Lure and Lore
July 1, 2004
Lure and Lore
By Barbara Young, Editor-In-Chief
Photography by Vito Palmisano
Marriage between Smithfield Foods and Farmland Foods, two colossal pork-industry firms, came from a courtship based on mutual attraction – both businesses beat considerable marketplace odds to earn competitive strength.
Bringing home the bacon conjures a range of meanings and images in the world of commerce. For Kansas City-based Farmland Foods, it has and always will mean employees operating like a family in building a pork business with heart and soul.
Although not in those exact words, that is how George Richter — whose first meat-industry position was on the science, research, and development sides — characterizes the business under his leadership since 1998. As an industry captain, Richter led his soldiers through the best of times and the worst of times. Through it all, he held onto the basic precept defining his nature. “Don’t make this a story about George Richter,” he firmly admonishes. “I won’t be part of a cover picture of the executives of this company either. We [executives] are a small part of why this company is strong and viable.”
Thus began the negotiations, ending with Richter getting his way. As he explains it, Farmland Foods — yielding $1.6 billion in annual sales — is an organization of 6,123 people, who vowed to sink or swim together no matter what. A skilled negotiator understands the value of compromise. To that end, a select group of employees drew the short stick to represent the essence of their comrades, no matter where they conduct company business — in office cubicles, at three slaughter plants, or one of six processing facilities — for the cover photo shoot
This is their story, for they are the “new” Farmland Foods operating in the wake of an ownership change following two years of struggle under the constraints and stain of bankruptcy forced upon Farmland Industries, the firm’s previous parent company.
On a blusterous day this year in early May, the twitter at Farmland Foods’ corporate headquarters near the Kansas City, MO, international airport was palpable as preparations unfolded for the ceremony marking the public christening of the company as a Smithfield Foods independent operating division.
C. Larry Pope — president, of the VA-based legacy bequeathed to Joe Luter III, chairman and chief executive officer — headed the list of guest speakers including U.S. Representative Sam Graves, among other dignitaries.
“We are grateful that Smithfield recognizes the importance of Farmland to the region,” says Graves, who serves on the congressional small-business-in-agriculture committee, adding that the company’s presence is especially critical in ensuring support for hog producers.
His message is not lost on Pope, who acknowledges the mutual benefits in the deal. Farmland’s profitable contribution boosted Smithfield’s quarterly earnings immediately, Pope reports. “You shared useful information with us enabling Smithfield’s stock to climb to a fifty-two-week high, suggesting you had an important part in that.”
Moreover, Farmland’s credits include helping Smithfield increase its overall branded meat marketshare with a 25-percent contribution.
“You can count today as one of those Kodak™-kind-of-moments, among those certain times you want to remember,” Pope proclaims to the music of the ruffling wind. “Not only is your tomorrow secure, but so is your future. In six months with Smithfield Foods, your organization is the most profitable of all Smithfield Foods divisions. Joe [Luter III ] looked George [Richter] in the eye and told him ‘we won’t let you down.’ Farmland Foods then proceeded to exceed all our expectations to its bottom line.”
Pope reviews Smithfield’s promises concerning its latest acquisition — one of 25 since 1981 — including a commitment to honor union and hog supplier contracts, retain the entire labor force, continue operating all processing facilities, and finally to maintain the current base in Kansas City.
“All we had to do was open the barn door and say ‘go horse’ and you did,” Pope concludes.
There is no mystery about Farmland Foods’ formula for business success as James Sbarro, senior vice president of sales and marketing, explains.
“We are problem-solvers and opportunity seekers,” emphasizes Sbarro, who came to Farmland Foods with its 1991 acquisition of Carando from Dubuque Packing Company. “We deliver great value sets, not the highest or lowest, but value that far exceeds our closest competition. As a company, our growth in volume and profitability is measurable based on ACV [all commodity volume], which is very healthy in several categories.”
The categories include commodity items; fabricated, branded, and case-ready pork; smoked ham; bacon; processed sausage; deli products; beef products; and fresh sausage.
Sbarro says Farmland Foods redefined its marketing strategy five years ago to compete as a value-added product company capable of delivering quality and consistency on a daily basis.
“We believe in visibility at the customer level, that means our product managers are in the field up to half of the time working with customers showing them solutions and helping them grow their businesses,” he says.
Farmland Foods recently introduced a new fresh pork line under its Nutrition Wise™ brand, featuring the American Heart Association (AHA) certification at this year’s Annual Meat Conference in Nashville. The line includes fresh pork cubes, strips, chops, loin roasts, and tenderloin, each in net weight, scannable packaging. The red heart and check mark signifying AHA guarantees the products’ fat-free percentages, grams of protein, and carbohydrate in a 4-ounce (112 grams) uncooked serving. These made-to-order selections, enhanced for tenderness and juiciness, offer a 32-day shelf life from date of production.
Farmland’s distribution channels divide between retail, foodservice, and international. Foodservice represents the marketshare leader in terms of volume and margins with bacon and ham as most popular buys, thanks to business with such customers as Subway and I HOP. Meanwhile, international business — with countries including Japan, Mexico, Russia, Korea, and China —is growing in the double-digit range due to continuing acceptance of Farmland’s strength in delivering genetics and customized products of primarily value-added fresh pork cuts.
“We had to remarket our retail business in light of the shrinking customer base in that arena,” Sbarro says. “We’re chameleons capable of adapting to changing customer needs. Sure, we are a big company, but we are [nonetheless]very focused on big and little customers alike. We have to be nimble. We know our expertise and use a target approach, meaning where we see growth is where we put our capital.”
The lieutenants and their roles
It is said that people don’t follow titles, they follow courage.
The foundation of Richter’s management creed is visible and hands-on leadership.
The foundation of Richter’s management creed is visible and hands-on leadership.
Standing rock solid behind him is an administrative team with more than 75 years of combined service at Farmland Foods, not counting their tenure in related fields and other meat-industry operations including ConAgra Inc., Dubuque Packing, IBP inc, Troyer Foods, Oscar Mayer Foods, Swift & Company, and Excel Inc.
Exceptions include Kevin Neal, vice president of human resources, who came to Farmland in 1999 from the garment industry, and Marc Kuemmerlein, vice president and general counsel, joining Farmland in 1998 leaving a law firm where he practiced general corporate law.
Although the top executive sets the tone governing personnel policies, morale, and business philosophy, success depends upon commitment and support from the troops down the line.
“The bottom line is that leadership can accomplish more than what the science of management prescribes,” confirms John Allis, senior vice president, fresh pork operations, with Farmland since 1997. “When you don’t treat your talent well, your competitors benefit from your shortsightedness. We are all passionate about people in our organization. None of us accept treating people other than with dignity and respect.”
Smithfield Foods acquired the Farmland Foods assets for $460 million. “That is the value all the people put into the company,” Allis stresses.
Imagine receiving a letter from the top executive at your parent company informing you “the losses incurred through the second quarter, coupled with a delayed start to spring fertilizer season and scheduled maintenance on our Coffeyville refinery, have made our cash liquidity very tight at this time.”
That’s exactly the news more than 14,500 worldwide employees of Farmland Industries, the largest farmer-owned cooperative in North America with annual sales of $11.8 billion in fiscal 2001, received in April of 2002. Although the company’s grain and fertilizer businesses contributed significantly to its cash-flow problems, its food businesses continued to turn a profit.
Slightly more than a month later on May 31, a second shot came with the firm’s announcement of its petition before the Bankruptcy Court seeking an “automatic stay” under Chapter 11 bankruptcy codes from lawsuits and other debt-collection tactics during reorganization efforts.
“My first thought focused on whether employees and customers would still be with us on Monday morning [following word of the bankruptcy petition],” recalls Tim Schellpeper.
Schellpeper, then plant manager at Farmland’s flagship plant in Crete, NE, moved to corporate duties as vice president of distribution and logistics in 2002 to provide leadership in meeting changing customer requirements related to barcode and warehouse distribution programs. Radio-frequency identification (RFID) is of particular interest.
“We actively monitor technology and such business costs as rising energy prices,” Schellpeper says. “Our role is to uphold certain expectations of our customers yet challenge ourselves to lower costs.”
Operating efficiencies enabled the food division of Farmland Industries to produce profitably long before the full onslaught of its bankruptcy woes, as Richter explains.
“Farmland Industries was fundamentally a sound business caught in a perfect-storm-sort-of-situation,” Richter says. “We learned from going through bankruptcy that these people [at Farmland Foods] can weather anything. We never lost a customer or supplier, all the people stuck with us, and the labor union offered extra help.”
Even so, nobody at the “new” Farmland Foods would likely welcome a repeat of the years between bankruptcy and the Smithfield Foods buyout, which is not to say they have retired their “can-do” attitudes.
“Everybody’s goal at the end of the day is to be financially successful,” Allis concludes. “We’ll do what it takes to get there.”