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Hog heaven.

Forty years ago, Harold Heinold brought the market closer to farmers. Today, Heinold Hog Market is the largest hog broker in the country and one of the top private companies in Indiana.

Carl Sandburg called Chicago "hog butcher to the world." The little town of Kouts may be able to lay claim to being hog broker to the country.

Since 1950 the Porter County town has been home to Heinold Hog Market Inc. There are no swine milling around the office building that stands on the western edge of Kouts. But don't be fooled by the absence of pork. The people at Heinold run the largest hog-marketing operation in the country.

"We can match the needs of the packer to the producers' hogs that fit the best," answers Terry D. Miller, the company's president and chief operating officer, when asked to explain its success.

"There really is an increased emphasis on the quality of the hogs offered," adds Larry Sievers, Heinold's chairman and CEO.

The people at Heinold are the link between hog producers and pork packers. They know what's available in the marketplace and what customers are clamoring for. Then they try to create a perfect match.

"We really have two customers," Miller says. "And we provide service to both."

The company slogan appears on its promotional literature: "People, Pork and Progress." Sales offices are spread out over seven Midwestern states. In addition to more than a dozen locations in Indiana, there are sales offices in Illinois, Ohio, Michigan, Kentucky, Tennessee and Missouri.

"One of the reasons we have the market scattered the way we do, throughout the country, is that we try to be fairly close to our producers so they don't have a long haul to get to market," Miller explains.

The company can help a producer sort hogs for shipping to the various markets and, in some cases, provide a trucking service.

Once at the market, Heinold can offer hogs according to quality, size or whatever feature a buyer is looking for.

"Our packer customers know they can get what they need for their particular kill line," Miller says. "It's amazing, although everyone is slaughtering hogs and making meat, there's variety because of the different cuts and different customers they have.

"For instance, they might basically have a loin business. Then they want the best hogs with the best loins that's possible. Or it's a ham business, and they want the best hams they can get. Each packer is specialized."

The company recently worked with a packer who was trying to break into the Japanese market.

"He wants a quality product that is very much the same size all the way along," Miller explains. Heinold was asked to help him buy the hogs that would provide uniform cuts of meat, to prevent having to go in and cut them all down to the same size.

The company has developed a variety of programs and options for customers that have helped Heinold survive in an increasingly competitive marketplace. Producers have the option of various contracts with the broker, allowing the hog farmer to maximize profits. Heinold also is able to sell sows, boars and off-hogs, the types of pork many packers don't deal with. Heinold's ability to find a buyer is a service many producers find invaluable.

The company is beginning a program that gathers information on the types of hogs produced by different farmers, blood lines and breeding programs. "The concept is real simple," Sievers says, "but the implementation can be very challenging."

In addition to letting farmers track how their hogs do with various packers, the program will track industrywide trends. Information collected will include lot size, live weight of the animal and back-fat measurements. "Consumers are more demanding now, and companies are paying even more attention to what customers want," he says.

The company believes the program will help producers know where their hogs can command top dollar and respond quickly to changes in the marketplace. "They'll be able to breed for different things," Sievers explains. "They can decide if they want to change the strain, the blood line, to produce something else."

Such expertise is necessary if a company like Heinold is going to thrive in the current pork economy, says Chris Hurt, a Purdue University professor of agricultural economics.

"There's been a lot of change in how hogs are produced and moved off the farms to consumers," he says. Since 1980, the number of pork-producing farms has shrunk by 62 percent. Squeezed out were many of the small producers that companies like Heinold once serviced, Hurt continues.

In addition, some producers have begun working directly with packers, cutting a broker such as Heinold out of the process.

"Heinold has always allowed the small producer an efficient accumulation of volume," Hurt says. Heinold buyers were able to purchase hogs, sort them by size, weight and type and load the lots into semi-trailers that held 200 to 220 hogs. A small producer didn't have the expense of hauling the hogs to the market. Heinold could do that better and cheaper.

But now some of the large producers can afford to do that themselves.

"A lot of them can deal directly with the packer, and load the hogs right on the farm," Hurt says. "We're seeing a lot more from farm-to-packer buying. We're seeing more packers working directly with producers to coordinate their efforts."

Because of the changing marketplace, two services a broker such as Heinold offers become even more important, he says.

"They're assessing value, looking at the supply in their area and helping to establish a price. The fact that they can establish the price is very important."

The prices Heinold pays are determined by examining current market conditions nationwide, future contract quotes and analysis of government reports and other information. The price has to be competitive enough to give the farmer a fair deal and still be attractive to the packer.

"They're determining what those hogs are worth, they're determining what people will pay for them," Hurt says.

The company has another asset whose worth can be difficult to measure in purely monetary terms--connections. As any business leader knows, you can't put a price on good information.

"They have information, information they can share with a producer. Heinold can pass on what packers want from producers," Hurt explains.

In an era when more producers are allied with packers, that service becomes even more important for others who are raising hogs.

"You've got some producers concerned about what happens if you've only got one or a just a couple packers to deal with," Hurt says. "What happens to competition?

"A broker like Heinold might get you the best deal in Indiana, or might know someone in Michigan who's paying a little bit more. That's also very important."

The company has taken advantage of those specialized services it can offer. A newsletter, the Heinold Report, is sent to those the company does business with. One recent issue contained an explanation of the often complex process of how prices are set. Other issues have examined how government programs affect the price-setting process.

The success of Heinold has helped Kouts lay claim to being the nation's pork capital. Or, as Kouts Chamber of Commerce Chairwoman Pam Parker points out, at least one of the country's pork capitals. "There are other cities that say that too."

The company is one of the sponsors of the Kouts Pork Feast, held annually for the past 17 years. "Our mascot, a big pink pig, comes from the people at Heinold," Parker says. "They're one of the reasons we do this."

The company's stability, and the fact that it employs so many people, has an important influence on Kouts, she says. "Their size, the value of their property--it all enhances our community."

In 1950, Harold J. Heinold founded the company that still bears his name in downtown Kouts. "He had his sales office there," Miller says. "He and his wife bought the hogs in the daytime and trucked them to the packers at night."

Purdue's Hurt calls him "the man who built that organization from scratch. It's a real Indiana business success story."

Heinold was a part-time banker who took over the operation from a livestock market owner who had gone bankrupt. Although it required long hours of work, his company began to grow soon after it opened. A second yard opened in Marengo, Ill., in 1951. Soon Heinold spread into Indiana to Goodland, and later throughout the country.

The company survived some tough times. Although it grew quickly, a fire in December 1971 destroyed the company's main offices and caused more than $500,000 in damage. Heinold later learned the fire probably was started by an electrical short in one of the ticker-tape machines that monitored price changes at that time.

When Heinold began, a countrywide market was an almost unheard of concept. Producers, often not knowing what price their hogs would bring, would haul them to terminals where packers would bid on them.

The terminals, usually located in urban centers, required traveling long distances. And the producer never knew if the trip would be worthwhile. When the packers didn't have a need for the hogs offered, prices fell and the producer was left either with little cash or hogs he didn't want.

Heinold was among those who changed that. He took the concept of a local terminal and, with telephone lines and offices scattered throughout the country, expanded it. The terminal became a small operation close to home. The farmer was offered a competitive price before delivery.

With contacts around the country, Heinold knew what different packers wanted and who was offering the best price for hogs on any given day. Like any broker, the company made its money on the commission charged for its services.

Heinold sold the company in 1972 to DeKalb AgResearch Inc. of DeKalb, Ill., but he stayed on as chairman of the board until 1986.

That same year, citing a desire to concentrate on businesses that included oil, seed and poultry, DeKalb announced it was selling the company. "The DeKalb company was making changes, and some of the investments they had--even though they were profitable for them--just didn't fit into their portfolio," Miller explains.

In June 1987, an offer from Heinold employees beat out several competitors. The employees put together a deal that included a loan from American National Bank in Chicago. In addition, DeKalb agreed to help employees put the deal together and pay some of the debt Heinold had incurred before its sale.

DeKalb wanted to see the employee stock-ownership program succeed, Miller says. "With their help we were able to do so," he says. "They made it possible financially, with loans and so forth. They were very good to us."

Ninety-five percent of the 372 people who worked for Heinold at the time participated in the $13.25 million stock purchase. The company is still completely employee-owned. And, unlike some employee stock-ownership programs, the management team is prevented from controlling a majority of the shares.

"The higher compensated retain just a little bit less share," Miller explains. "We're one of the very, very few companies that is really 100 percent employee-owned in one of the fairest programs probably anyone has ever heard of. A lot of companies just sell off a small percent to their employees."

The arrangement is important because employees truly feel as if they have a stake in the company, he continues. "They feel a part of things." What the employees are a part of has become one of Indiana's biggest private companies. Heinold Hog Market reports annual sales of $603 million.

In recent years the company has had the added challenge of responding to changes taking place on the country's kitchen tables. Lean is in, and pork has had to change its image. During the health conscious '80s, people across the country pushed away plates full of fatty bacon and ham. "It used to be that in the swine industry and the pork business it was just raise as many as we can and sell them to market. And the consumer will have the meat out in front of them and they'll have to buy it," Miller remembers. "That won't work anymore."

"We're in a situation where we need leaner, faster-gaining hogs," Sievers says. "If you have those animals, you can really command premiums."

There was a time not long ago that the idea of a lean hog was a contradiction in terms. No longer. "People have become extremely health conscious," Miller says. "Finished hogs have always been called 'fat hogs,' and we really want to get away from that. We have come from finished hogs having a back fat in the neighborhood of 1 1/2 to 2 inches, down to what most packers want now--0.7 inch to 0.8 inch."

The expertise provided by Heinold has helped some producers make that change. Meanwhile, the pork industry has gotten the message about the changes to consumers with a media campaign built around the slogan "Pork, the other white meat."

"Instead of just throwing it in front of them, the pork industry has put hundreds and hundreds of new products on the market," Miller says.

"The meat industry has the saying that if you don't sell it, you smell it," he continues. "That's very true, and the consumer has said you're going to smell it if you don't give us what we want.

"There are very few packers left who will kill a hog with fat anymore," he says. "He wants a finished hog with meat, not a finished hog with fat. He can't sell it otherwise. Then all you have is lard. And lard is useless."
COPYRIGHT 1992 Curtis Magazine Group, Inc.
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Copyright 1992 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Heinold Hog Market Inc.
Author:Skertic, Mark
Publication:Indiana Business Magazine
Article Type:Cover Story
Date:Apr 1, 1992
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