Spud startup | A conversation with Gritty McDuff's founder Richard Pfeffer on his newest venture, Aroostook Starch Co.
Richard Pfeffer has spent 20 years in the beer business, but now he's into potato starch.
Pfeffer, the co-founder and president of Gritty McDuff's Brewing Co. in Portland, for the last two years has had a side project: revamping Aroostook Starch Co., a potato-starch factory in Fort Fairfield.
Pfeffer started thinking about potatoes back in 2005. First he considered making vodka from spuds, but he wanted to start small. He says some potato farmers thought working on such a small scale wouldn't have been worth their while.
So Pfeffer turned to potato starch. He thought about building a potato-grinding facility and selling that mush to Aroostook Starch, which was founded in 2001 by Dutch firm Nivoba.
A few years later, Aroostook Starch was acquired by German-based Emsland, which shut down the Fort Fairfield facility in 2005 after the plant began losing money.
Pfeffer in 2006 saw an opportunity to succeed where Nivoba and Emsland failed. He joined with business partner Jim Barresi and three others, whom Pfeffer declined to identify, to purchase Aroostook Starch.
It's a four-and-a-half-hour drive from Portland to Fort Fairfield, but Pfeffer says he makes the trip a few times a month. He recently spoke with Mainebiz about how he got into starch and the challenge of rebuilding the business. The following is an edited transcript.
Mainebiz: Tell me how you first got involved with this.
Richard Pfeffer: It's a long story. It goes back toÂ… drinking. Basically, my partner Ed [Stebbins] and I had been in Gritty's for 18 years when we started looking at this, and a while back, we decided that we were going to look into the idea of getting into distilling. And somebody in the County [named Jim Baressi] heard that and called us up and asked us if we'd be interested in getting involved in a potato vodka distillery.
So we went up and talked to all the potato growers in Fort Kent and the amount that we thought we were going to produce didn't use one of the growers' waste from the potatoes. So we all went away saying, "Well that doesn't seem like it makes a lot of sense." It was laughable the [small] quantities that we would use in developing the business. It didn't seem like it was a good move for them and it didn't really make sense for us. Not too long after that we got a call from the same fellow and he had been an economic development type of guy who had a plan for us to build a small plant to make potato starch to sell to Aroostook Starch.
This would have been in 2005, or maybe back in 2004. And so we got together with him and his idea was that we build this small plant that would grind potatoes and supply Aroostook Starch with raw material.
And so Aroostook Starch was pre-existing?
Aroostook Starch was built in 2001 and it was owned by a German company called Emsland, a great big international starch company. So we said, "Well that was a pretty good idea," because what we'd do is we'd sell them starch but we'd keep enough for us to build our potato vodka business.
So then we got building a [Gritty's] brewpub in Auburn, and got sidetracked, and by the time we got back to the idea of doing this, Emsland had closed Aroostook Starch, had closed the plant. And so we said, "Well, it was good that we didn't do that because we wouldn't have had a customer." But then we said, "Well, maybe it's worth taking a look at Aroostook Starch instead and just buy that." So we got looking at it and we realized that there were a lot of things that the German company was doing that we thought we could do better. We could see where they lost money and how, and we figured that we might be able to do it better, so we made an offer. So we bought the company, and that's how we got into it.
Now, the fellow who is my working partner up there is Jim Barresi. He actually was very, very much involved in the development of the original company. That's the economic development person [who called us originally]. He had at one point been involved in the Northern Maine Development Commission about 25 years ago so he understands the goings on in the County in terms of economic development. So we basically said, "Well, if we're going to get invested in this, we want you to be a part of it, too." So he put up his share and we became partners. He and I are the managing partners of it. There are five partners but there are two that are managing partners.
When did you finalize the purchase?
Basically we bought it in May of 2006. We didn't really complete the deal until October of 2006. And since then we've had to do a lot of work on revamping the management structure, redesigning the manufacturing line, streamlining production. We've had to either repair or develop supplier relations. See, what we do is, we go to potato processors like McCain, big potato processors. When they cut potatoes, starch goes in the waste water, which goes out in their cutting decks. And that's potentially a pollution problem for them. What we do is we recover that through filtration systems and then put it into bags, and we take that waste and truck it into our plant and put it through our refinery and create first-class, food-grade potato starch, which we sell to many different customers, either food brokers or food manufacturers. It's a key ingredient in many foods.
Do you have some examples of foods that it's used in?
It's used as a thickener. It's gluten-free, so it's used in a lot of gluten-free products. It's used in a bunch of different things. So we can't just make enough. We can sell as much as we can make.
And the potato starch, is that from places in the County?
We bring it from as far away as Pennsylvania, Prince Edward Island — we actually only have one supplier in the County right now — that's McCain. The rest might come from Canada or other places. Trucking potatoes to Aroostook County — kind of funny.
Yeah — do you imagine using potatoes from local suppliers?
There aren't that many big processors. What we're planning on doing is building our own raw material supply by building our own starch-grind plants. And what's great about that is that it really helps the Aroostook County potato farmers. And the reason it does is we don't need their grade A potatoes. What we need is the culls — their off-grade potatoes — which right now they don't really have a home for. So it helps them because it costs them to get rid of their off-grade. So we'll at the very least save them that cost. It should allow them to grow more potatoes.
We're going to build one [processing plant] in Washburn, and we'll probably be finished by this fall. So it's in the works, it's just a matter of time and money.
You were saying you can't make enough starch. How much are you producing these days?
Ah, how much information do I want to give you is the question. There's a certain amount of proprietary stuff. It's an interesting business in that the competition is pretty intense. Basically we're competing against big, multi-national companies. We're small guys. Which is fine because for me, I've been doing that all my life. Selling Gritty's beer, we're competing with Budweiser. So I understand the game we're in. But essentially we're doing the same thing in the starch business. And right now we're producing at about a quarter of what we have the potential to produce and it's a drop in the bucket in the big scheme of the industry. So if we were doing 10,000 tons, the company we bought it from was doing 200,000 or 300,000 tons.
Can you give me an example of an area that you saw needed to be improved?
The first — actually, this was my baby. I did this one. The first time I walked in the plant, I could see there were forklifts going back and forth, back and forth through the plant, bringing product from here to here and running right past all the equipment, and I looked and I said, "That makes no sense." They were crisscrossing, two forklifts running all day long moving this stuff. And I said, "Before we do anything, we've got to straighten out this manufacturing line so it comes in here, goes out there, and we don't need to be moving around." It probably took us eight months to really get it straightened out, but where we were using four forklifts before, we're down to two, and they never have to cross back and forth. It was a safety issue to me, not to mention waste and noise and everything else.
Can you tell me more about the growth plan?
Our pretty basic concept is for us to grow our own raw materials supply and diversify so that we're not vulnerable to changes or if one of our suppliers goes down for renovations or whatever. So basically, diversifying our raw materials supply is one, and then we want to look at diversifying our product, too. Then we can sell to a bunch of different customers.
What kinds of products are you thinking about?
Now we're selling food-grade starch. We can sell our product for pet foods. We can process it and modify it in a different way and sell it to the paper industry to use in the process for coating paper. It's used to make ceiling tiles. It's a binder. It's a glue. You can turn it into plastic. The University of Maine has been working with InterfaceFABRIC in Guilford [on turning potato starch into plastic]. We'd be very much interested in getting involved in that.
And you can make vodka. It's funny because that's how we got into it. That's not our guiding factor at this point. We may get to it, we may not. We're enjoying what we're doing and there's so many markets for this stuff that if we build up enough supply, then we can look at getting into it, but right now we're too busy.
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