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A bona fide Green Bay packer, Wisconsin's American Foods Group is a mid-sized, privately-owned meat packing and processing company. It is the 18th-largest meatpacker in the United States, primarily handling the slaughtering and packing of cattle. The company also produces value-added beef and processed pork products to meet particular customer demands. Going beyond the normal commodity-boxed beef and ground beef marketed under its own labels, American Foods offers case-ready ground beef in a variety of sizes, fat-content levels and packaging, and private labeling options for major retail and food service accounts. The company also launched the Ackerman & Cooke catalog division in 1999, which offers premium meat products via direct mail and the Internet. In addition, American Foods operates cold storage and distribution facilities. And along with the beef, processed pork, and catalog divisions, American Foods continues to remain competitive with its new transportation division, which manages a fleet of refrigerated trucks to deliver the company's goods.
Although the American Foods Group later came to be known as the largest meatpacking center east of the Mississippi, it was a small operation until about 1985. In 1971, Paul Schanno and Roger Miller bought the Endlich Packing Company in Green Bay, renaming it Green Bay Dressed Beef. They grew the operation from about 35 to 40 head per day to about 150 head per day by January of 1975. The partners bought another slaughterhouse, Huron Dressed Beef, in 1974, and as soon as it began operating in 1975, established the American Foods Group. The company remained a slaughterhouse-only business until 1978. Then it expanded to also include a boning operation, which lasted only for a few years. In 1980, Schanno passed away and Miller then assumed full control of the American Foods Group. Production had grown steadily to about 800 to 900 head per day by the time Miller sold the American Foods Group to the company's attorney, Carl Kuehne, in 1985.
Going Beyond Meatpacking
Many would agree that the competitive edge of American Foods is synonymous with the leadership of Carl Kuehne. After practicing law for about 20 years, Kuehne bought American Foods in Green Bay in 1985. For him, it marked a return to a profession that spans several generations of family members. For the company, it marked a new era in expansion and innovation. Kuehne was instrumental in redirecting American Foods so that it would grow beyond its humble meatpacking focus. Originally composed of two slaughter and processing plants, American Foods grew to become a $600 million dollar company of four plants, two distribution/cold storage centers, a trucking company, and a print and online catalog company.
As past chairman of the American Meat Institute, Kuehne was already attuned to subtle shifts, or opportunities, in the meat business. As head of American Foods, he stimulated product development in an effort to increase retail and food service accounts. He re-engineered the company's infrastructure, honing a team-selling system not often employed in the meat industry. He greatly increased the size of the company. Under his direction, the company embraced the meat industry's case-ready trend early in 1991, providing pre-packaged, labeled, and priced products to retailers from the Wisconsin and Ohio plants before many of their competitors. Employment at American Foods increased to more than 1,700 employees, and the firm made it on the Fortune 500 list of the largest privately held companies in the country. Since 1985, the corporate objectives were to add value by further processing various beef products and to acquire related businesses that would complement its operation.
Innovation and Expansion Throughout the 1990s
The early 1990s marked a time when food processing companies saw company consolidations, budget cutbacks, and stiff competition, which forced many to make tough decisions about how to continue to attract new markets, as well as increase efficiency and production. It was clear that some form of expansion and flexibility was necessary to survive. "Food processing plants have to do more. They must feature quick, adaptable plants or processing lines that enable quick changeovers and can accommodate several products," observed Mike Pehanich, a publisher and editor of Food Plant Strategies, in a statement to Plant Sites and Parks Magazine. American Foods was more than up for the challenge.
But while many companies relocated to rural plants for cheaper land and labor, less stringent environmental regulations, and financial incentives from communities bidding against each other, more companies in the meat industry chose to expand by consolidating into bigger plants. In fact, for decades, the meat industry has shown this trend: In the 1990s, it was roughly ten times more concentrated geographically than in the early 1960s, while the processed meats industry is nearly three times as concentrated.
American Foods found that it was more cost-effective to expand and refit existing plants, and look to its already well trained workers for efficiencies and production-line innovations. Twenty-five million dollars was spent in the mid-1990s to ready the Mitchell, Huron, and Green Bay plants for value-added production. And demand for products was so high that some facilities were expanded more than once to keep up. The Mitchell, South Dakota, cooked-foods facility was remodeled to allow the option of two more smokehouses. The expansion of its beef processing plant in Green Bay, Wisconsin, cost between $8 million to $10 million and increased the plant's payroll by about $200 million. In 1994, the company moved its Golden Valley-based sales office of 32 employees to the nearby headquarters in Green Bay.
Charles Merrick, chief administrative officer of American Foods, explained to Plant Sites and Parks Magazine how labor skills were a major factor in deciding to expand the Green Bay beef plant: "If we had moved, we would have lost skilled, trained employees. In a start up, it takes about one to two years to get the efficiency in your labor force. For example, in our industry, it's important that the worker get all the meat off the bone. New guys might damage meat when doing this, reducing their efficiency. While the labor force can physically be replenished in about six months, it's the lack of experience that hurts operations."
The efficiencies gained by the plant expansions allowed American Foods to increase output, with ground beef production increasing to more than 30 percent by mid-1994 to late 1995. The redesigned facilities also gave the American Foods Group a lot of flexibility to cut orders to specification, a service that put the company ahead of many others and attracted many demanding customers who sought special cuts in custom packaging. And in another effort to improve customer responsiveness, Kuehne launched a shipping line in 1996. America's Service Line was successful, within two months, in bottom-line profit. The fleet not only managed a 98-percent on-time delivery rate, but also provided customers the value-added service of back hauling their vegetables and cheeses.
With the Internet presenting many opportunities for conducting business online, traditional "brick and mortar" retailers increasingly turned to e-commerce ventures to help improve sales during the 1990s. E-tailers, as they were often called, soon saw meat-tailers join their ranks. In December of 1999, American Foods launched Ackerman & Cooke, an Internet and catalog sales division named after Kuehne's European ancestors, who were also well known for their expertise in raising, butchering, and transporting cattle and meat. The new division was an exciting way to expand the company's core business of wholesaling to supermarkets and restaurants to also include direct sales to individual consumers.
"Styled after the old-world butcher shop of long ago," as the company's Web site states, the online catalog offers an appealing way to get fresh, quality meats cut to order, wrapped in butcher paper, sealed in air-tight packaging, placed inside custom cold packs, and shipped right away. Other products available through the catalog include candies, chocolates, and cakes.
Another e-commerce opportunity presented itself to American Foods in April of 2000. FoodUSA.com, a Madison-based Internet start-up, began to bring together meat producers and buyers on the Internet in a process designed to reduce costs and create new selling opportunities for the nation's $100 billion meat and poultry industry. With the start-up showing lots of promise in its first two months in business, raking in $500,000 in revenue, American Foods tested it out as a selling opportunity on a limited basis. But less than one year after the dot-com's debut, it went out of business. Most analysts believe that it was no coincidence that the demise of FoodUSA.com came soon after the emergence of a competitor site, Provision X, backed by meat industry giants including IBP, Tyson Foods, Smithfield Foods, Cargill's Excel, Gold Kist, and Farmland Industries. American Foods has so far not taken part in this other e-commerce opportunity, which may be as well, since the new venture attracted the attention of antitrust officials at the U.S. Justice Department. Even though this e-commerce venture did not pay off, American Foods continued to stand by its traditional sales force.
Labor Issues in Mid to Late 1990s
The plant expansions and new emphasis on efficiency and flexibility proved largely successful for American Foods, but not without some controversy. In the meat industry, narrow margins, along with the relentless goal of slaughtering and processing in faster and better ways, have significant repercussions for employee wages and conditions. While margins in the meat industry were already quite low—meatpacking typically saw a 1-percent margin, while meat processing usually saw a 2 percent margin—American Foods aggressively pursued steady growth with a target of 3 percent return. "During the 1970s and 1980s, when oligopolies were emerging in the processing of beef, pork, chicken, and among other types of fish, workers' wages declined, while productivity and work-related injuries increased," according to Michael Broadway, in the book Any Way You Cut It: Meat Processing and Small-Town America. According to the Occupational Safety and Health Administration (OSHA), meat-processing jobs are among the most hazardous in America. The U.S. Department of Labor's 1992 study on the topic found that in 1990, the probability of incurring an injury in a meatpacking plant was three times higher than for manufacturing workers as a whole.
Still, American Foods recognized that safety was a critical condition of work and could point to relatively positive statistics when it comes to work-related injuries: Even though the employee count grew by 50 percent from 1992 to 1995, for example, total injuries went down 4 percent. In addition, total loss-time injury went down 24 percent; lost days due to injury went down 52 percent; late duty days due to injury went down 23 percent; repetitive trauma cases went down 10 percent; and total lost-time illness went down 44 percent. Such conditions are, no doubt, a credit to the employee cooperation and the safety orientation program that covers a range of safety topics, including personal protective equipment, hazardous communication, forklift safety, and emergency evacuation procedures. As a result of such work safety improvements, the company received the American Meat Institute's Award of Commendation in 1996.
The company's steady growth and outstanding safety record may have attracted more than it bargained for. In August of 1996, American Foods was publicly embarrassed by the discovery that illegal immigrants, apparently eager to find better work and earn higher wages, managed to obtain work at the company. Agents from the Immigration and Naturalization Service, along with Green Bay police, arrested 77 Mexican men and women working with false papers at the Green Bay dressed beef plant and took them to the Mexican border. Although Kuehne explained that the company did everything correctly and legally to verify worker documentation, while making every effort to avoid discriminatory practices, the arrests brought national attention to the not-so-uncommon presence of illegal immigrant workers in the meat industry.
Even though American Foods' expansion and labor management efforts seemed to have been handled fairly well overall, job security for many people working for American Foods became far from reliable in 1997: Three years after investing $10 million dollars in its Huron, South Dakota pork plant, American Foods sold the plant to competitor Smithfield Foods, which had no intention of maintaining the hog operation. "With the hog slaughtering industry beset by virtually unprecedented hog prices, and in view of other economic conditions, we opted to sell this facility to Smithfield Foods," explained Kuehne to the Associated Press. In fact, there was an untimely 46 percent drop in hog production in South Dakota at about the time the plant was renovated to increase its capacity by 40 percent in 1994. In addition, the controversy over corporate hog production in South Dakota and a petition drive to ban it were factors in the decision to sell the plant. As a result, 850 people were laid off, and a class-action lawsuit immediately ensued charging that the company failed to give employees proper notice of the plant's shutdown. The parties reached a settlement of $2 million, which averaged about $1,400 per worker after subtracting 33 percent of the settlement funds for legal fees.
Despite such labor management challenges, American Foods managed to steadily increase employee morale overall, and establish community-building programs that improve many aspects of employees lives. In May of 2001, Kuehne was recognized for his 15 years of business leadership and community-based projects. It was clear from the start that Kuehne and the company were working to give something back to the diverse worker community that includes people from 25 countries. As the company evolved from commodity to value-added sales in the early 1990s, communication became key to the company's work culture. Regular meetings, rap sessions, and multi-departmental teamwork energized workers. Turnover rates reduced from 100 percent each year to as low as 35 percent. The company partnered with Neighborhood Housing Services to offer loans to employees so they can buy homes. Kuehne launched numerous innovative programs to attract and retain employees, including participation in the Employer-Assisted Homeownership Program with Neighborhood Housing Services. The program offered forgivable loans for down payment and closing costs to purchase a home. American Foods also offered pre-natal care for pregnant employees, education assistance for employees, and scholarships for employees' children.
Successes and Challenges in the New Millennium
Early on in the new millennium, it became clear that American Foods' early focus on flexibility and custom orders paid off. Retailers were looking for ways to cut more and more labor out of their operations, shifting more packaging responsibilities to their suppliers. For meat companies, this meant case-ready products in a variety of specifications. Without a doubt, case-ready meat products became the next, hot trend in the meat industry, a trend that the company had already embraced during the previous 10 years. The company's largest customer and strongest partner, for example, is a national retailer that sells more meat than American Foods can hope to produce; however, the company is so responsive to the retailer's needs that the partnership thrives. "When the retailer indicated an interest in case-ready ground beef, we found a label application in England that suited the needs of their marketplace. Now we're in a position to supply in excess of 250,000 pounds of case-ready ground beef each week for them, all prepackaged and prepriced with their label," explains Kuehne to Meat & Poultry magazine.
No doubt, American Foods' expansion and efficiency efforts throughout the 1990s, and its customer-direct catalog efforts, put the company in a good position to meet the millennium's increasingly customer-focused, value-added trends. But consumers expected even more convenience in the forms they find appealing. So American Foods took on additional innovative investments—from building new facilities in Ohio and Wisconsin in 2000 to developing even more custom packaging and labeling. The company came to offer retailers a wide range of label brands to choose from: American Foods Group, Sheboygan Sausage Company, Green Bay Dressed Beef, Dakota Supreme, Dakota Valley, Golden Prairie, Iowa Pork, Server's Choice, Wisconsin Beef Industries, Smokrest, Americas Meals, and Black Angus Reserve.
The future of case-ready products, and American Foods' investment in it looks bright: About 7.5 percent of all fresh ground beef was sold in case-ready form during 1999, according to research conducted by Cattle Buyers Weekly. That rose to 15 percent early in 2000, and may have gone beyond that by the year's end. Case-ready ground beef is expected to account for at least 50 percent of all fresh ground beef sales by 2003. And although case-ready beef cuts will be slower to grow, sales doubled from 2.5 percent in 1999 to 5 percent in 2000, and are expected to double again in 2001 to 10 percent. Better still, projections for 2003 are at 20 percent.
Perhaps a victim of its own success, American Foods was unfortunately faced with a widely publicized E. coli scandal in December 2000. When several people became ill from beef tainted with the E. coli virus, investigators traced the source of the meat to American Foods, although it did not become clear when the contamination occurred in the supply chain, according to the Saint Paul Pioneer Press. As a precautionary measure, the company issued a 1.1 million pound beef recall and lawsuits ensued. The company did not expect sales to be hurt, in a year when more than 70 recalls were issued, with 18 of them involving E. coli. Since then, the company has stepped up efforts to ensure that its beef products are safe.
While many other companies in the meat industry scramble to retool for the new millennium, American Foods seemed well poised to meet the challenges, as it continued to respond quickly to the demands of new and changing markets. And with a continued focus on value-added products and developing stronger ties with retailers, consumers, and employees, the Green Bay packer promised to succeed even more.
Principal Subsidiaries:Dakota Cold Storage; America's Service Lines; American Foods—Mitchell (Dakota Pork Industries); American Foods—Sharonville; American Foods—Green Bay (Green Bay Dressed Beef); American Foods Specialties; Ackerman & Cooke (catalog).
Principal Competitors:Atlantic Premium Brands; Colorado Prime; ConAgra Foods; Farmland Industries; Hormel; IBP; Moyer Packing; Packerland; Smithfield Foods; Stock Yards Packing; Wolverine Packing