October 27, 2011
CANNON FALLS, Minn: Lorentz Meats, just south of Minneapolis, in the small town of Cannon Falls is being held up as the best example of a “new age” small-scale slaughter and processing plant in the United States.
Run by two brothers, Rob and Mike Lorentz, the 10,000 square foot plant is unusual in that it was built specifically to harvest and process small numbers of animals for large numbers of direct marketers.
Built new in 2001, the $2 million plant kills bison one day a week, hogs one day and cattle three days for a host of individual direct marketers and several niche market branded meat companies.
It is meets all organic, USDA and European Union requirements and has 45 employees.
It offers portion cutting, retail-ready vacuum packaging, flash freezing, meat cooking and smoking and is designed so that it can be enlarged without disrupting on-going production.
Throughput in 2006 was around 3.5 million pounds per annum which Mike Lorentz dismisses as small potatoes in the world of meat processing. “We’re just a little butcher shop,” he said.
The daily capacity is 40 head of beeves a day.
Mike said the primary constraint in an abattoir is the size of the chiller room.
Mike and Rob are the second generation owners of Lorentz Meats and have seen all the packing industry’s ups and downs.
Mike described his family as “blind optimists.”
He said his father had a small non-inspected meat plant and business was good until the 1980s.
By 1985, meat volume through the plant had fallen to a third of its 1975 level.
“Small packing plants are like all small businesses. They have to find a niche to survive. We decided to make niche meat marketers our niche.”
He said when the new plant opened his largest customer was only harvesting 30 head a year. Currently, some 250 Midwestern direct marketers use the plant.
The plant was built with viewing windows so that livestock owners could follow their meat carcasses through the disassembly process without having to wear sanitary gear.
Once the new plant was built Mike hit the road proselytizing direct marketing to upper Midwest meat producers.
“I devised a ‘formula for success’ that works very well for novice direct marketers.”
A SUCCESS FORMULA FOR DIRECT MARKETERS
Mike said the primary thing you are selling is not meat but a connection to a real farm.
“A producer must limit the number of meat product offerings to one or two items. There are a couple of ways to do this.
“One would be doing cull cows and the only product would be ground beef. Another is to focus on sides and quarters.
“A third would be to sell a pre-bundled group of cuts that utilize the whole carcass.
“The key point is to concentrate your effort on finding people who want to connect with you and their food source. Don’t waste your time on inventory issues.”
Mike said the problem with selling individual cuts where the customer can pick and choose is that you all you have done is to sell them supper.
“If you get someone to buy your product because of what you do and make them invest in a minimum of $100 worth of product, you have begun to form the bond of a long-term customer that will make you money.
“The secret to success in direct marketing is the ability to sell the whole animal in as short a period of time as possible.
“I know a few farmers sell meat at farmers’ markets and make money but I know far more farmers who make money selling sides and quarters to friends and family members.
“I personally don’t like farmers’ markets for selling meat products. I would much rather start selling sides and quarters to friends and family for a price that makes them money and has no connection to commodity pricing.”
The other part of this formula is to plan on harvesting animals at least four times a year from the start.
“I sit down with all of my direct marketers at the first of the year and schedule their slaughter dates.
“If you are not a disciplined enough a producer to be able to meet a scheduled harvest date, there are very few low-cost packing plants that are going to want to do business with you.”
Mike said anyone who builds a business around training farmers in new things needs to have a lot of patience.
“This plant was not an overnight success. It took us six years to get the volume up to where it justified the plant’s initial investment cost,” Mike said.
He said individual direct marketers currently account for about 20% of the plant’s business.
“I knew the demand was there because I would hear farmers talking about wanting to do it.”
What he didn’t foresee was the rapid rise of medium-scale branded meat companies.
BRANDED MEATS BRING VOLUME
In 2006 the plant was harvesting and processing meat for four branded meat companies.
These included a bison brand, a pork brands, a grainfed organic and a grassfed beef brand.
While having to be publicly neutral, he said grassfed beef has one decided major advantage - its low cost of production.
“To be successful with a niche market product, you need a cost of production that is very similar to that of commodity production.
“Its been my experience that most niche marketers wind up selling about 20% of their production at commodity prices to balance supply and demand. “The beauty of a grassfed program is that if you get in a bind your costs are low enough that you can bail out and just sell your animals as commodity feeder cattle. They don’t have to go to slaughter.
“The problem with any branded program that has a high cost of production is that the premium paid to the producer often only offsets the increased cost of the inputs to the producer.
“If it does pay additional premiums, those can be quickly lost if any livestock has to be sold to the conventional markets.
“Therefore, producers have to be leery about expanding production without a guarantee of market.”
Mike said he thought all grassfed beef producers should do some personal direct marketing and not rely completely on the branded meat companies.
“The whole idea is to give yourself as many marketing options as you can.
“Ten cents over market sounds good at today’s prices but how good will it sound when cattle are 60 cents?
“Direct marketing is the only way to get personal control over the price you are paid for your animals.”
He has found producers with direct marketing experience are much more realistic about liveweight prices than non-marketers.
“Producers who only produce tend to overvalue the production end of the business. They have absolutely no idea how difficult it is to sell all the cuts of an animal.
“The direct marketer does.”
Interestingly, Mike does not recommend that you use an abattoir with its own in-house brand.
“A packer with his own house brand is going to care more about it than about you.”
He said that most packers with house brands offer meat “buy-back” programs for cuts in oversupply at fire-sale discounted prices.
“I warn all of my customers that the day you start selling hamburger to your packer is the day you start going out of business.
“We don’t do this because it starts a habit that will be virtually impossible for the customer to break and always leads to failure.”
Another fallacy that small branded meat marketers live under is that their lack of profitability is caused by a lack of volume rather than lack of margin per unit of production.
“If you aren’t making money on 20 head a week, going to 40 head a week isn’t going to help,” he said.
“You need to learn how to make money on a small scale before you start to ramp things up.”
STARTING AN ABATTOIR
Mike said that he is besieged with producers and small branded meat companies who want to start similar abattoirs.
Most of these inquiries are producers who want a close-by abattoir more for their convenience than to build a profitable business.
“What most producers don’t understand is that a packing plant is the last piece in the meat production and marketing puzzle and not the first.
“I get calls from people who want to build a plant and haven’t produced their first head of finished cattle.
“Others believe if they build it custom work will just magically come.
“A packing plant lives and dies on a daily, reliable, year- round supply of animals. Producing that supply is where producers need to concentrate first.”
He said that cooperative meat packing ventures typically have a very low success rate because management has “no skin in the game.”
He said in producer-owned plants with hired management, management normally has no incentive to be creative.
“Meat packing is a game where you can lose a $1000 a head if you buy an animal and $10,000 if you don’t.
“You need clear leadership incentives to make a meat plant work.”
He said more and more small plants were specializing in either the harvest portion or the post-harvest portion.
“Value-added activities like making sausage and hot dogs are sexy. Kill and skin is not.
“Most of the money is made in the value-added portion..”
Mike said that most abattoir dreamers think that the construction cost of the plant is the biggest expense but its not.
He said to figure that you will need five dollars to cover in-plant inventory and receivables for every dollar you spend on bricks and mortar if you plan to buy all the animals you kill.
This high cash requirement is why small packers like to make custom work the centerpiece activity rather than killing for their own account.
“Getting the size right is very difficult in a custom plant because you are dependent upon other people for your cattle.
“You have to build the plant for smallest number of animals you can reliably expect and pay overtime when you hit seasonal volume peaks.”
WHERE YOU ARE COUNTS
Due to transportation cost differentials, abattoirs need to be built close to the final retail market rather than close to the producer.
“You really have to understand freight logistics to make a meat plant work,” he said and listed some of these.
Animal freight is cheaper than refrigerated freight.
Refrigerated freight going west is much cheaper than refrigerated freight going east.
Due to cartage laws, freight picked up within a certain distance of its final delivery point is much cheaper than long-distance freight. This is why small packing plants who don’t own their own delivery trucks need to be located near the end market.
“Within 90 miles of Cannon Falls, $1 billion worth of meat products are consumed every year. We don’t have to truck meat very far.
“The point I am trying to make is that there’s a reason we are where we are and its not because we are raising livestock here.”
While all of this may sound overly negative, Mike said that you needed to realize that building an abattoir is a serious and expensive proposition.
Here’s Mike’s suggestions of how to start if you want your own abattoir.
First, go wherever you have to go to find a good packer you can trust.
Be willing to transport your animals at least 300 miles to slaughter as that is the average distance cattle are hauled to harvest in the central United States.
Once you get production up to 200 head a week, offer to buy your packer out.
“Once you get your production to that level, you’ve got him more than he’s got you.”
He said buying an existing, staffed, plant is much easier than a startup where you have to train all the workers from scratch.
“The problem is that unless you have actually started one and trained the staff, you probably aren’t qualified to determine if the existing plant is a going concern or if it is just a lifestyle business the owner has been able to force to work by carrying an exceptional load of less than market compensation.”
Mike said that he does consulting and plant feasibility studies for both buyouts and new plants but that he does not do this for free.
“I’ve got 35 years of very expensive education in successful, small scale meat packing. I am not going to give this knowledge away for nothing.”
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