J.R. Simplot Company

views updated

J.R. Simplot Company

999 Main Street
Boise, Idaho 83702
U.S.A.
Telephone: (208) 336-2110
Fax: (208) 389-7515
Web site: http://www.simplot.com

Private Company
Incorporated: 1956
Employees: 12,000
Sales: $3 billion (2002 est.)
NAIC: 311411 Frozen Fruit, Juice, and Vegetable Manufacturing; 112111 Beef Cattle Ranching and Farming; 325311 Nitrogenous Fertilizer Manufacturing; 325312 Phosphatic Fertilizer Manufacturing; 325314 Fertilizer (Mixing Only) Manufacturing; 325320 Pesticide and Other Agricultural Chemical Manufacturing

The J.R. Simplot Company is one of the largest privately-held agribusiness firms in the United States with interests in food, fertilizer, turf and horticulture, and cattle feeding. The company's growth charts the rags-to-riches rise of J.R. Simplot, an Idaho potato farmer who assembled a corporate empire around a small potato growing business to create a remarkable model of vertical integration in the agricultural industry. As one of the largest frozen potato processors in the world, J.R. Simplot produces three billion pounds of french fries each year, supplying the likes of McDonald's, Burger King, and KFC. The company is also one of the largest producers of beef cattle in the United States and the second-largest frozen vegetable producer in the world.

The complexion of Idaho's economy during the early 2000s reflected the fortunes of the state's most prominent citizen. Idaho's chief manufactured good was processed foods; its largest agriculture crop was potatoes; its greatest number of livestock, cattle; its most abundant nonfuel mineral, phosphate; its principal industry, agriculture. Each of these primary segments of Idaho's economy described part of the diverse empire developed by John Richard (J.R.) Simplot, a self-described "goldurn potato farmer" whose life charted the remarkable progression of an eighth-grade dropout into a multibillionaire. During the course of his meteoric rise in the business world, Simplot became involved in an eclectic array of businesses, assembling a variegated corporate empire that underpinned Idaho's economy and constituted one of the great American fortunes. At the heart of Simplot's wide-ranging business interests was the J.R. Simplot Company, a corporate entity that at first blush appeared to comprise a motley, disconnected collection of businesses, ranging from mining operations to potato fields to livestock feedlots. The J.R. Simplot Company, however, was not the product of J.R. Simplot's compulsion to own everything without regard for the cohesiveness of the whole. Instead, the J.R. Simplot Company's seemingly odd mix of businesses were indicative of J.R. Simplot's intent to control all aspects related to the cultivation and processing of his potatoes. Around the business of growing and processing potatoes, a vertically integrated empire developed, the magnitude of which belied the humble origins of its creator.

Origins

Born in 1909, Simplot began his ascension to the top of the business world in Delco, Idaho, a small frontier town that was home to roughly ten families during Simplot's childhood. There, amid the sprawling plains stretching across the southern reaches of Idaho, Simplot got his working career off to an early start, deciding at age 14 that what lay outside the confines of the community's four-room schoolhouse held more promise than what lay inside. "I had to stop," Simplot later reflected, referring to his decision to drop out of school. "I didn't get along in school. I just didn't like it." Simplot left school and never returned, opting instead for the back-breaking field work that would fill his days for years to come. Those who knew the young Simplot discovered that whatever passion he lacked for formal education was compensated by his remarkable capacity for labor.

Fortune, decisiveness, and a willingness to work would characterize Simplot's resolute march from grade-school dropout to billionaire, beginning with his first job as a potato sorter for a local firm of potato brokers. During his off-hours, the 15-year-old Simplot moonlighted by shoring up the canals bringing water from the Snake River into irrigation ditches, earning extra money by "riprapping" the canal banks with rocks until he had enough money to rent 40 acres of potato land from his father and purchase several sow hogs. Simplot then constructed hog pens on the banks of a nearby creek, planted potatoes on his rented land, and fattened his hogs by feeding them an unusual hog slop that opened the doors to wealth and provided him with his first break in his fledgling business.

Instead of paying for feed grain as other livestock owners did, Simplot used what was available to him by tracking down the wild horses that still roamed the plains and combining the horse meat with discarded potatoes and a little barley. Once cooked in a huge iron vat, Simplot's hog slop represented a cheaper alternative to feed grain and, as luck would have it, the horse meat-cull potato-barley mash gave the resourceful Simplot an advantage over other pig farmers after a particularly harsh winter cut short the supply of feed grain. The following spring, when pigs were brought to market, Simplot's fat hogs stood in sharp contrast to the skinny hogs deprived of their usual amount of feed grain, enabling Simplot to reap the rewards from his unconventional hog slop.

Buoyed by the profits gleaned from the sale of his portly pigs, Simplot expanded his hog-raising operations, increasing his stock over the years until he owned roughly 500 hogs by the time he sold his spread for $7,500. With the money, Simplot purchased three teams of horses, some farm machinery, and a substantial supply of seed potatoes, then rented land and immersed himself in the business of growing potatoes. Shortly after beginning his new venture, Simplot learned of an electrically driven potato sorter that was invented in a machine shop in eastern Idaho, the first of its kind in the state. Simplot visited the machine shop, took a look at the new piece of time-saving machinery, then convinced the proprietors to make a duplicate, which Simplot and partner Lindsay Maggart purchased in 1928 for $254.

The electrically driven potato sorter proved to be a boon to Simplot's business, enabling him to sort not only his and his partner's crop but also portions of other farmers' crops. Business was growing briskly and running smoothly until a feud developed between Maggart and a potato broker, and Simplot and the electric potato sorter were caught in the middle. Maggart had become angered when he learned that some of the potatoes sorted by the jointly owned machine were being purchased by the broker. Irked that his property was indirectly benefiting his adversary, Maggart ordered Simplot to stop, but Simplot, unwilling to limit his growing business intentionally, reportedly responded, "Let's flip for it." He won the coin toss, gaining full ownership of the electric potato sorter and full control over its future use.

In 1929, Simplot began to lay the groundwork for his potato empire. Winning ownership of the potato sorter was a stroke of luck, but nearly all of Simplot's success to this point was owed to his legendary devotion to hard labor. During his first decade on his own, Simplot had relied on his indefatigable energy to create a burgeoning business, spending all his waking hours constructing hog pens, digging potato cellars, hauling sacks of potatoes, and tilling the soil, among the other endless and sundry duties required to keep his various ventures alive. That Simplot was able to withstand the debilitative effects of the Depression and prosper was a credit to his tireless efforts, but in the midst of the decade-long economic turmoil he began to demonstrate another quality of character that would propel the young farmer toward the billions of dollars his business would later generate.

Federally funded programs aimed at providing relief to the economically devastated nation included the Bureau of Reclamation's prodigious work along the Snake River, which cut a swath of water across the state. To farmers working in an agriculturally intensive state, the work along the Snake River meant much, but Simplot was one of the few farmers to appreciate the ramifications such work would have on agricultural activity in Idaho. A reliable source of water would enable Simplot to diversify within and around the economy of the potato, supporting his entry into several agricultural and nonagricultural businesses that, once established, would strengthen his position considerably as a potato farmer. Though Simplot would continue to be regarded as a hard-working farmer, striving merely "to raise the average potato yield," as he put it, his foresightedness and decisive development of an interdependent collection of businesses powered his transformation from a "gol-durn potato farmer" into Idaho's preeminent industrialist and spawned one of the great American corporate empires.

World War II Diversification

By 1940, Simplot's holdings had grown to include 33 potato warehouses. The development of Simplot's vertically integrated businesses occurred quickly, beginning with his move into onion farming in the late 1930s. From there, forays into other agricultural and nonagricultural areas followed in quick succession. By 1940, Simplot's large scale onion growing operation had expanded to include facilities for dehydrating onions, which drew the attention of a scouting party for the U.S. Army's Quartermaster Corps the following year as the nation prepared to enter the century's second great military struggle.

Company Perspectives:

Simplot's mission statement, Bringing Earth's Resources to Life, embodies our reason for being in business: we mold many of our planet's raw materials into a wide variety of value-added products which sustain and enhance life. As part of this process, Simplot has made significant investments in environmental quality, and we constantly work to protect the natural resources without which the company could not exist.

At the time of the scouting party's inspection of Simplot's onion-drying operations in the spring of 1941, vegetable dehydration was a crude science practiced by only a handful of businesses. There were only five vegetable-dehydrating factories in the country, none of which could dry and squeeze out the water from potatoes without mashing their cell structure. Spurred by the interest shown in his onion-drying facilities by the Quartermaster Corps, Simplot immersed himself and his resources into discovering a way to dehydrate potatoes, developing, after considerable experimentation, a revolutionary method to peel and dry potatoes efficiently and expeditiously. Simplot subsequently began producing dehydrated potatoes for the military on a scale that augured the beginning of the great achievements to come for the grade school dropout. Over a three-year period between 1942 and 1945, Simplot produced an average of 33 million pounds of dried potatoes each year, or roughly one-third of the U.S. military's consumption during the war, catapulting him to the forefront of the potato industry.

As Simplot's business grew during the war, the range of his operations expanded, giving the fiercely independent Simplot the capability to fulfill his need for raw materials. When he ran short of wooden boxes for shipping his products overseas in 1943, Simplot built his own box production plant. When his box production facility was in need of a greater amount of lumber, he purchased his own lumber company. Simplot's supply of the fertilizer needed to grow his potatoes was cut off in 1944, so he decided to develop his own supply of fertilizer and paid a visit to a parcel of land owned by the Fort Hall Indian Reservation. Simplot scratched the surface with a scraper, searching for phosphate rock needed to produce chemical fertilizer, and, as he later related, "Damned if I didn't latch onto the biggest phosphate deposit west of Florida." Simplot leased the land, built a $1 million fertilizer plant with the help of a government loan, and began tapping into the largest phosphate mine in the west.

In a few short years, Simplot had branched out from potato growing and processing to cultivating and dehydrating onions, to mining, to producing fertilizer, and to logging, with each diversifying move bolstering his mainstay potato business. The sheer magnitude of his potato business led Simplot into another business area in 1945, when he built a small feedlot for cattle. The connection between cows and potatoes was the river of potato waste streaming from his processing plants, a mixture of peelings, sprouts, eyes, and other culls that Simplot mixed with alfalfa, barley, and several chemical supplements to make feed for cattle. From the potato, another Simplot business had been created, turning a farmer's modest hope of raising the average potato yield into a well-rounded, self-sufficient enterprise that had begun to take on the trappings of an agricultural conglomerate.

Postwar Growth

The J.R. Simplot Company was incorporated following the diversified growth during the war years, its founding year in 1956 coming midway through the decade in which Simplot's pioneering contributions toward potato processing continued, resulting in an enormously beneficial discovery. During the 1950s, Simplot researchers developed a method to freeze potatoes, engendering frozen french fries and the new engine that would propel the J.R. Simplot Company's growth. During the 1960s, as Simplot's multifaceted agricultural and nonagricultural interests continued to flourish in the postwar era, Simplot developed a business relationship with Ray Kroc, a fast-food operator who became the single most important person in Simplot's business dealings. The fast-food chain Kroc had founded was none other than McDonald's, which had a nearly insatiable need for the frozen french fries first developed by the J.R. Simplot Company a decade earlier. Simplot would go on to become the single largest supplier of frozen french fries to the massive hamburger chain, adding another lucrative trade to the other prosperous enterprises operating under the Simplot name.

By the late 1960s, after two decades of resolute postwar growth, Simplot's various businesses had made their creator a prominent fixture in American industry. Simplot grew more potatoes, owned more cattle, owned more land, and employed more people than any other Idahoan. He ranked as the largest potato processor in the world, the largest dryer and freezer of potatoes in the world, and owned processing plants, fertilizer plants, mining operations, and other enterprises scattered across 36 states, in Canada, and overseas, making him Idaho's fore-most industrialist and one of the biggest in the world. In the decades ahead, Simplot continued to demonstrate his resourcefulness and willingness to jump headfirst into new businesses. He began producing ethanol during the 1970s, using his ubiquitous potatoes to manufacture the alcohol-based fuel additive. During the 1980s, he used the waste water from potato processing for irrigation and cattle manure to help fuel methane gas plants. He also entered into various processed food niches.

By the end of the 1980s, Simplot stood atop a $1.2 billion-in-sales, privately held corporate powerhouse. In addition to five potato processing plants, five vegetable freezing plants, a major cattle raising and meat packing operation, and phosphate mines, Simplot was supported by his own construction company, his own finance company, his own transportation company, and his own cogeneration plants. Simplot's corporate reach, to be sure, extended far and wide, rivaling the largest diversified conglomerates in the world and providing a firm foundation for future growth and long-term stability.

Key Dates:

1928:: John Richard Simplot and Lindsay Maggart purchase an electrically driven potato sorter.
1929:: Simplot begins to lay the groundwork for his potato empire.
1940:: Simplot now operates 33 potato warehouses.
1942:: Simplot begins to supply the U.S. military with dried potatoes.
1956:: The J.R. Simplot Company is incorporated.
1999:: Simplot teams up with Netherlands-based Farm Frites Beheer BV to create the Simplot-Farm Frites Global Potato Alliance.
2003:: The company opens a french fry plant in Manitoba, Canada.

The 1990s and Beyond

By the 1990s, Simplot was in his 80s and ready to hand over the reins of command to the next generation of Simplots. In 1994, control over the J.R. Simplot Company was devolved to an office of the chairman comprising three of Simplot's children and one grandchild, keeping management of the privately owned empire within the Simplot family. Over the course of the decade, the company worked to intensify its international operations as well as strengthen its domestic business by trimming costs and streamlining certain functions. In 1995, Simplot and Nestlé SA teamed up to acquire the Pacific Brands Food division of Australia-based Pacific Dunlop Ltd. The firm also formed a joint venture in China to produce seed potatoes, which in turn would supply the McDonald's restaurants in the region.

In 1999, Simplot partnered with Netherlands-based Farm Frites Beheer BV to create the Simplot-Farm Frites Global Potato Alliance. According to a November 1999 Frozen and Chilled Foods report, the alliance was created to "exchange information on the supply of potatoes, the improvement of operational processes and potato processing, product development, environmental management, and other important issues." Supported by the success of its past ventures, Simplot planned for future growth in the new century. In late 2000, the company announced plans to add Nestlé USA's processed potato business to its arsenal.

Demand for frozen potatoes began to falter in 2001—especially after the events of September 11th—and quick service restaurants began to experience a slowdown in frozen potato sales. Simplot, having successfully weathered harsh economic times throughout its history, immediately began making the necessary business adjustments. It continued to diversify its product line, broadened its market reach, and adjusted production levels. In 2002, the company opted to shutter its Heyburn plant, the second plant added to J.R. Simplot's holdings back in its early days and the original manufacturer of McDonald's french fries.

As the company worked to remain profitable during the economic downturn, it was forced to contend with a lawsuit related to a salmonella outbreak in Phoenix in 1998. Eateries Inc. claimed that five of its Phoenix-based restaurants received contaminated chile relleno product manufactured by a Simplot subsidiary in Mexico. The suit dragged on for five years, and in 2003 Simplot was forced to pay $8.2 million in damages.

Despite facing challenges, Simplot continued to forge ahead. The firm began to import nitrogen-based fertilizers, opening ports in California, Portland, and Texas to facilitate the importing process. By this time, revenues from the firm's fertilizer operations were nearly on par with its food division. The company also began to shift some of its manufacturing operations to Canada. In 2003, the firm opened a new state-of-the-art french fry plant in Manitoba in order to capitalize on the economic advantages the region had to offer, including the lucrative exchange rate between the U.S. and Canadian dollar. Led by Chairman Scott Simplot, CEO Larry Hlobik, and a board of directors that included several Simplot family members, the J.R. Simplot Company appeared to be on track to maintain its position as one of the largest privately held agribusiness concerns in the United States for years to come.