Business Insider

How Boise’s Agri Beef has persuaded people to buy high-priced Northwest cuts

Before Agri Beef crossed the $1 billion yearly sales threshold, before it took a chance on Wagyu cows and before the company was even formed, founder Robert Rebholtz Sr. had to convince bankers that he could turn around a bankrupt feeding lot in American Falls.

The San Francisco native had the resume for the job: stints working on California ranches, a bachelor’s degree from UC Davis in animal husbandry, an MBA from Stanford Business School, and five years managing a ranch in Battle Mountain, Nev.

But he didn’t have the cash to buy the 4,000-head Snake River Cattle Co. lot in American Falls, where cattle were beefed up before heading to the slaughterhouse. So he pitched a business plan to bankers at First Security Bank, which owned the lot, said Robert Rebholtz Jr., who succeeded his father as Agri Beef CEO. The bank agreed to finance the purchase. That was in 1968.

Rebholtz Jr. does not know how much his father paid for the first of his many properties, but the bankers’ trust appears well-placed. The feed lot flourished, quintupling capacity to 20,000 head of cattle and becoming the building block for a company that today employs 1,200 people and buys cattle from more than 450 ranches in the Northwest.

The family-owned company oversees a network of feed plants, feed lots, a beef processing plant and an international distribution network from its shiny, three-story headquarters at the intersection of Americana Boulevard and Shoreline Road. Thanks in part to record-high meat prices, Agri Beef enjoyed one of its most profitable years in 2014. That success followed decades of swings in a volatile market, investment in a strategy that failed for a decade, and a cancer battle that ended Rebholtz Sr.’s life and leadership before anyone — especially his son — was ready.

BIG SKIES, BIG COMPUTER

Rebholtz Sr. moved his family to Boise and founded Agri Beef in 1978 in a partnership with Rich Hormachea, who owned two feed yards in the Treasure Valley. The new company bought an IBM computer to automate entry of reams of data tracking feedlot activities and selective breeding.

Rebholtz Jr. said that was the first computerized system in the beef industry. The machine was massive, taking up most of a room. “We had to build the third floor for it,” he says.

That year , the company also founded the division that would later become PerforMix, a subsidiary manufacturing livestock feed for Agri Beef feed lots and to sell to dairy and beef operations in the region. Today PerforMix, based in Nampa, operates feed plants in Fruitland and in Moses Lake, Wash. A third plant is under construction in Rupert to produce a liquid nutritional supplement.

Rebholtz Jr. said the company was still decades away from pursuing its current “farm to fork” strategy that eventually gave Agri Beef control over the entire chain of production. Still, the feed plants were the first step toward vertical integration.

AGRI BEEF LOOKS EAST

In the late 1980s, Rebholtz Sr. and his team identified a new market waiting to be tapped: Japan. The company saw a population willing to pay dearly for Kobe beef, the Japanese-grown meat famous for high marbling. With little grazing land available in Japan, Rebholtz saw the opportunity to tailor Agri Beef products to Japanese tastes.

In 1988, the company adopted its first Wagyu herd (pronounced wag-you) and cross-bred Angus cows with Wagyu bulls imported from Japan to create an American style of Kobe beef. Wagyu cattle are fed barley, alfalfa and wheat for 500 days instead of 120 days typical for most beef cows. That boosts marbling. The high cost of feed is made up in premium-priced cuts: Snake River Farms Wagyu beef available to order online includes 6 oz. filet mignons starting at $36 apiece, 6 oz. New York strip steaks for $55 apiece and 20 oz. American Kobe caps of ribeye for $149 apiece.

The plan was to sell 100 percent of Agri Beef Wagyu products to Japan, Rebholtz Jr. said. But demand there softened with its economy, and Wagyu dragged on company books for years, he said.

“It was a tremendous risk,” Rebholtz Jr. said. “For the first 10 years, the Wagyu program lost money.”

Crisis bred innovation for Agri Beef and its Wagyu program in 2003 during a scare over mad cow disease, when regulators cut off beef exports. The company scrambled to find domestic partners and found some in celebrity chefs. Wolfgang Puck and Thomas Keller became media advocates for better-than-prime-grade Wagyu, using Snake River Farms cuts on TV and serving them in their high-end restaurants.

“We very quickly built up domestic distribution networks,” said Jay Theiler, vice president of marketing. “We owe a lot to those key influencers, because they saw the quality. Because they were credible, our story was a lot more believable.”

Today, more than 80 ranches supply beef for the brand, which distributes Wagyu products domestically and overseas.

NEXT IN LINE

Rebholtz Jr., 51, hadn’t planned to lead Agri Beef. He thought his days in the cattle industry were over when he left Boise to study business and finance at Santa Clara University, a Jesuit school in California.

“I wanted to study business, to potentially run my own business,” he said.

After graduating in 1986, Rebholtz Jr. went to work as a business analyst at Malacha Hydro, a hydroelectric startup in Northern California. He worked with his father and Hormachea, who were partners in the venture.

In April 1996, Rebholtz Sr.’s lung cancer was diagnosed. His health declined quickly, forcing him to step aside from the business before he died nine months after diagnosis. With the future uncertain, the Agri Beef board and Rebholtz Jr. decided he would succeed his father, he said. Rebholtz Jr. was 32.

“[The death] shocked the family,” he said. “[And] it shocked the family of business, all of the people who had come to work for him, who enjoyed him. There was a lot of concern and uncertainty about the future.”

Rebholtz Jr. said he leaned on the expertise of longtime Agri Beef leaders while getting up to speed. He had academic business training and he knew the cattle side of the business. But learning about distribution, markets and everything else took time.

“I was driven by a dead focus to make sure the company succeeded,” he said. “A lot of people’s lives rested on the company. It became my focus, working with my team to try to build this company.”

VERTICAL INTEGRATION

Delving into Wagyu produced an unwanted side effect for Agri Beef: finding processors willing to do custom work.

“Packers don’t like that sort of business,” Rebholtz says. “We bounced around a little bit. It became difficult to control the quality straight through.”

In the early 2000s, the company also worried about rumors that beef processing plants in the region would close and drive up transportation costs to deliver cattle to slaughterhouses. Agri Beef tackled both problems in 2003 by buying the Washington Beef processing plant in Toppenish, Wash., from a Japanese company for an undisclosed price.

The plant today employs 900 people and has a capacity to process up to 1,500 head of cattle a day into meat cuts and hides that are sold nationwide and exported to 28 nations.

Agri Beef remains a bit player, with about 1 percent of the U.S. beef market share, Rebholtz Jr. said. By setting strict animal quality standards with partner ranches, Agri Beef now controls and carefully tracks the beef production process from calving to delivery. Agri Beef’s vertical integration takes a different strategy than bigger players in the beef industry, which are primarily processors, he said.

“We think we’re unique, in part because of our background, starting in the production element,” Rebholtz Jr. said. “Our four largest competitors have 85 percent market share. They are predominantly processors who don’t necessarily get involved with genetics or working with cow-calf producers to produce the type of animal like we’re trying to produce in our farm programs.”

BUILDING BETTER BEEF

Jeff Johnson, owner of E.G. Johnson Farms near Parma, says his father and Rebholtz Sr. helped each other build their businesses. Last year, Johnson sold 1,200 head of cattle to Agri Beef — about 1.5 million pounds. The highest-graded beef is sold under Snake River Farms and Double R Ranch brands. His farm sends some of its cattle to Agri Beef feed lots and buys PerforMix feed.

Johnson said he got to know Rebholtz Jr. from attending cattle conventions together.

“We’re about the same age, and over the years, we sent a pretty big percentage of our calves to a Snake River Feed lot,” he says. “We developed a lot of trust.”

Today, Johnson sells beef to Agri Beef in part because the operations share an emphasis on technology. Johnson’s father meticulously tracked cow grades and weights, aiding the family’s selective breeding.

But that tracked just the current generation. Johnson’s cows are tagged and tracked electronically today. Agri Beef invested in equipment to read the electronic tags and now reports to cattle producers data from the slaughterhouse about how their beef graded, allowing Johnson to track bloodlines over generations and improve selective breeding. That helped Johnson improve his calf herd from 65 percent choice and prime in 2008 to 87 percent in 2014.

“In a cow production system, you can’t just make changes overnight,” Johnson said. “They’ve been really good about being consistent, about communicating what they want. As a producer, you are rewarded financially when you hit those targets.”

COMBATING CORN-FED

For decades, Agri Beef fought public perception that Northwest beef wasn’t as good as meat from the Midwest, Rebholtz Jr. said. Branding for top-grade cuts was dominated by buzzwords such as “corn-fed” and “Omaha steaks” in the same way that consumers recognize — and seek out — Idaho potatoes or Copper River salmon.

That was a problem for Western beef, but especially for Agri Beef, as it tried to sell top-grade, top-dollar brands such as Snake River Farms and Double R Ranch. The latter is an actual ranch in Loomis, Wash., named for Rebholtz Sr.

“In all of our research, all anybody said was, ‘The best beef is corn-fed, Midwestern beef,” Executive Director of Marketing Jay Theiler said. “That was the only marketing message that ever existed in this industry.”

So Agri Beef managers decided to move beyond their traditional areas of expertise and delve deeply into marketing. Led by Theiler, the company invested in storytelling, producing profiles and videos of the family ranches that supply meat to Agri Beef and of the company’s quality-controlled Wagyu program.

“We have a great location, but there was no identity for it,” Theiler said. “That’s why you see our brands — Double R Ranch, Northwest Beef, Agri Beef. We’re all about the Northwest. We’re trying to create an identity.”

That effort helped Albertsons decide in early 2014 to sell Double R Ranch beef at its stores in Idaho, Oregon, Nevada and Wyoming, says Brad Street, Albertsons Intermountain Division president. Some stores carry Snake River Farms products by customer request, he said.

“As our company came back into Boise, we were looking to get back to that local partnership,” Street said. “Our meat business has been running double-digit increases. It’s been a great partnership.”

Albertsons emphasizes that at least one ranch selling to Agri Beef is located within 50 miles of each Idaho Albertsons, Street says. Albertsons displays rancher profiles at its meat counters to drive home the message that customers are supporting local producers, he said.

“That marketing strategy, to be able to say we’re not buying from anywhere else, has gone a long way with our customers,” he said.

  Comments