Atlantic Premium Brands, Ltd.

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Atlantic Premium Brands, Ltd.

1033 Skokie Boulevard, Suite 600
Northbrook, Illinois 60062
U.S.A.
Telephone: (847) 412-6200
Fax: (847) 412-9766
Web site: http://www.atlanticpremiumbrands.com

Public Company
Incorporated: 1991 as Maryland Beverage Company
Employees: 485
Sales: $122.3 million (2002)
Stock Exchanges: voluntarily delisted from AMEX
Ticker Symbol: ABR
NAIC: 422470 Meat and Meat Product Wholesalers

Operating out of the Chicago suburb of Northbrook, Illinois, Atlantic Premium Brands, Ltd. (APB) owns several premium meat brands, distributed to a contiguous 12-state region comprised mostly of midwestern and southwestern states. Through its Texas-based Carlton Foods Corporation subsidiary, ABP produces smoked sausage products, primarily sold in Texas. Subsidiary Prefco Corporation markets and distributes APB branded meat, as well as unbranded meat, and frozen entrees to grocery stores. The company’s Blue Ribbon brand includes sausage and bacon products, as well as home meal replacement items that include Texas-style, fully cooked barbecue entrees. J.C. Potter Sausage Company is an Oklahoma business that makes and sells premium, branded smoked sausages, breakfast sausage, and breakfast entrees, and also conducts a private-label program. Richard’s Cajun Foods Corporation, the last of the APB main subsidiaries, is a Louisiana business that produces and distributes Cajun-style frozen entrees as well as smoked sausages, boudin, pork and turkey tasso, pork hocks, and head cheese.

Origins in the Mid-1980s As a Beverage Company

APB was originally the Maryland Beverage Company, established in Maryland in 1986 by William Albright, Jr., and his wife Stephanie. Albright grew up immersed in the beverage industry. His father owned Albright Wholesale Co., one of the largest beer distributorships in the state of Maryland. Albright went to work for the company in 1980 and was instrumental in Albright Wholesale’s move to distribute Soho Natural Sodas, a trendy product in the mid-1980s. Recognizing the potential of such alternative beverages, Albright decided to form a separate company to focus on the business. In 1986, Albright, who was 28, and his wife, who was 23, scraped together $20,000—$10,000 from savings and a $10,000 loan—and launched a start-up they dubbed Maryland Beverage Company. In addition to Soho, the product line grew to include Elliott’s Amazing Juice, Deer Creek Spring Water, Snapple, Mystic, and Orangina. With Bill providing his expertise in distribution and Stephanie handling the marketing, by 1991 the Albrights had built a company generating $22 million in yearly sales. At this point they decided to cash in.

In September 1991 a Chicago-based private equity firm, Sterling Capital Partners, bought Maryland Beverage for more than $4 million and subsequently incorporated the business. Sterling Capital was established in 1983, concentrating on real estate, venture capital, and buyouts. Acquiring Maryland Beverage was part of an initial strategy to assemble a slate of similar alternative beverage distributors throughout the United States and create a national network. To achieve this end Maryland Beverage was readied to be taken public and the name was changed to reflect a less provincial scope. In September 1993 the company was reincorporated in Delaware as Atlantic Beverage Company. Assuming the chairmanship of Atlantic Beverage was one of Sterling’s cofounders, Eric D. Becker. One of the directors was Merrick M. Elfman, the company’s current chairman. An initial public offering (IPO) of stock was completed in November 1993, with nearly 1.2 million shares of common stock sold at $6.50 per share. The IPO netted more than $6 million, of which $4.2 million was used to pay down debt and the balance set aside for future acquisitions.

Several months after going public, Atlantic Beverage took a step that its chairman thought was going to be the cornerstone of the company’s national ambitions—acquiring certain assets of Flying Fruit Fantasy, USA, Inc. for $580,000 in cash plus stock. Atlantic Beverage gained the worldwide marketing and distribution rights to fruitshakes dispensed from automated machines using vacuum-packed ingredients. Flying Fruit was well known in the Baltimore and Washington, D.C. markets; the business had been launched 14 years earlier by Robert Groth, a former part-owner/bartender of a Washington suburb restaurant. He experimented with fruit juices and ice to develop exotic drinks for his customers, eventually coming up with a fruitshake that he decided to test outside of the bar. He set up a stand at an outdoor fair on Capitol Hill and was so pleased with the results that he fixed up an old milk truck to sell his fruitshakes at other weekend fairs. Groth built up a cult following, with many of his customers sporting T-shirts with the company’s colorful logo. He continued to operate out of a truck until he was finally able to obtain a coveted spot in a mall. Fortunately for Groth, Baltimore’s Harborplace was on the verge of opening and on the lookout for unique tenants. The mall’s developer saw the Flying Fruit truck at a crafts fair and signed up the young company as a tenant when Harborplace opened in the summer of 1980. With that toehold in the market, Groth was able to grow the business over the next decade, expanding to some 30 locations in the Baltimore-Washington, D.C. corridor. The company also began establishing carts in airports in Salt Lake City, Detroit, and New York, as well as selling franchises.

Becker and Atlantic Beverage were convinced that in the early 1990s Flying Fruit had not yet reached its full potential. In a statement released at the time, Becker maintained, “This nutritious product can be sold through a wide variety of distribution channels, and we see an opportunity to introduce Automated Fruitshake Centers to a number of Atlantic Beverages’ existing customers. Once a dispensing machine is installed, a ‘razor and blade’ effect comes into play as retailers begin placing repeat orders for fruitshake concentrate.” Within three years Atlantic Beverage planned to install as many as 1,000 machines in new locations.

Long before three years were over, however, Atlantic Beverage decided to ground its Flying Fruit business. Coupled with new competition from other drink sellers that cut into revenues and start-up costs incurred in launching its Flying Fruit endeavor, Atlantic Beverage experienced a sharp downturn in its fortunes. Moreover, the company endured three consecutive profitless years after being acquired by Sterling Capital, resulting in the company being dropped from the NASDAQ National Market list of stocks and relegated to the Small Cap Market.

In January 1996 Atlantic Beverage closed down the company’s frozen beverage division, which only contributed about 2 percent of the company’s $25 million in annual revenues. It had been clear for some time that Becker’s hopes for Flying Fruit had been misplaced and already there was a plan being put into place to reposition Atlantic Beverage and diversify into food products so that the company would be less dependent on beverages. This strategy was being orchestrated at Sterling’s Chicago offices by Alan F. Sussna, who came to the project from Bain & Company, a well-known consulting firm that specialized in turning around companies. The acquisition strategy called for Atlantic Beverage to target small, already successful premium meat brands.

Beginning Diversification in the Mid-1990s

The first step in the diversification effort took place in February 1996 when Atlantic Beverage agreed to pay approximately $11 million to acquire Prefco Corporation, which included the Blue Ribbon brand, and Carlton Foods. In 1995 the two companies together generated revenues of $117 million. Prefco was a spinoff of Blue Ribbon Packing Company, founded in Houston in 1948 by German immigrants Hans and Erna Pauly. They used old German recipes to make smoked sausages and were so successful that they were able to evolve into a full-service meat packing company, with a slaughtering operation and rendering company. With the death of Hans Pauly in 1963, the eldest son, Fred J. Pauly, assumed control, and over the next 25 years he transformed Blue Ribbon into a major Southwest packing business. In 1986 a son-in-law of the founders, Franklin M. Roth, became president of the firm and established Prefco to serve independent grocery stores and small supermarket chains. He also extended the Blue Ribbon brand of sausage and bacon products throughout Texas. Carlton Foods, founded in Houston in 1941, also had a long history producing smoked sausage in the Texas market. Through the 1972 acquisition of a processing company in New Braunfels it expanded into the central Texas market. Carlton launched a private-label manufacturing program in 1985.

Atlantic continued its acquisition spree when later in 1996 it bought Richard’s Cajun Country Food Processors in a deal worth nearly $3.5 million. The company’s founder was Lonnie Richard, who drew on his grandmother’s family recipes for smoked sausage and boudin, which he learned while working at her small southwestern Louisiana grocery store. He launched the business in 1981 and then retired 15 years later. He was succeeded as president of the company, just before it was purchased by Atlantic Beverage, by a childhood friend, banker Ronnie Doucet. In October 1996 Atlantic Beverage completed yet another acquisition, paying approximately $3.3 million in cash and stock for Kentucky-based Grogan’s Sausage, Inc. and Grogan’s Farm. Finally, in November 1996 Atlantic Beverage, through its Grogan’s subsidiary, bought Partin’s Sausage for $400,000 in cash.

Also in 1996 Atlantic Beverage underwent personnel changes in the top ranks. Sussna was named president and chief executive officer in March, and Becker was replaced as chairman by Elfman in July. Because Sussna was so instrumental in the company’s sudden rise, company headquarters was moved to the Chicago area to accommodate him. To reflect its new business mix, the company then changed its name again, this time to Atlantic Premium Brands, Ltd., effective June 1, 1997.

Company Perspectives

Atlantic Premium Brands, Ltd., through its operations in Texas, Louisiana, Kentucky and Oklahoma, manufactures, markets and distributes food products for customers in a strategically contiguous twelve-state region.

APB completed another acquisition in March 1998, paying nearly $12 million in cash for J.C. Potter Sausage Company, a Durant, Oklahoma-based maker of breakfast sausage. The company was founded in 1949 by J.C. Potter, a veteran of World war II who returned home after his stint in the service to work as a butcher in a grocery store. He, too, relied on a family recipe for making sausage and ultimately established the J.C. Potter product as the leading brand in Oklahoma.

Sussna next tried to maximize the potential of the companies APB acquired. Up-to-date management tools were brought to bear to make the operations more efficient, including the use of production planning systems, budgeting models, consumer research, marketing plans, and advanced financial reporting systems. Sussna also looked to create synergy between the APB subsidiaries, which now began to cross-market each other’s products, and in some cases manufacture products for one another to round off product lines. In addition, Sussna instituted a strategy of creating value-added products that would help insulate the company from commodity price swings. Another major reason for this approach was the state of breakfast sausage sales, which grew stagnant nationwide in the late 1990s. In response, Grogan created home-cooked frozen country meals, such as chicken and dumplings, and country ham and white beans, ready to eat in 20 minutes. Blue Ribbon brought out a line of microwaveable, refrigerated barbecue entrees, including sliced beef brisket, brisket and sausage combo, pork spareribs, babyback ribs, shredded beef, and half chicken mesquite, all relying on a proprietary barbecue sauce. Richard’s, for its part, introduced a line of frozen Cajun entrées that began with crawfish étouffée, chicken and sausage jambalaya, seafood gumbo, pork and sausage jambalaya, chicken and sausage piquante, red beans and sausage, and meatball stew. These items soon were followed by crawfish and corn macque choix, chicken fricassee, and Cajun corn soup.

Sussna’s strategy was working well for APB, as revenues approached $200 million in 1999, with a net profit of nearly $1.2 million. The company’s original beverage business now contributed less than 10 percent of its sales. Starting in late 1998 and culminating in January 1999, APB disposed of its beverage assets, casting its lot entirely with its meat products.

Struggling in the Early 2000s

The promising launch of Sussna’s diversification strategy would start to experience problems, however, due in large part to the company dependence on one very large customer, Sam’s Club, which decided to establish its own distribution operation. Sam’s accounted for 43 percent of APB’s net sales in 1999 and 30 percent in 2000. As a result, revenues fell to $177 million in 2000, and then plunged to $134 million in 2001 and $122.3 million in 2002.

In January 2003 Sussna resigned and APB’s chief operating officer, Thomas M. Dalton, took over as president. A few months later, in May 2003, the company took the unusual step of voluntarily delisting its shares from trading on the American Stock Exchange. Management felt that delisting was in the best interests of the company due to a number of reasons: there were few shareholders, primarily company officers; the costs associated with reporting hurt profits; there was not enough trading activity to make the stock a viable source of financing; and no analysts covered the company. APB hoped to make its shares available through broker “pink sheets,” but clearly management had more pressing concerns as it attempted to revitalize its struggling business.

Principal Subsidiaries

Carlton Foods Corporation; Grogan’s Farm, Inc.; J.C. Potter Sausage Company; Prefco Corporation; Richard’s Cajun Foods Corporation; Texas Traditions, Inc.

Principal Competitors

ConAgra Foods, Inc.; Hormel Foods Corporation; Sara Lee Corporation.

Key Dates

1986:: William Albright, Jr., launches Maryland Beverage Company.
1991:: Sterling Capital acquires the company.
1993:: The company name is changed to Atlantic Beverage Company and the company is taken public.
1996:: The company begins to diversify into meat products.
1997:: The company name is changed to Atlantic Premium Brands.
1999:: The company completes divestiture of its beverage business.