Processor of the Year

Processor of the Year 2018: Smithfield Foods

The world’s pork leader had some lean years but is sizzling once again.

By Dave Fusaro, Editor in Chief

In its more than 80-year history, Smithfield Foods Inc. has transformed from a small meatpacking plant to a global consumer packaged goods and protein company. This evolution began with Smithfield aggressively buying out competitors as well as a few processors that brought the company into new categories. It also included Smithfield itself being acquired, by a Chinese company.

Today, the company has 45 facilities across the U.S., many the result of acquisitions, plus operations in Mexico, Poland, Romania and the U.K. It employs more than 54,000 people worldwide. Its 14 core brands are Smithfield, Eckrich, Nathan’s Famous, Farmland, Armour, Farmer John, Kretschmar, John Morrell, Cook’s, Gwaltney, Carando, Margherita, Curly’s and Healthy Ones. Read more about their products and brands on Smithfield's Top 100© page 

Coming off 8 percent sales growth in 2017, with sales now at more than $15 billion, Smithfield perhaps has never been stronger. It remains the world’s biggest pork processor, although the company is poised for growth into “all kinds of adjacent categories,” promises President/CEO Ken Sullivan. This seems like an excellent time to name Smithfield Foods our 2018 Processor of the Year.

The history

Smithfield Packing Co. was founded in 1936 in Smithfield, Va., by Joseph Luter Sr. and Jr., the first of four Joseph Luters to run the company. The father and son had been employees at P. D. Gwaltney, a pork processor also in Smithfield.

The town of Smithfield’s reputation for producing specialty hams and meats dates back to the late 1700s. In 1926, the Virginia General Assembly established rules requiring that the celebrated Smithfield Ham – a salt-cured, country ham – be produced within the corporate limits of the town of Smithfield, a rule that continues today.

Smithfield sees many benefits to being vertically integrated. In addition to its 45 processing facilities, it owns some 500 pig farms in the U.S. and has contracts with another 2,000 independent farms around the country.

“As recently as the 1980s, Smithfield was a small company,” says Sullivan, defining small as less than $500 million in sales. “Over the period from 1985 to 2005, we went through a period of rapid growth and transformation. The company just exploded. We were consolidating the pork industry.”

The Luters’ first acquisition, in 1981, was their former employer and cross-town rival Gwaltney. In the years that followed, Smithfield bought nearly 40 companies, including Eckrich, Farmland Foods, John Morrell, Patrick Cudahy, Murphy Family Farms, Circle Four Farms and Premium Standard Farms.

In 1992, Smithfield opened the world’s largest processing plant, a 973,000-sq.-ft. facility in Tar Heel, N.C., which by 2000 could process 32,000 pigs a day.

Corporate HeadquartersSmithfield long had been a public company. During those two decades, when a lot of food & beverage companies were making acquisitions with abandon, Smithfield’s soaring stock price supported the acquisitive growth.

Symbolic of those heady days, Smithfield placed an ad in the Wall Street Journal in 2001 that compared the pork company’s stock performance to some of the most popular stocks of the day, even Warren Buffett’s Berkshire Hathaway. “We were outperforming everything and everybody, and it was an incredible story for those 20 years,” recalls Sullivan.

By 2005, Smithfield was slaughtering 27 percent of the country’s hogs, and commodity pork products represented half of the company revenue. “We also bought a lot of beef assets during that time and embarked on an international expansion.”

A number of factors converged in 2005 to halt the go-go times. Recently acquired hog farms, which had been a solid revenue source, suffered unexpected losses. The Renewable Fuels Standard (which started diverting biofuels, primarily corn ethanol, into gasoline) shot up the costs of corn and soybeans fourfold.

“We also had some anti-trust considerations because of the rapid growth of Smithfield and its consolidation of the pork business,” says Sullivan. “Frankly, we would not be allowed to double in size again, even if we had the funds.”

All those things conspired to sour investors on the company, and the stock price suffered. But it ushered in a decade-long period of introspection. “The world had changed, but we hadn’t,” says Sullivan. In 2006, Joseph Luter III turned over the company’s leadership to the first non-family member, C. Larry Pope.

Pope began to change the company, increasing its focus on consumer packaged meats. Smithfield acquired the Armour and Eckrich brands from ConAgra Foods in 2007 and, in the same year, purchased Sara Lee’s European packaged meats business through a joint venture. At the same time, however, Smithfield focused its business by divesting its beef operations and later its turkey business as well, making pork its sole focus.

Smithfield Facilities MapSmithfield further expanded its global reach following a 2013 acquisition by Shuanghui International Holdings – an acquisition that raised eyebrows and even U.S. government concerns.

“From a strategy standpoint, there were a number of good reasons for the acquisition,” says Sullivan. Foremost was that China was and is the world’s largest market for pork, and demand outstrips its supply. “Not a single job has left the U.S. since the acquisition,” he says. “In fact, we have added thousands of American jobs since that time.”

Through those years, one thing that had not changed was the company philosophy to let each new acquisition operate independently. “It was a very decentralized model,” explains Sullivan. “The management philosophy was to make acquisitions but keep the companies independent, to create a culture of internal competition.”

One business unit would develop breakthroughs that were not shared with other business units. They would even steal business from each other. “That model worked wonderfully for many years – especially if the measure you use is the stock price – but we started asking ourselves if we were really optimizing all those assets we bought.”

That decade of introspection led to the “One Smithfield” philosophy, which wouldn’t be formally implemented until 2015. “We eliminated the independent operating companies, combined sales functions, IT systems and optimized everything, both financially and culturally.”

What has changed

“15 years ago, we were a ham company” and a commodity pork company, says Sullivan. “Now we’re number one, two or three in every meat category. We’ve built a considerable packaged goods business – from bacon to hot dogs to dried sausage. The trends now are cooked products, prepared meals, and our intention is to expand our capabilities in those categories. Further processing now is the star of our company.”

While other meat companies are buying their way into new and further-processed categories, Smithfield is taking a more conservative approach, growing organically and, as a result, a bit more slowly.

But 2017 became another year of acquisitions, with Smithfield completing the purchases of the Farmer John and Saag’s Specialty Meats brands as well as additional processing facilities and farms. In June, Pini Group’s packaged meats companies in Poland became part of Smithfield’s Animex subsidiary. Two months later, the company completed the full acquisition of Kansas City Sausage Co., in which Smithfield had a 50 percent ownership since 2013.

It also became a milestone year for Smithfield’s sustainability program, which is ingrained throughout its operations and helps its customers deliver on their own commitments. In 2017, Smithfield became the first large-scale producer in the industry to convert to group housing systems for pregnant sows on company-owned farms.

The company also announced Smithfield Renewables, a new platform to ensure the company reaches its goal to reduce greenhouse gas (GHG) emissions throughout its supply chain 25 percent by 2025 while unifying and accelerating its renewables efforts across farms and facilities. These achievements and efforts solidified Smithfield’s reputation as a sustainability leader.

What lies ahead

Kenneth m SullivanNow, Smithfield’s biggest product categories are, in order: hams, bacon, pork loins and pork butts. Less apparent is the company’s penetration into categories such as deli, foodservice and international. “We have significant assets on the live production side and on the fresh meat side and significant opportunities beyond the United States,” says Sullivan. And he hints at growth plans that will put Smithfield in “all kinds of adjacent categories.”

Today, in addition to fresh pork, Smithfield has an $8 billion packaged meats business, and its brands hold top market share in numerous categories. This area is growing for several reasons, including the company’s rapid response to evolving consumer tastes and the strength of its brands’ marketing programs.

Smithfield will continue to build on this momentum by focusing on the value of its brands and offering a unified portfolio of packaged meats. This is how the global food company will continue its transformation into a leading consumer packaged goods and protein company.

Looking back in order to look ahead also reveals another key tenet of Smithfield’s success in the past decade: a focus on innovation. It’s one of three guiding principles established by Sullivan when he took the helm at Smithfield: Responsibility, Operational Excellence and Innovation – or ROI.

At Smithfield, innovation encompasses both product and process innovation. Establishing the guiding principles began the shift toward ingraining these values into the company culture. This shift in culture, combined with the team at Smithfield’s Innovation Center, has resulted in hundreds of new products and product categories, more sustainable packaging, optimized transportation networks, more efficient operating systems in its plants and more.

Tied closely to innovation is the company’s focus on sustainability. Sustainable business practices are critical for the company now and looking ahead to the future. “Our sustainability program truly sets us apart from our competitors,” says Sullivan. “It is a differentiator like no other, both for our company and products. The things we do to strengthen our sustainability efforts also strengthen our position in the marketplace.”

The ongoing operational improvements as well as a company culture focused on innovation, sustainability and looking to the future will keep Smithfield sizzling for years to come.