Doskocil Companies, Inc.

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Doskocil Companies, Inc.

2601 N.W. Expressway, Suite 1000W
Oklahoma City, Oklahoma 73112
U.S.A.
(405) 879-5000
Fax: (405) 879-5573

Public Company
Incorporated: 1963
Employees: 3,500
Sales: $750 million
Stock Exchanges: NASDAQ
SICs: 2011 Meat Packing Plants; 2013 Sausages & Other
Products

Doskocil Companies, Inc. is a leading U.S. manufacturer and distributor of processed meat products engaged with three primary markets: retail, wholesale foodservice, and delicatessen customers. With product lines ranging from bacon and boneless hams to sausage and Mexican foods, Doskocil is the number one supplier of meat toppings to the $30 billion-per-year U.S. pizza industry. In addition, the company markets its products under a variety of proprietary brand names, including Wilson Foods, Corn King, Wilson’s Continental Deli, Fred’s, Doskocil Foods, Jefferson Meats, Rotanelli’s, Posada, American Favorite, and Butcher Boy.

Doskocil was founded in Kansas by Larry Doskocil. As the story goes, Doskocil stopped to have dinner one night in 1963 at a new local restaurant called Pizza Hut. While he was waiting for his pizza, he noticed that the owner of the establishment was making his own ingredients from fresh meat. The man, perturbed by the time-consuming process that was keeping him from a softball game, gladly accepted when Doskocil offered to cook a batch of meat-topping him. At the time, the 30-year-old Doskocil was already much involved in the meat business. He had earned his way through Bethany Nazarene College in Bethany, Oklahoma, by working in the meat department at the local Safeway supermarket, and later had served as a chef in the Army. After leaving the Service, he opened his own tiny meat company in Kansas. Doskocil’s aspiration when he started his venture was to make his company a force in the brand-name sausage industry, a dream inspired by the successful J.C. Potter brand of sausage that he had sold at Safeway in Oklahoma.

Potter’s sausage was very popular in Oklahoma, and Doskocil thought that he could produce a similar product in Kansas. “So I decided that I was going to become the J.C. Potter of Kansas, “Doskocil recalled in the October 22, 1984 Forbes. He leased an abandoned chicken hatchery in 1961 and began producing sausage under the brand name Country Cousin. Doskocil sustained a exhausting schedule during the first few years, getting up at 5:00 a.m., making sausage until noon, and then loading it onto his truck and selling it until dark. He spent his evening hours slaughtering hogs for the next day’s batch, and, during his first year in business, slept at his tiny manufacturing plant.

Doskocil soon became disenchanted with his fledgling shop. Growth was slow and it seemed like he was fighting an uphill battle in the sluggish sausage market. So he started looking for new opportunities, such as the one that presented itself at Pizza Hut. Shortly after the first delivery to the Pizza Hut owner, Doskocil knew that he had a winning idea on his hands. He began telephoning other pizza franchises, offering to supply them with pre-made meat toppings. Business boomed and Doskocil made his fortune.

During the late 1960s, 1970s, and early 1980s, Doskocil successfully developed his venture into a large corporation by focusing on the niche market for pizza toppings. His timing could not have been better. As demand for pizza soared, sales of Doskocil’s toppings surged. In addition to expanding markets, Doskocil benefited from a pizza industry trend toward greater efficiency, and thus greater consumption of processed toppings.

Doskocil got his foot in the door with Pizza Hut, and was able to parlay that early gain into major contracts to supply other pizza industry giants like Godfather’s Pizza, Domino’s Pizza, and ShowBiz Pizza. As the popularity of pizza surpassed that of the hamburger in the United States, Doskocil enjoyed steady double-digit growth rates throughout the 1970s and early 1980s. Estimated sales in 1983 topped $100 million and net income was approaching $8 million. “We have a neat little niche here,” Doskocil explained in the Forbes article. “We’re very happy.”

Doskocil’s profitable market niche was undoubtedly important to its mid-1980s success, but Larry Doskocil’s operating strategies were also integral to the company’s gains. Indeed, Doskocil was competing in an industry dominated by meat processing giants like Hormel and Oscar Mayer. To fend off competitors, the company had to keep costs low and continually offer new and better products that fit its customer’s changing demands. Doskocil was the first to introduce “crumbly” pizza toppings, for example. And it introduced several sizes of chunky toppings, which made it possible for pizza chains to successfully enter the deep dish market.

To create new products and to improve production efficiency, Doskocil had even formed a company, Reno Technologies, to design and manufacture custom food processing equipment. The division started out producing machines for Doskocil but eventually began building systems for other food processing companies. Doskocil’s proprietary machines were just part of its carefully cloaked manufacturing operations during the 1970s and 1980s. Visitors were rarely allowed onto the company’s premises, which were located about 40 miles north of Wichita. And not even a small sign identified the 65-acre manufacturing complex before truckers complained in the early 1980s.

Doskocil’s Reno Technologies division reflected the company’s penchant for vertical integration, which Doskocil considered an important element of his low-cost strategy. For example, to fuel his factory Doskocil had purchased a natural gas transmission company and two wells. About the only part of the operation that he did not control was the raising of the cattle and hogs that Doskocil transformed into pizza toppings. Doskocil also kept costs low by avoiding union labor. Although he paid his workers union-equivalent wages, he managed to avoid the ugly labor disputes that had plagued many of his competitors, particularly Hormel.

As a result of innovation and low costs, Doskocil was able to dominate its market niche. And its supremacy was barely challenged. Hormel, for example, had attempted to challenge Doskocil in the late 1970s before discovering, to its chagrin, that it simply could not compete on a cost and quality basis. Then, Doskocil widened its lead by opening a high-tech production line capable of processing 10,000 pounds of meat per hour using 60 percent less energy than previous production lines. By the early 1980s Doskocil was churning out 70 percent of all precooked processed beef and pork toppings used by U.S. pizza chains, and it was expanding into markets for frozen and make-at-home pizzas.

After having grown his venture into a $100-million-plus company, the 52-year-old Doskocil was ready to move on by 1983 and let somebody else complete the company’s transition from the entrepreneurial growth stage to a mature corporation. He turned down an offer from Pet Inc., a division of 1C Industries, to buy Doskocil for $71 million. Instead, he sold a large interest in the company to Aeicor for $64 million. The deal was attractive to Doskocil because it allowed his company to remain independent, but matched it with some well-heeled partners that could finance future growth initiatives.

Doskocil entered the transaction based on advice given to him by the Bass brothers, a group of prominent financiers. They profited handsomely after the buyout as their $260,000 investment in Aeicor turned into a $11 million stake in Doskocil by 1984. Larry Doskocil kept a 30 percent share of the Doskocil stock, which was valued at more than $30 million. During the mid-1980s Doskocil continued to post gains in its core pizza toppings market, and to search for new growth opportunities. As a result of increased sales and new acquisitions, Doskocil’ revenues surged past the $250 million by the late 1980s. Meanwhile, Larry Doskocil ceded his position as chief executive.

In 1988, the Doskocil organization changed radically. In what seemed like a major coup at the time, Doskocil bought out Wilson Foods, an Oklahoma-based firm founded in the mid-1800s and credited with such innovations as the boneless ham. When Doskocil bought it, Wilson was a $1.3 billion (in sales) manufacturer and distributor of processed pork products. Wilson had posted solid gains for more than a century before it ran into trouble in the early 1980s. Despite its recent checkered past, it had improved markedly by the late 1980s. Its sales were only one-fifth of Wilson’s, but Doskocil was able to purchase the producer for $238 million. The acquisition saddled Doskocil with debt, but management believed the purchase complemented its existing operations and competencies.

Wilson’s problems during the early 1980s stemmed from its spin-off from LTV Corporation, a holding company. After being ranked as the 37th largest corporation in America in 1955, Wilson had been purchased by LTV. LTV owned the division until the early 1980s, when stagnant pork markets caused the troubled LTV to jettison the subsidiary. Before LTV dumped the company, though, it sold off some of Wilson’s assets, kept the cash, and loaded Wilson with heavy debt. Wilson lost $37 million in 1981 before posting an encouraging gain of $17 million in 1982 on sales of $2.2 billion. By 1983, though, it was again losing money and staggering under its crushing debt load.

To escape insolvency, Wilson filed Chapter 11 bankruptcy late in 1983. Then, it immediately voided its union agreements and slashed wages for both hourly and salaried personnel. During the succeeding five years Wilson continued to cut costs, shed non-performing operations, and change its product mix. It focused on the fast food markets, for example, and increased efforts to penetrate supermarket delicatessen and fat-free markets. By 1987, Wilson had emerged from its bankruptcy and seemed relatively healthy. It lost nearly $17 million in 1986, but made its last Chapter 11 debt payment in 1987 and earned about $6 million in that year. Meanwhile, Wilson’s former parent, LTV, languished and filed for bankruptcy in 1986.

Doskocil’s hostile takeover of Wilson seemed like a good idea at first. Sales and profits were up early in 1989 and Doskocil’s stock price surged. But the heavily leveraged enterprise started to buckle when the economy soured and processed meat markets began to slow. Doskocil floundered. In March of 1990 Doskocil management threw in the towel, filing for Chapter 11 bankruptcy protection from creditors. John T. Hanes, former head of the Wilson division, was appointed president and chief executive in 1991. He was joined by chief financial officer Ted Myers, a Harvard graduate skilled in financially restructuring corporations.

During the next few years, Hanes, Myers, and other of Doskocil’s executives worked to revive the ailing meat processor. They dumped several of Wilson’s and Doskocil’s marginal enterprises, such as slaughtering operations and some processing plants. They also sold Reno Technologies. At the same time, Doskocil began a transition from a processor and distributor of commodity-type meat products to a producer of high-margin processed foods in which it had a competitive advantage.

Doskocil recorded a loss of nearly $27 million in 1992 before posting a 1993 deficit of $32 million. The 1993 loss, though, was mostly the result of a one-time charge against earnings for retirement benefits. So, after about three years of restructuring and refinancing, the company’s financial condition had improved considerably. “They bought Wilson Foods and choked on it,” observed analyst Jeffrey Wiegand in the March 19, 1994 Press Enterprise. “They have spent the last years getting rid of things they didn’t want … debt is very manageable and they have good cash flow.”

After reviving the defeated Doskocil, both Hanes and Myers left the company. R. Randolph Devening, a Harvard M.B.A., took over as president and chief executive. He had been credited with helping to develop Fleming Companies, Inc. from a $2.8 billion (revenues) company into a $19 billion diversified conglomerate. When Devening took control of Doskocil, it was generating about $650 million in annual revenues from its three processed foods divisions: Foodservice, Deli, and Retail.

Evidencing its intent to expand in the high-margin processed foods industry, Doskocil reached an agreement in 1994 to purchase International Multifoods Corporation’s frozen foods division for about $135 million. Doskocil also continued to exit non-performing businesses, secure financing for continued expansion, and to streamline existing operations.

In the spring of 1995, Doskocil changed its name to Foodbrands America, Inc., to better reflect the company’s operations as a broad-based food processor marketing high-profile, branded perishable and frozen foods. In April of that year, the company announced plans to sell the assets of its retail division to Thorn Apple Valley, Inc. for about $70 million in cash and assumption of debt. Regarding the sale, Devening noted, “While this divestiture reduces our revenue base, it enables the company to pay down a significant portion of its outstanding debt. We expect a substantial improvement in our earnings outlook given the solid profitability of the remaining operations.”