Marketing designer meat
Niman Ranch has succeeded in creating a luxury brand of beef and pork that appeals to the nation's top chefs as well as finicky consumers.
By Paul Kaihla Business 2.0 Magazine senior writer

(Business 2.0 Magazine) - The tiny town of Bolinas, Calif., has always enjoyed a renown far out of proportion to its population. An hour's drive north of San Francisco along a cinematic coastal highway, the 1,400-person hamlet gained fame in the 1970s as home to rock stars like Grace Slick and Carlos Santana. Today, however, the place is better known for another countercultural icon: Niman Ranch.

One of the fastest-growing companies in the natural-food business--make that the entire food business--the meat producer was founded in 1971 by Bill Niman, a would-be hippie from Minnesota who moved to Bolinas to join a back-to-the-land commune. Since then, he has managed to create a luxury brand out of butchered meat, a commodity that for decades seemed unbrandable.

Niman Ranch has turned its beef into a luxury item.
Niman Ranch has turned its beef into a luxury item.

Many have tried and failed at the task. In fact, Cargill, the second-largest U.S. beef packer, tried to create a consumer brand of steaks through its Excel subsidiary back in the 1980s, but shoppers stayed loyal to their local butchers.

How did tiny Niman succeed where others stumbled? Credit not only tight quality control and a scalable business model but also a marketing strategy that bypassed consumers in favor of prestigious chefs. Many of the best restaurants in the country--including New York's Chanterelle and the Slanted Door in San Francisco--drop Niman Ranch's name on their menus, often using it to fetch upwards of $30 per entree.

"Niman tied his product to other luxury products," says Harvey Hartman, who runs a marketing firm in Seattle that focuses on alternative foods. "Namely, the very best venues in the foodie world."

Grocery shoppers are willing to pay a premium of 15 to 30 percent for Niman products over those of mainstream competitors. In fact, Niman Ranch will come close to $100 million in revenues for 2006, says the company's charismatic founder, who looks at least a decade younger than his 61 years.

Niman Ranch's sales, of course, amount to a rounding error on those of $26 billion Tyson Foods (Research), the world's largest meat processor. But amid rising health and environmental concerns, mainstream conglomerates like Tyson are growing in the single digits, or not at all. Niman, meanwhile, is growing by 35 percent annually.

Overall, the natural-meat category is expected to more than double to $13.8 billion during the next three years, according to research firm Datamonitor, thanks to a consumer backlash against the excesses of big agribusiness. From Texas to Iowa, factory-style feedlots bring cattle to slaughter after as little as 14 months on a diet of growth hormones, antibiotics, and, in some cases, liquefied fat and animal parts.

Niman Ranch offers consumers an alternative it claims is both healthier and tastier, taking an extra year to raise its antibiotic- and hormone-free herds. Today, Niman's reputation is so powerful that many diners mistakenly assume that Niman meats are organic. In fact, Niman has never made that claim and is careful to use only the word "natural" on its packaging.

For organic certification, ranchers must raise cattle on pastures free of pesticides and chemical fertilizers, and medication and nonorganic feed are prohibited. Though Niman's yearlings graze on organic grass in open fields, they are vaccinated, fed antiparasitic drugs, and "finished" for 140 days on vegetarian but nonorganic diets.

"We could start feeding our steers an all-organic diet tomorrow," Niman grouses, "but we'd go out of business because it would raise costs by 50 percent."

Being nearly organic is what has allowed Niman Ranch to scale. Most of the pure organic meat producers in the United States remain regional players with prices as much as three times higher than Niman's. That's typical of the $35 billion health-food industry, which is dominated by cottage brands. Bill Niman, however, was able to build a national supply chain without having to buy the farm. He recruits family ranchers across the country who agree to raise animals according to his rules, then pays them a premium over commodity prices.

The affiliates get to tap into Niman's cachet, which can be traced back to a decades-old French culinary conceit. After World War II, the French government passed a set of laws mandating that labels reflect foods' appellation, or region of origin. The legislation was aimed at big food companies that were, for example, making "roquefort" cheese out of cheap sheep's milk that wasn't from the Roquefort region.

The practice was relatively unknown in the United States until the 1970s, when Alice Waters opened her fabled Chez Panisse restaurant in Berkeley. One of America's first celebrity chefs, Waters built on the French practice by listing on her menus not just the regions where she sourced her ingredients but also the names of the farms that produced them. Bill Niman was the first rancher to receive her blessing.

The practice of "branding" Niman's meat on menus was soon emulated by other chefs in the San Francisco Bay Area, including Paul Bertolli of Oliveto and Jeremiah Tower of Stars. Niman took its name national in the 1990s by hiring a salesman named Mark Paladini to identify rising luminaries and win them over.

"These chefs became celebrities, and that rubbed off on us," Paladini says. "They'd go on a TV show and ask us to ship a pork tenderloin and say, 'I'll give you a plug.'"

It was a brilliant strategy, but by 1997 Niman was still stuck in the granola ghetto, with annual sales hovering around $4 million. So that year, the company hired Rob Hurlbut, a former manager in Nestle's coffee division, as its first CEO with a food industry background. Hurlbut figured the brand could capitalize on its celebrity status by selling packaged meats in grocery stores, a market long dominated by processed-food giants.

Niman began by pitching boutique supermarket chains such as Trader Joe's and Whole Foods Market (Research) that were known for natural products. Niman's salami, bacon, and all-beef Fearless Franks were immediate hits. Its processed foods are now sold in supermarkets nationwide, accounting for 60 percent of the company's total sales.

Because the majority of its packaged products are made from pork, Niman had to ramp up its hog production at warp speed to meet demand. Working with an Iowa farmer named Paul Willis, Niman ultimately recruited a network of more than 500 Midwestern hog farmers, who signed contracts to raise pigs according to Niman's strict protocols.

As with its cattle ranchers, Niman pays the pig farmers a premium of a few cents a pound over the commercial wholesale price and guarantees a floor price if the hog market crashes. In 2001 the vast supply chain allowed Niman to ink a megadeal to sell pork to Chipotle (Research), a 480-restaurant fast-casual Mexican chain that is now the second-biggest buyer of Niman pork, after Whole Foods.

Of course, now that Niman has made natural meat mainstream, a new herd of alternative ranchers is vying for the company's shelf space. To make matters worse, the same grocery chains that powered Niman's success now want to eat its lunch: For Country Natural Beef, a brand sold at many of its butcher counters, Whole Foods even recruited a network of farmers who raise cattle according to protocols similar to Niman's, and both Trader Joe's and Whole Foods have launched their own natural lines of bacon, sausage, and other processed meats.

It's an effort to cut out the middleman--or, more to the point, to enjoy the middleman's cut for itself. "I guess in a way it could affect Niman's sales," says Steve Keville, national meat buyer for Whole Foods. "But the overall goal is to get more producers growing animals the way they should be."

After years of expansion, Niman is feeling the pinch. The company's profit margin is down to two or three percent, having peaked in the double digits in 1996. But Bill Niman has big plans to keep his company at the top of the food chain. In January he was recruiting high-end meat processors in Eastern cities including Atlanta, Boston, and Washington to act as regional distribution hubs. That would allow Niman to ink more deals with national chains like the one it has with Chipotle.

Yet despite the hard-charging business practices, Niman himself retains a whiff of his original hippie demeanor. He lives in a modest four-room farmhouse on his original Bolinas ranch, and he still sees himself as the leader of a social movement that took root in the 1970s.

"It was a time of unequaled optimism," he says. "We all believed that we could create a better society." It might not be his vision of utopia, but Niman did change the world: Thanks to him, fewer people buy meat by the pound, and more buy it by the brand. Top of page

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.