Creekstone Farms broadens its market

01/02/2011 12:00 AM

08/08/2014 10:01 AM

ARKANSAS CITY — It's taken more than a few rocky years, but Creekstone Farms Premium Beef's message that top-quality beef should get top prices is finally gaining traction in the marketplace.

Creekstone, based in Arkansas City, sells some of the best steaks in the world. Its beef has captured some of the fanciest steakhouses and restaurants in New York and Wichita. It's been featured in the New York Times and on CNBC.

That demand for quality has translated into growing sales. Sales were about $280 million to $300 million in 2007 and nearly $500 million in 2010.

CEO Dennis Buhlke describes Creekstone Farms today as a niche player in a world dominated by large-scale, low-cost beef packers, such as Tyson, Cargill and JBS.

Creekstone survives by offering top-quality products and great service — at a higher margin. The extra dollar or two per pound doesn't tend to appeal to customers of the large grocery store chains, but some chefs find the tenderness and consistency worth it.

"It's just a very high-quality product," said Peter Moretti, executive chef at the Wichita Marriott. "There's a lot of marbling, and that's the main reason it's very tender."

In Wichita, Creekstone beef can be found only in restaurants, including Chester's Chophouse, Flint Hills National Golf Club, the Hyatt Regency Wichita,

Stooges Sports Bar and Grill, the Wichita Marriott and the Wichita Airport Hilton.

"We're not for everybody," Buhlke said.

"When the first things out of their mouth is how low can we be?" he said, "we'll tell them right up front: 'With all due respect, if that's your first question, I can save both of us a lot of time.' "

The method

The company achieves quality with tremendous time, effort and expense.

It starts when the company finds out which producers are buying the best Black Angus bulls.

"We'll approach that guy a year before the cattle even come into existence to try to build a relationship," Buhlke said.

"Two years out," added Ryan Meyer, the company's director of cattle procurement.

It coordinates the movement of the feeder cattle from the producers to selected feedlots and then to the plant. The company uses the term "hand selected."

That gives the cattle a remarkable consistency of size, shape and color. In a recent lot of about 40 cattle in the factory's pens, the animals appeared remarkably similar with only one having even a patch of white.

The cattle are led quietly into dimly lit, heated indoor cattle pens, where they are examined by a USDA inspector. The concrete floor resembles cobblestones and is cleaned using in-floor sprayers. The cattle walk along a winding chute to the killing area so they can't see what's coming. There are no cattle prods.

The pens and slaughter area were designed by Temple Grandin, the industry consultant famous for bringing more humane practices to the industry. Being more humane translates into better beef, the company believes.

Innovative methods and equipment are used to clean and cut up the carcasses. All parts of the cattle, from the tenderloin to the tendons, are sold, some as steaks and some for dog food. Some of the organs are sold as delicacies overseas, while other parts are sold to medical supply houses.

A rocky road

There was a real question whether the company would ever see this day.

Its forerunner, the ambitious startup Future Beef Operations, invested $94 million to build a plant filled with innovations, such as the humane cattle pens, with the expectation that such efficiency and quality control would give it an edge. But it opened Aug. 9, 2001. The company started with expensive cattle, struggled with equipment problems and then hit the recession. It went bankrupt in six months.

Creekstone Farms, a large Black Angus cattle producer based in Kentucky, bought the plant out of bankruptcy for $28.7 million in 2003 to pack its own products.

But Creekstone ran into trouble in 2004 when its export business — about 35 percent of sales — was badly hurt by the mad-cow-disease scare. Several Asian countries banned beef from the United States. Creekstone fought and lost a long battle with the USDA to be allowed to inspect each animal for mad-cow disease.

In 2005, the owners of Creekstone Farms sold most of the company to Sun Capital Partners, a private-equity firm that owns scores of companies.

But even after Sun's takeover, the company still was running below capacity. Buhlke was hired in January 2007 to fix that.

Around the middleman

Buhlke said he told Sun that he was going to focus on building the domestic market.

He had competed against Creekstone and respected the product immensely.

"My personal belief is that it was a great business model from the beginning; it was just poorly executed," Buhlke said.

"What I saw was all this focus on international, and being in the middle of a very distracting lawsuit and, even at the risk of not getting that position, I informed Sun Capital that my focus would be on growing the domestic business."

In looking at the sales and profit numbers, he said he figured out pretty quickly that the product was popular, but the distributors were keeping most of the profit.

Distributors have sales forces far larger than a beef packer. But they also have multiple brands to push and not always a strong incentive to push a particular brand, Buhlke said.

Soon after arriving, he went to the company's largest customer, a major distributor, to ask it to raise its prices to its customers. Creekstone was losing money on each steak it sold to the distributor. He was told no.

When the contract came up, Buhlke imposed a price increase, and the distributor began phasing out Creekstone. It was an anxious time.

The way out was to go around such powerful middlemen and build customer demand for their product.

The company has rebuilt its business by building a larger sales force and by using smaller distributors who work harder for Creekstone. That's how it has gotten such an influential, albeit small, place in New York's top steakhouses.

"They're a little mom-and-pop, third-generation food distributor in New York, and when they saw the product, it became the foundation of their business," he said.

The future

The company continues to experience some rocky moments.

Japan reinstated its import ban on the company in 2009 when it discovered a cattle backbone in two boxes of beef. That's a part of cattle that can carry mad-cow disease. The ban has since been lifted, and there no bans in place by Asian counties.

The company also is working on the hard-to-crack European market. It exports meat from 2,000 head of non-hormone-treated cattle there every month.

But Buhlke said the company will continue to focus domestically. The U.S. market is so huge that his company doesn't have to worry about hitting the limit for higher-end beef customers anytime soon.

On the cost side, revamping the plant's operations management has paid off in greater efficiency, he said. Now, the plant is about at capacity using one shift.

Further growth would necessitate another shift and some improvements at the plant. There's a lot of room for growth, Buhlke said.

"The good news is that we believe we are just getting started," he said.

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