Whereas many of the mass producers of semiperishable packaged products continued to use the wholesaler to handle the physical distribu- tion of their goods—even after they had taken over that middleman’s ad- vertising and scheduling functions—the makers of more perishable products such as meat and beer, in building their marketing networks, began to sell and distribute directly to the retailers. The market for perish- able products expanded as the railroad and telegraph networks grew. As early as the 1850s crude refrigerator cars were used to bring milk, butter, and meat to urban markets. In the 1870s, when the direct movement of cars over long distances became possible, western meat packers began to ship fresh meat to the eastern cities. Then, in 1881 the modern refrigerated car made its appearance. Gustavus F. Swift hired Andrew J. Chase, a leading refrigeration engineer, to design a car to carry Swift’s dressed beef from Chicago to Boston. Again, the 1880s were the crucial years.
The refrigerator car, however, was not the reason Swift became the in- novator in high-volume, year-round production of perishable products.23 He became the first modern meat packer because he was the first to appreciate the need for a distribution network to store meat and deliver it to the retailers. He was the first to build an integrated enterprise to coordinate the high-volume flow of meat from the purchasing of cattle through the slaughtering or disassembling process and through distribution to the retailer and ultimate consumer.
When Gustavus Swift, a New England wholesale butcher, moved to Chicago in 1875, nearly all meat went east “on the hoof.” Western cattle were shipped alive by rail in cattle cars to local wholesalers who butchered and delivered to retailers. The economies of slaughtering in the west and shipping the dressed meat east were obvious. Sixty percent of an animal was inedible and cattle lost weight and often died on the trip east. More- over, the concentration of butchering in Chicago and other western cities permitted a high-volume continuous operation which not only lowered unit cost but also made possible fuller use of by-products.
To carry out his strategy, Swift, who had begun winter shipments in 1878, not only concentrated on improving the refrigerated car but also built a network of branch houses, first in the northeast and then after 1881 in the rest of the country. Each house included refrigerated storage space, a sales office, and a sales staff to sell and deliver the meat to the retail butchers, grocers, and other food shops. Swift soon supplemented this distributing and marketing network with “peddler car routes” which distributed dressed meat in small lots by refrigerator car to towns and villages.
In executing his plan, Swift met with most determined opposition. Rail- roads, startled by the prospect of losing their livestock business, which was an even greater producer of revenue than grain on the west to east routes, refused to build refrigerated cars. When Swift began to construct his own, the Eastern Trunk Line Association refused to carry them. Only by using the Grand Trunk, then outside of the association, was Swift able to bring his cars east. At the same time he had to combat boycotts by local wholesalers, who in 1886 formed the National Butchers’ Protective Association to fight “the trust.” These butchers attempted to exploit a prejudice against eating fresh meat that had been killed days or even weeks before, more than a thousand miles away.
High quality at low prices soon overcame this opposition. Though Swift did rely on advertising to counter prejudice against his product, it was clearly the prices and quality made possible by high-volume operations and the speed and careful scheduling of product flow that won the market. Once the market was assured, Swift had to expand his production facilities to keep up with demand. He increased his speed of throughput by subdividing the processes of butchering and by using moving “disas- semblying” lines. In the 1880s and early 1890s, Swift & Company built new packing plants in six cities along the cattle frontier. The company then bought into adjoining stockyards where men from its purchasing department became experts in buying cattle in volume.
Other packers realized that if they were to compete with Swift in the national market they must follow his lead. By the end of 1882, Philip D. Armour of Chicago and George H. Hammond of Detroit were beginning to build comparable networks of branch houses and to compete with Swift for the best locations along the railroad lines. Nelson Morris of Chicago and the two Cudahy brothers of Omaha constructed similar networks in the mid-i88os.24 The oligopoly was rounded out when the New York firm of Swartschild and Sulzberger completed a comparable inte- gated national enterprise in the early 1890s. Except for Hammond who died in 1886, all these entrepreneurs enlarged their processing facilities, built new packing plants in other western cities, bought into the stockyards, and expanded their fleet of refrigerated cars. Well before the end of the eighties a small number of very large integrated meat-packing firms dominated the dressed meat business, and they continued to do so until well into the twentieth century.
Improved transportation also encouraged several brewers to enter the national market. In the 1880s a new pneumatic malting process increased speed and improved control in the process of brewing beer. At the same time the development of temperature-controlled tank cars made it possible to distribute their product nationally. In the 1870s brewers sold only within a relatively small radius of their plant, relying on traveling men to sell the product by the barrel to wholesalers. In the 1880s Pabst, Schlitz, and Blatz of Milwaukee, Lamp and Anheuser of St. Louis (the able Adolphus Busch took over Anheuser in 1880), and Moelin of Cincinnati all began to build a nationwide distributing network and to use advertising agencies to reach the national market. For example, in early 1879 Pabst had only one branch, in nearby Chicago. That year a second was set up in Kansas City.25 Between 1881 and 1894 the company built thirty more branches in every part of the country. Although Pabst used wholesalers in some cities, an increasing proportion of sales came to be made through company offices that stored, distributed, marketed, and advertised the Pabst product. In 1887 Pabst went one step further by moving into retailing and purchasing saloons, which were rented to operators.26 In the same years Pabst and the other national brewers expanded their purchasing organization, using them to buy high-quality malt, barley, rice, hops, and other materials in large quantities with precise specifications. They also set up barrel-making plants and purchased timberlands. By the 1890s these integrated enterprises were, like those of the meat packers, among the largest businesses in the land.
The growth of the large integrated enterprises in the meat-packing and brewing industries was similar to the pioneer enterprises in semiperishable packaged goods. The rise of the integrated enterprise and with it the reorganization of the industry came at almost precisely the same time. The pioneering firms long remained dominant in their industries. The names of the leading packers and brewers of the eighties are still familiar today. In both industries the new giants were financed from within. Cash flow generated by high-volume turnover and throughput provided nearly all the funds needed for working or fixed capital. As in the case of the new entrepreneurial enterprises in semiperishable industries, the founders and their families in meat packing and brewing continued to hold almost all the stock.27 Even the Swifts, who had issued stock to the wholesalers who joined them to become branch houses, appear to have maintained full control of their company. These firms, in turn, became models for enterprises distributing similar goods—dairy products, bananas, and in more recent years, frozen foods.
Source: Chandler Alfred D. Jr. (1977), The Visible Hand: The Managerial Revolution in American Business, Harvard University Press.