After the World Trade Center: ContiGroup Moves Forward
The September 11th
attacks on New York and Washington, combined with the difficult
economic environment, have posed a range of challenges for ContiGroup
this fall. Nevertheless, CGC businesses continue to perform well in
F2002, with strong prospects for the future. At the same time, people
throughout the company have responded energetically to the events of
the last three months, both through extra effort on the job and
significant charitable giving.
Overall, ContiGroup people
raised over $160,000 for the Red Cross and other groups in the weeks
following September 11th. These contributions came from hundreds of
employees at all levels and included matching funds from Premium
Standard Farms, Wayne Farms, and the ContiGroup Foundation. Wayne Farms
also contributed 20,000 lbs. of chicken patties to help feed relief
workers in New York.
"The response of people at
our facilities was overwhelming," says CGC Chief Operating Officer Vart
Adjemian, noting that employees at some locations, including Wayne
Farms--Pendergrass, began raising money even before any formal program
had begun. "The Pendergrass employees began this effort completely on
their own," he notes, "and most of the contributions came from hourly
employees."
Led by Supervisor Patricia
Aguilera along with Cynthia Ivory, Mai Nguyen, and Deborah Harris, the
Pendergrass team went around the plant explaining the project and set
up a collection station with the help of the United Way. "We had a
great response from everyone," says Complex GM Tommy Myers. In all,
Pendergrass raised over $12,000 for disaster relief.
Tightening Security Across the Board
In addition to supporting recovery
efforts, CGC businesses have strengthened security through a variety of
measures. These include tighter facility access for both employees and
visitors, closer inspection of mail and deliveries, and more careful
screening of new hires. They also include stepped-up protection of
water supplies and other measures to ensure food safety. Most of all,
the businesses have worked hard to make employees more conscious of
day-to-day security issues.
"In the past, if an
employee saw a vehicle he didn't know at one of our facilities, he
probably wouldn't have paid much attention. Today, we'd expect people
to identify the owner and check out anything that was remotely
questionable," says ContiBeef CEO John Rakestraw, who notes that many
changes were actually implemented earlier this year in response to the
hoof-and-mouth outbreak in Europe. At Wayne Farms, security has also
been enhanced. "This has always been a priority, but today there's
clearly a heightened sense of awareness throughout our operations,"
says CEO Elton Maddox. He notes that food safety has become more
complicated in that it now means guarding against bioterrorism as well
as preventing disease.
ContiGroup CEO Paul
Fribourg stresses that CGC businesses have taken the right steps to
protect employees and facilities and to ensure the safety of the food
supply. "The key message is that we have to be alert to anything that's
out of the ordinary, and we need help from everyone to make security
work," says Paul. "We're really counting on everyone's individual sense
of responsibility."
For Vart Adjemian, it's
also important to keep a sense of perspective on recent events. "We
have to be vigilant, but we can feel reasonably secure based on the
steps we've taken." He adds that most activities, from business travel
to capital improvements, have continued without major changes over the
last three months. "I think people have stayed very focused on their
work and their own performance. This has been a difficult period, but
we should recognize that many factors are involved and that we can't
attribute everything to September 11th."
Changes in Demand and Pressures Overseas
Overall, ContiGroup businesses have
faced significant pressures during the current downturn, both from
excess supply and lower prices in the meat and poultry markets, and
from the general reduction in travel and restaurant spending. As one
might expect, the latter has had the greatest impact on the beef
business, where margins and market prices are more dependent on
high-end food-service purchases. Over the last several weeks, fed
cattle prices have declined from the mid-$70s to the mid and low $60s
per cwt.
 |
| A
promotional label for U.S. beef exports, part of the current campaign
to assure Japanese consumers of the safety and quality of American beef--courtesy U.S. Meat Export Federation. |
"The decline in food service
demand has had an effect on cattle prices, but the impact of food
service alone is difficult to measure. We still don't have a lot of
hard data," says John Rakestraw, who explains that the industry has
also been hit by the appearance of BSE (Mad Cow disease) in Japan. The
resulting decline in U.S. export sales has been responsible for a
$2.50/cwt. drop in fed cattle prices, according to the U.S. Meat Export
Federation, which recently began a promotional campaign in Japan
emphasizing the safety of American beef.
Japan aside, John also
notes that the current price decline comes after a long period of
growth for the industry. "We have to remember that beef has been very
strong for 13 straight quarters, largely because of the growth of
steakhouse theme restaurants like Outback and Lone Star. These
restaurants have really impacted the price of middle meats [ribs and
loins] and that's where most of the margin is created. So we have to
look at this in context and see whether the restaurant business comes
back over the next few months, or whether we're looking at a
longer-term change in consumer behavior."
Resilience in Other Markets
By contrast, the company's poultry and
pork businesses have been less affected by this trend, mainly because
their products--and profits--are less dependent on high-end restaurant
demand. Premium Standard Farms CEO John Meyer notes that the pork
industry tends to focus on fast food and mid-range restaurants, and
that PSF sells relatively little of its total product to food-service
customers. "It's really the high-end, white tablecloth restaurants that
have taken the hit, and the fact is that pork--though we like to
complain about it--doesn't have much of a place on those menus." John
also notes that PSF has probably benefited in the short run from the
situation in Japan, since some consumers have substituted pork for
beef. At the same time, he believes that it is a potential problem over
the long term since many Japanese consumers may not make a sharp
distinction between the two meats.
Overall, PSF will continue
to focus on supplying branded further processors of pork, such as
Johnsonville Sausage and Oscar Mayer, as well as high-end retailers.
Both groups of customers, John notes, have a strong interest in the
quality and consistency provided by a fully integrated supplier.
Like PSF, Wayne Farms has
felt relatively little impact from the downturn in food-service
purchases. "We saw some effects for a few days after September 11th,"
notes Elton Maddox, "but our food-service business has returned to more
normal levels for this time of year. The fast food segment may actually
have been helped in this environment as business travel has decreased
and more people are eating closer to home."
Elton also stresses that
the company's cost-plus arrangements, though helpful, do not provide
any special protection in an economic downturn. "These contracts have
to be renewed so we still have to supply customers with chicken at a
competitive price against the market," he notes. The net result is that
price pressure forces Wayne Farms to become more efficient in its own
operations. "That's why we're always calculating out to the fourth
decimal place--to see what it's doing to cost. Our whole approach is to
go beyond a simple buy-sell relationship, and look for ways in which we
can lower costs and add value for our customers."
A Strong Position Going Forward
ContiGroup CEO Paul Fribourg |
At the end of a difficult year for the
country and the industry, Paul Fribourg stresses that ContiGroup is
fortunate in many respects and has many things to feel good about. Its
key businesses continue to meet or exceed budget and its balance sheet
has been significantly strengthened by last year's refinancing.
"Considering everything that's happened, we're in a very good
position," says Paul, noting that the company has also reduced its
exposure in international operations. In particular, it has positioned
itself as a local company with local partners and in this respect has
not faced the same pressures as more readily identifiable U.S.
companies.
At the same time, Paul
notes that increasing globalization has in many ways made the company
more vulnerable to events overseas than in the past. "We're seeing this
very clearly today with Japan, and the impact it's having on our cattle
business," he notes. "We also have to recognize that we're part of a
world community and the leader of a world community. This means that we
have to help other countries address their problems and not ignore
them. Otherwise they're bound to become our problems in the future. I
think this is really one of the main lessons we should be learning from
September 11th."