Extending Its Reach
by James Dudlicek
HP Hood is poised to bring its innovative products to
an even wider national audience.
Depending on where you live, there's an HP Hood you might know,
and a Hood you might not know.
At least that's how chairman John Kaneb explains
this apparent split personality of his growing Chelsea, Mass.-based dairy
processing company. "Hood is really two companies in many
respects," says Kaneb. "In New England and eastern New York
state, we are a very well-known branded marketer of a wide variety of
standard dairy products. In the New England states, we are number one in
every category in which we compete, from fluid milk to cottage cheese to
sour cream to ice cream."
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That's 14 categories in all; Hood also reports having 97 percent
brand recognition in its markets.
But there's more, Kaneb explains. "Hood is
also a national company
presenting itself under various brands for various products in either the eastern half of the United States or the entire United States, depending on the
product," he says.
presenting itself under various brands for various products in either the eastern half of the United States or the entire United States, depending on the
product," he says.
Those products include Lactaid® lactose-free milk,
made under license from McNeil Nutritionals; and more recently Carb
Countdown™, a Hood-branded low-carbohydrate dairy beverage that carries the
stamp of approval of Atkins Nutritionals Inc., promoter of the low-carb
diet regimen currently sweeping the nation.
With around $1 billion in annual sales, Hood produces
a vast assortment of branded, private label, licensed and franchised
products, including milk, cultured products, frozen desserts,
extended-shelf-life dairy, non-dairy and citrus products and specialty
drinks.
"Our strategy in our home territory is simply to
maintain our number-one market share in the branded products where we
compete, and that is no small task," says Kaneb. "We have very
vigorous and capable competition from a very large Dean affiliate and two
very aggressive New England dairies, one in northeastern New England and
one in southwestern New England, who do a very good job. On the
super-regional and national scene, our aim is to achieve true significant
growth each year, and we have been doing that. We also intend to maintain
our number-one market rank where we have it, and that is in ready-to-drink
flavored milks under the Nesquik® label, liquid non-dairy creamer under the Carnation
Coffee-Mate® label and Lactaid lactose-free milks. And in categories
where we're not number one, our aim is to be number one or number
two."
A Bigger Playing Field
The latest step in Hood's strategy to stay on
top of its game is the company's pending acquisition of Crowley Foods
and Marigold Foods from Dallas-based National Dairy Holdings (NDH). Last
year, Hood had planned to merge with NDH, created as a result of the
Dean-Suiza merger in 2002.
But the deal, which would have created the country's second-largest milk processing company, came under intense scrutiny after 10 U.S. senators asked the Department of Justice to investigate the merger amid anti-trust concerns.
But the deal, which would have created the country's second-largest milk processing company, came under intense scrutiny after 10 U.S. senators asked the Department of Justice to investigate the merger amid anti-trust concerns.
Plans for a full merger were dropped, but the
association between the two companies led to the current arrangement. Late
last month, Hood officials received approval from the Department of Justice
to proceed with the acquisition of Binghamton, N.Y.-based Crowley and
Minneapolis-based Marigold, which sells products under the Kemps® brand
name.
"When we finish these acquisitions, we will have
moved from a billion-dollar-sales company to a $2.5 billion sales
company," says Kaneb. "Much more importantly than dollar sales,
we will have acquired several hundred direct-store delivery routes that
those two companies possess, that can move products such as Simply Smart™ (Hood's
ultrafiltered milk product) and other specialty products into local
distribution systems more efficiently than Hood can from its New England
base."
Crowley is a roughly $700 million-a-year dairy
manufacturer and distributor with a strong cultured business and plants in
New York, Pennsylvania, New Hampshire and Tennessee. With similar annual
sales, Marigold's Kemps brand holds a strong market position in the
upper Midwest with
ice cream, fluid milk and cultured products.
ice cream, fluid milk and cultured products.
Kaneb stresses that the acquisition is not a matter of
consolidation. "We have not been an acquirer. These acquisitions are
about extending Hood's reach, rather than consolidation," he
says. "There are many ways to grow businesses. Dean Foods is an
outstanding example of a brilliantly executed strategy of consolidation.
Hood has a different approach. These acquisitions are about geographic
reach rather than consolidation. I'm not saying we'll never
close a plant or consolidate some routes. But we are about acquiring market
opportunities for new products and gaining a bigger field in which to use
our innovation capabilities and our extensive ultra-high-temperature
processing and packaging."
Of course, such an acquisition brings obstacles in
areas other than the regulatory arena. "The financial challenge that
we're putting in front of ourselves by spending several hundred
million dollars to acquire two dairy companies outside of our area —
largely traditional dairy companies, with the lower margins that go with
that business — is to sustain an exceptionally high return on
invested capital," says Kaneb.
"Hood has a record of outstanding return on
invested capital. We've been able to do that by innovation, building
high-tech processing facilities that make products that typically have
higher margins. In investing several hundred million dollars in traditional
dairy companies, we've given ourselves a hill to climb, to keep our
return on invested capital in the outstanding category."
Corporate At-A-Glance |
|
Headquarters: Chelsea, Mass. Plant Locations: Agawam, Mass. (milk, cream, juice drinks); Barre, Vt. (milk, cream); Oneida, N.Y. (UHT milk, cream, beverages and mixes); Portland, Maine (milk, cream, juice); Suffield, Conn. (frozen desserts and novelties); Vernon, N.Y. (cultured); and Winchester, Va. (ESL fluid dairy). Annual Sales: About $1 billion. Top Officer: John A. Kaneb, Employees: More than 1,600. Products: A variety of branded, Customers: Market Position: No. 1 brand in History:Founded in harlestown, Mass., by Harvey Perley
Hood in 1846. Since then, the company has become one of the largest branded
dairy operators in the United States, distributing numerous brands under
license. Kaneb’s family business — The Catamount Cos., which
also owns Gulf Oil — purchased Hood |
|
Crowley Foods Acquisitions: Crowley
Foods Marigold Foods |
Leveraging the market opportunities brought by Crowley
and Marigold is going to take a while, says Kaneb. "It's going
to take two years, maybe three years, before we can hope to get our return
on invested capital back to where it has been," he says. "Once
we digest this and exploit the market opportunities, I believe we'll
go back to outstanding return on invested capital with much more capital
invested."
History of Innovation
In the meantime, Hood is enjoying more broad exposure
with its new Carb Countdown dairy beverage. Now available at most major
grocery retailers around the country, the Atkins-approved beverage is
bringing the Hood logo to consumers who may have never before seen it.
But for Hood, Carb Countdown is part of a tradition of
filling a consumer need. "Like everyone else, we saw this train
coming," says Mary Ellen Spencer, vice president of brand marketing.
"More and more people are following low-carb diet plans and they
often struggle with dairy because of the carbohydrates. So, we developed
Carb Countdown so we could get people back into dairy. The e-mails
we're getting from people are saying, 'I cut dairy out because
of the carbs, and now I can have it again. It tastes like milk, and
it's great.' It really has become a solution for these people
who have been struggling because they really love milk and they
haven't been able to have it."
Spencer says Carb Countdown was well-timed, coming out
ahead of most potential competitors. "Consumers have been very
receptive to it," she says. "Just like Simply Smart, there was
this unmet need out there and we tried to go grab it. We seem to be making
those people pretty happy."
As with Carb Countdown, Hood hopes to gain a wider audience
for Simply Smart as the Crowley/ Marigold acquisition takes shape.
"Simply Smart was a fun project to work on. It
was our last big innovation in milk after the LightBlock Bottle™,"
explains Spencer. "At that time, there was a ton of research in the
industry on what consumers were saying about lower-fat milks: 'I can
only go so far, and then I don't want to drink this watery blue stuff
anymore. So either I'm leaving the category or I'm drinking
more fat than I really want in a glass of milk.'
"So we spent a lot of time trying to figure it
out. We looked at many alternatives, including adding artificial colors and
milk solids. We weren't quite satisfied with any of those, and
that's when we came up with Simply Smart and the ultrafiltration
technology, which allows us not to have to add anything to the milk. It
just takes out some of the liquid, which gives it a richer consistency.
Consumers have just loved this product. We get letters all the time like,
'I was never able to get my husband to drink fat-free milk, and now
he will.'"
Spencer reports that two-thirds of consumers who try
Simply Smart buy it again, a statistic she calls "unbelievable"
considering it's an enhanced milk product sold at a premium price.
"It really has been a huge success story for us. It delivers day in
and day out on the proposition of fat free tasting like
2 percent and 1 percent tasting like whole," she says. "It's been growing for five years and hasn't bottomed out at all. The advertising right now focuses on this 'moment of truth' where you drink a glass and it really does taste that way, kind of this pleasant surprise."
2 percent and 1 percent tasting like whole," she says. "It's been growing for five years and hasn't bottomed out at all. The advertising right now focuses on this 'moment of truth' where you drink a glass and it really does taste that way, kind of this pleasant surprise."
The company looks at Simply Smart and Carb Countdown
as stunning follow-ups to its success with LightBlock, Hood's first
major innovation after it was purchased by the Kaneb family in 1995. The
packaging technology, which keeps out light that can negatively impact
taste and nutritional quality, was a way to add value to a premium-priced
product.
"The LightBlock Bottle has worked well for us.
It helped us differentiate our brand from the competition. We regained our
market share and we've held on to that position," says Spencer.
"Consumers really get it. We went out and we advertised very heavily
to explain why we developed this bottle, and consumers now talk about
Hood's LightBlock Bottle. It really became the icon for the
company."
Staying On Top
It's this value-added quality that forms the
bedrock of Hood's competitive strategy. "We don't try to
compete on price," says Kaneb. "In fact, our prices are
typically higher than our branded competitors, certainly higher than
private label. Carb Countdown, for example, is a difficult and expensive
product to make well. We compete on quality and customer
confidence."
How does Hood go about achieving its goals —
staying No. 1 in New England and either first or second with its national
offerings? "It's having high-quality products and constantly
keeping Hood or our licensed names in front of the public. We do that with
our packages on shelves, media advertising and — last but certainly
not least — our blimp," says Kaneb, referring to an aerial
photograph of Hood's blimp over Boston's Fenway Park (Kaneb is
a partner in the Boston Red Sox).
Spencer explains the company's overall message.
"The umbrella message is that we are the dairy experts, we are
innovators and we care about your family," she says. "On the
next level, our advertising message becomes very product focused. Obviously
underneath it all lies quality and trust, and the fact we've been
around for over 150 years. But we're always trying to bring news,
something for consumers to say, 'Oh, wow, here's the next
great-tasting nutritious product from Hood that's meeting a need my
family has.'"
Hood employs its "Answer Mom" spokeswoman
in television and radio advertising to drive that message home.
"She's on the Web site as well," says Spencer.
"Because we have such a diverse product line, we use her as a
'mom expert' — someone who cares about her family but is
also knowledgeable about our products. She's our consistency across
the advertising, but yet we try to always give people information and
product news — not let her be a salesperson per se, but someone who
is conveying information. She's worked very well for us. Because we
are a regional brand, we also do things market-specific that we need to do,
such as newspaper advertising or event sponsorships."
Jim Walsh, senior vice president of sales, explains
Hood has been focusing on developing products that are solution based
versus feature-benefit based. "Solution-based products are products
that provide clear solutions for consumers' needs. This strategy has
put us in a leadership role in the specialty milk category throughout the
United States," says Walsh.
"We are extremely pleased to have brands like
Lactaid, Nestlé®, Atkins® and Carb Countdown in our portfolio that provide clear
solutions for what our customers and consumers are looking for. We have
developed a national sales organization that focuses on selling value-added
products and providing our key retailers with the best support
possible," says Walsh.
All these marketing efforts help the company keep a
place on consumers' minds. "I think we achieve a high level of
reminder to consumers that Hood is there," says Kaneb.
"That's why we're taking the road we do. In the greater
geography — the eastern United States or national —
there's our quality, certainly. And national advertising —
Lactaid, Nesquik and Coffee-Mate all benefit from that. But it's also
innovation in formulations, packaging and new products. It typically has
not been by acquisitions — that's going to change. Our growth
has been, to use the Wall Street term, organic — internally
generated. It's ideas out of our research lab, products,
sophisticated modern plants, particularly ultra-high temperature packaging
plants."
Treasure Trove
Hood conducts its product research and development at
its laboratory and pilot plant in nearby Charlestown, a few minutes away
from its Chelsea headquarters in suburban Boston. Here, at the
company's original headquarters and plant that's now a business
park shared with other tenants, Hood's food scientists come up with
the formulations for Carb Countdown and other innovative products.
"I truly believe that our smallish but extremely
productive research group is, pound for pound, one of the very best in the
U.S. food industry," says Kaneb. "Hood's successful
innovations in dairy go back many years before the Kaneb family bought the
company. Since that time, it has been my privilege to nurture and challenge
our R&D group.
"Dr. Margaret 'Peggy' Poole, vice
president of R&D and quality control, is a worthy successor to the
legendary Don Erickson, who retired some five years ago. She continues to
build a deeper team of scientists and technicians whose goal is to keep HP
Hood at the forefront of the industry. Supporting their efforts is
expensive because so few projects result in long-term winners, but in my
opinion, it's money very well spent."
It's this kind of research and innovation that
Kaneb says offers the dairy industry its greatest challenge and also its
biggest potential gain. "The milk can is a treasure trove of
nutrition and flavor," he says. "The biggest challenge by far
is to grab hold of and exploit that natural treasure trove of healthy,
good-tasting food. As I think the industry has been learning, painfully,
over the past 20 years, the sale of standard fluid milk in gallon jugs, to
be consumed at home, is just not going to be the growth engine that the
industry needs. At best, it's a maintenance battle, and it's a
tough maintenance battle."
Of course, acknowledges Kaneb, this isn't
anything that hasn't been said before. "The trick is to use
research and technology to take milk apart and put it back together in ways
that are healthy and good-tasting," he says. "What we're
beginning to do in the dairy processing sector of the industry, using
research and technology, is to break milk down a lot further into
components that bring the consumer healthy food at a very economical price
that can taste great. We have all this protein, all this calcium. What do
the other guys have that have been taking our market share in fluid milk?
Sugar, water and carbon dioxide. Or juice — sure, it's a
healthy product, but does it compare with milk in terms of nutritional
value?"
Kaneb points to Simply Smart and Carb Countdown as
ways Hood has broken milk down and relaunched it as something new, adding
that the company expects to follow Carb Countdown with a low-carb yogurt to
be launched soon. "Others can do the same thing," he says.
"We happen to be doing it very vigorously."
Kaneb describes as brilliant the University of
Tennessee research linking consumption of dairy calcium to weight control.
"The question is, how to educate the public about the claims,"
he says.
"We haven't come up with a crisp way of
delivering the message. We plan to — we have a lot of ideas
percolating. To get across how your particular product can be used, as
opposed to other people's products, you need a message that relates
to your product. Just saying, 'Milk does this, and here's our
milk,' that isn't going to work. Taking the truth that's
been revealed here and delivering it in a way that will help sell your milk
or other dairy product is a bit of a challenge," says Kaneb.
But as this new health revelation gets off the ground,
what does the future hold for the current low-carb diet craze? "We
don't know," says Kaneb. "Some people think it's a
fad. Some people, especially those in the forefront of low-carb leadership,
believe it's a permanent change in the way many Americans are going
to eat. We don't pretend to know the answer. But obviously we
think there is a reasonable chance that enough people will adopt the
low-carb way of eating as a permanent feature in their lifestyle. Are we
possibly wrong? Yes. If so, we will have invested a lot of money
fruitlessly. I'm not predicting success. I'm not predicting the
change that some are predicting in the eating habits of many Americans. But
I'm also hopeful that a sufficient number of Americans will stick with this way of
eating so our considerable investments will bear fruit over the long run.
We're going to find out. And I fully expect there to be a good deal
of competition from the rest of the industry."
“The milk
can is a treasure trove of nutrition and flavor.” — John Kaneb, chairman, HP Hood |
A key component in Hood's strategy to maintain a
competitive edge is product licensing. Hood has agreements to market
products under brand names including Lactaid, Nesquik, Coffee-Mate,
Southern Comfort® Egg Nog and, of course, Atkins.
"Licensing relationships are a huge part of our
business. We think we do them very well," says Kaneb. "We are
the exclusive national licensee for Atkins for dairy beverages and yogurts.
In making these licensing relationships work, the first thing you have to
do is make an acquaintance. It so happens I met the COO of Atkins last
spring at a nutrition conference. He said they were looking for a way to
get into dairy, and the rest is history.
"We are negotiating other major licensing
relationships right now. We've got a national distribution system. We
ship all over the United States from our own warehouses. We have national
and regional sales forces. These are highly competent folks who live all
over the United States. We may not have plants in every corner of the
country, but we have people and we have reach, anywhere a truck can go with
an extended-shelf-life product in the lower 48."
Running Lean
Kaneb describes Hood's corporate management
philosophy as "flat and lean." He elaborates:
"You'll find Hood is not just a family business, in the sense
that it is owned by a family. It is run like other well-run family
businesses in that it is typically very flat with relatively very few
layers between top management and people executing at the plant level,
sales level and research lab."
Hood has virtually no support staff, notes Kaneb.
"It has line staff, meaning Hood officers and executives have
specific operational duties, as opposed to gathering information from somebody and giving it to somebody else, which is, in my view, to be avoided. We are going to be challenged to maintain this management style as we grow," he says.
specific operational duties, as opposed to gathering information from somebody and giving it to somebody else, which is, in my view, to be avoided. We are going to be challenged to maintain this management style as we grow," he says.
How does Hood plan to handle the management of the
companies it's poised to acquire? "It's our plan to
largely let them manage themselves the way they have in the past,"
says Kaneb. "They are flat organizations, and they are lean
organizations. They don't need to be reinvented."
To that end, Spencer says it's the people who
make Hood what it is. "What makes Hood unique and why we're so
successful is because we're so team-focused," she says.
"People pull together and really own what's going on here.
There's a vested personal interest in being successful."
Kaneb offers his thoughts on what sets Hood apart from the pack.
"Hood was founded in 1846. We believe it to be the longest-lived dairy processing
company in the United States that also happens to be on the leading edge of
innovation on the national scene," he says. "I don't think any company in this
industry can say it has a 150-year history and can say it is also a significant
innovator on a national scale."
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