Perdue Farms Inc. History

Address:

P.O. Box 1537
Salisbury, Maryland 21802
U.S.A.

Telephone: (410) 543-3000
Fax: (410) 543-3212

Private Company
Incorporated: 1920
Employees: 19,000
Sales: $2.1 billion (1996 est.)
SICs: 2015 Poultry Slaughtering & Processing; 2048 Prepared Feeds, Not Elsewhere Classified; 2075 Soybean Oil Mills

Company Perspectives:

Our branded chicken and turkey products are sold in retail supermarkets, grocery stores, and quality butcher shops from Maine to Florida, and as far west as Chicago and St. Louis--a market area encompassing almost 40 percent of the nation's population. Food service chicken and turkey products are sold nationwide, and Perdue's international operations export to more than 30 countries around the world.

Company History:

The leading poultry producer in the northeast United States and the second largest across the nation, Perdue Farms Inc. sells chicken and turkey products through retail venues and to foodservice companies in the United States and in more than 30 countries worldwide. A vertically integrated business, Perdue processes grain and soybeans for feed, breeds and raises the poultry, processes the meat, and maintains a fleet of trucks for delivery of its products to market. Perdue Farms celebrated its 75th anniversary as a family-run business in 1995.

Modest Origins

When people think of Perdue Farms, the lean, creased features of longtime chief executive officer and advertising spokesman Frank Perdue usually come to mind. But the company was actually founded by Frank's father, Arthur W. Perdue. In 1920 the elder Perdue bought five dollars worth of laying hens and went into business selling eggs in Salisbury, Maryland.

For its first two decades, the company remained a tiny, family-run organization, in large part because of Arthur Perdue's unwillingness to borrow money to finance expansion. He was a "checkbook-balance man," his son would later say of him, as quoted in Inc. magazine. "If he had money in the bank and didn't owe any, it didn't matter how much we lost. But if he owed money, it didn't make any difference if we were making a million a week--we had to get that paid off before we expanded," son Frank commented.

In the meantime, Frank Perdue went off to college, entering Salisbury State College in 1937, but left after two years to rejoin the family business. He kept his own flock of chickens on the side and had 800 hens of his own by 1941. The company grew in automatic response to improved economic conditions, as the nation pulled out of the Great Depression of the 1930s and demand for eggs increased. The Perdues found, however, that maintaining their sole focus on eggs also limited their profit potential. During the 1940s, they shifted their emphasis away from egg production and began turning out broiling chickens for resale to processors. Among their early customers were industry giants Swift & Company and Armour. By 1952, when Frank Perdue succeeded his father as president of the company, Perdue Farms was racking up annual sales of $6 million on a volume of 2.6 million birds.

Vertical Integration in the 1960s and 1970s

Still, the younger Perdue felt constrained by his father's conservative ways. Frank Perdue held a vision of turning the family business into a fully integrated breeding operation with its own hatcheries and feed mills. Finally, in 1961, the elder Perdue agreed to his son's plan to finance a soybean mill by borrowing money, marking the first time in his 40 years in the poultry industry that he had willingly gone into debt. "When we finally borrowed money, I was 41 years old and he was 76," Frank later recalled in Inc., adding that "knowing the nature of the individual, I have to be appalled in retrospect that he put his name to a $500,000 note."

During the 1960s, Frank Perdue built up a tall stack of vertical integration for Perdue Farms. By 1967 the company could boast of one of the largest grain storage and poultry feed milling operations on the East Coast, soybean processing plants, mulch plants, a hatchery, and some 600 farmers raising birds under the Perdue name.

The engine that drove Perdue Farms' rapid expansion during this time was, of course, Frank Perdue himself. And in later years, whether out of pride or simple desire to state the obvious truth, he would not hesitate to take credit for the company's success. "I wanted the company to grow to the maximum extent possible," he told an Inc. reporter in 1984, noting "I wouldn't be satisfied with number two. I have driven very hard to increase production." He also drove very hard to increase sales. During the early days of the company, he served his father as salesman, traveling up and down the Eastern Seaboard to meet with buyers. Once he became president, Frank Perdue continued attending supermarket openings to keep his company's profile as high as possible. "My father wouldn't do it," he commented in Inc., "but I'll do anything it takes for this business because I consider it more my baby than it was his. I was totally into it without any letup for 20 to 30 years. I've been the principal force in its growth."

Indeed, by 1967 Perdue Farms was posting annual sales of more than $35 million. At about this time, however, the company faced a serious threat as processors began to buy chickens directly from farmers, cutting out middlemen like Perdue Farms. Processors were thus able to expand their profit margins and squeeze their outside suppliers by driving harder bargains with them. Perdue Farms responded to this challenge by becoming a processor itself, adding its own processing operations and delivering the processed birds to market on its own. The Perdue brand name made its debut in retail meat counters in 1968. The company chose New York City as its first target market because of the city's high concentration of people with above-average incomes and its reputation for having consumers who are hard to impress; Perdue figured that if its chickens sold there, they would sell anywhere.

Frank Perdue had his doubts about whether or not this move into retailing would succeed, but he would soon find himself pleasantly surprised. For one thing, Perdue Farms held a significant advantage over its major competitors in that it had easy access to the major urban markets of the Eastern Seaboard, since Salisbury was a several-hour truck ride away from New York, Philadelphia, and Washington, D.C., and an overnight drive from Boston and Hartford. Secondly, the company's redoubled efforts to produce high-quality chickens paid off. To ensure that he could grow birds that were more tender than the rest, Perdue hired two professors from North Carolina State University to write a computer program that would supervise the feeding of his chickens, establishing formulae that would keep the birds as healthy as possible at each stage of their growth.

Advertising Increases Sales in the 1970s and 1980s

Finally, and perhaps most importantly, advertising generated consumer awareness of the Perdue brand name beyond the company's fondest expectations. In 1972 the company hired Scali McCabe Sloves, a small New York agency, to handle its advertising; in turn, the agency made perhaps the most fateful decision in the history of Perdue Farms--putting Franklin Parsons Perdue himself on the air. In print, on radio, and on television, the voice and visage of Frank Perdue became a known presence in the northeastern United States almost from the very start. Inc. described him as a most unlikely corporate spokesman--"slender, laconic, whiny-voiced, balding, droopy-lidded, long-nosed"--but Perdue's earnest appeals based on the quality of his product proved to be effective. Business Week once wrote that he possessed "all the fervor and sincerity of a Southern preacher" in his television commercials.

Catchy slogans also helped. One print advertisement that ran in the early 1970s showed a stern-visaged Perdue with his arms folded and standing beneath the words, "Everybody's chickens are approved by the government. But my chickens are also approved by me." In a lighter vein, another Perdue ad instructed housewives, "If your husband is a breast or leg man, ask for my chicken parts." Perdue may have uttered the most immortal of all his slogans, however, when he informed his audience that it "takes a tough man to make a tender chicken."

Perdue's success as a frontman for his own company in major media markets during the 1970s and 1980s, in fact, inspired advertising agencies to make pitchmen out of other chief executive officers, including Eastern Airlines' Frank Borman and Chrysler's Lee Iacocca. It also drew the attention of New York City Mayor Edward Koch, himself something of a Frank Perdue look-alike and no stranger to the value of publicity, who once called Perdue an "upper-echelon chicken guy."

But this transformation of a Maryland chicken farmer into a media icon would have meant nothing if it had not inspired more people to buy Perdue chickens. Between 1972 and 1984, Perdue Farms' sales doubled every two years. By the end of that period, the company was selling 260 million birds per year and generating revenues of more than $500 million. This success made Perdue Farms one of the 50 largest private companies in the United States.

Arthur Perdue died in 1977 at the age of 91. He had never really retired from the company that his son now ran; he retained the position of chairman and came to the office every day until the end of his life. Frank Perdue officially succeeded him as chairman in 1979.

Competition with Holly Farms

While Perdue Farms was riding the increasing popularity, of both its pitchman/chief executive officer and its chicken, to success and fortune, the company did not by any means escape the notice of its competitors. Its main rival was North Carolina-based Holly Farms, which later became a subsidiary of Tyson Foods. Holly Farms was a much larger company than Perdue Farms and sold chicken to a nationwide market. Perdue Farms was its main competitor in the lucrative Northeast. As early as 1971, Holly Farms watched the Perdue experiment in selling at the retail level under its own brand name with great interest and concluded that Perdue Farms could be beaten--at least in part because Perdue Farms was pricing its broilers as high as ten cents per pound above other brands. That year, Holly Farms began selling under its own brand name.

The two companies competed neck and neck during the 1980s, introducing new products in an effort to spur sales growth and out-do the other. During the early 1980s both were spending $6 million dollars a year for advertising. In 1983 Perdue Farms introduced chicken franks--hot dogs stuffed with chicken instead of pork or beef. In 1985 Holly Farms began selling fillets and bite-size nuggets--"all you do is dip 'em and do 'em," went their slogan--under the name "Time Trimmer." In response, Perdue Farms launched a line of prepared chicken products called Perdue Done It!, which included breaded and precooked nuggets and cutlets. As it turned out, neither Perdue nor Holly Farms could quite outdo the other, but both succeeded well enough so that in 1985 the two companies together accounted for one-fourth of all the fresh chicken sold in the United States.

Frank Perdue resigned as chief executive officer in 1988 but remained as his company's chairman and advertising spokesman. He was 67 years old, and, with 90 percent of Perdue Farms stock in his and his family's hands, his personal fortune was estimated at around $350 million. Perdue was succeeded by one of his longtime executives, Donald Mabe, who stayed only three years in that office, retiring in 1991.

Third Generation Takes Over in 1990s

Also in 1991, Perdue retired as chairman, although he remained the company's chief public relations asset. The ensuing vacuum at the top was partially filled by Perdue's 41-year-old son James, who became chairman upon his father's retirement. The Perdue Farms board of directors decided to leave the chief executive officer spot open, hoping that it would serve as an incentive for both the younger Perdue and his second-in-command, company president Pelham Lawrence.

Unlike his father, James Perdue did not start out in life as an enthusiastic poultry man. He worked only informally for the family business while he was growing up. After graduating from college, he entered the marine biology program at the University of Washington and graduated with a Ph.D. in 1983. James Perdue's departure from the family business was a matter of personal growth as much as it was an expression of differing interests. "The reason I left ... was to find out more about myself, to get a better confidence level," he related in the New York Times soon after becoming chairman of Perdue Farms. "Although I am Frank Perdue's son, I wasn't born with confidence. That can only come with victories," James observed. By his own estimation, his graduate work gave him the self-assurance that he needed. Meanwhile, he kept abreast of company affairs through regular conversations with his father. As his son's graduate studies were coming to an end, Frank Perdue flew out to Seattle and asked James to come work for Perdue Farms.

Under James Perdue, Perdue Farms enacted subtle, yet important, changes in the way it produced chicken. The management process was opened up so that plant workers had more influence in decision-making. The company also sought to improve worker safety after the state of North Carolina fined the company in 1989 for permitting unsafe working conditions at its four processing plants there. These changes in Perdue Farms' operating procedures were begun by Frank Perdue before he retired, but the task of carrying them out was left mostly to his son. By his own admission, the outspoken elder Perdue was less temperamentally suited to the task of selling the company's efforts to its own workers. "Jim's style is different from mine," he confessed in the New York Times. "He can sell the achievement of quality in a more palatable way. I am more demanding, he is more conciliatory," Frank observed. Low-key by nature, James Perdue announced no plans to appear in television commercials.

Perdue Farms' revenue growth began to level off in the late 1980s and early 1990s, as the poultry industry as a whole saw its 20-year sales boom come to an end. Chicken sales grew at a rate of four to five percent per year during the 1970s and 1980s, but in the early 1990s, per capita consumption of poultry declined while production continued to increase. For Perdue Farms, sales fell to $1 billion in 1991, but recovered in 1992 to $1.2 billion.

By 1994 Jim Perdue had been persuaded to follow in his father's footsteps and become a spokesman for the company. A series of advertisements featured Jim and Frank Perdue together, using the same folksy, humorous style as previous Frank Perdue ads. The first television commercial of the series began with Frank telling the audience that he had bad news for competitors: "It's a little project I've been working on for the past 45 years--the result of decades of intensive development." After pausing dramatically, Frank announced, "Meet my son, Jim. He may be even tougher than I am." Having taken the role of spokesman reluctantly, Jim Perdue told Nation's Business in 1995 that he would judge the wisdom of the move by concrete results: "If chicken sales continue or improve, then obviously it was good. If they don't, then it was not. Time will tell," he noted.

Aggressive Expansion in the Mid- to Late 1990s

Faced with three years of almost level sales in the early 1990s, Jim Perdue implemented a five-year plan that called for a 15 percent growth rate a year. The company pursued this ambitious goal by expanding its markets both domestically and internationally, with a continuing emphasis on vertical integration. At the time, growth was the only way to survive the intense industry consolidation. In 1960, there were 360 poultry processors in the United States; by 1985, that number had dropped to 125. By 1997, approximately 50 processors remained, with no end to the consolidation in sight, according to analysts.

Through aggressive expansion in the mid-1990s, Perdue met its goal. The company moved into markets in the South and Midwest and built or acquired local granaries, hatcheries, and processing plants to cut down on transportation costs. In 1992 the company opened a new processing plant in Dillon, South Carolina. The following year, the company added a feedmill, a hatchery, an egg warehouse, and a grain storage silo. Perdue also acquired Shiloh Grain and the grain trading assets of Fred Webb, Inc. In 1994 the company began construction of a broiler/roaster complex in Kentucky and expanded its sales into Florida. The Kentucky complex was intended to support expansion into Michigan, Kentucky, and Missouri markets, which Perdue entered in 1996.

International expansion was also an important part of the company's five-year plan. In 1995 Perdue acquired Showell Farms, boosting Perdue's international sales to ten percent of total sales in 1996. The company expanded into Japan in 1996 by recruiting food wholesaler Toshoku Ltd. to sell its precooked chickens. International tastes provided Perdue with complementary markets. Chicken feet, which Perdue once sold to livestock feed producers, were now exported to China, where they were considered a delicacy and commanded top dollar. Moreover, one of the company's largest new markets, Russia, preferred dark meat, as opposed to U.S. markets, which preferred white meat.

Although Perdue's aggressive expansion succeeded in doubling the company's revenues within five years, earnings did not follow suit. The company reported a loss in 1996; in fact, many poultry processors suffered that year, and with profit margins of only one or two cents per pound of its chicken, Perdue saw even that disappear when the Midwest experienced very small harvests and grain prices rose. Management remained optimistic, however, expecting the company to enjoy a profit in 1997. As for surviving the continuing consolidation in the industry, Perdue Farms stood in a good position to thrive: poultry sales were rising throughout the United States and internationally; Perdue boasted prime locations for its processing facilities; and the company's vertical integration helped it control costs.

Perdue Farms Inc. History

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