It is not very often you hear about a big company building a new supply chain from scratch. But that is the story ARC heard when Steve Sands, Vice President of Protein at Performance Food Group (PFG), came into brief us at our headquarters. Mr. Sands, an experienced pro in the beef industry, explained how meat has been transitioning from a commodity to a product where consumers don’t just want the lowest price for a limited set of grades of meat; they increasingly care about the attributes of the meat they are buying. There is an increasing number of consumers that care about how the animal was treated and how ecofriendly the farm production was. Others care about the attributes of the food including marbling, or whether it is organic, grass fed, and so on.
The Commodity Supply Chain
But the meat industry in the US has been built to support low cost interchangeable products at scale. Virtually all the agricultural research at land grant colleges, for example, has been focused on producing high yield meat, animals that put on more weight and do it more quickly. It has not been built to support more consumer choices. Consumer choices demand an infrastructure that can process segregated meat products in smaller batches with robust traceability.
PFG is the third largest foodservice distributor in the US with $17.6 billion in annual sales. As a foodservice distributor, they primarily deliver products to restaurants and institutions that serve food to their customers. PFG, like their competitors, has also created private brands. PFG’s private brands generate $2.6 billion in annual revenue. But in this industry, Mr. Sands asserts that differentiating brands is challenging. . PFG’s meat brands are designed to be authentic and to tell a story. As a result, its protein brands are driving significant growth for the company.
For example, Braveheart Black Angus Beef, the fastest growing brand in the company, speaks of a “fearless commitment to quality.” This is not just rhetoric. The company has set up distinct product procurement, traceability, and supply chain processes to make sure that the beef is beautifully marbled and produces superior flavor and tenderness. But if you make these kinds of claims, Mr. Sands points out, “you inherit risks. You better do what you say you are doing.” That means traceability and ensuring that suppliers are doing what they say they are doing.
Mr. Sands points out that authentic brands in this industry are particularly important because the USDA label definitions, such as ‘natural,’ are so broad that they lose their validity. The labeling issues, and the difficulty of tracking distinct types of products, puts the US at risk of losing market share to more nimble foreign competitors that can. “Organic” is defined as animals that never received antibiotics or hormones; the animals were also fed organic food or were grass fed on fields where there are no traces of fertilizer or herbicides. The animal agriculture industry represents 5.6% of our GDP and generates over a trillion dollars annually. Losing market share could have significant consequences for our economy.
A New Supply Chain
Braveheart Black Angus Beef was PFG’s first attempt at developing a new supply chain. The most common beef supply chain in the US, and the one Braveheart participates in, includes farms that raise calves, farms that graze cattle in their fields, feed lots, and meat packing plants. Some calves are sold to other farms that fatten them up in grass fields for one to two years before they sell the cattle to feed lots. Other calves are sold directly to feed lots where they are fed corn. But even the grass-fed cattle move to feed lots where they are fed corn for several months, and quickly put on weight, before moving to the meat packing plant.
The commodity model the packer controls the supply chain. The packer takes all healthy cattle and only pays an average price no matter what special attributes a steer has. Exceptional steers (those that are nicely marbled, for example), are mixed with steers that will be chewy and lacking in flavor. Packers capture any premiums when the carcasses are sorted and labeled by the packer. This is not a model that incentivizes farmers to produce superior product, it incentivizes them to sell larger cattle.
Mr. Sands says that selective breeding and the use of hormones has led to carcasses that weigh 950 – 1000 pounds on average. “Carcasses that average 850 pounds or less taste better. The Black Angus breed of cattle tastes best.” Further, even a steer that is almost entirely of Black Angus stock, if it contains any trace of the Brahman breed, will just not taste as good or be as tender. Braveheart Beef is fed a 100% U.S. grain-based diet, and then it’s finished on Midwestern corn to ensure superior marbling. Also, the Braveheart brand specifies a ¼-inch maximum trim, where many packers allow up to a 1-inch trim, so consumers will have a superior dining experience and less waste.
While cattle can be fed hormones and drugs at many points in their life, because of consumer health concerns, the Braveheart brand has processes in place to ensure no trace of hormones or drugs in the cattle when they reach the packer. The cattle are “residue free.” Braveheart cattle are also transported 200 miles or less for processing, which puts less stress on the animals.
In order to create better beef, PFG has created a market driven supply chain. This means paying farmers more to produce better animals and paying the farmers directly, instead of having packers pay the farmers by the pound. PFG proudly supports individual farms and works closely with co-ops like the BMG (Beef Marketing Group).
Building Farm to Fork Traceability
The company also needed to ensure that the beef they were getting from the packing plant came from the cattle raised to their specifications. This meant a traceability program. While cattle often have RFID tags attached to their ears, when they get to packing plants and are dissembled, the traceability breaks down. PFG creates traceability at the plant by taking a DNA sample of the carcass. They are working with IdentiGEN, the leader in this field. IdentiGEN has a facility in Lawrence, Kansas that processes and stores the samples. Mr. Sands notes this “allows us to link the steak on a plate to the specific animal and source.”
Every animal is sampled directly at the packing plant in the program. While this amounts to millions of pounds per month, less than 1% of the cuts delivered to restaurants need to be sampled. In describing the broader impact of PFG’s approach, Mr. Sands made the analogy to a camera at a traffic intersection: its very presence leads to better behavior. And of course, if a restaurant does complain about the quality of meat they get, the meat can be matched to DNA samples and it can be definitively determined what the source of the meat was.
In addition to DNA testing, PFG uses three audits annually at feedyards to ensure that the cattle receive good care and produce safe and healthy beef. Their partner is Progressive Beef. Two audits are internal audits conducted by Progressive Beef’s quality assurance team. The other is an audit conducted by an independent third-party that is a USDA-approved auditing company. Each audit provides a report card based on specific metrics. The metrics involved play a key role in allowing a feedyard to engage in continuous improvement.
PFG also learned that they needed to pay packers more for their services. The production line needed to be slowed down. Fast moving lines could end up leading to Braveheart meat going to non-PFG customers and PFG receiving meat that is not trimmed to their specifications.
The final step in the end-to-end supply chain is to make sure that restaurants that get this premium product know how to properly age and prepare it. Braveheart Beef is the only U.S. produced beef to have received the Certified Master Chef’s Institute Seal of Approval for the exceptional flavor and tenderness of the product.
In conclusion, over the past decade or so, the US beef marketplace has begun to transition from a price-driven, homogenous, commodity market toward a marketplace capable of providing more differentiated products for consumers seeking beef with a variety of different attributes. Mr. Sands and PFG have played a key role in that transition.