Blueprint for the future

Blueprint for the future

Sivak, Cathy

*Tillamook County Creamery Association drafts new infrastructure to build its brand.

Hard hats are standard equipment at the headquarters of the Tillamook County Creamery Association. After all, the Tillamook, Ore.-based dairy cooperative is building a foundation for the next century.

Established in 1909 as a quality-control and marketing organization for several co-ops, modern-day TCCA is celebrating its 90th anniversary by mapping out a blueprint for continued growth of the Tillamook brand.

With $179 million in 1998 sales that included more than 58 million pounds of cheese, TCCA has shown continuous growth over the last two decades. The potential for future gains appears limited only by the amount of quality aged cheese TCCA can produce.

Therein lies the challenge. TCCA’s producer members are at the peak of milk production capabilities, while cheese production and storage facilities are nearing capacity. At the same time, TCCA’s retail customers are requesting more of Tillamook’s flagship aged cheddar products to fill store shelves gained in supermarket mergers. Because TCCA sells up to 80 percent of its cheese to 10 retail customers, the co-op must keep up with customer growth or be replaced by other brands. To empower TCCA to continue its brand-building efforts, members shifted mindsets: From marketing the milk they produce to striving for growth. As a result, TCCA is moving into new corporate headquarters, building a highrise warehouse adjacent to its production facility and developing plans to build a second cheese plant close to an expandable milk supply.

“Our strategic direction changed about three years ago when it became apparent that we were not going to be able to meet our sales commitments to our customers,” explains Harold Schild, president and chief executive officer. “If we can’t give them what they need, they’ll find somebody that can grow with them. If we pull back, we’ll shrink our market and diminish our potential return to our members.”

Careful redrafting of market plans based on increasing demand from its retail customers led TCCA to the blueprint for its 10-year building plan. The result will position the co-op for major national brand exposure in the natural cheese category that will certainly spill over to its ice cream, yogurt, sour cream, milk and butter lines. As its retail customers consolidate and add stores, the co-op is finding new product line distribution and increased demand. Increased efficiency and twice the capacity for cheese and ice cream storage will arrive with a high-rise automated warehouse adjacent to the cheese operation in Tillamook. The addition of new packaging lines to the current plant in tandem with a new satellite block cheese plant will enable TCCA to keep pace with and further create future growth.

Schild and the rest of the executive team worked tirelessly to convince coop members to make the capital investments required to succeed. “We didn’t get here by not making changes and innovating, and we’re not going to get to tomorrow without doing the same thing,” Schild says. “You can’t stand still.”

Building Blocks

The remote location of Tillamook County presented distribution difficulties in the early part of this century. To take advantage of the ideal dairying climate, pioneers overcame the challenges presented by the Coast Range Mountains, five rivers and the Pacific Ocean. The distance to markets for its dairy products resulted in the decision to offer aged cheese. When the settlers had difficulty coming up with the recipe, they hired a cheesemaker who brought a formula dating back to 16th Century England. While the cheese was aging, the folks of Tillamook County built a boat to get it to market. A replica of the sailing schooner graces the lawn of the TCCA plant and its image serves as the logo on Tillamook cheese products. History has a way of repeating itself. TCCA’s modern-day distribution challenges will also be resolved through building.

The final trim is being put in place on the 13,000 square-foot corporate office building in preparation for the move of the administrative staff this month. A visit to the existing corporate offices, where space limitations are augmented by mobile trailers, defines the need for the new and more spacious headquarters across the parking lot. Though a much-needed improvement, cost controls were in place for the new building, says Herb Dorn, vice president of finance and chief financial officer.

While TCCA’s execs are getting settled in new digs, they will continue to draft plans for further construction.

Groundbreaking underway this month on another portion of the TCCA property will result in the automated high-rise warehouse and distribution center opening April 2000. Attention to distribution capabilities and storage capacity is long overdue – the co-op is currently aging 11 million pounds of cheese in cold-storage near Portland and finished product load-out storage is limited.

Lack of storage space and increased customer demand for aged cheese as well as ice cream and other Tillamookbranded products contributed to the need for the new warehouse. The decision to build a high-rise was the most efficient, as only a certain amount of TCCA’s coastal parcel is buildable.

Over the course of 10 years, the $23 million warehouse will pay for itself through reduction of storage and hauling fees. The cold storage expansion will allow the addition of 36 million pounds to TCCA’s inventory to make up more than 50 million pounds of cheese aging capability. Beyond the efficiencies and much-needed addition of storage and distribution capabilities, the warehouse will serve the quality control mission. TCCA makes sure every piece of Tillamook cheese offered to customers and ultimately, consumers, is top-notch.

The corporate offices and automated warehouse are only part of the co-op’s new blueprint. Block cheese will be funneled to the new warehouse by TCCA’s planned satellite cheese plant.

While there is physical room to expand the existing plant, the cost and the deficit of milk in western Oregon simply makes the idea impractical. TCCA is currently purchasing 35 percent of its raw milk from sources outside the co-op.

“Locally, if we are able to hold our current production, we’ll feel fortunate. There are still areas of the country that are growing very rapidly in milk production. We have to go where the milk is being produced and will continue to be produced over the next 20 years,” Schild explains.

Instead of shipping raw milk long and often treacherous distances to the existing plant, block cheese produced with TCCA’s existing high-standard production process will be shipped to Tillamook for packaging.

Jim McMullen, senior vice president and chief operating officer, notes the construction plan is designed to have minimal impact on day to day operations. “Becoming a multi-plant operation brings a tremendous amount of challenge to us. Other than the physical building, it’s adding the people and the systems as well,” McMullen says.

McMullen sees three major challenges before TCCA as a result of the construction plan: The first is in becoming a multiplant organization; the second is hiring the employees to guide the new facility; and the third is maintaining consistent product quality discipline.

“Whether it’s five miles down the road or five states away, it’s going to be different having a plant in a location that is not here. So it is going to take discipline to make the new plant work like this plant works,” McMulllen says.

To make sure quality concerns are addressed, William Luth recently joined TCCA as director of quality assurance. Luth will help the co-op overcome the challenges created by embarking into a multi-plant system.

“There are so many subtle differences in the cheesemaking process. What we’ve put together in our flagship plant is a combination of those subtle differences to form our own unique method. I want to make sure it is reproduceable at the other plant, whereever it may be, Luth says.”

TCCA is in the site selection process for the new plant. While Eastern Oregon is a sentimental and practical possibility that will serve milk supply needs and will keep the company’s roots in the state, the burgeoning milk supply in California is difficult to ignore. The coop plans to make a decision by June. “Our sales are pushing us. If we don’t get more production by 2001, we won’t meet our sales projections. It puts a lot of pressure on,” Schild says.

More than half of the co-op’s assets are in inventory because of TCCA’s aging program, which requires an inventory of up to $55 million in product. To save on capital expenditures and distribution costs, TCCA currently utilizes co-packing relationships to produce its carefully-formulated Tillamook butter, sour cream, yogurt, shredded cheese line and stirred curd cheese products such as Monterey Jack and Colby. Part of the co-op’s strategy is to continue to build its relationships with co-packers and distributors. Though Tillamook cheese is delivered directly to customers, other products are handled through a variety of distributor partnerships.

TCCA has semi-permanent financing to help carry its large inventory of aging cheese.

“It’s scary sometimes to go out there and look at 25 million pounds of cheese and think ‘what if that doesn’t age out right?’ That’s $50 million in product sitting there aging,” McMullen says. “It doesn’t bother us because we know how well the plant is run. We never run the cheese plant from the bottom line. We do whatever it takes to make the finest piece of cheese, every day, every batch, every hour of the day.”

Other capital improvements underway at TCCA include the addition of computerized process control systems, product tracking, product control systems and financial accounting software that can interact.

“There’s always a push and pull as to how much money you need to keep in the co-op to remain financially strong and as your members need a certain amount of cash themselves to be strong. If you don’t have that balance, neither one is going to be successful. The smaller you are, the bigger that problem can be,” Dorn says. The overall building plan will improve profitability by giving TCCA the capacity to continue providing Tillamook-quality cheese to customers, Dorn says.

“They want more cheese and we have to provide it. To keep our profitability going forward, we have to build this second cheese plant,” he adds.

Retail Response

With one overtaxed plant and spotty national distribution, the Tillamook 2pound Baby Loaf cheddar line manages to be the No. 1 selling product in its category. It’s no wonder customers demand more product from TCCA.

“There’s an unlimited market out there for quality cheese,” Schild says. TCCA distribution includes most markets west of the Rocky Mountains, and major markets to the east in Florida, New York, Texas and Chicago.

Although shipping all the way across the country, TCCA is still able to be competitive with locally-produced cheese because it gets a higher price on cheese marketed on the East Coast than in its core markets in the West.

“We want to move the volume cheese at a profitable price and supermarkets seemed satisfied with the relationship. That’s the way we’re going to keep going,” Schild says.

Aged cheddar cheese is TCCA’s niche and its challenge. Inventory planning is essential when marketing a unit that must be produced up to 36 months prior to delivery. Meanwhile, the co-op will continue to build its ice cream sales as well as its co-packed butter, fluid milk, sour cream and yogurt lines. The co-op is also considering single-serve flavored milks and cream cheese.

Chris Dinsdale, vice president of sales and marketing, oversees all sales of product nationally. The TCCA sales staff is based in Portland to make travel more efficient than it would be from secluded Tillamook.

“Consistency and quality products, that’s what makes us different. We are value-added, providing a certain niche for our customers – the grocery retailers and consumers.” Dinsdale says. “The consumer can pick up our product today and it’s going to taste like it did two weeks ago and two years ago. The recipe has basically been the same for a hundred years.”

Along with the rest of the industry, TCCA faces a shrinking customer base in retail. The result is the co-op’s increasing interest in the foodservice market and in developing further partnerships.

“We are a value-added product that restaurants have to want to put on their menu,” Dinsdale says. “There are a number in the Northwest who will use the Tillamook name on their menus to differentiate themselves from those using processed cheese or something else. And it’s been a value to them.”

Opening new markets will not be a priority until TCCA’s new infrastructure including building projects and milk supply is in place, Schild says.

“Right now, we have to be careful not to push too hard or too fast, outstripping our ability to produce,” Schild says. “The worst thing would be to put out product and not be able to satisfy the market, to not maintain our commitments or to not maintain our quality standards and have people be disappointed with us. That would be worse than not having the product at all until we can get out and do it right.” Product Profile

An emphasis on high-quality milk at the farm level helps TCCA create its award-winning natural cheddar cheeses. The co-op’s first national award was received in 1904 at the World’s Fair in St. Louis. In late 1998, TCCA’s aged cheddar became an international contender, beating mature cheeses from around the world at the British Empire Cheese Show held in Canada. TCCA’s cheddar received the right to display the Publow Memorial Trophy until next year’s contest, joining the company of such prestigious cheeses as Stiltons and English cheddars. Additional honors came with first place awards for TCCA’s mild and medium cheddar cheeses, which won 12 of 26 awards bestowed at the National Milk Producers Federation cheese contest in Las Vegas.

Dinsdale reports that Tillamook cheese product has averaged a 6 to 7 percent growth rate over the last 20 years. The co-op produces smoked, low-sodium and reduced-fat cheddars in addition to its vintage and special reserve white cheddars. Also marketed under the Tillamook brand name are cheese shreds in various flavors as well as Colby, Colby Jack,Monterey Jack and pepper jack cheeses. Tillamook Snack Bars are offering consumers a taste of what the brand has to offer.

The power of the Tillamook brand is such that new introductions tend to exhibit double digit growth. For instance, the ice cream line has grown at a rate of 20 percent plus since its introduction seven years ago. Introduced in 1993, sour cream posted 25 percent growth in 1998, while the yogurt line grew nearly 50 percent in 1998 and about 70 percent in 1997.

Tillamook fat-free yogurt was introduced in Northwestern markets in July 1998 to complement the success of the low-fat yogurt line. Flavors include French Vanilla Bean, Mountain Huckleberry, Cranberry-Raspberry, Key Lime and Oregon Strawberry.

The Tillamook ice cream line has met with resounding success since its introduction seven years ago. The first year of retail ice cream introduction, TCCA produced 260,000 gallons of product. In 1998, the co-op made more than 1.7 million gallons. Although the co-op has processed ice cream since the 1940s for the dipping counter in the TCCA visitor center, it wasn’t until customers began to demand it for purchase at their local supermarkets that TCCA ventured into the retail category. Today, the co-op holds seven of the top ten ice cream flavors in the state of Oregon and considers the ice cream line part of its growth potential. Perhaps the most successful flavor is Tillamook Brown Cow Ice Cream, featuring white and brown chocolate ice cream filled with chocolate chunks.

The 40-flavor ice cream line has expanded to include popular seasonal flavors Espresso Mocha, Mom’s Apple Pie and Mountain Huckleberry.

Brand Boosters

The value of branding became important to TCCA as early as 1918, when the co-op began marketing products for the 25 cheese plants in the county. Credited with being the first community to brand its cheese and for advertising under a brand name, the Tillamook brand name was trademarked in 1921 and began appearing on all cheese. The co-op has sustained advertising and marketing efforts continuously since then.

The advertising emphasis for 1999 is based on the co-op’s 90th anniversary and the limited edition Tillamook 90th Anniversary Vintage White Extra Sharp Cheddar Cheese. “It’s getting some rave reviews and real acceptance,” Schild says of the product, which was aged three years and rolled out to retail customers in February.

“Our goal was to mark Tillamook’s 90th anniversary with a product that cheese connoisseurs can’t get anywhere else,” Dinsdale says.

One of the first to get a taste of this delicacy was Pope John Paul II. As the specialty cheese-loving Pontiff returned to Rome from his January visit to St. Louis via TWA Airlines, he was treated to Tillamook 90th Anniversary Vintage White Extra Sharp Cheddar Cheese.

TCCA supplies TWA with portions for use in overseas flight, and the airline specifically requested the special edition for the Pope and his entourage, Schild says. “We’re very honored it would be included. He hasn’t told us yet how he liked it.”

TCCA markets primarily through billboards, radio ads and in-store promotions. For instance, a billboard promoting the aged cheddar cheese states: “I am a block of cheese. The longer I sit here, the better I get.”

TCCA’s radio personality “Bob the dairy farmer,” acts as TCCA’s radio personality, offering consumers homespun reasons to buy Tillamook products over the last decade. TCCA partners with retailers for in-store promotions, the most recent of which features hometown celebrity spokespersons.

TCCA’s Visitor’s Center, built in 1979 and later expanded, offers yet another marketing tool as the third largest tourist stop in the state. TCCA also has a thriving gift catalog.

Still in the initial phase of development, the TCCA web site will eventually offer items from its catalog for on-line ordering, co-op history, recipes and other information. The web site will also serve to bolster the co-op’s national im-age.

From advertising to product development to customer relations to its building plan, everything TCCA does is based on quality and brand considerations.

“We’ve been very gratified at the success and at the support people have given to the Tillamook name. There are more products in our future. They will be entirely top quality and valueadded,” Schild says. “We’re not in the commodity business. We have never sold a pound of product to the government as surplus in the 90-year history of the co-op. We’re totally branded, totally retail and customer oriented.” df

Copyright Stagnito Publishing Mar 1999

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