Costco takes control of meat supply chain

Called Redefining Farm-to-Fork: Costco Sets New Protein Precedent,​ the report said that if Costco’s foray into production and processing was successful, it could be the model for other food retailers and foodservice companies to vertically integrate into other protein sectors like beef and pork.

Costco’s entry into the US poultry sector could mean changes ahead in the meat sector at large, it predicted. 

Costco was slated to open its new $400million (m) chicken processing plant in eastern Nebraska in September 2019, the report revealed.

In April 2016, Costco announced plans to build the poultry processing complex, with a large portion targeted to supply the company’s 90m rotisserie chickens it sells each year at its retail locations. The remainder of the facility will process chicken parts.

The report said that the announcement raised “numerous questions”​ as the US had never seen a retailer integrate its meat supply to the farm level and take on direct exposure to the risk of animal husbandry, including feeding, animal welfare, harvesting, trade, disease and distribution.

CoBank Knowledge Exchange said it believed Costco took the decision to ensure security of the supply going forward, as well as improve consistency and cost control.

The report added that the importance of Costco’s rotisserie chicken program to the company’s business model was “hard to overstate”.​

Costco’s sales of rotisserie chicken, which is seen as a traffic driver, have grown by more than 8% annually since 2010 – more than three times the growth rate of total US poultry consumption. Costco has also maintained its price of $4.99 per chicken.

By bringing production and processing in-house, these three drivers are expected to reduce Costco’s cost per bird by 10-35 cents, according to Costco CFO Richard Galanti.

The report said that copying Costco’s model of bringing meat production and processing in-house across other sectors of the US meat sector would be “difficult”,​ particularly for beef and pork that bring additional supply chain complications and risks.

However, it added that Costco’s leap into chicken production and processing would “undoubtedly prompt questions across agricultural supply chains”,​ and send food retail and foodservice companies back to the drawing board to rethink business models.