Executive Q & A: Jim Wegner

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Darigold, which has $2.4 billion in annual sales and 1,415 employees, is the marketing and processing subsidiary of the Seattle-based Northwest Dairy Association, a producer cooperative with 542 member families. Jim Wegner, previously senior vice president of operations in charge of the company’s 12 processing plants, was appointed CEO last year. He was photographed in the test kitchen at Darigold headquarters on Rainier Avenue South.

SCOPE: Most people don’t realize how big Darigold is. We handle 8.74 billion pounds of milk a year and only a third of that goes to consumers as milk. We have a huge export business, accounting for nearly a quarter of all United States exports of cheese, butter and powdered milk. In places like Southeast Asia and Mexico that are hot and humid, cows do not thrive and so the countries have to import milk powder. There is also a growing market in North Africa, where Nestlé, one of our biggest customers, sells little sachets of single-serve milk powder, chocolate drinks and infant formula.

EARLY YEARS: I was raised on a wheat and cattle ranch in Reardan, a small town west of Spokane in Lincoln County. The ranch was originally purchased by my immigrant great-grandparents in 1905. Reardan is a community of people with a strong work ethic trying to build a good life for their families under very challenging circumstances. I used to raise and train cattle to exhibit in Eastern Washington livestock shows. I worked side by side with my father to raise animals. People in the city don’t realize that on a farm you can do everything right but still fail due to things out of your control, like weather or prices.

CAREER: I graduated in food science and technology from Washington State University and went to work at a Safeway processing plant. I had to learn every job in the plant, from cleaning up to pasteurizing. I worked all the night shifts. I can relate well to the people who are operating our plants because I have done a lot of their jobs.

MANAGEMENT STYLE: I try to involve people a lot more to get input from them. We’ve put a process in place where every day we shut the line down and talk about what’s going on. We try to identify problems and talk about what we can do to fix them. It’s a way to bring fresh ideas in. We talk about what are appropriate measures of success and allow people to measure if they are winning or losing. People like to win. They like to think that things are better in terms quality, productivity and safety.

HISTORY: Darigold started in 1918. We now have 542 member families. Over time, smaller co-ops have merged with larger co-ops for greater efficiency. Two years ago, we merged with a co-op in Montana. They had more milk than their one facility could handle. By working with us, they had a [guaranteed] market for the milk. About 30 percent of the milk goes as fresh milk to the grocery shelf. The rest gets converted into cheese, milk powder or butter.

THE MARKET: What’s unique about the dairy industry is that it produces a highly perishable product every day and it is essential to have a place where the milk can be processed every day. Before the [United States] government stepped in to provide some stability, there were times when milk would get dumped because there wasn’t a market for it. Darigold converts the milk into something stable that can be stored and easily transported. As more milk continues to be produced in the United States, more and more of it will have to be exported.

COMPETITION: We’ve improved the science for optimizing the diets [of cows] so that the amount of milk we produce per cow is twice what it is in many places in the world. But it’s difficult for us to compete on price in global markets with countries like New Zealand, because we have a highly regulated pricing system. We pay our producers based on a federal price that’s set based on the domestic price of cheese and milk. We produce a million pounds of milk powder a day and we are often selling it [globally] two or three months out without knowing what we will have to pay for the milk.

MARKETING: We need do a better job connecting our consumers with the producers. One of the big issues in our society is that people are disconnected from where their food comes from. They don’t know Darigold is a producer owned by farmers. They don’t know how sustainable dairy farming is and how significant it is to the state’s economy. It’s second to apples, but the jobs that we provide are year-round jobs. In 2011, Darigold was the first winner of a national award for dairy sustainability. People don’t realize that dairy cows consume feeds like hay and byproducts from cotton production that people can’t digest and turn that into high-value protein. Cows are a very efficient way to produce protein.

NEW MARKETS: As the population gets older, the demand for fresh milk will decline. So how do you find other ways people can incorporate milk into their diets? We have invested a lot of money in technology to do the higher-end products. We just spent $20 million in Boise for a facility to produce cottage cheese and sour cream. We’re looking at products like Greek yogurt that are high in protein. We developed a coffee creamer made with real milk that people love. We produce Refuel, a protein drink that’s good for athletes. We’ve got the only plant in the Northwest that produces ultra-pasteurized milk products that have a longer shelf life, like the single-serve milk cartons used in school cafeterias.

BEING A CO-OP: Having your suppliers be your bosses makes for interesting dynamics. On the one hand, we need to reinvest in new products for long-term growth and stability. On the other hand, the [dairy farms] would like to be paid as much as possible for their milk. Each member of our board of directors represents a region and has occasional meetings with member dairies in their area. In addition, two of the 17 members of our board are outside directors, so they can bring a different perspective. One formerly worked for Goldman Sachs. He was amazed at how complicated the dairy business is.

The Outsider’s Perspective at Bartell Drugs

The Outsider’s Perspective at Bartell Drugs

Brian Unmacht, the first non-Bartell to run Bartell Drugs, knows his mission is to keep the family-owned business relevant in the face of stiff competition.
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Brian Unmacht spent six years working at his father’s drugstore company and, after college, 27 years at REI, before becoming only the fourth CEO in Bartell Drugs’ 126-year history. Now he’s intent on using local partnerships to make Bartell a strong competitor to the national drugstore chains. 

FAMILY: My father had been an executive at the Bon Marché. In the 1970s, he formed his own chain of small drugstores in rural areas. I spent six years in high school and college working for my dad and eventually managed one of his stores. We were a $20 million business and I computerized the record keeping and did the finances and everything. It was a sort of love/hate thing because you could never separate the business from the family. But I appreciate having had a chance to work with my dad. In 1980, 19 percent interest rates and the recession did us in. We had loyal customers, but customers still went for price and selection when grocery stores started competing with us.

TRAVEL: After college, I spent a year backpacking in Nepal and Pakistan and skiing in Europe. When I returned, I had no money, so I went to work for REI. They had seven stores and a catalog and were beginning to expand beyond the Northwest. I managed the Tempe store in Arizona, opened the Chicago store and then worked on the store in Japan as vice president of international. That was an exciting time.

RETAIL: In the ’80s, it was Walmart that dramatically changed retail as it sourced overseas. In the last 15 years, it’s been Amazon. You’re always going to have disrupters. It comes down to how do you keep yourself relevant? In the recession of 2009, the number of paddling and canoe shops in the country dropped to 1,500 from 2,500. With fewer distribution points, vendors like North Face were trying to increase web sales. At REI, our value proposition was to provide expertise and credibility. North Face would give REI an exclusive for a certain time because of that. It was a win-win.

BARTELL DRUGS: I’ve come full circle. Now I am back in the drugstore space. We are up against $120 billion retailers like Walgreens and CVS. How do we find unique products and services that they can’t carry in their 8,000 stores? We offer assortments of local candy like Theo or Seattle Chocolates. We partnered with Snoqualmie Ice Cream to sell our own brand. At our Bellevue store, we offer scooped ice cream. If you go to Fourth and Madison downtown, we have a partnership with Caffé Vita for the espresso, and with other local vendors for sandwiches and other food offerings.

BEER: Bartell always sold beer but it tended to be Budweiser and Heineken. We put in a beverage buyer who had a passion around craft beer and empowered him to form partnerships. Now we have a partnership with Two Beers Brewing Co. to do a Tangerine IPA limited run. Last year, we did Bartell Spring Elixir with Fremont Brewing. We have 150 partnerships with other locally owned firms.

FAMILY BUSINESS: There have only been three top executives [before me] at Bartell’s over 126 years and they were all named George Bartell. Being family owned, we’re part of the community and take the long view. I tell employees that’s not enough to be relevant. There are a lot of family-owned businesses that fail. 

OUTSIDER: The family put together an outside board five years ago to get a wider point of view and I was put on the board. The family recognized there was going to be a gap before the five cousins in the fourth generation were ready to manage the company. That’s why they brought me in as the first outside manager. With revenues of $500 million and growing, management was also getting more challenging. Evelyn Merrill, the oldest of the cousins, is senior marketing manager. She has a lot of good ideas and is challenging the third generation in terms of her view of the brand.

STORES: We have 62 stores. We are talking about adding two to three stores a year. Today, we’re primarily in King and Snohomish counties, but I want to look at Whatcom [County], Bellingham, Poulsbo, Bainbridge Island and potentially farther south. With the Walgreen/Rite Aid merger, some Rite Aid stores will probably be divested. If the right stores came on the market, we would be interested. The Greater Seattle area is still booming, and with more density there is room to put a lot more drugstores in convenient places. 

HEALTH CARE: We do flu shots now, but we are looking at providing other immunizations as well as testing for strep throat or flu so that you don’t need to go to your primary care doctor every time. Because of our concentration of stores in Greater Seattle, our share of the pharmacy business is right up there with Walgreens. It’s important that we have that scale to work with the insurance plans. We had a pilot program to have Group Health clinics in 25 of our locations, and Kaiser [which is acquiring Group Health] seems interested in continuing the concept.

COST OF DOING BUSINESS: I worry that in five years, if Seattle’s not booming anymore, what does it mean if you’ve raised the fixed cost [by raising the minimum wage]? But I worry less about the minimum wage than the growing congestion issue. I have 2,000 employees who live all over the Puget Sound region. We have to move freight around. Congestion is a bigger and bigger issue. 

EXECUTIVE Q+A RESPONSES HAVE BEEN EDITED AND CONDENSED.