Executive Roundtable
Two generations of management discuss the growth
and future of Old Home Foods.
The Hanson family has been
part of the Minnesota dairy industry since 1912, when P.A. Hanson started
the Rice Street Dairy in St. Paul.
Today, P.A.’s grandson, Rick Hanson, serves as
chief executive officer, chairman of the board and third-generation owner
of the company that evolved into Old Home Foods.
In September 2002, Geoff Murphy became the first
person outside the Hanson family to lead the company when he was named its
president. A veteran of Yoplait and Colombo, Murphy is poised to take the
helm at Old Home after Hanson retires as CEO in March 2005.
During a recent visit to Old Home’s corporate
headquarters, Dairy Field asked Hanson and Murphy for their thoughts
on the company’s growth, future and success amid a field of much
larger competitors. Responses have been edited for space.
Dairy Field: What kind of expansion opportunities do
you see on the horizon?
Rick Hanson: We are either number one or number
two in almost all the categories we’re in. I don’t know how much
opportunity there is for us to push the market-share ceiling in this market.
So I think our major opportunity is adjacent geography and outside of our primary
marketing area.
Geoff Murphy: We do a lot more advertising
than your average cultured dairy company, whether it’s bus sides or billboards,
radio or television. We do a lot, and even though we have, for example, the
number-one share in cottage cheese, every now and then we’ll hit on something
that will garner us even more share. We’ve not put any low-carb products
on the market — new ones, that is. But cottage cheese is low carb, so
we highlighted that in an outdoor campaign and actually saw our share go up
eight or nine points. If you’ve got a 45 share and your product is 30
percent more expensive than your next branded competition, that’s pretty
good.
DF: How far do you see your market expanding?
Hanson: It just depends on
what timeline you’re looking at. There’s no reason we
can’t be another Ben & Jerry’s or what-have-you
that’s national.
Murphy: That’s
with our branded products. We are a national company. You can purchase
products made here at Old Home in all 50 states, just not necessarily under
the Old Home name. We have a number of branded co-pack customers.
Hanson: Also, in terms of potential growth, it
has been a great opportunity for us to become familiar with cultured
organic and soy, even though we don’t manufacture any of it for
ourselves.
DF: What are some of
your brand’s selling points you drive home to consumers?
Murphy: Quality and freshness.
Hanson: And I think we’ve earned it after
almost 80 years now. We have done a better job of freshness than our
competitors. Cultured dairy is our bread and butter, as opposed to a
byproduct like it is for most sizeable dairies. As far as I know,
we’re the only cultured dairy company that has its own DSD system
that completely services the store shelves.
Murphy: For a number
of years, our campaign was “the freshest place in the dairy
case,” and I think our consumers relate to that. They know the
product is made here locally and we bring it right to the shelves. Whenever
we do focus groups, our consumers continually talk about the quality of our
products, and they just wouldn’t consider purchasing another label
for their family. And we don’t mess with the quality of our products.
A good example is our vanilla yogurt — it’s made with a natural
bourbon vanilla that just a few years ago was about $60 to $80 a gallon.
The last purchase we made was $550 a gallon. But we’re not going to
change the product. That’s what people expect. We’re fortunate
that we can pass some of that price on to our consumers because they are
loyal and they know they’re getting the best.
DF: How have infrastructure improvements enhanced
operations?
Murphy: When I got here in
’98, the three cup fillers were all rotaries from the ’50s. All
those lines have been replaced within the last five years, two within the
last three years. That allowed us to do a number of things — most of
our products were still in waxed paper, even just a few years ago. So we
were able to transition out of that. We made a huge investment getting into
beverages. We saw that as a good opportunity and completed the installation
in the fall of 2002 before it really took off, which puts us in the nice
position of having to turn away potential business for that line.
We’ve invested a lot in capacity, both on the processing side and the
packaging side. We replaced our entire refrigeration system. That’s
kind of the turning point in our investment. In the recent past, we
invested in capacity — probably doubled our capacity. Now we’re
going to be investing more in efficiencies, to really drive cost out so we
can be more effective.
DF: What are the biggest challenges for your
company and the dairy industry as a whole?
Hanson: I think for
the dairy industry, it’s being in a commodity business, hard to
distinguish one branded product from the other. Of the 35 dairies that were
around here 35 years ago, there’s now five. So we’ve been able
to distinguish and market our product. Some of the other dairies are doing
a lot of the stuff we’re doing, in terms of outdoor and media, but
we’ve been doing it for many years, and it has paid off. People
are convinced our products are as good as they can get.
Murphy: I would agree with the commodity issue.
It’s tough. Milk and dairy products are staples, and when you start
raising the prices too much, you get Mom’s attention and you get
legislative attention. But overall for the industry, I think the
future’s very bright. The focus on childhood as well as adult obesity
is really becoming magnified. I think the dairy industry is positioned very
well because we are a healthful alternative compared to some of the
products that are out there. For Old Home specifically, our biggest
challenge is realizing our dream of getting our brand in other geographic
areas. We’ve almost doubled the company in the last six years; we
have a vision of tripling it again in the next five or six years.
We’re not as small as we used to be, but we’re still a small
company. Here, Old Home is like Betty Crocker — everybody knows what
it is. But you go 300 miles from here, people don’t.
Hanson: Geoff and I
had an interesting experience out in California. We were talking about our
future, and he said it’s really going to be tough to get outside our
primary marketing area because nobody knows Old Home. I said, I think
we’re better known — you’d be surprised, just by virtue
of people traveling and what have you. We went to dinner that night, and
he’s got an Old Home jacket on. The waiter comes up and looks at his
jacket and says, “You’re the guys who make that crab dip!
I wish we could get it out here!” Then I take him to the
airport the next day, and this guy comes up to us and says, “I see
you have a Minnesota license plate. Where are you from?” I say,
“The Twin Cities.” And then he saw your Old Home jacket and
says, “Are you the Old Home cottage cheese company? I’m from
Luverne, Minnesota. I wish we could get that stuff out here.” Anyway,
to take a brand and support it with marketing is hugely expensive.
That’s why we have taken on contract packaging, to help us defray
some of our investment costs so that we can put money into manufacturing
that we wouldn’t be able to justify based on just our branded volume.
Murphy: And
that’s a challenge itself, because we are a branded company and we
want to remain a branded company. We don’t want to ever get into a
situation where 60 percent of what we manufacture and sell is under another
label [the split is about 70 percent own-brand products, 30 percent
co-packed].
Hanson: Geoff, is our
contract packaging growing at triple digits?
Murphy: Yes. And
we’re being cautious about taking on additional customers. With some
of the major customers, they’re so pleased with us that they’re
launching new products, some that they’re even having us develop for
them. So I think we’ll realize all the private label growth that we
want with our existing customers. Which isn’t to say I don’t
hope somebody calls us with some fantastic opportunity.
Hanson: I wanted to stay
with the branded product because it’s the only place that
you’re secure. When I brought Geoff on board, we visited several
dairies and one of them happened to be Wells. Obviously, Wells’ Blue
Bunny is a very successful brand name and, at the same time, they have a
huge contract packaging business. That really turned me around mentally
that you could do both successfully.
DF: How would you describe your company’s
management philosophy?
Hanson: One of my major
undertakings was to change our corporate culture from a top-down management
— more inclusive, better communication, getting employees involved.
We have employees from every department help us put together our business
plan every year. And it’s really interesting to hear some of the
astute observations that are made by people who are on the line. We have a
weekly newsletter and we share a lot of our successes and failures. We have
a “roving reporter” who walks around, and they get a lot of
communication where you get one department thanking another department. I
really think that’s neat. So much of what we do here is repetitive.
It doesn’t have to be interesting. We try to get around that by
involving the people and having them see that their department is not an
island unto itself.
Murphy: We
constantly, at the leadership team level, work on our team skills, and
we’re going though it again right now with a series of off-sites with
a professional coach, making sure that we interact and work well together
as a team.
Hanson: All the
officers own stock in the company at this point. My family has about 80
percent of the ownership. I believe in having the officers and key
personnel have stock in the company. We have a program right now where we
have authorized 800,000 shares, or about 20 percent in additional stock, to
be earned by key personnel over the next eight years. To get that, they
have to reach a certain profitability, a certain overall growth and a
certain branded growth. If they ring the bell on all three of those, they
will accumulate 800,000 shares. If they succeed, the company will succeed.
So I hope they earn it all.
DF: Where do you expect the company to be five years
from now?
Murphy: I think
there’s a good likelihood we may be in a different location.
We’re looking right now at moving our offices right across the
street. If you walk around here, you see how crowded it is. There’s a
lot of volume being pumped through here. Five years from now, we’ll
be at least double in sales from where we are now. And given that,
it’s likely we’ll be in a different location.
DF: What is your company’s most unique aspect?
Murphy: It’s fairly
unique being independent. The few of us that are left get approached with
some regularity by the big guys to convince us we should sell, but we have
no interest in doing that. Also, there’s the fact we’re a
full-line cultured dairy. There aren’t too many left that make all
the cultured products. I think it’s fairly unique, too, that not only
are we a full-line cultured dairy company, but we also are one of the largest
cultured soy manufacturers in the nation and one of the largest organic
manufacturers.
Hanson: I was going
to mention our ability to attract some top-level management people.
Sometimes you can’t afford not to have the best, especially when
you’re in a growth mode like we are right now.
DF: Are they any plans to acquire other brands or
companies?
Murphy: There’s
nothing on the immediate horizon, but if something presented itself that
really seemed to make sense, we’d take a hard look at it. We’re
not actively out there knocking on doors right now, but we’re keeping
our eyes open.
Hanson: I think we have so
much low-hanging fruit that we haven’t leveraged or fully developed
that I have more enthusiasm for growing internally than I have for
acquisitions. That’s not to say I would turn it down if it was
appropriate. But I really enjoy developing our own products and growing our
products. df
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