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The Gamble

Profile of a family-business's attempt to enter the mass market by creating a national brand.
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What happens when a small, comfortable, family business bets everything on a grab for the mass market?

* * *

The place, a major eastern city; the time, March of this year. Listen: you can hear the drumbeats of an approaching marketing campaign.

Ba-boom. Business leaders and other influentials receive invitations to private dinners at some of the city's toniest restaurants. Once there, they're given artfully prepared samples of a new product and treated to speeches extolling its virtues. Reporters all over the region get glossy press kits touting the company behind the product.

Ba-boom. A series of high-concept 30-second TV spots begin appearing on the city's three network-affiliate channels. Posters bedeck retail stores, ads crop up in suburban weeklies. The city's largest newspaper sports a two-page parchment-colored advertising spread on successive Wednesdays.

Ba-boom. Around the city, numerous sales meetings take place. Some are intense bargaining sessions; others are relaxed, let's-get-acquainted palavers. The seller's delegation includes top management as well as newly hired regional reps. Samples are handed out. Numbers -- projected sales, potential margins -- are tossed around.

The occasion? Not Procter & Gamble's latest product introduction and not yet another big-time entry in, say, the cellular-phone business. Those drumbeats are the sound of a small, family-run business trying to get bigger -- a lot bigger -- in an industry that's hardly growing at all.

The Denver-based company's goals are simple: to leapfrog out of a limited distribution channel into the mass marketplace, where millions of consumers can sample its wares, then to supply those consumers with ever-expanding quantities of its product.

Getting there, alas, is more complex. The company must persuade high-volume retailers to carry a specialty item that many of them think won't sell. It must persuade recession-weary consumers to pay prices an average of 25% higher than what they're used to. Meanwhile -- and this was a surprise -- it has to fend off sniping counterattacks from its own industry.

Rarely does the business world provide so pure an example of marketing's role in quantum-leap growth. The company, Coleman Natural Meats Inc., has a product with demonstrated appeal, racking up some $23 million in sales last year. Its managers are seasoned industry veterans, most with decades of experience. Thanks to a healthy infusion of venture capital, money isn't much of a constraint.

So Coleman's jump into the mass market depends almost wholly on how well the company has planned -- and can execute -- its current campaign. This isn't Marketing 101; it's the real world, and a real company is at risk. It is, nonetheless, a textbook case.

* * *

Mel Coleman Sr., now 66, was brought up on the family spread in tiny Saguache, Colo., a dusty mountain settlement nearly 200 miles southwest of Denver. He was among the fourth generation of Colemans to live there, and the oldest of five brothers. Three went on to other pursuits, but Mel and brother Jim stayed in Saguache to run the ranch, trailing their cattle over more than 250,000 acres of private and leased land in the high mountains. Then in 1979, when Mel was in his mid-fifties, his daughter-in-law, Nancy, slipped a bur under his saddle.

The beef you could buy in the supermarket, Nancy Coleman observed, wasn't nearly as tasty as the home-grown beef Mel and his wife, Polly, served up on the ranch. It wasn't as healthful, either. Unlike a lot of ranchers, the Colemans didn't use growth-promoting hormone implants in their cattle. Nor did they feed them low-level doses of disease-preventing antibiotics. Both practices, though widespread, were controversial. Nancy figured there were plenty of health-conscious consumers like her who would pay a premium for "all-natural," hormone-and antibiotic-free beef. Besides, it tasted better. Why didn't Mel sell it?

Why not, indeed. Pretty soon Mel found himself heading up a company advertising all-natural beef. It was a down-home enterprise. Jim managed the ranch. Polly kept the books. Mel sold. And sold. He toured city after city in his pickup truck, calling on health-food stores, a Reagan Republican in a cowboy hat swapping curious stares with the stores' sandaled proprietors. Before long, common interest overcame cultural distance. He signed up Mrs. Gooch's, a California health-food chain, then Boston's Bread & Circus. Word in a small industry spreads quickly, and Coleman was virtually the only supplier of meat the health-food stores thought their customers might buy.

Small, however, was the operative word here. So long as he relied only on the modest health-food market, Coleman's company was precarious. His costs were high, mostly because all-natural cattle don't grow to market weight as fast as their hormone-treated counterparts. Yet his prices could be only so much more than ordinary beef, or the stuff wouldn't sell at all. Worse, only the better cuts of meat could be marketed easily at those premium prices. The rest -- something like 15% to 20% of the carcass -- had to be sold as regular beef on the commercial market. Net profits in a good year came to a minuscule 1% to 3%. A company that wanted to make money on such hairline margins had to be bigger.

But Coleman was pulled as well as pushed in the direction of growth. In 1986 the Grand Union supermarket chain had sought him out: the big retailer wanted a natural beef and within the year was ordering 500 carcasses a week, four times what Coleman had been shipping. Not long thereafter, Coleman signed up the Purity chain, in Boston, along with a few other supermarkets. Soon an enticing vision began taking shape. Sure, his beef was pricey and therefore not for everybody. But maybe he could reach 6 or 8 or 10 times as many customers, thereby creating a sizable -- and durable -- company. Coleman built up his management team, hiring an operations chief with 25 years in the business and putting son Mel Jr. on the payroll to oversee sales. He began lining up supplies from other ranchers who agreed to forgo hormones and antibiotics. He devised unique methods of tracking cattle and testing meat to make sure it is untainted.

On the marketing front, though, Coleman kept stumbling. He hired a chief executive, a cousin who he thought might guide the company to a new sales plateau, but the two had trouble working together. A contract with a marketing firm in nearby Boulder helped boost revenues, but the relationship ended in a dispute over stock. Soon Grand Union was cutting back its orders, partly because Coleman could offer little in the way of marketing support. Overall sales remained healthy, in the neighborhood of $20 million a year, thanks to rising beef prices and orders from a few new customers. But profits were scarcer than ever. Mel Coleman needed new capital, new expertise, and above all a new approach to the marketplace.

* * *

The turning point came in 1989. Over a 12-month period, he found all three -- albeit at a price that effectively put his company on the line.

The money came from a consortium of three venture capital firms. The lead investor was InterVen Partners, a $51-million fund with offices in Portland, Ore., and Los Angeles. "Here was a market leader that sort of fit the growing 'green' movement," says InterVen's Wayne Kingsley, explaining his interest in Coleman. "Even though it was flying pretty low, it had designed a supply system that could make it into a major company." Together, the three venture capitalists put up about $2.5 million, with more pledged for the future. In return they got more than 50% of the equity in Coleman Natural Meats, and seats on a newly constituted board of directors.

The expertise was to come from a new CEO, Mack H. Graves, a fast-track food-industry executive, a former vice-president of Armour Food Co. and right-hand man to Frank Perdue, the chicken processor. Graves came on board with a six-figure salary, an eventual 5% ownership interest, and complete authority over the company's operations. He would report to the board but not to Mel.

Part of what made Graves attractive to the board was a 25-page marketing plan he had prepared, one that he himself seemed well equipped to implement. "The company finds itself on the threshold of a . . . potentially explosive growth market," wrote Graves. Coleman Natural Meats could sell not only to health-food stores but to supermarkets in New England; New York City; the Baltimore/Washington, D.C., area; and Denver. Graves wrote of establishing the Coleman brand, of selling prepackaged beef, of marketing high-margin cuts to restaurants. A subsequent business plan showed revenues rising from $23.5 million in fiscal 1990 to more than $100 million in fiscal 1995. Lending credence to the vision of growth was Graves's experience, notably with Perdue Farms. Hadn't Perdue revolutionized the poultry business precisely by producing a prepackaged, branded product?

The marketing effort in just one city might cost as much as $1 million. But never mind: neither the venture capitalists nor Graves was interested in a small company. Neither, by now, was Mel. "I looked at my birth certificate and decided I didn't have time for slow growth," he says.

* * *

By late 1990 Mack Graves had mapped out a three-pronged strategy.

Prong number one was straight out of the Perdue book: advertising, a lot of it, and spare no expense. One of Graves's first moves was to fax a message to Ed McCabe, who, as cofounder of the agency Scali, McCabe, Sloves, was a name to conjure with on Madison Avenue. McCabe had engineered Perdue's ad campaign, meeting Graves in the process; now, having recently joined an agency in Miami, he jumped at the chance to land a new client.

With Graves writing the checks, McCabe set in motion the mechanics of a big-league advertising campaign. Director Fred Schuler, who'd filmed Chevrolet's Heartbeat of America campaign, brought his crew to Saguache for some horseback and barbecue shots. Norman Mershon and Hugh McCracken, composers for Buick and other clients, came up with a few bars of original western music for the background. Meanwhile, the company's logo was being redone by top New York City designer Milton Glaser. Graves wrote a lot of checks. The filming cost $256,000; McCabe's services, $7,500 a month. Glaser charged Coleman $25,000; the composers charged $10,000.

Prong number two: publicity. Plenty of companies court it, even to the point of hiring public relations agencies -- but few, Graves knew, had such a good story to tell. Mel Coleman, the fourth-generation Colorado rancher who talked about protecting America's resources, about humane treatment of animals, about a dozen other topics that Earth Day-conditioned media would sop up. Mel Coleman, the pioneer of natural meat, lobbying for the 1990 Farm Bill amendment that set up strict standards for organic food labeling.

Coleman's agency, Wells Communications Inc., of Denver, cranked out a flurry of press releases, boosting Mel Coleman's already-high profile. Mel himself, folksy and eloquent, turned out to be a publicist's dream. He spoke to industry associations. He made the rounds in Washington, D.C. He went on talk shows. Admiring articles appeared in newspapers and magazines.

Prong number three: an intense sales campaign focusing on one target market. Graves commissioned research studies; he brainstormed with colleagues and advisers. The logical place to begin, they concluded, was Boston. Coleman already had a sizable outlet there in the 64-store Purity supermarket chain. The city was home, the research showed, to a large number of affluent, environment- and health-conscious residents who might be expected to snap up the product. Graves knew supermarket-chain buyers there from his Armour and Perdue days; he figured he'd have no trouble getting into the stores. He and field sales director Mel Coleman Jr. began mapping out their distribution strategy. They planned a training program for store and meat-department managers. They commissioned a video for line employees, explaining what was different about Coleman meats, and they worked up some new point-of-sale materials.

By the end of 1990 the preparations were in high gear. Graves asked PR agent Michele Wells to prepare a publicity blitz. He huddled with McCabe's experts to plot advertising strategy. He hired Bread & Circus's meat director, an industry veteran with 26 years of experience in conventional supermarkets, as Coleman's regional manager, and Mel Jr. lined up a food broker out in the suburbs. Both would play a key role in monitoring stores' point-of-sale displays, keeping an eye on the merchandise, and otherwise making sure the retail end of the marketing chain was up to snuff. The whole thing would start, all at once, in early 1991.

The company had one strike against it going in. A few months earlier Graves had pitched two of Boston's biggest chains about carrying prepackaged cuts of Coleman's beef. Graves needed revenues, and the buyers were receptive. But without marketing support, the product moved slowly. Worse, Coleman's vacuum-packaging machine malfunctioned, and some packages leaked oxygen. The meat turned brown; it turned green. Pretty soon the two chains were telling Coleman maybe they'd better wait for a while before ordering any more.

Remembering it, Graves winces -- "I knew it was a mistake. I said to myself, If this stuff goes in and gets kicked out, we're going to play hell getting back in there. And that's exactly what happened. Now we had to resell them."

Resell them, moreover, even before the company had shot its wad on what was by now a carefully orchestrated, very expensive marketing campaign -- a campaign that would unfold, day by day, over the next several months.

* * *

January 3, 1991, Thursday. Mack Graves arrives in Boston. The campaign will start at the end of the month. But he's already under the gun. On February 4, Ed McCabe was to move back to New York City from Miami to set up his own agency, thus delaying the ad planning. Graves has had to wait until after the holidays to call on retail outlets, and now there are only a few weeks left to line up distribution. The timing, moreover, could hardly be worse. Tensions are mounting in the Persian Gulf. Massachusetts is in the throes of a deepening recession. Coleman has targeted 216 Boston-area stores for distribution, and Graves has set 50% of these stores as an interim goal. If he can't get them, he'll hold the ad campaign until he does.

Over a period of two weeks he and other Coleman representatives call on the biggest Boston chains other than Purity. The Stop & Shop Supermarket Co., the market leader, with 117 stores spread around New England. Star Market Co., with 32 stores. Shaw's Supermarkets Inc., with 70. The reception at all three is cool. Stop & Shop and Star, which had tried out the prepack, complain of their bad experiences. The meat buyer at Shaw's, newly hired from Star, doesn't want to do anything right away. Graves asks Stop & Shop if delaying the ad program for a while would give the chain more time to make a decision. Sure, Stop & Shop says, it would help.

Graves reschedules the advertising for the second week in March. It doesn't help -- Stop & Shop still won't place an order. But by now Graves is deciding to go ahead anyway. "We had told Purity we were going to do it," he says later. "Besides, we thought the advertising would pull the others on board."

March 5, Tuesday. The campaign breaks. About 40 well-dressed guests show up at Jasper's restaurant, on Boston's waterfront, for the first of three Coleman promotional dinners. Most go home enthusiastic. "It was a revelation to encounter a beefsteak that fit their notions of health food -- and a 'dining experience' as well," reports society columnist John Robinson in The Boston Globe.

Five days later McCabe's first TV spot hits the airwaves. Mournful harmonica in the background, snowy peaks visible in the distance, Mel rides the Coleman Ranch rangeland, pausing to praise the taste and healthfulness of Coleman natural beef. On March 13 the first spread ad appears in the Globe's food section. Illustrated with mock woodcuts, the ad conjures up an Old West Wanted poster while laying up-to-the-minute, hot-button phraseology on thick. "Rangeland untainted by pesticides or chemical fertilizers." "Free of chemical additives and . . . up to 25% less fat." The TV spots -- five or six of them per day -- are slated to run on Boston's major channels for four weeks, mostly sprinkled around news programs. The newspaper ads appear Wednesday, in suburban papers as well as in the Globe, the whole schedule leading up to the heavy shopping days at the end of the week.

On the face of things, it's a good launch. Coleman beef is mentioned in several newspapers. Mel appears on radio talk shows. Purity's sales pick up, and some smaller stores express interest. At the big chains, no change. Graves figures it's only a matter of time.

April 1, Monday. At a staff meeting, a glum-faced sales manager announces to Graves that Purity's sales are off and the chain won't be ordering any beef at all this week. It's a joke: April fool. Graves smiles, a little wanly. Time has passed. Things could be better.

Right after the TV ads appear, the Colorado Cattlemen's Association sends a blistering letter to Mel Coleman, objecting to McCabe's ads on the grounds that they impugn ordinary beef. Now the National Cattlemen's Association is chiming in. Coleman's campaign "clearly constitutes negative advertising," accuses the NCA. "In response we have sent factual information on hormones, antibiotics, and residue rates to a number of retailers, purveyors, food experts, and journalists in the Boston area."

This is a tempest, Graves worries, that may not stay in its teapot. His contract slaughterer, a big beef packer in nearby Greeley, Colo., has just given Coleman 120-day notice to accept a price increase of $5 per head or go elsewhere, eventually forcing Graves's managers to scramble for a new supplier. Was the ad campaign a factor? There's no evidence, just a lot of suspicion. "There was a ripple up there when our ads came out," says operations vice-president John VanOrman, who deals with the meat packer. "They said, 'You're bad-mouthing our beef.' " Worse, the dispute may be hurting Coleman's chances with retailers.

April 23, Tuesday. The marketing campaign seems to be turning into a good news/bad news joke.

The good news is good indeed. Purity has reported that its March sales of Coleman beef are more than twice those of last year at this time. And Coleman accounts for twice as big a share of total beef sales as a year earlier. To be sure, Purity has cut its prices on Coleman beef for the duration of the campaign, and Coleman is eating some of the reduction in margin. Nevertheless, the ads are working. Consumers like the product. When a store supports it, it moves.

The bad news, however, is horrible. By now Coleman is well into a five-month advertising campaign costing $640,000. Yet it still hasn't cracked another Boston chain. At the company, demoralization threatens. "The thing is, after all this work and money, we don't have any more customers than I did when I was selling meat out of my saddlebags," Mel complains.

There is one hope in the near term: a delegation from Coleman has gone back to Star, this time prepared to cut a deal. The one thing Coleman has never done is pay retailers slotting allowances, the legal but controversial shelf-space charges that supermarkets frequently wrangle from their suppliers. It is less a matter of principle than of economic necessity; with a low-volume, specialty product like Coleman beef, payback could take years. But Star has let it be known that a little cash up front might help. So Graves, Mel Jr., and broker Al Walton put together a package deal: so much in slotting fees, so much more in money for co-op advertising, the total coming to $25,000. "We put everything we had on the table," says Walton, "dollars that Coleman really doesn't have to spend." The point turns out to be academic. Star remains uninterested.

* * *

A marketing campaign is like Yogi Berra's baseball game: it ain't over until it's over.

"Advertising is cumulative," Mack Graves reminds a visitor and probably himself as well. "We've got to stick with it all the way through, even if it's damn near a million-dollar program." At stake is the whole direction, possibly even the survival, of Coleman Natural Meats. If the campaign works -- if Coleman can get the distribution it wants and if consumers snap up its meats as Purity shoppers have done -- enormous vistas open up. A successful track record in Boston would generate opportunities not available to Coleman in the past. Both Graves and venture capitalist Wayne Kingsley hint at lucrative joint-venture possibilities, with a big food company bankrolling Coleman's entry into other markets.

If it doesn't work, of course, Coleman is probably finished in its attempt to crack the mass market. That may not kill it as a company: the business can search out other customers in other places. "We'd have to look at direct mail," says Graves. "And the food-service business." But the company would need new money, a new plan, possibly even new people. By August, when the Boston campaign is over, the die will have been cast one way or the other.

For Mel Coleman, the marketing campaign has been a roller-coaster ride, with the end not yet in sight. He sometimes wakes up at night, he says, with "the scares." Will the product sell? Will the beef industry get mad enough to file a lawsuit? Will the bank that finances his cattle get cold feet? "Guys will say, 'Mel, how can you do this and have a smile on your face all the time?' They weren't there when you woke up at 2 a.m. and your heart was pounding." Still, Mel is convinced that his market is growing. "There's Earth Day. There are bans on hormones around the world. Everybody's talking about the environment. So there are more and more customers out there now."

Graves, for his part, has been back to Stop & Shop and Shaw's, and plans to return to Star and the other retailers that are the intermediaries between Coleman and all those presumed customers. This time he will be armed with market research showing the impact of McCabe's ads and the high number of repeat purchasers.

"I'm like a wave on a rock," he says with a sigh. "I keep hitting it and hitting it until finally something gives."

* * *

Epilogue: On May 16, shortly before this issue of Inc. went to press, Shaw's agreed to test-market Coleman prepackaged beef in two of its stores. The first order: 360 pounds. Stop & Shop and Star had still not signed on. n

Last updated: Jul 1, 1991




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