Tyson Foods is planning on investing over $1.3 billion over the next three years in new automation capabilities, according to an announcement on Thursday, as part of the company’s efforts to improve savings and reduce labor costs.
Tyson, the largest American meat company by sales, said that it has invested around $70 million this year and will invest more than $500 million in 2022 as it automates many labor-intensive sections like deboning chicken products. This investment is equivalent to replacing 2,000 jobs, according to David Bray, group president of Tyson’s poultry division.
Pandemic-related restrictions and employee shortages have left many meat processors unable to fulfill demand as the economy starts reopening and customers like restaurants and grocery chains demand a regular supply of protein.
“We are not servicing our customers to the degree that they expect us to,” said Bray, to Reuters. Bray added that the company is looking at slaughtering 47 million birds a week in the near future from the 37 million in 2021, which is only 80 percent capacity utilization. “Demand is outpacing supply.”
On a webcast with investors, Chief Executive Donnie King said that, with the expanded automation systems, the company estimates to save more than $450 million by 2024.
“Automation will help us increase volumes, improve reliability and reduce cost over the mid to long term,” King said on the call. “We plan to use automation to reduce the number of hard-to-fill roles.”
Replacing workers with machines will also resolve the high worker turnover issue faced by many meat processing plants across the country. Around 59,000 workers in the meatpacking sector were infected with the CCP (Chinese Communist Party) virus, according to a U.S. House of Representatives subcommittee report that ran data through January.
Almost 15 to 20 percent of Tyson workers were not showing up for work because of child care issues and pandemic-related problems. In August, the company had mandated vaccines for all 120,000 of its employees in the United States.
Citing inflationary price increases for raw materials, the company hiked product prices, following which, revenues have gone up. Revenues went up by 12 percent to $12.8 billion in the fourth quarter, and earnings have increased to $1.36 billion. This is more than double that in 2020.
The Arkansas-based meat company is also in expansion mode as it plans to open 12 more plants over the next two years. This will increase its capacity by about 1.3 billion pounds of meat.
Besides automation, Tyson is also spending heavily on digital technology like artificial intelligence and predictive analytics which it estimates will save about $250 million as efficiency is optimized in logistics, operations, and supply chain management.
Tyson stock has gone up 30 percent this year, surpassing the S&P 500 which is up by 24.7 percent.
“We are focused on improving our process effectiveness across our broader operations and functions. Our new productivity initiative is designed to drive a better, faster, and more agile organization that is supported by a culture of continuous improvement and faster decision making,” said King.
By Naveen Athrappully