What does Walmart’s entry in the beef business mean for the cattle industry?
In January, Walmart officially entered the beef business when it opened a case-ready beef plant in Georgia. Establishing its own Angus supply chain, the largest food retailer in the U.S. has created an end-to-end beef supply chain in its latest step toward vertical integration for food and its goal of improving the quality of its food offering, according to a new report from the Knowledge Exchange division at CoBank.
If successful, Walmart could be one step closer to the producer (e.g. harvesting fed cattle or through a joint venture with a current packer).
“Walmart sees opportunity and is moving up the supply chain at a time of historically high margins for beef processors,” says Will Sawyer, animal protein economist with CoBank. “We believe their current beef strategy is something of a test, not only for Walmart and its suppliers, but also for its customers.”
The plant will cut and prepare steaks and roasts produced by Walmart’s Angus beef supply chain for 500 stores in Alabama, Florida, and Georgia. Walmart will need to convince customers that its beef, which is hormone-free, traceable, and potentially a higher grade, is worth a premium price.
“While Walmart’s new beef strategy could make waves for the industry in the future, in its current state we don’t see it shifting the price and leverage dynamics of U.S. beef production,” Sawyer says. “By our calculations, this new supply chain will account for less than 5% of Walmart’s U.S. beef business and less than 0.5% of U.S. beef production.”
There's no doubt other retailers will be watching how this venture works out for Walmart. In addition, potential new entrants may see this as an opportunity to add value and capture margin, something the rest of the supply chain should expect more of in the future.
You can watch a video summary as well as read, “Walmart’s New Beef Plant is More Sizzle than Steak, For Now,” report at cobank.com.