They Grew Their Small Poultry Processing Plant by 35x in 4 Years

I recently read this case study, showcasing TFC Poultry Processing.

Their story is one of overcoming the common challenges faced by start-up broiler processing plants.

Broiler processing plants are batch-related operators.

Much like printers, or manufacturers, poultry processors suffer:

• large capital start-up expense,
• staff continuity costs and
• cash flow irregularity.

It takes quite some commitment to set up the machinery and hire staff for a job – so it makes sense to command a minimum-sized job lot.

However, garnering enough demand from the right-sized customers to keep you occupied day-to-day is difficult.

(Especially when you factor in client logistics etc.)

As a result, many small to medium-sized poultry processors take on loss-making commitments.

Lack of profitability suffocates the business and eventually grinds the owners out of the trade.

But is there a way out of this downward spiral?

And is it financially viable in this day and age to run a small to medium-sized poultry processing plant?

And if so, what are the key determinants of success?

Key points from the TFC Poultry Processing Case Study

Owner profile

Relatively young and inexperienced

• Started by brothers, Darrin and Trent Froemming in 2009 at the ages of 19 and 22.
• They bought the business as a going concern.
• Never processed a single chicken before starting up.

Successful results

35x revenue increase within 4 years

• Started in 2008 with 40,000 bird annual throughput.
• Scored 1,400,000 bird throughput by 2012.

Punished for their simplicity

Idealistic ambition based on helping the small local producers

• After a year of offering fee-for-service (PAYG) processing to local producers, they pivoted.
• This was too seasonal and simply did not cover overheads, let alone cost of operations.

Tenacity

They leaned upon their local knowledge to have confidence in their total available market

• They knew from growing up that millions of birds were processed annually right there on their doorstep.
• Only trouble is large processors already had devoured that business. No room for the brothers.

(…or so it seemed…)

Investigative mindset

Researching a gap (demand) in the market

• They dug deep and discovered that large processors passed on referral business for spent hens (layers and broiler-breeder hens)
• The brothers considered they’d line up to be preferred referral partners to big processors for this secondary work.

Governmental compliance

Time to make the USDA-recommended grade

• The brothers had a huge site upgrade on their hands to meet USDA-inspection quality.

Investment and ownership

Finding the funds without diluting the spoils

• Using $45,000 of their personal funds and an iron-clad business plan as bait, the brothers levered open the wallets of investors (and the bank) to the tune of $855,000.
• With skin in the game and relatively successful tenure to date, the brothers won investment without losing a single cent of ownership.
• They held on as 100% owners of the business.

Got accredited and grew

Now approved, the deals with larger processors began

• The brothers landed some good deals with larger processors to immediately bolt on chunks of job volume at a profitable rate.
• Spent hens were cleared out of houses and remarketed to ethnic food retailers as head-on and feet-on roasting birds.
• This is currently about 55 percent of their entire business.

Increase capacity

With better volumes they had a reason to upgrade

• With more profitable demand placed on their equipment and staff, they easily justified reinvestment in upping capacity.
• They transitioned from a seasonal workforce to full-time staff.
• They complimented their existing hardware with more shackle lines and an automatic cropper, for example.

Still room for more

Only half full and looking to fill up

• They could currently turnover 8,000 birds per day, max (4,000 is cutting carcasses into parts).

The freezer problem

Shipping frozen product means a larger land footprint

• Needing more freezer cabinets to hold stock means further investment.
• For now, they are outsourcing blast freezing and cold storage.

High-profit customer acquisition

Scored two large contracts accounting for 40% of all revenue (with more margin than spent hens)

• With the financial stability gained from spent hen processing, the brothers had the staying power and patience to fish out two large profitable contracts
• 2x niche organic broiler meat retailers contracted the brothers as exclusive processing partners
• This was a hugely profitable and stabilising move:
  • broilers are processed quicker,
  • charged at a higher fee (more profit) and
  • sometimes with deboning for greater revenue

Remaining business from small local growers

Need to manage minimum thresholds and segregation

• 75,000 per year is dedicated to a community of small local growers of a variety of farm fowl inc. ducks, geese and of course, chicken.
• They demand a minimum batch size of 75 birds to make it worth their while.
• A fee of $2.50 is charged per bird processed.
• For cost efficiency, the brother schedule all processing of a particular type of bird on a given day. Thus blocking out whole days of operational work for staff at a time.
• Growers are advised not to buy chicks until their processing days have been securely booked, to avoid losses.

Now, over to you…

The Froemming brothers have proven that small-scale poultry processors can be profitable these days.

And that even (or especially by) operating in the shadow of large-scale, neighbouring processors.

It takes acquiring a portfolio or diverse customers and well timed investments.

But done correctly, you can grow your small-scale processing plant by 35x in only 4 years.

• Are you currently running a small-scale poultry processing business?
• Are you struggling to make profit?
• Or, have you discovered strategic strengths not discussed in this case study?

Either way, I’d be interested to hear from you.

Leave a comment below.