J.T. Wilcox, the former CFO of Wilcox Farms, spoke at our second CEOtoCEO event for March. He provided the online audience with an inspiring history of Wilcox Farms, as well as some insights into the challenges of large-scale farming in Washington State. The 111-year story of Wilcox farms includes several close-calls with disaster, but also several periods of growth and reinvention. J.T. described this sense of precariousness in the epigraph that opened his presentation:
"Every generation has come within 2 weeks of losing the farm and every generation has had the opportunity to rebuild it."
J.T. began by remarking on the current status of Wilcox Farms, which brings in $120 million in annual revenue. The company has production and procession operations in Washington, Oregon, and Montana, and produces both shell egg products (eggs sold in their shells) and liquid egg products for commercial use. Wilcox Farms has one of only three plants in the country producing hard-boiled eggs (a significant element of the company's reinvention), which is illustrative of a major realization that helped Wilcox Farms retain relevance: value-added products keep the company profitable.
The Wilcox family discovered that they needed to sell a value-added product and get a higher margin of profit than they could get from merely being a commodity producer. They discovered that to be successful as a commodity producer, you needed to have low-cost production, and low-cost production was not possible in Washington State, with its high cost of doing business. They also discovered that in agriculture, products which are value-added products, such as organic eggs or produce, eventually become commodities, and the high profit margin is reduced. Since they knew they couldn't survive as a commodity-producing farm, they knew they would have to keep reinventing their business to keep it thriving.
The story of Wilcox farms begins with J.T.'s great-grandfather Judson, who settled on their farm property after prospecting in Alaska, running a hat shop on 1st Avenue in Seattle, and realized that working for another man wasn't for him. When he found the farm that would be the foundation of Wilcox Farms, he traded the family's Queene Anne home for it. The hardships of farm life compelled Judson to put the farm up for sale, but when he was delivering his herd of cattle to a buyer, the herd contracted an illness and was lost. Judson was in even a less tenable situation without the money from the sale of the cattle but something in him could not give up the farm, and he decided to call off the sale.
J.T.'s grandfather Truman was the one who would bring the farm to large-scale modern success. He did not receive a college education, but he envisioned Wilcox Farms as an actual business rather than a farm, and brought the drive for growth that would propel it forward through the middle of the 20th century. He was known for saying,
"Standing still is never an option."
J.T. noted that his grandfather was not afraid of being financially leveraged if it was necessary to move the business forward. Wilcox Farms was one of the first egg producers with barns large enough for 30,000 chickens, and although this is unremarkable by today's standards, shortly after World War II this scale of production was groundbreaking.
By the 1960s J.T.'s father and uncle began working the family business. This period was a major turning point for Wilcox Farms, and was when they realized that vertical integration would be key to the success of their farm. Cooperatives offered an easy way for farmers to become vertically integrated from production to retail, but this easily achieved integration came at a price.
The family joined Western Farmers Cooperative, which was a farmers' organization that marketed and sold agricultural products for its members. This reduced a lot of the "business" work that farmers did not want to do, but the Wilcox family found that this also reduced the opportunity they could take advantage of, and limited the control they had over their business. The coop had basically turned their farm into a commodity producer, which meant the only control they had over their profitability was to reduce their operating costs. This was compounded by the cooperative selling the farmers' products at increasingly low margins. Additionally, the cooperative had purchased feed mills and processing plants, and instead of serving farmers by providing these facilities to the farmers at a more affordable rate, it instead increased its own profitability by selling feed and processing services to them at higher profit margins.
Realizing that the cooperative was a trap from which they needed to escape, Judson obtained financing to buy out of their contracts with the Western Farmers Cooperative. However, during the 60s, Wilcox Farms had placed over $400,000 in Western Farmers bonds, and when Western Farmers went broke, they lost that money. This experience taught Judson that you need to own your product and infrastructure integration if you want to grow sustainably. Without control of your product selling price or production costs, you are not truly vertically integrated.
Wilcox Farms enjoyed a good period for farmers in the late 60s and early 70s, and built up their dairy operation to complement their egg production. In 1974, J.T.'s father Jim built one of the first new milk processing plants that had been built in the Pacific Northwest in decades. The new venture's launch customer severed ties with Wilcox Farms after just 6 months, forcing Jim to search far and wide to find a replacement customer, which he eventually found in Fairbanks, Alaska. This experience stressed to the family the importance of maintaining relationships in the industry. Although many businesses grow due to one stellar client, stability is the result of diversification and trusted relationships.
One of these relationships resulted in a particularly valuable partnership. A friend of Jim's in Seattle, Jim Sinegal, was busy growing his new company, Costco, but needed a reliable milk supplier. With only three stores at the time, Costco had not yet developed the bargaining power they now enjoy, and the much larger grocery chains placed pressure on dairies to not do business with this new competitor. The two Jims reached an agreement for Wilcox Farms to supply milk to their stores, as well as the new stores Costco would be building.
This partnership required Wilcox Farms to grow to keep up with Costco's growth. Wilcox Farms was required by dairy regulations to produce all of the milk that they sold in order to retain their producer-handler designation. Wilcox Farms initially tried to increase their own dairy herds to keep up with Costco's demand, but eventually had to purchase milk from other dairy farms in order to keep supplying the growing retailer.
The 80s to the year 2005 saw explosive growth for Wilcox Farms, but J.T. distinguishes between the period of "good growth" that took them to $100 million by 2000, from the period of "poorly managed growth" during 2000 - 2005. J.T. noted that the company was growing, but the balance sheet was not being watched, and the growth was not sustainable.
Wilcox Farms in 2005 found that it had become a national brand, with national competitors. They discovered that the competition was on an entirely new level, with competitors operating with much higher marketing budgets, and with much higher levels of efficiency. This new level of competition resulted in Wilcox Farms becoming too highly leveraged. They were required to submit to monthly audits from three banks, as well as meeting month-to-month commitments in order to avoid liquidation.
J.T. reorganized the business and the audit process revealed that they would need to liquidate the dairy portion of the business to keep the company healthy. Their milk processing plants were sold, but J.T. was also able to sell the dairy operation's customer list for a considerable sum before word got out that the Wilcox dairy business was having financial trouble.
The company that emerged from this restructuring was far smaller, with annual sales of $50 million, but had far more sustainable financials. This new company focused on adding value to the product and developing the brand. J.T. noted that the Pacific Northwest was probably the greatest value-added food market in the world.
One of the problems with value-added food products is that they are eventually commodified. The premium value is stripped from the product and then producers of the product must again turn to lowering their production costs to stay profitable. For Wilcox Farms, this meant that the once value-added product of organic eggs could not be relied on indefinitely to provide profits. The next step in adding value beyond that of organic eggs is to produce pasture-raised eggs. J.T. referred to this process as "making your own product obsolete", which is another way to understand the importance of reinvention.
Another reinvention for Wilcox Farms was their hard-boiled egg plant, which provides hard-boiled eggs individually packaged in plastic to grocers, cafeterias, and theme parks. This product has a 90-day shelf life, making it very unique among Wilcox Farms products.
These changes focusing on adding value to products and maximizing profit margin over volume have returned Wilcox Farms to nine-figure earnings, and the company now has an annual revenue of $120 million.
Wilcox Farms also opened its board to non-family members, which has provided it with new perspectives on marketing and selling their products. J.T. remarked that this board is reacting quickly to developments related to Coronavirus. In response to the shuttering of restaurants across the state, the board temporarily closed the liquid egg plant, and is refurbishing an unused shell egg plant in Burlington to accommodate increased demand in groceries, and diversify production as a contingency against one of their other plants being shut down due to an employee testing positive for Coronavirus.
J.T. concluded his presentation with some advice for businesses dealing with the uncertainty facing many employers right now. Having gained extensive experience in proper infection-prevention protocols during the avian influenza epidemic, Wilcox Farms has developed practices that are well-defined and strictly observed.
J.T. mentioned that leaders can instill confidence during uncertain times by having a plan and then enforcing it consistently. This applies to plans for growing a business or maintaining a safe work environment: authoritative and decisive courses of action are easier for employees to follow, and people follow rules that they know will be enforced equally for everyone.
He stressed that it was crucial for employers to inspire confidence in their employees through absolute honesty and transparency, developing and communicating a plan, and making clear to the employees that you will not give up.
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