Brach's Confections, Inc.

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Brach's Confections, Inc.

19111 North Dallas Parkway
Dallas, Texas 75287
U.S.A.
Telephone: (972) 930-3600
Toll Free: (800)999-0204
Fax: (972) 930-3612
Web site: http://www.brachs.com

Wholly Owned Subsidiary of Barry Callebaut AG
Incorporated: 1904 as E.J. Brach & Sons; 1906 as Brock Candy Company
Employees: 1,600
Sales: $340 million (2003)
NAIC: 311330 Confectionery Manufacturing from Purchased Chocolate; 311340 Nonchocolate Confectionery Manufacturing

Brach's Confections, Inc., is a leading confections maker in the United States. For more than 100 years, the company has been supplying Americans with hard candies and chocolates. Brach's sells more than 200 varieties of confections, including candy corn, StarBrites Mints, Milk Maid Caramels, Maple Nut Goodies, and Double Dippers. The company operates as a subsidiary of Swiss-based Barry Callebaut AG.

Early History

Both Brach and Brock grew from small, turn-of-the-century storefronts. In 1904, German immigrant Emil J. Brach pulled together $1,000 to open the "Palace of Sweets," an 18- by 65-foot candy shop located on the corner of Chicago's North Avenue and Towne Street. Joined by sons Edwin, and later, Frank, Brach's store featured its own one-kettle candy kitchen. From the start, Brach sought methods for boosting production while reducing labor costs, and early on introduced not only a mechanized kettle-heating element, but also a device for dipping taffy, Brach's initial product. With these devices, Brach could sell his candy for 20 cents per pound, far lower than the typical retailer's price of 50 to 60 cents per pound. Brach soon began to sell his candy to retailers throughout Chicago, adding four new kettles and producing 3,000 pounds of candy per week.

Expansion in the Early 1900s

By 1906, Brach's customers quickly included almost all of the city's large department stores. He was forced to expand production again, now moving to a larger facility. At the same time, Brach introduced peanut and hard candies to his product line. In the new plant, Brach's production soon passed 12,000 pounds per week, and three years later he was forced to move again to a still larger facility. With this move, Brach added coconut candies and expanded his line of hard candies. Within a year, however, the company had outgrown the new plant. Additional space, doubling the size of the company's production area, was leased in a building next door, and Brach's product line grew to include cream, gum, fudge, and crystallized candies.

One year later, in 1911, with production topping 50,000 pounds per week, Brach expanded yet again, moving his offices to a building down the street and converting the old offices into additional floor space. Brach's candies were reaching farther and farther outside of the city and, because the railroads were still the principal means of distribution, Brach faced new difficulties in transporting growing shipments of his candies. In 1913, Brach moved again, to a larger plant located on the railroad. The addition of chocolate and cream dipping and icing, as well as marshmallow confections, increased production to 250,000 pounds per week. At this point, Brach instituted product testing and quality control measures, creating a Laboratory of Control in the Brach plant.

Brach next moved into chocolate manufacturing, installing machinery to make chocolate from the bean in a second, 60,000-square-foot space. From 1915 to 1918, Brach's capacity grew to 1.1 million pounds per week. Incorporated in 1916, Brach added a third site in 1918, increasing production of his candy line to more than 2 million pounds per week. Four years later, Brach consolidated operations, building a $5 million facility on Chicago's West Side. Brach's sales grew to $7.9 million in 1925, with a net income of more than $1 million.

The onset of the Depression era hit the candy industry hard. Candy sales, which had reached nearly $448 million in 1914, fell to $211 million in 1933. Brach's sales dropped as well, to a low of $1.27 million in 1934. Nonetheless, the company remained profitable, posting a net income of $175,000 for that year. By then, Brach employed more than 1,000 people, making the company one of Chicago's largest employers. Sales climbed slowly through the 1930s, returning to $7.9 million in 1938. The candy industry was tested again by the outbreak of World War II and the resulting shortages of sugar and other raw products. Yet, emerging from the war, Brach's sales had tripled, to $21.5 million in 1945.

Postwar Growth Leading to an Acquisition in 1966

By the end of the next decade, Brach's sales more than doubled, reaching more than $58 million in 1960. Its 23-acre Chicago plant was the largest candy factory in the country. A second, 30-acre site was purchased in New Brunswick, New Jersey in 1959. Brach's line had grown to 250 types of candy, including hard candies, chocolates, fudge, peanut, caramels, cremes, jellies, lozenges, and panned candies, with specialty items for Halloween, Christmas, Easter, and Valentine's Day. Production in the Chicago facility alone topped four million pounds per week, making Brach the country's largest candy producer.

Brach began to attract the interest of larger companies. In 1966, after rejecting a $19 million offer that would have given Consolidated Foods a 17 percent stake in the company, Frank Brach, by then company president and chairman, accepted American Home Products' $136 million offer to acquire the company. In 1977, Frank Brach turned over the presidency to Ned Mitchell, who would lead the company into the 1980s. At the time of American Home's acquisition, Brach's $83 million in sales held about 7 percent of the total candy market. Over the next 20 years, Brach's sales would grow to more than $700 million per year, and Brach would capture as much as two-thirds of the general line and bulk candy market.

Overcoming Challenges in the 1980s

A new trend in the candy industry, however, which began to develop especially in the postwar years, would erode Brach's longtime position as the nation's largest candymaker. Prior to World War II, consumer candy purchases went in large part to the penny candy and individual item variety; after the war, consumers turned more and more to a new type of candy, the candy bar, many of which would become household brand names. Candy bars held an advantage over general line candies such as Brach's, in that sales of candy bars could be made from a far wider variety of selling points, from vending machines to drugstores to convenience stores, and so on. Brach, especially with its Pick-a-Mix bin candies, was limited, for the most part, to grocery stores. The candy bar supported more successfully the impulse purchases important to the candy industry, and by the early 1980s Brach's share of the overall candy market shriveled, while other giants, particularly Hershey and M&M/Mars, emerged. Meanwhile, Brach's pegboard displays had changed little in the past decades, presenting an outdated look against the more modern packaging and advertising of its competitors. The candy industry also was growing; during the 1980s alone it would nearly double in size, from about $5 billion to nearly $10 billion in 1991. But the 1980s would see Brach's fortunes decline drastically.

In 1987, American Home sold Brach to Jacobs Suchard AG, a Swiss coffee and candymaker with about $3.3 billion in sales in 1987. Run by Klaus Jacobs, Suchard hoped to use Brach to expand its European empire, and especially its Toblerone and Milka brands, into the United States.

Suchard and Brach ran into problems almost immediately. Management styles and goals clashed, and Jacobs quickly fired Brach's top officers and gutted the leadership of its sales, marketing, production, and finance departments as well. Some of these positions were filled with executives from Suchard's European operations; other positions, including a large percentage of Brach's sales and marketing department, were staffed by people with little experience in the candy industry. Under the European management, which failed to recognize many key differences between the U.S. and European candy markets, Brach faltered through a series of poor decisions. One of these involved the scaling back of Brach's line, which had reached 1,700 different candies and packaging types and sizes, to only 300 SKUs. This proved disastrous for Brach, because the bulk of its sales continued to be made at the grocery stores and through other vendors that required the flexibility of Brach's former range to realize the highest profit margins. To make matters worse, the Suchard-led company did not recognize the U.S. candy market's purchase pattern—in that the bulk of sales are made surrounding Valentine's Day, Easter, Halloween, and Christmas—and failed to promote and, at times, even produce the specialized holiday candies. Corporate headquarters were relocated to a Chicago suburb. Finally, Suchard changed Brach's name, which enjoyed recognition by as much as 77 percent of the U.S. candy-buying public, to Jacobs Suchard Inc.

Company Perspectives:

We value every consumer who spends his or her hard-earned money for our high-quality, fresh candies and fruit snacks. Every time you purchase one of our fine products, you are trusting us to deliver an excellent product at a fair price. For over 101 years we have honored this trust, and we truly appreciate your current business.

Brach's customers, including major chains such as Walgreens, deserted the company for its competitors. Sales dropped, and the company began posting losses, reaching $50 million in operating losses in 1988, and more than $200 million over the next several years. By 1990, the company had gone through two CEOs in three years. Its new CEO and president, Peter Rogers, formerly with RJR Nabisco, attempted to turn the company around, restoring the Brach name and rebuilding its product line. When Philip Morris paid $3.8 million to acquire a majority stake in Jacobs Suchard AG, however, it refused to take Brach as part of the package. Brach's losses mounted, and the company began a series of massive layoffs that would trim its employee rolls from nearly 3,000 workers to about 1,700. Production dropped to 50 percent capacity. Sales picked up slightly during the early 1990s, to about $430 million in 1993, but Brach continued to lose money.

The Brock Purchase: 1994

Rogers was replaced by Kevin Martin, formerly of M&M/Mars and Pillsbury Co. Under Martin, Brach stepped up its new product development and worked to refine its packaging and point-of-sale design. Martin also brought the company's corporate headquarters back into its Chicago plant. By 1994, Brach posted its first operating profit—of about $1 million—since 1987, on sales of an estimated $475 million. In September of that year, Brach announced the acquisition of the Brock Candy Company for $140 million.

Unlike Brach, the Brock Candy Company had remained a privately held, family-run company through most of its history, only going public in 1993. Founded in 1906 by William E. Brock, Brock Candy would not reach the size of Brach, but achieved a strong reputation for the quality of its products.

William E. Brock, born in North Carolina, had been a traveling salesman for R.J. Reynolds Tobacco Co. when, in 1906, he decided to settle down in Chattanooga, Tennessee. Brock bought a small wholesale grocery shop, which also held a candy shop, the Trigg Candy Company. Brock continued the candy-making operation, which consisted of handmade penny and bulk candies, peanut brittle, peppermints, and fudge, changing the company's name to the Brock Candy Company in 1909. Brock's first major expansion came in the early 1920s, when it modernized its factory, installing automatic moguls. Next, Brock eliminated all slab confectionery items, such as peanut brittle and fudge, which were products already produced by many manufacturers, making that area extremely competitive. Instead, Brock concentrated on launching new lines of jelly and marshmallow candies, using its automated moguls equipment. During the 1920s, Brock also began packaging its candies in cellophane bags, making it one of the first to do so. During the 1930s, Brock introduced its Chocolate Covered Cherries, which not only helped the company survive the lean Depression era but would remain one of its biggest sellers for the next 60 years. During World War II, when rationing forced the company to cut back on much of its production, it introduced the Brock Bar, a coated nut roll using the still plentiful ingredients corn syrup and peanuts. William E. Brock went on to a career in the U.S. Senate, and his son, William, Jr., succeeded him to head the company.

Brock's next great expansion came in 1950, when it added 60,000 square feet to its plant, bringing its downtown Chattanooga plant to 180,000 square feet. By the end of that decade, however, Brock was again ready for further expansion, and it purchased a 30-acre site on the Jersey Pike outside of Chattanooga. In 1964, Brock constructed a 64,000-square-foot distribution warehouse on the new site. By the end of the 1960s, the warehouse was expanded by another 25,000 square feet. The company also made its first acquisition, of Schuler Chocolates in Winona, Minnesota, adding to its seasonal confection capacity.

By the mid-1970s the company was producing more than 30 million pounds of candies per year. It moved to a newly constructed production and office facility on its Jersey Pike site in 1976. By the early 1980s, and led by Pat Brock, son of William Brock, Jr., Brock's sales reached $34 million, and its product line included chocolates, jelly sweets, and hard candies. In 1981, Brock also became the first American producer of European-style gummi candies. Later in the decade, Brock introduced a line of fruit snacks, and then moved into contract and industrial production of its fruit-based products. In 1990, sales passed $72 million, bringing a net income of nearly $2.5 million. Production had grown to 70 million tons per year.

Brock made a second acquisition, of Shelly Brothers, Inc., of Souderton, Pennsylvania, for $600,000, in 1990. That purchase was followed by Brock's first international partnership, when the company bought a 30 percent share in Clara Candy, of Dublin, Ireland in 1993. By then, Brock had gone public, with an initial public offering of 2.3 million shares, for nearly 63 percent of the company's stock. Brock's sales continued to rise, to $102 million in 1993 and $112 million in 1994, for net incomes of $5.3 million and $6.5 million, respectively. In 1994, Brock accepted Brach's $140 million merger offer.

The combined company, renamed Brach and Brock Confections, marked the second attempt for the two companies to join forces. A first deal had been struck in the early 1980s, but American Home, fearing an antitrust suit, forced Brach to back out. The merger of the companies was seen as beneficial to both, offering Brach's strong production facilities, and Brock's strong distribution lines, which included its largest customer, Wal-Mart, accounting for nearly 40 percent of Brock's sales. By 1995, the merger allowed Brach to post its first profit in nearly a decade, with net income estimated to reach $20 million. Brach's troubled past seemed behind it, and for the combined candy companies, the future looked sweet.

Changes in the Late 1990s and Beyond

As the fourth largest candy maker in the United States, Brach and Brock immediately set out to strengthen its hold on the candy industry. One of its main strategies at this time was to gain a stronger foothold in the Gummi candy and fruit snacks segments. In 1997, for example, the company launched Donkey Kong, Batman, and Hi-C-licensed fruit snacks. It planned to tap into the growing $332 million market by promoting its new products via advertising ads in national magazines, through coupons, and by giving away free samples. In 1998, Brach and Brock introduced two additional fruit snacks, Hi-C Juice Fillers and Smucker's Fruit Fillers. An $8 million television advertising campaign touted the new products.

Key Dates:

1904:: German immigrant Emil J. Brach opens the "Palace of Sweets."
1906:: William E. Brock establishes Brock Candy Company.
1966:: Frank Brach accepts American Home Products' $136 million offer to acquire the company.
1987:: American Home sells Brach to Jacobs Suchard AG.
1994:: Brach acquires Brock in a $140 million deal.
2003:: Barry Callebaut AG purchases Brach.

Heightened competition, inconsistent management, and ever-changing consumer demands forced Brach and Brock to embark on a cost-cutting mission in the early years of the new millennium. In order to shore up profits, the company divested certain assets, including chocolate mint subsidiary Andes Candies. In early 2001, it announced plans to shutter its Chicago-based manufacturing facility. As part of the firm's restructuring efforts, it built a new plant in Mexico.

Brach's owner—now known as KJ Jacobs AG—agreed to sell the company to Swiss-based Barry Callebaut AG, the world's largest chocolate manufacturer, in 2003. KJ Jacobs was a majority stakeholder in Barry Callebaut and believed the purchase would strengthen its distribution channels in the lucrative U.S. market. As part of the deal, Barry Callebaut agreed to assume $16 million in debt, fund restructuring efforts over the next five years, and pay a symbolic $1 for the company. Barry Callebaut's CEO remarked on the purchase in a September 2003 Candy Industry article claiming, "The acquisition of Brach's allows us to accomplish two strategic objectives at once: First, the substantial expansion of our activities in the United States, the world's largest single consumer market, and second, the creation of an attractive platform to further build our consumer confectionary business, with ultimately a global reach in mind."

As part of Barry Callebaut's arsenal, Brach's Confections, Inc. was well positioned for future growth. The company celebrated its 100th anniversary in 2004 amid strong sales, especially during the Halloween and holiday season. New products, including those made with Splenda artificial sweetener, also experienced strong demand. Brach's CEO Terry O'Brien summed up management's optimism in a 2004 company press release. "Brach's has a 100-year history of satisfying this nation's sweet tooth with fresh, delicious candies—and, with retailers embracing products like our new better-for-you line of our traditional favorites, we're more confident than ever that we'll be filling America's candy bowls in the century to come."