Midwestern Country Locker

Small Meat Processors October 08, 2008 Print Friendly and PDF


This case study details a small locker-type plant from the Midwest (owners have asked to remain anonymous). The facility has been in continuous operation since 1939, under 6 different owners. The locker is state-inspected for hog slaughter and for processing, but more than 90% of their work is custom uninspected, and they offer a wide variety of ready-to-eat products.


Contents

Basic information


Capacity per week:Average 11 beef and 15 hogs, an occasional sheep or goat. They process approximately 3500 lbs. of deer per week for 16 weeks during deer season plus some turkeys and other wild game.
Hours/days of operation: 5 a.m. to 5 p.m. Mon-Fri, half day for pick up on Saturdays. Slaughter Mon-Thurs.
Weeks/year: 52
Species: all red meat; will also smoke or further process poultry.
Services: slaughter & process; raw and ready-to-eat sausage; hams, bacons, dried beef, beef jerky, BBQ; case-ready, retail packaging
Square feet: 1875 (it's tight)
#/type of employees: 11 employees, 8 full-time (includes owner)
Annual sales revenues: $540,000 (mostly services, ~$100,000 in retail/wholesale sales).
Price of services: slaughter: $25 lamb/goat, $27 pig, $46 steer. Cutting (to case ready, based on hanging weight) = $0.74/lb lamb/goat; $0.43/lb whole beef/hog; $0.45/lb 1/4 beef or 1/2 pork; $0.48/lb 1/8 beef or 1/4 pork; $0.74/lb bone-in deer; $0.96/lb sausages; $1/lb hams and bacons; $2.40 beef jerky; patties $0.60/$0.89 unseasoned/seasoned (all processed product prices based on green weight of meat).
Operational costs: $540,000 - plant breaks even once depreciation and mortgage payments are factored in.
Retail on-site: Yes, small.
Wholesale: Yes, to local grocery stores and for large events (no catering).
Inspection: State-inspected for red meat processing and hog slaughter.
Certified organic: No
Certification agency: n/a
Custom work: More than 90% of business.
Source verification on label: No, have not considered it.



The market opportunity

This part of the country has a long tradition of farmers selling animals "on the hoof" (live) to local customers. Despite buying patterns shifting towards more supermarket meat purchases, the area continues to support much livestock production. Organic and other alternative production techniques are growing in prominence in the area as is increased interest in 'buying local." While there is a higher density of small meat processors in the Midwest compared to coastal states, this facility is the only inspected red meat processor in a livestock-dense county.


Basic history/development

The town financed building of the facility in 1939 at the request of local townsfolk and farmers. The town found a skilled butcher to operate the plant and arranged for him to slowly pay the town back and take private ownership of the locker.

The business has changed ownership by purchase 5 times since the original owner. Equipment has been updated many times - including a new smokehouse and vacuum stuffer in the last decade - but the overall building remains largely unchanged since it was originally built.


Funding sources

Over the years, ownership transitions, renovations, and equipment have been financed by equity and conventional bank financing. The current owner worked in the plant for seven years before buying the business in 2008. He sold a herd of 40 cattle for his equity and financed the rest of the purchase with a bank loan. However, the seller had to finance the sale of the building itself; the bank did not think it was acceptable collateral, as it was quite old and rundown. The whole sale price was approx. $210,000:
• $40,000 for lot and building
• $20,000 for inventory (not meat, but spices, packaging, boxes, sanitizer, etc.)
• $150,000 for business and all equipment (includes newer 750 lb capacity smokehouse and 200 lb capacity vacuum stuffer)

The owner is currently investigating building a new 6,000-7,000 sq. ft. facility, to be financed by bank financing, tax increment financing (TIF) through the city, and perhaps outside private investment.


Business plan

No business plan was written for the change in ownership. The local bank financing the majority of the transaction was familiar with the business and only required the profit and loss statements from the previous 5 years.

In order to develop a plan and financial projections for the proposed large expansion, the owner has relied on university extension business development expertise and the state Small Business Development Center (SBDC), operated under federal-state cooperation under the Small Business Administration. Both have provided hands-on help at no cost.

Local and regional contractors and equipment companies are helping to estimate construction and equipment costs, based on rough designs by the owner.


Deciphering regulations and complying

While this plant is state-inspected, the state has adopted the federal regulations word-for-word, and so the requirements are the same. This state does not require the inspection of "custom-exempt" animals - those processed for the owners' personal consumption, not resale - the majority of the plant's business, only regular inspections of the facility.

Understanding how to write and update HACCP and SSOPs has been a real burden. The new owner has not yet been to a HACCP training course and relies on the previous owner to help with and sign off on plan revisions (all HACCP plans and revisions must be signed by someone who has received HACCP training).

For this particular plant and owner-operator, actual implementation of HACCP and SSOPs has not been nearly as hard as keeping the paperwork in order. He complains that his meat inspection program veterinary supervisor is constantly asking him to change minor details. (For example, the phrase "cooler temperature will be checked daily" had to be changed to "cooler temperature will be checked every day of operation." However, a HACCP plan must say what you actually do, and most people do not come in on Sundays to check their cooler's temperature. While annoying, changes like this are not hard to make.)

The old building is constantly in need of something (paint flaking off ceiling, drips in coolers, floor drains in poor locations - having to push water uphill).

Plant design

The source of the old plant's design has been lost in history. Designs for the proposed new facility were drafted by the owner. He drew rooms to scale on separate pieces of graph paper and moved them around on a table until he had a work flow layout that fit his production process. The owner is now working with contractors to develop actual building designs.


Big Glitches and how they were solved

As mentioned above, deciphering regulations has been a headache. Hopefully, this will improve after the owner and an employee take a HACCP training within the next 6 months.

There have been some cash flow issues since the current owner has taken over, requiring him to take out an operating loan of $30,000. He bought the business in February, the slowest time of the year. With employees to pay, less-than-average work coming in, and the 2-3 week lag between processing and payment, the first month was very hard. The owner says he should have not bought the plant at that time of year.

Other cash flow problems arose with refrigeration compressors breaking down and minimum order sizes on packaging (for example, he had to buy $4,000 worth of plastic bags for ground product). He says he needs at least $15,000 in his bank account to stay solvent.

If the business does expand into a new facility, he will need to put in a wastewater grease trap and aeration system to reduce the strength of effluent biochemical oxygen demand (BOD) and total suspended solids (TSS)). The wastewater lagoons of the small town where the plant is located would not be able to handle it.


Required equipment

The newer 750 lb smokehouse using liquid smoke has improved product consistency both within and between batches. The newer 200 lb vacuum stuffer has vastly improved quality and throughput: taking out voids, precisely measuring equal size portions, and automatically twisting sausage links. It's also easy to clean.

The plant currently has a double chamber vacuum packager. If he builds the new facility, the owner is seriously considering a continuous-stock thermoforming vacuum packager. While expensive ($100,000+), suppliers are often willing to provide reasonable financing, and vacuum packaging is one of the most labor-intensive parts of production.


Staff, how they were found/trained, what they cost

There are currently 8 full-time staff:
• One who slaughters and does some trimming and grinding
• Three main meat cutters, including owner
• Three additional meat cutters
• One trimmer
• One packager who also answers phones (although everybody always wants to talk with the owner)
• Two sausage makers

Three part-time staff float between clean-up, packaging, and trimming, although everyone participates in clean-up at the end of the day.

Most employees started with little or no experience and were trained in-house. A couple had experience from other plants.

Hourly rates run from $7.25/hr for someone new, to about $12.50/hr for the butcher, depending on experience. A reasonably skilled meat cutter earns $11-12/hour. (Wages are not high, but most full-time employees work 5-10 hours of overtime each week.)

Benefits include two weeks paid vacation and five paid holidays for most full-time employees, plus free lunch every workday. Health insurance is not offered at this time.

Finding and retaining good employees has been a constant challenge. This is the owner's biggest worry about building a larger plant.

Recently, the owner hired a part-time (~8 hrs/wk) accountant at $25/hr. While it was difficult at first to familiarize her with the meat processing business, she has been a great addition. The owner readily admits that accounting is not his strength. (The previous owner's wife used to keep the books.)


Financial sustainability plan

Currently the business has adequate cash flow, is repaying debt, and is keeping busy. Building a new facility will significantly increase the debt load (~+$750,000). Can the business take this on?


Markets accessed

Most clients are producers who direct market their meat. Most wholesale and retail sales are of whole-muscle boxed meat bought in.


Growth to date

Serious growth is under consideration. The previous owner grew the business about 300%, primarily by significantly increasing the variety and quality of the further processed products (e.g. sausages, hams, hot sticks).

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USDA / NIFA

This work is supported by the USDA National Institute of Food and Agriculture, New Technologies for Ag Extension project.