Head Of National Beef Sees
Future In Segmented Industry

HOUSTON — The head of National Beef Packing Company is excited about the future of beef and the changes he sees in the industry.

"With all the doom and gloom we seem to hear, we're pretty optimistic about where we're headed," says John Miller, president and CEO of National Beef Packing Co. "We see opportunities, although they maybe challenging. We think our industry is going to change over the next few years. We would really like to be on the forefront of that."

National Beef is located in Southwestern Kansas with plants in Dodge City and Liberal. It is a partnership between Miller and Farmland Industries.

"Farmland Industries is a farmer-owned, farm-to-table kind of company," Miller says. "They really got into beef so they could provide a marketing outlet for their members. In fact, most of the members in Farmland are associated with cattle feeding in one way or another. It was a natural for them to want to get into the beef business."

He notes that National Beef Packing is a $2 billion company.

"I always qualify that by saying that's not very big when you think that IBP, Excel and Monfort still control 78 percent of the market," he says. "IBP is a $12 billion company. Excel and Monfort are probably $6 billion each. We see ourselves as a small player. At the same time, we see a chance to create a niche in the marketplace that would allow us to be successful."

Miller says National's goals are to be an industry leader in developing value-based market segments and to increase the profit flow among all participants of the beef chain.

"This fits into our mission as a co-op member of Farmland," he says.

Those goals, he admits, will have a pricetag.

"If we're going to raise premium cattle, we're going to have to provide economic incentives for producers," Miller explains. "At Farmland and National Beef, we have a program to do this. In most parts of the country we pay one price for all, and that does not send the right kind of signals to the marketplace. I think it's important that producers receive economic incentives for producing quality beef."

Those incentives will come about through alliances that tie the now-segmented links of the beef chain together in a solid strand.

"I believe we'll have producer-packer-retail-consumer alliances that will improve operating profits for all segments of the beef chain," he says. "We have to do something different than we've done in the past if we're going to move ourselves out of this tailspin of market share. I think we'll see more of these producer alliances in the future."

For such alliances to work, the people involved in them must receive some benefit, and Miller says National Beef can provide benefits to producers for better cattle.

"Some of these benefits that we're involved in have a floor price guarantee," Miller says. "We have some superior premiums for high grading cattle. We have cattle performance and carcass data feedback. We have a system, a computer program, where we measure cattle coming out of our feedyard, Supreme Feeders. We give the cattle feeder back data on how his cattle performed compared to the top 25 percent of our alliance. We do the same at the packing plant. That gives him the information to go back to the seedstock people and understand the kind of cattle that he's buying, and over the next year or two improve the performance of those cattle."

The program also offers retained ownership and partnership arrangements, or National will buy the cattle outright.

"If a marketing grid or marketing co-op could be established where premiums would be paid for better cattle," Miller says, "I think most packers would be willing to do that. We certainly would."

As for the products he sells, Miller sees the beef industry following the lead of many consumer markets and becoming more segmented over the next few years. He says it is a trend that has developed over the last 10 to 15 years and is gaining more momentum. This, in turn, will open up new marketing possibilities for beef.

"We're seeing very segmented markets," he says, "markets that we never dreamed of years ago."

One of the keys to taking advantage of these new market segments, he notes, is establishing brand equity or identification, and that can be an expensive proposition.

"Brand equity is critical in launching successful programs," Miller cautions. "It's a whole lot easier to tag on to something, an equity in the marketplace, than it is developing one."

National Beef is developing branded fresh beef products, branded cooked products, specialty products for food service, and world-wide export markets.

"It takes a lot of money to develop branded beef or any kind of a branded product," he says. "For example, if we were to go out and shoot a 30 second commercial, just the shooting cost — that doesn't include putting it on the air, which is a whole lot more — would be between $250,000 and $300,000. That would not be with some star or celebrity being used. It would be a generic commercial.

"It's a quarter of a million dollars to $300,000 just to shoot the commercial, and that's the cheap side of it. It costs about $5 million to introduce a branded beef product into the marketplace in only four or five cities."

He says people come to see him saying they're going to sell branded beef and consumers will pay them more, but Miller says they've got consider the costs in establishing a brand equity.

"This is very, very expensive, and you've got to be pretty well financed to do it unless you're really lucky, and that doesn't happen too often in our business," he says.

Brand development marketing strategies create the perception of fulfilling needs.

"If you're going to go into the marketplace with a branded product, if really has to fulfill a need, and it has to be perceived as something different," he says. "You do this with advertising, but you also do this with a product that is superior."

Distribution is another key element, he adds.

"One of the reasons that we teamed up with Farmland Industries was to be able to use their Farmland foods company and distribution system for distributing products," Miller says.

But the most important thing about a branded product, he insists, is commitment.

"People who talk about branded beef, and they've been talking about it for years, usually don't have the commitment to make it work," Miller says. "Today as you know, boxed beef is simply sold to a warehouse, the warehouse delivers it to a store, and the store puts it out in the counter. But a good distribution system would follow that product right out into the stores. You would have people in the stores who would make the displays, make sure the point of purchase material was up, and that you're answering and fulfilling the needs of consumers.

Miller admits that branded products are a small part of National's business right now.

"We're just on the edge of this," he says. "I can say we're having some success with this. We're excited about where it may lead."

One of the products they've introduced is Farmland Black Angus Beef.

"I'm not here to promote Black Angus Beef as a breed, by any means, but I can tell you the Angus Association has done a great job of developing brand equity for Black Angus Beef," he says.

"We said, 'Look, here's a natural for us. Let's take Farmland, which has equity in certain markets throughout the country, and create a product called Farmland Black Angus Beef.' We launched this program about a year ago."

They designed a logo for all the boxes and trays in the stores, and from that core product, they launched Farmland Black Angus Ground Chuck. It's a retail-ready added product in the stores.

"We have a similar product for food service as well," he says.

From there they launched a Farmland Black Angus Cooked Prime Rib, a high quality cooked prime rib that is oven-ready and can be served immediately. National Beef is also developing other precooked products.

"We see that as a big market," Miller says.

They also offer cooked roast beef, a top round product, and Farmland Black Angus Hot Dogs.

"What we're doing is playing off the equity that's already in the marketplace and using Farmland, which has additional brand equity," Miller says. "I've been surprised. Those hot dogs have sold well in certain markets. That's a nice thing."

In addition, they have specialty markets overseas.

"The value-added markets that are being established in Japan are critical to us," he explains. "This last summer we had the E.coli scare that took probably took three, four, five dollars a head out of the marketplace, maybe more than that. But the Japanese business is coming back. I think next summer we should have a good resurgence of business from the export market. These are important markets. The demand for American beef in Japan is pretty strong."

As markets grow and expand, Miller says, National Beef will increase its reliance on alliances to support the branded beef market.

"The Certified Angus Beef program that we participate in and our Farmland Black Angus program are all choice or higher type products," Miller says. "We know that as time goes on and demand for these products increases, we're going to have to have larger supplies of quality cattle. We've created alliances to be able to do this."

One of those is the Farmland Supreme Beef Alliance. It was formed a year ago with Agra Beef of Boise, Idaho.

"The purpose of FSBA is to guarantee a supply of quality cattle that will consistently meet our demands for Farmland branded beef," Miller says. "As these segmented markets develop, it's going to be important for us that the supply lines of cattle feeding those markets are adequate. In our part of the country the average grade in the beef packing plants is probably 50 percent or less. We have a goal in our plant to grade up to 75 percent. I can tell you that we're quite a bit above 50 today, but it's only because we're looking for the kind of cattle that are feeding these segmented markets."