In the good ol’ days, a dairy cooperative’s purpose was to earn its members a nice return by moving milk from ruminant to refrigerator. But few reading this are unaware of the changing face of the dairy industry.
Yes, co-ops still aim to maximize member earnings. But while cows stretching their legs on green meadows after filling bottles loaded aboard the Divco are great marketing images, they no longer represent the reality of today’s dynamic industry.
Such is the case at Foremost Farms USA, the Baraboo, Wis.-based dairy cooperative and manufacturer whose roots stretch back to the 1890s but with a modern history that begins, after the consolidations of dozens of smaller co-ops, in the mid-1990s. With nearly $1.6 billion in sales of raw and finished milk products in 2007 (the most recent data reported), just 13.2% was of fluid milk and related products packaged under the company’s regional GG Golden Guernsey and Morning Glory brands.
Nearly half of all Foremost Farms’ sales are of American, Italian and other style cheeses, mostly for foodservice, frozen pizza manufacturers and other converters. In fact, the company reports its most successful products in the past year include cheese, whey protein concentrate for infant formula and food manufacturers, pharmaceutical lactose (through a marketing agreement with Kerry Bio-Science) and sour cream for foodservice. These products are made and handled by a network of 23 plants, laboratories and transfer stations in Wisconsin, Indiana, Iowa and Minnesota.
“We’ve tried to reposition our infrastructure as a custom manufacturer, to do something the customer has a need for,” says Doug Wilke, Foremost Farms’ vice president of manufactured dairy products. “We try to partner up with a customer on something that offers them and us an advantage.”
The strategy appears to be working. After sustaining a $12.5 million loss in 2006 on sales of $1.2 billion, Foremost Farms posted a $16 million profit the following year. In early 2009, the management team is anticipating the company will ride out the current financial storm reasonably well.
“We pride ourselves on a solid balance sheet with a positive cash flow. It allows us to weather these times,” says president David Fuhrmann. “We have access to capital if we need it and we’ll be growing the company.”
Michael Doyle, vice president of finance and chief financial officer, adds: “We didn’t dabble in risky stuff that other companies did.”
The company declined to comment on rumors that it’s looking to divest its packaged milk operations. “Foremost Farms is always evaluating opportunities that will allow the business to grow in a responsible and profitable manner for our member-owners,” says Joan Behr, director of communications. In 2007, with just 0.5% of sales derived from co-packing juice products, Foremost Farms exited the juice business by selling a plant in Madison to Minnesota-based Citrus Systems Inc.
But the company is stretching every dollar by, among other things, streamlining its supply chain and consolidating its purchasing power. “We’ve got a good, solid base of key measures,” says Wilke, the former manager of Foremost Farms’ cheese and whey plant in Appleton, Wis. “We’re always looking for ways to reduce waste and operate more efficiently. We tell our plant managers, you have to go beyond the routine to operate more efficiently.”
Market tremors
The numbers for 2008 aren’t in yet, but Fuhrmann says it was a challenging year especially due to the high fuel expenses experienced during most of last year, requiring some costs to be passed on to customers. The company was able to finance some energy savings initiatives with state grant money.“We’re managing the business differently, redefining who we are and what we do, and squeezing costs out of the system wherever possible,” he says. “From reducing hauling costs for raw materials and finished products to changing the way we buy everything from energy to equipment, we’re streamlining our entire supply chain, and we’re not done yet. There’s still room for improvement.”
Measures include milk route realignment, route optimization software to improve delivery of finished products and ingredients, consolidating vendors and handling transactions and inventories electronically.
Meanwhile, the price volatility that historically has plagued the industry made for a double whammy. “There have been sales lost that we must be able to recover,” Fuhrmann says of record whey prices that compelled some customers to reformulate. “We’ve actually seen a downturn in pharmaceutical sales, which we thought was immune to the economy.” (The company is known internationally for its fast-flow pharmaceutical lactose.) Wilke elaborates: “People have stopped taking medications altogether, especially maintenance drugs.”
And while foodservice sales are down due to consumers eating out less often, retail sales are up as folks opt to eat more meals at home. “We’ve seen a shift to retail from foodservice,” Wilke says. “Frozen pizza seems to be a decent market, and growing.”
Foremost Farms’ cheese sales are split roughly three ways between foodservice, pizza manufacturers and converters of cheese for retail packaging.
“Price will always be a factor,” Furhmann says. “We have to be alert, look for new opportunities and new innovations.”
But have the wild fluctuations in cost of cheese, whey and other dairy ingredients driven some customers away for good?
“When cheese bounces back from support, how high will it go next time? It will limit its ability to get reformulated back into products,” says Joseph Weis, vice president of business development and industry relations. “If the extreme volatility continues, there will be more interest in long-term supply agreements all along the supply chain.”
In addition to prudent financial management, Foremost Farms expects to ride out the financial storm by delivering what it always has to its customers: quality and value.
“We’ve always positioned ourselves with a better value proposition than our competitors,” Wilke says, explaining that the company works closely with its customers to stay on top of their needs. “We want that first call. The relationship goes far beyond transactional. We understand how they use their products.”
As such, Foremost Farms is selective about the business it solicits. “We want to do business with customers we can cultivate a long-term relationship with. It leads to a commitment from both parties for investment to bring innovation to the marketplace,” Weis says. “If we do lose a customer based on price, we feel we have an opportunity to win that business back. We will not lose a customer due to poor quality or poor service. If so, that business is gone for good.”
Leveraging strengths
Repositioning its infrastructure has been the co-op’s path toward maintaining those long-term relationships in order to ensure a long-term market for members’ milk.“The plants are set up to execute manufacturing safely and efficiently,” Wilke says, explaining that resources and services are provided to each plant from a centralized location, the corporate headquarters in Baraboo.
“We have a good, strong safety culture and a good, strong food safety culture,” Weis says. “That’s critical because we produce components of national branded products. They’re putting their trust in us.”
The company has made some recent strides in worker safety, which Fuhrmann described as “good” but still above the national incident average until an improvement initiative was launched by Michael McDonald, the new vice president of human resources, safety and communications. The company surpassed its 2008 goal of 6.0, under the slogan “Route Safety 6,” with an incident rate of 4.4 last year.
“When you have a good safety culture, you have people doing well in a bunch of different ways,” McDonald says. “We’re getting everybody going in the same direction. That’s one of our real strengths.”
Underlying that, Fuhrmann says, is the company’s ability to get stuff done with its “stereotype Midwestern work ethic,” a concept upon which McDonald elaborates. “This is a very ethical, hardworking, trust-based culture, very collaborative,” he says. “If everyone is aligned on a specific focus, it’s going to happen. These people will do anything once you get them behind you. It’s the center of this cooperative.”
Last year, Foremost Farms introduced a corporate scorecard showing monthly performance in competitive milk position, productivity, safety, customer satisfaction, profitability and administrative expenses.
Michael Doyle, vice president of finance and chief financial officer, notes that Fuhrmann has decentralized some leadership duties in order to give managers more autonomy at the plant level. “It’s about fostering ideas and keeping the company moving without needing to go all the way to the top and missing opportunities in the meantime,” Doyle says.
It’s a style that Fuhrmann, president since 2001, calls “participatory management,” meant to get more folks engaged in the business. It also helps that most of the top management came up through the ranks of the cooperative.
“We can relate to what they’re facing, give them direction, provide resources and remove obstacles to reaching their goals,” says Weis, who has been with Foremost Farms for 25 years and was CEO of Golden Guernsey Dairy Cooperative at the time of the 1995 merger that created Foremost.
Healthy industry
In 1995, Foremost had 7,000 member farmers; attrition has seen that number drop about 5% a year, Fuhrman says. “We’re down to 2,300 farms supplying the same amount of milk,” he says. “In Wisconsin in particular, there’s been a downturn in producers over the past 10 to 12 years, but now we’re seeing a resurgence in investment at the farm level.”That would suggest an increased demand for milk, which still languishes in fluid form. “We have to reverse the downward trend in per capital consumption,” Fuhrmann says. “It seems we haven’t taken full advantage of wellness. We need to do a better job educating health professionals and consumers.”
Weis says the industry needs to convince consumers to “recalibrate” their lifestyles around healthier foods like milk. “It blows my mind to see hundreds of millions of dollars spent on ‘frivolous’ beverages loaded with sugar and caffeine, with no benefits,” he says. “Milk is a nutritional package that can completely and economically package what our bodies need.”
Weis says he expects milk to benefit from the economic downturn as consumers reprioritize their food expenditures toward greater nutritional values. “People need to spend money on real food, not the promise of sex appeal,” he says.
That said, Foremost Farms has a positive outlook for the future, provided the company stays focused on its mission to enhance its profitability for the benefit of its members. The organization intends to keep moving further away from straight commodities and more toward specialty products like pharmaceutical lactose and cheddar for aging.
“Volatility is driving this business, making it so difficult for companies and farmers to survive. At the farm level, there will be a big shaking out just this year, with the low prices we’ve had,” Fuhrmann says.
Doyle adds: “With volatility comes opportunity. It has put more pressure on our strategic planning. As we grow, we will be a part of making the industry stronger. With what we’ve done with our balance sheet, we’re poised to do that.”
For the manufacturing payroll, Foremost Farms has improved its recruiting and hiring processes to ensure a skilled work force. Further, the company offers career planning to identify employees’ key strengths and encourage advancement (Foremost’s average tenure is in the mid- to upper-teens).
“Some of our plants are in towns where we’re the only employer,” Wilke says. “There aren’t many opportunities in many communities. Hopefully, we make the right decisions so they’re with us a long time.”
It’s these folks, whom Fuhrmann praises as “highly skilled, highly trained, highly dedicated individuals,” who will be helping to drive Foremost Farms and the industry as a whole into a new era.
“Long term, the industry is going to be healthy. It’s a nutritious, wholesome product. There will be new innovations, new uses of the components of milk we haven’t ever thought of yet,” Fuhrmann says. “And we think we’re located in the perfect part of the country to supply the country with these products.”
History
Foremost Farms USA was formed on Jan. 1, 1995, as a result of the consolidation of two Wisconsin dairy cooperatives: Milwaukee-based Golden Guernsey Dairy Cooperative and Wisconsin Dairies Cooperative of Baraboo. Members of both co-ops approved the merger to gain cost savings and efficiencies by combining manufacturing, marketing and administrative operations.The new cooperative located its headquarters in Baraboo, where they remain today. The co-op’s first president was Donald Storhoff, and its first chairman was Ed Brooks.
Wisconsin Dairies was the combination of 38 dairy organizations dating back to the 1890s. In 1963, the Wisconsin Creamery Company Cooperative of Sauk City and the Wisconsin Cooperative Creamery Association of Union Center merged to form Wisconsin Dairies Cooperative.
Between 1945 and 1962, 14 local co-ops had merged with these two parent organizations. After 1963, Wisconsin Dairies grew through 23 more mergers and acquisitions.
Golden Guernsey Dairy Cooperative was founded in Milwaukee in 1930. By 1936, the co-op had grown from one home-delivery route with 85 customers to 85 routes with 20,000 customers. It continued to grow and produce milk packaged in cartons for store delivery, phasing out home delivery in the late 1960s. Today, Foremost Farms packages milk and related products under the GG Golden Guernsey Dairy brand in Waukesha, Wis.
Morning Glory Farms Region of AMPI, with members and operations in Wisconsin, Illinois, Indiana, Ohio and Michigan, was the result of a merger of Morning Glory Farms Cooperative and Mid-States AMPI in 1986. Both of these organizations had grown through numerous mergers and acquisitions; major ones were Chicago’s Pure Milk Association; Pure Milk Producers Cooperative of Fond du Lac, Wis.; Madison Milk Producers of Madison, Wis.; and Central Indiana Dairymen’s Association of Indianapolis.
Morning Glory Farms Cooperative was organized as Consolidated Badger in Shawano County, Wis., in 1931. Today, Foremost Farms packages milk and related products under the Morning Glory brand in De Pere, Wis.
SOURCE: Foremost Farms USA
Foremost Farms Manufacturing Network
WisconsinAlma Center – Mozzarella, condensed whey
Appleton – Mozzarella, direct shred, WPC, dry permeate
Chilton – Mozzarella, provolone, string cheese, WPC, permeate
Clayton – Mozzarella, provolone, condensed WPC, condensed permeate
De Pere – Packaged fluid milk, cultured products, acidified sour cream
Lancaster – Milled/milled marbled cheddar, condensed whey and permeate, WPC
Marshfield – Cheddar, colby, Monterey jack, condensed whey
Milan – Mozzarella, provolone, WPC, condensed permeate
Plover – Whole whey powder, edible lactose, reduced-minerals WPC, WPC, organic whole whey powder.
Reedsburg – Butter/butter blends, condensed skim and buttermilk, sweet cream
Richland Center – Mozzarella, condensed whey permeate, WPC, whole whey powder
Rothschild – Dry permeate, pharmaceutical and edible lactose
Sparta – Whole milk powder, NFDM, condensed whole and skim milk, cream, WPC, cultured milk powder
Waukesha – Packaged fluid milk, ice cream mix
Waumandee – Cheddar, colby, colby-jack, Monterey jack, condensed whey and permeate, WPC
Wilson – Mozzarella (appetizer sticks); condensed whey, WPC and permeate
Minnesota
Preston (two plants) – Dry blends, WPC
Iowa
Waukon – WPC, milk protein hydrolosate
The Foremost Farms Family of Products
Foremost Farms USA breaks down its operations into three groups – consumer products, cheese products and ingredient products.The company is best known to consumers through its two brands, GG Golden Guernsey Dairy and Morning Glory. Each brand features a full line of fluid and cultured products, including white and flavored milk, buttermilk, cream products, cottage cheese, sour cream and dips, all in various package sizes, flavors and fat content levels. The Golden Guernsey brand was founded in Milwaukee in 1930, while Morning Glory emerged in the Dairy State a year later. These brands are sold through retailers in Wisconsin, Minnesota, Illinois, Indiana and Michigan.
About a third of Foremost Farms’ consumer products are branded, with the rest packaged for store brands.
Foremost Farms produces nearly 450 million pounds of cheese annually, with Italian cheese representing nearly three-quarters of the total. The company makes sticks, blends, shreds, Hispanic, Italian and American cheeses for the foodservice and food processing industries.
Finally, the company offers an extensive variety of whey-derived ingredients for customers around the world in the bakery, confectionery, pizza, nutritional, pharmaceutical and feed industries.
