Regional powerhouse

Smith, Pamela Accetta

WestFarm Foods reveals its unlimited potential.

Seattle-based WestFarm Foods is the manufacturing and marketing subsidiary of Northwest Dairy Association (NDA) and producer of the celebrated Darigold(R) brand. Founded in 1918 as the United Dairymen’s Association, the cooperative now has 720 dairy farm families in Washington, Oregon, Northern California and Idaho. With sales of $1.3 billion, the company is one of the largest dairy processors in the United States and, according to a Harvard Business School survey, one of the top 20 in the world.

WestFarm Foods is divided into two focused divisions – Consumer Products and Ingredients.

The Consumer Products division manufactures and markets a full line of dairy-based products, primarily through wholesale, retail grocer and foodservice channels. In this division, expanded distribution is helping drive sales in profitable categories. Darigold retail sales volume has increased in all areas. WestFarm Foods is also capitalizing on its ultra-pasteurized (UP) technology by selling Darigold UP milk in the Pacific Rim and half-gallon and smaller sizes to major retailers in the United States.

The Ingredients division produces bulk butter and cheese, dry milk powder and whey powder that are marketed to institutions, food brokers and other food processing companies. WestFarm Foods is among the nation’s top five cheese manufacturers, producing approximately 150 million pounds of cheese annually for distribution throughout the United States and parts of Asia.

Each year the company’s employees market more than 6 billion pounds of milk through 12 processing plants and related distribution facilities. Approximately 57 percent of the company’s revenue is from bulk products such as butter, cheese, whey and milk powder. Consumer products generate approximately 30 percent of total revenue and includes private label products for retailers such as Associated Grocers, Kroger and Safeway, licensed products for Nestle, as well as WestFarm Foods’ legendary Darigold line of fluid milk, cultured products and ice cream. “Darigold is consistently ranked No. 1 for brand awareness by consumers in the Pacific Northwest, and is becoming a sought-after brand,” says John Mueller, president and chief executive officer. “Our hallmark is combining the freshest ingredients, world-class technical expertise and state-of-the-art manufacturing, to create an extensive line of superior-quality dairy products for the consumer, ingredients and specialty markets.”

One of the unique aspects of the company is the regionality of its business. The Pacific Northwest is somewhat isolated from other markets due to its mountainous terrain. But a plus to the geography of WestFarm Foods’ operations is the climate. “It is favorable to extremely efficient milk production,” says Mueller. “Milk is the fuel that runs the engine of the company. We have superior producers of raw material, excellent geography and high-quality products.”

While WestFarm Foods continues to market its well-known Darigold brand, the company has forged strategic alliances with other regional and national brands. License agreements include production of Nesquik(R) and Coffee-Mate(R) for Nestle and Silk(R) soy beverage for While Wave Company.

“These strategic alliances will help expand our markets and create valuable new relationships with our retail and marketing partners,” says Mueller. “We will continue in our effort to achieve higher sales and production volumes, to lower our costs of production and thus improve our profitability.”

WestFarm Foods recently redesigned the company’s single-serve milk bottles. “We began the redesign process by asking consumers what key elements exist in the old design, and what the Darigold brand means to them,” says Randy Eronimous, marketing director. “Research revealed that consumers identify strongly with the Darigold brand name and wanted it to be more prominent on the bottle. Our consumers also wanted a quick and easy-to-read package that clearly identifies what’s inside.”

The new Darigold package has a larger logo and is angled to give more “movement” on the shelf. “The freshness message comes across through use of clean typefaces and an uncluttered main panel,” says Eronimous. “And finally, a new ‘farmer owned’ seal communicates this local quality.”

According to Eronimous, the packaging has contributed to increased impulse sales and has been instrumental in major retailers’ decision to carry the brand.

Leveraging Assets

WestFarm Foods and NDA have a rich Pacific Northwest history, yet are rapidly evolving to meet customer-driven needs, new brand strategies, emerging technologies and the growing demands of a global marketplace. “The company is implementing an aggressive strategic plan that is capitalizing on over 80 years of dairy industry experience, while building a financially strong future for co-op members and employees,” says Mueller.

WestFarm Foods’ three-part strategy includes the following objectives: Achieving superior economic returns for its producer owners by proactively attracting and retaining producers of bulk milk; becoming the low-cost processor of selected finished products; and moving up the value-added chain in consumer products by increasing differentiation. “When I started, we put together an innovative strategy that was founded on profitable growth,” says Mueller. “Since 1998, we have grown the business approximately 40 percent in an industry that has grown over that period maybe 8 to 10 percent. Hence, we have expanded way beyond the average growth rate in the United States.”

According to Mueller, WestFarm Foods has spent well over $100 million in capital over the past five years building new facilities. “We’ve expanded almost every facility we have. We just commissioned in September, and started operating in July, a new $50 million-plus milk facility in Jerome, Idaho, and it is already full,” he says. “The future is bright. I am very optimistic about what we’re doing and where we’re going, and we will continue to increase our market share.

“We currently have about 65 to 70 percent of all the milk in Washington and Oregon. And we have about 22 percent of all the milk in Idaho. Our goal is to get to the same percentage of milk in Idaho as we have in Washington and geographically expand into Utah, Colorado and Northern California.”

The company encourages its dairy producer-owners to become as efficient as possible. “NDA has renewed efforts to offer members better tools for managing their operations during more difficult economic times,” says Mueller. “Together we are a big proponent of providing members with helpful information about the industry and specific management tools for their farming operations.”

Mueller says he sees opportunities for the company both at home and abroad, in mature product categories as well as dynamic new ones. “We must adapt to a rapidly changing global economy and increasing competitive pressures. Our success will depend, in part, on having a solid strategy to guide us into the future.

“Our operational innovations will make us the low-cost producer in our industry. We will continue to pioneer new product opportunities through research and development. With a strong strategy in place, we are poised to be a company with a stable of brands, rather than a company with a single brand.”

Mueller says it is much better to grow by evolution rather than revolution. “We stay focused on our strategy and geographic region. We have not acquired other cooperatives and we have not been particularly aggressive. We prefer to expand organically, through internal growth.”

In terms of strategy for expanding market share, Mueller says the company will continue to do what it does best, while creatively following consumer trends. “We don’t do an enormous amount of research and development. We tend to be more ‘fast followers’ because we don’t have the resources to have a full-blown R&D department. We do a lot of product development and formulation specific to customer needs, but we are not out there studying molecules,” he says. “We follow trends and we are always there to jump on board.”

In terms of acquisitions, WestFarm Foods does not see them as a critical growth strategy “The company prefers to strategically partner with companies rather than acquire them,” says Mueller.

“We are currently involved in three separate joint ventures that will eventually take us into higher-margin areas. However, with all that said, we will continue to focus on being a low-cost producer, particularly in industrial ingredients. We will focus on what we do best. And we want our joint-venture partners to do what they do best. Then we all share the extra margin.”

According to Mueller, depending on product line, the company sees itself as a local, national and global competitor. “In industrial ingredients, with a 40 percent share of the market, we are by far the largest global exporter of whey powder,” he says. “We also export skim milk powder. Last year, we were the largest user of the government’s dairy export incentive program (DEIP). Although we only represent 25 percent of the powder production in the United States, we had 50 percent of the exports of powder.”

WestFarm Foods also competes in national markets. “We compete in butter and block cheese. We ship some of those products all the way to New York state. We ship cheese to Wisconsin, Illinois, Indiana, New York, Utah, and even into California – which is amazing because it is by far the cheese producing state. And we do the same with butter,” says Mueller. “But we are national competitors, and we compete on price, quality and service.”

WestFarm Foods maintains its competitive edge by trying to be more innovative and creative in a competitive market. “If we become a bigger exporter and expand our geographic boundaries to include the neighboring states, our brand franchise will therefore expand as well,” says Mueller.

WestFarm Foods definitely has financial ability and stability. “As of 1999, we went to what we call a `competitive pay’ policy. We pay a fair, competitive price for milk everywhere we operate. That means we don’t maximize the milk checks,” says Mueller. “At the end of the year, when there is money left over, we pay 80 percent of that money out in stock and 20 percent in cash, which is what we have to pay to maintain a co-op status.

“The 80 percent is gravy and we keep that in the business as retained earnings to help finance the business. To that end, there is no question that banks loan us money because we have good business plans – we are a sound solid business with good market share.”

According to Mueller, the company holds itself to the highest ethical and moral standards. “We are very strict about ethical business practices. If you are not an honest, ethical person, you are going to suffer,” he says. “We obey the laws of supply and demand and pay our producers a competitive price. WestFarm Foods is at the cutting edge in the co-op world in this regard.

“Our core values have never been more critical. We are customer-focused, team-oriented and passionate about quality. These values formed us during our proud history, and we will never abandon them.”

Copyright Stagnito Publishing Mar 2003

Provided by ProQuest Information and Learning Company. All rights Reserved

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