Monfort, Inc. History

Address:

P.O. Box G
Greeley, Colorado 80632
U.S.A.

Telephone: (303) 353-2311
Fax: (303) 351-0096

Wholly Owned Subsidiary of ConAgra, Inc.
Incorporated: 1930
Employees: 14,976
Sales: $5.59 billion
SICs: 0211 Beef Cattle Feedlots; 2011 Meat Packing Plants; 5147 Meats & Meat Products

Company History:

Monfort, Inc., as part of its parent's ConAgra Red Meat Companies subsidiary, is one of the leading meat companies in the United States. During its years as an independent company, Monfort developed into a vertically integrated corporation involved in feeding cattle and lambs; meat packing operations; fabrication operations to produce meat products for hotels, restaurants, institutions, and supermarkets; and the transport and distribution of its products to its customers. Monfort suffered through a number of difficult years in the 1970s and early 1980s, in part because of conflicts between Monfort management and workers. ConAgra acquired Monfort in 1987 and then merged the operations of a former Monfort competitor (Swift Independent Packing Company) into the company, an integration that proved difficult. Monfort has since been beset by a number of other problems&mdashditional worker-management conflicts and lawsuits and fines from government agencies over anti-union tactics and other issues--while at the same time it has attempted to improve its operating results in the highly competitive meat industry through innovative processes and products.

Monfort began in 1930 as founder Warren H. Monfort's cattle feedlot north of Greeley, Colorado. Starting with 18 head in the midst of the Great Depression, Monfort began to buy additional range cattle for his feedlot. During this period, many farmers began to use tractors instead of horses in their fields, creating a huge surplus of corn. By taking advantage of the surplus feed, Monfort became a pioneer in providing packing plants with well-fed cattle year-round. The feedlot grew quickly into one of the largest in the country, with a 3,500-head capacity in the midst of World War II, 8,000 by 1950, and 32,000 by 1960.

During the 1960s the feedlot expanded rapidly into the first 100,000-head feedlot by 1968. While Monfort's increased capacity for cattle was impressive, it was the company's extensive vertical expansion and integration efforts during the decade that made it a major player in the meat industry and began its transition into the self-styled "complete meat company." Before the 1960s, cattle typically took the following route in their transformation into meat: pasture for initial feeding, feedlot for final feeding (usually several months), slaughterhouse in large city, butcher shop or supermarket for processing of the carcasses. In 1960 Monfort purchased a slaughterhouse in Greeley from Capitol Pack, Inc., and five years later added processing (or fabrication) capability to the plant, then called the Greeley Beef Plant. Monfort's innovation of slaughtering and processing cattle near where they were fed reduced the overall cost of producing meat through reduced transportation costs (processed carcasses weighed less than cattle) and reduced labor costs (Monfort processing workers were typically paid less and had to work faster than butchers in urban areas). While Monfort's fabrication operation used beef by-products to make dog food, fertilizer, and other products, its boxed beef operation--the first on a large scale--was considered truly innovative. During the fabrication operation the carcass would be divided into various cuts of beef and boxed ready for shipping directly to restaurants and hotels, a streamlined operation. These new approaches were soon adopted by other meat packers and were possible largely because of improvements in refrigeration, transportation, and the U.S. highway system.

Following the addition of fabrication operations to the Greeley plant, Monfort expanded into lamb processing and increased the plant's capacity a number of times. By 1969 it had processed 645,214 lambs and 331,381 cattle in a single year with sales of $157.6 million. That same year, Monfort expanded vertically once again with the acquisition of its major distributor, Mapelli Brothers Food Distribution Co. The company also added a transportation operation, which was incorporated as Monfort Transportation Co. in 1973. With the exception of the pre-feedlot feeding of cattle, some feedlot feeding of cattle, and both pre-feedlot and feedlot feeding of lambs, Monfort now controlled the entire meat production and distribution process. Having established an exceptionally strong, integrated organization, the company embarked on an ambitious expansion program in the early 1970s. Monfort built a second 100,000-head capacity feedlot near Gilcrest in northern Colorado, expanded its plant in Greeley, and added a new line of consumer portion food products to its established boxed beef line. Part of the financing for these projects came from a $16 million stock offering in 1970, which took the company public for the first time under the name Monfort of Colorado, Inc. The following year, the second Monfort generation took over when Warren Monfort retired and his son Kenneth Monfort took over. Annual sales topped $400 million and the company would soon join the Fortune 500.

Monfort then faced its first major crisis starting in 1973, when a combination of factors depressed the meat packing industry, forcing many of Monfort's competitors out of business. With average after-tax returns in the low single digits, the industry can be hit hard by economic difficulties. Monfort and its competitors had to contend with the doubling of grain prices nearly overnight after a massive government grain shipment to the Soviet Union in 1973; reduced frozen beef prices as a result of the government's inflation-fighting wage and price controls; and increased costs from having to comply with new government regulation of chemical additives. With the overall U.S. market for beef products stabilizing and overseas markets difficult to penetrate, Monfort could only seek to reduce costs in order to stay competitive. One strategy the company employed was to have its cattle suppliers provide larger range-fed animals, thus reducing the amount of time they spent in the feedlot and saving on grain costs. Another, perhaps more important innovation (and one the company would continue to rely on from the early 1970s through the early 1980s), was to reduce its labor costs. According to Carol Andreas in Meatpackers and Beef Barons, Monfort brought in efficiency experts to streamline procedures and instituted a gradual speed-up of the slaughtering and processing lines in the 1970s in order to improve its bottom line. Not coincidentally, the company faced its first major labor conflicts during this period with strikes in 1970 and 1974.

Monfort enjoyed a resurgence in 1978 and 1979 that proved to be short-lived. Sales increased from $363.9 million in 1977 to $451.3 million in 1978 to $622.2 million in 1979, but a net loss of $178,000 in 1979 foreshadowed an extremely difficult 1980. That year the company suffered an after-tax loss of $23.9 million on sales of $755.7 million. Company officials reported that a number of factors contributed to poor results. First, three packing plants that the company purchased in 1979 took longer than anticipated to integrate into the Monfort operations. The most important of these, a beef plant in Grand Island, Nebraska, purchased from Swift & Co., was acquired to end the company's sole dependence on the Greeley plant for beef packing and processing. Its poor 1980 results were exacerbated by damage inflicted by tornadoes that hit Grand Island in June. Monfort management, however, considered labor conflicts at its Greeley plant to be the main source of its difficulties.

The company felt that the Greeley plant was increasingly uncompetitive because its workers were better paid than those of Monfort's competitors. Iowa Beef Processors in particular was said by industry experts to be the instigator of the downward trend in labor costs as a result of its successful battle with a union in 1969, as well as through a multi-plant negotiation strategy that allowed it to play one plant against another. Although Monfort denied undertaking a deliberate strategy to break the United Food and Commercial Workers union local at Greeley, Carol Andreas contends that they did just that. Nine hundred workers at the plant went on strike on November 1, 1979, following the expiration of their contract. In early January 1980 the company presented its final offer. While the offer included a modest wage increase (which was far below the then-high inflation rate), the offer reduced benefits and set up a two-tier wage scale that started new hires at a lower base. Although the workers felt the offer was unacceptable, they had few options now that Monfort had a second plant operating in Grand Island. Furthermore, the company announced they would reopen the Greeley plant on January 14th with replacement workers if necessary. The workers decided to go back to work without a contract.

The events that followed have been in dispute ever since. In its 1980 annual report, Monfort management contended that after the workers returned, "problems developed in the plant involving productivity and product quality," and that they faced economic problems, such as high interest rates and concerns from creditors about the company's financial health. Monfort closed the Greeley plant on March 28, 1990, blaming its need to significantly reduce its operating costs and survive as a company. Most of the terminated workers disputed this argument, however, pointing to the company's $46.5 million spent on 1979 plant acquisitions as proof of the company's strength. Illustrating the poor relations between the workers and company management, Andreas described a chaotic two months at the plant, with line speed-ups and company harassment of workers on the one hand and worker slowdowns and sabotage on the other.

Whatever the real reason for the closure, Monfort kept the plant shut for two years, reopening it in March 1982 without union representation. The union local then sued the company for unfair labor practices, claiming that the company refused to rehire some of the former workers. Thus began a 12-year legal battle, which was eventually won by the union in 1994 when Monfort was ordered to pay $10.6 million in back pay to 268 former workers--the fourth-largest such payment in the history of the National Labor Relations Board. Further labor trouble began in 1983 when workers at the Greeley plant voted against labor representation. Accusations of intimidation by company officials led to another lengthy legal battle, which was again won by the union. In 1992 a federal judge ruled that Monfort had violated fair labor laws during the 1983 union vote and ordered a re-vote. In September 1994 Greeley workers not only voted overwhelmingly in favor of union representation but also voted for mandatory union membership at the plant. That year a federal judge also ordered the company to pay a $125,000 fine for its anti-union activities.

When the Greeley plant reopened in 1982, industry observers estimated that labor costs were 25 percent lower than in 1980. In 1981 the company had closed a processing plant in Denver and frozen wages for both hourly and management workers. In general, Monfort aimed to streamline its operations and reduce its operating costs in order to stay competitive. Although the company appeared to enjoy healthy growth and steady earnings over the new few years--sales increased from $996.9 million in 1982 to $1.58 billion in 1986 while after-tax earnings ranged from $14.5 million to $25.1 million--Monfort management was increasingly concerned about consolidation in the meat packing industry. As the two leading companies, Excel Corp.--owned by Cargill Inc.--and Iowa Beef Processors (IBP), continued to grow through the acquisition of smaller packers, company officials feared that the industry was moving toward two-company consolidation and the demise of Monfort.

When Excel, the second-largest U.S. meat packer, announced that it would purchase the third-largest U.S. meat packer, the Spencer Beef Division of Land O'Lakes, Monfort filed suit to stop the acquisition. In essence, the company maintained that Excel was attempting to monopolize the meat packing industry in the Midwest through the purchase of smaller companies and construction of new plants near those of its competitors. Although Monfort won an initial judgment and the first Excel appeal, the U.S. Supreme Court in 1986 overturned the original ruling by a vote of six to two. The court held that rather than creating a monopolistic environment, the acquisition instead fostered "vigorous competition."

This ruling played a major role in the company's 1987 decision to agree to a buyout by ConAgra, Inc. In the midst of a spate of takeovers following the 1986 court ruling, ConAgra, a diversified food conglomerate based in Omaha, acquired Monfort in a May 1987 stock swap valued at $295.6 million. ConAgra was an established powerhouse in chicken, had purchased 21 Armour meat-processing facilities in 1984, and now added the vertical meat holdings of Monfort to its food empire. Monfort president Ken Monfort cited three reasons for the sale: a "fair" price offered by ConAgra, Inc.; the chance to become part of a diversified organization; and the financial backing to weather an economic slump. With the industry consolidating following the antitrust decision, Monfort would then be in a better position to compete with IBP, Excel, and others as it could draw on ConAgra's vast resources to expand.

In fact, less than one year after the sale, Monfort grew substantially through additional ConAgra acquisition activity. Following the acquisition, ConAgra set up a ConAgra Red Meat Companies subsidiary, which included Monfort. Ken Monfort was named head of the new ConAgra subsidiary, while a third generation of Monforts took over Monfort of Colorado with the ascent of Richard L. Monfort, Ken's son. Later in 1987 a long-planned third 100,000-head cattle feedlot finally opened near Yuma, in eastern Colorado. More significantly, ConAgra made its second major meat company acquisition of the year in October with the purchase of the Swift Independent Packing Company (SIPCO). In March 1988 ConAgra merged some of the SIPCO holdings--including three beef plants, three pork plants, and one lamb plant--into Monfort. This integration proved to be difficult in the short run as management differences between Monfort and Swift had to be reconciled. A major area of conflict was in style--Monfort had always had a fairly loose approach to management, while Swift, a company founded in the mid-1800s, had developed numerous rules for everything over the course of its long history. Two other significant events occurred over the next two years in Monfort's transition from independent to subsidiary: later in 1988 the name of the company was changed from the regional-sounding Monfort of Colorado, Inc., to the more generic Monfort, Inc.; and in July 1989 Ken Monfort retired, Richard Monfort took over the reins of ConAgra Red Meat Companies, and Michael L. Sanem became president of Monfort.

Beginning in 1989, Monfort responded to growing demand from consumers for leaner beef by reducing the amount of exterior fat on its boxed beef to inch. While this innovation proved successful, many butchers were cutting the fat still further after receiving it from Monfort. In response, in 1992 the company introduced the Super Lite Trim line of products, which reduced the fat to inch. To achieve such a close trim cost-effectively, Monfort developed a new trimming method using handheld rotary knives on just-slaughtered carcasses. Such carcasses are still warm, making the trimming easier; the warm fat is also translucent, allowing workers to see the tissue beneath the fat and to maintain the desired close cut. Another advantage of the so-called "hot" trimming was that the meat products could be chilled much sooner after slaughter, lengthening their shelf life.

In the early 1990s the issue of tainted meat products, particularly hamburger, received widespread publicity and affected nearly all meatpackers, including Monfort. The company was one of the first in the industry to test for the E. coli 0157:H7 bacteria starting in 1992 at its own laboratory near the Greeley packing plant. Costing more than $3 million to set up, the lab was designed for a multitude of uses, including testing for bacterial and other contamination, sampling for pesticide residue in cattle feeds, and analyzing products for nutritional labeling. The lab also began conducting tests for outside clients. After E. coli-contaminated hamburger caused the death of four children and the illness of hundreds of others in the northwest in 1993, Monfort reacted swiftly when state inspectors in Florida discovered E. coli in a sample of Monfort ground beef in late 1994. The company voluntarily recalled 9,000 pounds of ground beef from the same lot as the contaminated sample. Further tests from the lot all proved negative. At about this same time, the U.S. Department of Agriculture began a controversial nationwide testing program for E. coli that was being challenged in court by meat industry lobbying groups.

As Monfort moved into the final phases of its integration into ConAgra in the early 1990s, a new company emphasis on public relations--not uncommon in newly acquired companies--seemed to point to the company's future. Industry observers believed that the company had finally ended its long-turbulent relationship with organized labor in 1994 when it settled its 12-year-old dispute over the 1980 closing and the 1982 reopening of the Greeley plant. That same year saw the first union contract at the plant in 15 years. Observers credited Richard Monfort with engineering this rapprochement with labor. So, when he announced in June 1995 that he was stepping down from his leadership of ConAgra Red Meat Companies, to be replaced by Kevin LaFleur, many called it the end of an era--the final chapter in a company's long struggle with a determined union and the final chapter in the Monfort family domination of Monfort, Inc.

Monfort, Inc. History

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