SIC 2013

Establishments in this category are primarily engaged in manufacturing sausages, cured meats, smoked meats, canned meats, frozen meats and other prepared meats and meat specialties, from purchased carcasses and other materials. Products include bologna, bacon, corned beef, frankfurters (except poultry), headcheese, luncheon meat, pigs' feet, sandwich spreads, stew, pastrami, and hams (except poultry). Prepared meat plants operated by packinghouses as separate establishments are also included in this industry.

Establishments primarily engaged in canning or otherwise processing poultry, rabbits, and other small game are classified in SIC 2015: Poultry Slaughtering and Processing. Establishments primarily engaged in canning meat for baby food are classified in SIC 2032: Canned Specialties. Establishments primarily engaged in the cutting up and resale of purchased fresh carcasses, for the trade, are classified in SIC 5147: Meats and Meat Products, a wholesale trade industry.

NAICS Code(s)

311612 (Meat Processed from Carcasses)

Industry Snapshot

In 2000 U.S. companies in this industry shipped products worth $25 billion; the value of shipments for all meat products was $118 billion. Retail value of beef consumed in the late 1990s exceeded $51 billion, according to the U.S. Department of Agriculture (USDA). Imports of red meat in the late 1990s were valued at $3.2 billion, while red meat exports were worth an estimated $4.4 billion. Prepared meats also found a niche among the salty snack category, evinced by sales increases in this market.

In the late 1990s the red meat industry, which included meat-packing plants and establishments that produced processed pork and beef products, accounted for only 58 percent of the entire meat industry, which included poultry and poultry products, compared to 80 percent a decade earlier. The consensus among analysts is that this shifting market share is due to increasing consumer demand for healthier foods. The shift does not appear to be away from meat, according to USDA data, as red meat production hit an all-time high of 45.1 million pounds in the late 1990s. The prepared food industry continues to formulate new products to meet consumer demands for lighter, leaner, and easier to prepare foods. In the late 1990s the industry introduced no less than 728 new products in the processed meat and poultry category.

Per capita consumption of red meat continued to increase throughout the late 1990s, and studies done by both the USDA and the American Meat Institute (AMI) show that 99 percent of Americans eat meat, and 94 percent eat red meat. Total meat, poultry, and fish consumption has risen by 15 pounds per person over the past decade. The USDA estimates that the average American ate 124 pounds of red meat and 93.6 pounds of poultry in the late 1990s.

Organization and Structure

Prepared meat products are marketed to supermarkets and wholesale clubs, and oftentimes the "store brand" purchased was produced by a large company and labeled locally. The pizza industry (for toppings), food services, and in-store delicatessens make up the rest of the market share. Companies in this category also manufacture private label meats for restaurants.

Meat processors often work closely with vendors from other industries to develop innovative new packaging ideas, mindful of the importance of packaging from a marketing and a practical point of view. Because meat is a highly perishable item, packaging must ensure that the food inside will not spoil and that it will retain its flavor for long periods of time. The packaging must also be convenient and attractive to the consumer. The concept of meeting consumer demands through marketing is reflected in packaging, which presents each product's traits, i.e. low-fat, low-sodium, etc.

In addition to the large national brands, many regional brands of hams, sausages, hot dogs, lunch meats, and other prepared meats are available for family-run companies. A proliferation of processed meat products has put shelf and cooler space at a premium, forcing producers to create niches in major markets and design more convenient and tastier products. The prepared meat industry's practice of creating products and the demand for them that had not previously existed among consumers is part of a larger food industry trend called differentiation. With differentiation, similar foods are altered enough to appear different either in preparation, flavor, or packaging, and are then marketed as new products.

Prepared meat businesses owe much of their growth to the creation of variations, such as premium, economy, flavored, low-salt, low-fat, high-protein, or more convenient versions of a basic meat product. The industry devised creations such as microwaveable bacon and sausages, shelf-stable stews and dinners, low-fat deli meats, frozen microwaveable hamburgers, or cheese-filled hot dogs. Reduced fat products are among the fastest growing markets of all processed meats. Changes in the production of such "healthier" versions to improve their taste and texture have appealed to consumers and have spawned a devoted following.

Costs and prices in this industry are greatly affected by the hog commodities market. Some companies not only operate their own packinghouses, but they also raise hogs in order to avoid the price swings that often occur in the commodities market. When hog supplies increase, manufacturers' profit margins generally expand because only a small part of that savings is passed on to the consumer. When hog supplies decrease, forcing prices up, the manufacturers' profit margin narrows. Another factor affecting price is the strict guidelines aimed at safer meat processing. Techniques required to prevent bacteria and disease have increased the cost of production.

Package Labeling. Nutrition labeling laws designed to enforce the 1990 Nutrition Labeling and Education Act were announced in 1992. The regulations required food processors to provide consumers with additional nutrition information on labels. The rules went into effect in 1995, but most companies voluntarily switched their labels before the deadline.

The new labels require the manufacturer to list the total fat content, amount of saturated fat, number of calories derived from fat, and cholesterol, sodium, carbohydrates, and protein content in its products. According to the regulations, meat processors may use the term "light in sodium" if the meat product's sodium levels have been reduced 50 percent. In addition, the rules defined terms such as "lite or light," "low fat," "fat-free," "reduced calories," "low in saturated fat," "high fiber," and other terms that manufacturers have been using to tout the "healthiness" of products. In order to use any of those terms on the label, food must meet the requirements of the definition. For example, a "low-fat" product must have only three grams of fat or less in a serving. The government also established standard serving sizes for many foods so that food manufacturers could no longer decrease serving sizes in order to meet claims that products were low-calorie or low-sodium.

The regulations were designed to eliminate much of the hype routinely utilized by food manufacturers. Companies that bring in less than $500,000 in annual sales were exempt from the laws. However, it was expected that the entire food industry, including prepared meat businesses, would spend about $2.8 billion on new labels and other related expenses. In addition to the nutrition labels, preparation guidelines on how to safely prepare meat products became prevalent after several prominent cases of E. coli infections occurred during the 1990s.

Environmental Concerns. Many highly processed or packaged meat products provided convenience to consumers, but at a price to the environment. Disposable microwaveable packages free up consumers from dirty dishes, but create more waste. Because of increasing public concern about the problem of garbage disposal, products packaged in disposable containers face growing criticism. Laws that require recyclable packaging could have an impact on the companies that produce some processed meat products. Environmentalists and relief workers also continue to voice their criticism of the meat industry and its use of immense amounts of grain crops, water, energy, grazing areas, and other natural resources in the development of its product.

Background and Development

Many of the companies in this industry began as meat-packing companies and sold nonbranded meat to stores, food services, and meat product manufacturers. They diversified, however, as it became clear that the food processing business was more profitable and less susceptible to swings in commodity prices and that the nature of the fresh pork business was cyclical. A company that processed pork earned 10 times as much on every dollar of sales as a company that derived most of its income from slaughtering.

Many of the establishments that produce prepared meat products also own and run the packing houses that supply them with meat. Hormel, once a large meat packing concern, severely limited its packing operations and concentrated most of its resources on processing hot dogs, cold cuts, sausages, and other prepared meats. In some cases meat manufacturing establishments have leased packing services or have exclusive contracts from meat-packers to supply only that manufacturer. Hormel leased one of its slaughter plants to a pork processing company to operate, but it provided the hogs and purchased all of the plant's prime cuts and processed product output.

Establishments that pack or process red meat suffered in the 1990s, as a result of increased consumer demand for poultry products, which were perceived to be a healthier choice. In 1992 there were 1,264 companies in the prepared meat industry, according to the 1992 Census of Manufacturers. The 1997 Census of Manufacturers has split the industry into two six-digit NAICS categories, 311613 and 311612, making some comparisons difficult. In addition, the number of red meat processors also producing poultry products continues to rise.

Furthermore, companies closed inefficient plants and introduced innovative new products. Companies processing red meat expanded into other product areas, especially poultry, through acquisitions or mergers. Meat packers diversified, shifting attention from meat packing to processing of low-fat cold cuts and other meat products.

Current Conditions

As a result of consumer demands for healthier prepared-meats, meat processing companies introduced many "light" or "low-fat" versions of popular products. Chicken or turkey cold cuts and hot dogs stole market share from beef and pork products. According to Marketing Intelligence Service, Ltd. and reported by AMI, "more than 50 percent of the product lines in the lunch meat and hot dog categories contain a reduced fat or nutritional claim. The extra low-fat (97 percent fat-free) hot dog and bologna market has grown by more than 21 percent."

It is likely that processors will continue to diversify their product offerings. Additions of low-fat and flavor enhanced products along with faster, easier, and healthier prepared meats helped the industry grow despite slowdowns in other meat markets in the late 1990s. Sales of bacon have declined, in all probability because of bacon's fat and cholesterol content; sales of bacon in restaurants remained steady, however, suggesting that consumers allow themselves some leeway in their quest for a healthier diet. The introduction of "lower salt," "reduced fat," and "fat-free" bacon should help compensate for this trend.

In any event, the increased emphasis on healthy nutrition has revolutionized the prepared meat product industry. Philip Morris's Oscar Mayer Foods Corp. cut nearly 300 slow-selling products, dropped prices on bacon, hot dogs, and bologna, and added light bologna and turkey bacon as part of an ambitious low-fat lunch meat line. ConAgra's Armour Swift-Eckrich Inc. subsidiary continues to enhance its line of Healthy Choice brand lunch meats and hot dogs to compete against Oscar Mayer's Healthy Favorites and a Weight Watchers lunch meat line, produced by Hillshire Farms, which is owned by Sara Lee Corporation.

In 2002 sales of refrigerated dinner sausage exceeded $1.4 billion, up 7.8 percent from 2001. Frozen sausage sales totaled $190.8 million, up 11.3 percent over the previous year. Breakfast sausage sales rose to $864 million, up 4.4 percent. More than 20 billion hot dogs were consumed in the United States in 2001, according to the National Hot Dog and Sausage Council.

ConAgra's Healthy Choice line of products has grown steadily since its introduction in 1988. As of 2003 there were more than 200 products in the line. The Healthy Choice products include beef, pork, and poultry-based meats. It is sold in prepackaged form as well as at supermarket deli counters; the company also plans to market it to food services. Company officials from Armour Swift-Eckrich predicted that its new line of 97 percent fat-free lunch meats would expand the existing market by turning light users of lunch meats into medium and heavy users, possibly reversing a trend away from lunchmeat sandwiches that confronted the industry and sent processors looking for convenient substitutes to entice "brown baggers."

Industry Leaders

A majority of widely recognized processed meat brands are now owned by large conglomerates, and many of them started out as small, regional, independent meat-packing and meat processing companies. Three national industry leaders are Sara Lee Corporation, Hormel Foods Corporation, and Oscar Mayer Foods Corporation, a subsidiary of Philip Morris Companies, Inc. There are still many localized companies, but their sales only account for a small percentage of total industry sales.

Sara Lee Corporation (known as Consolidated Foods until 1985) was one of the largest meat processing establishments in the United States. Sara Lee held the number one position in sales in three of the major categories of packaged and processed meats. The company's Hillshire Farm smoked sausage product commanded a 38 percent share of the $1 billion retail market. Its Jimmy Dean breakfast sausage and Ball Park hot dog brands each owned a 22 percent share of their respective billion-dollar markets. Sara Lee also boasts a number of very strong regional brands, such as Bryan, Kahn, and others. Sara Lee had total sales of $20.012 billion in 1999.

With the purchase of Kraft General Foods in 1988 for $12.9 billion, Philip Morris acquired Oscar Mayer and Louis Rich meat products. In 1998 the Oscar Mayer division of Philip Morris had revenues of $17.3 billion, and 99 percent of North Americans consumed a Kraft Food product, according to the Kraft Foods Web site. One of Oscar Mayer's products, Lunchables, a prepackaged lunch in a box, was marketed toward parents. Containing lunch meat, crackers, cheese, etc., it was to be the ideal "take along" lunch for school children. In 1996 and 1997 various consumer advocate groups claimed that Lunchables were too high in fat to be considered a nutritious lunch. In response to consumer demand for lower fat products, Oscar Mayer is phasing out its line of Healthy Favorites low-fat luncheon meats and replacing them with a fat-free lineup.

Conglomerate agribusiness ConAgra had total annual sales of more than $24.5 billion in 1999 and employed more than 82,000 people in 35 countries. Con-Agra acquired Armour from Greyhound in 1983, and Swift-Eckrich from the Beatrice Co. in 1990. Armour and Swift-Eckrich became a single subsidiary of ConAgra, which manufactures Sizzlean, Swift Premium Brown 'N Serve Sausage, and Eckrich sausages, as well as other Armour and Swift products. Before the acquisition, Swift had been the third-largest manufacturer of processed meat after Oscar Mayer and Sara Lee. ConAgra also owns meatpacking companies Swift Independent Packing and Monfort, and continues to acquire smaller companies, such as Gilardi Foods in 1998.

George A. Hormel & Company was founded in Austin, Minnesota, in 1891 as a slaughterhouse and retail meat products shop. Its earnings for the first year were $220,000. About 100 years later, the company name was changed to Hormel Foods Corporation, reflecting its change in focus from a packing and meat company to a food processing company offering meat products, frozen foods, and microwaveable products, as well as branded fresh pork and beef. One of the most widely recognized products from the line is SPAM, a pork-based luncheon meat in a can. Hormel was one of the few older meat companies that remained independent after a wave of takeovers in the 1980s. It had sales of $3.35 billion in 1999.

Hormel became known as the industry's innovator in the late 1980s. It was one of the largest meatpackers in the country, but its president, Richard Knowlton, closed many of its slaughtering facilities in the 1980s and began focusing on producing processed and branded meat products. Since the early 1980s, Hormel's hog slaughter capacity has been cut 75 percent. The portion of its revenues generated by prepared meat and other food products rose to between 65 and 75 percent.

In the first half of the 1980s Hormel introduced two or three new products annually. In one 18-month period during the second half of the decade, however, it introduced 134 new products, including those made from chicken, turkey, and fish. In 1986 Hormel acquired Jennie-O Foods, the nation's largest privately owned turkey processor. New products to enter the market in the 1990s included JENNIE-O spiced and marinated turkey fillets, HORMEL ALWAYS TENDER fresh pork, microwave bacon, turkey pepperoni, turkey chili, and fat-free hot dogs.

Like Hormel, Smithfield Foods was an independent company, but on a smaller scale. It initially produced only pork products, and it spent a fraction of the more than $70 million on advertising that Hormel spent. In 1999 it has become the world's largest hog producer and fresh pork processor, with sales totaling over $3.7 billion.

The name recognition of Smithfield canned hams enabled it to diversify into production of hot dogs, bacon, sausages, and lunch meats from its main pork-packing operations. Smithfield continued to grow and expand its operations throughout the 1990s both nationally and internationally. In 1999 it bought Tyson Foods' pork operations for $80 million.

Thorn Apple Valley, Inc. was one of the largest producers of customer-owned private label meat products, as well as one of the largest regional producers of bacon, hot dogs, lunch meats, and smoked sausages. Due to difficulties in the pork market, Thorn Apple Valley declared Chapter 11 bankruptcy in 1999 and was acquired by IBP Inc., which has become one of the nation's largest producers of meat products. IBP Inc. sales for 1999 exceeded $12.8 billion.

America and the World

For many foreign companies, the new label laws created by the 1990 Nutrition Labeling and Education Act were difficult to comply with because businesses were not accustomed to providing such complete product content analyses. Although the labels could be considered a barrier to trade and therefore incompatible with the General Agreement on Tariffs and Trade (GATT), it was unlikely that any challenge would hold up, as both foreign and domestic companies had to observe the same regulations.

Meat exports in the 1990s have been strongest to Japan, Mexico, Republic of Korea, Canada, and the Middle East. Difficulties have arisen with economic downturns in Asia and Russia, and a European Union ban on meat treated with growth hormones. Despite these issues, exports continue to be strong, though the USDA Foreign Agricultural Service predicts the markets to be in decline rather than growth, while the Asian markets appear to be recovering at the end of the decade.

Further Reading

American Meat Institute. Cattle and Beef Industry Statistics. Washington, 1999. Available from .

Hoover's Online, 2000. Available from .

Hormel Foods Web Site, 1999. Available from .

International Natural Sausage Casing Association Web Site, August 1999. Available from .

Kraft Foods Web Site, 1999. Available from .

National Hot Dog and Sausage Council Web Site, 2001. Available from .

Prepared Foods Magazine, 1997-2000. Available from .

United States Census Bureau. Annual Survey of Manufacturers. "Statistics for Industries and Industry Groups: 2000," February 2002. Available from .

——. 1997 Economic Census. "Manufacturing-Industry Series," February 2000. Available from .

United States Department of Agriculture. Foreign Agricultural Service. Status of U.S. Meat Product Exports in 1998. Available from .

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