The 2016 Poultry Report: Opportunity knocks amid uncertainty
Last year was a good year for chicken, but not great compared with the above-average years of 2013 and 2014. The U.S. Department of Agriculture (USDA) puts 2015 chicken production at 38.8 billion pounds ready-to-cook, or 4.3 percent ahead of 2014.
Even though the commercial broiler industry was largely unaffected domestically, the industry was hit hardest by numerous export bans because of highly pathogenic avian influenza (HPAI) concerns among some trading partners, says Tom Super, senior vice president of communications for the National Chicken Council (NCC), in Washington, D.C. From January to August 2015, the chicken industry experienced $652 million in export losses. Not being able to export these products, most of which are dark meat/chicken leg quarters, has taken a toll on the domestic market as well as seeing a significant drop in U.S. domestic value, Super says.
For example, monthly chicken leg quarter prices in southern states dropped from about $0.38 per pound (bulk) in January 2015 to $0.15 in October 2015. NCC is working with the USDA and its trade representatives to get these markets fully open as soon as possible, Super says.
It’s a difficult year to describe the turkey industry as well, because of the impact of HPAI, says Joel Brandenberger, president of the National Turkey Federation (NTF), in Washington, D.C. “If you were a company or a grower that was affected by the disease, it was devastating; it really affected your bottom line,” he explains.
While HPAI was severe for those affected and approximately 7.8 million birds were lost, the loss amounted to a little more than 3 percent of the anticipated turkey production in 2015, Brandenberger says.
In turn, the loss had some upward pressure on turkey pricing. The October 2015 price for whole frozen hen turkeys on the wholesale market was $1.36 per pound, the highest monthly price in 2015, and 17 percent higher than a year earlier, the USDA reports. The average wholesale price for frozen whole hen turkeys during the fourth quarter of 2015 was projected to range from $1.32 to $1.36 per pound, up 18 to 22 cents from the fourth quarter average in 2014. Still, turkey consumption in the United States is expected to be 15.8 pounds per person in 2015, up 0.1 pounds from 2014, according to the USDA.
Fortunately for the industry, at presstime in mid-December, only one positive case of HPAI had occurred in the United States (in a wild duck found in Oregon in early December) since mid-June 2015. Unfortunately, HPAI will not be a one- or two-year challenge.
“With the virus a global threat, heightened biosecurity will have to be the ongoing norm,” Super says. “And that is just what broiler farms and integrators have adapted to, doubling and tripling our biosecurity efforts. We’re certainly not out of the woods, but biosecurity is vastly improved compared with situation during first half of 2015. USDA’s four point program, coupled with much more robust poultry industry programs and collaboration lessens the chance of a repeat situation.”
This year, chicken production will be up 1.9 percent as forecast by USDA. “It is more likely the increase will exceed 2 percent by a good margin as a number of new plants come on stream,” Super says.
Feed costs will continue to ease modestly in 2016, and exports will pick up as the USDA projects 8.5 percent more than 2015. “It should be a double-digit increase as avian influenza restrictions on U.S. poultry exports return to a more normal situation,” Super says. “An improving U.S. economy with more people working, coupled with lower energy and fuel costs, will allow more dollars for meat and poultry, especially at foodservice.”
While the turkey industry also is watching closely as the USDA and sister agencies monitor the migratory bird population for HPAI, Brandenberger knows many NTF members feel they were able to learn valuable lessons from this outbreak in terms of biosecurity enhancements to better protect flocks. The other lasting impacts of HPAI are in trade restrictions and vaccinations.
“We have seen some of the trade restriction because of HPAI begin to ease, but there are still some trade restrictions out there,” Brandenberger says. “We need to work on that, the industry and government, collectively to try to fully reopen markets with our trading partners.”
Another reason why HPAI was so devastating, Brandenberger says, is because a number of key trade policies are outdated. “They are based on science that’s a decade old or more, particularly where it’s concerned with vaccinations,” he explains. “A lot of trading partners will say if a country vaccinates, then HPAI is endemic in the country and then put more trade restrictions on. Really that’s a policy based on a time when, because of the nature of vaccines when you are using viruses to protect against HPAI, it was difficult to distinguish between a vaccinated bird and a bird that might actually be infected. We’ve come a long way in the last 15 to 20 years. There are entire proven strategies in place to tell the difference between vaccinated and infected birds.
“Collectively, we’ve got to get to a place where we have 21st century-based rules on vaccination, because otherwise you get into the terrible position where the turkey industry needs to vaccinate because of its problem, but the chicken industry is worried about the impact on trade because they don’t have HPAI. The industry shouldn’t be in that position, and that’s something we really have to work on in the industry collectively and with the government to try to modernize those rules.”
Brandenberger believes this year is difficult to predict. “At this point, most observers think the effect of HPAI on breeders and the poultry supply will work its way through sometime across the first half of 2016,” he says. “The unknowable at this point is exactly where the demand will settle. There are a number of factors that come into play there, including the general economy. I know it’s one of the reasons our industry has embarked on the 20 by 2020 campaign to try to increase real demand for turkey production.”
In 2015, processors and allied members voluntarily contributed approximately $1.5 million to NTF’s campaign to profitably increase consumption of turkey to 20 pounds per capita by 2020. The federation’s executive committee is targeting a 50 percent increase in contributions for this year.
“I think there is optimism about where the market is headed in 2016, but because of the ripple effects of this year, no one is making overly bold predictions,” Brandenberger says.
Poultry product preferences
As far as chicken products are concerned, breast tenders are doing well, especially the smaller sizes. Wings also continue to grow in popularity, Super says. “Small birds for rotisserie and fast food cut-up are in a slightly tight supply as some plants in the last few years opted to get out of producing this size bird,” he says. “It is costly and time consuming to switch back, especially if you do not have a dedicated customer fully committed to taking that product when it becomes available.”
Fresh tray chicken packs continue to do well in all retail grocery formats. But large boneless/skinless breast meat can sometimes be presented to food shoppers in a size and package that is not the most convenient for preparing and cooking. “These packages are excellent values, and can be cut up and/or frozen, but we may be turning consumers away with a product that doesn’t fit the lifestyle of cooks who want something quick to get on the dinner table,” Super explains.
Innovative products seem to be happening in the foodservice and the prepared part of the business. “2015 definitely saw more chicken products moving into the breakfast space, and companies developing more chicken sausage products,” Super says. “We also saw several announcements about companies planning to introduce ‘raised without antibiotics’ product lines.”
Natural poultry products are doing particularly well, says Emily Balsamo, U.S. analyst for Euromonitor International, Chicago. Applegate Farms is a good example of a brand that has capitalized on organic and natural trends within the space of processed poultry and has succeeded, she says.
Balsamo would recommend companies offer natural, cruelty-free and organic products as a strong preference is growing for these features among consumers.
“I suspect that the percent of the market using GMO feed will shrink as the sentiment toward genetic modification becomes increasingly hostile among consumers,” she adds. “Natural and organic products will increase in share as well.”
More than half (53 percent) of consumers who purchase chicken consider “all-natural/no artificial ingredients” an important factor, according to Chicago-based Mintel International consumer survey data reported in its Poultry US, October 2015 report (See Figure 1 above). Another 42 percent consider “hormone- or antibiotic-free” an important factor, and nearly one-third (29 percent) consider “organic” to be an important factor. Because of this, sales of chicken parts and whole chickens produced and positioned as more natural are growing, Mintel says. For example, Perdue’s Harvestland brand of refrigerated and frozen chicken, which is cage-free, vegetarian-fed, free of antibiotics, steroids and animal byproducts, experienced a 37.9 percent sales increase during the 52 weeks ending July 12, 2015, reaching $33.5 million, the research firm reports. GNP Co.’s organic Just Bare brand had a 53.2 percent sales rise, reaching $55.9 million, as it expanded its product options, Mintel shows.
Millennials are another driver of poultry sales, and they want to feel more connected to what they eat. “That’s one of the stories that our industry is trying to tell is to help them understand better where their food comes from, what goes into it and why they can be confident in the choices they make,” NTF’s Brandenberger says.
Mintel found Millennials who purchase poultry are more likely than other generations to be interested in where their poultry comes from (73 percent versus 57 percent of gen-Xers and 62 percent of baby boomers) and how raised (68 percent versus 51 percent each of gen-Xers and boomers). Hispanics show similar sentiments, with Hispanic poultry consumers more interested than non-Hispanic poultry consumers in where their poultry comes from (77 percent of Hispanics versus 64 percent of non-Hispanics) and how it was raised (72 percent of Hispanics versus 56 percent of non-Hispanics). (See figures 2 and 3 for more data.)
Poultry positioned as higher quality or with added health value is something for which Millennials and baby boomers would pay more as well. Fifty-eight percent of Millennials Mintel surveyed say they are willing to pay more for poultry higher in omega-3. Another 68 percent of Millennials and 41 percent of baby boomers believe poultry with reduced or removed antibiotics is worth paying more for, and 60 percent of Millennials and 33 percent of boomers say they are willing to “upgrade” to a premium poultry brand. As boomers age and Millennials become parents, better-for-you poultry likely has value as a food that will help individuals and their families stay healthy, Mintel finds.
Mintel reports the other poultry category — which includes turkey, duck and other fowl — comprises 21.3 percent of the poultry category and recorded the greatest gains of all poultry segments, forecast to hit $7 billion by 2020, doubling since 2010 ($3.5 billion). This growth may be driven by some manufacturers positioning turkey as a protein that can be used anytime as an alternative to red meat, Mintel reports.
In regard to turkey, ground turkey is increasingly gaining retail space in the fresh meat case, Brandenberger says. Turkey tenderloins, both fresh and marinated, along with turkey wings, thighs and a variety of breast cutlet products also are more widely available. Turkey breast chops also are available to look and feel more like pork chops or veal chops. In the frozen case, more turkey burgers, bacons and sausages along with turkey breakfast selections are being offered by national and niche brands, he says.
“One of the things that the industry really wants to concentrate on is widening the use of other fresh cuts, particularly a variety of breast products — not just taking a split breast or whole breast and roasting it, but various types of breast cutlets and tenderloins — in addition to turkey thighs, drumsticks, wings and other cuts of meat, helping people understand the variety of things that can be done,” Brandenberger says.
“The biggest innovation you are seeing is the industry continuing to drill down on what makes products most accessible and convenient to customers,” he adds.
Fresh and exciting
Focusing on the meat and deli departments, chicken contributed $9.5 billion for the latest 52 weeks ending Sept. 26, 2015, with turkey accounting for $2 billion, according to Nielsen Perishables Group FreshFacts. The research firm sees consumers’ attitudes and preferences shifting with consumers seeking information on health benefits in their food along with wanting convenience and ease in preparation.
Additionally, Nielsen Perishables’ fresh meat consumer decision tree found package size and price to be the first consumer decisions when purchasing meat. When it comes to package size, some of the packages were enough to feed only one, maybe two people, which caters to the fact that more than half of U.S. households are one to two people, the group says.
Nielsen Perishables saw other staple categories in the store migrate from traditionally larger package sizes to smaller package sizes. Couple that with the increased attention to total package price in the meat case and the fact consumers buy less meat volume per trip, the research firm believes it’s time for the industry to re-examine package sizes and whether package sizes are meeting consumer needs.
Nielsen Perishables research on the meat consumer decision tree also found that usage plays a role in consumers’ purchasing decisions. For example, whether the products were versatile quick cuts, which consumers found quick to cook, usable in a variety of ways and could be stocked up on without knowing the specific recipe or meal occasion led to purchasing items such as chicken breasts. On the other hand, they viewed products such as a whole bird as more “planned occasion based” where they needed a game plan in mind for both the cooking occasion and cooking method or recipe in mind at the time of the purchase.
In 2015, chicken gained more volume from other meat categories in the meat and deli departments, as opposed to losing volume like certain beef and pork cuts, Nielsen Perishables reports. When chicken lost volume, it was to dinner sausages, bacon and ground turkey.
However, a broader look at consumer behavior in 2015 revealed that consumers went to the meat case less often, indicated by a 4 percent decline in trips to the meat case, Nielsen Perishables says. They purchased less volume per trip, and household penetration for chicken along with beef and pork declined, Nielsen Perishables says.
The other chicken and other fresh turkey product categories both saw the greatest gains in sales in the chicken and poultry categories, respectively, according to Nielsen Perishables.
In both chicken and turkey, “value-add” (pre-cut or pre-seasoned) products like value-added whole chickens, chicken thighs and combo packs, and value-added cutlets, turkey wings and other turkey experienced dollar and volume declines, Nielsen Perishables recorded.
Poultry on the town
In regard to consumption at restaurants, chicken leads all other meats, with 88 percent of consumers eating this protein at least occasionally, according to Chicago-based Technomic Inc. in its 2015 Poultry Consumer Trend Report; however, beef holds a close second, particularly among men, it says. These proportions have remained relatively stable since 2013.
When examining poultry consumption in restaurants by chicken and turkey consumers more closely as to how often they eat these proteins, Technomic reports a very slight decrease. Turkey consumption, though, held steady.
Natural poultry claims on menus, especially antibiotic-free claims, are trending now according to Technomic. Public awareness of poultry antibiotics, including 3-Nitro, is also growing. For example, 43 percent of consumers are very concerned about the possible presence of inorganic arsenic in poultry, caused by select antibiotic use, illustrating the demand for natural poultry, Technomic found in its report. In turn, more than three-fourths of consumers considered antibiotic-, steroid- and hormone-free poultry to be healthier than poultry without these labels. In addition, more than two-thirds say the same of natural poultry. Humanely raised and free-range poultry claims on menus also have more of a presence, with half of consumers (49 percent) saying it’s important that their poultry comes from humanely raised animals.
“The idea of additive-free is also at the forefront now, meaning that concepts that highlight natural, free-range or humanely raised chicken are positively defining their brand’s ethics and setting themselves apart,” says Deanna Jordan, senior research analyst of consumer insights for Technomic.
From a consumer perspective, commodity prices and healthfulness have been two key factors that have presented poultry with an opportunity to be more at the forefront in restaurants.
“I think this is apparent when we ask those who say they’ve increased their poultry purchases why they have done so,” Jordan says. “The two key reasons that rise to the top are health and affordability. But they’re also looking for something different, too.”
From a menu perspective, quick-service restaurants in particular have been turning to innovative and premium poultry dishes as a replacement to beef, for which prices have been at an all-time high, Jordan says. In turn, turkey burgers have increased nearly 20 percent on full-service restaurant menus and 10 percent on limited-service restaurant menus since 2012.
In addition to the increasing number of turkey burgers found on menus, Panera and California Tortilla are offering Turkey Chili, Dunkin Donuts is selling a Turkey Sausage Flatbread, and Del Taco supplies Turkey Tacos.
“You are seeing in the foodservice establishment increasing uses of turkey products to give consumers that additional choice,” NTF’s Brandenberger says.
Technomic also shows poultry for breakfast trending, including spicy chicken and turkey sausage. New chicken items at burger chains also are popular, such as McDonald’s Chicken Selects, brought back in February 2015, which in turn has led to chicken marketing campaigns at burger chains, including Burger King and Culver’s, Technomic reports.
Innovation also is prevalent at foodservice locations. A variety of ethnic-inspired fried-chicken sauces with different heat levels per restaurant operator is trending, Technomic shows. In addition, flavored butters and jams to spread on fried chicken are growing. Sauces that are both sweet and spicy or fruity and spicy along with bold seasonings and marinades are also popular.
“Another thing we’ve been seeing is sweet and spicy fried chicken proliferating,” Jordan says. “Operators are trying to differentiate in a crowded poultry market by offering a wider variety of flavors for fried chicken, representing the sweetest and spiciest ends of the spectrum and everything in between.”
“Poultry is a great platform for innovation, serving as a base for any type of flavoring,” she adds. “We’re expecting innovation in terms of rotisserie and roasted chicken with concepts like Nando’s and Chicken Shop doing well. Bold, spicy rubs and seasonings, ethnic flavors like African — these are the types of things that have much room to grow.”
Expectations for 2016 are a little trickier and will be somewhat reliant on commodity prices, but overall prospects are high, Jordan says. “In terms of a consumer perspective, we see continued relevance of these proteins, as they’re considered to be better-for-you alternatives to beef and pork,” she says. “There’s also an obsession with high-protein meals right now, particularly during the morning daypart, so we expect to see continued development there as well." NP