Tyson: Is There Life Outside the Chicken Coop?
Think of it as a giant game of chicken. Springdale (Ark.)-based Tyson Foods Inc. (TSN ) is betting big that its name can become as dominant in beef and pork as it is in poultry. With almost a quarter of the market for chicken, Tyson has already pulled off the improbable feat of convincing consumers that choosing the right brand matters in what's essentially a commodity purchase. Now it wants the Tyson name to rule the roost at the meat counter as well.
Tyson's grand ambitions stem from its contentious $4.6 billion merger in late 2001 with beef and pork giant IBP Inc., which tripled Tyson's sales to $23 billion. But IBP, which is the leader in beef and No. 2 in pork, has nowhere near Tyson's name recognition. Instead of a single brand, IBP depends mostly on a mishmash of regional labels. That's a problem for Tyson, which supplies national giants such as Wal-Mart Stores Inc. and Albertson's Inc. Besides, it needs the marketing efficiencies and the higher margins of a strong brand.
Tyson's solution? It's scrapping all but the strongest IBP brands and slapping its own name on the rest. To make sure consumers understand that Tyson now stands for more than just chicken, the company is shelling out a cool $100 million in ads and consumer promotions.
A lot is at stake. The company risks confusing customers. But more important, the "new" Tyson brand is the linchpin in the company's long march to move beyond low-margin commodity cuts. In chicken, Tyson has already proved that consumers will pay extra for breaded, marinated, or ready-to-microwave items that can be prepared in nothing flat. Such value-added products now account for about half of Tyson's $7 billion in yearly chicken sales and carry margins four or five times that of fresh meat. Tyson hopes to apply the same recipe to its beef and pork business.
Deciding which products would carry the Tyson name required careful research. Tyson discovered that many retailers see red meat as a signature item. They want fresh beef cut to their specs and packaged under their labels to give consumers the sense that they're getting fresh-from-the-butcher goods. Besides, while Tyson raises its own chicken, it buys beef from hundreds of suppliers, making it harder to ensure consistent quality. The upshot: Only some specialty cuts will carry the Tyson name.
To drive home its message, Tyson is marshaling $40 million in TV, radio, and print ads created by agency DDB Chicago that portray sentimental family scenes, such as a daughter's first dance, to reinforce its tag line: "Tyson. It's what your family deserves." The ads will also introduce a crop of products, including an array of deli meats and a line of beef and pork roasts that can be microwaved in minutes. It'll spend another $60 million on coupons, samples, and other promotions.
The campaign comes at a trying time for Tyson. In 2001, it tried to back out of the IBP deal, citing concerns about IBP's finances. But a federal judge ruled that Tyson had simply gotten cold feet and forced it to complete the deal. Now, a glut of meat, a sluggish economy, a weak export market, and higher grain costs have put Tyson's earnings under pressure. It reported a 69% drop in first-quarter profits, to $39 million, on flat sales of $5.8 billion. That has clobbered the stock, which is down more than 25% over the past year, to $9.36 recently. Meanwhile, Tyson is making headlines as it goes to trial on federal charges of smuggling illegal immigrants to work in its chicken plants, allegations it vehemently denies.
It's not a great time to throw big money at the Tyson name. But execs say they're building for the long term. "The time you ought to be spending is when things aren't going as good as you want," says Bob Corscadden, chief marketing officer. Tyson faces tough rivals, including Smithfield Foods (SFD ), Hormel Foods (HRL ), and ConAgra Foods (CAG ), in the bid to sell products that let mom fix a home-cooked meal in under 20 minutes. If it can use the brand it built in chicken to sell steaks and pork chops, Tyson could have something to crow about.
By Wendy Zellner in Dallas, with Pallavi Gogoi in Chicago