Beatrice Company

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Beatrice Company

Two North LaSalle Street
Chicago, Illinois 60602
U.S.A.
(312) 782-3820

Private Company
Incorporated: 1898 as Beatrice Creamery Company of Nebraska
Employees: 19,700
Sales: $4 billion

Beatrice’s steady, sometimes spectacular, growth into one of the largest and best-known food companies in America was built upon the foundations of a modest butter manufacturer in Nebraska. A dairy company for half a century, Beatrice began to expand into other food areas after World War II. Decades of dizzying acquisitions came to an end when the company was taken private through a leveraged buyout in April, 1986. Beatrice’s new management trimmed the company radically, selling $7.3 billion worth of assets in two years. Beatrice today consists primarily of Beatrice/Hunt-Wesson, a packaged foods producer; Swift-Eckrich, a producer of prepared meats; and Beatrice Cheese.

Beatrice founder George Haskell began his career as a bookkeeper for the Fremont Butter and Egg Company in 1886. When this company went out of business in 1891, Haskell went into partnership with a man named Bosworth and bought Fremont’s Beatrice, Nebraska plant. In 1895 he organized the Beatrice Creamery Company with $40,000 in capital, and Beatrice churned its first butter. The company’s headquarters were moved to Lincoln, Nebraska in 1898, when the Beatrice Creamery Company of Nebraska was incorporated with $100,000 in capital. That year, Beatrice produced 940,000 pounds of butter.

Beatrice’s first decade was a hard one. The company struggled through economic hardship, scarce financing, low prices, and drought. Nonetheless, Beatrice continued to grow, churning and distributing fresh butter directly to grocery stores, restaurants, and hotels. Beatrice soon found itself in the cold storage business as well, a natural adjunct given the refrigeration plants required to manufacture butter. During this time, to sell their cream, farmers had to deliver milk daily to a skimming station, and then haul their skim milk back to the farm for livestock feed. One of Beatrice’s first innovations was to help farmers reduce costs and inefficiency by financing their purchase of cream separators.

In 1901 the Beatrice plant in Topeka, Kanasas hired an agency to find a name for its butter. The patent office granted the company the trademark “Meadow Gold” later that year—one of the first trademarks for butter.

Over the next four decades, Beatrice grew steadily, branching into other dairy products and pioneering in many industry innovations. Beatrice was one of the first companies to pasteurize churning cream on a large scale and the first to package butter in sealed cartons. The company opened an ice cream plant in 1907 in Topeka, and ice cream soon became a significant business segment. Beatrice was the first to advertise an ice cream brand nationally, in 1931, as it had been the first to advertise its Meadow Gold butter, in 1912. In 1923 the company opened a fluid milk plant in Denver, Colorado and entered the distribution of milk, cottage cheese, and buttermilk. It was a pioneer in the use of aluminum foil to make milk bottle caps and introduced homogenized milk in 1930 to wide consumer acceptance.

Like businesses everywhere, Beatrice struggled through the Depression. The company reported, for instance, that “the year 1933 was one of the most difficult years ... in the history of the dairy business ... by December 14th [the price of butter] declined to 15¢, the lowest level for the month of December in twenty-five years.” But Beatrice survived.

World War II brought its hardships—the government demanded a 30% share of all butter and rationed the rest, froze milk prices, limited the use of milk fats and solids in ice cream, and otherwise restricted business—but in general sales were strong, and increased steadily from year to year. In 1941 Beatrice produced 70 million pounds of butter, and in its annual report that year, celebrating the 40th anniversary of the Meadow Gold brand, it declared: “the Company is not trying to be the largest in the business, but we are endeavoring to continue one of the best....”

Despite this sentiment, Beatrice continued to grow. In 1943 the company bought La Choy, a producer of oriental foods, as part of its plan to diversify outside of dairy markets. And in 1946, in keeping with this plan, the Beatrice Creamery Company became the Beatrice Foods Company.

In 1949 Beatrice was able to report its tenth consecutive year of increased net sales and a tripling of total sales—all during what it described as “the extremely unstable market conditions that have prevailed since the end of the war.”

In 1952, Clinton Haskell, who had become president in 1928, died. Under Haskell, Beatrice had grown from a regional butter manufacturer into a prominent, national producer and distributor of a variety of foods. Throughout this transformation, and to this day, the company never veered from a determined policy of decentralized management. Its multitude of businesses have always been managed by their own, local managers, whose intimate knowledge of their own conditions, Haskell maintained, would produce the best business decisions. This dedication to decentralized management is perhaps the single strongest thread linking the company of today with its past.

William Karnes replaced Haskell as president. He had been with the company since 1943, and from 1948 was executive vice president. Karnes accelerated the trend toward growth and diversification that had begun in the early 1940s, buying small companies, expanding their markets, and leaving the newly acquired companies on their own, in line with Beatrice’s long practice. Under Karnes, whom Fortune described as having “a gimlet eye for attractive enterprises,” this aggressive acquisition strategy took Beatrice not only into foods as diverse as candy and vegetables, but also into dozens of non-food businesses like luggage, furniture, and chemicals. Until the early 1970s, this expansion produced a string of earnings increases that let Beatrice write its own ticket on Wall Street.

But by the time Karnes retired, in 1976, Wall Street was less interested in growth than in profitability, and Beatrice’s relentless acquisitions were beginning to disappoint investors. Karnes named Wallace Rasmussen, a former ice-hauler with a bullying reputation, as a sort of interim president—he would have to retire in three years, when he reached the company’s mandatory retirement age of 65. This arrangement led, naturally, to a long power struggle within the upper management. Out of this James Dutt emerged as CEO in 1980.

Dutt had worked his way up through the ranks, joining the local Beatrice plant in his hometown, Topeka, as a college student. Rasmussen hadn’t stopped acquiring, despite Wall Street. Of Rasmussen’s purchases, which included a candy company and Culligan, the water-softening company, the biggest had been Tropicana Products, an orange juice producer, for $490 million. Dutt faced the daunting task of rationalizing the behemoth he had inherited.

His first move was to analyze Beatrice’s operations by return on net assets so that he could jettison those that weren’t able to make a 20% return. But he didn’t just chop recklessly—he paid attention to the mix of companies and tried to create a coherent whole. To the stockholders’ delight, he sold dozens of companies, including Airstream, the trailer producer; Morgan Yacht Corporation; Dannon Company, of yogurt fame; and all domestic soft drink operations, chiefly Royal Crown Cola and Seven-Up franchises.

But another Dutt decision seemed inconsistent with these sales. In 1981, Dutt struck a $580 million deal with Northwest Industries to buy the Coca-Cola Bottling Company of Los Angeles and Buckingham Corporation, the importer of Cutty Sark and other liquors.

Dutt defended his acquisition, arguing that his strategy was to create a bigger, even more profitable Beatrice that was a “premier marketer.” He planned to improve corporate marketing both on a regional level, by offering incentives to regional managers, and on a national level. To this end Dutt quintupled Beatrice’s advertising and marketing budget, from a paltry $160 million to $800 million a year. And to symbolize the company’s new character, Beatrice’s name changed again, from Beatrice Foods to Beatrice Companies, in June, 1984.

Convinced that effective marketing and continued growth would transform Beatrice from a group of decentralized, regional operations into a major worldwide marketer, that summer Dutt bought Esmark, a Chicago-based food and consumer products giant, for $2.7 billion. This price, 23 times earnings, added so much debt to Beatrice’s balance sheet that Standard and Poor’s downgraded Beatrice securities from AA to A.

During these difficult years, Fortune reported that Dutt had turned into a “fiery-tempered autocrat” who drove his employees mercilessly and demanded absolute allegiance. Of Beatrice’s 58 top officers at the end of 1980, when Dutt took over, 37 had left the company by mid-1985. Over a three-year span La Choy had three presidents, and in a single year, Tropicana Products went through three. Further, Beatrice’s merger with Esmark, which Dutt had promised would be exceedingly smooth, caused dozens of firings and resignations among Esmark executives.

By mid-1985, all confidence in Dutt’s grand vision of Beatrice had dissipated. Although he had succeeded in making Beatrice larger, his achievements fell far short of his promise to raise return on equity and speed growth in earnings. In August, 1985, Beatrice’s board of directors—many of them appointed by Dutt—asked for Dutt’s resignation.

William Granger Jr. came out of retirement to replace Dutt, and soon announced his intent to sell assets to reduce Beatrice’s $2.5 billion debt load. But before he could accomplish this, Donald Kelly, the former chairman of the board of Esmark, took Beatrice private with the help of Kohlberg Kravis Roberts in a $6.2 billion leveraged buyout. Beatrice was reorganized as the wholly owned subsidiary of BCI Holdings Corporation.

Kelly began selling off assets immediately: only 12 days after taking over, he sold Avis, the number-two car rental company in the U.S., for $250 million. He continued to sell subsidiaries until July, 1987, when he decided to spin off a miscellaneous collection of 15 consumer goods and specialty food companies into a company called E-II Holdings. BCI shareholders received one share of E-II for every three of BCI.

Kelly became chairman and CEO of E-II as well as chairman of BCI. In September, 1987, Kelly changed BCI’s name to Beatrice Company to signal his intent to return to the food industry.

Meanwhile, Kelly, in his role as the leader of E-II, launched a raid on American Brands, a tobacco company. The tables soon turned, however, and Kelly agreed to sell E-II to American for $800 million (earning a tidy $50 million himself for his seven months at E-II).

By the fall of 1988, Kelly’s steady dismantling of Beatrice had earned about $7.3 billion, more than offsetting the $6.2 billion he had paid for the company. In addition to the E-II deal, some of Kelly’s largest sales were: Playtex, for $1.25 billion, to its management; the Los Angeles Coca-Cola Bottler, for $1 billion, to Coca-Cola; International Foods, for $985 million, to the TLC Group; and Tropicana, for $1.2 billion, to Seagram.

But Kelly didn’t plan to stop there. He originally planned to sell the remaining Beatrice businesses as a whole to a single buyer. But when he found no such buyer, he stepped down as chairman (though he remains on the board) in October, 1988 and left the running of the remains of Beatrice to Frederick Rentschler, a former Esmark executive who had been president and CEO of Beatrice since mid-1987.

Beatrice began in the dairy business, and for 45 years was content to remain there. During World War II its focus broadened, and in the following decades, Beatrice’s growth took it into nearly every aspect of the food business—and beyond food altogether. But decades of acquisition, combined with a determined policy of decentralized management, created an enormous, poorly rationalized company. What remains today, after the frenzied selling that followed the company’s leveraged buyout in 1986, are Beatrice’s main domestic food operations. So, after nearly half a century of expansion, Beatrice now finds itself trimmed to a more manageable size and tightly focused once again on the food industry.