Strategies for 2009
“A lot of commentators are saying we'll pull out at the end of '09,” said Dr. Paul Aho, a consulting poultry economy who spoke about the global market at the International Poultry Exposition in January. “That's what is called wishful thinking, based on nothing.” Instead, he advised the gathered processors to include in their contingency plans the possibility that the recession won’t end until 2010.
Aho was speaking to the poultry industry, which has seen more than its share of troubles in the past year. However, some of the same problems â€” gas and feed prices â€” affect the red-meat side of the industry as well.
Scott Downing, president of the Southeastern Meat Association, says that meat prices haven’t really risen for commodity items in years. The falling profit margins were part of why Downing’s family business, Lowell Packing of Fitzgerald, Ga., ceased operations in 2004. He notes that the prices Lowell Packing was getting for a fresh pork loin in 1985 was $1.13.
“My brother is still in the meat business, and I know he paid about a buck for pork loins,” Downing says. “The margins that you work at made it where it wasn’t feasible to keep pouring money into [Lowell Packing], even though we were making money at it and were successful.”
According to Downing, federal and state regulations put considerable pressure on a small business.
“We answered to about 32 different regulators organizations,” he says. “That’s 32 acronyms â€” DOT, EPA, EPD â€” and every one of them expects you to consider whatever the item they want to be the most important thing that you do every day. In any business, the most important thing that you can do is to take care of profits.”
In spite of the challenges facing processors, there remains some sense of hope. David Sutton, owner of Newhall Locker in Newhall, Iowa, says his state-inspected business grew from 8 to 10 percent last year. The company does custom slaughter and further processing as well, producing everything from smoked meats to wild game.
“I think  is going to be a good year,” Sutton says. “People are going to want to stay at home more and try to not have the expense of going out and save a little bit of money by eating at home, which would help the small processor.” Sutton believes that the home freezer may be coming back, where people buy and store meat for future home-cooked meals.
Michael Strauss, president of the North American Meat Processors Association and director of Colorado Boxed Beef, has also noticed the shift from how consumers are spending their dollars, as well as how those foodservice dollars are spent.
“Some of the high-end steakhouses continue to do well,” he says, pointing out that people continue to visit those types of restaurants for ‘event dining.’
“But there is a shift in foodservice, to basically trade down a little bit,” Strauss says. Some of the dollars spent in high-end restaurants are moving to the medium level, and dollars from the medium level moving down to fast food.
A new AdministrationOne of the biggest changes in 2009, naturally, is the new Obama Administration in the White House and the U.S. Department of Agriculture. Barack Obama came to the White House with a tremendous amount of hope behind him (along with a sizable amount of doubt, to be sure), and he has his work cut out for him.
“As the administration gets a handle on the economy, one would hope what returns quickly is consumer confidence,” Strauss says.
While the Undersecretary for the U.S. Department of Agriculture has not been announced as of this writing, Tom Vilsack has been appointed the USDA secretary. Vilsack is the former governor of Iowa, and Sutton praised his handling of the Iowa state inspection system.
“Our state program is really strong, very close or equal to the federal guidelines. Our state inspection staff is a very good staff, and they do get a lot of training,” he says. Sutton adds that the state colleges have been at the forefront of new regulations.
“I believe Vilsack has somewhat of a handle on what the farm, agricultural and meat industries can do for the United States,” he says.
Strauss expects continued vigilance in the Obama Administration’s food policies, and notes that the industry’s meat associations have worked well with the USDA and Food Safety Inspection Service in the past.
“We had a strong, mutually rewarding relationship with Dr. Raymond [Richard Raymond, the former undersecretary], and I think we would anticipate the same under Secretary Vilsack’s Undersecretary,” he says.
Both Obama and Vilsack have professed their belief in ethanol and increasing its usage, while noting that the ramifications for the meat industry and price of feed are troubling. Sutton says the farmer who sells corn and grain to an ethanol plant is immediately paid, but the farmer who uses that grain to feed animals for food has many other costs before he can sell the animals.
“It’s making it hard for the small farmer to make it profitable to feed the grain, when they can take it and sell it straight off to an ethanol plant and not have any further expense,” he says. “When you can make just as much by selling it for ethanol as you can by putting it into beef and trying to make extra money off of it, it’s a no-win situation for the meat industry.”
Strauss says he believes that the Administration has seen the impact of the current ethanol policy on food prices and points to alternative ethanol forms as a potential. However, he adds, “I think there’s quite a bit of work to be done to see second-generation products, the cellulose products used in ethanol.”
Survival strategies - AcquisitionsEvery processor is or has come up with strategies for the coming year, ways to remain profitable if not grow the business in some way. Naturally, these strategies can change at the drop of a hat â€” was anyone planning on $4 gas or $7 corn last year? â€” but there are ways to put your company in a good position for 2009 and beyond.
Many companies may hold on tightly to their capital and avoid spending any more than is absolutely necessary in order to ride out the economy. Others are more willing to make the right expenditures if it will benefit the company.
Last May, Old World Provisions of Albany, N.Y., acquired Fritz Helmbold, of nearby Troy. Helmbold is in the German sausage and hot dog business, while Old World Provisions provides New York deli-meat products, including pastrami and corned beef.
Mark Shuket, president of Old World Provisions, says that the acquisition increases the company’s product line and adds capacity.
“With the way things are today with the economy and costs, we felt the best thing we could so for our company is to complement it with other products and increase sales, which is clearly working,” he says. The other reason for the purchase, he adds, is that Helmbold’s facility was located on five acres of land, while Old World Provisions is pretty much landlocked in its current location. “This gave us the opportunity to expand our processing and distribution.”
The Helmbold operation has grown from when Old World Provisions acquired it, from eight to 15 employees. A skinless hot-dog line has started up to go with its natural casing business. Furthermore, Shuket says his business has grown just from being able to offer an expanded product offering to Old World’s existing customer network.
The acquisition has paid off dividends to Old World Provisions, but that company had definite plans on how the Helmbold operation fit into its business strategy. Deborah Douglas, managing director of The Douglas Group, an Atlanta-based consulting group, says that the buyer needs to be certain that the company to be acquired fits with its current operations.
“Great fits can be companies that add a new and important category or ‘type’ of customer to the buyer’s track,” she explains. “They can be companies that add new products to the existing mix. They can be companies that add an important and special management of technical talent, which was weak for the buyer before the transaction. The object of the game is to find places where 1+1=3.
“Frankly, it is this strategic ‘fit’ that makes more difference than anything else in the likelihood (or not) that the acquisition will be viewed positively three years or five years after it’s done,” Douglas adds.
Shuket didn’t set out to make an acquisition last year, but he saw the opportunity, evaluated it, and made the decision to acquire. He believes that many companies who are getting older may be looking for an opportunity to get out of the business.
“I think you’re going to see a lot of small companies without exit strategies and succession plans, and they’re going to be looking for somebody to help them transition and be able to retire and get out of the business,” he says.
For companies looking to get out of the business or become a part of a larger operation, Douglas says there are four things that buyers try to discover very quickly in the process.
1: Can the company survive reasonably without the owner?
2: What is the prognosis for future sales and growth, and are there areas where the company has significant opportunity to prosper and improve in the future?
3: Does the company have reliable financial information, which I can review as I consider sale?
4: Is this a company which is likely to “move” quickly? (How aggressive will I need to be to ensure that I have a chance to make this acquisition?)
“Buyers inevitably work very hard to carefully assess the potential for continued enhancement of any business they buy, into the future,” Douglas says. “If your customer base is growing, that is a comfort. If you deal with a strong range of customers and don’t have too much dependency on any one or any few, that is a good thing.” Even a weakness can be turned into a plus, she notes. For example, a company doing relatively well with a small sales force or a lack of technology could really soar with some enhancements.
Strength in numbersDowning acknowledges the tremendous responsibility that processors have in keeping the food supply safe, and the government’s only way to control it is to be in the plant at all times.
“That kind of regulatory pressure,” he says, “is a real problem, especially for the independent guys, because we’re expected to maintain the same standards as the large guys. For me, I was the HACCP coordinator at [our] plant, but I was also the plant manager.” He notes that large companies can afford to have a HACCP team, but more often than not, it means someone in a smaller operation has to add on more responsibility.
Downing recommends that smaller meat processors join some kind of association to help get assistance in these and other matters.
“[An association] has professional members that can help you with your issues,” he points out. “It’s almost impossible to stay up to date with the issues, although the government expects you to, so you really need somebody you can go to for validations for your HACCP programs, to get reliable information, and to have folks lobbying for your side.”
Strauss says that having an association like the North American Meat Processors Association (NAMP) working with a company can help that processor navigate a turbulent economy.
“I’m an optimist when it comes to the opportunities that exist for NAMP companies around the country,” he says. “NAMP members are experts in center of the plate and are well-placed to help their clients satisfy their needs for hitting price points, menu development and having a collaborative relationship.”
Having representation who can speak directly with the USDA can pay dividends, Downing notes. He says that several times, he traveled three hours to the USDA office in Atlanta to talk about some regulation or ruling that affected Lowell Packing.
“It’s a lot harder for them to make snap decisions that affect your life when they have to look at you in the face,” he says.
Along with the regulatory assistance, Sutton also mentions another key reason to be a part of an association â€” the networking.
“Talking with other processors all over the country through our association has given me a lot of good ideas on how to run my business, how to merchandise and market my business,” he says. “If you can bring something new and exciting to your area, sometimes that’s a little niche that can help you.”
Finding a niche in the marketplaceWith all the competition that comes from nationally distributed processors, as well as other local companies, it may seem like there is no way to make a name for oneself on the market. While it may not be easy, finding a niche in the marketplace where other companies don’t operate is a good way to ensure repeat customers and continued profitability.
Located in Moultrie, Ga., and with two retail stores in Cordele, Ga., Stripling’s General Store has been a successful family-run business for 45 years. The company oversees every aspect of its operations, says Clint Goss, plant manager.
“We’ve got a farm that raises our hogs for us to our specifications. Our federally inspected plant in Moultrie has a kill floor on it, and we kill our own hogs two days a week and make our sausage on-site,” he explains.
Goss says the company still makes its sausage products the same way it has for generations, a whole-hog country sausage, made with hot meat from freshly killed hogs. Other companies, he says, use refrigerated meat that they get from an outside source and grind up. He compares the two products to seasoning a hot steak and a cold steak.
“When you pour seasoning on a hot steak, it soaks it right in. If you pour seasoning on a cold steak, it just sits there. It’s not going to go anywhere,” he explains. “The hot-meat sausage tends to soak up those flavors a lot better.”
Stripling’s sausage also has a finer grind than other sausages, where particles are more easily defined. Goss says the taste between the two types is very different. Furthermore, the company’s two general stores and its Web site, www.striplings.com, carry a variety of other products besides sausage, including beef jerky, barbecue sauces jams and jellies, coffee and more. Regional favorites like mayhaw jelly are part of the company’s inventory, but sausage is the company’s best-known product.
“We really feel that is our niche,” Goss says. “There aren’t a lot of people who make sausage like we do anymore.”
Do you have any plans or strategies to ride out the recession? E-mail email@example.com with your ideas.