Alpine Lace Brands, Inc.

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Alpine Lace Brands, Inc.

111 Dunnell Road
Maplewood, New Jersey 07040
U.S.A.
(201) 378-8600
Fax: (201) 378-8887
Web site: http://www.alpinelace.com

Public Company
Incorporated: 1986
Employees: 127
Sales: $145.0 million (1995)
Stock Exchanges: NASDAQ
SICs: 2022 Cheese, Natural, Processed & Imitation; 2099 Food Preparations, Not Elsewhere Classified

Alpine Lace Brands, Inc., is a leading manufacturer of reduced-fat and fat-free deli cheeses and meats. The company’s operations are two-fold: First, it markets, distributes, packages, converts, and manufactures branded cheeses and specialty food products. Its PreMonde Alpine Lace line, for example, includes such items as Ched-R-Lo, Colbi-Lo, Monti-Jack-Lo, Muenster, and Sharp R.F. Cheddar cheese products. Secondly, the company engages in cheese and dairy products trading. Its subsidiary MCT Dairies, Inc., trades cheese and dairy products domestically and internationally. Usually the principal in transactions, MCT Dairies buys and sells bulk domestic and imported cheeses, whey powders, dairy flavorings, and buttermilk to manufacturers, processors, distributors, and cheese and dairy traders. The subsidiary also exports cheese and dairy products through U.S. government-assisted programs. Marolf Dakota Farms Cheese, Inc., another subsidiary, slices and packages Alpine Lace cheese products.

Humble Beginnings, 1983

Although the items listed on the labels of low-fat cheeses and dairy products were often very appealing to the health conscious, the taste and textures of early “healthy cheeses” were not always palatable to consumers. Yet, food brokers Carl and Marion Wolf successfully positioned Alpine Lace Brands as a leader in low-fat, fat-free, and low-sodium cheese and dairy products. In less than 20 years since its founding, the company established international distribution of its product line and immediate customer recognition of the Alpine Lace brand name, making it one of the top-selling brands of light cheese and dairy products. “The biggest challenge,” explained founder Carl Wolf in Dairy Foods, “is to have consumers try low-fat cheese and dairy products.”

In 1983, Carl and Marion Wolf obtained the marketing rights for Alpine Lace brand reduced-cholesterol and reduced-salt cheese for their company First World Cheeses. The husband-and-wife team developed a reduced-fat cheddar cheese and then a low-fat Swiss cheese, which they started selling to a limited number of stores. At first, they marketed their products exclusively to supermarket deli sections where competition from national brands was not as formidable. First World Cheeses became a public company three years later in 1986 and sold merchandise nationally since 1987.

In 1989 First World Cheeses purchased Marolf Dakota Farms, Inc. As a wholly owned subsidiary headquartered in Sturgis, North Dakota, Marolf Dakota Farms served as a skim milk and cheese producer for the company, eventually becoming the packaging and converting facility for bulk cheese for Alpine Lace. Another subsidiary, Mountain Farms, Inc., converted cheese products for the company as well.

Competing with National Brands During the 1990s

During the 1990s, First World Cheeses’ products began to compete effectively with national brands. In 1991, the company changed its name from First World Cheeses to Alpine Lace Brands, Inc. Still headquartered in Maplewood, New Jersey, Alpine Lace Brands marketed its products as having substantial nutritional benefits—fat free, reduced fat, or reduced sodium—as compared to other cheeses. Alpine Lace’s products were distributed both to supermarket delis and dairy cases, as well as to club stores and food service accounts. They also were featured as ingredients in food products.

Though Alpine Lace brand products were priced somewhat higher than conventional cheese items—about 16 cents per slice of American-flavor cheese compared to 14 cents for a slice of Kraft American singles—they still sold well. Net sales for 1991 totaled $113.7 million, and pre-tax earnings were $1.4 million that year. Stockholders’ equity was recorded at $6.6 million.

By 1992, Alpine Lace products were sold in 45 percent of supermarkets, including major chains such as A&P, Vons, Ralphs, and Great Food. The company controlled 20 percent of the market and was the second-largest light cheese brand.

That year the company introduced Alpine Lace Free N’ Lean Fat Free cheese spreads, featuring cream cheese, cream cheese with chives, cream cheese with garlic and herbs, cheddar, and cheddar with jalapeno. The line of products contained only thirty calories and less than 0.5 grams of fat per one ounce serving. In addition, Free N’ Lean products could be micro-waved, baked, or reheated. Other manufacturers’ low-fat cream cheeses could not.

Alpine Lace Brands launched the new line with a major merchandising campaign in New York. In addition to a press conference and sampling of the Free N’ Lean products, the company offered free bagels and cream cheese to New York commuters at train stations and at the Staten Island Ferry’s terminal. In all, the company treated commuters to more than 50,000 bagels.

The Free N’ Lean line was made with fat replacement technology acquired in May 1990 from Dr. Aly Gamay. The technology allowed the removal of cream from and the addition of flavorings and texture to the cheese product. Gamay told Supermarket News: “The whole system basically involves cultured vegetable gum and a special series of flavorings that are particularly adaptable [to cheese made of skim milk]. If you take the fat out of milk and cheese, it becomes bitter. What we’ve been able to do is add back or mimic the feel and also the sweetness of the fat.” Other products under development at this time included fat-free grated Parmesan cheese, butter, sour cream, toppings, and whipped cream.

Net sales for 1992 totaled $117.8 million, and pre-tax earnings were $0.2 million. Selling, general, and administration expenses added up to $32.7 million. In 1993, net sales were higher—$129.8 million—but pre-tax earnings resulted in a loss of $5.2 million. As a result, Alpine Lace Brands sold its holdings in its Mountain Farms, Inc., subsidiary. Mountain Farms’s operating losses prompted Alpine Lace Brands to sell all its common stock, which represented 65 percent of the subsidiary’s outstanding shares. J.R. Simplot, a dairy products company, purchased Mountain Farms on February 14, 1994. At that time, Alpine Lace contracted Mountain Farms to convert no less than 3 million pounds of cheese annually in a three-year supply agreement, which was terminated in 1994 owing to Mountain Farms’s continued operational troubles and subsequent restructuring.

Alpine Lace likewise initiated a restructuring plan for Marolf Dakota Farms Cheese, Inc., in 1994 to increase efficiency and productivity at that subsidiary. Alpine Lace Brands ended skim-milk cheese production at the Marolf Dakota Farms facility, as well as discontinued the Marolf Dakota Farms Cheese brand line. The subsidiary became solely a cheese packaging operation. With these changes, the net sales for Alpine Lace Brands grew to $132.4 million in 1994. In all, sales increased $2.5 million or 2 percent from 1993. Gross profit grew from 20 percent in 1993 to 24.8 percent in 1994. Operating expenses dropped $5.2 million, and administration expenses decreased more than 27.9 percent. Pre-tax earnings—before special charges—recovered to $1.1 million.

In 1995, Marolf Dakota Farms Cheese, Inc., purchased a high-speed slicing production line to improve quality and increase productivity. Also that year, Alpine Lace Brands was granted a patent for the chemical process used in manufacturing low-fat and fat-free cheeses. Upon receipt of the patent, the company brought suit against its major competitors—namely, Kraft, Borden, Beatrice Cheese, and Schreiber Foods—for patent infringement. Alpine Lace Brands requested relief and damages owing to these manufacturers producing products using the recently patented process. A federal court, however, found in favor of Kraft. Alpine Lace planned to appeal the decision to the U.S. Court of Appeals for the Federal Circuit in Washington, D.C.

Company Perspectives:

Alpine Lace Brands, Inc., develops and markets an expanding line of Fat Free, Reduced Fat and/or Reduced Sodium cheese and delicatessen meat products sold under the Alpine Lace brand name. Alpine Lace products are available in virtually 100 percent of supermarkets and delicatessens nationwide, and provide nutritionally superior benefits over regular cheeses and delicatessen meats while addressing consumer demands regarding taste, quality, and freshness. The company’s Marolf Dakota Farms Cheese, Inc., subsidiary slices and packages Alpine Lace cheese for dairy case and club store sales, while its MCTDairies, Inc., subsidiary engages in the cheese and dairy commodity trading business.

New Products and International Expansion

Alpine Lace Brands introduced a variety of new or improved products in 1995. The company, said Wolf at the time, “made important strides in the dairy case through new item distribution and product innovation.” Branching from cheese and dairy products, the company launched a fat-free, reduced-sodium turkey breast under the Alpine Lace brand name. This product, manufactured without nitrates, claimed to be 63 percent lower in sodium and only 22 calories per ounce. Kim Alexis, a supermodel and spokesperson for the company, was featured in television commercials for the new fat-free turkey. In addition, the company announced a reduced-fat feta cheese under the Alpine Lace brand name. With 33 percent less fat, the feta cheese sold in prepackaged seven- to nine-ounce chunks. At its introduction, Alpine Lace Brands was the only national distributor of a reduced-fat feta cheese. In addition, the company offered a fancy-shredded, ziplock-packaged fat-free Parmesan cheese for the first time in 1995. Alpine Lace Brands also developed enhanced fat-free shredded mozzarella and cheddar cheeses with improved melting and taste. New, bolder packaging was instituted to note the enhancements on products.

Alpine Lace Brands also established an industrial and food service business in 1995 and expanded its channels of distribution, including co-branding, licensing, and industrial and international sales. The company achieved Kosher—certification for its fat-free bulk cheeses used as industrial ingredients. It planned to increase further its Kosher line of deli products and formed an industrial/co-branding division, headed by Marion Wolf, to assist with these efforts. Another area under the new division’s control involved negotiations with restaurant chains for their use of Alpine Lace brand cheeses in appetizers, entrees, or desserts. In November 1995, Alpine Lace also marketed a line of low-fat food—such as cheese loaves, cheese sauces, and salsa—with exercise celebrity Richard Simmons. These stable, nonrefrigerated items were co-branded products with Simmons and sold under his Slimmons name.

In addition to new and improved product lines, Alpine Lace Brands expanded its sales territory in 1995. The company further developed its presence in Canada and Puerto Rico and added an international division charged with evaluating international markets and the distribution channels for these markets. The company named vice-president and general manager of the Branded Division George Wenger as head of the new division.

The product line growth and international expansion of 1995 resulted in net sales of $145 million that year—an increase of 9.6 percent from the preceding year. Pre-tax earnings in 1995 totaled $4.4 million. And stockholders’ equity grew from a deficiency of $0.5 million in 1994 to a surplus of $5.1 million. As Wolf reported to the company’s shareholders in the 1995 annual report: “Fiscal 1995 was an extremely successful year for Alpine Lace. The company reported substantial growth in its profits and solid gains in its revenues. We controlled overhead expenses, expanded our product lines and distribution channels, incorporated new divisions within the company, and refined our Fat Free and Reduced Fat cheesemaking technologies. The year’s achievements enhanced our position as the leading marketer of nutritionally superior deli cheeses and meats, and poised us for further growth in 1996.”

Indeed, in 1996 expansion continued. Internationally, MCT Dairies moved in the same direction as Alpine Lace Brands in the preceding year with the appointment of Kevin Colson as director of international sales and marketing. Colson brought experience and familiarity in international sales to the company, especially in the Mexican and South American markets. The cultivation of the company’s product line advanced as well. By 1996 Alpine Lace Brands offered more than 200 sizes and types of cheeses to consumers. In March of that year, the company further developed low-fat cheeses with improved melting points. “Rather than an onslaught of new products, we’re improving the quality of our existing products,” Carl Wolf told Dairy Foods in February 1996. Nevertheless, Alpine Lace Brands still introduced a new low-fat turkey, then launched a 97 percent fat-free ham in 1996.

The company controlled 50 percent of the low-fat cheese market in 1996 and expected a 17 percent sales growth. In February of that year, Alpine Lace Brand products were available in 99 percent of all U.S. supermarkets. Despite this enviable position, the company remained chagrined with consumer distrust regarding the taste of light cheese products. Thus, Alpine Lace Brands expected to increase its merchandising efforts in 1996 through new field merchandisers and electronic signs, among other promotions, to win over doubting consumers. The company, for instance, contracted Texan chef Pam Mycoskie to write a cookbook featuring recipes using Alpine Lace products and explored ways to incorporate the Internet into its marketing strategy. Nonetheless, as Carl Wolf noted, “With one of the most recognizable and reputable names in the cheese industry and [with] consumer lifestyle and consumption patterns turning toward healthier living, we have great hopes for the future.”