Western Beef, Inc.

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Western Beef, Inc.

47-05 Metropolitan Avenue
Ridge wood, New York 11385
U.S.A.
(718) 417-3370
Fax: (718) 628-2359

Public Company
Incorporated: 1963 as Ranchers Packing Corp.
Employees: 2,000
Sales: $340.87 million (1996)
Stock Exchanges: NASDAQ
SICs: 5144 Poultry & Poultry Products; 5147 Meats & Meat Products; 5411 Grocery Stores

Western Beef, Inc. operates a wholesale food business consisting mainly of meat and poultry products and a network of warehouse-type retail food stores known for rock-bottom prices and tailored to the preferences of the various ethnic groups represented in each store’s market area. The wholesale business operates in New York, New Jersey, and eastern Pennsylvania, while the retail stores (19 at the end of 1996) are all located in the New York City metropolitan area.

Ranchers Packing, 1963-83

Western Beef was formed in part from the operations of Ranchers Packing Corp., which was founded in 1963 by Martin Rochman to process, package, and sell flaked, chopped, and ground meat that had been frozen. A processing and packing plant was constructed the following year in New Hyde Park, Long Island. Production began in 1965. Net sales reached nearly $1.2 million in 1968, when net income was $143,249. Ranchers Packing went public in 1969, offering about one quarter of its outstanding common stock at $5 a share. By 1972, however, the company was in the red. In that year it lost $49,000 on net sales of $1.05 million and had a long-term debt of $339,000. After making a small profit in 1973, the company lost $139,000 in 1974 and $201,000 in 1975.

In 1975 Ranchers Packing opened what was essentially a new business when it converted the New Hyde Park plant to a retail discount store offering a variety of meat, cheese, and other food products at low prices to “volume purchasers.” But in February 1976 Ranbar Packing, Inc., took over Ranchers Packing in an exchange of stock and closed the store.

Founded in 1973, Ranbar, with a plant in Flushing—a community in New York City’s borough of Queens—was a distributor of meat and poultry products and other provisions, largely in New York City and nearby parts of New York, New Jersey, and Connecticut. It was owned by Peter Castellana, who was convicted in the early 1950s of selling adulterated meat and in 1964 of taking part in looting a company of $1.3 million. When Castellana and five others were indicted in 1963, U.S. Attorney Robert Morgenthau described it as the “biggest” and “most audacious” bankruptcy fraud case ever to come before the courts in the Southern District of New York. Castellana served four years of a five-year sentence.

Following Ranbar’s acquisition of Ranchers Packing, its management became Ranchers Packing’s management, acting as trustee for the Castellana family, which held nearly half the common stock. Castellana assumed the position of director-secretary of Ranchers Packing in 1977 and controlled most of the business functions of the company and Ranbar, its subsidiary.

During 1977 Ranchers Packing’s net sales fell to $11.4 million from $26.8 million the previous year, and its net loss widened from $789,000 to $3.4 million. Ranbar filed for reorganization under Chapter 11 of the federal bankruptcy laws and began shifting the company’s operations to retail trade in order to continue in business with less capital needs. Also that year, a Securities and Exchange Commission lawsuit charged Ranchers Packing and Castellana with a number of business irregularities, leading to a consent agreement barring them from further violations of federal securities laws. In 1978 Ranbar and its secretary-treasurer were indicted on 52 counts of defrauding the federal government in a scheme involving stolen food stamps. The company pleaded guilty and was fined $520,000.

Shortly before the end of 1978 two of Castellana’s sons formed F & J Meat Packers, Inc. to service Ranbar’s wholesale customers. By the end of the year Ranbar had discontinued almost 90 percent of its wholesale operations. That year the company, through its parent, Ranchers Packing, had a net profit of $282,337 on net sales of $31.6 million. Ranbar emerged from bankruptcy in 1979 by agreeing to pay its unsecured creditors 25 cents on the dollar over a seven-year period. Ranchers Packing continued to be profitable in 1979 and 1980.

In August 1980 Ranbar closed its remaining packing operations as the result of legal action by the U.S. Department of Agriculture that demanded a modification of the Flushing plant. This facility now became solely a retail store doing business under the trade name “Western Beef.” Ranchers Packing continued to be profitable and in 1982 had net income of $316,198 on net sales of $77.9 million. Shortly before the end of the year, F & J Meat Packers was acquired by Ranchers Packing. Frank Castellana, a son of Peter and previously president of F & J, became president of Ranchers Packing. The senior Castellana was listed as sales manager.

Quarex Industries, 1983-93

Ranchers Packing was renamed Quarex Industries, Inc. in 1983. During the year the company acquired a store in Spring Valley, New York, that was similar to its store in Flushing. The company opened stores in Union and East Orange, New Jersey, in 1985 under the Western Beef name but sold the Union and Spring Valley stores in 1986. The company acquired Western Beef Supermarkets, Inc. in 1985 to operate as a wholesale grocery distributor.

In 1986 a report by the President’s Commission on Organized Crime described Quarex as a “significant force in the meat business” that had “close ties” to the Mafia group known as the Gambino crime family. Peter Castellana was alleged to be a member of this family and a cousin of the family’s recently murdered “boss,” Paul Castellana, Sr. The commission also reported that poultry producer Frank Perdue had given a deposition saying that because of the involvement of the senior Castellana in several bankruptcies, Quarex had a bad credit reputation in the meat industry. Perdue added that “the only way we would sell him, we had to have the money up front.”

Quarex’s wholesale meat business was, in 1987, purchasing products from slaughterhouses, meat-and-poultry processors, and other suppliers and selling them to about 700 customers: permarket chains, retailers, institutions, and other distributors. A fleet of mostly refrigerated tractors, trailers, trucks, and vans carried more than 2.5 million pounds of product a week in a 125-mile radius from a centrally located warehouse in Ridgewood, the Queens community where the company also kept its offices. The two Western Beef stores, plus a third that opened in Elmont that year, sold grocery items but emphasized meat, poultry, dairy, produce, delicatessen, and other perishable foods in warehouse-type facilities of about 30,000 square feet each, mostly refrigerated. During 1987 Quarex had net income of $1.4 million on net sales of $151 million.

During 1988 Quarex transferred the operation of its tractors and trailers to a new subsidiary, Awesome Transportation, Inc.. By then the company was serving about 1,100 wholesale customers. In 1992 it acquired P.S.L. Food Market, Inc., which owned seven Western Beef supermarkets and was also controlled by the Castellana family. P.S.L. opened its first store in Ridgewood in 1985. The other six also were in New York City. At the same time Quarex acquired Southern Blvd. Supermarkets, Inc., another Castellana-controlled company, with a New England wholesale produce business that was later sold.

Western Beef, 1993-97

Quarex was renamed Western Beef in 1993. By then its business, which had been about two-thirds wholesale, was more than half retail. There were 14 retail stores by the end of 1994. All were in New York City, except for ones in Elmont, East Orange, and Mineóla. The stores, whose goods were tailored to ethnic communities, were open seven days a week. Two had on-site bakeries. Western Beef had net income of $4.4 million on net sales of $274.1 million in 1993.

Sales and profits continued to advance in 1994 and 1995, and by the end of 1995 there were 17 Western Beef supermarkets. However, the company’s stock was selling for about half the price that comparable operations commanded. The president, now Peter Castellana, Jr., complained that investment-banking firms had closed their doors to Western Beef because of its alleged Mafia links. To put these allegations to rest, he asked his father to stop coming in to work and hired a company investigating corporate wrongdoing to clear his firm. This company did clear Western Beef later in the year, but recommended that to avoid further stigma, Western Beef should end its wholesale operations. The wholesale division was accounting for nearly a third of Western Beefs sales but less than 10 percent of its profits.

Company Perspectives:

Western Beef, Inc. operates 19 high-volume supermarkets, and is the largest and most visible warehouse supermarket chain in the New York metropolitan area. The company takes great pride in knowing the neighborhoods where its stores are located. Not only does the Company provide a full range of value-priced perishable and grocery products for its many ethnic customers, it also employs many neighborhood people. The Company is also one of New York’s largest wholesale meat and poultry distributors.

The younger Castellana was hoping that the clearing of wrongdoing by Western Beef would enable him to forge ties with investment banks so that the company could raise money, through a secondary public offering, for expansion of its supermarket chain without taking on more debt. Before the year was out, however, Western Beef had become a target of an organizing drive by the United Food and Commercial Workers. In an April 1997 appearance in front of one of the company’s two Manhattan supermarkets, AFL-CIO President John Sweeney alleged that Western Beef had harassed and fired two pro-union workers. He also accused the company of “stealing overtime” from workers, subjecting them to random drug testing, and paying “indecent wages.”

Western Beef in 1996

At the end oí 1996 there were 19 Western Beef supermarkets, all of them high-volume, low-price operations with a warehouse-store format. Nonperishable items were displayed in an area maintained at normal room temperatures, while in most of the stores meat was displayed in large refrigerated rooms. Western Beef sold both bulk meat, custom cut by its store butchers, and a full variety of prepackaged meats. Dairy and deli products were sold in separate refrigerated areas. The company’s stores also sold frozen foods in stand-alone freezers, a complete line of dry groceries, and nonfood products such as paper products and household utensils. Thirteen of the stories had full-service delicatessen departments and four had brick-oven bakeries. The stores ranged in size from 9,000 to 83,000 square feet, with an average of 30,000 square feet.

The wholesale business purchased beef, pork, poultry, and provisions directly from major slaughterhouses, meat and poultry processors, and other suppliers on a daily basis. Additionally, the company distributed food products to its own retail stores from its warehouse in Ridgewood, where it also maintained its offices. These facilities were leased. The company owned 4 and leased the other 15 of its supermarkets. A fleet of mostly refrigerated tractors, trailers, trucks, and vans carried more than 150 million pounds of product annually to more than 1,000 customers in a radius of 250 miles.

Western Beef had revenues of $340.9 million in 1996, of which retail accounted for 69 percent and wholesale for 31 percent. Net income came to nearly $6 million. Western Beefs profit margin was well above the average in its industry. The company’s long-term debt was $9.8 million in September 1996. Officers and directors held 64 percent of the shares of common stock.