Babbitt Ranches: Adding Value to Cattle

By Majure, Lisa F. | Indian Journal of Economics and Business, March 2006 | Go to article overview

Babbitt Ranches: Adding Value to Cattle


Majure, Lisa F., Indian Journal of Economics and Business


Abstract

This case study explores the feasibility of a new business venture by a fourth-generation family business, Babbitt Ranches. As the business leader of a vast ranching empire in northern Arizona, Mr. William Cordasco, President of Babbitt Ranches, has developed a business plan to produce, process, distribute and sell beef and related beef products. Historically, Babbitt Ranches has simply raised and sold cattle at the going spot prices in the beef commodity markets. Students, in their analysis of the case, will face a number of challenging issues including ethics, marketing channels of distribution, family business values and financial analysis and forecasting. (1)

Introduction

In the spring of 2005, William Cordasco was putting the final touches on his presentation for the upcoming annual shareholder meeting of Babbitt Ranches. As the President of a fourth generation family-owned business, Mr. Cordasco was sensitive to the liquidity needs of his 188 family shareholders. Babbitt Ranches, formerly known as The Babbitt Brothers Trading Company (BBTC), had recently undergone a major transition. Started in 1886, BBTC became one of the largest and most successful mercantile and ranching empires in the West in the late 1800's and early 1900's. However, in 1988 a number of factors led to a debt-financed stock buyback from some of the third-generation family members/shareholders, who wanted to cash out of the family business. These events forced the company to sell off most of their retail businesses during the 1990's in order to pay off the debt of the company. In the wake of this major transition, Mr. Cordasco wanted to shift the focus of the family business back to its roots in ranching and land stewardship. Babbitt Ranch lands, encompassing 700,000 acres in northern Arizona, had great value as real estate, but it was not a liquid asset. Thus, one of the greatest challenges for Mr. Cordasco as business leader was to identify and pursue business opportunities generated from the land that could provide cash flow to his remaining family shareholders.

Having begun as a ranching operation in the late 1800's, it seemed appropriate to explore adding value to their cattle by processing and selling beef products versus simply selling their cattle at variable spot prices in the beef commodity markets. Currently, Babbitt Ranches owns approximately 8100 head of cattle (including heifers, steers, cows, and bulls). Mr. Cordasco's vision was to first utilize cows primarily to produce beef patties (burger) and beef jerky. Once this first phase became operational and profitable, he planned to expand and utilize steers to produce and sell premium quality fresh cuts of beef. For the past year Mr. Cordasco had been working on the development of a business plan for the first phase that he would be presenting to his shareholders at the annual meeting. The mission statement for this new business opportunity was: "To produce, process, distribute and sell at a profit, premium beef patties, beef jerky and related products under the CO BAR brand."

History of Babbitt Brothers Trading Company

In 1886, five imaginative and energetic brothers moved out West from Cincinnati, Ohio. Through hard work and dreaming they parlayed a small herd of cattle and a small lumber store into a mercantile and ranching empire that is considered to be one of the more successful and respected family business endeavors in the West. With a $20,000 draft in their pockets, they purchased a herd of 864 cattle that were branded with the Babbitt "CO Bar", a sentimental reminder of their old home in Cincinnati, Ohio. The five pioneering Babbitt Bothers settled in Flagstaff, Arizona and proceeded to expand their land ownership, cattle ranches and business ventures throughout the 1900's. One Arizona historian has written: "The Babbitts, in short, fed and clothed and equipped and transported and entertained and buried Arizonans of four generations, and they did it more efficiently and profitably than anyone else. …

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