Dawn Thilmany McFadden, Wendy Umberger,and Joshua Wilson

Colorado Homestead Ranches is one of a number of emerging value-added agricultural enterprisesexploring the use of direct marketing to improve profitability and manage the risk inherent incommodity markets. This case study presents the market analysis and marketing channelinformation they used in developing a strategic marketing plan that includes a focus on consumerinterest in production practices, willingness to pay for differentiated beef products and foodpurchase behavior as they explore further expansion of their business. Students are encouraged toconsider targeted marketing strategies and the advantages and disadvantages of various marketingchannels available to value-added producers.

As Steve Kossler and Chad Campbell, two of the partners in Colorado
Homestead Ranches (CHR), returned from the Saturday Aspen farmers
market, they discussed the increasingly strong sales garnered at the Saturday
market. The farmers markets they had joined in their market area, Aspen and
Glenwood Springs (see figure 1), had allowed them to significantly grow their
sales compared to when they sold freezer beef. Previously, most of their
promotion had been through word-of-mouth recommendations from existing
satisfied customers. The farmers markets had provided good returns to their
investments in beef production and marketing (table 1). Still, Steve and Chad
wondered how many years they would need to sacrifice their Saturdays to
attend the farmers markets. They hoped that their local reputation, personal
relationships with customers, and new product lines developed in response to
their customers’ requests would allow them to develop other profitable, less
time-intensive marketing channels.

• 
  Dawn Thilmany McFadden is a professor at Colorado State University.
  
• Wendy J. Umberger is a senior lecturer at the University of Adelaide.
  
• Joshua Wilson is an economist at the USDA Forest Service.

Figure 1. Colorado Homestead Ranches (CHR) direct marketing area

marketing area

gaining access to a larger metropolitan consumer base such as the Grand
Junction or Denver markets.
The ability to retain a higher share of the sales price, develop additional loyal
customers, and learn more about consumer preferences are all reasons that an
increasing number of farmers are participating in farmers markets (Agricultural
Marketing Service, http://www.ams.usda.gov/farmersmarkets/). In 2000,
19,000 farmers reported selling their produce only at farmers markets, and 69%
of those farmers sold through retail and wholesale markets. In the case of CHR,
farmers markets helped them keep their gross margin (revenues less the costs of
good sold) relatively high at over 75% (see the summary of 2002 financial
returns provided in table 1).
Financial returns at the Homestead Market were not as high as those obtained
from sales at farmers’ markets. This was primarily because of the higher labor
and overhead costs of running a retail store (table 1). Another option Steve and
Chad discussed was the idea of partnering with existing food brokers,
distributors, or retailers. Initial investigation of pricing through these channels
indicated that with a 50–70% retail or wholesale mark-up of the products’ value,
the gross margin for CHR would drop to 30–50% of the retail meat price. Still,
little investment beyond processing would be needed if wholesale relationships
were used. Furthermore, the potential for a large increase in sales volume might
justify the tighter margins (i.e., turnover would likely increase enough to justify
lower returns per pound).
Throughout the United States and Colorado, numerous new business
ventures are forming that involve horizontal and/or vertical alliances among
livestock producers, processors, and other members of the red meat supply
chain. The goal of these coordinated farm-to-retail supply chains is usually to
garner either a price premium or a more loyal customer base through targeted
marketing of unique product positions to consumer segments. CHR has
successfully established itself in a local niche, but they believe their goal to
market all 1,400 head of cattle raised by the owner ranches may necessitate a
new strategic market plan including a wholesale marketing channel to augment
the direct sales secured form their current niche business. After years of direct
marketing experience, CHR’s owners had good instincts and insight, but they
knew more in-depth consumer research was essential for future planning.
The U.S. Department of Agriculture’s Rural Development Agency offers a
Value-added grant program that CHR applied for in 2003. They used the grant
to fund technical assistance from Colorado State University (CSU). On behalf of
CHR, CSU conducted a consumer survey of 412 Colorado consumers in 2004.
The data were collected during April 2004 by the National Family Opinion
(NFO) research group using an online survey to obtain a sample comparable to
U.S. Census figures (U.S. Census, 2000). The survey did have more responses
from females since the questions were asked of the primary grocery shopper.
CSU researchers chose to employ market analysis methods often used by
larger food businesses to determine market segments. Consumer respondents’
demographic characteristics, shopping behavior, willingness to pay for local,
natural beef products, and their attitudes toward a variety of meat product
attributes were used to segment consumers. The rest of the case includes
additional company background information, an overview of CHR’s current
marketing strategy and competitive analysis, a summary of the consumer
segmentation research, and a discussion of potential future positioning
strategies. Thus, the following information is designed to help students address
the case discussion questions that are posed at the end of the case.

Company Background

CHR began in November of 1996 as a group of five ranches from the Western
Slope of Colorado, including Chad and Steve. They are organized as a C
Corporation with equal equity and unpaid labor and management
commitments among the members. These producers formed CHR with the goal
of providing and marketing a healthy and high-quality beef products directly to
the consumer. The primary financial objective of this enterprise is to return a
premium (up to $1,400 per head) to each member for cattle marketed through
CHR. Some profits have been retained to provide the equity capital necessary to
run and further develop processing, marketing, and retailing activities. Beyond
the expected revenue and equity gains from integrating added value into their
beef products, CHR also seeks to manage the risk inherent in livestock price
cycles through a fixed return to participating ranches.
The current strategic position of CHR is marketing of a niche, differentiated
line of beef products that are targeted at consumers who want a consistent
quality product, raised on Colorado ranches, with natural production practices.
CHR operates primarily as a marketing enterprise for the owners’ ranches. The
individual ranches are responsible for all cattle production activities, and the
owner of each firm (ranch) prefers to maintain individual ownership of their
primary assets and wealth. Furthermore, each CHR member has a set of
responsibilities. Karl Burns is responsible for financial oversight. Norm Smith is
responsible for general management of direct marketing activities. Jim Ayer is
responsible for coordinating production activities and Chad Campbell
coordinates the value-added product processing. Susan Smith and Susan Ayer,
wives of Norm and Jim, respectively, are the retail managers of the Homestead
Market. Finally, the President of CHR, Steve Kossler, provides general
management for each segment (production, processing, and marketing) of the
CHR operation.

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