Shatto Milk Co.: Dairy Farm Finds the Formula for Success
Reinventing a business is often the key to its survival. Markets plummet. Prices go up. Demand goes down. Consumers change. Moving forward often means taking risks, venturing into the unknown and hoping that something, somewhere, will work out in the end.
For Leroy and Barb Shatto that need for reinvention came more than a dozen years ago when the dairy farm that had been in Barb's family for generations faced an uncertain future.
"Milk prices were at a low and the feed and other costs were so high it was hard to make it," Barb says. Other dairy farmers had or were thinking about quitting, giving up on the farms that had supplied milk to dairy cooperatives for decades.
But the Shattos weren't willing to sell their cows and close down the farm Barb grew up on. "We realized we had to do something different," she says of the business. That's when her husband Leroy came up with a plan -- start bottling their own milk and eliminate the middle man.
It was a big risk, one that required money from the bank. Dairy farmers generally sell their milk to processors who take on the cost of pasteurizing and bottling. Going from being a dairy farmer to a business owner was a big leap of faith -- for the Shattos and for a bank.
They took their business plan to several lenders, but rejection followed rejection. "Dairy farmers were not a place where [banks] could make money," Barb says. Their final stop was a local bank not far from the farm. "I was turned down seven or eight times and this was my last resort," Leroy says. "He said, 'Yeah, I think this will work.' He actually believed in me, and I about fell out of my chair!"
The Shattos didn't let the bank down -- or themselves for that matter. Eleven years after turning a dairy farm into a milk company that does everything -- from raising Holsteins to inventing seasonal milk flavors -- the Shatto brand has become a must-have for Missouri consumers seeking fresh milk and real experiences.
Chapter 1: Farm
Along a country blacktop with barely enough room for two full-sized pickups, past grain silos, and rolling pasture, the Shatto farm welcomes visitors with a white gravel entrance and black and white Holsteins grazing a few feet from a parking lot.
The farm's roots took hold three generations ago when Barb's grandparents bought it at the turn of the 20th century. Her parents took over when her grandparents retired. "We helped get the hay, helped with the chores. My parents were very hard workers and they never went on vacation and everything was about the family farm," Barb says of her childhood.
Trucks from the co-ops would stop daily and take their milk to package it and sell it, amassing a profit along the way that the farmers never saw. "We didn't have a big bulk tank, we just had those [milk] cans and they set in a cooler until they were able to be picked up," she says.
Barb met Leroy Shatto in grade school and the two began dating in high school. During college, Leroy started working on the farm to help her father. The high school sweethearts married in 1972 and Leroy joined the farm full-time. "I never thought I'd be milking cows, but I became partners with [Barb's dad] and he was wanting some help," Leroy says.
The couple took over when Barb's father retired. The farm had one part-time employee and 80 cows back then. When they weren't milking, they were planting crops and doing other jobs around the farm. "People just don't have a clue," how hard the work was, Leroy says. "Even if we did have a Sunday to go somewhere, you had to turn around and come back that afternoon."
In the mid-1990s, the Shattos began thinking about the farm's future. By then the co-ops were paying less for milk than what it cost farmers to produce it. "The day before we started putting it in our own bottle [the co-ops] were paying us dairy farmers $10.86 per 100 pounds and it was costing us about $11.25 to produce. I'm not very smart, but that just wasn't working," Leroy says.
In summer 2003, with their new backers and business plan, the Shattos sent out their very first milk delivery of around 480 half-gallon glass bottles to eight stores.
But unlike the big co-ops that control supply by buying more or less milk from dairies depending on demand, Shatto's cows controlled production. That was okay when they sold milk to the co-op. But Shatto-branded milk, in retro glass bottles with whimsical sayings stamped on the side, caught on quickly with consumers. Pretty soon, they were selling out of milk.
Barb remembers she and Leroy "threw the business plan out the window" because they needed to adapt to the amount of orders they were receiving. "Things changed dramatically and really, very quickly," she says. "It was kind of scary."
But just as they didn't run from the first challenge of shifting from a dairy to a milk company, they shifted again to keep up with demand, investing in more cows to keep up with consumers who couldn't get enough of the milk.
Today 47 people work at Shatto and the herd is up to 400 cows. A decade ago the farm produced 100 to 125 gallons of milk a day. It produces 1,750 gallons now. "And we still don't have enough milk," Leroy says.
Chapter 2: Foundation
Dreary clouds hang in the distance on an early fall morning. A storm rolled through earlier, knocking down the hot temperatures. That means more milk from the cows. Cows produce more than seven gallons of milk on a good day and any leftover milk can make cheese or ice cream.
The cows' production had slowed during a recent heat wave. "The girls are happy because the weather has cooled down," Leroy says of his Holsteins.
Sitting in the dark wood feeding barn where cows munch their breakfast, a mix of corn silage, grain corn, alfalfa, soy, vitamins and minerals, Leroy jokes: "When I die I want to come back as a dairy cow."
Cows that are born and raised on the farm are just one of the foundational elements that sets Shatto apart from the competition.
The dairy's signature glass bottles provide a vintage nod, but are reusable and keep milk colder. The Shattos also say milk tastes better in glass because it doesn't pick up the petrochemicals found in cartons. Under Shatto's working conditions, milk can make it from cow to their consumers' homes in less than 24 hours instead of sitting in vast metal tanks at other milk processors and on store shelves for days.
Shatto also pasteurizes and homogenizes its milk on site, slowly heating the milk to 172 degrees, while other dairies heat theirs at hotter temperatures to "move milk quick," Leroy says.
%VIRTUAL-pullquote-I do worry about getting too big and not screwing things up.%Although the low-heat process takes a bit longer, they're still able to turn the milk around quickly because they control everything at the farm and time it accordingly. The company claims the product can make it from milking to the store delivery within 12 hours.
That freshness serves as an important foundation for recipes at Kansas City restaurants. The Roasterie, a local coffee company advertises mocha-flavored drinks made with Shatto's chocolate milk. Cowtown Cheesecake Co. lists Shatto milk along with its other local ingredients. They use Shatto cream to make a gooey caramel topping on some desserts.
Such success does concern Leroy a bit. "Where do you stop?" he asks. "I do worry about getting too big and not screwing things up."
But for now, Shatto is benefiting from organic and farm-to-table movements becoming more and more mainstream. "People were definitely interested that we didn't use any growth hormones," Barb says. Others like the company's environmental practices, like the returnable, reusable bottles, the fact they use washcloths to clean cow udders before milking and that they utilize reclaimed timber sawdust for the cows' bedding.
And then there's the farm itself, which has turned into the best sales pitch ever.
"We've had some mothers tell us after the tour that their kids won't let them buy any other milk but ours," Leroy says.
Chapter 3: Fun
Leroy may want to come back as a dairy cow, but he's certainly found his calling in this life -- teaching people about cows and milk.
He directs a group of visitors -- some big and some little, as he describes them -- to a line in the farm's country store. They hold tiny Dixie cups in their hands and watch Shatto in his element. "Did you notice how the cows are smiling?" he asks. "That's because it has cooled down."
Shatto often sprinkles farm facts into his tours, often beginning with phrases such as, "I was telling the cows this morning ..." But the humor comes with an education as well.
When little hands go up asking how much milk the cows give, he tells them it's more than seven gallons each on a good day. He lets them know that happy cows, cows that are treated well and humanely, make extra milk and then the company can make cheese.
He asks the children if they got to try their hand at milking. "We're looking for some cow milkers," he jokes before he pours from a tall bottle. The pastel-blue-colored milk is a new flavor -- cotton candy "You should see the cow this came from," Shatto says in anticipation of the giggles. "She looks like a big Smurf."
The tastings are part of the fun at the farm, but they also are critical to the company's success. Visitors test flavors that stray far from popular chocolate milk. For Valentine's Day the company added cherry to its chocolate milk. Fourth of July brought apple pie milk and for Halloween there's candy corn flavored milk.
Humor comes on the bottle as well. The Shattos put the word "Smooch" on its Valentine's Day bottles. The company's anniversary bottle had this gem: "So good you might want to kiss one of the cows," goes the bottle's wording. "But don't because that could lead to that awkward moment when you are just looking at each other wondering where this whole thing is going, and if it was a mistake for you to make the first move. Because yes. Yes, it was."
But it wasn't a mistake for the Shattos to think they could take a dairy farm and turn it into a successful milk brand.
"When I started I wanted to be known as the milk man who made milk fun," Leroy says. "And I think in some ways I've done that."
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