Empire Strikes Back

How Greg Rosenbaum, a Reform Jew, Is Taking His Company to New Frontiers as the Kosher Food Industry’s Top Firm

By Nathaniel Popper

Published August 12, 2009, issue of August 21, 2009.
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When the poultry company Empire Kosher was on the verge of bankruptcy a few years ago, the man who had just taken over as CEO of the company, Greg Rosenbaum, called employees in for three straight days and nights of meetings in the firm’s board room, with food brought in and only brief breaks for naps.

“It wa s brutal,” said Jeff Brown, the company’s senior vice president today. “There were some major arguments — and people left the room — and we hooted and hollered at each other.”

Rosenbaum and Brown estimate that in the 10 years before the emergency meetings, the company — once the largest kosher poultry producer in America — had lost nearly $100 million. In the two years since that meeting, the company has once again assumed its place atop the kosher industry, and is in expansion mode.

“I always say to Greg that it was the first night of those meetings — March 5 — that’s the night that he saved the company,” Brown said.

Over the past few years, America’s kosher meat industry has been dogged by problems and controversy. Most notable was the 2008 bankruptcy of Agriprocessors, the undisputed king of the kosher industry at the time. The bankruptcy followed an immigration raid at the company’s Postville, Iowa, slaughterhouse and years of allegations of poor working conditions at the plant. More recently, Alle Processing, the biggest kosher beef producer after Agriprocessors’ demise, has faced legal challenges to the way it treats its employees.

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But while others have struggled, Empire has been ramping up its operations. The company is about to open a new, high-speed kosher poultry line within the factory in order to increase production dramatically. It is also about to start a new brand of kosher poultry specifically for ultra-Orthodox Jews, following up on the creation of organic and antibiotic-free poultry lines. In addition to all this, Empire is branching out, for the first time, into kosher beef.

“I think they’re really on track to restore Empire to its former glory,” said Menachem Lubinsky, who runs the leading kosher trade show.

The man who has led this dramatic turnaround is an unexpected player. Rosenbaum, 57, has a law degree, a master’s and an undergraduate degree, all from Harvard, and he helped found the world-famous private equity firm The Carlyle Group. In 2003, he took Empire on as a classic turnaround job with his own firm, Palisades Associates, aiming to bring the company back to health and then sell it.

In addition to the credentials, though, Rosenbaum stands out in the kosher world because he is a rather ordinary Reform Jew who has never been involved in animal slaughter — and who doesn’t even keep kosher himself. He has now been thrust into the position of running what amounts to a mini kosher empire. Rosenbaum says that when he first went to meetings with others in the kosher industry, it was a new world.

“They would say things in those meetings that would leave me scratching my head — and I would walk away and I would say, this is an irrational business,” Rosenbaum said. “This is not like the electronic component business, this is not like the construction equipment rental business, just to name a few other businesses I’ve run.”

But a few years later, Rosenbaum says he is learning the intricacies of this often veiled world, and he serves as a knowing tour guide.

“It is in many ways much more of a game of wits than a lot of businesses I’ve been in; I’m up against a bunch of smart Jewish businessmen,” Rosenbaum said. “Every day I get up and I think that I’m playing three-dimensional chess.”

Empire has risen not just by using smart strategy, but also by being a sort of anti-Agriprocessors when it comes to the ethical issues that have plagued other kosher producers.

While Agriprocessors and Alle — the two largest players in the kosher meat market — have been criticized for their treatment of their nonunionized work force, Empire has cultivated an unusually close relationship with its unionized workers. Workers start at $10 an hour, and everyone gets health care along with regular safety training and an on-site nurse. Carlos Renderos, a longtime employee at Empire, started working for the union a few years back and went to help organize the workers at Agriprocessors before the raid. It was then that he realized what the Empire workers had.

“When I got there and I saw how they treat these people, I think to myself, ‘My god, we are in heaven,’” Renderos said.

Workers say that Empire does not just follow the union contract, it goes beyond it. On Passover the rabbis get bonuses, and on Christmas the company has a party for its workers and sends them home with turkeys. A few years back, when the cost of health insurance rose sharply, the company was entitled by the union contract to pass the increased costs on to the employees, but Rosenbaum chose to have the company eat the costs. Union officials seem almost embarrassed when they speak about his behavior.

“I wouldn’t want anyone getting a big head — there’s always room for improvement,” said Michele Kessler, head of Local 1776 of the United Food and Commercial Workers, which represents Empire’s workers. “But we think the management here is extremely fair. Their philosophy actually seems to be one of respect.”

Kessler said that this was true before Rosenbaum came on as CEO in 2006, but she said that Rosenbaum’s arrival heralded “a kindler and gentler approach.”

This led the Jewish Labor Committee to honor Rosenbaum in 2007 with a human rights award. Avi Lyon, who was the executive director of the JLC at the time, said, “When you are looking for the gold standard of things, this is the gold standard.”

Rosenbaum says his affinity for unions goes deep: He refers back to fond memories of his childhood in Toledo, Ohio, when the AFL-CIO building at the end of his block was where he would go to buy a Coke. “In the circles that I do business with, everyone thinks that it is heresy, but I like dealing with unions. I actually think that if you know how to work with unions, and you have mutual respect with unions, you can make yourself a better business,” Rosenbaum said.

Rosenbaum is a proud Democrat, and he said it is all of a piece for him: “From a political perspective I’ve always said that you do not balance the budget on the backs of the poor, and you do not balance the books of a corporation on the backs of its workers.”

Empire is, however, a company that slaughters animals, and it has not escaped its share of problems. Two years back, a woman working the night shift lost part of her arm when a machine accidentally turned on. And in 2001, before Palisades took over, Empire was the subject of an immigration raid in which 107 workers were swept up. Rosenbaum has led Empire to voluntarily enlist with a government program in which each employee’s immigration status is vetted electronically. Today, Brown said, the company finds fewer and fewer applicants who do not have good social security numbers. “People know not to come here,” Brown said.

As a result of these moves, Empire has not had the transformative effect on the small, central Pennsylvania town where it is located that Agriprocessors had on Postville. Brown estimates that only 15% of the workers are Hispanic; most employees are longtime locals. The rabbis who work in the plant come for the week from New York and Baltimore and stay in housing on company property.

Still, inside, Empire has many of the unattractive characteristics of meat production facilities everywhere. Chickens jammed into metal crates arrive by truck, and are dumped out onto a conveyor belt. The birds move along to a point at which a worker pulls out the chicken by its legs and exposes the neck so that the ritual slaughterer, or schochet, can make a single, swift cut. On either side of the schochet are trashcans for any chickens on which the cut does not go smoothly. Beneath the schochet is a pyramid of coagulated blood. A separate line runs with turkeys; because of their size, they are not put on a conveyor belt but are instead strung up by their feet in preparation for the schochet.

Rosenbaum has entered the market at a time when consumers are increasingly concerned with every step of the food production process — hence the new organic and all-natural lines. But Rosenbaum is not a sentimental foodie.

“A chicken is simply an inefficient means of turning corn into protein,” Rosenbaum said. He is much more interested in the little innovations that are allowing Empire to make a better tasting, more affordable chicken, like the new high-speed processing line that will allow the company to jump to slaughtering 800,000 birds each week from around 250,000 today.

“I’m happy to tell my competitors, I’m going to take the fastest line that the USDA allows in a United States poultry plant, and I’m going to run it kosher,” Rosenbaum said. “And if you can catch me, then more power to you.”

Rosenbaum’s offices are on the second floor of the windowless plant, off a corporate hallway decorated with paintings of chickens. On a recent weekday, Rosenbaum, a round, cheerful man, was wearing a dark suit with blue tie from the French company Hermes, decorated with tiny chickens. When he came into the conference room for lunch after a tour of the plant, he showed a sense of humor about the setting.

“This is always the odd part of the day, when you’ve been down in the plant and you come up here to eat,” Rosenbaum said.

Rosenbaum had the company’s food technologist bring in a few of the new product lines Empire is working on. One is a newly patented bag that allows raw chicken to be totally cooked in the microwave. Another was a prototype for the company’s first beef hot dog, designed, Rosenbaum said, to attract “the mainstream kosher hot dog buyer.”

When asked if this was a reference to Hebrew National, the big kosher hot dog maker, he smiled and said: “I don’t want to call it that. Telling individual competitors that you are coming after them is not my style.”

As CEO, Rosenbaum is not at the Pennsylvania plant every day. He lives in suburban Washington, where he oversees the rest of Palisades’s investments, leaving the day-to-day management to Brown, a young guy who went to high school near the plant. But Rosenbaum clearly relishes the little details of the Empire production — in ways that sometimes makes him feel guilty as a hardheaded businessman.

“My investors expect me to be cold, calculated and investment driven,” Rosenbaum said. “Some of my investors think that I am having way too much fun with Empire — and therefore that I must have strayed from the straight and narrow path of worrying solely about dollars-and-cents income instead of psychic income.”

Rosenbaum says that he remembers the brand from his own childhood. His grandparents kept kosher, but his parents did not. Rosenbaum and his wife belong to a Reform synagogue in Maryland, and they do not keep kosher at home. All the same, Rosenbaum’s rabbi said he noticed some connection to Empire that he had not seen with previous business acquisitions that Rosenbaum had made.

“I remember the tone of the conversation when he bought it was, ‘You’ll never guess what I’m doing,’” recalled Jack Luxemburg, Rosenbaum’s rabbi at Temple Beth Ami in Rockville, Md. “I can tell you when he got involved with Empire, though, there was something special about it. He recognized that there was a dimension to this project that was more than corporate — that had a very Jewish resonance.”

Empire started small as a family business run by the Katzes, father and sons. Peggy Delancey, who has been at the company for 33 years, remembers that Murray Katz, the father, “would come down every morning. They were just real nice people.”

Empire was the first kosher meat producer to get into mainstream supermarkets, and Lubinsky said that the Katzes were good with the personal touch — “the personal arm-twisting of every vendor.”

In 1992, the Katzes sold to the first of a few private-equity owners, Apollo Advisors. Rabbi Israel Weiss, the rabbinic administrator at Empire today and a knife inspector then, says that things went downhill quickly. Apollo pushed to move beyond regular kosher consumers, Weiss said, and it didn’t go well.

“They came out with this ad with a picture of Moses, and it was not even a correct picture of Moses,” Weiss said.

Apollo sold Empire to another private equity firm, J.W. Childs, in the late 1990s. This was during the era in which Agriprocessors was expanding and undercutting the prices of all of its competitors. Everyone in management today agrees that Childs made a mistake by piling on lots of debt in trying to catch up with Agriprocessors. “We owed everybody everything,” Brown said. “We should have declared bankruptcy.”

Rosenbaum and his partner at Palisades, Charles Garvin, noticed Empire on a list of distressed debt. Both of them saw it as a recognizable name brand that had fallen on hard times but still had its famous name. And so, six years ago, they bought it.

Rosenbaum and Garvin generally do not run the companies they buy themselves, but the first two CEOs they brought into Empire did not turn around the company. Rosenbaum said that the first CEO had trouble getting costs under control, and the second didn’t understand the kosher market.

“Not only was he not observant, but he wasn’t Jewish,” Rosenbaum explained, “and so the nuances of the kosher market, and they are many, were completely lost on him.”

Brown says that when Rosenbaum took over as CEO in 2006, the company needed a complete overhaul: “We were the world’s largest butcher shop — that’s what we were. If you wanted something and you only wanted two cases a year, we would make it for you.”

It was in this climate that Rosenbaum called all of Empire’s top management into a series of all-nighters to slim down the company. Rosenbaum forced his team to figure out — without computers — exactly how much it cost to raise a chicken and then he led his team in winnowing Empire’s offerings to close to 150 products from nearly 1,000, cutting out products that were not selling, including a few classic items like schmaltz. The company also went from around 1000 employees to closer to 700 and did away with its old computer system.

The company became profitable in June 2007 and yearly revenue jumped 26% last year and 28% this year.

Among the most notable differences between Empire and other businesses that Palisades has owned is that Empire’s products require certification from rabbinic agencies that charge for their services. Rosenbaum said he is still trying to get a handle on the capitalist dynamics of this: “Ask them, how do they come up with their fees? I’d love to know the answer.”

The flip side of this is that some in the rabbinic world have been skeptical of Rosenbaum’s nonobservant background. Rabbi Yudel Shain, head of the Kosher Consumers Union, said that when Rosenbaum first came in, he heard complaints from kosher supervisors.

“Their attitude was that he really doesn’t know what he’s doing,” Shain said. “He’s just trying to look at it from a businessman’s point of view, without understanding kosher.”

Rosenbaum says he encountered this when a kosher certifying agency was generally approving but asked him, “Why don’t you become shomer Shabbos?”

“I said that I did not think we were going in that direction — that I was 57 years old and the ship had sailed on that.”

Rosenbaum has tried to turn this to his advantage, and kosher authorities say he has done it well. Lubinsky said that he hears from certifiers who say that Rosenbaum has “given them a lot of latitude in terms of what they need to do. He’s pretty much stayed out of their way.”

Rosenbaum is likely to face more opposition as he continues his expansion. Empire is gunning for Alle Processing with its new beef line, EKB Kosher Beef, which is already appearing in big-box stores around New York. With a new line of poultry, targeted for the ultra-Orthodox market, Empire is going after companies that have traditionally produced for more religious consumers and charged higher prices. Weiss said that he has seen the same poultry that goes for $2.99 in New Jersey being sold for $4.99 in parts of Brooklyn that are heavily ultra-Orthodox. “It’s a captive market in these neighborhoods,” Weiss said.

Empire’s move into this market will likely raise hackles, but it will not be the first time Rosenbaum is facing opposition. When he discontinued schmaltz, he got a call from a critic closer to home.

“My aunt back in Toledo called me to tell me that she had been thrown out of the sisterhood because her nephew, who she had kvelled about owning Empire, had discontinued schmaltz right before Passover,” Rosenbaum recounted. “I said, ‘If we reintroduce this product we’re going to have to triple the price, because it’s going to have to be profitable.’ She said: ‘Nobody cares. Triple the price. Quadruple the price.’ So we did it — and we sold no fewer items than when the price had been a third less, and my aunt got back in the sisterhood.”

After a pause, he added, “True story.”

Contact Nathaniel Popper at popper@forward.com


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