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Meat Marketing & Technology (Daniel J. Yovich, Snake River Farms: Coiled to strike? November 2003) THE HAMBURGER ISSUE SNAKE RIVER FARMS: Coiled to Strike?An aggressive marketing scheme coupled with a flair for product innovation has won the Boise, Idaho-based processor national acclaim-and a growing share of the high-end beef market By Daniel J.Yovich, executive editor By any measure, 2003 has been a banner year for Boise, ldaho based Snake River Farms, which grabbed the national media spotlight for its production of hamburger used by a New York City restaurant that became the most expensive burger in the world. Only a few months after the company began marketing its Kobe beef burgers in September of 2002, New York's Old Homestead Steak House added it to its menu-at $41-and the ensuing buzz generated news stories on CNN and NBC's Today Show, and provided fodder for late night talk show hosts Jay Leno and David Letterman. "After the stories hit, our hamburger sales increased by literally 10,000 percent," says Snake River General Manager Shane Lindsey. "They say word of mouth can be the best advertising. Well, what we saw was basically a firestorm of publicity that helped put us on the map." Snake River has since become a force to be reckoned with in the ultra-niche market of high-end proteins, positioning itself, as it were, to become the biggest fish in a very small, very expensive pond. Sales are expected to more than double this year, thanks to the publicity as chefs rave about the company's product line, and consumers appear to be increasingly ready to pay top dollar to dine on the company's Kobe beef. But success too has its price, and shortly after the news stories hit the airwaves and front pages detailing New Yorker's love affair with a $41 dollar, 20-ounce Kobe beef patty topped with lobster mushrooms, USDA investigators paid an unannounced visit to the company's plant, questioning the legality of the company marketing Kobe beef, which is named after the Wagyu beef from the Kobe region of Japan. Japanese Kobe beef can't be imported into the United States because of bovine spongiform encephalopathy (BSE) in that country. "It was basically a misunderstanding," says Snake River Marketing Director Jay Theiler. "We always promoted our product as American Kobe beef, and I think there was a little confusion on the parts of some folks. But that has been the only hitch, the only thing at all that can be construed as a negative. Right now, we feel like we're on top of the world." While Snake River's success in scoring national media attention occurred almost overnight, the company's full line of Kobe beef products has been 10 years in the making. When cows fly In 1993, company founder Robert Rebholtz, Sr., shipped a herd of 60 Wagyu cattle from Japan to the United States, the nucleus of which would become Snake River's operation. Wagyu cattle originated in the Kobe region of Japan, when several cattle were brought from the Asian mainland to the region in the second century. Originally used as a work animal the Japanese discovered the beef's exquisite markings, great flavor and tenderness. They have become the stuff of myth and legend, with tales of farm hands massaging and feeding the cattle beer. "There are a lot of misconceptions about the breed," says Lindsey. "In Japan, where land is a premium and cattle live in confinement, some producers will include beer in the diet, and they will massage the animals. But here in the U.S., we have ample space, and our cattle are very comfortable. So we don't share our beer with the cattle." Though somewhat scrawny by American standards, the Wagyu are generally believed to produce the best steaks in the world. In Japan, Waygu cattle are often bred with dairy cattle to produce Kobe beef. The Kobe beef from cattle fed at Snake River, however, are a cross of Wagyu cattle and American black or red angus, said Dan Hammond, manager of Snake River Cattle Feeders in American Falls. "We partner with producers who have great Angus cows and breed them with Wagyu bulls," says Ken Tew, a Snake River ranch manager. "Then we buy back the half-blood calves at a premium." What began 10 years ago as something of a risky venture has resulted in Snake River Farms becoming the largest domestic producer of American Kobe beef. And much of that success, company officials say, has to do with an aggressive but no frills marketing strategy. Pounding the pavement Snake River's 2003 advertising budget is less than $10,000, says Lindsey. New accounts are won by cold calling chefs and food and beverage directors, and, more recently, by word of mouth and by forming stratgic partnerships with other top companies like L.A.-based Newport Meats and Plainfield, N.J.- based Buckhead Beef for distribution. "We have concentrated on reaching the decision-makers at restaurants and hotels, getting them to try our product, educating them on who we are and what we have to offer," says Theiler. "We work hard to position ourselves as the key provider of high-end protein, and a lot of quality operations have picked up on what we have to offer." Snake River's cattle are fed a 'slow- grow' ration of barley, wheat and alfalfa. The varied diet, fed to the cattle for about 500 days, is an integral step in the development of quality Kobe beef. The slow-grow method packs fat on the inside of the muscle, not the outside of the meat like in common commodity beef. "That's what brings about the marbling," Tew says. "Essentially, it's the difference between French vanilla ice cream and a Popsicle." Despite the rich marbling found in Kobe beef, the product is surprisingly low in saturated fat, typically containing about 37 percent saturated fat, compared to conventional commodity beef, which contains about 61 percent saturated fat. Overseas sales make more than half of the company's total revenue, and Snake River's beef is featured on the menus in some of the most elegant hotels in Japan, South Korea, Singapore and Hong Kong. U.S. culinary stars like Wolfgang Puck and Thomas Keller of Napa Valley's French Laundry have become American Kobe believers, and feature Snake River's products in their restaurants. Snake River has trademarked the phrase; "the butterknife beef," and Lindsey says that once a consumer "gives it a try, he or she will be hooked." Consumers' learning curve But it's not just New York's haughty yuppies who are bolstering the ranks of the Kobe-converted. Many of the diners flocking to Chicago's Twisted Spoke don't know the storied history of Kobe beef, but they do know a good sandwich, says Cliff Einhorn, a managing partner of the popular eatery. "Eat, Drink, Ride" is Twisted Spoke's motto, and the joints are decorated to look like biker hangouts, with several hogs buried nose down in the dirt outside, a grimly industrial metal interior, and rust-covered facades. "I don't care what anybody says, a $41 burger is an abomination," says Einhorn, noting each of his restaurants' menus feature 8-ounce Snake River Kobe beef burgers for $9. Twisted Spoke's most popular sandwich is a Kobe beef brisket, and Einhorn says the majority of his customers either don't know-or don't care--that meat in their sandwiches comes from the legendary Wagyu cattle. "Honestly, I don't know if American consumers know what the hell they're getting, they just know it tastes unbelievable," Einhorn says. "I think a lot of our diners don't know from Kobe." Kobe's moisture-retention properties make it naturally juicy. Snake River builds on those natural characteristics by having its patties shipped from its Washington state plant to San Diego, where Jensen Meats grinds and forms the ground beef, using a modified and patented former-one of only two in the nation-that fills the mold by injecting product from the side rather than the top. "This keeps the juices in the burger, prevents dripping from top to bottom," explains Lindsey. Snake River's Kobe grades out at a level that can't be measured by U.S. standards. While Prime is the U.S. Department of Agriculture's highest grade for beef, the Japanese start Kobe beef three stages above Prime. Lindsay says his mission is to provide American Kobe beef not just to elite beef-lovers in New York and the Far East, but to the masses as well. Though its steaks are priced about twice the rate of Prime American meat, Lindsey believes consumers will pay more for Kobe's quality. "Our overseas customers have already seen the light," says Lindsey. A blueprint for export success Idaho Governor Dirk Kempthorne says Snake River is one of the state's "best export success stories," but the company is not resting on its laurels. Lindsey finished a week-long sales trip to Russia in October, hoping to gain a toehold in some of the country's finer restaurants and hotels. Theiler is planning a trip to Europe before the year's end in an attempt to win over potential customers in the European Union. But the Far East's markets remain Snake River's bread-and-butter, and Lindsay, who studied International Relations and Business in college in Japan, says his years in Japan convinced him that the Japanese have a much tighter link between producers, processors and consumers than United States producers and processors enjoy with American consumers. Just three years ago, 100 percent of Snake River Farms meat was sold in Japan. In 2002, that number had decreased to 30 percent, as Snake River has steadily won new customers in other Asian countries and the United States. Lindsay credits Snake River's sustained Asian growth in part to assistance from the U.S. Meat Export Federation, which has helped open new markets for the Idaho company. By sharing its local intelligence and two decades of experience with U.S. exporters, traders, buyers, end users, and processors in Far East markets, the federation helped boost Snake River's sales throughout Asia The trade association has offices in Seoul, Tokyo, Osaka, Hong Kong, Shanghai, Singapore, Taipei. "USMEF is extremely well entrenched in Japan, and they know the surrounding countries' markets very well," Lindsey says. "They have been extremely helpful in opening some doors, and frankly, we give USMEF something unique to talk about. It's easy for us to differentiate ourselves from the IBPs and Cargills." Building on success Snake River's parent company is Boise-based Agri Beef Co., the nation's eighth- largest feedlot operator. Agri Beef is a 35-year-old privately held agribusiness with diversified operations that include liquid feed formulation and manufacturing for the cattle industry, and ranching and cattle feeding operations in the Northwest and Kansas. In May, Agri Beef bought Washington Beef, a Toppenish, Wash.-based meat packing company, from its Japanese owners, a deal that Snake River CEO Robert Rebholtz Jr. says "provides us with a great geographic and strategic fit for our long range goals." Rebholtz, who assumed his position in 1997 after his father passed away unex- pectedly, says Snake River has yet to fully leverage its growth potential, and he believes U.S. consumers are becoming increasingly sophisticated in their protein purchasing. "That should spell continued growth for us," Rebholtz says. "I think we have yet to get a firm handle on just how big the domestic market for Kobe beef really is." Snake River has recently inked regional distribution deals with strategic partners that now give the company coverage of all 48 contiguous states. With its new partners, Lindsey says Snake River plans to become even more aggressive in pursuing high-end restaurants as the company begins to diversifies its product line. More than just beef In March, Snake River started selling American Kurobuta Pork in the United States. Kurobuta is an all-natural Berkshire Pork celebrated in Japan, and has long been the symbol of the highest quality pork available, but has not been widely distributed in the United States, until now. Compared with traditional white pork, Kurobuta Pork is darker and more flavorful, says Theiler, and "retains significantly more moisture after cooking which translates into a juicier product." On the horizon, Snake River may add a high-end lamb or veal product. "We are not the kind of company that stands still:' says Rebholtz. MMT |
