A casual observer might believe Koch Foods is associated with Koch Industries and the billionaire Koch brothers, but it is actually an unrelated and unaffiliated company. Nonetheless, the poultry processor today brings in $3 billion in revenue and was ranked No. 163 on Forbes' list of most valuable private companies as of October 2014. The company was founded in 1973 by Fred Koch (no relation to the famous family) and later sold to Joseph Grendys.
Koch (pronounced "cook") Foods was a tiny operation through its early years, just a one-room deboning facility with fewer then 15 employees when Grendys joined the company in 1984. Grendys at the time jumped at Koch's offer of a 50% equity stake in the business; in 1992, Grendys purchased the remaining half of the company and focused on expansion.
Grendys succeeded by shifting the company's focus to processing boneless chicken breasts for restaurants and food-service businesses when that menu item was just beginning to become popular.
He also took advantage of low valuations in the poultry industry, caused in part by avian flu scares, and went on a shopping spree. His first acquisition was Aspen Foods in 1995, and later in the decade the company acquired two kill plants and two deboning facilities. He also picked up smaller poultry processors such as B.C. Rogers and Sylvest Farms in the 2000s.
Koch Foods was the last company to become one of the nation's five fully integrated poultry processors. It surpassed $1 billion in revenue in 2004 and has continued to grow with the help of further acquisitions.
Koch Foods is not a publicly traded company so its financial results are not known. However, based on the price-to-sales ratios of publicly traded peers Tyson Foods and Pilgrim's Pride, we can estimate a valuation in the $5 billion range for Koch Foods.
Today, Koch has made CEO Joseph Grendys a billionaire as he still owns nearly the entire company, though CFO Mark Kaminsky holds a small portion too. On Forbes list of the richest Americans, Grendys ranks No. 261, though he still lives relatively modestly in the Chicago bungalow where he grew up and drives a beat-up old Cadillac.
Catching air on a flightless bird
Koch Foods' growth was helped by the growing popularity of chicken. Today, the average American consumes 87 pounds of chicken each year, or more than a quarter of a pound per day, up from 51 pounds of chicken per year when Grendys joined the company. That increase in chicken consumption has grown as America's appetite for beef and pork have subsided.
Koch's customers include some of the biggest players in the food business. It provides buffalo wings, chicken strips, and other products, to Wal-Mart; chicken nuggets for Burger King; and also processes nuggets for large supermarket chains including Kroger and Aldi.
Grendys would like to continue to expand through acquisitions, but the industry has been on an upswing lately so most competitors aren't looking to be bought by major players. Grendys has also considered diversifying into other proteins such as beef or pork.
It hasn't always been easy for Koch Foods and Grendys, however. In 2007, an immigration raid at a company plant in Ohio resulted in the arrest of 161 people for being in the country illegally and a fine of over $500,000 for Koch Foods. More recently, an animal rights group released hidden-camera footage showing chicken abuse at plants in Mississippi and Tennessee, though Koch did not respond to the allegations.
Despite the speed bumps, there's no doubting the success of Koch Foods. Each week, the company now processes 12 million chickens and more than 50 million pounds of ready-to-cook chicken. Not bad for company stared by a man with one room and three employees.
Jeremy Bowman owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.