Go With the Grain

Elk Grove Milling pursues international markets, but the success rates are stacked against them

Back Longreads Aug 4, 2015 By Anita Creamer

These days, Robert Lent spends a lot of time on the road in Central America — a week in Monterrey, Mexico, to meet potential distributors for his signature animal feed product, Stable Mix; another week at an agricultural expo in Nicaragua; then back to Mexico for a veterinary conference in Guadalajara.

It’s all part of his plan to take Elk Grove Milling Inc. multinational. The pellet mill, nestled amid fields and vineyards just south of Elk Grove, has for three decades distributed Stable Mix across Northern and Central California.

“I always wanted to be in the multinational market but didn’t know (if) I’d make it,” says company owner Lent, who’s nearly 70.

After a slow start piecing his way through El Salvador’s business regulations in 2008, Lent began distributing Stable Mix throughout that country in 2012. Now the milling company — which employs 50 workers, makes $12 million in gross sales a year and, as Lent likes to say, feeds 17,000 horses a day — is poised to expand its distribution network in Honduras, Nicaragua, Guatemala and Mexico. Lent and his general manager, Jerry Mayberry, project sales will increase by a net $3 million a year and double the company’s business over the next five.

If so, they’ll buck a trend that faces many American companies trying to do business overseas. According to a recent Harvard Business Review analysis of 20,000 U.S. companies operating in 30 countries, fewer than half reach a 3-percent return on assets after a decade in the new market. Global expansion can present a snarl of regulatory, cultural and political complications that too often amount to a great deal of effort for little payoff.

But pessimistic stories don’t daunt Lent. He says he knows multinational success takes time. “It’s a slow process,” he says, “but the opportunities in those countries are huge. And the biggest opportunity by far is Mexico.”

But Mexico, it turns out, is also the toughest export nut to crack. Elk Grove Milling’s expansion into Mexico has already taken extensive effort, with some failure along the way. It’s taken advice from the Department of Commerce’s regional U.S. Export Assistance Center and a willingness to take risks. Most of all, it’s taken a heavy reliance on Lent’s Elk Grove roots.

Lent is a rice farmer who still lives in the house where he grew up, on the Lent Farms acreage that his father began working in the 1940s. After graduation from Elk Grove High School and a stint at Modesto Junior College, Lent came home to grow rice and raise cattle on the family farm.

According to a recent Harvard Business Review analysis of 20,000 U.S. companies operating in 30 countries, fewer than half reach a 3-percent return on assets after a decade in the new market.

 

In the early 1980s, a rice surplus threatened California growers’ economic future. With three other investors, he bought 150 acres south of Elk Grove to build a warehouse for rice storage. The center of the property was an unused alfalfa pellet mill. Within a few years, Lent bought out his other investors and decided to revive the mill.

“Historically, pellet mills had a reputation of using anything they could in the pellets,” he says. “We’ve been working since the early 1980s to change that. We consider ourselves horse feed specialists.”

With the assistance of nutritionists, mineral companies and veterinarians, and over years of testing, Elk Grove Milling created Stable Mix, its horse feed. The formula involves ryegrass and other forage hays, rice bran, almond hulls, soybeans, vitamins and minerals. Lent says his feed extends the lives of horses by a decade or more.

He first ventured into El Salvador with longtime friend Oscar O’con, an international business consultant. The two men had met through the local Rotary Club, and they traveled together to El Salvador in 2008 to explore how Rotary might help with schools and housing. On that trip, they started talking about bringing Stable Mix to El Salvador.

O’con, who had family in El Salvador and embassy connections, was quickly able to find a local partner to set up a Salvadoran distributorship. But making their way through the maze of Salvadoran regulations proved onerous. It wasn’t until 2012 that Elk Grove Milling began selling Stable Mix there.

“Companies think they can do it just by having somebody who speaks Spanish,” says O’con. “But you have to have somebody who knows the culture. In the U.S., we’re always in a rush. Over there, it’s a longer process. They do business with people they like. It’s not just about the product. It’s about the people.”

It’s also about jumping through the regulatory hoops. Elk Grove Milling’s first step in El Salvador was registering its trademark: The colors, phrasing and artwork all required individual regulatory approval. Then, the Salvadoran agricultural administration had to test and approve the horse feed formula. That required a permit for a shipping sample, a laboratory contract and extensive fees and paperwork every step of the way.

And to export throughout Central America, Elk Grove Milling will repeat the process country by country — even state by state within Mexico — while finding local legal and business representatives along the way. But Lent remains convinced there is a need for his product, which, unlike feeds produced in Central and South America, can help reduce digestive ailments in horses.

The company’s efforts in Mexico originally sputtered and stalled. In 2011, Elk Grove Milling set up commercial space at the Pan American Games in Guadalajara to introduce Stable Mix to potential Mexican buyers. Lent was there, meeting people from all over the country and gathering long lists to make sales calls. He thought he was on his way.

“But it was too difficult to get around to all the individuals we met. It’s such a big country,” he says. “We had to rethink the process.”

That doesn’t surprise Pierre Balthazard, an international business expert and dean of Sacramento State’s College of Business Administration.

“With small businesses, when someone internationally says they want your product, the last thing you should do is jump up and down and say, ‘I’m going international,’” he says.

“Your corporate strategy should not be driven by that. You need to know how to navigate the social, cultural, legal and economic differences. The research is important. If you assume that if something works here then it will work anywhere, that’s a bad assumption. You need to analyze your situation. Business is not supposed to be a crapshoot.”

“With small businesses, when someone internationally says they want your product, the last thing you should do is jump up and down and say, ‘I’m going international.” Pierre Balthazard, dean, College of Business Administration, Sacramento State

To retool, the company reached out to the Sacramento U.S. Export Assistance Center for help with market research, connections and a deeper understanding of the regulations in Mexico’s 31 states. The Mexican market, it turns out, can prove an especially daunting prospect for a company new to exporting.

The center provides commercial research, guides, reports and networking. George Tastard, the Sacramento director, thinks of his agency as the sales support back office for businesses too small to have their own international marketing research staff.

“As we approach the market, we set up briefing calls with colleagues on the ground there and pick their brains on what’s going on in the market,” he says. “We determine the possibility of market entry.”

In Guadalajara, the export center’s representative had deep experience in the equine sector and could easily identify the potential market for Stable Mix. In Tijuana, the center’s representative canvassed the territories for market players and developed a brief on the different types of horses there, how feed in the region is distributed and who the major feed marketer is. In Mexico City, the team leader identified and confirmed possible distributing partners and came back with contacts for Elk Grove Milling to explore.

Over time, the export center set up meetings for Lent and O’con in Mexico City. In Chihuahua and Monterrey, the center identified trade shows for horse breeders and equine veterinarians and arranged through the U.S. embassy for Elk Grove Milling to have workshops and booths at those events.

“Elk Grove Milling is putting in infrastructure and a system,” Tastard says. “The challenge is to continue developing those channels and nurture them and keep them healthy.”

The biggest international exports from the Sacramento region include agriculture, medical technology, education, renewable energy — “the next economy,” as Tastard puts it. And when it comes to being an international player, smaller businesses can sometimes make the biggest splash.

“What matters is having a unique product and a distinctive niche,” says Lewis Gale, dean of the Eberhardt School of Business at the University of the Pacific. “You don’t have to be a big business to be a success. The companies that sell overseas are usually small companies that have developed a niche. They really know their customers well, and they’ve built strong relationships.”

Central Valley wineries, food processors and dairies have done well using the international marketplace not only as a way to grow business but also as a way for new generations of owners to find an identity beyond the primary market, an option that allows them to make their mark.

“It’s more than language; it’s cross-cultural competency,” Gale says. “The younger generations can see that as their own area of expertise. Family business is one of the most fascinating fields right now. The founders do quality really well. They’re the visionaries. Often they reach the point of saying, ‘What’s the next chapter?’”

If Elk Grove Milling is successful in its Mexican expansion, says Mayberry, the company will increase its operations from six to seven days a week and add to the production staff. And then the company will try to push forward again, this time into Panama.

“It’s a different world,” Lent says. “You meet nice folks. The bond is that we all want the best for the horses.”

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