New Forbes 400 member Sheldon Lavin owns OSI Group, the behind-the-scenes food supplier that makes McDonald’s hamburgers, Chipotle’s carnitas, Oscar Meyer’s hot dogs and even Burger King’s Impossible Whoppers.
From Chicago to China, every day millions of Big Macs and McChicken patties roll off conveyor belts at dozens of plants owned by contract manufacturer OSI. The meat is flash-frozen and then shipped off, ready to be reheated and dressed up with pickles, special sauce and sesame-seed buns.
Though few know it by name, OSI, one of the largest private companies in the U.S., is one of McDonald’s largest and oldest meat suppliers. The Aurora, Illinois-based company has quietly been producing for the iconic chain for more than half a century and now does so in more than a dozen countries.
OSI is firmly controlled by secretive billionaire Sheldon Lavin, the 88-year-old executive chairman who owns the vast majority of the $6.3 billion (estimated 2019 sales) business. Lavin, who is worth an estimated $3 billion and debuted on The Forbes 400 this year, rarely talks to the press. That makes him the perfect low-key, behind-the-scenes partner for public and highly scrutinized brands like Kraft Heinz’s Oscar Mayer, Whole Foods and Chipotle, for whom it supplies 45 million pounds a year of steak, barbacoa, carnitas, sofritas, beans and salsas. A newer customer, added just last year, is Impossible Foods, the soy-based faux meat startup, which makes Impossible Whoppers for Burger King and breakfast sandwiches for Starbucks.
Despite his blue-chip roster of customers, few know much about him. “That’s always been his motto—keep things quiet,” says former OSI president Doug Gullang, who worked with Lavin for 30 years, declining to comment further. “Sheldon has always been a very private person. With OSI being a privately held company, it wasn’t necessary for us to attract a lot of notoriety.”
That is still very true today, though at the sunset of his career, Lavin allows himself to boast a bit. While he declined multiple requests to be interviewed for this article, he spoke to a blog, Professional Tales, in 2019 and reposted the interview on his Medium blog: “I have a talent for building enterprises,” said Lavin, nicknamed “Shelly.” “I simply love seeing the pieces of a plan click together over time.”
Lavin aligned his business’ fate with that of McDonald’s. OSI started out in 1909 as a butcher shop run by German immigrant Otto Kolschowsky in the Chicago suburbs. It wasn’t until a fateful handshake between Kolschowsky’s sons and McDonald’s franchising agent Ray Kroc in 1955 that things really took off. Kroc had just opened the first McDonald’s restaurant in Des Plaines, Illinois, and Otto & Sons became the fledgling franchise’s first fresh hamburger meat supplier. As McDonald’s expanded across the country, so, too, did its suppliers. Within a decade there were 150 of them shipping it fresh meat daily. When cryogenic flash-freezing technology became available in the late 1960s, Kroc drastically cut down his number of suppliers, and offered one of five slots to Otto & Sons. But the family needed capital to build its first industrial-scale meat plant with the freezing capacity to meet its customers demands.
That’s why in 1970 it tapped Lavin, then a 38-year-old banker, to figure out how to finance things. He got them their money (the sum was never disclosed) and the loan officer was so impressed that he suggested Lavin should have a stake in the firm. He declined at the time, but a decade later, when the senior Otto retired, Lavin joined full-time as a partner and took a one-third stake, at McDonald’s urging. He became CEO shortly after that, and Otto & Sons changed its name to OSI.
When one of the sons decided to sell his stake a decade later, Lavin became the half-owner; he later bought out the other son, too. “When I really took control in the 1980s, I decided there was no reason for me to stay if I didn’t build OSI into something big,” Lavin told the Meat Hall of Fame into which he was inducted in 2013. “I might as well have gone back to finance. I wouldn’t have stayed if I couldn’t have grown it.”
A look at McDonald’s current roster of billionaire suppliers.
It was Lavin who pushed OSI to follow McDonald’s into foreign markets. It started with plants in Germany and Spain, followed by Latin America and later Eastern Europe as the Iron Curtain fell. He tried to predict where the chain would go next and was constantly flying around the world to meet with local meatpackers to size them up. “Every time McDonald’s went into a new country, they hooked up their ‘locomotive’ and pulled their supply chain with them,” Lavin told the Harvard Business Review in 2001. “We tried to follow McDonald’s and get all we could. We use the term ‘McDonaldized’ because we understood McDonald’s goals, knew the system and what the company needed, and knew how to deal with them.” To keep his best customer happy, Lavin also dove into new areas like growing lettuce in China, and developing the chain’s first chicken nuggets and circular bacon for burgers. Around a tenth of McDonald’s total global food spending at the time went to OSI products, according to the Harvard Business Review.
Lavin’s strategy was capital-intensive, but that played to his strengths, considering his years as a banker. “He knew where to find money and develop his finances. He knew more about that side than anyone else running a meat business,” says Chuck Jolley, the cofounder of the Meat Hall of Fame. “He was smart enough to look ten years ahead in a business that doesn’t like to look that far.”
That also meant not riding McDonald’s coattails forever. OSI began adding other customers around 1992. Within eight years, 15% of its sales, or $650 million, came from other customers such as KFC and Pizza Hut, as well as packaged food companies like ConAgra, Tesco and Nestlé.
“Expanding and diversifying the business was probably the single most exciting part,” Lavin said in 2013. “I’m proud of the fact that we have circled the globe and that we’ve carried the OSI culture overseas, all the while, growing substantially our McDonald’s business to where we are.”
It all almost blew up in 2014. OSI had just finished building its tenth plant in China, spending more than $750 million in all, when an undercover report from Dragon TV showed workers changing sell-by dates on already expired frozen beef and reprocessing McDonald’s Chicken McNuggets. Chinese food safety officials immediately closed the plant, arrested six OSI executives and launched a sweeping probe into the company.
Lavin soon issued an apology: “What happened is completely unacceptable. I will not try and defend it or explain it. It was terribly wrong, and I am appalled that it ever happened in the company that I own.” McDonald’s, which was already getting additional hamburger meat from two of the biggest meat companies in the world, Brazil’s JBS and Minneapolis-based Cargill, then suspended OSI, as did Yum (parent of KFC and Pizza Hut).
The scandal—and a stagnant global appetite for fast food—hit the business hard. McDonald’s won’t comment but, according to analysts and Forbes estimates, sales flatlined for four years straight after having doubled between 2010 and 2013. The plant laid off more than 320 workers within a few weeks.
The investigation dragged on for almost two years, and some OSI executives were jailed by the Chinese government for 17 months. OSI openly criticized the process, though Lavin never spoke publicly on it again. The ordeal came to an end in 2016 when OSI was fined $365,000 and ten of its executives were charged with selling substandard products and sentenced to prison.
Its 2019 deal to make Impossible Foods’ plant-based Whoppers and other products helped finally turn things around, bumping revenues by an estimated $200 million to $6.3 billion. That the longest maker of McDonald’s hamburgers would be hired to make plant-based burgers for Burger King’s supplier is a bit ironic, but it was the boost it desperately needed. Impossible turned to the manufacturer last year when it faced shortages of its signature faux meat, ahead of its first grocery store launches. “We learned a hard lesson last year,” Impossible founder and CEO Pat Brown says over Zoom, discussing his decision to bring in another company to make his products. At the time, he traveled from Palo Alto to the suburbs of Chicago to meet Lavin and tour a few of his factories. “Scaling a product like ours is actually incredibly complicated.”
Just as OSI has begun regaining its footing, the pandemic is bringing fresh challenges. Global sales at McDonald’s, still likely OSI’s top customer, are down more than 20% for the year, according to its earnings report released in July. And at least one of OSI’s plants, a breakfast meats and sausages supplier in Chicago, had a Covid-19 outbreak, with 30 of its 500 workers testing positive.
Lavin, whose wife of 55 years died in 2009, won’t disclose his succession plans. He has three adult children, none of whom work at OSI. But OSI executives expect him to die before retiring. As he once told meat trade journal National Provisioner, “the only person I answer to is the one I see in the mirror every morning.”