“It's not as easy as finding a niche market and sticking with it,” explains Mary Forman, who co-founded Country Natural Beef (CNB) with her husband, Lowell.
“We're learning more every day that in a niche market, the niche is always changing. Consumers demand change. If you want to satisfy consumer demand, you have to stay ahead of the curve.”
That means focusing on the consumer first.
When CNB began in 1986, “natural” beef was a market novelty; beef raised without growth promotants or antibiotic treatment was enough to entice health-conscious consumers, as long as the product also consistently met their eating expectations. Soon enough, though, Doc Hatfield, another CNB founder with his wife, Connie, said consumers wanted to know if their cattle grazed on public lands. This was back in the days of environmentalists' “Beef Free by '93,” campaign. So, CNB developed and adopted what they call Grazewell Principles, describing how members managed public and private lands for sustainability.
Then, customers wanted to know more specifics on the cattle's diet. Consequently, CNB adopted the practice of feeding only plant and vegetable ingredients to its cattle, years before BSE forced industry adoption of the practice.
Consumers also wanted to know the cattle were treated humanely. Thus, CNB members began having their ranches and products third-party certified for humane animal practices and environmentally sensitive land management through the Food Alliance. The list goes on.
“Where food service and the institutional trade are heading today is sustainability and social justice,” Doc says. Consumers want to know that the people raising the product are making a decent living. They also want to know the carbon footprint caused by the food they're eating makes environmental sense.
A product of necessity
As challenging as today's economic climate is, 1986 was the fifth-consecutive year of interest rates escalating to around 20%, input costs and inflation were endemic, land values were plummeting, and beef supplies far outstripped consumer demand. Headlines blaming beef for high cholesterol and other assorted maladies made demand even worse.
“We weren't broke yet, but we could see it coming,” Doc says.
“Not knowing was as bad as the worst-case scenario,” Forman says, remembering what marketing cattle was like before 14 ranch families founded CNB.
“Either sending cattle to auction or selling them direct for what we could get out of them wasn't something we felt would sustain our ranch or allow us to attain our goals,” Forman says.
Here were ranchers with decades of experience behind them, cattle they knew fit their low-cost approach to business, a holistic and sustainable approach to managing their resources — and bankruptcy was within spitting distance.
Salt in the wound came with the discovery they were producing exactly what a growing segment of consumers wanted, but no one knew about it.
This revelation came about through a conversation Connie had with a health instructor who informed her that he recommended his clients eat beef three times/week. He said his only problem was finding enough Argentine beef — the only beef he would recommend to his clients — and which he described as having little excess fat and raised without antibiotics or growth promotants.
“Here I am a rancher going broke 55 miles from this guy who wants what we can produce, and we're not marketing it,” remembers Connie.
That was the topic the Hatfields invited the Formans and other ranchers to discuss. That meeting gave birth to CNB.
Building without capital
“In 1986, we ranchers had no extra cash, but owned a lot of cattle that weren't worth anything on the commodity market,” Doc says. “Instead of raising capital as most new businesses do, we each put up cattle capital, and took turns putting modest numbers — 15-40 head — in a small feedlot owned by one of our members, and financed our own beef to retail. We built relationship partnerships with every entity between the ranch and the consumer.”
“We're structured such that CNB doesn't have to own any assets,” Forman explains. “We operate on payables to our ranchers.” This is a company that generated $50 million in sales last year.
Briefly, ranchers own their cattle until harvest, processors who have a longstanding relationship with CNB purchase the carcasses to fabricate, and then CNB purchases the beef to market. Cattle are purchased for a pre-determined price using a formula that accounts for cost of production, plus return on investment, plus a reasonable profit. CNB works with its retail partners to forecast their needs months in advance.
Consequently, CNB runs mainly on cash flow stemming from beef sales. CNB contracts for required service essentials such as accounting and marketing, mostly with its members. CNB owns nothing, other than a couple of portable microphones. Annual administrative costs run below 4%. At the end of the fiscal year, any CNB profits are distributed to the members.
“We start every year with zero,” Doc says. “We've taken a highly capital intensive business — ranching — and mobilized those assets to form what amounts to a wholesale meat company to get product to retail. Part of CNB's model is everyone — from the rancher, to the trucker, to the feeder, to the packer, to the distributor, to the retailer, to the final customer — has to achieve a fair return to their bottom line or the program won't be sustainable.
“It's sad to say that the CNB program is unique in agriculture today,” Doc says. “It's a $50-million company, but you still have to open a barbed-wire gate to get to the corporate offices.” That gate would be at the Forman's Indian Creek Ranch near Antelope, WA, or where Forman serves as CNB's chief financial officer.
Members commit cattle 12-18 months ahead of harvest, and feed them out at feedlots which have a history working with the organization. CNB cattle enter one of two feedlots at 14-18 months of age — all their prior growth comes on grass or roughage. Then they're fed 90-100 days on a byproduct-heavy ration. Doc explains CNB customers are more comfortable with the bulk of the diet coming from byproducts that humans can't consume, rather than mostly corn, which people could eat.
“Our bullseye (top criteria) calls for a 650- to 775-lb. carcass with a 12-14 in. ribeye, 0.2-0.4 in. backfat and USDA Yield Grade 1 or 2, with a high Select or low Choice marbling score,” Doc explains.
As such, CNB members take a variety of genetic routes to the goal, though calves that are 75% English and 25% Continental seem to achieve targets most consistently.
CNB membership now includes about 120 ranchers, representing more than 100,000 cows grazing more than 4 million acres of rangeland. CNB has never recruited members, and requires no membership fee; the program harvested and marketed more than 50,000 head last year.
“You couldn't buy and stock these ranches for $8,000/animal unit in the market today,” Doc says. “That's $1 billion in assets our members control. As a collective system, these ranches are managed better than if a single entity owned it all.”
Given the volume and location of CNB's growth, the organization began expanding production in the Southwest this year, with feeding and harvesting at Hereford, TX.
Consumers are king
Unique as they are, it's not the business model or the end product that's the root of CNB's growth and sustainability. It's that CNB serves as a first-hand communications conduit between member ranches and the consumers buying their product.
In fact, one CNB membership requirement is that all members spend at least one weekend annually doing store visits and in-store meat demonstrations, interacting with consumers. They're also required to participate in annual customer-appreciation days held on member ranches.
When CNB was formed, the group sent Connie to visit retailers in Portland, saying, “I represent a group of ranchers in eastern Oregon with 10,000 mother cows. What form could we put that beef into that would fill a need you're unable to meet?”
She got an appointment with everyone she called, including retailers too large for them to consider supplying at the time. “No one in the beef industry, and especially a woman rancher, had ever called and asked them what they needed,” Doc says.
“Consumers love that we grow some of what they eat and ask them what they want,” Connie says. “We ranchers need to hear what the consumer is saying.”
When CNB started, many of those customers wanted to make environmental change with buying power or were seeking new fads. Now, Doc explains, CNB customers are primarily well-informed consumers who want a direct connection to the people growing the food they eat.