Costco Wholesale Corp.’s $4.99 iconic rotisserie chickens reign supreme in the world of value protein. The warehouse club chain has remained committed to retain the $4.99 price tag, even when outsiders speculated the company would ultimately lose money to do so. To keep the $4.99 rotisserie chicken and its cult-like status, Costco participated in a first-of-its-kind experiment. It built its own chicken processing facility to fully integrate the growing and processing of its poultry supply chain.
Lincoln Premium Poultry in Fremont, Nebraska, represents Costco’s effort to control the supply of chicken and maintain the popular rotisserie chicken price point. But the journey from conception of the idea to the production of the first chicken took time – and some campaigning – which is exactly what Walt Shafer, chief operations officer, and Jessica Kolterman, director of corporate and external affairs, did.
From April 2016, when the Fremont Chamber of Commerce passed a unanimous vote to support Costco’s plan to build, through the groundbreaking on June 21, 2017, up to the first birds processed at the plant the week of September 16, 2019, they campaigned.
Residents of Fremont and its surrounding communities had never seen large-scale poultry processing and the collateral operations that support it. Kolterman suggests a lack of information can breed fear, so one of her first tasks was to inform the community of Fremont and its neighbors of the facts. With a background working in Nebraska state politics and lobbying, Kolterman brought Shafer and Lincoln Premium to the people.
“Walt’s joke is that he wasn’t running for office, but he gave more speeches than the Mayor, who was running for reelection,” Kolterman says. “It was just telling the story of the company, sharing the vision and plan, and then explaining poultry.”
Shafer brought a lifetime career in the chicken processing business to Fremont. He’s held several executive positions at Pilgrim’s Pride Corp., including oversight of all US operations. His knowledge extends from the processing side of the business back through his years working as a chicken grower for Pilgrim’s Pride, a venture he still operates in the Chesapeake Bay watershed in Virginia. This gave Shafer the ability to provide honest and forthright answers once Kolterman got him on “the campaign trail” to explain how the poultry industry works.
Initially the state of Nebraska sent Kolterman to Fremont to help Shafer and Lincoln Premium navigate the political and community landscape. When she finished her time with the state, Shafer immediately recruited and hired her as employee No. 2, and their partnership went to the next level.
“Jessica was able to help me with this project and just navigate Nebraska,” Shafer says. “Not only just knowing who is who, but really developing a strategy to get the information out. Because without that, we wouldn’t be here. We literally were like a road show.”
“We did door to door. We did yard signs. We did all those things that you would do,” Kolterman adds.
Kolterman and Shafer knew they had to sell Lincoln Premium Poultry and themselves to those who would resist the massive project.
The team addressed challenges and points of opposition preemptively.
Shafer’s chicken-growing operation in Virginia comes with requirements that were adopted for Lincoln’s growers. While the requirements were not mandated by the state of Nebraska, Shafer knew it was a concern Lincoln needed to face head-on.
“One of the first things I said is we need to anticipate environmental concerns whether we address them today or 10 years from now,” Shafer says.
Lincoln Premium hired Andy Scholting of Nutrient Advisors, West Point, Nebraska, and asked him to work with Lincoln and Nebraska’s Dept. of Environmental Quality to create a stricter set of criteria than what existed to be required of Lincoln Premium Poultry growers.
“The state created an operating permit for us that our growers must obtain by law, per our contract,” Shafer says. “Although they’re not required to, we require them to adhere.”
“At this point we’re not meeting the standards, we’re exceeding the standards,” Kolterman adds.
Lincoln Premium growers must also enforce chicken house setbacks, even though some growers operate in counties where no specific distances between chicken houses and roads, buildings, neighbors, etc., are required. Kolterman, Shafer and the Lincoln Premium team reviewed industry best practices to establish contractual setback requirements for Lincoln growers.
“All the publications recommended roughly 200 ft. to 500 ft.,” Kolterman says. “We put in a ¼-mile (1,320 ft.). So, our setback exceeds what you would find anywhere in a poultry area of the country, but that’s the baseline we set here.”
Staffing was another point of contention, at first. Fremont maintains an unemployment rate of right around 3 percent. Residents worried about where employees would come from, but many of the company’s new employees traveled outside of Fremont to work.
“This is an opportunity for them to be here in this community at a brand-new manufacturing facility,” Kolterman says of the large local workforce. “So it wasn’t that maybe they didn’t like where they were working, it was more geographic. Now they don’t have to drive as far.”
“And we’ve attracted a lot of people that surround the community,” Shafer adds. “I’ve actually been surprised by the amount of people from Omaha, which is an easy commute.”
To address environmental concerns related to chicken litter, which Shafer says came up continually, Kolterman went as far as to carry a bag of it in her purse for the first two years while she and Shafer attended church meetings, rotary club meetings, luncheons with various community groups and more than 100 public hearings and events.
At one particular lunch, a group of concerned residents remained adamant during the entire meeting about the effects of chicken litter, its odor and the restrictive breathing it caused. Shafer listened, then asked Kolterman for the bag of litter from her purse and placed it on the table. He pointed out how much everyone had enjoyed their lunch while eating next to a bag of chicken litter.
“They just looked stunned,” Shafer says. “They asked, ‘Is that it?’”
Shafer explained the litter as a composted material and not the liquid goo that many think it is.
“So, call it luck. Call it good planning, call it the right people, but our strategy came together during that first year- and-a-half, when we developed the infrastructure to succeed on all these points.”
Ground up greenfield
With the community onboard, and the Lincoln Premium Poultry in Fremont information campaign an overall success, Costco’s construction department in Seattle acted as a general contractor for the project. Seattle-based Graham Construction handled the site, a former cornfield, for Baltimore, Maryland-based Whiting-Turner to come in and build the 400,000-sq.-ft. processing facility. Graham also built the hatchery and Sioux City, Iowa, construction company, Younglove, built the feed mill.
Originally the processing plant was a smaller footprint, but after rigorous research by Costco, the company insisted on implementing an air-chill system rather than water-chilling carcasses. This and an indoor, climate-controlled bird lairage with the capacity to store 10 tractor-trailer loads, added significant square footage, as well as bringing the price tag up to about $450 million for the plant, hatchery and feed mill together as one complex.
At week 8 of production in the first week of November, one shift at Lincoln Premium processed about 500,000 birds per week.
“At full capacity, this plant will have the ability to process 2,016,000 birds a week on two shifts,” Shafer says. “We’ve got three lines here that essentially feed the facility around the NPIS inspection model.”
As of early November a little more than 650 employees worked at the Lincoln complex. Shafer set the schedule for a 45-week ramp up to having the first shift fully staffed; beginning to staff and train a second shift; coordinating growers and the construction of their chicken houses; and making the final hires complex wide including administration and support.
“We’ll balance out complex wide once we’re fully staffed to a little over 1,000 employees,” Shafer says.
Lincoln’s growers will finance and construct housing themselves. Shafer and Kolterman estimate an investment of $300 million to $350 million collectively.
While the facility is a fully integrated processing operation under the Costco umbrella producing exclusively for Costco, there will be a few salespeople. Up to 90 percent of production will go directly to Costco for sale to its club members, but Lincoln will seek value in the 10 to 15 percent that Costco can’t use.
Lincoln Premium and Darling Ingredients, about 30 miles from the new facility, already have a relationship in place for Darling to handle Lincoln’s rendering. Darling recently doubled the size of its near by operation to handle the increased volume. A small outside sales team will identify customers for the remaining products like paws, livers, giblets, by-products, etc., on Costco’s behalf.
The latest in processing technology, innovation and modern practices push the pace at the Lincoln Premium processing facility. From the time trucks enter the facility to the time processed and packaged chicken parts exit the plant, technology-rich equipment and processes abound.
An indoor automatic lairage system allows the birds to climatize after being unloaded from the trucks. Automated conveyors move the birds slowly into place through the dark storage giving them the chance to calm down after transport and unloading. By the time the birds are ready to be sent through the Marel controlled atmosphere stunning (CAS) system, they’ve had a chance to relax.
As the stunned chickens are shackled and sent down the line, the modules that transported them move on to the automated washing and sanitizing line, also technology from Marel. As the modules go through wash down and sanitization, the trucks that brought them in simultaneously go through an indoor truck wash.
“About 80 percent of our equipment in this plant is Marel and Stork from front to back,” Shafer says. “They are a major partner with us on this, we’re using most of their technology.”
After a Stork picker defeathers the birds and puts them through a wash, another machine removes the paws and switches the birds to a new shackle automatically.
“Only about 1 percent fall during the switch,” Kolterman says.
Once on the new shackle, birds move through a set of Stork evisceration machines. These machines eviscerate the birds and send the removed viscera through the inspection line with the bird it came from behind it. If USDA inspectors see a problem with the viscera, the carcass it came from is easy to identify. Carcasses then go through an antimicrobial spray cabinet and jump to another set of shackles that take them through the air chill.
After air chilling, carcasses pass through a set of Stork cameras that capture images of the front and back of each carcass, checking for flaws as the shackle records the weight and sends all data to Marel’s Innova system. Innova runs all the operations on the production floor.
Lincoln takes what it calls “the perfect birds,” those weighing 4.05 lbs. to 5.25 lbs. (without giblets) with close to zero or zero flaws and routes them to trussing at the rotisserie line. Approximately 40 percent of Lincoln Premium’s production goes to Costco’s famous rotisserie chickens.
Once chickens arrive at the trussing stations, employees skillfully hand truss all the birds. From there, rotisserie birds receive an 18 percent marinade injection, are packed 10 to a box and shipped to Costco stores and go straight to the rotisserie ovens.
Birds not destined for rotisseries begin the cut-up process. More Stork machines remove wings, drumsticks and thighs, and a conveyor sends them down a dedicated line, some thighs get automatically deboned and some stay bone-in. They travel to the top of a second level where a hopper portions, weighs and drops them back down to each part’s specific packaging line. Parts are weighed on the conveyor during their trip. Marel’s Innova system sends weights to large Marel packaging robots that pick pieces and place them. The robots make package weights exact and consistent according to the data sent by the Innova system.
What’s left of the carcass, what Kolterman calls the football, goes to automatic breast deboning, again by Stork. Those on the breast deboning line pull and separate breasts and tenders and send them down their respective conveyors. Tenders go up to one of the big hoppers for portioning and weighing before being dropped back down to their packaging line. Employees on the breast line hand trim fat and remove any bone fragments they see before x-ray, antimicrobial spray and on to the robot picker packers. All parts are treated with a antimicrobial spray or bath before packaging.
At week 8, Lincoln shipped what it produced daily. Costco stores shelved everything the facility sent during the initial ramp up period, but Lincoln looked to the future with its storage system. A vast storage warehouse with two stories of automated shelving will serve Lincoln in the future.
Giant robots can communicate with operations systems, go to shelves, pick products, palletize and prep those orders for a staging area where they will be loaded on to trucks and shipped. The robots have the ability to “rainbow pallet,” Kolterman says. Specific Costco locations will place unique orders with Lincoln Premium and the robots find the quantities and products specific to that order and palletize accordingly.
“When the pallet arrives at the store, there’s no rework,” Kolterman says.
“It’s taken a lot of hours and a lot of passion,” Shafer says. “We’ve hired great team members to come in and help and I don’t know anybody who could take a team as small as what we had and pull off what we did to start and grow this thing to where we are today. And I say that with great support from Costco all along the way.”