Joining Forces

By Barbara Young, Editor-In-Chief
Photos by Vito PaLMISANO
Marriage between Smithfield Packing Company and Gwaltney of Smithfield Ltd. produces the new name of Smithfield for a stronger and more efficient operating lifestyle.
Integration has defined Smithfield Foods since the word attached itself in the mind of Joe Luter III, who sees it as the key to his more than three-decade-long quest of building a pork business empire. The best dreams can illuminate a path to greatness. Conversely, a vision is merely a beginning that depends upon smart execution. So it is that Luter’s initial vision, related to reaching new heights with the pork business his father and grandfather started and operated when he was a child, is reshaping itself with a futuristic flair.
To be sure, Smithfield Foods Inc. is now much more than a pork processing business — it is a global food processing and marketing operation whose meat portfolio includes not only pork but also beef and a family of value-added products featuring meat and chicken as ingredients.
The company survived near bankruptcy in the ‘70s to become a leading regional meat processor the next decade, going on to earn a reputation as the nation’s No. 1 pork processor, claiming 20 percent of domestic slaughter by processing more than 19 million hogs a year. The journey from near ruin to global marketing power is tied to business acquisitions and vertical integration on the producer side, representing the twin heartbeats of Smithfield Foods. The vertical-integration platform helped stabilize the company through commodity-price-swing cycles while also facilitating economies of scale.
This report reviews the pork side of the VA-based business seeded as Smithfield Packing Company, christened as such in 1936 by the founding Luters. Smithfield Packing grew into the tree known as Smithfield Foods, from which several strong branches sprouted over the years fed by strategic acquisitions and enlightened marketing maneuvers. Its 1981 acquisition of Gwaltney of Smithfield Ltd. represented a pivotal move related to the company’s growth strategy. Between them, the two companies established the corporate approach based on independent operating companies. Smithfield Packing operates with 9,330 employees, generating fiscal 2002 annual sales of $1.9 billion. Meanwhile, Gwaltney and its force of 3,780 produced $650 million.
Smithfield Foods moved its growth-through-acquisition concept in house to merge the two units, operating within walking distance of each other in Smithfield, VA, under a single umbrella and named Smithfield.
“Total integration is our continuing focus, and we are starting to see major benefits of our genetics enabling us to produce value-added products,” confirms Timothy Seely, formerly president of Gwaltney and newly appointed president of the combined companies. Notably, Luter, now Smithfield Foods chairman who leaves day-to-day maneuvers in the care of his executive team, chartered a 747 to bring 2,000 British sows to Virginia to begin a breeding pool to grow leaner-than-American-raised animals. More than half of Smithfield products come from their descendants. That acquisition positioned Smithfield in the forefront of marketing to a health-conscious generation. The recent merger between Smithfield Packing and Gwaltney, although somewhat a departure from the IOC concept that has been the foundation of the parent corporation, is a streamlining measure.
“The new company will undergo modest change, as duplicate staff operations merge in a significant cost-saving move,” Seely reports. “This is an opportunity for substantial cost reduction, and our goal is to merge virtually all duplicate staff functions of the two companies into one. This does not affect other categories, however. The main rationalization applies to consolidating our manufacturing facilities and creating behind-the-scenes efficiencies.”
Tying the knot to grow
As Smithfield Packing and Gwaltney fade into obscurity as company monikers, their parent company begins feathering its nest to welcome the birth of a brand new name to the family. Smithfield not only ties the two units together for operational and administrative purposes, it also represents a new approach to cachet product branding. In other words, all bets point to Smithfield as a brand gaining the kind of recognition and consumer awareness perhaps on par with the likes of Levi, Pepsi, Ford, or Microsoft.
“The future is bright for marketing branded pork,” notes James Schloss, corporate vice president of marketing, Smithfield Foods Inc. “As a company, we must market it aggressively. Shareholder value and marketshare growth are the reasons Smithfield will continue with brand marketing.”
For Schloss, this means nurturing and promoting elite branded products such as a new initiative called Flavoré developed by Buffalo Grover, IL-based Smithfield Innovation Group (SIG) under the direction of Chef Michael J. Brando. The product culminates the joint venture between SIG and Smithfield’s RMH Food Group headquartered in Morton, IL, also the processing site.
“We are watching consumers and we don’t see meal preparation on top of anybody’s list,” Schloss says. “On the stove top or in the oven, that’s where we’re stuck. Then you get one shot at the customers, so taste is the challenge along with accurate and appealing packaging.” The chef-inspired entrées include fusions spice packets. Varieties comprise Italian Meatloaf with Asiago cheese in marinara sauce, Italian Meatballs with fresh penné pasta, Mexicana Pork with fresh rice, Southwestern Meatloaf in a chipotle sauce, Island Chicken in a Caribbean sauce with fresh rice, Chicken Alfredo with fresh penné pasta, Beef Burgundy with fresh penné pasta, and Yankee Pot Roast with gravy.
 Integrating foodservice personnel of Smithfield Packing and Gwaltney under the leadership of Joseph Luter IV, a corporate executive vice president, also combines sales and marketing teams. “This is a channel we expect to grow fifteen percent per year and we must have a superior organization in place to drive this growth,” Luter IV says. “Smithfield Foodservice Group will deliver immediate benefits to customers, including expanded product offerings such as cooked and processed meats, as well as additional fresh pork.” He says the group also is positioned to offer additional sales professionals to help develop new menu ideas and product category experts to assist with new product development and effective marketing plans. “This new organization is all about enhanced customer service,” he concludes.
A strong blend
As Seely explains, merging the two units gained more than combined staffing to eliminate duplications, the move also allows for the creation of a pork division fueled by sales forces for fresh meat and fresh-meat manufacturing. “The retail sales forces of the two companies remain as separate functions,” he stresses. “Focusing these dedicated sales forces intently on our retail customers is vital to the health of our brands — none of which are eliminated in the merger.” The current structure divides the organization into separate functions targeting retail, foodservice, deli, and processing.
“We created separate and dedicated brand specialists,” Seely concludes.
Reshaping at the administrative level not only creates an organization chart identifying individual functions and responsibilities, but the move also matches talent and expertise to specific jobs. “Bringing the best of two worlds together is a unified and consistent approach to using best practices,” summarizes Sherrie String, vice president, human resources. “Leveraging knowledge and strengths cascades to personnel, the result being better production on the plant floor, for example.”
C. Larry Pope, corporate president and chief operating officer, sees the major benefit in joining the two operations in financial terms. “As retailers continue to consolidate, we must continue to take costs out of our system,” he says. “This merger allows us to reduce administrative costs while maintaining our high quality of products and world-class consumer service. We will achieve additional cost savings through better utilization of our manufacturing, logistics, and distribution functions.”
Enumerating benefits, Jeff Sullivan, vice president of retail sales, says the new approach allows Smithfield to be a least-cost operator, to focus on valued-added product development, and increase support for sales efforts in servicing categories. “These help drive pork consumption and growth, whether for fresh or smoked meats,” he says.
 Notably, however, the unifying measure primarily benefits the back end of the operation differently than was doable before the merger. “The hardest part of managing growth is keeping the back side of business on track,” confirms Michael Riley, vice president, sales and business development for the Smithfield Foodservice Group. “Now we will have fewer invoices, fewer sales people, and less paper work. All these reductions give us the chance to provide a broader product line than possible previously. Our strategy is still account penetration-based, but the move helps us to be a stronger partner to meet this. We see ourselves as pork experts.”
Impact on production
Smithfield pork plants operate in Maryland, Florida, Virginia, and North Carolina. The unification between Smithfield Packing and Gwaltney also changed processing strategies. “Combining the two operations made us large enough to better supply our customers,” notes David Filson, senior vice president of operations. Capacity is another issue of concern, especially for Ron Marsh, president of retail sales and marketing for Gwaltney products. “We’re operating at capacity in the bacon and spiral ham plants,” he reports. “Bacon is a growing category at retail. With the change, we now have access to all raw material produced by Smithfield. We’re no longer limited to what we slaughtered as an IOC.” NP