Drama in the Frozen Food Aisle

Not much is new in the world of frozen meat, or so the big players in that field would have you think. But intrigue lurks just beneath the surface of this seemingly calm category, in the form of foodborne illness outbreaks, recalls, bankruptcy, mergers and acquisitions.

The frozen meat category overall fared well in 2007, despite a record number of recalls issued due to foodborne illnesses caused by E. coli, including the second largest meat recall in U.S. history by Topps Meat Co. Unit sales of frozen meat were up 1.7% and dollar sales up 4.9% for the year, according to figures from Information Resources Inc., (IRI), Chicago. (See chart.)

But Tyson Foods Inc., Springdale, Ark., the world's largest processor and marketer of chicken, beef and pork, had news that doesn't bode well for the beef industry when it released results of its first fiscal quarter for 2008 at the end of January. Tyson announced that net income for the quarter was down to $34 million compared to $57 million for the same period in 2007.

Richard L. Bond, Tyson Foods president and CEO, says that the company's pork segment delivered "one of its best quarters ever with strong volume and operating income nearly double compared to the first quarter of fiscal 2007." But, he noted, "the beef segment continues to face a very difficult operating environment, which caused us to make the hard decision to cease slaughter operations at our beef plant in Emporia, Kan."

Bond says "there continues to be far more beef slaughter capacity than available cattle and we believe this problem will continue to afflict the industry for the foreseeable future." The company plans to divert more cattle to its other more strategically located facilities.

Bond also notes that in November 2007, the company had projected an additional $300 million in grain costs for fiscal 2008, but said that continued escalation of grain prices, which he mainly attributes to "government mandates for corn-based ethanol," will cause the year-over-year increase to exceed $500 million. "Because of these unanticipated and extraordinarily high corn and soybean meal costs, we have no choice but to raise prices substantially," Bond says.

Topps Meat Co., Elizabeth, N.J., perennially one of the top producers of frozen hamburgers in the U.S., declared bankruptcy in fall of 2007 after recalling 21.7 million pounds of frozen hamburger potentially contaminated with E. coli O157:H7. More than 40 people in eight states were sickened after eating Topps beef. The E. coli outbreak also resulted in the closing of the Canadian firm that supplied Topps with the tainted beef. Rancher's Beef, Ltd., Balzac, Alberta, had already ceased operations when the USDA announced that its beef was the likely source of the Topps contamination. Rancher's Beef's slaughtering and processing plant, completed in 2006, is now up for sale.

The USDA doubled inspections and pathogen testing of Canadian meat and poultry products for two weeks after the find, and after reviewing seven other Canadian establishments, decided that unsafe practices employed by Rancher's Beef were not used in the other firms, and inspections returned to normal.

The USDA's Food Safety and Inspection Service (FSIS) conducted an assessment of the Topps meat plant, and found "inadequate raw ground process controls and sanitation concerns." The FSIS has since stepped up its actions to protect public health, including expanded testing and more rapid recalls.

The assets of Topps Meat Co. were auctioned off in federal bankruptcy court on January 8. The Topps name and company equipment were sold for $800,000 to TMC Acquisition Co., whose principal is William Morris, an owner of Hickory Foods Inc., Jacksonville, Fla.

As part of the deal, TMC will also pay up to 10 cents per pound for approximately 2.2 million pounds of hamburger that is still in storage and must be destroyed, under USDA order.

When asked if the company is considering bringing back the Topps brand, Charlie Anderson, director of marketing, Hickory Foods, says that the topic is still being discussed by upper management.

Hickory Foods, whose brands include Bubba Burger, also acquired Flanders Provision Co., Waycross, Ga., another major frozen hamburger producer, in summer of 2007.

MSDT Acquisition Co., an affiliate of Premio Foods, Inc., a Hawthorne, N.J.-based maker of fresh sausage, purchased Topps' warehouse lease and flash-freezing equipment for $250,000 at the auction. The company had offered approximately $795,000 for all of Topps assets before the auction, but was outbid by TMC during the Chapter 7 proceeding.

Cargill Meat Solutions, Wichita, Kan., a subsidiary of Cargill, Inc. also went through the recall grinder. On October 6, the company recalled approximately 845,000 pounds of frozen American Chef's Selection Angus Beef Patties that were distributed in Sam's Club stores nationwide, due to an E. coli outbreak that was linked to the product.

In November, Cargill also recalled more than a million pounds of fresh ground beef on that was produced in its Wyalusing, Wis. plant and distributed to retailers nationwide, due to a confirmed positive for E. coli that turned up in a sample tested by the USDA. No illnesses were associated with that recall.

Cargill's sales of its Excel brand of frozen hamburgers did not seem to be affected by the recalls, as sales for the brand were up 3.5% for the year, according to IRI.

Aaron Willardson, a buyer at Sam's Club, Bentonville, Ark., notes that Cargill's American Chef's brand continues to be a big seller in frozen meat. He added that Silver T beef patties and Steak-Eze, from Advance Brands LLC, also perform well.

Quaker Maid Meats, Reading, Pa., has been quietly acquiring companies in the frozen meat sector. It owns the Philly-Gourmet Meat Co., Steak-umm Co. LLC, and meatball maker Mama Lucia, making Quaker Maid the second largest producer in the frozen meat category (after private label) according to IRI data for the year ending Dec. 30, with combined sales of almost $79 million.

Quaker Maid is one of the few category leaders with new product development. The company expanded its Philly-Gourmet product line in January with Philly-Gourmet Bacon and Cheese Homestyle Patties, which come in a 32 oz. package for a suggested retail price of $8.99. The patties have diced bacon and cheese mixed into the meat to avoid using bacon and cheese toppings that could slide off the frozen patty.