Failure of Genius

Finally, in early November of 2001, it was time for Future Beef to celebrate. For months the company had struggled to get its first plant -- a $100 million state-of-the-art beef processing operation in Arkansas City, Kansas -- running smoothly. When the first cattle were hauled in for slaughter in August, parts of the plant, including the tannery and the cooking room, weren't even built yet. And it had taken three months to get the company's prize equipment, a multimillion-dollar dehairing system, the only one of its kind, operating to the engineers' satisfaction. There had been problems with the dehairing chemicals (carcasses were sent, car-wash-style, through a chamber where they were sprayed with sodium sulfide) and the carcasses were coming out with hairy patches. But by November, after months of trials, beef carcasses were being successfully cooked and tanned, and dehaired in batches of 20 at a time.

It was finally time to invite the world in to see what everyone in the beef industry had been gossiping about. Two thousand people showed up to the November open house -- reporters, workers, townspeople, and industry bigwigs. They listened to Future Beef's CEO, Russell Cross, a former USDA administrator and a recent inductee into the Livestock Hall of Fame, brag that the company was finally going to "walk the talk." The visitors were given Future Beef baseball hats and shown around a posh corporate boardroom decked out in western dé cor ("lots of leather and horns" remembers Arkansas City's then mayor, Jerry Hooley). They sat down to a grand picnic buffet of, naturally, brisket made from cattle that had been slaughtered in the plant. Mayor Hooley, who began his plant tour feeling a bit sorry for the cows, changed his mind after he tasted the cooking room's roast beef -- "That stuff was good!"

By all accounts, the place was impressive -- a 450,000-square-foot facility that represented the furthest expression of a trend in the beef industry toward fully integrated, vertically coordinated beef production. Future Beef was using sophisticated genetic data and high-tech equipment to produce massive amounts of top-quality meat, and it was a progressive employer to boot. The company offered its 900 Arkansas City workers wages and benefits that were unheard of in the industry. It had even built apartments and daycare centers for workers and their children.

What the crowd couldn't see that day was that Future Beef was already in serious financial trouble. The bottom had fallen out of the cattle market, and Future Beef was losing money on every steer. Just one month after the open house, the plant's exclusive retail business partner, Safeway, threw up its hands. Three months after that Future Beef declared Chapter 11 bankruptcy, and five months after that it laid off all 900 of its Arkansas City workers. Publications like Beef and Feed Lot magazines, which had applauded the company just months before, were brimming with stories about Future Beef's demise. When the plant finally closed its doors in early August 2002, just a year after it opened, the company owed more than $320 million to its creditors. All that remained other than the still-gleaming equipment was a spectacular case study of a business that had everything going for it except savvy.

Rod Bowling is an ideas man. According to his longtime friend and fellow Future Beef founder Rob Streight, you don't talk to Bowling about beef without him jumping up and scribbling things out on a flip pad. Bowling, who has a Ph.D. in meat and muscle biology from Texas A&M, has held high-level R&D and administrative positions at the beef industry's biggest plants. As he rose to increasing prominence in the industry, however, he was growing more frustrated. He was unable to get his best R&D ideas -- like using organic acids as pre-evisceration washes and sorting feeder cattle into genetic groups -- adopted by his employers. And so, in the early '90s, with Streight's help, Bowling started drawing up plans for a different kind of beef company. They made no bones about the fact that they meant to show the industry that new leadership had come along: They called their company FDR, for Finally Done Right. Later they took the slightly more demure name Future Beef Operations.

For years Bowling and Streight had been talking with other industry veterans like Darrell Wilkes, also a beef scientist by training, about how companies could produce better beef. Bowling had met Wilkes through the Denver-based National Cattlemen's Association, a 33,000-member group that lobbies for the political and economic interests of the beef industry. The two men disagreed about minor issues, but they agreed about major ones, like the need for integration in their industry.

Integration was one of the big ideas that Bowling had been unable for years to sell to his establishment employers. ("It was too big a bite for them," he says.) Slowly, though, the notion seemed to be taking hold. Articles in Beef argued that integration was the way for beef to take back market share from pork and poultry and a means of increasing productivity and profits. By the late 1990s two vertically integrated marketing cooperatives, US Premium Beef and Ranchers' Renaissance, were proving that alliances between producers and packinghouses could work. Consumers also seemed pleased with what was being called the "ranch to retail" idea. It meant fewer mysteries about where their meat came from and quality checks at every step of the production process. "Our beef has a name on it," says Ranchers' Renaissance president and CEO John Butler. "To the consumer, that means somebody is standing behind it. The meat case is no longer just a sea of red."

The Future Beef founders wanted this and more. Like some of the producer-processor alliances, they wanted to own and control the ranch where an animal was born, the growyard where it grew up, the feedyard that fattened it, and the packinghouse that slaughtered it -- every aspect of beef production, as a Future Beef marketing slogan claimed, "From DNA to dinner." Future Beef also wanted to make use of the entire cow, from its tongue to its tail, in "value-added" products that included pet treats, tanned hides, and variety meats (hearts, brains, and livers, sold mostly in Europe and Asia). And it wanted to outfit its plants with facilities for preparing cooked meats like pastrami, corned beef, and kabobs. Boxed beef -- precut quarters of the animal that are sliced further into steaks by grocers -- would be the company's staple. But the value-added products would make it profitable. And food safety, the founders said, was a consumer right. Darrell Wilkes, who became the company's vice president for supply, says he and the other founders intentionally overbuilt the food-safety side of things.