Chapter Twelve:
MGI Packers
MGI Packers 1991 to 1999
The time from when I joined Muller’s Meats in the fall of 1985 to the end of 1990, was an extremely stressful time for us in the business. We had no product differentiation and no cost advantage over competitors, and between the two, it made it very difficult to make a living. Furthermore, nothing positive was on the horizon. There was no reasonable scenario under which we would purchase one of our branded customers, a common method of gaining product differentiation and thus increasing margins. There was also no reasonable way for us to cut costs to gain a cost advantage over competitors.
Thus, I felt strongly that we should get out of the business, as I saw no profitable future in it for us.
By early 1989, my father began speaking several times a day on the phone with a Mark Ishoy, who was a manager at Canada Packers, the place from which we purchased much of our raw material, the cow carcasses. Mark knew of a slaughterhouse that had gone bankrupt in a town called Kitchener, Ontario. Mark proposed to my father that my father buy the slaughterhouse and that Mark would come to work for him. The thesis was that by owning our own slaughterhouse, we would be able to ensure ourselves of a more reliable supply of raw material, and also that we would be able to capture the extra gross margin that would be earned by the slaughterhouse.
In other words, instead of purchasing cow carcasses from a slaughterhouse like Canada Packers, we would be purchasing live cows from the stockyards, slaughtering the animals in our slaughterhouse in Kitchener, and then shipping the carcasses to the plant in Niagara Falls for deboning. The slaughterhouse, which we would own, would also sell the remaining parts of the animal and profit from that. Those parts include items such as the hides and the offals, meaning all the parts such as the brains, tongues, feet etc.
Mark was proposing that although my father would put the money in, he would be my father’s partner in the slaughterhouse venture. Mark also felt that it would be important to have a production manager and a cow buyer as part owners of the venture.
I was very strongly against this venture. I not only did not want us to enter this venture, but I wanted to exit the deboning business as well. I strongly argued that buying this slaughterhouse was throwing good money after bad.
Unfortunately, my father decided to proceed with the slaughterhouse venture. We put in all the money – millions – and the equity was divided up Mullers 50%, Frank Grof the cattle buyer 25%, Mark Ishoy 15% and Walter Marini the production manager 10%. The venture was called MGI Packers.
The slaughterhouse turned out to be as difficult a business as the deboning business was. Again, we had no product differentiation, and no cost advantage over competitors.
Mark felt strongly that we were spending a lot of unnecessary money transporting the carcasses from the slaughterhouse in Kitchener to the deboning plant in Niagara Falls. Mark felt that we should build an addition to the Kitchener plant and do the deboning in Kitchener instead of in Niagara Falls. Building the addition would have cost a couple of million dollars. I did a simple B-school calculation which showed that the cost of the building far exceeded the benefit that would be had from not transporting the carcasses. In addition, moving the deboning from Niagara Falls to Kitchener would mean that I and my father – and all the Niagara Falls employees, or at least those who wanted to – would have to commute one hundred miles each way each day to get to work. The other option was to move our residences. We were very happy in Niagara Falls, and there was no reason to move.
Unfortunately, I was outvoted, and the decision was made to close the factory in Niagara Falls and to add on a deboning room to the Kitchener plant. This meant borrowing all the money – about two million dollars – to build the addition.
In 1991, the plant in Niagara Falls closed and the deboning was moved to Kitchener. Joyce and I moved to Hamilton in the summer of 1993, and my parents moved to Ancaster shortly thereafter. I commuted together with my Dad from our homes to Kitchener. It was about an hour each way, and given that for many months of the year, the roads were icy and snow-covered, it was treacherous. We left for work when it was dark out and we got home when it was dark out.
From the time we moved the deboning operation from Niagara Falls to Kitchener, the operations still were unprofitable. We were bidding for the live cows against much larger firms with distinct cost advantages due to their size, and on the other end, we were selling each piece into commodity markets in which our products had no differentiation. Our facility, meanwhile, even though we were up to slaughtering about seven hundred cattle a day, still was at a cost disadvantage, particularly against the huge mid-western plants.
At this point, we did do one good thing. We bought a rendering facility in Toronto called Banner Rendering. Rendering is the process by which the animal fats and bones are cooked in a process that yields beef tallow and bone meal. This operation was profitable and actually sustained the money-losing Muller’s Meats and MGI Packers for a long time.