Monday, September 24, 2007

Omaha Steaks Success Story

Based in Omaha, Nebraska, Omaha Steaks International Inc. manufactures, markets, and distributes premium cuts of beef, as well as pork, lamb, poultry, seafood, desserts, and kosher items. It also markets food seasonings and a series of cookbooks. Best known for its mail order business, Omaha Steaks has always been quick to embrace new technologies, such as the Internet, which the company began to use as early as 1990. The company has 1.6 million active customers. Meats are flash frozen, shrink wrapped, and then shipped in insulated coolers packed with dry ice. Omaha Steaks also sells its products to food service customers (high-end restaurants and hotels), to corporations through an incentive program, and in more than 70 retail stores bearing the Omaha Steaks name. In addition, the company sells entire meals through its A La Zing subsidiary, a separate Web business, and licenses its name to six restaurants, dubbed Omaha Steakhouses. Omaha Steaks is owned and operated by the fourth and fifth generation of the Simon family.

Company Founded in 1917

Like many immigrants, the first two generations of the Simon family, J.J. Simon and his son, B.A., came to America to escape religious persecution. They arrived in 1898 and after passing through Ellis Island took a train west in search of a place to settle. They chose Omaha because it reminded them of the farmland they had left behind in Riga, Latvia. Experienced butchers, they worked for nearly 20 years for other people. Then, in 1917, they struck out on their own, buying a carpentry shop in downtown Omaha to house a business that cut cattle carcasses. Sheer frugality led them to name their venture "Table Supply Meat Co." The prior establishment had been called "Table Supply Company." By abbreviating "Company" to "Co.," they were able to insert "Meat," thus avoiding the cost of adding an entirely new sign to the front of the building. The area restaurants and grocers could not have cared less about the name of the business, as long as the Simons were able to them with high quality, grain-fed cuts of beef--loin, ribs, boneless strips, and rib eyes.

Table Supply grew steadily, and by 1924 the Simons were able to move their operation to larger accommodations, although they opted to retain the name inherited from the old carpentry shop. They were also able to establish their own cattle-breaking operation to further ensure quality, allowing a crew to cut full cattle carcasses on the spot. The result was uniform cuts of meat that Table Supply was then able to sell to higher-end hotels, restaurants, and other institutional customers, as well as to the national grocery chains that were beginning to take shape across the country. In 1929, a third generation of the Simon family, B.A.'s son Lester, became involved in the business. He took over as president in 1946 and guided Table Supply through the next stage of its development.

Union Pacific Railroad Spurs Growth in the 1940s

A major development during the 1940s was the decision of the Union Pacific Railroad to serve Table Supply beef in its dining and private cars that traveled from Omaha to the West Coast. Leaving nothing to chance, Lester Simon personally selected the cuts to be sold to Union Pacific. As a result, Table Supply's reputation for providing top quality beef was spread ever wider, so that soon hotels and restaurants around the country were inquiring about becoming customers. The focus of the company now shifted from cutting to marketing, as the Simons recognized that consolidation was taking place in the beef breaking business and it was time to change strategies. In 1952, the first mail order operation was launched to serve distant customers. The meat was shipped in wax-lined cartons filled with dry ice. It was not until the early 1960s that polystyrene shipping coolers and vacuum packaging became available. The rise of direct parcel shipping was also a boon to the marketing efforts of Table Supply. Moreover, the company's reputation for quality continued to grow. In 1961, Nebraska Governor Frank B. Morrison sent steaks from Table Supply to President Kennedy and all of the governors in the United States. In that same year, Table Supply was honored to be involved in the Culinary Olympics held in Frankfurt, Germany, at which the United States team won the Grand Gold Prize with a dish that featured aged prime ribs of beef provided by Table Supply, thereby earning an international reputation for the Omaha company. Table Supply's cuts of beef would be shipped around the world to be enjoyed at the dinner tables of heads of states and other dignitaries.

Table Supply mailed its first direct mail flyers and catalogs in 1963. After just a year, the catalog was enhanced from simple black and white to color and presented an expanded offering of the company's products. In 1965, Table Supply launched an incentive division and began to build a nationwide network of representatives to help businesses create and implement promotion and reward programs. Eventually the division would publish its own catalog and, with the rise of the Internet, create its own Web presence. This market proved so lucrative that in time one-quarter of the company's business would take place in December, the month when many corporations gave food to their employees as holiday gifts. Business was so strong that in 1966 Table Supply built a new headquarters and plant that attracted visitors from around the world interested in the state-of-the-art facilities. The company also took the opportunity in 1966 to renamed itself, becoming Omaha Steaks International Inc..

To fuel further growth in its mail order and catalog business, Omaha Steaks was always in the vanguard of adopting the latest technology. In 1975, it opened an inbound call center, offering a toll-free telephone number to take catalog orders. Three years later, an outbound telemarketing operation was launched to contact current customers. The company did not, however, engage in cold calling. In 1979, a toll-free customer service line was added to the system. Then, in 1987, an automated order entry system was implemented. Omaha Steaks' catalog and telephone system was finely honed in the years to come. A complete catalog would be mailed to customers three times a year and solo mailers were sent out as often as once a month. Order forms came pre-addressed and coded to increase the efficiency of processing orders. Telephone representatives were given a full week of training on the products Omaha Steak had to offer, making them "steak experts" who were able to explain to customers the difference between various cuts of meat. During the rush of a holiday season, in fact, everyone at the headquarters would be commandeered to work the phones and take orders.

Omaha Steaks first became involved in retail operations in 1976, when it opened a store in Omaha at 79th and Dodge Streets. Over the next several years, other stores opened in Nebraska. It was not until 1985, though, that the company ventured beyond the state, opening a retail store in Houston. Over the next 20 years, more than 60 additional stores opened in Arizona, Connecticut, Florida, Georgia, Illinois, Maryland, Michigan, New Jersey, New York, Ohio, Pennsylvania, and Virginia. Texas had the most with 11 (three in Houston alone), followed by California and Florida with nine each.

As was the case with telecommunications, Omaha Steaks was an early user of electronic marketing, starting in 1990 before the creation of the graphic interface and the resulting emergence of the Internet. At that time, the company worked through CompuServe to provide customers with yet another way to place orders. In 1995, Omaha Steaks began to sell on America Online and also launched its own web page, offering an abridged version of its catalog to online customers. The company became part of the Microsoft Network in 1998 and a year later even launched a Japanese web site.

Because of strong growth during the 1990s, Omaha Steaks continually outgrew it facilities. In 1990, a new distribution center was created in a building bought in South Omaha. A 60,000-square-foot facility was built in 1993 to accommodate a number of departments, including human resources, marketing, information technology, and a call center. A building of similar size was opened nearby in 1999 to house the company's corporate and executives offices as well as administrative and marketing functions. In 1994, a new manufacturing plant was built in Snyder, Nebraska. Additional cold storage facilities were added in 1998 and 2000.

In the 1990s, Omaha Steaks made efforts to build on its brand and to achieve some diversification. In 1996, it teamed with HSC Hospitality Inc. to launch restaurants bearing the Omaha Steaks name. HSC was founded in 1990 by Peter Grace III, the son of W.R. Grace, a businessman involved in such restaurant chains as Houlihan's and Del Taco. HSC managed the food service operations at 14 hotels across the country and looked to place the new Omaha Steakhouses in hotels. Under a licensing agreement with Omaha Steaks, HSC would have complete operational control of the restaurants but would use the products of Omaha Steaks' food service division. The first Omaha Steakhouse opened in a Phoenix hotel in the fall of 1996. A larger restaurant would follow in an Embassy Suites Hotel in Charlotte, North Carolina. In 2001, the Kingston Plantation, a Myrtle Beach resort, opened an Omaha Steakhouse. A year later, a unit opened in a Sheraton Suites Hotel in Houston. Two more Omaha Steakhouses opened in 2003, at Embassy Suites' hotels in Jacksonville and Orlando, Florida.

Focus on Corporate Business in the Mid-1990s

Another area where Omaha Steaks focused on growing was its corporate sales unit, which it began beefing up in the mid-1990s. The corporate gift market was appealing, given that the average order ranged from $150 to $500, as opposed to $75 to $125 from the consumer food catalog. However, applying the company's consumer marketing expertise to corporate customers was not an easy task, primarily because corporate gift buyers tended to do business with vendors they had been working with on a long-term basis. Omaha Steaks created a separate corporate catalog, but unlike its consumer counterparts such publications were not geared toward establishing customer relationships. Rather, they were intended to serve the corporate buyers who were already customers. Another difference was that Omaha Steaks had to produce reminder notices, including a list of prior gift purchases, which was standard operating procedure in the market. These notices had to be periodically mailed from August through October to make sure that Omaha Steaks remained in the minds of corporate buyers when it came time for them to actually place their holiday orders. The effort soon began to pay off for Omaha Steaks. In just two years, the company was able to grow its corporate sales by 50 percent.

Omaha Steaks opted to voluntarily recall some 22,000 pounds of ground beef in October 2000 due to possible E. coli contamination, although it was more than likely that all the product from the lots in question had already been consumed without incident. Because it was so dependent on its reputation for quality, however, the company opted to err on the side of caution. It also took steps to ensure safety by introducing irradiation to its production process, whereby the foods were exposed to enough ionized radiation to kill such harmful bacteria as E. coli and salmonella. Omaha Steaks' trumpeting of the irradiation procedure awakened the fears of radioactivity in some consumers. When there was a rash of recalls of ground beef and deli meats across the country in 2002, however, many supermarkets eagerly sought irradiated products to assuage the fears of customers.

Despite poor economic conditions in the early years of the new century, Omaha Steaks continued to grow its business. In 2001, it launched a spin-off Web enterprise named A La Zing to become involved in the growing home meal replacement market. In 2003, the company added 42,000 square feet to its warehouse, greatly expanding its freezer capacity. At the same time, a cold-storage and ground beef processing facility was converted into a second distribution center. Omaha Steaks also continued in its efforts to exploit the power of its brand name, sometimes pursuing unusual avenues. In 2003, for example, it introduced all-beef "snack treats" for cats. In all likelihood, this was the first time that a human food product lent its brand name to a pet item. The company that had been launched in a former carpentry shop, unable to afford a new sign, was now generating more than $350 million a year in revenues and possessed a well known and respected brand name. There was every reason to expect that Omaha Steaks would find even more ways to exploit its brand and achieve even greater growth in the years to come.

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