http://www.smartmoney.com/smartmoneyTV/?bcpid=24560524&bclid=86208574&bctid=18754640001
The Man Behind a Meat CrazePAT LAFRIEDA was 22 years old when he took over the family meat business, Pat LaFrieda Wholesale Meats. But instead of running the business the same way his father and grandfather did before him, the third-generation owner has become a key player in the gourmet hamburger movement - supplying custom meat blends to some of New York's best-known restaurants and working with such big name chefs as Mario Batali, Danny Meyer and Laurent Tourondel.
But now LaFrieda faces a new set of challenges. Upscale food - even when it's just a fancy burger - can be a luxury in a down economy. The recession has hit some of his biggest customers in the restaurant industry, forcing some to shut their doors or fall behind on payments and threatening his thin profit margins. And then there's another threat looming: concerns about the health risks associated with eating red meat, which recently made headlines after a study showed it may boost the odds of death by cancer or heart disease by as much as 30%.
LaFrieda continues to rely on a strategy that has helped him build the business over the past 15 years: Offering individualized attention and made-to-order products to his customers. Not only does LaFrieda often answer customers' phone calls himself, but he also creates exclusive, customized meat blends for them and honors even the most specific or last-minute requests. “My customers have my cellphone number,” says the now 37-year-old LaFrieda. And if a chef calls and needs something on the fly? “We never say no," he says.
Chef Riad Nasr at Minetta Tavern likes his LaFrieda steaks an inch and a half thick and nicely marbled. Burgers at Henry Archer Meer’s City Hall Restaurant and chef Tourondel’s BLT Burger owe their taste to LaFrieda's chopped meat hamburger blends. And Batali wouldn't be able to make one of his favorite ravioli dishes without LaFrieda’s selection of beef and pig’s cheeks.
Batali, who owns 15 restaurants, says he has worked with the LaFrieda family since 1993, purchasing about $1.7 million to $1.8 million worth of meat a year. Once, he ran out of veal breasts at his former restaurant, Po, at 4 p.m. on a Sunday and called LaFrieda. LaFrieda cut the meat and delivered it himself within twenty minutes. “He is all about service and product,” says Batali.
That approach has helped push Pat LaFrieda Wholesale Meats into the black. The company earned roughly $4 million in profits last year. While he won't disclose specifics on what he expects this year, he says annual sales run about $40 to $45 million a year. The company now slices, grinds, packages and delivers 300,000 pounds of meat a week to hundreds of hotels and restaurants.
The business started gaining momentum five years ago when Danny Meyer and David Swinghamer, the owners of Manhattan barbeque eatery, Blue Smoke, sat down with LaFrieda to discuss a new dining venture called the Shake Shack. Their plan: to elevate the common hamburger from a fast food staple to higher-quality fare that diners would go out of their way for. LaFrieda created a special chopped meat blend made of top-tier ingredients. “He created a blend that’s made us all famous,” says Randy Garutti, Shake Shack's managing partner. (Shake Shack just opened its third location.)
Restaurants across the city soon came calling for the Shake Shack blend, says LaFrieda. But keeping to his exclusive agreement with the owners, he wouldn't share the famous burger blend's recipe. Instead, he started inventing new ones. Today, the company supplies 40 exclusive burger blends to restaurants in New York, Chicago, Las Vegas and Miami.
When LaFrieda first took over the business from his father, Pat LaFrieda II, in 1994, it was bleeding cash. The company was struggling to compete with billion-dollar food companies like Sysco (SYY) and U.S. Foodservice, as well as local cattle farms that were supplying meat directly to restaurants. “When you lost one smaller account, it affected you,” says LaFrieda.
To attract more customers, LaFrieda slashed prices and ramped up operations. He brought his company’s gross profit margins down to 8% and 10% from 12% and 15%. When his father ran the show, the business opened at 4 a.m. and closed at 3 p.m. five days a week. Now it operates 24 hours a day, six days a week and LaFrieda has expanded the staff to 45 from five. In fact, he's now squeezed for space and building a new 24,000 square-foot warehouse in North Bergen, N.J. He plans to lease out 3,000 square feet, or one-third, of the company's existing facility in Manhattan's West Village so he can earn $10,000 a month to put toward tolls, gas and other delivery costs. (Sotheby's currently has the building listed for sale for $31 million, but LaFrieda says he has no intention of selling.)
Cutting the profit margins so thin was a huge risk -- one that has been heightened as some of LaFrieda's restaurant customers struggle to stay afloat. While it’s normal to lose about two clients a year, these days many more seem to be on the verge, he says. Just after Christmas, four or five of LaFrieda’s customers were forced to shut their doors. Some longtime customers failed to pay up, he says. “When you’re working on 8% to 10% profits and then a restaurant owes you $10,000 it can be rough."
There's also a potential PR hurdle to overcome. The Archives of Internal Medicine recently released a study of 500,000 older Americans that found that those who eat more than four ounces of red meat each day were about 30% more likely to die of heart disease or cancer over the course of a decade than those who ate less. The study made headlines in major news publications such as the Washington Post, the Los Angeles Times and the Seattle Times, as well as on CNN and CBS News.
Despite the media frenzy, LaFrieda says he isn’t worried. “Those studies are nothing new," he says. "There are plenty of things out there that are far worse than red meat." Even if restaurants did begin ordering less red meat, LaFrieda says he’s still cushioned: “When demand for red meat goes down, poultry, pork and veal goes up.”
The guys behind Pat LaFrieda Wholesale Meats (From left: Mark Pastore, Pat LaFrieda II and Pat LaFrieda III) display some of their famed chopped beef burgers.
Your name: Patrick LaFrieda
Name of business: Pat LaFrieda Wholesale Meats
Year founded: 1922
Business type (industry): Wholesale meat purveyors
Location: New York
No. of employees: 45
Web address: www.lafrieda.com
Where do you look for business advice?
My father is my primary source of knowledge and advice. However, I am lucky to have other great family members like my godfather to rely on as well. I’ve also made many friends in the industry who continue to inspire me. Not only are they always willing to lend advice, what they have to say really counts as they’ve proven their abilities time and time again.
What do you know now that you wish you'd known when you started?
I wish I would have known earlier that a small business is very powerful. When I began in this business, there were many perceived roadblocks. We always felt as if we had limitations as far as who we could buy from and who we could sell to. None of that was true.
What's the smartest move you've made so far?
Making my company run 24 hours a day and training employees to do tasks that I thought only I could do.
What's the best business book you've read so far?
If I had time to read a book, it wouldn't be about business.
In brief, how did you fund the business initially?
I was lucky enough to take over an existing business from my father, so funding was not an issue. When one grows slowly, it is possible to fund from within.
And extra credit When/where was your last vacation?
My last vacation, besides my honeymoon six years ago was a trip to London 12 years ago. It’s often difficult for a small business like mine to function unsupervised for too long.
A bit of advice for those small-business owners trying to make it: Take advantage of your weekends.
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