Cattleman’s, Inc.

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Cattlemans, Inc.

1825 Scott Street
Detroit, Michigan 48207
(313) 833-2700
Fax: (313) 833-7164

Public Company
Incorporated: 1972 as Eastern Market Beef Processing Corp.
Employees: 340
Sales: $125.3 million (1996)
Stock Exchanges: NASDAQ
SICs: 5147 Meat and Meat Products; 5421 Meat and Fish Markets

From beef briskets and chuck steaks to hamburger and ribs, Detroit-based Cattlemans, Inc. annually converts over 100 million pounds of beef into packaged steaks and other custom cuts for the wholesale market, while also offering the patrons of its retail outlets a healthy supply of fresh fruits and vegetables on the side. Through its wholly owned subsidiary, Cattlemans Meat Co., located in Detroits Eastern Market area, the company packs and markets beef to almost 400 fresh meat distributors, institutional food service clients, hotels and restaurants, and other large retailers in the U.S. as well as in Canada, the Caribbean, Mexico, Taiwan, and the Far East.

Because of the variety of grades, sizes, and cuts of beef requested by its many customers, Cattlemans fills a unique market niche: The company is able to offer a wide range of fresh beef products in a prompt manner. Cattlemans buys its beef carcasses from three of the largest slaughterhouses in the United States on a non-contractual basis, thereby purchasing only what it needs to fill existing orders. The company provides a service to these slaughterhouses, which can use only beef of exact specifications in terms of size, shape, fat content, and color to run through their own meat packaging plants. Those carcasses that do not fulfill a particular packing-houses exacting requirements are sold to Cattlemans, which in turn can furnish its own regular wholesale customers with a wide variety of specialty cuts. Turn-around time for many of the companys orders is overnight; the company processes over 2 million pounds of beef per week in its Eastern Market plant.

Established as Processing Plant in 1970s

Cattlemans was established in 1972 as the Eastern Market Beef Processing Corp. Company founder Markus Rohtbart was a survivor of Auschwitz who had immigrated to the United States from Poland with his family in 1948. By the early 1950s Rohtbart had established a wholesale meat business in Detroit; he would experiment with several other business ventures before moving to the citys busy Eastern Market district as a beef fabricator, purchasing beef carcasses which were then cut, vacuum-packed, and shipped to wholesalers and retailers throughout the East and Midwest.

Purchasing beef by the swinging trailer-loadquartered carcasses suspended on hooksCattlemans produced both packing-house style boxed beef and trimmings, which it further processed into hamburger and sausage. The companys central packing plant and warehouse facility consists of a company-owned building of approximately 56,500 square feet. The company employs 340 full-time workers, most of whom are represented by the AFL-CIO-affiliated United Food and Commercial Workers Union. In keeping with federal regulations, regular inspections of the companys Eastern Market processing plant have been undertaken by the United States Department of Agriculture since Cattlemans first opened.

Expands into Retail Market in Late 1980s

During the 1970s and 1980s, Rohtbart gradually expanded his market, gaining wholesale customers throughout the South as well as in western states and north into Canada. In 1987, at the urging of his son, David Rohtbart, Markus agreed to enter the retail business. David, who had been involved in the family business since 1976 and was employed by Detroit meat distributor Osten Meat Co. during the mid-1980s, saw that by eliminating the middleman and retailing its meat products directly, the company could obtain a competitive advantage in the retail market. To finance the development of its new retail operations in the Eastern Market location, in 1988 the company merged with Arrow Point Resources, an inactive public corporation located in Utah and later moved to Delaware. Markus was named director and chairman of the board, while David was named chief executive officer and president.

In June 1991 the company changed its name to Cattlemans, Inc., and opened its first outlet store in Eastern Market. In addition to the companys own beef, the retail outlet sold pork and poultry to its customers. While efforts to establish a strong retail presence in the metro Detroit area were aggressively pursued through significant television and radio advertising, the retail sector of the business continued to grow slowly, with two more stores opening up between 1991 and 1994. Produce was introduced in the third store, although sales were sluggish. Company products were promoted by accentuating their low price, the stores no-frills atmosphereshoppers at the outlets, which were open seven days per week, selected their meat while walking through huge, refrigerated coolersand their high quality. Main competitors to Cattlemans retail outlets were high-volume supermarket and grocery store chains able to buy in bulk to keep meat prices down, and small-scale specialty meat markets that could provide local customers with custom cuts of beef at a location convenient to their home.

As Cattlemans expanded, it began to adopt a more sophisticated structure for its increasingly complex business. Management introduced a vertical integration strategy and treated its greater investment in employee training and job satisfaction as central to its overall success as a retailer. Employees on all rungs of the company ladder received training, support, and opportunities for increasing both their job and interpersonal skills. Such efforts the company perceived as crucial to fostering new and improved customer relations. At the close of fiscal 1991 company sales had been $108 million against net income of $200,000; the following year they had risen to $123.82 million against net income of $499,921.

Company Goes Public in 1993

To finance its expansion into the retail market, Cattlemans went public in 1993, combining a stock split of all existing Arrow Point shares with the issuance of new shares to result in over 3 million shares outstanding. The father-and-son team of Markus and David Rohtbart continued to control more than 80 percent of the companys total shares; in April 1993 Markus was appointed treasurer while David became assistant treasurer of the company.

In August 1993, in an effort to boost consumer awareness of the company as a produce, as well as meat, retailer, Cattlemans acquired Oak Farms Market, a produce company that operated two fruit and vegetable markets in metropolitan Detroit, in exchange for 90,000 shares of Cattlemans stock. The former Oak Farms retail locations were remodeled and renamed Cattlemans Markets, and by December 1994 the company had five retail locations in operation around the city. In addition, a new warehouse was opened to accommodate the companys expanding product lines. Late in 1993 Cattlemans also changed accounting and law firms, contracted with a new advertising agency, and became a Securities and Exchange Commission reporting company.

By the end of fiscal 1993 Cattlemans was able to post $134.4 million in sales against $1.3 million in net incomea banner year. While 1994s sales figures would be higher $143.7 millionnet income would fall by almost 60 percent to $47,532 due to accounting for the costs of purchasing and remodeling the Oak Farms Market outlets, as well as the costs associated with registering with the SEC in preparation for the companys listing on the NASDAQ over-the-counter market. The drop in net income was also a result of a nationwide downturn in the cattle market, which saw a decline in the price of boxed beef beginning in March 1994. The downward pressure that this downturn created on wholesale and retail beef prices was reflected by the companys pricing adjustments; however, these price decreases resulted in greater overhead costs in proportion to sales.

Retail Outlets Experience Slower Than Expected Growth During 1995

By 1995 the company employed over 300 people in operations at its central packing plant and its five Cattlemans outlet stores in metropolitan Detroit. Outlet stores, which ranged in size from 4,000 to 18,000 square feet, now all offered fresh produce, dairy products, and a variety of meat cuts at prices 10 percent to 40 percent lower than those of area supermarkets. Although outlet sales continued to climb, their sluggish ascent continued to frustrate management. In an effort to reacquaint Detroit consumers with its changing product line, the company hired consultants to help plan a fresh marketing strategy. Among other changes, the decision was made to add the Farmers Market name to each of the Cattlemans retail outlets in 1995.

Company Perspectives:

In a world of mediocrity, Cattlemans delivers excellence. A world class TEAM, experts in fresh food; bringing customers the freshest food possible, and a place where every day is an adventure in savings.

Igniting the continuous growth and advancement of every responsible employee, helping them realize their full potential.

Welcoming guests into visually beautiful, exciting surroundings; treating them with respect, advising them with integrity, making them feel a part of our Cattlemans family.

We are proud of our work, our products and our conversations, knowing that each and every guest will have an experience of value and having been served!

Now with its five retail locations bolstered by a new image, a new, aggressive sales campaign designed to both increase sales and counteract a spate of negative local media coverage of fresh food retailers in general, and with plans still underway to open a sixth Metro-Detroit Cattlemans Farmers Market store, the company watched its retail outlet sales gain momentum. Outlet sales, which had accounted for 11.7 percent of total sales in 1994, jumped 30 percent to 16 percent of company sales in fiscal 1995. Unfortunately, this increase was not enough to bolster losses from other operations. Taken as a whole, company sales decreased by 12.2 percent between 1994 and 1995, cresting at only $126.3 million against a net loss of $353,761 by the end of fiscal 1995. The company attributed the loss to the 7.1 percent decrease in the wholesale price of beef products nationwide, a market condition that had prompted them to reduce production by 9.6 percent in terms of total tonnage.

Company Successfully Weathers Adverse Media, Sluggish Retail Market

In fiscal 1996, 17.4 percent of total sales would come from Cattlemans Farmers Market retail establishmentsan increase of 8.3 percent over 1995 levels. In addition to this continued slow but steady expansion of its market in the retail arena, Cattlemans continued to broaden its wholesale customer base. The companys eastern distribution network accounted for 32 percent of total sales by 1995, with sales of cut and packaged beef in its home state of Michigan running in second place at 26 percent. The remainder of the Midwest scored sales of 18 percent, with southern states accounting for 14 percent, and western states 5 percent. Foreign sales accounted for only 2 percent of the companys 1995 gross sales.

Sales for fiscal 1996 totaled $125.3 million, although the company would post a net loss of $161,159 for the same period due to both the continuing lower-than-average market price for boxed beef products and Cattlemans continuing efforts to expand the sales of its retail operations. The year would also prove to be lackluster for the Detroit meat packager because profits made from its expanding wholesale and retail sales were eroded by increased payroll and payroll-related costs as a result of union contracts made two years earlier. The companys labor contracts with both retail and processing division employees run for four-year periods; they would not be scheduled for renegotiation until November 1998.

While operating in the red for the second year in a row, Cattlemans nonetheless posted a 1996 net loss that was half what it had been during 1995; this fact was attributed by management to the improved performance at Cattlemans Farmers Market stores. However, cognizant of the fact that further expanding retailing of its product would not materially improve the companys overall profitability in the near future, the decision was made to halt plans to open a sixth retail outlet.

Halfway through fiscal 1997 the company was rocked by the kind of news that can prove fatal to a business in the food industry. In November it was reported in the media that one of Cattlemans Metro-Detroit outlets was the source of an outbreak of Legionnaires Disease. The reports were later verified by investigations made by Michigan state officials, who traced a small outbreak of the disease to an evaporative condenser in the heating and cooling unit operating at Cattlemans Farmers Market in Farmington. Over half of the 30 known victims of the outbreak had visited the market prior to exhibiting symptoms of Legionnaires, while others maintained that they had been to locations near the outlet store. Cattlemans was vehement in contesting the states findings, and ultimately proved successful in riding out the barrage of negative media. Net income for the 39 weeks ending in January 1997 was $550,000, a 29 percent increase over the same period during 1995-96 that showed the confidence in Cattlemans product held by its growing retail and wholesale customer base.

Principal Subsidiaries

Cattlemans Meat Co.

Further Reading

Wernie, Bradford, Firm Beefs Up Its Menu, Crains Detroit Business, August 23, 1993.

Pamela L. Shelton