The Comeback Crew
May 1, 2006
The Comeback Crew
by James Dudlicek
Free from the shackles of financial scandal, Farmland Dairies sees greatness ahead.
“We are a year-old baby with a very high IQ,” Emil Nashed says in describing Farmland Dairies’ new life after near ruin.
Nashed, vice president of quality assurance and R&D at the Wallington, N.J.-based fluid milk processor, is part of the effort to rebuild the company that’s celebrating a year out of bankruptcy — a situation it was forced into in 2004 when, then known as Parmalat USA, its parent company in Italy was in the throes of a huge financial scandal.
With a brand that dates back nine decades in northern New Jersey, Farmland is stronger physically and financially, and is fully focused on building a company for a bright future that will leave the dark clouds of the recent past far behind.
Giving that effort a boost is the brand itself; with its Farmland identity overshadowing that of its former Parmalat ownership, the company was able to fly below the radar and avoid a tarnished public image that could have jeopardized its relationship with customers.
“We really tried very hard to turn all the negatives into positives,” says president and chief executive officer Marty Margherio, the former Crowley Foods chief hired to lead the reorganization. “We knew that if we could make good-quality products and have very good service levels that we could get our customers to have confidence in us again. The ones that have worked with us — and there were a lot that worked with us through the bankruptcy — were kind of rooting for us.”
Through it all, Farmland has remained one of the top brands in the New York metropolitan area, and its Special Request Skim Plus® brand — which offers higher levels of protein and calcium — is the No. 1 fat-free product in the Big Apple. Meanwhile, it’s having ongoing success with aseptic milk under the Parmalat brand it continues to license from Italy and manufacture at its second plant in Grand Rapids, Mich.
Gross sales at the end of last year reached $300 million — about half of its previous sales before company restructuring brought eight manufacturing sites down to two, but still $47 million more than the previous year from new customers.
Further armed with the Welsh Farms brand among its 300-plus SKUs, along with a healthy co-packing business, Farmland serves a 200-mile radius from its Wallington headquarters with fresh product. Extended-shelf-life (ESL) product is distributed north into New England, south to Florida and west to Ohio.
Margherio and the team he brought with him from Crowley are working with existing Farmland senior management to chart a new course for success, a road paved with good quality and good service, supported by investors who share their vision and are willing to provide the resources necessary for getting the job done right.
“When we filed for bankruptcy, we didn’t lose many of our customers because they knew the service and they knew the quality brands, so they basically stuck with us,” says Peter Clifford, vice president of human resources. “So it’s a question of showing them bigger and better things that we’ve got planned.”
Back Fom the Brink
At the time of the bankruptcy, it wasn’t certain whether Farmland would stay in business.
“They had a couple ways to go,” Margherio explains of the creditors’ committee, which included principal investor General Electric. “They could try to get the company up and running again, or they could get it to a point of liquidation. Liquidation, at the time, looked like a very big possibility.”
Opting to make a go of it, the company began to sell off assets and had sold Milk Products of Alabama by the time Margherio was brought on board. Next came the sale of the Atlanta plant and the closure of a plant in Brooklyn. “We had good critical mass here in Wallington, and good business out of Brooklyn, but both places were losing a lot of money, and Brooklyn was really losing a lot more than Wallington was at the time,” Margherio says, lauding cooperation with the union at the Brooklyn plant to ease the pain on the work force. “We ended up with plants in Wallington and Grand Rapids. We felt that was a good core.”
Then work could begin to beef up Wallington’s physical plant. “We knew we had to put some capital expenditures in to get it up to snuff, to get it to be the dairy it once was 15 years ago,” says Mike Pedersen, executive vice president of operations. “We’re undertaking that chore right now. We’re making major capital expenditures, additions and plant improvements.”
Such projects are essential to Farmland’s mission of selling the highest-quality products possible. “Churchill said that every country takes character from its head. That is also true for companies,” Nashed says. “We were fortunate to have Mr. Margherio come here. He gave us the charge that Farmland is going to be a quality house.”
Margherio continues: “The mainstay of the whole thing is making good-quality products. Without that, you don’t have a business. We’re slow at developing new products, because we’re just coming out of bankruptcy. But we’re getting our people to understand that we’re in the food business and we have to satisfy customers, and all the things that really sounded so easy to do weren’t, because of many years of mismanagement and neglect.”
With a focus on the future and a management team that has earned the confidence of the investors, Farmland Dairies can turn more of its attention to its product line.
Already armed with the top-selling skim product in the New York metro area, Farmland is well positioned to pursue a growth track based on health and wellness. The company sees lactose-free milk as a particular area of growth, and last year released 100% Lactose Free Skim Plus with aggressive promotion to gain trial.
“We’re trying to hit a market where there isn’t a lot of competition,” Margherio says. “This is an added-value product because it has 37 percent more protein and 34 percent more calcium than whole milk. For people who are lactose intolerant, this is a very good item for them. … We’re finding our Skim Plus product being recommended by many heart doctors in this area that are familiar with it. It’s quite a healthy product.”
Farmland’s shelf-stable products were in great demand for disaster recovery efforts last year; the Parmalat products were advertised on The Weather Channel during the 2005 hurricane season, creating a sharp boost in sales as well as consumer awareness. In addition, sales of its Parmalat and Lil’ Milk® aseptic products grew significantly in the Southeast and Puerto Rico. Farmland reports that its shelf-stable brands are the most popular products of their type in the markets it serves, and its Lil’ Milk has earned USDA certification for school lunch programs.
In the Northeast, the Farmland Dairies, Welsh Farms and Special Request brands represent 80 percent of the company’s business, with the rest for private label, which Farmland calls “corporate brands.” Branded products made at the Grand Rapids plant account for 60 percent of output.
Margherio explains two of Farmland’s newest products. “The aseptic half and half that we just came out with — it has a nine-month shelf life but tastes as good as anybody else’s half and half. That’s a good item not only for the foodservice sector but also the mainstream business — for cooking and other things for which you’d want a longer shelf life,” he says.
“The other item is Chocolate Splash, a chocolate drink that is getting very good reviews. We thought we would try to get into a segment of the business that we haven’t been in before.”
Farmland is looking into further line extensions for its Skim Plus line. “Just coming out of bankruptcy, we’re really trying to make sure that we walk before we run,” Margherio says. “We’re taking our time.”
Television and radio advertising is planned to promote the line, including spots on “Imus in the Morning,” the New York-based, nationally syndicated radio show that can also be seen on MSNBC. Additionally, Farmland products have been seen in Tony and Carmela’s refrigerator on HBO’s “The Sopranos,” which is filmed in various northern New Jersey locations around Wallington.
Farmland is proud of its brand heritage, quality products and service, as well as its commitment to process and sell only milk produced without artificial growth hormones, a key selling point. “That’s a very positive attribute,” says Terri Webb, senior vice president and chief financial officer, “and we realized that earlier this year when we did a focus group with doctors, dieticians and nutritionists in New York City.”
And as wellness trends continue, Clifford adds, “that type of product — plus other ones we’re planning on launching — fit right into that trend, our products are healthy, nutritious, and good-tasting for infants right through to senior years.”
The company is continuing market research to affirm demand for such products. Margherio says being r-BST free “really is, in consumers’ minds, a very important issue.”
And recognizing the growing Hispanic population, many Farmland products come in packages with bilingual wording — some entirely in Spanish.
Beyond its supermarket customers, Farmland does a lot of business with convenience stores as well as dealer organizations. “We have several dealers that can take our products to places that our business won’t otherwise allow us to go to. They represent us very well. Our dealer organizations are an important part of our overall network,” Margherio says. “We have a partnership with Oak Tree Farm Dairy on Long Island — they produce some of our products because they can get it to Long Island a lot easier than we can. They have been a really important partner for us.”
Margherio sees Farmland as an integral part of the dairy processing community in its region. “We’re down to a limited amount of processors in the East,” he says. “We’re one of the bigger ones and we’re going to get to be one of the major ones as time goes on.”
As if emerging from bankruptcy wasn’t enough of a hurdle, Farmland also is facing the same types of challenges confronting the dairy industry in general: how to increase relevance and share of stomach among consumers.
“Farmland and the dairy industry as a whole need to make sure that we continue to produce the kind of products that are going to be healthy and fit consistent with where the country is going,” Margherio says. “With the obesity issue now, with kids, the issue of imports coming and regulation of what’s on the shelf and claims being made with the nutraceuticals, I think all that’s going to be an issue for dairy. I think that through the efforts of MilkPEP and DMI [Dairy Management Inc.], education is going to be the critical issue. Milk is still the most nutritious drink that you can have. Somehow along the way, we forgot about it, and soft drinks and sugar became very popular, and milk didn’t get its due for a lot of reasons.
“We’ve got to get people understanding that what we make is a very nutritious product that people need in their diets. I understand if you’re lactose intolerant you can’t drink regular milk, but you can sure drink our Skim Plus lactose-free. We can put out a product that, for a few glasses a day, will really help our consumer get the nutrients they need. I think that’s the real thrust for our whole industry, from the producer side to the processor side, the whole way up and down — and making good quality products and getting them to the consumer so they’re affordable.”
The experience of bankruptcy just may have made Farmland better able to take on the industry’s challenges.
“From my perspective, there are two things that the bankruptcy did for us,” Clifford says. “One was focus, the other direction. I think Marty and his team came in and gave us not only the focus we needed but also the direction for the company. The focus was on defining our core business; what are the brands, what do we do well. The direction was where are we going. I think the opportunities that we see are pretty interesting and very exciting.”
Farmland’s corporate philosophy is simple: to build a company that meets the needs of its customers and consumers, and create a culture that supports its employees and the community.
“We’re developing a culture that supports the business,” Clifford says. “From that, you understand who you really are and where you need to go.”
The company has issued a written corporate creed (see sidebar) so there would be no confusion about its mission. It also puts the onus on management to lead by example. “The creed is something that’s on paper, but if you don’t model it, it really doesn’t mean anything,” Clifford says. “The emphasis on us, is to not only establish that kind of corporate creed, but to model it in all of our activities — dealing with customers, dealing with the community, dealing with our employees. It’s very important to model what we say we’re going to do.”
A key part of that is employee training. “The gratifying part is that we can start anew, and we think we have enough experience certainly to know that mistakes can happen, and we’re undertaking a very important piece now in our training,” Margherio says. “We’ve gotten help from the state of New Jersey, and we put money aside to train our people. As fundamental as it sounds, it hasn’t always happened here. So we’re going to go back to the basics to make sure that when we grow this company, we’re going to be a top-shelf operation that understands what to do. Are we going to have a 10-year strategic plan? No, not yet. But we’re going to have a plan that’s going to be workable and over the next couple of years continue to take this company someplace special.”
To motivate employees toward excellence, the company has launched its President’s Circle program to recognize individual achievements and contributions. This program was unveiled in the latest issue of Farmland’s quarterly newsletter, launched to help employees stay better informed about the company. Farmland also supports its employees’ community involvement in various organizations and charities, and contributes to goodwill efforts including the donation of four trailer loads of aseptic products for Hurricane Katrina victims.
“What we’ve really seen change in the past year is the creation of a team with a single direction that everyone is moving toward,” Webb says. “We can see excitement back in the people here. When we first came, people were paddling upstream and didn’t know what the next step was going to be. Now, we have a direction and we really can see the excitement in our employees. As you walk around, I think you’ll see a lot of smiles.”
Meanwhile, Margherio makes it clear that profit is not a dirty word. “We’re going to be a profitable company, because that’s the only way you can make the reinvestments. It’s the only way you can give the employees a chance to continue to grow and have a lifestyle that’s worthwhile,” he says. “We care a lot about our people and what they do, and make sure they feel good about the job they do. If you have somebody cleaning the floor, he’s got to be the best floor cleaner in the business. That’s what we’re trying to achieve. It’s going to take some time, but we’ll get there.”
Employee recognition programs will help support that, Webb says. “The expectations are far greater than they ever were in the past,” she says.
Nashed’s comparison of Farmland to a baby with a high IQ is echoed by his management colleagues. “While the company may be 90 years old, we really feel like we’re in our infancy. This is our one-year birthday,” Webb says of Farmland’s freedom from bankruptcy. “We set a business plan under Marty’s direction this past year for one year, because we said, let’s just get out and then decide what the next steps are going to be. We’ve met our objectives in our first one-year plan, and we’re ready to more forward.” m
FARMLAND DAIRIES HISTORY
Farmland Dairies has roots dating back to 1908, when Max and Bessie Goldman started a dairy farm in Fair Lawn, N.J., and eventually began processing and packaging milk products. In 1950 their company, which was known as Fair Lawn Dairies, merged with Paterson, N.J.-based Farmland Dairies. The company moved from Fair Lawn to Wallington in 1970, when the current plant was built.
In 1999, the Goldman family sold Farmland Dairies to Parmalat SpA, the Italian-based global dairy concern. Farmland became part of Parmalat USA, which also included White Knight in Michigan, Georgia’s New Atlanta Dairies, Sunnydale Farms in New York, Clinton Milk Co. and Welsh Farms in New Jersey, and Milk Products of Alabama.
Financial scandal led Parmalat SpA to file for bankruptcy in December 2003, dragging Parmalat USA to the same fate by February 2004.
A crisis management team recommended a plan to sell off parts of the company to repay debt and, recognizing the equity of the brand in the New York metro area, reorganize as Farmland Dairies LLC. In July 2004, principal investor GE Capital hired Marty Margherio, former chief executive officer of Crowley Foods, to lead the new company out of bankruptcy. Margherio brought with him to Farmland two other former Crowley executives, chief financial officer Terri Webb and executive vice president of operations Mike Pedersen, who joined existing Farmland senior managers to rebuild the company.
The new team oversaw staff reductions, discontinuation of unprofitable products and customers, and the sale, closure or consolidation of facilities in Alabama, Georgia, New Jersey and New York. Reduced to two manufacturing sites, a distribution facility and 550 employees from a one-time work force of more than 1,300, Farmland Dairies emerged from bankruptcy on April 13, 2005.
FARMLAND DAIRIES’ CORPORATE CREED
To create and maintain and injury-free work environment
To accept that errors are OK as long as learning occurs; open communication is encouraged to facilitate solutions
To commit to the future and encourage a restlessness for constructive change
To promote from within whenever possible
To support the communities in which we live and work
To be a good custodian of our environment
To provide respect and dignity for all
To foster a climate of urgency, accuracy and timeliness
To respect the cultural diversity of all of our employees
To promote an atmosphere of teamwork
To provide the training necessary to support our employees
To be committed to invest in our employees, equipment and facilities
To provide the highest-quality products and services to our customers
To always remember and focus: Our customers are the reason we are in business$OMN_arttitle="The Comeback Crew";?>