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Always count your chickens

Scott McCulloch is Editor of Families in Business magazine.

In the span of two generations and with a cavalier disregard for which came first, Arthur and Frank Perdue built a billion dollar empire on eggs and chickens. Jim Perdue, CEO, has pledged to go one better

Once persecuted as French protestants, the Perdues have come a long way since their days as exiled Huguenots and when Arthur W Perdue, founder of Perdue Farms, observed egg farmers quietly getting rich in an era of austerity that preceded the Depression. Today Perdue farms has 20,000 employees, turns over $2.7 billion a year, and produces 52 million pounds of chicken and turkey every week.

Arthur Perdue worked for the railroad in Salisbury, a small coastal town in Maryland about 100 miles from Baltimore. Trucks had yet to proliferate and rail was the main mode of transport for eggs. But Arthur decided not to become a farmer because he said that while there was nothing he would rather do than see a plough turn a furrow, you couldn't make money at it. Meanwhile, farmers bringing in eggs to ship, though hardly well heeled, were somehow prospering. Arthur saw gold. So he entered the table egg business, producing eggs people ate for breakfast. In 1920 – a banner year, as Arthur called it – he left the railroad, bought a car and had his first and only child, Frank. That same year he procured 23 layer hens and began supplying the New York City market with eggs from a henhouse in the family backyard.

Arthur gave his son Frank 50 chickens. They were 'culls' – the least promising of the flock. But Frank persisted. He noted how much the chickens ate, what he paid for the feed and how much he earned for the eggs. By age 10 he was trousering $10 to $20 a month – no small feat in an era of austerity and one which foreshadowed the emergence of a poultry powerhouse and one of America's largest family-owned businesses.

Branching out
Frank, who joined the business in 1939 and took over leadership in 1950, persuaded his father to borrow money to build a soybean mill in 1961. His father had not willingly been in debt in his previous 40-plus years in the poultry industry. "My grandfather grew up in the Depression and that was a typical reaction of the era – never to have any debt," recalls Frank's son Jim, who joined the company as a management trainee in 1983. "So the $250,000 that he borrowed for the plant was a big deal." The company has carried debt ever since. "You can't grow today without borrowing money and so we've always had good relations with the banks."

The soybean mill was part of Frank's wider scheme to vertically integrate the company – with grain storage facilities, feed milling operations, soybean processing plants, mulch plants, hatcheries and 600 contract chicken farmers – to counter the threat of processors buying chickens directly from farmers rather than through brokers like the Perdues. To differentiate their products, the Perdue name was applied to poultry packages on retail food counters in 1968. "We had plenty on our plate," Jim recalls. "In 1968 [Frank] completed the final pieces of the vertical integration of the processing plant – then he started marketing. He decided to advertise and that was the real change – converting a commodity product into a branded product in 1970-71 with TV advertising."

Star attraction
Perdue gained national attention as a brand name when Frank became a famous pitchman for the company. When Frank Perdue launched his famous television ads in 1971, he became the face of the poultry industry in the eastern US, where Perdue fresh chickens are sold. "If you want to eat as good as my chickens, you'll just have to eat my chickens..." he told viewers in a series of enduringly humorous TV ads. Later on he would send up Wendy's famous "Where's the beef?" campaign. Frank's retort was simply "Who cares where the beef is".

In 1984, a year after Jim came on board, the company added operations in Virginia and Indiana and introduced turkey products. Perdue then hit the acquisition trail in 1986, scooping up Intertrade, a feed broker, and FoodCraft, a food equipment maker. But after enjoying rising demand for poultry by health conscious consumers in the 1970 and 1980s Perdue saw its sales level off in the late 1980s. "We were losing about $2 million a week in 1988-89 during a downturn," Frank wrote breathlessly in an article published in Fortune.

Global challenges
By the 1990s something had to give and so Perdue entered the food service industry, selling into restaurants, fast food establishments and hospitals. Beefing up its international sales was a priority too. "We entered the food service channel in the 1990s, [but] we were late in getting into that," recalls Jim who, by 1991, had taken over as chairman. Whereas his father Frank pondered everything from the merits of genetic research to sophisticated blends of chicken feed (marigold petals help give Perdue chickens their distinct yellow colour) Jim has found himself beset with the wider problems posed by globalised economies.

Among the greatest challenge is hedging against fluctuating prices of soft commodities – a factor that affects Perdue's trading operations in the US and Canada and its margins on sales of feed ingredients in domestic and foreign markets. Because feed accounts for two-thirds of a chicken's cost, profit margins wobble from thin to razor-thin, says Jim. Total control, he adds, is a pipe dream because Brazil, the world's largest producer of soya and China, which consumes more corn than the rest of the world, broadly dictate prices.

These days his concern is that corn prices are too high and, because of bumper crops in the US, China is unlikely to export anywhere near the amount of corn it normally exports. "Japan ends up buying US corn, which raises the price in the US," he laments. "So our [corn] costs are higher. There's an indirect impact."

Shifting tastes
Grappling with international feed costs may be all in a day's work but presiding over a business that shifts a staggering $2.7 billion worth of chicken and agricultural products a year must surely stand in stark contrast to the business routines of his paternal predecessors. But Jim insists his is a legacy whose problems fall squarely onto common ground. Managing growth and morphing products to adapt to shifting consumer tastes are as perennial as the corn that feeds the family's poultry empire. "The product is changing," he says. Indeed it is. The chickens themselves – in all their feathery splendour – have failed to evolve into something consumers would describe as glamorous. But the people at Perdue make it their job to make poultry not just tasty but sexy. Jim is clinical in his assessment of demand and market forces. "The market is going to a more 'heat-and-eat' [style of product] because consumers don't want to spend more than 20 minutes cooking a meal."

Like his grandfather who saw real gold in egg yolks, Jim has made it his business to give frustratingly fickle American consumers exactly what they want: products that prepare in minutes but boast the look and savoury taste of a homemade meal lovingly prepared over a lazy Sunday afternoon. It's an elusive combination but, as the ad slogan once said, 'Perdue's done it'. "They want products that you put in the microwave and yet they want to serve it at their table with the nuclear family sitting there," he says. "That's a big change. They don't want to spend two hours roasting a chicken, so we have to come out with new products that have shorter cook­cycles but still solve the problem."

Talk to Jim and you sense a 'can-do' attitude – a vestige, perhaps, of the family's origins as displaced but persevering Huguenots. It's hard to say for sure. One certainty, however, is that an entrepreneurial spirit courses through the family bloodline. On one occasion in the early 1960s it took hold when Jim's father realised that the processors – businesses preparing chickens for market – were clobbering them. Buoyed by the post-war boom Perdue Farms had been expanding at a blistering pace. Annual sales at the time were a hefty $35 million. But there were too many chickens. As prices fell, losses rose. So in 1967 Frank bought a Swift plant in Salisbury, cannily evolving the company from a supplier to a processing company itself.

The next generation enter the nest
So how long will the family business last? "As long as we think we can," says Jim with a flourish. "As you know the statistics are not good once you get to the third and fourth generation." Which is why a family council comprising the fourth generation – G4s, as he calls them – senior advisers within Perdue and external family business consultants are quietly shepherding the next generation into the entrepreneurial fold. "The purpose of this is to get them organised about things such as philanthropy, and how we can stay together as a family unit and keep the family business going."

Jim is the youngest of four children and although he has three sisters, none of them nor their spouses is directly involved in the day-to-day business of running of a multi-million dollar poultry and agricultural empire.

But he has three children and there are 12 G4s who could potentially enter the nest. If so, they would be encouraged to work outside the company for 3–5 years and do a summer at Perdue as an intern. "They need to get some confidence in themselves and you can't get that here," explains Jim, who spent at least a dozen boyhood summers learning by doing a lot of "grunt" work around the company.

So what of the future? "This year (2003) is a much better year and we've just announced a letter of intent to buy a plant down in Georgia, so we're going to continue as a company." It's fitting. Arthur thought big. Frank thought big. Jim is no different "We have aspirations to be [turning over] $20 billion in the year 2020 – that's our vision." That's more than a sevenfold increase. For a company as aggressive as Perdue Farms, you can hardly call them chicken.

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