From Corner Butcher Shop to Leading Multinational Food Provider
Today the OSI Group is one of the largest food providers in the world, with 20,000 employees at 65 facilities in 17 countries. Its rise from humble beginnings to a major corporate business is a significant slice of 20th-century American economic history. The company is a growing presence in the still-evolving story of the modern, globalized economy.
OSI Group’s history is rooted in the American immigrant experience.
At the turn of the 20th century, Otto Kolschowsky was a member of the booming German-immigrant community in Chicago, Illinois. People of German descent made up a quarter of the city’s population at the time. The thriving city was both a center of industry for the nation and an entry point for new immigrants who were on their way west to establish farms on the plains.
The city was, as Carl Sandburg would describe it in 1914, “Hog Butcher for the World, Tool Maker, Stacker of Wheat … City of the Big Shoulders.”
In 1909, on the west side of Chicago in Oak Park—only two years after arriving in the United States—Kolschowsky opened a small retail meat market and butcher shop to serve his community. He did good business and within a decade—by the end of the First World War—Kolschowsky had expanded into the wholesale side of the business. This included moving operations to another Chicago suburb, Maywood.
Within another decade the business followed a common storyline for family-based, immigrant businesses and was rebranded as Otto & Sons in 1928.
And for decades thereafter Otto & Sons continued to be a stable, successful local business. Like so many others, it was a small-yet-vital part of the American community. And that’s what it still was in the aftermath of the Second World War.
Symbiosis with a Rocket in a Bottle
But at the beginning of the postwar economic expansion—as modern suburbs began sprouting across the United States and the pent-up demand and inventiveness unleashed by the end of the war carried the day—a fateful business alliance was formed by what, at the time, were still two small, relatively obscure family businesses.
Ray Kroc opened the first McDonald’s restaurant in 1955 in Des Plaines, Illinois. At the time he was still a franchise agent for a San Bernardino, California, couple—Richard and Maurice McDonald—who had founded a family restaurant in 1940. The Des Plaines restaurant was the first step in expanding McDonald’s via the franchising model, a concept just taking hold in the United States at the time.
But before he opened that original McDonald’s, Kroc had entered into a handshake agreement with the sons of Otto Kolschowsky—Arthur and Harry—to be the franchise’s first supplier of fresh ground beef. Needless to say, that was a fateful development.
Within a few years, Kroc would buy out the McDonalds and become the chief executive officer (CEO) of the modern McDonald’s corporation. As his new company took off—and in the process established the blueprint for the modern franchise model—Otto & Sons was symbiotically joined to it. Very quickly supplying the ever-growing number of regional McDonald’s restaurants became Otto & Sons primary task. The family business was riding shotgun with a company about to become one of the most recognized brands on the planet.
Cutting-Edge Technology For Cutting-Edge Retail
The transition from regional supplier Otto & Sons to global corporation OSI Group transpired over the next two decades. One of the core elements of Kroc’s franchising model was to provide each individual restaurant—and thus each customer—with a consistent product. And the core product of McDonald’s was its hamburgers. Thus, the pressure was on Otto & Sons and other suppliers to produce a consistent, affordable, and consumer-driven product that could be transported long distances to the ever-widening range of McDonald’s restaurants.
In the late 1960s, a technological breakthrough made this task easier, more affordable, and led to an even closer relationship between Otto & Sons and McDonald’s. The process of flash freezing—cryogenic food processing in which food is quickly frozen with the use of liquid nitrogen—created new opportunities for product expansion and cost reduction in the food industry.
Otto & Sons ended up in a position—due to the company’s close historic ties with McDonald’s and the personal friendship between Kroc and Arthur and Harry Kolschowsky—to transition from one of over a hundred McDonald’s meat suppliers nationwide to one of its four core suppliers when the franchise consolidated its supply chain.
In 1973, Otto & Sons built its first plant dedicated solely to the McDonald’s product line, a state of the art facility in the suburban city of West Chicago, Illinois that included technologically advanced machinery for flash freezing hamburger patties. The non-McDonald’s aspects of the business were folded into the Glenmark brand, which continued to serve the local restaurant and retail markets.
Otto & Sons became a two-track company, one a stable local supplier and the other a rapidly growing Midwest provider to what was becoming one of the great corporations of the world.
As part of this transition—and to better recognize the core nature of its business—Otto & Sons became OSI Industries in 1975. This name change codified the nearly 75-year transition from a family butcher shop to a technologically advanced company operating on the scale of a manufacturer.
Another aspect of the transition was the changing nature of the leadership of the company. Up to this point members of the Kolschowsky family had run Otto & Sons, but as the company transitioned into a larger entity with the need to expand internationally—and as the sons of Otto & Sons approached their retirement years—Sheldon Lavin was asked to join the company as a partner in 1975. Lavin had been introduced to it while serving as its investment consultant and playing a key role in Otto & Sons capitalization efforts in 1970.
Ramping Up Production
The next few years saw a concentration of OSI’s manufacturing capabilities in response to McDonald’s continued growth. In 1977 it opened its first facility outside of the Chicago area, in West Jordan, Utah. Other North American facilities followed in the late 1970s and early 1980s.
And as McDonald’s broke into the international market, OSI followed suit. A joint venture was entered into in Germany in 1978 and then Spain in 1980. OSI was beginning to become a sprawling, complicated multinational corporation.
This growth in the international sector—and the sophisticated capitalization and negotiating it required—resulted in Lavin becoming chairman and CEO of the company in the early 1980s. His experience as an investor and executive in the banking sector proved crucial in what would be another high-growth phase for the company, one centered not only on McDonald’s—which continued to be its major customer—but also on forays into other sectors of the food industry.
This transition led to a substantial growth phase that continues to this day. It has made the OSI Group one of the largest companies in the United States, ranked #58 on the 2016 Forbes list of largest private companies with sales of $6.1 billion.
OSI’s current position as one of the most vital food providers in the world was built on a series of expansions and joint ventures—in Brazil, Austria, Mexico, Hungary, Poland, and the Pacific Rim—that dominated the company’s strategic growth in the late 1980s and early 1990s.
The 1987 joint venture with K&K Foods in Taiwan was notable for being the beginning of OSI Asia-Pacific. The GenOSI joint venture was established in the Philippines in 1990, while a China-based Wholly Foreign-Owned Enterprise (WFOE) was formed in 1992 in Bejing. A second plant was added in Shanghai in 1996.
As China negotiated its entry into the World Trade Organization (WTO)—which was formally activated in 2001—it became clear to the leadership of OSI that this would open up a huge new market for food products. Much like the Otto & Sons strategic alliance with McDonald’s, the OSI Group’s establishment of WFOEs and joint-venture entities in China would become the launching pad for OSIs robust international growth.
The rapid rise of China’s economy since the turn of the 21st century has produced an ever-growing market that is driven by more affluent consumers expecting a wider variety of food products. The OSI Group not only continued to provide products for McDonald’s but also brought new clients onboard, such as Yum, Starbucks, Saizeriya, Papa John’s, Burger King, and Subway.
OSI’s growth also continued in the United States during this period, with a partnership agreement with Nation Pizza and Foods established in 1994. A new processing plant opened in Chicago in 1986 and a facility in Oakland, Iowa, was acquired in 1996. This plant concentrated on the production of bacon, sausage, and hot dogs and represented a serious foray into new product lines for OSI.
Poultry processing was also a new product line that OSI began developing in earnest in the 2000s. It started with the 1996 acquisition of the U.K.-company Moy Park. The 2006 purchase of the vertically integrated poultry company Amick Farms—an east coast company in the United States—was also a major step in this process. The establishment in 2010 of the joint venture Weihai Poultry in China’s Shandong province continued the process, as did another vertically integrated poultry joint venture in Fujian province in 2011 under the name SunOSI.
The 1990s and 2000s also saw expansion by OSI into India and Australia. In China, it expanded into the fresh produce business via acquisitions, a process that began in 2002.
As it expanded rapidly abroad, OSI shed a remnant of its past, as the Chicago-based Glenmark brand was licensed to Best Chicago Meat in 1999 (it was wholly acquired by that company in 2011).
By the end of the first decade of the 21st century, OSI—though still headquartered in the metropolis where it began a century earlier—was operating a global network of processing plants. Its corporate culture emphasized local management teams who understood their markets but could coordinate with a parent company that put into play the resources available only to a globally scaled food producer.
From the Chicago suburb of Aurora—only 30 miles from where Otto Kolschowsky opened his butcher shop in Oak Park—the company emerged as a broad and diverse multinational corporation.
Consolidation, Diversification, and Expansion
The last decade has seen OSI continue to grow into a leader of value-added protein products, from sausage links to pizza to, yes, hamburger patties. It has also branched into new territory, both literally and figuratively. Global expansion—especially in China and Europe—has continued at an impressive rate, while a wider range of products has come under the OSI Group’s banner, including non-meat products.
In 2010 OSI opened a new beef production facility in Japan, further expanding the reach of its Asia-Pacific operations. In 2012 two new facilities were opened in India, one in Bangalore and one in Punjab.
The following year, in 2013, saw a new joint venture with the Japanese company JC Comsa in China with the establishment of OJC Foods, featuring a specialty dough product line. Another vertically integrated poultry facility was opened in Weihai, China, in 2013. Two more plants in China were also added that year—the DaOSI vertically integrated poultry joint venture with the Doyoo Group and the OSI Henan processing plant, which is a Leadership in Energy and Environmental Design (LEED)-certified facility.
Over the past five years, Europe has also been a focus of the OSI Group’s growth. Another LEED-certified processing plant—for beef production—went online in Ostróda, Poland, in 2013. In 2014 OSI established separate joint ventures in the United Kingdom with Pickstock and Germany with the supermarket chain EDEKA.
A major development in Europe—and globally—was the establishment of a new global trading platform based in Germany in 2013. MPO (Meat, Poultry & Other) Global Trade, GmbH, was established in Günzburg-Denzingen and initially focused on OSIs poultry holdings in Brazil and Thailand. The effort was focused on providing OSI with control of its supply chain all the way to its customer, thereby introducing more efficiency in its global operations.
Another significant step in Europe came in 2016 with the acquisition of a controlling stake in Baho Food. It is a diversified Dutch manufacturer of meat and other food products with operations in not only the Netherlands but Germany as well. Another expansion that year was the purchase of the U.K.-based Flagship Europe (which was rebranded as Creative Foods Europe in 2018). In 2017 Germany’s Hynek Schlachthof GmbH was acquired.
All of this activity in Europe led to the opening of a new OSI Group regional office in Gersthofen, Germany, in 2016.
This period of rapid growth in both China and Europe coincided with the further expansion of the OSI Group’s product line. In 2011 a dry sausage plant opened in West Jordan, Utah, and a year later a new plant producing frozen entrée items and other food products opened in Geneva, Illinois.
A joint venture in Canada with Select Ready Foods of Edmonton, Alberta, in 2014 created the OSI Select Ready Foods brand. In 2016 OSI bought a processing plant in Chicago from Tyson Foods to provide further capacity for growth and product diversification.
The broadening of the OSI Group’s products out from its core meat-based protein includes the 2014 processing plant opening in Riverside, California, for the production of salsa, beans, and tofu products. Abroad that same year a frozen food plant providing vegetable products for restaurants and retail was opened in Madanapalle, India.
Like the intense growth of Otto & Sons in the 1970s—which was partly based on the adaptation of the cutting-edge technology of cryogenic food processing—the recent growth of the OSI Group is also founded on research and development (R&D). Since 2010, the OSI Group has opened two Culinary Innovation Centers, one tied to its corporate headquarters in Aurora, Illinois, and the other in Shanghai, China. A separate global R&D Center was opened in Aurora in 2014.
These facilities are part of partnering with clients in the development of new and better products that is now a core tenet of the OSI Group’s operations. Like the feedback loop with McDonald’s franchises earlier in the company’s history, this level of communication with retailers on the ground allows OSI to stay abreast of what its customers need. This is especially important as consumers—both in the United States and abroad—become more knowledgeable and sophisticated in their food consumption choices.
Integrating the latest technology in food safety and quality, as well as deeper partnering with producers on the ground, are also core responsibilities that the OSI R&D efforts are designed to fulfill. The technical resources that OSI can share with its partners up and down the food chain is a significant intellectual property asset of the company.
These efforts are also focused on the sustainability and environmental impacts of modern food production. The OSI Group has recently won a number of awards for their environmental efforts, including the 2016 California Green Business Award, the 2016 Globe of Honour from the British Safety Council for exemplary management of environmental risks, and a 2018 Environmental Recognition Award from the North American Meat Institute (NAMI).
The OSI Group has a long history, dating back over a century. It is this history of superior client relations, technological innovation, and the early recognition of growth opportunities that has led a small German butcher shop to grow into one of the world’s leading food providers.