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Omaha Steaks: Carving Out a 21st Century Sales Model

Omaha Steaks even created a line of pet treats, including a pet-safe jerky and a "canine cookie" treat.

"Many people will spend more money on their pets then they will on their children. We felt like we needed a couple of offerings," Simon says. "It's a novelty within our line that helps us address customer need."

What's also appealing about Omaha Steaks products is that consumers can choose their portion sizes.

"In the case of a place like Costco they're typically selling a big bulk package, whereas we can offer a very consistent individually portioned aged steak. Our products require a lot less work on the part of the customer," Simon says.

Right now, though, the company's biggest issue isn't the value of social media, competing against the grocery giants, catering to a more health-conscious society, or whether it should launch a wasabi-seasoned pet-safe jerky (in reality, pet jerky tends to be less seasoned, less salty.) What it can't ignore is increasing commodity prices. The severe summer drought that has caused an unprecedented increase in corn and soy prices means that no matter how good the company is at marketing and planning, the economics of the business are likely to change.

"This drought is creating some issues with supply and demand. In the near term, maybe most of 2012, we will see beef prices moderate a little bit, but as we get into 2013 we will see prices go back up. The growers will have taken a lot of their stock to market. And so supply will get tight," Technomic's Karp says.

Karp's outlook is in line with a recent report from the U.S. Department of Agriculture.

"The drought is really going to hit food prices next year," USDA economist Richard Volpe wrote. "It's already affecting corn and soybean prices, but then it has to work its way all the way through the system into feed prices and then animal prices, then wholesale prices and then finally, retail prices."

"The transmission of commodity price changes into retail prices typically takes several months to occur, and most of the impact of the drought is expected to be realized in 2013," Volpe said in a research note that accompanied the department's outlook.

The USDA expects food prices will accelerate past other consumer costs through the end of 2013. Beef prices will rise by 5%. Overall, the USDA reports food prices will rise by up to 3.5% in 2012 and by up to 4% in 2013.

Omaha Steaks intends to keep pricing the same, even as the supply of beef declines. "We intend to continue to be as selective as we always have in sourcing and producing our beef, so that we remain the 'go to' premium beef company in the market," Simon says.

Simon family's future stake

Omaha's most famous succession planning discussion may be about a man who has a healthy love for family run businesses just like Omaha Steaks: Warren Buffett, chairman and CEO of Berkshire Hathaway (BRK.B). But succession is a big discussion for Omaha Steaks as well. Today there are currently four Simon's in executive positions: Todd's father Fred, as executive vice president; his uncle Alan as chairman; and his cousin Bruce, who is the president and CEO of Omaha Steaks. The eldest of the sixth generation is just entering college.

While it is the hope that a Simon would always be a part of the 18-person senior management team, the family doesn't expect it.

"We are more interested in having the most talented people in all of the management positions of the company than we are in having family manage the business. That is just the appropriate way for a 95-year-old business to be perpetuating itself, " Simon says. "If a family member shows interest in being in the business it's not a forgone conclusion that they would ever reach a senior management level in the company. They would have to distinguish themselves the same way we would bring in somebody from the outside."

-- Written by Laurie Kulikowski in New York.

To contact Laurie Kulikowski, send an email to: Laurie.Kulikowski@thestreet.com.

To follow Laurie Kulikowski on Twitter, go to: http://twitter.com/#!/LKulikowski

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Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.
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