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.
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