the company and its customers better visibility into their food supply.

Walmart's move follows rival Costco Wholesale Corp.'s effort to develop a poultry processing plant and dozens of supplier farms to provide the chain's signature $4.99 rotisserie chickens. Walmart and other chains already operate their own milk-processing plants and bakeries.

Retailers' moves to take greater control of some commodity processing come partly in response to consumers' growing focus on how food is produced, with shoppers scrutinizing everything from the fertilizer used on grain fields to drugs fed to chickens. The efforts follow years of low crop prices, making it cheaper to raise livestock and poultry.

"To answer our customer's demands, we need visibility into every step in the supply chain," Scott Neal, a Walmart senior vice president, said in prepared remarks.

Beyond reducing costs by handling processing and packaging themselves, the retailers could also gain greater leverage in negotiating supply deals with major U.S. meat companies like Tyson Foods Inc., Cargill Inc. and Pilgrim's Pride Corp., analysts said. The investments could also expose retailers to new risks, ranging from animal diseases to meat plant worker safety.

Walmart's move "is definitely going to create some waves and may change up the game a bit on the beef side, because traceability is the next big thing," said Jeremy Scott, an analyst with Mizuho Securities.

Tyson shares were down slightly in afternoon trading. Tyson estimated that Walmart contributed 17% of its fiscal 2018 sales and was the meat company's biggest single customer, according to a November regulatory filing.

"Walmart is a great business partner of Tyson Foods, and we are fully supportive of the project," a Tyson spokeswoman said.

Walmart's effort will focus on Angus beef cuts like steaks, roasts and rib-eyes and will supply 500 stores in the Southeast.

The company is partnering with Bob McClaren of 44 Farms and Prime Pursuits, who will help Walmart find cattle; Creekstone Farms, which will butcher the cattle at a Kansas facility, and FPL Foods, which will pack the meat at a Georgia facility for delivery to stores.

Costco is building a $450 million chicken slaughtering and processing facility In Fremont, Neb., capable of processing two million birds a week, churning out rotisserie chickens and other poultry products to be sold under Costco's Kirkland brand. The plant is slated to open in September, and will be supplied by 100 to 125 farms, according to a spokeswoman for Lincoln Premium Poultry, which will manage the plant.

Building the plant will ensure a steady supply of chickens in the specific sizes Costco sells, she said.

Executives for Pilgrim's, a chicken supplier to Costco, have said Costco's move doesn't represent a threat and that the chain had increased its business with Pilgrim's.

Such moves by retailers have bruised some suppliers. Walmart in 2018 opened its own milk-processing plant in Indiana, supplying more than 600 stores previously supplied by U.S. milk company Dean Foods Co. The move by Dean's biggest customer cost Dean roughly 100 million gallons of annual milk sales, at a time when milk consumption generally has been declining.

Write to Micah Maidenberg at micah.maidenberg@wsj.com

(END) Dow Jones Newswires

April 24, 2019 15:55 ET (19:55 GMT)

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