Where Their Heart Is
September 1, 2004
Where Their Heart Is
by James Dudlicek
Management is committed to independence and growth at Old Home Foods.
In the Frogtown neighborhood of St. Paul, Minn., amid a bustling Asian-American community, there’s a scrappy cultured dairy processor aiming to share with the rest of the country the great products Twin Cities residents have enjoyed for generations.
Actually, it already has been sharing some of them through co-packing arrangements with national brands. But few consumers outside the company’s Upper Midwest marketing area are hip to the great taste and quality Minnesotans have come to expect from Old Home Foods. Company leaders are hoping to change that.
The $30 million company shares a hometown with dairy giants Yoplait and Marigold Foods, maker of Kemps products. But that hasn’t deterred Old Home from winning the hearts and stomachs of hometown consumers with its 108 SKUs of yogurt, cottage cheese, sour cream, snack dips and smoothies, sold under the Old Home and Gaymont brands.
“We like to think of ourselves as a quick mouse dancing with elephants,” quips Dave Holdsworth, vice president of sales and marketing. “You get the big guy stomping around, and we run around their feet and nip at them.”
Of course, size does have its advantages. “We have to be smarter than our competitors, and that’s probably the toughest thing for us,” Holdsworth says. “We don’t have the luxury of being able to launch five new products a year and hope they stick. We really have to be selective about making sure we launch something we think is a good product. On one hand we’re quicker, because we can make decisions faster, but we have to be a little smarter.”
Always On the Grow
Incorporated in 1925, Old Home Creameries sold 11 pounds of cottage cheese on its first day in business. Within five years, the company had 30 employees and 14 trucks and was producing more than a million pounds annually to keep up with demand.
Thus was established the pattern of dramatic growth Old Home Foods has experienced throughout its history, but even more so since its acquisition by the Hanson family in 1960. The company has been privately held since then, except for about a dozen or so years in the 1970s and ’80s when it went public.
“What that allowed us to do was raise some capital and go out and venture into other businesses,” explains John Bonifaci, executive vice president and chief financial officer. “We actually owned a cold-storage business for 20 or 25 years. We owned a vending business. We owned a meat company. But what we discovered was that wasn’t our expertise. Our expertise is cultured dairy products — that’s where we do a good job.”
So the other interests were sold off, the proceeds invested in developing the cultured business. The cash came in handy in the 1970s and ‘80s, when Old Home really started to focus on promoting its brand.
“It wasn’t until we got more progressive from a management standpoint that we started really investing back in the brand,” Bonifaci says, “And it took a lot of cash to do that because we weren’t used to marketing behind the brand. We were used to giving the consumer 2 cents off. Now all of a sudden, we’re thinking about radio and TV and billboards and bus signs.”
The company’s overall advertising campaign is “Old Home — for the way you live,” Holdsworth explains, aimed at moms age 18 to 49 in Old Home’s marketing area including Minnesota and parts of Wisconsin, the Dakotas and Illinois. “We bring products that help moms and families with their lives. They know they can put our product in front of their families and they know they’re going to like it,” he says. “We’re trying to get more convenient products like the smoothies out there so it helps them with their lives.”
Old Home’s newest product line — Yogurt Smoothies in assorted fruit flavors plus several light varieties — was the focus of a recent advertising campaign including a TV spot that won the company recognition at the International Dairy Foods Association’s (IDFA) Achieving Excellence awards this year. IDFA also recognized the smoothies as among the best new products in the contest.
“We have a lot of radio ads, we’ve pretty consistently been on billboards,” Holdsworth says. “We do a lot of in-store programs like floor graphics, shelf talkers, things like that, beyond the typical store ads, coupons and discounts.”
Beyond beverages, the low-carbohydrate dieting craze has brought renewed interest in cottage cheese, an Old Home mainstay. “Cottage cheese has been on fire. We’ve always had the number-one market share in this market, but we’ve really just retaken a dominant position in cottage cheese in the past year,” Holdsworth says. “A lot of it is because our product is better than everyone else’s, but also we’ve really been able to get a hold of the low-carb craze.”
So far, Old Home has accomplished that without reformulating any of its products. Of course, cottage cheese is already low in carbs.
“Our billboards said, ‘The original low-carb food,’” Holdsworth says. “A really simple message, and consumers got it, and it’s been going crazy. We also launched a new flavor of cottage cheese this past year [peach] to bring some variety to the category.”
And retailers — with whom Old Home has a close relationship through its extensive direct-sales distribution (DSD) network — have been latching on to the low-carb craze as well, according to sales manager Al Haeg. “They like to drive that big dollar through their stores. They make great margins on our products,” he says. “In return, they give us a lot more opportunities for advertising with them.”
But for all its innovation with smoothies and flavors, Old Home is most famous to its consumers for its large plain yogurt. “It can be used in baking as part of recipes, used to make dips, people mix fresh fruit in it,” Haeg says. “We’ve got different areas of town here where there are different cultures that use a lot of plain yogurt in recipes they prepare. We look at different pockets of the Twin Cities where we’ll sell a lot more of that than we will a few cities away. In a lot of cases it’s because of the ethnicity of that area that’s driving those sales.”
And Old Home stays on top, despite being priced above its competitors. “We think our large-size plain and vanilla yogurts are demonstrably better,” Holdsworth says. “They have been growing 8, 9, 10 percent, pretty consistently for the last four or five years.”
Busting Out All Over
Of course, growth brings the need to keep up with it, no small feat for a company the size of Old Home. It has been a challenge to expand production within its city-block footprint in order to keep up with demand for the company’s own branded products as well as its burgeoning co-packing business that serves customers like Stonyfield Farm and Dean Foods’ White Wave.
“In the past five years, we’ve invested over $5 million in this operation,” Bonifaci says. “We’ve put it into new packaging equipment. We have new fillers downstairs. We’ve also invested in our processing expansion— a lot of new vats, new equipment,” he says. “Six, seven, eight years ago, we didn’t have silos. We just received the milk and put it in some storage tanks and tried to utilize it that way. We’ve been able to pay for over half that expansion just out of working capital, our ability to generate profits and invest that back in the business.”
And when you’re small, spending wisely becomes even more important. “We can’t afford to make a mistake,” Bonifaci says. “We have to be smart, and we take time before we make those investment decisions. But I hope that five years from now we’re not in this facility, that we’re actually building a new facility and getting ready to move into it. If we’re going to be a $100 million company, that’s very possible and probable.”
Last year, Old Home’s sales hit $30 million and continue to rise. “We’re going to hit close to $36 million this year, which is a 15 to 18 percent increase,” Bonifaci says. “We sat down two years ago and said, ‘OK, we’re going to be a $100 million company in five years.” We’re two-plus years into that plan. To achieve that, our compounded annual growth rate would have to be 35 or 40 percent. Well, we’ve taken a step back and realized that’s not practical — that doesn’t make sense right now. We have grown significantly, but we need to take a step back, and what we need to do now is digest a lot of the growth that we’ve taken. Our focus over the next 15 months is going to be on efficiencies — how can we make what we have more profitable. So that will slow down growth. That’s a conscious decision the management team is making, and we think it makes the most sense. We think there’s a lot of dollars that we’re leaving out there on the table, and if we can capture those dollars through efficiencies, that will give us that much more working capital to invest going forward.”
That could mean Old Home hitting its sales goal in seven or eight years instead of five, of which the company’s prudent financial managers need not be ashamed. Bonifaci recently looked back at the company’s last 10 years, discovering that compounded annual growth in the last five was 10.2 percent, versus 1.2 for the previous five. “We are making some strides,” he says. “We’re going in the right direction.”
These were among the statistics Bonifaci was preparing to present at an upcoming company meeting, open to all employees. “We’re all working hard, we’re working a lot of hours, but this is what we’re doing,” he says. “We’re making it happen, and they’re all a part of it.”
Close to the Community
Old Home is a part of the community in many ways. Physically, its corporate headquarters and plant is tucked into a retail thoroughfare and bounded by a residential area, with which the company reports having a great relationship.
But Old Home considers community outreach an important part of doing business. “I was pretty excited last year to revamp our United Way campaign,” says Kara Sime, director of human resources. “We took a pretty active approach and got a lot of participation this year. We increased our participation dramatically and increased our donations dramatically, which always benefits the community.”
The company sets aside a portion of its annual budget for community relations, including donations of product and money. But the company’s space premium has also been a benefit to community organizations, including local offices of the Salvation Army and Boy Scouts of America.
“I went there and said, ‘You have a lot of meeting room here. Do you ever rent it out? And can we partner with you?’ So I have relationships with both of them to stay close by and involved in the community,” Sime says. “It supports those facilities and helps us out if we want to have company meetings or smaller sales meetings or training sessions.”
Old Home also participates in the Minnesota State Fair, St. Paul’s annual Grand Old Day Parade and the Grandmas Marathon in Duluth.
“We’re sponsoring the Moo Booth at the Minnesota State Fair, handing out product and doing games all day,” Holdsworth says. “The St. Paul Saints is our local minor-league baseball team. We’re one of their sponsors. This year, once a game, in between innings they have six inflatable smoothie bottles, about 6 feet tall, and we put people in like a big rubber-plastic gerbil ball and they go running at it. It’s called Smoothie Strike. They try to knock down all six of the smoothie bottles. If they do, everyone in the section wins a prize. If they don’t, they get some coupons.”
Old Home also stays close to the community by getting to know its consumers well through its DSD network, which — along with top quality and sharp marketing — is what Holdsworth and Haeg say gives the company its competitive edge.
“There just isn’t anything more effective than having that face time,” Haeg says. “My sales people are handling the product from start to finish, they’re doing all the rotation. You walk into a store and you’ll see empty spaces for other companies’ products because the stores don’t have the physical manpower to get product on the shelves. We’re there all the time and we’re doing it. That hands-on experience with our sales force in the stores is clearly an edge. We have sales people who are really good at what they do. They don’t miss an opportunity.”
Holdsworth relates a story about Old Home’s top salesman, Arnie Maxwell, who noticed a supermarket shopper purchasing large quantities of Old Home’s unique dry curd cottage cheese every week. “He talked to her and found out she buys 12 of these a week or every other week. So Arnie brings it in and sets it aside for her,” he says. “It’s the personal touch.”
It’s what Haeg calls putting a face on the company. Consumers “see our sales force stocking product, they’re very approachable. People can come up and ask them these questions, ‘Why is yogurt good for me,’ and they can tell them. We equip them with the knowledge to be able to give them a little two-minute spiel on the active cultures.”
The company has an active culture as well, one that looks inward to its own employees to help steer the company along its path of progress.
“We drive the culture primarily in two ways,” Sime explains. “We have a team put together that looks at how we drive high performance in this culture. This team spearheaded a shrink-reduction initiative last year that went for six months, that tracked the shrink [waste] very closely, had a lot of plant meetings, a lot of plant employee involvement. And we did see a reduction in the shrink for the duration of the program, which was really exciting. That team has gotten involved in the total operation with some things.
“The second way is through our management philosophies, how we want to interact with employees and the examples we set. Every person is part of the culture and helps shape it. But we really are trying to do a lot of things differently to have increased communication, and encourage questions and continuous learning, because that’s the only way we’re going to continue to grow, be more adaptable and be a better work environment.”
Among the efforts are forming a team to address work environment issues and team-building activities like bimonthly company luncheons. “This company has undergone a lot of change over the last few years, and most of the employees have really absorbed a lot of change and are doing pretty darn well,” Sime says. “We do have a pretty good split of some really fabulous long-term employees and newer employees. We have a long family tradition. Sometimes people will retire and come back in a year or two and work part time. We’ve allowed people’s legacy to really continue.”
Continuing to Grow
Third-generation family owner Rick Hanson expects to retire as chief executive officer next March, remaining as chairman while president Geoff Murphy steps up as CEO. With performance tied to an equity stake in the company’s success (see Executive Roundtable), Hanson is confident Old Home will remain in caring hands.
“That’s a motivation in getting equity into the hands of the decision-makers. I’m looking forward to the company thriving under their management,” says Hanson, whose family, including three daughters, own 80 percent of the company. “We no longer talk about surviving — we want to thrive.”
And despite the roller-coaster commodities market, thriving should be relatively simple, Bonifaci indicates, even though the goal of becoming a $100 million company might take seven or eight years rather than five. “Generally speaking, the good news for us is that we’ve been a fairly conservative company when it comes to managing debt,” he says. “So we have a strong balance sheet, which really leaves a lot of opportunity to go to a lending institution and secure capital we need to help us grow.”
Immediate plans include further leveraging of the low-carb trend and eventual participation in the International Dairy Foods Association’s health-claim licensing program. “We will very likely be participating in Healthy Weight with Dairy or the 3-A-Day program in the future,” Holdsworth says.
Vending also presents growth opportunities. “We’re trying to expand distribution in this marketplace first in the retail sections where we’re not currently at — schools, hospitals, things like that,” Holdsworth says.
And beverages, like Old Home’s regular and light smoothies, will continue to drive growth. “We’re still launching these two,” Holdsworth says. “We don’t want to pull support from the two lines we’ve launched, so there’s nothing imminent following, but there will be things coming, new beverages. That’s where we’ll focus our R&D efforts.”
By the looks of things, Old Home has been focusing its efforts in the right direction.
By the looks of things, Old Home has been focusing its efforts in the right direction.
“When I started here 31 years ago, the sales of this company were about $4 million, and now we’re going to be a $35 million company 30-some years later,” Bonifaci says. “I guess 30 years ago — I can hardly remember 30 years ago — I’m sure I didn’t envision us being a $35 million company 30 years down the road. To me, that’s pretty exciting.” df$OMN_arttitle="Where Their Heart Is";?>