Don’t expect to see branded packaged lunchmeat products featuring a Tyson Foods logo on the market anytime soon. The company is content to play a role behind the scenes as a supplier to the private label lunchmeat category, said Jon Kathol, vice-president of investor relations.
Tyson Foods has spent the past few years upgrading its lunchmeat processing infrastructure in an effort to improve efficiencies and margins, but the effort is not designed to put Tyson in a position to go head-to-heat with category leaders Kraft Foods Group and Hillshire Brands.
“We’ve looked at the lunchmeat category and we think we have the right to win based on the raw materials that we own that balance out ham muscles for the bacon that we want to continue to sell,” Mr. Kathol said Feb. 27 during the Bank of America Merrill Lynch Global Agriculture Conference. “So, we need to be in the lunchmeat business, but the category itself is declining. The two top branded companies, they are having a pretty good battle right now and it’s a price game. You’ve got a declining category with overproduction and we have no plans at this point to have a branded lunchmeat to go head-to-head with the two major players in lunchmeat.”
Mr. Kathol said that prior to the company’s investment in its lunchmeat business it was running on “an antiquated business model.”
“We have been investing in that lunchmeat business over the last 2.5 years or so,” he said. “And we completed the equipment part of that in December. That’s been ramping up. We are about capacity in our Houston plant for lunchmeat. So as we move through this year, we will see our lunchmeat business move from losing significant money to breaking even to being profitable by the end of this fiscal year.”
Big, better and best
While Tyson Foods is content to play in the private label sector, Hillshire Brands, Chicago, is rolling out a series of new lunchmeat products this year designed to bring more consumers to the category.
“(Lunchmeat) is basically fully developed as a category,” said Sean Connolly, president and chief executive officer on Feb. 19 during the Consumer Analyst Group of New York conference, which was held in Boca Raton, Fla. “But clearly there’s an opportunity for us to grow share there when you see our level of development within that category.”
At the premium end of the packaged lunchmeat category and under its Hillshire Farm brand, the company is offering Hillshire Farm Naturals. Mr. Connolly said the product targets the segment of consumers seeking products perceived as natural and clean label.
At the value end of the spectrum, the company is introducing Farm Classics under the Hillshire Farm brand. Farm Classics is available in 1-lb package sizes and is intended for families that go through large amounts of product.
The company also is extending its Aidells line of premium meat products into the lunchmeat category with a new line. Marketed as all natural, the Aidells line of lunchmeats will feature such flavors as chicken and apple, Cajun style, garlic and basil, and chipotle pineapple.
“And unlike topical innovations that you see on other lunchmeat, this (is) actually infused into the meats,” Mr. Connelly said. “So there’s no other product like this in the United States. We are going to begin expanding this here as we go through the back half of this year.”
The Kraft Foods Group is the category leader in the packaged lunchmeat category, and the company is working to bring life back to a stagnant category. During the company’s presentation at the Consumer Analyst Group of New York conference on Feb. 20, Tony Vernon, chief executive officer, said the company is rejuvenating its Oscar Mayer Deli Fresh line with a new look and taste under the Bold line beginning this month. The line will feature such new varieties as Cajun turkey breast and chipotle chicken breast.
