Estimating Whole Hog Value Internet Pork Marketing Experiences
I am a veteran of the meats business, having worked for Wilson Foods and several other folks in the packing business before I went to the National Pork Producers Council (NPPC) as a food service representative. I worked 10 years for the National Pork Producers Council on commercial and non-commercial food service marketing. About 4 years ago I was offered a job in the brave new world of dot-com, Internet marketing of pork.
First of all, I appreciate the opportunity to speak to you. I never thought, once FoodUSA.com went broke, that I’d have the opportunity to tell people about how great it was, how great the concept was, and how many mistakes we made. For those of you who aren’t familiar with the dot-com crash, you are lucky. In fact, one of my friends calls it the “dot-bomb” world.
Almost three years ago, in December of 1999, I was approached while at the National Pork Producers Council to move to FoodUSA.com. They wanted to hire me because of my career marketing experience. I spent twenty years with Wilson Foods and ten years with the NPPC and they felt like they needed my Rolodex and my list of names and the contacts that I had to go out and sell this dynamic new program to the meat industry.
One of the things that made me change jobs is an envelope that a friend sent me about seven years ago. In that envelope was a photo static copy of a carcass. A pork carcass. It was just like all of the rest that we’ve seen. It had the ham and the loin and the belly and all the primal cuts. I called him and I said, “John, I appreciate this, and it’s a nice picture, but what’s this for?” And he said, “You didn’t get the message, did you?” And I said, “Well, not really. You know I work for the Council and we’ve got lots of these. Why would you send me this one?” And he said, “Look in the lower left hand corner.” In the lower left-hand corner of that photo, or that photo static copy, that came out of a magazine, was the name of the publication, and the date. It was over 70 years old. He said, “The message here, Ed, for you and anybody else at the NPPC, is that if you do the same thing today as you did yesterday, you’re going to get the same results.” This picture was identical to the ones we now still use. And it made me think. If we’re going to change something in this industry, we have get out and try new things. We have to do other things.
Well, lo and behold, the opportunity came along with FoodUSA and I thought, I want to make a difference and I want to see what’s going on in the dot-com world. It was exciting, it was new, it was wonderful, so I left the NPPC and in January of 2000, I went with FoodUSA.com, an Internet meat exchange.
We had all ideas. April 12th was our launch day. We did a lot of preparation prior to April 12th. My job was to go out and bring people to the system. Retailers, packers, processors, foodservice distribution houses, people we felt could use the system. The ideas that we had were dynamic; they were great.
These slides (PowerPoint slides included on web site) are actually a presentation that we gave to potential customers, or to potential users of the meat exchange. How better could I tell you about it than to use the presentation that we gave them? That’s why the slides have the year 2000 on them. What we proposed was a real-time on-line exchange for meat buyers and sellers who could trade on an open market. Well, it’s no different than what they’re doing now, and we realized up front that people were resistant to change. We wanted to change them to the Internet way of doing things as slowly and as easily as possible.
We were going to offer a concept that utilizes the same bid/ask system that they always had. How do you sell spot-buy meat? Well, the packer calls the broker or the customer calls the packer and says, “What do you have?” or “What do you want?” “I need a load of loins.” “Well, I’ve got a load of loins for at $1.17.” “I want ‘em but I only want to pay $1.16.” Same concept, the only thing we were going to do was take it from a verbal communication to the Internet.
We thought these were the real dynamics of the process of spot-buys and packinghouses, which used to be my job at Wilson Foods. The way the system works is that the person that sits on the desk at the plant comes in to work in the morning, figures out how many pigs they’re going to slaughter that day and how they’re going to cut. He figures out times two equals how many loins they’re going to get, how many butts they’re going to get, then figure the sizes, and he subtracts known sales from that. And what he has is a surplus for about a five-day to two- week average. Then he offers that list to the corporate office.
I sat on both sides of the desk. I sat at the plant and did this. I also did it at corporate offices. Once you get that mathematical thing figured out, you call your counterpart in the corporate office and you say, “Okay Ed, I’ve got X number of loins today, this kind, this size, this weight of hams, butts.” Ed at the corporate office goes through this system with each one of the plants. That takes time. That takes a phone call. And while he’s on the phone with one plant the guys from the other plants are all waiting on hold.
So, we were going to take all this delay out of the system and do it much faster. We’ll put it on the Internet. The guy at the plant can still do his mathematical thing, he just plugs it into the Internet and the corporate office has it. When every plant does that, it’ll get added to one sheet, and all of a sudden you’ve got an offering that’s instantaneous. We save time and labor for the system.
The other thing is, once that person at the corporate office figures out how much he has surplus as a company, he does the same thing and he puts it on our exchange. He stops calling every single packer, every single processor, every single vendor, every single broker, because they have that information instantaneously. It’s a great vehicle. It expands the marketplace. It puts little guys, the regional packers that can’t afford a salesman to go out and call on all of these people all over the region and all over the United States, on the same level as the big guys that have the sales staff that can do that. They can do it instantaneously, just like the big guys can.
Man, what a concept! Fantastic, right? Bigger marketplace, you can sell product in California now, where you really used to not be able to sell it beyond the Chicago border. Or the Illinois border. We intended to have a total solution, not just an exchange. Because, if we’re going to do this and provide these services for smaller people, smaller packers and processors and vendors, we were going to have to supply logistics, we were going to have to supply them market information, freight, export logistics. This is a worldwide solution. We could now go internationally from the small guys as well as the big guys.
And credit. I didn’t mention the credit. This is a dynamic. How many of your packers around here are people who deal in credit? When you get a new customer, if you’re a salesman, it’s the worst thing in the world because then you’ve got to get credit approval. You’ve got to take a form, have the customer fill it out, send it in to Mary in credit, and Mary in credit may or may not do it this week or today. It may be next week before you can actually sell to that customer.
One of the dynamic ideas that we had on credit was the simple solution. We were working with a bank that was actually going to do this with us. The simple solution was like a credit card, and that’s the easiest way to explain it. The buyer would establish an account with a credit bank. The seller established his account with a credit bank. It didn’t make any difference if they buyer knew the seller, or the seller knew the buyer, because everything went through the bank. This did several things. Number one, we picked up a little bit of a fraction of a cent along the way, so we made money in that respect. Number two, the buyer didn’t have to go through the process of giving all of his credit information to an individual packer or processor or seller. And number three, the seller immediately got his money. He didn’t wait the thirty-, sixty-, ninety-days that he sometimes did. What a novel idea.
For instance, I call and buy a load of meat from someone I’ve never heard of before. All I do is give my account number to them. They clear it through the bank and it’s a done deal. The meat ships, I get delivery on it, the money goes to the packer. Shortens up the time. Great idea and theory.
We know that there are people out there who don’t like to do all of this by themselves. They’d like to hear that voice on the other end of the phone, and once in awhile they get confused. So we had people sitting, watching all of the transactions on the computer that were going on. If at any point you had a question, you could pick up the phone, dial an 800 number and talk to a real person to complete the transaction.
Complete neutrality. This was one we hung our hats on. We felt that neutrality was so important. We weren’t backed or funded by a packer, by a processor, we weren’t funded by a retailer. We were neutral, and we felt that was one of the key important things that we had to sell to the world because it wasn’t biased. Remember, these were the things we believed at the start.
AMI alliance. We campaigned for and got support from the American Meat Institute. We felt like getting AMI support was like getting the Good Housekeeping Seal of Approval on our product and we felt like it was one of the better things to have. We had a total solution, the exchange was a vehicle that does it, and we were doing everything that we could to make those sales work.
Some of the partners we had were:
MSAS (Mark Seven) is a logistical company that’s all over the world. They guaranteed us that they could give us cheaper freight rates, or our customers cheaper freight rates. , If there was a problem with a load of meat, they knew all of the niches and crannies and all of the warehouses that you could take a load of meat so it didn’t sit on the transportation. They were able to combine loads for those little part-loads that you might have with other companies rather than you trying to make a full load of meat.
Silliker Labs. Well known internationally as well as nationally, Silliker Labs. Especially if you’re dealing with people you don’t know, Silliker goes in and does a plant audit for vendors. Silliker agreed to work with us. Number one, it reduced rates. Number two, if they already had a plant inspected – if you bought from someone that was already in their files, they would share that information. We felt that was a plus.
Ag Info Link. We were ready to track livestock and meat. We were working on the system to combine with Ag Info Link. Ag Info Link has a process whereby they tag the animal’s ears, it’s a bar code type program, where they track everything about that animal from the time it’s conceived, all the way through the production facility, all the way to the box. So, we were going to be able to tell that the steak that you ate in the restaurant in this hotel, exactly where it came from all the way back to its parents.
Consulting resource. We were going to consult to all of the people that we work with. We were going to service the customer’s needs. Extensive training programs. We physically flew in many companies to look at our operation and train them on how to use it. Our IT team was available to go out and help with transitions.
Senior management reports. That was one of the things I thought was fantastic that really stuck us. We had the ability with the exchange that we could track the way that everyone bought. Now, if I bought and sold a load of meat, if I’m a seller, and I sell loins, they would track me. And my boss could come in and say, well, your employee Ed Bass, he trades all your loins. And his boss would say, “Yeah, he does a hell of a job”. And we would say, well, maybe so, but when you compare when Ed normally sells, you can tell Monday morning when he’s had a big weekend and he doesn’t get on the ball real quick based on the way he sells.
We could track what time he sold, we compared that to the USDA market, and all of a sudden we found out that Ed Bass always sold a day after the market went down a dollar. We could track these things and give senior management that kind of feedback. Sounds pretty good, doesn’t it? Great stuff.
Benefits to the buyers. I mentioned more potential sellers. We could go not only outside your region, but internationally as well. It was a live real-time exchange. Fewer intermediaries, so you didn’t have as many people to cross lines, as many people to pay, no brokers. We were charging a fraction of a cent on transactions. We thought that eventually we’d get to the point that we would not charge for transaction fees, that we would make our money based on the peripheral things around it. Like Ag Info Links, the money in banking schemes, those kinds of things.
Faster inventory turns. This is really true and a group called Flora Plex proved this. They handled all of the European flowers. They had proven with the advent of an exchange that brought the product, or the flowers if you will, from the farm level. Flowers were pre-sold instead of bringing them to the market. They were brought from the farm level directly to the end users and that would actually add 3-5 days shelf life to the flowers that you bought for your wife and put on the table at home. We felt like we could do the same thing with the meat industry.
Daily market information. We were going to be connected and give all of that information to everyone in our system.
Truer price mechanism. How many people trust the pricing that goes on? Yes, we have the USDA and they’re all honest. But how many people tell 100% of the truth about what loads are sold and what loads are sold under the table? We were going to report them all, because that was our job.
ERP integration. We would integrate our electronics with all of theirs so that it would be one continuous flow.
Instant credit approvals, lower cost of freight and warehousing have been discussed. The sellers’ benefits were pretty much the same there; I won’t bother to go through each of those because they’re the same thing.
What I want to get to is that any good idea like that has competition. If it’s a good idea there’s going to be a lot of other people out there. We knew it was a good idea because there were so many other people out there doing it. AgriBuy, SellMeat.com, Global Foods. Go Fish. Poultry First. Commerce Ventures. None of those, including FoodUSA, are still alive.
Let’s talk about Commerce Ventures. Anybody heard of them? Here starts the downfall of the system. When we hit the street in early 2000 to talk to retailers and to talk to major buyers their comment was to us, “Hey, that’s great. But we’ve already got a program set up with IBP, with Excel, with Tyson, with whomever. Are they on your system?” “Well, no, we haven’t talked to them yet.” “Well, when you talk to them, call us, and if they’re going to get on, we will.”
Early on, IBP came to us and said, “You know, we think this is a great idea. We want to buy you.” Well, remember when I said ‘neutrality’? We wanted to stay totally neutral. That was a mistake. We said no. They came back to us and said, “We want to buy in as a percentage.” We said, “No, we want this to be totally neutral so we can say that and it’ll be totally neutral and be a good marketing tool.” On April 12th, 2000 FoodUSA.com launched. On April 11th at 4 o’clock in the afternoon, IBP made a news release that they were going to form their own company with six people involved and call it Commerce Ventures. It literally pulled the rug on everything that we were trying to do, because then we couldn’t get the major retailers involved because all of the major packers were going to do their own thing. They sat back and waited.
We then came up with the idea of a private marketplace. We couldn’t do the public thing because we can’t get the major packers and retailers. So we decided that we’d become Internet experts and offer to you, buyer or seller, a private marketplace. We went to the majors and said, “Instead of you doing it, why don’t you let us do it for you? Why don’t you let us set up the private exchange?” And if you are Cargill or Excel and you want only Super Value or Albertson’s to see your pricing, give them a password that will only allow them to see what you quote them. We’ll give you the technology and set up the storefront for you. Put your business logo on it, and it’ll be totally your business controlled by you. We would give them the online marketplace, they’d have to go through the public exchange, which is what our original exchange was, to click onto the other logo, but it would still be branded, they’d have their own integrity, and it was secure. No one could get in it without giving the password.
We were integrated, we were going to interface with their electronic data input systems. We were going to be able to make it a smooth flow so that everything could be done online. Invoicing, purchase orders, confirmations and advance shipping notices. Same thing as I just said, you define the customer, you define the customer program, you decide who you want into that system.
So, you see, the whole thing sounded really good. We could give them transportation; we could give them trade facilitation; we give them customer support on the technology. We give them assistance with the product for export. If you weren’t in the export business, I used to try to do that in my days at Wilson Foods, there’s a massive amount of paperwork and things you have to do in order to make that happen, we had a company that would step in and say, “Okay. We’ll help you with that.” We’ll make you a world marketer.
The credit services – we knew we had the solution on that simply because- How many people want to wait for their money? No one wants to wait for their money. Add the access to the public exchange. I’m going to stop there because the money thing is one of the things that shot us in the foot most of all. We thought we had a grand solution.
In reality, the buyer hated it. Have you ever heard about a company called Wal-Mart? Does Wal-Mart pay its bills very fast? Why don’t they? They use your money. They’re going to use, and every other company in the world wants to use, somebody else’s money. Interest rates are cheap now, there’s not as big an advantage. But if they’re borrowing money to build brick and mortar, why not just keep some of that money that we owe IBP or we owe Excel or we owe Tyson, and use that for sixty to ninety days and pay them at the end of cycle? And that’s what happened. Buyers hated it. They wouldn’t use us because of that.
We would give them instant Internet presence, we had all of the expertise, all of the software to make people overnight Internet capable. Why it didn’t work? I’ve already addressed a few of the problems.
One of them was that we failed to bring the big guys. The big guys wouldn’t come, the big packers wouldn’t come unless the big players on the other side were involved. IBP wouldn’t come unless Albertson’s, Safeway, Wal-Mart and some of those people were involved. Likewise, we failed to get the major retailers, the game became who’s first – the chicken or the egg?
Lack of computer and Internet expertise by sellers and buyers. This is something that none of us anticipated. You know, we talk about change being the only thing that’s constant. I had no idea how little Internet expertise we had in the meat packing industry. We made a presentation to one company where one of man literally picked up the mouse and aimed it at the screen like it was a remote control for a TV. We knew we were in trouble. There wasn’t enough expertise out there. They needed the expertise; they needed the computers. A lot of companies don’t have Internet access on every desk. They don’t trust their people. One particular company that I called on was very blunt in saying to me, “Ed, if you go around the office, we have a row of offices around the outside edge. All of us have Internet access. Now, you see this big area out in the middle? That’s where all the work’s done. We don’t trust those guys out there. They’ll be looking at the wrong thing, playing on e-Bay and playing games. So, we don’t allow them to have Internet access. Just us.” Well, you can see what’s happening with that.
Lack of Internet trust. We found out that people were not willing to post pricing and supply on the Internet. How many guys would write a note to your wife and say ‘honey, I can’t stand another weekend of your mother-in-law? I’m not going to be here when she comes over this weekend.’ Would you write a note like that? You might say that, but you’d never put it in print because how many times would she drag that note out and stick it under your nose?
That’s how the packers and buyers were thinking. They don’t trust the Internet. They don’t want to put their pricing up there to show the world what they’re asking because they might want to change it. Even though they had the ability at any time to change that pricing. They didn’t want other people to know what quantities they had. I said, “Okay, so you’ve got 20 loads of loins. Put one up there, if it sells, put another one up there.” The reply was ‘Well, we don’t want people to know. A lot of time we hide those’.
Then, the other side, those that we did get to use the system didn’t trust us. So, although they were using a handwritten system before, they came in early, plugged it into computer and then did their handwritten thing as a backup so they didn’t lose any information.
I believe the FoodUSA.com system will work. eBay works wonderfully. I believe a system like this will work in the meat industry and can work in the meat industry. I think timing is everything. I think we were ahead of our time as far as the Internet was concerned. We were ahead of our time as far as the trust in the Internet, and we were ahead of our time as far as in place vendor technology.
FoodUSA.com ran out of money. Like every other dot-com in the world. We launched in April 2000 but in March of 2000 we all saw what happened to the stock market on the Internet thing. We got on that slide and went right along with everyone else. Dynamic idea, we had a lot of kinks to work out, a lot of things that didn’t work that we thought would.
You have to look at things like this as being a pioneer effort. The early settlers came across the U.S. in covered wagons and a lot of them didn’t make it all the way from the East Coast to the West Coast. They eventually figured out how to do that, and those that came behind them had it much easier. That’s exactly what happened with FoodUSA and actually all of the other dot-coms that did the same thing. They pioneered the effort.
They made the effort, they spent the money, and honest to God we spent an awful lot of money doing it, many millions of dollars in our case, but the point is, we learned what we did wrong. We learned that the assumptions that we made in our original business plan were not the right assumptions to make. People will tell you what they think you want to hear, and in reality will do something else. So you have to look at what reality is.
Now, I’m very shortly going to tell you about the second business I joined. Having not had enough of FoodUSA, the tech world – my background is all in the pork industry. It’s always been in packinghouses, as product management, as sales, it’s always been with NPPC. So this was new to me, and I like new things and I like change. I thought, this tech thing is going to go. Somebody is going to pick this up and they’re going to make lots of money. And, I might add, I wanted to be that guy making the money. You’ve got to look at these things, and you’ve got to believe there must be a pot of gold at the end of the rainbow somewhere.
When I went with FoodUSA, they offered me about ten grand more than I was making at the NPPC. A bonus program that would double my salary. And I wound up with 30,000 shares of stock options. That sounds pretty good. Stock options. But thirty thousand shares of nothing is still nothing. And a company that closed, even though you made ten grand more is still nothing. And if it’s closing, you know nobody got a bonus. So, you know it doesn’t work.
At the end there was a company called World Commerce Online that was trying to buy FoodUSA.com. FoodUSA.com tried very hard to sell out. Our guys were still very proud of the company and they let it go broke instead of sell. Well, at the end of that time, World Commerce Online picked up some of the people they wanted to hire and I thought, man, that’s a great opportunity! I’m just going to change ships. That ship lasted seven months and then it went under.
The technology is there. World Commerce Online had an excellent program. I’m not going to get into the details of it, but they had a supply chain management program that, the first time I saw it, did everything from clicking the button. It would automatically order the product, it would find the cheapest product out there from the vendors that you allowed it. It would find the cheapest freight rate from the freight companies that you plugged in. It would order the product through the warehouse, through the distribution center, back to the vendor, and then it would spit out a program that told the guys that picked the orders in the plant how to load the truck, if it was a stop-order load.
Phenomenal technology. The first time I looked at it, I said, “It’ll never work because we just came from a company that no one was ready to do this yet.” And that’s the key. They have to be ready to accept it.
I get excited talking about it because I think it’s a great concept. It didn’t work. The meat industry wasn’t ready. Two and a half years since have changed a lot of things. And I think in another two and a half year you’re going to see a lot of this kind of thing creeping back into our industry.
The IBP offering that happened a day before yours, is that still going on? Whatever happened to that?
Commerce Ventures? Commerce Ventures opened up, I think, about seven months or eight months later. I think it was almost a year before they ever did anything. Their program, I don’t know the exact dates on it. They leased the technology, they didn’t buy it or own it as we did. 1When their lease ran out on the technology, the company that owned it took it back. And that segment of Commerce Ventures went out of business. It was called Provision X. And I just talked to a friend of mine the other day, he told me that the technology now has been sold or leased with an option to buy to another company at a much-reduced rate. So, there are still people out there trying to make it work, but it’s through a different channel.
A lot of the same people I worked with at FoodUSA wound up staffing at Commerce Ventures as well.
This is just a comment. One of the things you need to do is plan an exit strategy and know when to kick it off.