King of Rinds Has 2 Contenders as Hispanic Surge Fattens Sales

To make Baken-ets pork rinds for No. 1 client Frito-Lay, the $13 billion-a-year snack arm of PepsiCo Inc., Rudolph Foods Inc. uses what it calls a secret two-step process at its flagship plant in Lima, Ohio -- “the pork rind capital of the world,” Rudolph claims.

Pork skins, removed from slaughtered pigs by mechanical skinners at meat packing companies, arrive at Rudolph’s plants in 20-ton lots aboard refrigerated 18-wheeler trucks. Precut into roughly one-by-three-foot rectangles, they are trundled around in metal bins holding up to 1,800 pounds each and fed into mechanical cutters that dice them into one-inch squares.

Other pork rind makers send these squares by conveyor belt into cookers and renderers that wring out most of the fat and water. Rudolph smokes them first -- though exactly what wood or curing spices it uses on what are now called pellets is part of a closely guarded recipe at the family-owned company.

“I only have half of it,” deadpans Jim Rudolph, 49, Rudolph’s chief executive officer. “My brother Rich (who serves as president) has the other half.”

After smoking and curing, Rudolph’s rinds are rendered at 240 Fahrenheit. They’re inspected by an optical sorter that kicks out misshapen and discolored rinds, or foreign objects such as pig bones. Rudolph then fries pellets for one minute in 400-Fahrenheit lard, where they fluff up like popcorn. Cooled and seasoned on conveyors, they’re bagged six to eight hours after the process began: featherweight, crunchy, hint-of-bacon snacks that are a bright spot in the snack food industry, Bloomberg Businessweek reports in its Sept. 19 issue.

Mac’s, LaTonita

Frito-Lay sold almost 49 million bags of Baken-ets over a 12-month period ending May 15, up 11 percent from the previous year, according to data from Symphony IRI Group, which tracks snack-food statistics. Not bad in a sputtering economy.

Rinds are also the object of an intense rivalry, with Rudolph’s claims to being “largest pork rind manufacturer” hotly contested by Chicago’s Evans Food Group Ltd. “No question, we are the No. 1 pork rind maker in the world,” says Alejandro Silva, Evans’s CEO and principal owner. Privately held Evans sells two of its mainstay brands, Mac’s and LaTonita, to Wal-Mart Stores Inc. and has a brisk business making private label brands for about a dozen well-known snack concerns, including Pennsylvania-based Utz Quality Foods. Last year, Evans processed more than 100 million pounds of raw pork skins, raking in more than $100 million in revenue. Rudolph? Well, it also reports more than $100 million in revenue, on similar volume.

Hispanic Demographic

If either company is to be the King of Rinds, both agree, it will be because it’s shrewder than the other on distribution and more effective at cultivating the taste of the fast-growing Hispanic market. Hispanics consume more rinds by volume than any other ethnic group in the U.S., and, following an endorsement by George H.W. Bush and the popularity of low-carb diets such as Atkins, constitute the greatest force bringing pork rinds into the mainstream. Silva believes rinds will hit $500 million in retail sales by 2013, better than twice where they were two decades ago. “The Hispanic demographic augurs well for the future,” says Mary Gotaas, a snack food analyst for IBISWorld. “The pork rind business is a very good business to be in.”

Mark Singleton agrees. Eight years ago, Rudolph’s Dallas- based vice-president of sales and marketing says he “leapt in with two feet and never regretted it.” While rind sales may seem slim next to the $7.6 billion a year potato chips pull in, he says, “That’s just an opportunity to educate millions of new people around the world to give rinds a chance.”

‘White Grease’

Each year, 100 million to 120 million pigs go to their slaughter in North America, producing roughly 650 million pounds of skins. In 2010, according to the U.S. Agriculture Department, 110.3 million head were killed in the U.S. alone. The gelatin industry buys up about 60 percent of the skins to make products for the drug and cosmetics industries, as well as Jell-O. About 5 to 10 percent go into making leather goods. (Not footballs, though. Early footballs were made from inflated pig bladders and somehow got the name pigskins. Today’s footballs are either synthetic or fashioned from cowhides.)

Pork rind makers capture the rest. While raw pigskin prices are at an all-time high of 41 cents a pound, putting pressure on profits, margins in the rinds business typically run better than 20 percent. (A pound of skins can be converted into at least 10 1.5-ounce bags of rinds that retail for 99 cents.) Raw pigskin prices are at historic highs these days, in part because the oil rendered from skins, known as “choice white grease,” is sold into the biodiesel market, and pegged to the price of crude oil.

Image Issue

The growth of the rinds business is all the more phenomenal given its humble roots. In the U.S., rinds were once a food fetish of the South. Hardscrabble farmers, not wanting to waste an ounce of the hog they’d slaughtered, fried up fatty pork skin into a dish they called cracklings. Modern rinds are cracklings (often spelled cracklins) with the fat removed. Southerners still love their cracklings and rinds; blacks migrating from the South to America’s great cities brought this love with them.

Spaniards also made cracklings in the Old Country and carried their recipes to the New World, which begins to explain why the Hispanic market in the U.S., Mexico, Central America and parts of South America remain pork rind strongholds. Rinds, however, still have an image issue outside their base. Or as Dawn Jackson Blatner, a registered dietician and nutritional consultant to the Chicago Cubs baseball team, puts it: “I can’t imagine a need to eat fried pigskin anytime soon.”

Bush 41

Europe, where neither Rudolph nor Evans has made much headway, illustrates the cultural challenges of developing demand. The Spanish still snack on rinds, as do the Danes, who raise a lot of pigs and like to eat them. Norwegians, too, have a thriving snack food industry and like to experiment. But the Swedes next door? “They won’t touch them,” says Silva.

The French? Never. Same with the Italians. Russia, Poland, the Czech Republic, other Eastern Bloc countries? No, no, no, and no. This is why the Bush moment was so crucial in America.

“See this man? He did more for pork rinds than anybody can imagine,” says Silva, a gold pig pin enlivening his crisp blue suit jacket. Standing before a bookcase in his cramped, utilitarian office, he points to a photo of the 41st President. In the waning days of the 1988 campaign, Bush declared his love of rinds as he tried to distance himself from his preppy image. He won, of course, and so many gift bags of rinds flowed to the White House that Barbara Bush finally banned them. Rind sales, which had plateaued at about $200 million a year, soared.

‘Good Fats’

It’s also true that, until the Atkins diet phenomenon, rind sales were dampened by concerns that they were high in fat and sodium. These hang-ups still plague rinds, even though Men’s Health called them “genius junk food” in 2008 because they contain no carbohydrates and have “nine times the protein” found in carb-heavy potato chips. While rinds are indeed high in fat, research shows that 43 percent is unsaturated fat, akin to the “good fats” found in olive oil. Rinds are a poor choice, however, for those on sodium-restricted diets: A one-ounce serving has 521 milligrams of salt, nearly a quarter of the daily recommended intake. During the Atkins craze, says Singleton, dieters “who before would have just as soon as kissed a pig” tried rinds and loved the bacony taste.

If taste remains a factor, the battle to be King of Rinds is fought over distribution channels. Almost half of all rinds are sold in convenience stores; supermarkets and mass merchandisers account for most of the rest. The companies jostle in every market in the U.S., which accounts for 65 percent of global sales, and in more than a dozen countries abroad.

Rinds’ Mouthfeel

“It’s a fight,” says Silva. “How do I get the right channels of distribution, into the convenience stores, the retailers, the dollar stores? Those are trenches.”

In a modular temporary office during a remodeling of Rudolph headquarters, Rudolph executives eagerly share their version of the climb to the top of the rind heap. It’s eerily like Evans’s story. Both companies have factories in Ohio, Texas, California, and Mexico. Worldwide, Rudolph has about 400 employees, about 100 fewer than Evans.

Before the talk turns to numbers, Jim Rudolph, the trim, enthusiastic son of the founder, John Rudolph, is eager to talk quality -- particularly Rudolph’s proprietary two-step cooking process. At Evans, “they use a one-step process,” says Jim. Adds Chief Financial Officer Mike Harper: “With our rinds, the mouthfeel is different, the color is different. Ours are much better -- better color and mouthfeel.” (Applied to food, mouthfeel, a term often associated with wine, is a measure of crispness and texture.)

Mechanical Skinners

As their stories unwind, the Evans and Rudolph histories seem more and more parallel, with both companies saying they were founded on “passion.” Both also survived early crises that almost sank them. Rudolph began in 1955 when John, now 86 and retired, bought a tiny specialty nut snack maker and “almost by accident” stumbled into making rinds. For the first two years, Jim relates, pork skins arrived at Rudolph having been smoked by the meat processing plants.

Smoking made pigs easier to skin while imparting a bacon- like flavor to the rinds. In 1957, mechanical skinners eliminated the need for smoking -- bad news for Rudolph, since John couldn’t conceive of consumers liking rinds without the smoky taste. His wife, Mary, came to the rescue. Harper tells the story: “‘What are we going to do?’ John said to Mary. Mary replies, ‘I have a degree in home economics from Bowling Green. We’ll figure this thing out.’ And they basically worked around the clock and came up with the secret recipe, and basically that process is intact today.”

“Artisanal Slabs”

Silva, 63, grew up middle-class in Monterrey, Mexico, savoring his mother’s home-cooked pork skins, called chicharrones. He got into the rinds business in Mexico in 1979 when he first saw bagged rinds come in from the U.S. He had a degree in food technology and had spent seven months at a meat distribution company. He knew his pigs and knew Mexicans loved their rinds, which until the U.S. imports arrived had always been sold as large “artisanal slabs” in butcher shops.

“Every Mexican knows this food,” says Silva. “The moment that I saw the margins for the product, I said, ‘Why don’t we do this in Mexico instead of importing from the U.S.?’”

Life was good until 1982, when the Mexican peso underwent a massive devaluation and the “entire Mexican economy went downhill,” Silva recalls. He realized he’d have to start an American operation to stay alive. After a detour to Sioux City, Iowa, where he set up a factory “to be close to the skins,” he got a call from a private equity firm that had taken over Evans.

Evans was then a small private pork rind maker in Chicago that sold mainly to the African-American market. The private equity group had bought Evans to make money, not pork skins, and was eager to flip it.

Liquid Smoke

“They knew about me because I was a competitor, selling my product cheap just to keep the plant going. They said, ‘What are you doing? What is your purpose in life?’ ‘To be the biggest pork rind maker in the world.’ ‘Buy us out,’ they said.”

That was 1985. Silva swung the deal on credit, putting up his remaining Mexican properties as collateral. “From Day One, we were almost as big as Rudolph,” says Silva. “We would grow bigger. Oh, and Evans dates back to 1947 -- so my company is older than theirs.”

Today, on the strength of Evans tripling sales since 1993, Silva owns a lakeview condo on Michigan Avenue near Chicago’s Magnificent Mile. And his growth-oriented stewardship of Evans landed him a seat as a director of Walgreen, the Chicago-based drugstore chain. As for Rudolph’s belief that its rinds taste better, Silva says: “They smoke the rinds, yes. We add smoke, liquid smoke. Is that a different quality? I think it depends to some extent on what spices you use. People eat rinds without flavorings. They may notice a bit of a difference. But really, distribution sells the product. If you have it in the store, they’ll buy it.”

‘Confidential’ Relationship

Silva has built a formidable network. “My largest customer is Wal-Mart. The second is Family Dollar. We have national distribution with them,” he says. That said, about half of Rudolph’s business is producing rinds for Frito-Lay -- not a bad client to have, he concedes. In fact, the largest single selling brand in the U.S. is Frito-Lay’s smoky-flavored Baken-ets. All the same, Rudolph, which also packages and sells eight of its own brands, doesn’t want to talk in any detail about Frito-Lay, calling the relationship “confidential.”

But back to the core issue: Who is actually the No. 1 pork rind maker in the world? For all the competitive posturing, it turns out that Rudolph and Evans entertained an amicable merger in 2007. It didn’t work out, according to Silva, “but that’s how I know I’m bigger. We had to disclose certain information. I saw their books and they saw mine. And I said, ‘Now tell me, who is the one who makes more?’”

Rudolph’s Singleton yields no ground: “I’m very sure we’re No. 1.”

To contact the reporter on this story: Ken Wells in New York at Kwells8@bloomberg.net

To contact the editor responsible for this story: Bradford Wieners in New York at bwieners@bloomberg.net

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