Capitalizing on Change
May 1, 2005
Capitalizing on Change
“This is not for somebody that wants the cheapest possiblepork loin or bacon.
It is for people who want something very different.”
Growth and business efficiency are twin goals of the Premium Standard Farms management team. Adaptation is its operating tool.
It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change. -Charles Darwin, naturalist and author (1809-1882)
Darwin’s theory is just as true in the 21st century as it was more than 200 years ago, which is not lost on savvy business professionals — such as those in charge of marketing strategies for Kansas City, MO-based Premium Standard Farms (PSF).
Changing to grow continues to define this 17-year-old pork business founded in Mercer County, MO, to produce “pork that is consistently tender, flavorful, and moist.”
Its employee roster includes more than 4,000 people contributing to $928 million in annual sales. Positioned as the second-largest pork producer in the United States with approximately 250,000 sows in Missouri, Texas, and North Carolina — PSF produces more than 3.4 million pounds of fresh pork daily at its processing facilities in Milan, MO, and Clinton, NC. The company’s five feed mills process 1.4 million tons of feed yearly.
Initially, PSF — which started life as a private company that later merged with the pork division of the ContiGroup Companies — owned 80,000 hogs bred through artificial insemination.
As the company began adding building blocks to its business plan, change early on punctuated administrative tactics — including relocating company headquarters from rural Missouri to Kansas City, one of the state’s urban centers.
One thing never changes, however. Premium Standard Farms is a vertically-integrated pork business capable of managing each aspect of its production and processing business.
“Very few people carry that concept involving animal husbandry, mortality loss, and growth rate all the way through to the finished product,” notes Bo Manly, PSF president. “We are very good accountants in this process. We have built up the single-largest integrated program in the United States in a quiet way.”
PSF’s Clinton, NC, facility, formerly the Lundy Packing Company, contributed to the company’s overall success. The company acquired the Lundy business in 2000 and immediately initiated an extensive improvement program.
“We have made tremendous strides in improving the facility and the Clinton integrated pod to align both plants together to replicate quality levels that have been the mainstay of our north Missouri operations for the past ten years,” Manly reports. “That took years after we acquired the assets.”
Changes in North Carolina improved both fresh meat and processed meat operations, such as reviewing the entire processed meat line, its ingredients, raw materials, and new processes, especially for smoked meat.
“Natural smoke offers opportunities because that is where the market is evolving,” Manly notes.
To be sure, PSF is on the move. The latest building blocks, designed to enhance its vertical-integration strategy, takes swine genetics to new heights. Aiming for a customized sireline, PSF partnered with PIC North America, a Sygen Company, to produce a “Premium Legacy” breed.
“The Premium Legacy program further provides a platform that enables constant improvement in the quality of our product to better meet the future needs of the market for consistent, high-quality pork product,” Manly confirms. “The partnership focuses both our organizations on creating a highly differentiated product that exceeds the preferences of our domestic and international customers. We believe we can use the Premium Legacy program and the benefits of improving certain genetic attributes. Color, moisture, internal/external fat content, palatability, and everything down to mouthfeel can be affected by genetics.”
Manly sees other opportunities in using the PSF genetics system. “We can define and determine a true premium product,” he says. “We can then quickly infuse those genetics in our whole system so that we no longer have to select a relatively small cross section of the animal that fit those criteria, but we can produce them across our whole system, or across segments of our system — an example of which is the antibiotic-free program.”
Breeding a hog with highly desirable genetic traits is the only acceptable method to Manly. “You either try to take as much cost as you can out of the system, and produce a value product such as bacon or pork chops or else you move to the other end of the spectrum to find that product niche that people are willing to pay a premium for because it satisfies a whole host of their characteristics— psychological needs that includes things we never talked about ten years ago,” he says. “That is one of the exciting things about the integrated model. You can create an entirely different product for a customer base that didn’t exist fifteen years ago. It is one thing to produce our own pigs that flow through the plant. Some others do that. Very few start with what the customer wants and work all the way back through the system, taking every part of that whole process back to the time before the animal is born and then tailoring that through the integrated process to what the customer wants. This is not for somebody that wants the cheapest possible pork loin or bacon. It is for people who want something very different.”
Summarizing Premium Legacy program benefits, Collette Kaster, vice president of PSF food safety and technical services, says the approach improves traits and reduces variability, which should eliminate sorting issues used by competitors to supply high-end products. “We can offer our customers high-quality and safe pork products on an equal basis,” she concludes.
Another change in the PSF genetic program also involves a partnership with Genetiporc, a Canadian firm with nucleus and multiplication farms that specialize in high-health animals. The partnership arrangement calls for PSF to source gilts from Genetiporc as opposed to producing them internally. In line with its vertical integration, PSF generated its own breeding herd using technologies such as artificial insemination. The company is reshaping that model to instead use hogs bred by Genetiporc.
“This will allow us a more direct conduit to the improvements Genetiporc is making and also better utilizes our assets,” Kaster explains.
Besides genetic improvement, the new arrangement focuses on herd health and biosecurity issues, especially the elimination of risks related to porcine respiratory and reproductive syndrome. Operating farms in isolated regions allows Genetiporc to avoid infiltration of diseases.
PSF began shifting from its internal breeding system two year ago by depopulating and repopulating in Missouri and Texas, with a complete transition to Genetiporc gilts expected by 2006.
PSF gains the ability to produce antibiotic-free pork under the Genetiporc program.
“Our view is that if you put enough expertise into it, you can produce a product that is antibiotic free with no added nitrites that will compete from a taste, flavor, and shelf-life perspective with the best bacon and hams out there,” Manly concludes. “That’s been a key goal. We will never stop working on this. We have to adapt as long as customers continue to evolve. And that is a good thing because every time we recognize change, it offers us an opportunity. If you are quick on your feet, and understand the way consumers perceive their purchasing and consuming habits, and you can adapt to them, you will be successful for a long period of time.” NP
Responding to change
PSF’s product marketing initiatives target an array of fresh and processed pork products to supply premium retail, foodservice, and fellow further-processing customers.
Recently introduced products include the PSF Premium Farms© bacon available in L-boards and fully cooked varieties and a line of fully cooked hams.
“Bacon is a growth category for us,” reports Tim Weiler, director of retail sales, who joined PSF in 2004. “Our retail customers want variety, whether different cuts, pre-cooked, flavored, and different packaging — everything that fits their customization focus.”
Strategically, PSF designs marketing programs to mesh with the needs of its customers. “We work internally to produce the best pork available, while also working closely with all our customers to provide the best programs for their meat case,” notes Richard Morris, vice president of sales and marketing. “We are committed to building, with our customers, solid and long-lasting relationships.”
To that end, PSF caters to customers on an individual basis. “There is no cookie-cutter approach to the way we do business,” Morris emphasizes. “Our strategy involves working with individual retail customers to create customized programs. Our work does not stop when the truck delivers the product.”
The PSF marketing team, headed by Rick Parker, director of marketing since last year in September, conducts extensive consumer research before new-product launches. Besides sensory panels and focus groups for a reading on consumer taste trends, the marketing team sponsors product-sampling programs in stores.
“Telling the PSF story effectively by breaking through the clutter to communicate our point of difference is key,” Parker says. “We do this through superior product quality, terrific packaging, and impactful promotion. We work hard to build our retail partners’ brands as well as PSF brands.
PSF defines its retail customers as independent upscale local chains and regional premier operations.
“I perceive that our market is moving toward the large scale, value-driven merchants and then the specialty retailers,” confirms Manly. “That middle ground of offering pure price-driven value is not, in my mind, a profitable place to try to compete.”