Repeated reinvention brings success
Nov. 27, 2012
by L. Joshua Sosland
If you ask John A. Didion to explain what distinguishes Didion Milling Inc. in the marketplace for milled corn products, the word “passion” is likely to come up, perhaps repeatedly. As an objective matter, the claim is a difficult one to prove or disprove. Still, to the degree that dramatically changing a company’s business model again and again to add value because of marketplace changes or new opportunities is an indicator of passion, for which Didion makes a strong case.
During the past 40 years, the family-owned business has evolved from a modest grain brokerage operation into a country elevator business, into a corn mill dedicated to exports and, most recently, into one of the largest corn grinders in the United States.
For example, the corn milling business in Cambria, Wisconsin, U.S., had been operating through the 1990s with a narrow focus on producing milled corn products for international hunger relief programs. For several years the mill had thrived selling soy-fortified corn meal and corn-soy blend to the U.S. Department of Agriculture, but the company found itself grappling with an increasingly erratic government procurement process and the gradual shrinkage of the volume of products being purchased by the U.S. government for foreign aid.
Looking at alternatives to this focus, Didion sought ways to make inroads in the highly competitive and very mature domestic market for milled corn products. In the process of finding an effective formula for change, Didion has completely transformed its business and may have created a new 21st century model for the previously staid dry milling business.
In building a large ethanol plant adjacent to its dry corn mill, Didion believes it has established a viable business that advantages all its milled corn product, ethanol and feed customers. This belief is built on the premise that the traditional dry corn milling process involves dealing with a significant proportion of the kernel, the germ and the bran, that is not suited for the principal finished products — corn grits, corn meal and corn flour. The same is true for ethanol production.
“By bringing the two processes together, we have an operation with the critical mass to select the best parts of the kernel for the corn mill before it ever hits the mill,” said Didion, who is chief executive officer of Didion Milling. “The best parts of the kernel for alcohol production go to the ethanol plant. The focus is on synergy and sustainability.”
40 years in business
Celebrating 40 years in business, Didion, together with other members of the executive team, including his brother, Dow, president of the company, sat down at the Cambria milling complex for an interview with Milling & Baking News, sister publication of World Grain, to look back at the path leading to Didion becoming the first U.S. dry corn miller with a complementary ethanol plant on site, and how the company is positioned for the future.
While the business began in 1972 as a simple grain merchandising operation, John Didion said he and his brother always have had an added-value mindset that has very naturally led the company to a series of changes over the years and likely will lead to others in the years to come.
First generation family-owned milling companies are a rarity in the United States, and Didion grew up with no connection to the milling business. Instead, he said it was the decline of small dairy farms in Wisconsin that created the opportunities ultimately leading him and his brother into the milling business.
“My father was a veterinarian who graduated from Ohio State and then moved to Wisconsin when we were boys,” Didion said. “He made calls to dairy farms during the day and would treat pets at home at night. He worked an awful lot, and the only way to see him was ride around the country with him when he called on farmers. So we did. It was through that experience as boys that Dow and I developed a connection with the growers in the region and an interest in agriculture.”
This interest did not necessarily extend to the animal side of agriculture.
“There sometimes were complications during the calving procedures Dad did,” Didion said. “We saw things late at night… I didn’t like that, but I liked the farmers.”
This coming of age period for Didion was in the mid-1960s when he said the Wisconsin countryside was “replete with mid-sized dairy farms.” As the dairy business rapidly consolidated, many farmers grappled with a transition to cash grain farming from dairy production. The change created an opening for the Didion boys in the grain business.
“We started a merchandising business when we were still teenagers,” he said. “We knew the growers, and there was a lot of grain looking for a home. We found ways to help.”
It was in those formative years that the Didion brothers began exploring opportunities to add value to what they were doing.
“We bought some ear corn and would shell it,” he said. “We would do different granulations of the corn cobs and sold them for specialty crop production and beddings.”
Originally named Didion Inc., Didion opened its first country elevator in Johnson Creek in 1972.
“It was a small operation, very hands on,” he said. “We purchased bushels from southeastern Wisconsin, dried them and marketed them.”
Over the next 20 years, the business grew through the gradual addition of country elevator operations in markets where growers were challenged finding outlets for the grain that for so long had been fed to dairy cows. By 1992 the company had eight country elevator locations, unit train facilities and a barge loading operation on the Mississippi river.
Cambria corn mill
Having enjoyed good success by broadening its operations over a 20-year period, Didion said the decision in the early 1990s to build a corn mill in Cambria was a natural one.
“Again, we’d always had that interest to add value, and we decided the best value we could offer local growers was processing the corn,” Didion said. “The U.S. Department of Agriculture had a program and a market for milled corn. We had a good location between Minneapolis and Chicago.”
He explained that the Cambria mill, located in central Wisconsin, left Didion very well situated for the Chicago market. The Didions built on a greenfield site.
“We had spent a lot of time looking for the right location,” Didion said. “We needed logistics and utilities that could support our operations. We are located near high voltage power lines and have access to a natural gas pipeline. The Wisconsin & Southern Railroad is a substantial short line railroad taking us directly to Chicago, and from there, to all the railroads. It is located on a major east-west highway with reasonable access to the interstate highway system.”
Much in the way it chose where to build country elevators, Didion was drawn to Cambria as a location that wasn’t already inundated with grain or milling companies serving the local grower community.
“We think our relationship with growers is a competitive advantage,” Didion said. “A very large proportion of our corn is locally sourced. If traceability ever becomes a major issue, we will be well positioned to meet customer and government requirements as they develop.”
The “hands on” culture present when Didion was a startup has continued through the company’s history, Didion said. As a result, members of the Didion Milling team, led by Dow Didion, have been deeply involved in design, construction, and equipment modification/rebuilding, John Didion said.
“Just about everything you see, we built,” said Dow Didion. “We have full-time construction people in house. We use outside contractors for large projects, but handle many projects ourselves. Our in-house crews have skills that are rare in the local marketplace.”
With the company’s “self-reliant” philosophy toward design, engineering and construction, an affection for concrete has grown. The solid concrete helps diminish infestation risks and is quite durable, John Didion said.
Didion’s grain silos were built with jump-form concrete construction, while the mill buildings use slipform and tilt-up construction.
The latter method, in which walls are formed and poured while they are flat on the ground, has become increasingly popular as a cost-effective alternative to expensive vertical pours. On the day of the interview, a new concrete wall was resting on its side in preparation for being lifted by a crane and set in place for a new warehouse. Concrete, rather than steel, is used by Didion even for the large conveyors that carry product between buildings at the Cambria complex.
“With conveyors built in a concrete enclosure, it is pretty much maintenance free,” he said. “And while the Didion ethanol plant is producing fuel-grade ethanol, the plant has been built up to food-grade standards.”
Just as Didion seeks to go the extra mile in its construction materials, research and development at Didion does not represent a box checked off as “done that,” Didion said.
“Dow and I attend R&D meetings every week,” he said.
Entering the ethanol market
Jeff Dillon, vice-president of sales, said a 2004 decision to go into ethanol was not meant as a leap into an investment craze that lured many investors into projects with a spotty track record of success.
“The ethanol plant came out of a strategic review into our core competencies,” he said. “And we decided processing corn, adding value to corn, was our core competency. On the corn milling side, we had hit the wall with government food aid programs. We needed a long-term domestic strategy.”
At the time Didion made the decision, ethanol demand was growing rapidly, Didion said.
“The intent was to build an ethanol plant and build the domestic dry corn milling business of Didion,” he said. “And then we decided to put them together.”
Dillon said the traditional approach to dry corn milling is centered on maximizing yields of finished product (grits, meal and flour), a focus he said effectively is eliminated in Didion’s new approach.
“The way it has been done in the past, a miller tests the limits of quality in terms of allowable fat or fiber,” Dillon said. “At certain yield (corn milled product as a percentage of corn weight) levels, you are profitable. But if yield slips to less than half, you lose money. We are less concerned about mill yield, because if it isn’t used in the mill, it is used in ethanol.”
And while the economics between the dry milling business and ethanol do vary (always making corn use more profitable at one than the other), he said the mindset at the Cambria complex is different because one part of the kernel (the hard endosperm) is better suited for dry milled corn products and another part (the soft endosperm, closer to the germ) is better suited for ethanol. None of the company’s production goes into the hominy feed market, the traditional byproduct market for dry corn milled product.
“We aim to maximize food-grade product,” Didion said. “We can’t be indifferent, but we are selective. The approach is fundamentally different. Our passion is to produce the highest quality food. In the past we tried to make the most with what we had, but the ethanol plant now gives us greater flexibility for food use and is a significantly better economic use than hominy.”
Because of the expanded corn utilization in connection with the ethanol plant, the Cambria complex is one of the largest dry corn grinding operations in the United States. This added scale has the advantage of making a debranning and degerming operation viable, Didion said.
“Without the ethanol plant, we would not be able to debran in the cleaning house,” Didion said. “We are grinding three times more corn than before, which allowed us to upgrade our cleaning house with this equipment. The ethanol production gives us that. Only 3% of a kernel of corn is bran (versus 14% for wheat), so smaller mills can’t afford to debran before milling. But the ethanol plant doesn’t want bran or germ. Just starch.”
Milled corn products go into a wide range of food and industrial products, Dillon said. Grits, the coarsest product in Didion’s line, are used by R.-T.-E. cereal makers, brewers and snack food companies. Corn meal goes into a variety of food products and industrial applications. Corn flour has a wide range of applications, including all kinds of batters and coatings, some viscosity controlled.
“It doesn’t tend to be like bread bakers where you have customers purchasing massive amounts of flour,” Dillon said. “We like to say a lot of people use a little bit of milled corn.”
In addition to the roster of grits, meal and flour, Didion offers value-added specialty products such as the Eclipse heat treatment process for microbial control. It can be used for corn meal coatings or flavor coatings.
The extraction of corn fiber allows users to achieve high dietary fiber in certain applications. The bran generally is sold to cereal companies and bar makers.
“It’s a very label friendly ingredient, very natural,” Dillon said.
The company also offers pregelatinized corn flour, pre-cooked, which is used as a thickener in foods.
Debranning and degerming also are beneficial for Didion’s dried distillers grains, giving the feed byproduct protein content of 40%.
“The industry norm is 28%, and we can offer that too, but ours is higher with no fiber left in the DDG’s,” Dillon said.
The addition of the ethanol plant fits into a broad series of objectives Didion Milling established to help advance the company in years ahead. These revolve around a range of topics, including the commitment to research and development for customer applications, new products and process improvement. While process improvement applies across the entire operation, the focus is particularly intense in the ethanol business. As a business with origins dating back far longer than a century, dry corn milling tends to experience only modest, incremental technological advances. By contrast, ethanol as an industry remains in its youth if not infancy, and productivity (ethanol yield per bushel) through chemical and other advances continues to improve significantly year by year. Didion continues to tweak its processes to maximize productivity. A quality control manager pores over daily production data, methodically making adjustment day by day, week by week.
“These improvements are very important for us,” Didion said. “Margins in the ethanol business have become extremely tight, and I’m convinced minimizing costs and optimizing production are keys to success going forward. And, of course, we have the corn mill as an offset.”
The ethanol plant was expanded in 2010. In addition to adding 10 million gallons of annual ethanol capacity, an improved fermentation system was installed, reducing energy use, Didion said.
Consistent with this objective, sustainability is an area of focus at the company.
“We are trying to reduce our footprint generally,” Didion said. “For instance, we look at water use and for ways to reduce usage per gallon of ethanol produced.”
The company is two years into a five-year plan to significantly expand its share of the domestic market for milled corn products. Dillon was hired eight years ago as that effort began to take form.
“At the time, the mill still basically was producing corn meal for the food aid program,” Dillon said. “It was a good base from which to explore change. Several of us were hired around that period. John told us, ‘To paraphrase Jim Collins, I don’t know exactly where the bus is headed, but I want the right guys for the bus.’ It was very appealing and has been a great, if challenging, environment to work.”
Didion added, “The focus on food aid during the early years did not do much to help our marketplace presence domestically. We were told, ‘You tell us you’ve been milling corn for years, so why haven’t I ever heard of you?’ We’ve made progress toward brand awareness. Now our objective is to grow the business through the synergy of our operations. It allows us to do things others can’t.”
To help build marketplace awareness, Didion has adopted the HarvestGold brand for its products and hired Katie Dogs as a public relations manager.
“‘Gold’ was selected for the gold standard of quality,” Ms. Dogs said. “The word ‘harvest’ was chosen because of the company’s longstanding close relationship with the farmer.”
Progress in cultivating domestic business has been considerable, Dillon said.
“We are developing our reputation rapidly, which has enabled us to work with several large customers,” he said.
A recent addition to the sales staff at Didion is indicative of the company’s focus toward the future. Riley A. Didion, the 29-year-old son of John Didion, recently joined Didion as sales manager. Before coming to the company, the younger Didion spent seven years in Jacksonville, Florida, U.S., in commercial real estate work including four with Grubb & Ellis Co., where he was a vice-president.
Grain origination is another area at Didion Milling that has grown in importance with the addition of the ethanol plant. The company has a separate on-site office where grain merchandising is handled with four full-time merchandisers on staff.
“We have a great relationship with the local farming community,” Didion said. “It’s who we are.”
Didion said 42% of the corn grown in the three counties closest to the mill are bought and milled by Didion. Wisconsin currently dedicates an unusually large proportion of its corn production to ethanol — over 200 million of the 450 million bushels of corn that Wisconsin harvests each year ends up in an ethanol plant.
Dry corn mill
While the new ethanol plant represents the largest capital investment in recent years at Didion Milling, the project also prompted a significant reconfiguration of the dry corn mill, which used to feature three separate milling units.
“We consolidated the A, B and C mills into a single A mill,” Dow Didion said. “That happened between 2009 and 2010. We needed more space for the new systems we were installing debranning, degerming and heat treatment — and consolidating the mills was the most sensible approach. We had the three separate mills because capacity had been increased gradually over the years.”
Didion said other improvements have been made to the corn mill in recent years, describing the advances as incremental. A palletizer was installed about three years ago. More recently, additional quality control was put into place ahead of the packaging lines.
“At the product protection system in most mills, all the product goes through the same sifters,” Didion said. “Ours are product specific, with grits going through one sifter, meal through another and flour through a third. There is a different scalping wire for each product.”
Sanitation in general is an area of emphasis at the company, Didion said. Monthly meetings are held with mill operatives “to be sure they understand our issues and goals,” he said.
The company has used heat treatment for insect control as an alternative to chemical fumigants for nearly 10 years.
Didion owns 50 trailers and several trucks and has an owner/operator group connected with the company. This equipment control helps avoid cross contamination, John Didion said.
The fleet includes pneumatic trucks for bulk customers.
“Having the fleet is important for on-time, reliable delivery,” Didion said.
Overall, the U.S. dry corn milling business grows 1% to 2% per year, Didion said, so finding competitive advantages will be the only way Didion will gain a significant foothold in the domestic market, particularly given the well-entrenched position of the company’s competitors — the largest agricultural processing companies in the United States.
Didion said, “To become a major supplier in the domestic market we have a lot to do to distinguish ourselves from the competition. And we’re doing it.”
Josh Sosland is editor of Milling & Baking News, sister publication of World Grain. He can be reached at email@example.com.