From the Ground Up - McCain Foods Limited

Michael McCain, 1993.
For all its efforts in the juice business, McCain never
lost sight of its goal to become a big player in french
fries in the United States. The original base in northern
Maine had distribution advantages, but because of
the agronomic limitations of the region and the processing
technology of the time, french fries produced
there weren’t yet up to the standards of those produced
in the western United States. McCain’s first expansion
outside the Northeast came in 1988 when it acquired
potato baron Pete Taggares’s French fry operations in
Othello, in the prime potato-growing area of eastern
Washington State, and in Clark, South Dakota. The following
year, McCain spent $35 million to expand the
Othello plant.
Earlier in 1988, McCain had lost out on a chance to
become a major force in french fries overnight when
Lamb Weston was put up for sale by its owner, Amfac. Wallace McCain, Tim Bliss,
and Carl Morris toured all the Lamb Weston plants and recommended making a bid.
However, Harrison did not think McCain had the management strength to absorb a
company as big as Lamb Weston. And so, McCain did not make a competitive bid for
Lamb Weston, and it went to ConAgra instead.
When Michael took it over in 1991, the U.S. business had just absorbed the western
U.S. plants bought from Taggares. Michael was eager for more. The industry had added
capacity, causing many competitors to favour volume over profit margins. Michael
and his team proposed acquisitions that would have given the company the scale and
product portfolio it needed to be competitive. They wanted to buy factories owned
by Nestlé and another owned by Universal, which had an excellent assortment of innovative
potato products. But, because of opposition from Harrison, these deals were
not made.
As a result, McCain remained largely unknown in the United States, struggling to
be profitable. Much of its sales were in the lower-priced private-label segments of the
market. The more profitable premium market was still dominated by the big three.
Michael McCain summarizes the problems in McCain’s U.S. potato business at the
time: “Low scale, no brand, poor product and customer mix, and many operating
problems. Lamb Weston was mauling us in the marketplace. It had the brand, and it
had a product mix that was giving it enormous advantage. Forty percent of its sales
were in the new battered potato products and curly fries, with margins we believed to
be exceeding 40 or 50 percent.”
Lamb Weston was making so much money in the specialized segments that it
could afford to be very competitive in pricing to protect its volumes in the conventional
segment of the french fry market. “It had a classic mix advantage over us,” says
Michael. “Customer mix, product mix, and brand mix.”
Michael McCain has a well-deserved reputation as a hard-driving executive
who hates to lose. From McCain’s U.S. headquarters outside Chicago, he and his
team worked hard to build good relations with his customers. One of those customers
was McDonald’s. Michael established friendly relationships with members
of the McDonald’s management team. As Frank van Schaayk observed later, it
was Michael who “turned the corner” for McCain with McDonald’s for its North
American business.
He also designed the landmark Argentina deal with McDonald’s, that Wallace
completed in 1993: an open price calculation with an agreed return on investment for
McCain for a period, to entice McCain to build a plant in South America. (An open
cost calculation is sometimes agreed to by a buyer and seller for a new product for
which there is no historical cost of production or distribution. In this case, McCain
required that all its costs plus a pre-agreed profit margin be guaranteed before it
would build a plant. McDonald’s thus had an incentive to buy more because a higher
production volume would reduce the cost per unit.)
After almost five years at the helm of the U.S. business, Michael was fired by
Harrison, in the wake of the split between the brothers, after which the Wallace
McCain family acquired Maple Leaf Foods. Michael’s new job was as the chief
172 f rom the Ground up
south of the border 173
LEFt: Tony Allen (centre) of
Allen and Kidd Farms receives
the 2004 McCain Idaho
champion potato growers
award; here with Laurie
Jecha-Beard, vice-president of
agriculture for McCain Foods
USA, and Jerry Swisher, field
representative for McCain
Foods USA, in Burley, Idaho.
RIGht: Field manager Doug
Nelson in Basset, Nebraska,
2000.