Full Circle Tyson Foods Tortilla Celebrates 25 Years
Last updated Saturday, September 6, 2008 11:50 PM CDT in Business
By Kim Souza The Morning New
SPRINGDALE — Tyson Foods Inc. is the nation’s largest meat processor, but few consumers realize the company’s burgeoning tortilla business, about to celebrate its 25th anniversary, is rapidly expanding at a pace of nearly 30 percent in the past two years.
The Springdale-based meat giant has come a long way since it bought the Fayetteville-based Mexican Original tortilla operation in the fall of 1983, for an undisclosed sum.
Then CEO Don Tyson stepped out on a limb and purchased the small tortilla factory, which he identified as a food industry segment with a fantastic future, according to news reports at the time.
The company recently said as Mexican food was gaining popularity outside the traditional market in the southwestern U.S., the tortilla venture was a move to diversify its chicken business.
Mexican Original was producing about 400,000 to 500,000 pounds of tortillas each week when Tyson Foods purchased the company, said Tyson spokesman Gary Mickelson.
Don Tyson’s vision occurred two decades before the popular “wrap” entree catapulted Tyson Foods to the nation’s second-largest tortilla maker, supplying most national restaurant chains including Yum! Brands, owner of Taco Bell and Kentucky Fried Chicken.
Today the Fayetteville plant makes about 3.5 million pounds of tortillas and chips sold exclusively to its restaurant and food service customers. This equals about 40 percent of the company’s total tortilla business — 455 million pounds per year. If all the tortillas produced by Tyson Foods annually were placed end to end, they would circle the world 18 times.
Tyson Foods expanded the tortilla venture outside of Fayetteville in 1990, adding a plant in Sanford, N.C. Then in 1995, the company built a third tortilla plant in Portland, Ind.
Investing In Opportunities
“The tortilla has become the carrier of choice in food service today, as opposed to bread. We are seeing far more tortillas being used for breakfast, lunch and dinner entrees, which is a great opportunity for Tyson Foods,” CEO Dick Bond recently said, while a guest on CNBC’s “Mad Money” with Jim Cramer.
The company has added three pressed tortilla lines to its Fayetteville plant in the last two years at a cost of about $7 million. These lines have almost doubled the output of the lines they replaced, Mickelson said. The last of the three lines was completed in April.
“We’re spending another $8 million to add two more lines, which will be operational in October and January. This expansion will give Fayetteville 14 total heat press tortilla lines,” Mickelson said.
The line expansion is needed because of rising demand resulting from the mainstream popularity of the wrap.
Third-quarter sales volumes of tortillas in the company’s food service national accounts were up 28 percent from a year earlier, Bond said during the company’s July earnings call.
He said a few major accounts were using tortillas in more applications, such as breakfast burritos and snack wraps, which sent tortilla sales 14 percent higher from the second quarter to the third quarter.
Tyson Foods does not break out tortilla sales revenue specifics in its quarterly filings.
When consumers see that Wendy’s or McDonald’s is offering a new wrap entree, chances are the tortilla is a Tyson Foods product, market watchers said. The company has a substantial market share among national food chains it provides chicken, pork and beef.
The latest survey commissioned by the Tortilla Industry Association found that 62 percent of restaurant businesses reported using prepared tortilla products in their operations. Low-carb tortilla wraps, flavored wraps and sandwich wraps topped the list of new tortilla products recently adopted by foodservice operators like Tyson Foods.
TIA reports 78 percent of fine dining restaurants and 74 percent of casual dining restaurants reported they include tortillas on their menus.
Tortillas have become a mainstream part of the American diet and are used in many food service venues in a variety of creative ways, said TIA spokesman Stella Parra.
Pinched Profits
While topline sales revenue is up in the tortilla business, so are expenses, market analysts said.
Rising commodity prices are among the greatest challenges for foodservice providers today, said Scott Vinson, vice president of the National Council of Chain Restaurants.
Tyson Foods said the company’s tortilla operations use about 6.7 million pounds of flour, wheat and corn masa each week.
Soaring grain prices over the past 18 months due to increased ethanol demand for corn, and volatile wheat prices related to shorter global supplies, have pinched the bottomline profits despite price increases to its foodservice customers, the company said.
Earlier this year executives from Tyson’s Fayetteville plant said their wheat costs had jumped from $4 per bushel to $13 per bushel in a year’s time. Today the price has come down to $7.40 per bushel, but is still notably higher than last year. It’s a similar story with corn and soy-based oil, which are other raw ingredients used in tortilla-making.
Farha Aslam, food analyst with Stephens Inc., reports wheat prices are up 28 percent, soy oil is up 51 percent and corn oil up 38 percent, from a year ago. (Stephens Inc. conducts investment banking services for Tyson Foods and is compensated accordingly.)
Tyson executives said prior to last year, raw ingredients comprised about 32 percent of the cost of making tortillas, rising to 53 percent this year, directly related to inflationary commodity prices.
In an effort to save on escalating input costs the company began regrinding its defective tortillas earlier this year, a process that reduces wastes and ultimately adds to the bottomline profits.
Wrap Sensation
“Sandwiches are the most commonly consumed food item in this country, but wraps were the fastest growing entree last year thanks in part to the huge success of McDonald’s snack wrap,” said Harry Balzer, vice president of the NPD Group Inc., a provider of consumer trends involving foods and shopping habits.
Balzer said the wrap craze is still in its infancy, giving companies like Tyson Foods substantial upside potential particularly because chicken is the second most commonly consumed food item.
“When the McDonald’s chicken snacker took off last year, several other national restaurant chains like Wendy’s quickly added wrap snacks, and KFC unveiled a grilled chicken wrap,” Balzer said.
Wraps provide a contemporary way of serving a sandwich and fall into the bread category. He said tortillas are quickly becoming a staple in American diets, in addition to the traditional Hispanic diet.
Ultimately he said any food that stays popular must make lives easier and be more affordable than other substitutes.
Fast Facts
Tyson’s Tortillas
w Tyson Mexican Original is the second-largest producer of tortillas, behind Mission Foods.
w The Fayetteville tortilla plant currently employs about 750.
w Products made at the Fayetteville plant include: heat-pressed tortillas, corn chips (baked for in-store frying), corn tortillas, die-cut flour tortillas, sliced/diced chicken, dinner kits and post-pasteurized chicken.
Source: Tyson Foods Inc.
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