Photos: Sustainable Beef LLC
Walmart takes a stake in a rancher-owned beef company
Walmart earlier this week signed an agreement to acquire a minority stake in Sustainable Beef LLC, a rancher-owned company dedicated to producing top-quality Angus beef. Sustainable Beef will ship the majority of what it produces to Walmart’s stores.
The retailer’s investment will enable Sustainable Beef to open a new beef processing facility in North Platte, NE, by late 2024. Ground-breaking on the 500,000-square-foot plant is being planned for next month. The facility is expected to create over 800 new jobs and process more than 1,500 cattle per day when it is fully operational.
The parties are calling the deal a win for ranchers and the beef industry as well as for Walmart and the customers it serves. The retailer will gain representation on Sustainable Beef’s board of directors as part of its investment.
“We are dedicated to providing high-quality, affordable beef to our customers, and an investment in Sustainable Beef LLC will give us even more access to these products,” said Tyler Lehr, senior vice president of merchandising for deli services, meat and seafood, Walmart U.S., said in a company blog. “We know Sustainable Beef LLC has a responsible approach to beef processing, one that includes creating long-term growth for cattle ranchers and family farmers. This investment provides greater visibility into the beef supply chain and complements Walmart’s regeneration commitment to improve grazing management.”
Walmart’s commitment to sourcing beef responsibly is part of a 2016 pledge by CEO Doug McMillon for the retailer to source 20 key commodities more sustainably by 2025.
Sustainable Beef will work with its ranchers and cattle feeders to optimize performance in key supply chain areas, such as grain sourcing and grazing management. The company’s animal care protocols will follow the “Five Freedoms” of animal welfare including access to water and feed, comfortable space to shelter and freedom from disease and pain.
Walmart and Sustainable Beef found common ground on the use of antibiotics. Use and reporting across herds will comply with the retailer’s request for suppliers to implement the American Veterinary Medical Association Judicious Use Principles of Antimicrobials.
Discussion Questions
DISCUSSION QUESTIONS: Do you expect large grocery retailers to make more direct investments in sourcing agricultural commodities from farmer and rancher groups going forward? Do such deals provide storytelling opportunities for retailers in their marketing to consumers?
Poll
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If large grocery retailers invest in these otherwise free-market companies, how much of the market will the grocery companies own? Will ownership by a few large players constitute a corner on the particular market? Will prices rise? There may be unintended consequences to this approach. Let us not forget that, over time, the markets established producers, distributors and, ultimately, the retailers that sell directly to consumers. Do we want to mess with that supply chain?
Good points Bob. An interesting twist is, will that supply chain change whether we want to mess with it or not? Retailers are learning lessons from other industries like eyeglasses, where just a few players dominate the entire vertical chain, from raw materials to the insurance that covers the purchase of glasses.
First, we have to accept that Walmart is not just a large grocery retailer. They are a segment and frankly an economy unto themselves. Second, when Walmart decides to do something they usually figure out how to do it right, at least since learning some valuable expansion lessons in the ’90s. That said, vertical integration is a very natural path, particularly with a category that is in as much flux as beef. Walmart has a chance to stabilize their own supply chain, adapt to changing consumer preferences, and continue to grow their business. Makes me wish our family hadn’t divested the Bar-Y ranch a few years back.
It’s a smart move that other retailers have been doing for a long time. I am hoping this will not only lead to sustainable meat, but keep prices at an affordable price.
History shows us that the pendulum swings back and forth as market dynamics change. Walmart’s move to vertical integration shouldn’t be a surprise. Rather, it’s another differentiated market move that should give them some unique competitive advantages over their competition. Will others follow? Sure, and maybe we will see a run on new ecosystem partnerships that create a whole new set of experiences at the grocery store, which would be outstanding for consumers.
Vertical acquisitions are interesting to study. They are generally significantly more successful than horizontal acquisitions. I agree with all the positives outlined in today’s discussion.
My warning, however, is that not all retailers are Walmart. Walmart understands the strategic value of the investment both in access and the preference trends of consumers. While I am sure many other large retailers understand as well, the Walmart organization is experienced in managing diverse businesses that other major grocers do not.
Gene, totally agreed. I expect the Walmart acquisition to be successful. However, very few others can do what Walmart can do.
Vertical integration is nothing new and, as John D. Rockefeller found out, not always easy to maintain over time. The “bad” side of this kind of structure is that it easily leads to predation, market manipulation and – over the long term – higher consumer prices. The “good” face of vertical integration is the ability to build a secure, sustainable, and safe supply chain that is less subject to external disruptors while obviously being more vulnerable to internal disruptors and potentially being less agile in a crisis since secondary suppliers are, by definition, direct competitors. Walmart has been talking about direct sourcing in over 20 categories since 2016 or so and a taking a minority share isn’t the same thing as taking over the meat industry. But it does have the potential to build a better story for the consumer. Years ago, in Ireland, Superquinn began sourcing genetically “tagged” beef under lucrative, exclusive supplier contracts. The result? When there was an outbreak of Mad Cow Disease that devastated the European beef market the retailer was the only one that could guarantee their beef was disease free, a claim they could trace back on a genetic level to every single cow they raised and slaughtered. It was a relationship that was a win for the retailer, the cattle producers, and the consumer so, yes, going forward I expect we will see more large retailers entering the supply chain at a variety of levels.
This makes total sense for Walmart – or any other large grocery store. They are taking control of an important line and curbing supply chain and economic issues.
Vertical integration has been around as a part of retail long before the term supply chain became part of our lexicon. The reasons for it then are still relevant now. I would expect to see other retailers make similar investments although not on the same scale as Walmart.
Overall, this is a symbiotic partnership and a wise one for Walmart, given the numerous mysterious food processing plant fires, government/political interference in food production, and likely shortages coming soon. Similar solutions will be needed by others to lessen bare shelves and appease irate customers.
As far as beef standards… Walmart’s are better than nothing but certainly do not represent industry leadership. Even the CEO of Sustainable Beef said, “Our plan is to look at sustainability, and to define that. We believe that term has different meanings for different people, so we want to help clarify that in the marketplace.”