Innovative Vermont diner discovers profit in meat processing

Staff report

BARRE, Vermont: It has been said that profit is found in the problems.

Tod Murphy of the Farmers Diner would have to agree.

Murphy’s idea was to recreate the idea of “community” food with a small 60-seat diner that would serve food grown by local farmers.

A grass farmer himself with a small sheep dairy, he said he thought it was important that consumers have a connection to their food.

He purposely chose a diner rather than a white table cloth restaurant because regular people could relate to it. He wanted Farmers Diner to recreate “an American icon.”

Barre is a small town of only 12,000 people but Murphy has found it to be a cheap and forgiving place to make the mistakes common to all start-ups.

Obtaining locally grown vegetables, eggs and dairy products was no problem. The problem was in obtaining locally produced meats.

“The first thing I learned about trying to source local food is, meat is the issue,” he said.

More specifically the problem was that there was no meat processing infrastructure left in his area. This is true in much of rural America.

While this would have sent most restaurant entrepreneurs to the phone to call IBP, Murphy refused to give up his dream and decided to build his own.

The corrugated metal building he built was described by the New York Times Magazine as “one of the smallest USDA inspected meat-processing facilities in the country.”

Here five employees cut steaks and chops and smoke and cure bacon, ham, sausage, turkey, fish and cheese. Murphy said the plant set him back $160,000 and is not licensed to kill.

Due to water quality protections, slaughter plants are much more expensive to build than processing plants. Murphy has his animals harvested on a custom basis by a USDA-inspected abattoir. This is no great loss as the majority of the value is added in the processing.

While built as a necessary evil, Tom has discovered the meat processing plant to be a source of “unfair” competitive advantage for his restaurant.

“There is real money in meat processing,” he said.

While most meat marketers have problems marketing their hamburger and lower end pork cuts, those were the very items his diner most heavily used.

“For example, I primarily want the bacon and sausage from a pig. I can then sell our whey-fed tenderloin and chops to white table cloth restaurants for a premium price. The chefs just love the taste of whey-fed pork.

“Similarly, the way to get the best price on a T-bone steak to sell is to buy a whole steer. The reason the prime cuts are so expensive is because most processors have to give the hamburger away. That’s not a problem for me.”

Having found a source of unfair advantage, Murphy has devised a strategy to maximize it in what he calls his “pod” approach to future expansion.

Recognizing the processing plant as the profit generating centerpiece, he describes it as a “pod” supplying up to eight Farmers Diners within a geographic region.

These processing pods would also produce sausage, smoked cheese and tomato sauce under the Farmers Diner label.

His current tiny processing plant can supply three restaurants and he plans to open a larger 150-seat restaurant soon in Burlington, Vermont.

“A 150-seat diner consumes 2.5 beeves and 35 hogs a week. When you are paying a premium price for your food the only way to cut costs is through increased volume.”

He said restaurant sales do not follow seating additions on an incremental basis.

“A 60-seat diner can do $450,000 a year. A 150-seat diner will do $2.5 to $3 million.

“You have to have the capacity to maximize peak times. It’s all a game of numbers and percentages.”

Murphy currently has 35 to 40 farmers who supply him with 70 percent of the food he serves. Some of this, such as his whey-fed pork, is contract production. He foresees the percentage of local food rising to 80% in the future.

The Diner is currently priced at a “modest premium” over competing diners and attracts an eclectic mix of customers he describes as “liberals, locals and NASCAR Dads.”

He said the conservative stock car enthusiasts bring their kids in for a taste of what they describe as “real food.”

“It is a taste they remember from their childhoods and they want their kids to have the same memories,” Murphy said.

He said New England was a good place to locate such a restaurant because the region had both high income consumers and artisan-food-oriented farmers.

© by The Stockman Grass Farmer

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