For the past 8 years, Meridien Export and Packing, Inc. has been shipping smoked turkey drumsticks and mini corn dogs to Japan and Korea for distribution in amusement parks – Tokyo Disney, Universal Studios Japan in Osaka, and Samsung Everland Park in Seoul, Korea. The company owns proprietary marinade formulas developed internally for each of the Parks using a production know-how. Meridien also owns the registered trademark “Piedmont Country Club” used for shipment of all its products to Japan and Korea.
Until recently, Meridien’s business model called for placing all orders with third-party co-packing facilities in the South East Region while providing these facilities with raw materials, which Meridien purchased from local turkey producers. The company would then monitor the quality of goods and pick up finished packed goods to arrange export certification and transportation to final destinations, being the shipper-on-record.
The owners of Meridien have determined the time is right to consolidate its commercial activity with production of finished products under similar ownership. Such consolidation will allow the company to increase its profit margin and provide control over quality and volumes.
The owners of Meridien have founded Integra Foods, LLC, using an existing facility in Bladenboro, North Carolina with which Integra can start operating immediately on a lease-to-buy basis. Production began January 2020.
Meridien owners have been considering this strategy for several years, and recent events related to their suppliers made this the ideal time to begin. Previously, as demand grew, Meridien concentrated on getting more co-packers to fulfill demand for their product. In 2018 and early 2019, there was a sequence of events which triggered a decision:
Hurricane Florence caused Meridien’s co-packer, Villari Food Group, to cease operations for 2 weeks. When they resumed operations, they were forced to focus on their own backlog, rather than fulfill Meridien’s orders. As a result, Meridien was unable to supply product between September 2018 and February 2019.
Late 2018, Meridien agreed to co-pack with Zachy Farms in California. After months of preparation and an initial shipment of hen drumsticks, Zachy went out of business and was unable to fulfill orders.
Early 2019, Meridien agreed to co-pack smoked legs with Stahlmeyer in Florida. After several months of preparations, Stahlmeyer packed ½ of a container before determining that the project was not efficient for them, ultimately discontinuing service.
These events have spurred the owners of Meridien to pursue vertical integration through the founding of Integra. This will allow Meridien and Integra to maintain stability required to meet customer demand without interruption.
Business Relationship Chart
Below is a chart depicting the realtionships between each of the related parties.
The companies provide a unique mix of products with the experience to appeal to a variety of clients:
Individually sized and calibrated female turkey drumsticks: The Company is not aware of anyone else in the United States that provides this product. Additionally, the flavor formula has been designed by Meridien to meet customer specifications and is a trade secret known only to Meridien and its co-packers.
Smoked Pork Loin: The Company has received a co-packing agreement to begin injecting and cooking pork loins two days a week for Villari Foods in late August 2020.
Rotisserie Turkey Breast and Thigh (testing phase): The Company has begun sending Rotisserie Turkey in three different flavors - traditional rotisserie, barbeque, and New Orleans – to Costco for taste testing.
Ground Turkey (research phase): This product is being researched by management as a way to generate revenue from broken, mis-sized, or mis-cooked turkey that does not meet quality standards.
The Bladenboro Plant (Integra Foods, LLC.)
Integra Processing’s facility is in the heart of NC poultry industry. The location allows regular fresh turkey legs deliveries from a choice of reputable long-established North Carolinian and nearby poultry factories. The plant began operations at the end of January.
This plant was chosen for a variety of reasons including but not limited to:
Close Proximity to shipping and exporting locations:
US Cold Storage (3 miles)
Secondary Cold Storage (68 miles)
Export Gate 1 – Port of Wilmington, NC (68 miles)
Export Gate 2 – Port of Norfolk, VA (210 miles)
Export Gate 3 – Port of Savannah, GA (320 miles)
Adequate wastewater and power capacity of town of Bladenboro
Economic incentives offered by the Government of Bladen County, NC Department of Commerce and USDA Existing Refrigeration
Production is planned for 1.5 shifts 5 days a week. For reasons of conservatism, production is kept at a constant rate over 5-year period. Expanding production into 6-day week and 2 full shifts provides almost double growth figures.
Based on the production schedule, the company plans to produce the following volumes:
Average Production & Sales Volumes (per month)
Plant Process Flow
Integra Foods is a manufacturer with in-house sales and logistics. Management has invested significant R&D into its marinade formula and production know-how.
General production flow is presented below:
Plant Process Flow Continued
Production Plant Diagram
Meridien’s primary customer for many years has been Tohzai Sangyo Boeki Inc. (“Tohzai”), a Japanese importer which imports the product to be distributed to Tokyo Disney, the end-use customer. Integra will initially produce up to 4 containers (of the required 6) for sales to Tohzai.
Tohzai Sangyo Boeki Inc.
Tohzai Sangyo Boeki, Inc. is a Japanese company that offers importing and distribution of turkey products and livestock, as well as supplying poultry farming equipment and meat processing equipment. Founded in 1953, Tohzai has grown its poultry livestock and equipment operations through import services from the US and EU and has contributed to the development of the Japanese poultry industry’s modernization and to the increase in demand for animal protein in Japan.
The Tokyo Disney Resort, comprised of Tokyo Disneyland and Tokyo DisneySea, is an amusement park located near Tokyo, Japan and owned by The Oriental Land Company, Ltd. (“OLC Group”, TYO: 4661). Tokyo Disneyland was the first Disney park built outside the US in 1983 and was built in the same style as the parks in Florida and California. Tokyo Disneyland and DisneySea are also the only Disney parks of which Disney has no ownership. Tokyo Disneyland attendance in 2018 was 17.9MM, up from 16.6MM in 2017 and 14.8MM in 2012.
OLC Group licenses characters and likenesses from Disney for its theme park business segment. It also has a hotel and other business segments. OLC Group is 22% owned by Keisei Electric Railway (TYO: 9009), which currently has a market cap of $741 billion and generated revenues of $2.5 billion for the 12 months ending September 2019.
Additionally, Integra will begin co-packing smoked pork loin for Villari Foods in late August. This source of revenue is expected to continue until year end of 2020, but the Company believes this to be a seasonal source of income in years to come.
Other Potential Sources of Revenue
Additional sources of revenue can be found in a) growing the customer base for Integra’s products, both domestically and internationally, b) entering into co-packing agreements with larger US brands, and c) looking into producing additional turkey-based protein products, such as turkey sausage.
Co-Packing Revenue – in a co-packing arrangement, Integra would receive product from another company and process it, charging a fixed processor’s fee per lb. This is a very common and stable revenue generator for many other similar companies in the industry. Potential co-packing partners include, but not limited to: House of Raeford Farms, Butterball, Cargill, and Jennie-O. Integra’s injection line and smokehouse is capable of processing a wide variety of products, ranging from chicken wings to injecting whole turkeys. Integra’s equipment allows us to produce naturally smoked and roasted product.
Growing existing customer base – Meridien’s sales team will pursue other international amusement parks and convenience chains, adding additional customers to the flagship product line. Immediate opportunities for growth exist in Singapore, People’s Republic of China, Hong Kong and the Middle East. Being able to source Halal certified turkey drumsticks allows the Company to target buyers in Singapore, Hong Kong and UAE. It was impossible for the owners of Integra to approach these markets before.
Domestically, Integra has begun producing rotisserie turkey products for Costco to taste test in an effort to diversify sales avenues in their business. Should this partnership become fruitful this will increase sales without the need for additional machinery or packaging material as the Company is able to capitalize on this opportunity without additional resources invested.
The following are management projections of demand for Meridien’s product. For 2019, Meridien was unable to meet this demand due to lack of co-packing capacity. The 2019 bar for Japan represents approximately 4 containers per month sold to Tohzai, which is the amount of capacity that Integra projects to achieve on a single shift each day. Additional capacity could be met through additional shifts at Integra or through Villari Foods co-packing.
Over the last five years the chicken and turkey meat production industry has seen positive trends in demand-side variables and a near constant demand. Over the next five years, to 2024, the industry expects to have conditions remain relatively consistent. Trends point to more consumers turning towards the white meat of poultry as an alternative to red meat such as beef or pork due to an increase in the health consciousness among consumers. Despite pricing for these poultry products dipping over the last five years, prices are projected to rise slightly as 2024 approaches.
Management Projection of Demand
Historical pricing for whole turkeys (which drives pricing of individual components) hit a peak in 2016, before dropping in 2017 and 2018. Prices were back up slightly in 2019. Pricing between Meridien and Integra, and subsequently between Tohzai and Meridien, are determined by a pricing matrix based off the raw materials input cost, which provides protection to both Integra and Meridien if input prices continue to grow.
Market for Chicken
In the event that Integra receives a bad order of turkey legs or hits an unforeseen lull in turkey sales, Integra will be purchasing chicken products from Mountaire Farms to be cooked and sold mostly to domestic buyers. Integra’s Japanese clients, such as Tohzai Sangyo Boeki Inc., have also expressed interest in their chicken products.
It is clear to see that for the last 6 decades, the increase in the demand for chicken has been extremely significant. Chicken went from roughly 15% to 48% of the share of meat consumption. Chicken consumption is forecasted to continue this growth and take over a majority share of the meat consumption market.
Along with an increasing demand for chicken, the price per pound of chicken has been rising on average since 1960. These prices are expected to continue this increasing growth.
Integra will use their chicken products as a secondary or back-up source of income. This is expected to be profitable given the circumstances of the market laid out above. Integra will be using the same equipment and process for the chicken as they do with the turkey. There are no additional expenses to including chicken products, other than the cost of purchasing the chicken from Mountaire Farms.