Top Food and Beverage Companies for 2005: This chicken comes first
Tyson unseats Kraft as king of the U.S.-Canada food and beverage industry; plus exclusive results of the first Grant Thornton-Food Processing Survey of Food and Beverage Companies.
By Dave Fusaro, Editor in Chief
We don’t mean to make this annual ranking into a horse race. As the theme of last year’s story indicated, bigger is not necessarily better. Nevertheless, a torch has been passed. After 30 years as the largest food processor in the U.S. and Canada, Kraft Foods Inc. has been unseated by Tyson Foods Inc.
Tyson increased overall 2004 sales 8 percent, by nearly $1.9 billion, and did so without a major acquisition, a favorite tactic of the past (it did, however, end up with a 53-week fiscal year). The Springdale, Ark., protein company did it the old-fashioned way, via 400 new product introductions and double-digit sales increases in its chicken and pork segments, the latter up 29 percent. Tyson was, by our figuring, just $13 million behind Kraft in last year’s ranking (using 2003 sales). Overall, counting sales from overseas operations, Kraft remains much larger.
“By our figuring” is an important phrase. Because every company does things a little differently, we impose our own subjectivity to achieve objectivity. We want our table to show the 100 largest value-added food and beverage processors in the U.S. and Canada, the top producers (not necessarily marketers) of grocery store-ready packaged food products.
|Tyson edged out Kraft for the top spot in our ranking by introducing 400 new products and logging double-digit sales increases in its chicken and pork segments in 2004.
That means not counting the simple collection or transportation of agricultural commodities – which greatly reduces the figures of dairy cooperatives and agrifood giants like Cargill. That’s why you won’t even find Archer Daniels Midland on this chart. It also means focusing only on North American operations of multinationals – thus only the U.S. and Canadian operations of Nestle and Unilever are included. That’s also why PepsiCo’s figure has been significantly cut. Anheuser-Busch’s amusement parks and canning operations are not included. Nor is Procter & Gamble’s laundry detergent. Sara Lee’s been stripped of its underwear and bras.
We use the most recent fiscal years available. In all cases that was at least calendar 2004, although we were able to squeeze in some 2005 FYs before our deadline.
Despite its No. 2 ranking, Kraft did not stand still. In 2004, the Northfield, Ill., company grew its sales by $153 million. But that may be its last year of overall growth, as the behemoth began shedding extraneous businesses and creating a focused portfolio.
Other companies also had notable increases. Dean Foods grew by $1.6 billion, due in part to the completion of gradual acquisitions of specialty-milk companies White Wave and Horizon Organic as well as the soaring price of milk (which didn’t help profits, however). Sara Lee (unfortunately, the most recent available figures were from June 28, 2004) added nearly a billion dollars in its fiscal year 2004, thanks to double-digit increases in its meats and beverages units. Smithfield Foods fully realized sales from 2003 acquisitions Cumberland Gap and Farmland Foods to add $1.3 billion in sales.
In the bad news department, the same number of companies (four) had net losses in 2004 as did in 2003.The Grant Thornton-Food Processing survey
For what’s going on behind the numbers, in most cases driving the numbers, we partnered with Grant Thornton LLP, the global accounting, tax and business advisory organization, for a survey of food and beverage executives.
What’s uppermost on the minds of these executives? The development of more healthful products, as well as higher quality products, competition with larger companies and gains in employment and capacity. Those are some of the top issues identified in the Grant Thornton 2005 Survey of U.S. Food & Beverage Companies, sponsored by Food Processing.
“Nearly two-thirds of respondents plan to increase hiring in 2005 and then again in 2006. This certainly implies that business is improving,” says Jim Maurer, managing partner of Grant Thornton’s Consumer & Industrial Products Practice.
Grant Thornton cites 2003 U.S. Bureau of Economic Analysis figures to size the U.S. food and beverage industry at $497 billion. The firm says healthful foods is the primary growth market, although it also notes respondents cite a continuing interest in ethnic cuisine.
Nearly two-thirds of survey respondents (64 percent) indicate their company’s greatest growth in the next year will come via products identified as better-for-you (see chart at right
). “Consumers continue to focus on healthier foods and eating habits, and the food and beverage industry continues to chase this attractive market via products identified as better-for-you, organic, obesity-addressing and nutraceutical (foods that provide medical or health benefits),” the report states. Respondents also say people are willing to pay more for higher quality food.
While the summary report combines those components into “healthier foods,” not all the specific categories scored highly. As the accompanying chart shows, organics were identified as key by 15 percent, “addressing obesity” by 5 percent and nutraceuticals by just 2 percent.
The summary notes it’s not clear how much of consumer activity is driven by simply new lifestyles or government and public institution involvement (e.g., the restructured food pyramid, increased understanding of national organic certification, national focus on obesity and other food-related health concerns).
Ethnic cuisine is still a major focus, likely due to the continuously changing demographics in the U.S., continuing emergence of multinational foodstuffs that have the ability to progressively make their way to consumer prominence (e.g., salsas) and increased awareness through the growing popularity of “food television” programming. One-quarter of survey respondents (24 percent) report that ethnic/minority markets are the consumer group holding the biggest opportunity for future growth.
However, most respondents (41 percent) appear to be taking a wait-and-see approach to chasing consumer markets, “monitoring consumer behavior” and then pursuing the hot prospects.
Grocery stores continue to be the primary medium for manufacturers to get their products into consumers’ hands. Despite the growth of dominant retailers, 85 percent of respondents indicate no single retailer accounts for more than 10 percent of revenues.
|Digital editor's note:
Corporate profiles of our Top 100 processors (with information on company executives, subsidiaries and divisions, brands and major product areas) may be found elsewhere on our site. To access profiles for #1–#25, click here. To access profiles for #26–#50, click here.
Food and beverage executives say their biggest industry problem is “competition with larger companies.” Surprisingly, the competition fear factor was not statistically greater among smaller firms, indicating that the big fish would like to avoid being eaten by bigger fish.
Nearly all survey respondents believe health and regulatory concerns will increase company costs in the next five years (a whopping 42 percent of respondents believe the impact from health and regulatory concerns will up corporate costs by more than 10 percent). Additionally, respondents expect to face price pressures from upstream supply chain providers, as they continue to forecast increased commodity prices. Possible causes include energy-cost increases, currency fluctuations, freight/shipping cost increases, and a general sense of economic recovery — either providers feel more confident that increases will be accepted or feel they can’t defer adjustments any longer.
Despite significant hikes in labor costs per employee, companies expect to increase employment. Respondents as a group anticipate employment gains in 2005 and 2006 throughout the food industry, and they’re even more optimistic regarding their own company’s plans. Nearly two-thirds plan to increase hiring in 2005 and then again in 2006. Yet finding employees to fill those growing ranks poses a problem: 48 percent of survey respondents anticipate difficulties with hiring and retaining employees.
Respondents revealed optimistic outlooks regarding both U.S. and foreign expansion, implying that, as business gets better, food and beverage firms will seek to take advantage of market upswings. Expansion for some is likely to come via mergers and acquisitions. Compared to present levels, approximately three-fourths of respondents anticipate an increase in M&A activity to occur in both 2005 and 2006 (74 percent and 73 percent, respectively).
Product development spending, including product packaging and repositioning of products, obviously is rising at both U.S. and foreign operations, with slightly more upward emphasis within the U.S.
Survey respondents believe the best opportunity to enhance the value of their company is by making and marketing successful products (scored an average 2.9 and 3.2, respectively). Twenty-nine percent of respondents score “successful product marketing” a 1 (most opportunity), followed by “operating efficiencies” (21 percent of respondents scored it a 1), and “successful product development (17 percent of respondents scored it a 1).
Since many companies taking the survey (47 percent) had revenues of $20 million or less, this focus on product development and marketing is not surprising — a great product can make or break a small company.
The 2005 Grant Thornton-Food Processing
Survey of U.S. Food & Beverage Companies was conducted primarily via e-mail and an online survey website. Executive-level subscribers to Food Processing
and Grant Thornton business relationships were e-mailed in April and May. Grant Thornton received 95 responses. A full report is available by calling Grant Thornton at 866-728-5264 or by clicking here
|Table 1: Top 100 Processors (listed alphabetically)