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October 16, 2006

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Feature Article


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Niman’s New Model
by Steve Bjerklie


No bricks, no mortar, best-practices, best products.


The 60-mile drive from Niman Ranch’s ranch-of-origin along the northern California coast to the company’s corporate offices in urban Oakland reflects, to a degree, the journey of the American meat industry itself. The ranch, where Niman still grass-feeds some cattle in season, represents the industry’s connection to farming and a bucolic agricultural past. From there, the drive crosses hills into suburban Marin County, which exploded with growth in the years after the Golden Gate Bridge was built and after World War II, and then crosses San Pablo Bay, a northern semi-circle of greater San Francisco Bay. The drive passes the oil refineries of Richmond, the commercial district of Berkeley, and the Port of Oakland, which in the 1960s stole away San Francisco’s shipping business by more quickly adapting to the new container schemes in much the same way the beef industry vanished from Chicago after the big boxed-meat packers got established in the High Plains. Past the port, the drive edges around the grey industrial section of Oakland, where meat purveyors still job, before finally concluding along a street called the Embarcadero, not far from the hotel where major-league teams visiting the home Oakland Athletics camp during a series. Niman Ranch’s offices are in a former restaurant; a gigantic stainless steel hood still covers the area where employees make sandwiches for lunch.
   The drive also covers the critical history of Niman Ranch itself. The home ranch, which borders Point Reyes National Seashore, is indeed pastoral; there may be no lovelier historic point of origin for any meat company operating in the United States today. On two sides, alternately grassy and forested hills roll away into the distance like stanzas played by a brass choir. On a third side, the mesa hovering above the small, iconoclastic town of Bolinas pans out; a mile or two away, just below the mesa, stands the rural schoolhouse where company co-founder and namesake Bill Niman once taught elementary school. And on the fourth side, the blue plain of the Pacific Ocean extends as far to the west as the imagination can range. “Over the hill,” as locals say, the wealth of suburban Marin County has made it a hotbed for new food trends and new kinds of food retailing — Whole Foods Market operates two big stores in Marin, and Andronico’s, one of the most innovative independent supermarkets, operates another; both feature Niman Ranch meat. Across the bay, Berkeley is not only home to the first and headquarters campus of the University of California — the other Niman Ranch co-founder, Orville Schell, is now dean of the graduate school of journalism at the university — but also of Chez Panisse, the restaurant still often referred to as the best in America and the locus of a new kind of American cuisine; Niman Ranch was an early supplier of meat, which was branded as such on the Chez Panisse menu, and Bill, Orville, and Chez Panisse’s founder and patron saint, Alice Waters, are long-time friends. Berkeley is also the home of Peet’s Coffee, which was the fountainhead of Starbucks. More on the meat-coffee connection — it’s a significant one for Niman — in a few moments.
   To a great extent, the Bay Area’s cultural encouragement to look at business, politics, and institutions from different points of view, rooted in the extraordinary social ferment California experienced in the 1960s, is the force that created the opportunity for the success of Niman Ranch, which is arguably the most innovative, most progressive meat company in the country. The difference could be said to be literally in print. While the culture and history of the mainstream meat industry has been shaped by reaction to a book — “The Jungle” by Upton Sinclair, which led to the passage in 1906 of the Federal Meat Inspection Act — the culture and history of Niman Ranch are rooted in a book, Schell’s “Modern Meat,” published in 1984 (and serialized in The New Yorker magazine the same year), which was the first well-documented social and business study of the environmental impact of feeding meat-producing livestock subtherapeutic doses of antibiotics and hormones. Niman Ranch was formed to put into action some of the alternatives to traditional drug-based animal husbandry that Schell explored in the book.
   The result is a meat company that’s both non-traditional and highly successful in every way. “I think one of our strongest assets is that we don’t have a single person at this company who came out of the meat industry, with the exception of our butchers and the people over in the cutting plant. I think that has allowed us to think about meat in a different way than we find when I sit down and talk with somebody who is been through the mill of mainstream meat production,” says Rob Hurlbut, managing general partner at Niman. “Because the driver in the mainstream industry is, completely, economics. I understand that, it’s business. But the driver we have is very different. There are different mission components. People talk about double and triple bottom-line objectives for a company. We definitely have those, things that count when we evaluate how well we’re doing. Yes, profit and loss have something to do with it, but how many family farms we’re supporting and how humanely we’re treating our livestock are also really components we look at when we look at how well we’re doing. Those are things we judge. Everybody measures profit and income, but the other things are just as important, if not more so. When I look around the office at our employees, those less tangible components that I’m talking about are the things that motivate our people to do their jobs.”
   Niman Ranch is built on a new model that may prove to be the most viable business alternative to the traditional asset-heavy meat-industry approach. If traditional meat companies spread their attention across three areas —  livestock or raw materials, processing, and marketing — Niman focuses on just two, livestock production and marketing. It owns no slaughter plants and no processing facilities other than a small beef-cutting plant in Oakland. “Someday we may find ourselves in the slaughter or processing business,” says Hurlbut. “But for now we’re largely a vertical operation.” All its processing is done by contract, which keeps Niman away from all the management hassles attendant to running a meat plant in compliance with USDA. Niman’s marketing program is second to none — check out
www.nimanranch.com — but the company makes sure it has something to market, namely high quality meat resulting from livestock raised under strict humane and environmentally sensible specifications. Those specs are explained to consumers on package labels, as in this example for Niman Ranch pork:
   • “Raised on pasture or in deeply bedded pens;
   • “Raised without the use of antibiotics;
   • “Fed natural feeds without meat or animal byproducts;
   • “Raised on sustainable family farms.”
   Such products were once derided (and sometimes still are) as “hippie meat” by some old traditionalists, but no one can scoff at Niman Ranch’s growth. In 1997 the privately-held company posted sales of approximately $3 million. Last year, Niman’s sales were more than $40 million, enough to rank the company among Meat Processing’s Top 200 meat companies in North America.
   Managing such tremendous growth as a contractor has been a challenge, Hurlbut readily admits. The company had been slaughtering its beef at the Simplot plant in Nampa, Idaho — Niman cattle are finished in a feedlot in Caldwell, just outside of Boise — but when that plant closed as a result of the ban instituted last May on importing Canadian cattle into the United States after BSE was discovered in Alberta, “we had to scramble to find a place where we could go.” Niman ended up just down the road, at Swift’s plant in Nampa, but while the company is very happy with Swift’s attention to detail and quality — “I have a tremendous amount of respect for the business those guys run, just in terms of the economics of what they’re doing and how they run that facility and the professional level of management in that organization,” says Hurlbut — Niman had to get used to being a small customer all over again. At the 400-head-per-day Simplot plant, Niman’s production took up half a day a week; at the much larger Swift facility, all of Niman’s weekly beef needs are covered in an hour.
   “The operational piece is getting increasingly complex,” comments the general manager. “When we look at operations, there are really two side of it for us. There’s the sourcing side — the livestock and so forth — and there’s the operations side, which is from when the livestock hit the slaughterhouse door to the time we deliver product to a customer. Those are two very different challenges. We’ve addressed the sourcing component in several different ways” — Niman sells fresh beef, pork, and lamb — “and then we have value-added versions of beef and pork. The value-added part now comprises about 20 percent of our business, and that’s really where our focus is now. But we don’t own a sausage plant, we don’t own a bacon plant, we don’t own a ham plant, we don’t own a hot dog facility. What we’ve done is gone out and identified who we think are best-in-class processors and worked with them to co-pack those products for us. We provide all the meat ingredients, spices, and packaging; they provide the labor and expertise to craft those products in a way that meets our standards. Operationally, I’m incredibly impressed with the people I’ve met at some of these facilities. I have a lot of respect for what they do. It’s very difficult.”
   Niman operates its own small cutting plant in Oakland, and contracts for further processing at plants in the Bay Area and in Chicago, Ill. Hurlbut says that the meat industry still has a healthy number of independent processors who can accommodate specialized business like Niman’s, “but the closer you get to the livestock, the more concentrated the industry becomes. It’s a challenge for a company like ours, definitely.” The company processes about 170 head a week — barely a swallow of meat compared to Tyson/IBP, but enough meat to supply high-end restaurants in several major cities as well as a few key supermarket chains. Approximately 80 percent of Niman’s business is in restaurants. (“The shift in restaurants after 9-11 hit us really hard,” Hurlbut acknowledges.)
   For livestock, Niman contracts with about 70 cow-calf operators in the western United States who supply calves to the company, which also maintains a small herd of its own on a ranch near Petaluma, Calif., about an hour north of San Francisco. The home ranch in Bolinas by the sea is stocked seasonally. (Bill Niman has a lifetime estate relationship with the national seashore next door. Upon his death, the ranch becomes part of the park. Point Reyes National Seashore, which was established in 1962, was the first national park in the United States to include working farms within its boundaries. There are already several historic working dairies in the seashore, some dating back to the 1850s.)
   Overall, beef, the meat Niman Ranch built its reputation on, now comprises about 40 percent of the company’s volume. Nearly all the rest comes from pork, both fresh and further processed; most Niman pork is slaughtered at Sioux-Preme Packing in Sioux City, Iowa. “The pork side has a more robust network of farmers for us, primarily in Iowa,” says the general manager. “But we just launched a really exciting program in North Carolina. We now have 24 farmers who are growing for us. We were approached by a guy named Chuck Talbot at North Carolina A&T University, who was working with something called the Gold Leaf Foundation, which is funded by tobacco legislation to search for and fund alternatives for farmers who had been in the tobacco business. So Chuck wondered if we could do outdoor-raised hogs in North Carolina, like they used to do years ago. We said we’d love to sponsor that. There are not the weather issues in North Carolina that there are in Iowa.” The Heifer Project, which normally funds livestock development in third-world nations abroad, got interested too, and sponsored the purchase of 200 gilts from one of Niman’s contracting hog farmers in Iowa to seed an initial 12 hog farms in North Carolina to contract with Niman. The resulting animals look little like the typical pork-industry hog today, which is bred for leanness. A Niman hog is fat and round, like an old fashioned hog —  the company pays a premium for fat, not lean — and its pork is juicy, flavorful, and very conducive in terms of pH for processing into sausage. Indeed, San Francisco Sausage Co., processors of Columbus brand Italian-style meats, now uses Niman pork for some of its products, after San Francisco Sausage’s John Picetti spent time in Italy and became convinced by sausage processors there that the quality of the animal and even its breed can have a significant impact on a finished processed product.
   The North Carolina project is “a great way to recognize a big part of our mission, which is to support sustainable agriculture and small family farms. And these guys, they are small, let me tell you,” says Hurlbut. In 1970, there were more than 1 million hog farmers in the United States; today there are 80,000. There are more hogs being produced, though — most of them in huge confinement operations.
   All of Niman’s livestock — cattle, hogs, and lamb —  are source-verified. Every cut of fresh meat is delivered with an ID tag that provides data to trace the meat all the way back to its farm of origin. “To us, the identification of livestock is a core of what we do. We’ve always done it from a quality standpoint, but just last December it became readily apparent that identifying livestock can have some real food-safety benefits as well,” comments Hurlbut on the BSE situation. “When USDA announced that it was going to try to develop a traceback program, we were like, ‘Of course.’”
   There is a satisfying industry irony in the notion of a small, highly innovative outfit like Niman Ranch growing hogs right under the nose of pork giant Smithfield Foods, which has taken confinement production of hogs to a level unimagined just a few years ago. While some industry observers fret that Smithfield’s concentrated vertical integration will destroy traditional hog farming, Hurlbut takes a different view of commodity-oriented companies, one based on personal experience.
   Before buying into Niman, he was an executive with food giant Nestlé Foods, in the coffee division. The mainstream coffee business in the United States — that is, the coffee-can business retailed in supermarkets — is controlled by three mega-corporations: General Foods, Procter & Gamble, and Nestlé. All of these firms, including Nestle, completely missed the coffee revolution begun by Peet’s and now represented by Starbucks (two young apprentices to the late Alfred Peet, who founded a gourmet coffee shop in Berkeley in the 1950s, founded Starbucks). “I remember big-shot Nestlé executives saying, when Starbucks had a few stores going, ‘No one’s going to pay $1.50 for a cup of coffee. We can’t even sell a cup of coffee for 25 cents,’” remembers Hurlbut, who may be old enough to recall such before-the-fall executive arrogance but who is nevertheless still well shy of middle age. “They failed to see a revolution that was happening right in front of their eyes. It still amazes me.” The coffee revolution so transformed that industry that now $1.50 seems cheap for a cup of coffee.
   Hurlbut thinks the meat industry today is a lot like the coffee business was at the time Starbucks and other gourmet chains completely changed the game. Indeed, that’s why he was drawn to the business. “I wanted to do in meat what had happened in coffee.”
   In many ways Niman’s story is unique, even in an industry populated by so many companies founded on visionary ideas. Could there ever be another Niman Ranch?
   “I think it could happen,” says Hurlbut, stretching out his jeans-clad legs. “We see small regional growers start all the time, and we encourage that. The challenge is to gain sufficient traction to create some scale. I think the work we’ve done over the last eight years is all about doing that, so now the challenge for us is really building an organization that’s capable of managing our growth appropriately. I don’t think it’s impossible, by any means, for someone else to come along and do what we’ve done. We encourage it.” MP

 
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