J. R. Simplot started selling frozen french fries in 1953. Sales were initially disappointing. Although the frozen fries were precooked and could be baked in an oven, they tasted best when heated in hot oil, limiting their appeal to busy homemakers. Simplot needed to find institutional customers, restaurant owners who’d recognize the tremendous labor-saving benefits of his frozen fries.
“The french fry [was]… almost sacrosanct for me,” Ray Kroc wrote in his memoir, “its preparation a ritual to be followed religiously.” The success of Richard and Mac McDonald’s hamburger stand had been based as much on the quality of their fries as on the taste of their burgers. The McDonald brothers had devised an elaborate system for making crisp french fries, one that was later improved by the restaurant chain. McDonald’s cooked thinly sliced Russet Burbanks in special fryers to keep the oil temperature above 325 degrees. As the chain expanded, it became more difficult — and yet all the more important — to maintain the consistency and quality of the fries. J. R. Simplot met with Ray Kroc in 1965. The idea of switching to frozen french fries appealed to Kroc, as a means of ensuring uniformity and cutting labor costs. McDonald’s obtained its fresh potatoes from about 175 different local suppliers, and crew members spent a great deal of time peeling and slicing potatoes. Simplot offered to build a new factory solely for the manufacture of McDonald’s french fries. Kroc agreed to try Simplot’s fries, but made no long-term commitment. The deal was sealed with a handshake.
McDonald’s began to sell J. R. Simplot’s frozen french fries the following year. Customers didn’t notice any difference in taste. And the reduced cost of using a frozen product made french fries one of the most profitable items on the menu — far more profitable than hamburgers. Simplot quickly became the main supplier of french fries to McDonald’s. At the time, McDonald’s had about 725 restaurants in the United States. Within a decade, it had more than 3,000. Simplot sold his frozen fries to other restaurant chains, accelerating the growth of the fast food industry and changing the nation’s eating habits. Americans have long consumed more potatoes than any other food except dairy products and wheat flour. In 1960, the typical American ate eighty-one pounds of fresh potatoes and about four pounds of frozen french fries. Today the typical American eats about forty-nine pounds of fresh potatoes every year — and more than thirty pounds of frozen french fries. Ninety percent of those fries are purchased at fast food restaurants. Indeed, french fries have become the most widely sold foodservice item in the United States.
J. R. Simplot, an eighth-grade dropout, is now one of the richest men in the United States. His privately held company grows and processes corn, peas, broccoli, avocados, and carrots, as well as potatoes; feeds and processes cattle; manufactures and distributes fertilizer; mines phosphate and silica; produces oil, ethanol, and natural gas. In 1980, Simplot provided $1 million in start-up funds to a couple of engineers working in the basement of a dentist’s office in Boise, Idaho. Twenty years later, his investment in Micron Technology — a manufacturer of computer memory chips and the largest private employer in Idaho — was worth about $1.5 billion. Simplot is also one of the nation’s biggest landowners. “I’ve been a land hog all my life,” Simplot told me, laughing. While still in his teens, he bought 18,000 acres along the Snake River, paying 50 cents an acre for it with borrowed money. His company now has 85,000 acres of irrigated farmland, and Simplot personally owns more than twice that amount of ranchland. He owns much of downtown Boise and a big hillside home overlooking the city. At home he flies a gigantic American flag on a pole that’s ten stories high. In addition to what he owns, Simplot leases more than 2 million acres of land from the federal government. His ZX Ranch in southern Oregon is the largest cattle ranch in the United States, measuring 65 miles wide and 163 miles long. Altogether, Simplot controls a bloc of North American land that’s bigger than the state of Delaware.
Despite being a multibillionaire, J. R. Simplot has few pretensions. He wears cowboy boots and blue jeans, eats at McDonald’s, and drives his own car, a Lincoln Continental with license plates that say “MR. SPUD.” He seems to have little patience for abstractions, viewing religion as a bunch of “hocus-pocus” and describing his potato empire matter-of-factly: “It’s big and it’s real, it ain’t bullshit.” Recently Simplot has been slowing down. A bad fall made him give up horseback riding at the age of eighty; in 1999 he turned ninety and quit skiing. He stepped down as the chief executive of his company in 1994, but keeps buying more land and scouting new factories. “Hell, fellow, I’m just an old farmer got some luck,” Simplot said, when I asked about the key to his success. “The only thing I did smart, and just remember this — ninety-nine percent of people would have sold out when they got their first twenty-five or thirty million. I didn’t sell out. I just hung on.”
the mistake of standing alone
THE PRODUCTION OF frozen french fries has become an intensely competitive business. Although the J. R. Simplot Company supplies the majority of the french fries that McDonald’s sells in the United States, two other fry companies are now larger: Lamb Weston, the nation’s leading producer of fries, and McCain, a Canadian firm that became the number-two fry company after buying Ore-Ida in 1997. Simplot, Lamb Weston, and McCain now control about 80 percent of the American market for frozen french fries, having eliminated or acquired most of their smaller rivals. The three french fry giants compete for valuable contracts to supply the fast food chains. Frozen french fries have become a bulk commodity, manufactured in high volumes at a low profit margin. Price differences of just a few pennies a pound can mean the difference between winning or losing a major contract. All of this has greatly benefited the fast food chains, lowering their wholesale costs and making their retail sales of french fries even more profitable. Burger King’s assault on the supremacy of the McDonald’s french fry, launched in 1997 with a $70 million advertising campaign, was driven in large part by the huge markups that are possible with fries. The fast food companies purchase frozen fries for about 30 cents a pound, reheat them in oil, then sell them for about $6 a pound.
Idaho’s potato output surpassed Maine’s in the late 1950s, owing to the rise of the french fry industry and the productivity gains made by Idaho farmers. Since 1980, the tonnage of potatoes grown in Idaho has almost doubled, while the average yield per acre has risen by nearly 30 percent. But the extraordinary profits being made from the sale of french fries have barely trickled down to the farmers. Paul Patterson, an extension professor of agricultural economics at the University of Idaho, describes the current market for potatoes as an “oligopsony” — a market in which a small number of buyers exert power over a large number of sellers. The giant processing companies do their best to drive down the prices offered to potato farmers. The increased productivity of Idaho farmers has lowered prices even further, shifting more of the profits to the processors and the fast food chains. Out of every $1.50 spent on a large order of fries at a fast food restaurant, perhaps 2 cents goes to the farmer who grew the potatoes.
Idaho’s potato farmers now face enormous pressure to get bigger — or get out of the business. Adding more acreage increases total revenues and allows more capital investment; but the risks get bigger, too. The latest potato harvesting equipment — bright red, beautiful machines manufactured in Idaho by a company called Spudnik — can set a farmer back hundreds of thousands of dollars. It costs about $1,500 an acre to grow potatoes in Bingham County. The average potato farmer there, who plants about four hundred acres, is more than half a million dollars in the hole before selling a single potato. In order to break even, the farmer needs to receive about $5 per hundredweight of potatoes. During the 1996–97 season, potato prices fell as low as $1.50 per hundredweight. That year was a disaster for Idaho potato farmers, perhaps the worst in history. Record harvests nationwide and a flood of cheap imports from Canada created an enormous glut of potatoes. For many farmers, letting potatoes rot in the field would have been more profitable than selling them at such low prices. That was not a viable option, however; rotting potatoes can damage the land. Prices have recovered since then, but remain unusually low. An Idaho potato farmer’s annual income is now largely determined by the weather, the world market, and the whims of the giant processors. “The only thing I can really control,” one farmer told me, “is what time I get out of bed in the morning.”