The Carriage House Companies, Inc.

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The Carriage House Companies, Inc.

196 Newton Street
Fredonia, New York 14063
U.S.A.
Telephone: (716) 673-1000
Toll Free: (800) 828-8915
Fax: (716) 679-7702
Web site: http//www.carriagehousecos.com

Wholly Owned Subsidiary of Ralcorp Holdings Inc.
Incorporated: 2000
Employees: 1,000
Sales: $451.5 million (2002)
NAIC: 311941 Mayonnaise, Dressing, and Other Prepared Sauce Manufacturing

Based in Fredonia, New York, The Carriage House Companies, Inc. is a subsidiary of Ralcorp Holdings Inc. One of the top store brand food suppliers in the United States, it is the largest supplier of store brand preserves and jellies, spoonable and pourable salad dressings and mayonnaise, and America’s largest producer of table syrup. Carriage House is the third largest producer of peanut butter in the country in addition to being the leader in store brand peanut butter. Other products include pasta and pizza sauce, chocolate and other flavored syrups, barbecue sauce, Mexican sauces such as salsa, steak sauce and marinades, and chili, seafood, and cocktail sauces. The company also makes and markets Sauce Arturo, a gourmet sauce. Carriage House not only supplies product to its customers, it provides a variety of services. It helps to develop labels and offers assistance in marketing store brands. Manufacturing facilities are located in Fredonia and Dunkirk, New York; Buckner, Kentucky; Streator, Illinois; Kansas City, Kansas; and Los Angeles, San Jose, and Colusa County, California.

Origins in the 1994 Creation of Ralcorp

Carriage House is comprised of three major acquisitions made by Ralcorp Holdings: Martin Gillet Co., Red Wing Co., and product lines from Tobitt and Castleman Company. Each of these companies boast a rich history in the food industry. The assets of Ralcorp were the result of a 1994 spinoff by Ralston Purina Co., the pet food giant which over the years had acquired a mixed bag of other interests. After enduring a difficult fiscal 1992, Ralston initiated some cost-cutting measures and other strategies to support its stock price. In 1993, it offered a new class of stock in order to separate out the Ralston-Continental Baking Group. A short time later, management began to consider a tax-free spinoff of some human food interests. A plan was approved by Ralston’s board of directors in September 1993, the new entity to be called Ralcorp Holdings. Its assets included several food segments: branded and private label cereals, including well-known Chex ready-to-eat cereals and the oat cereal business of recently acquired National Oats Co.; Beech-Nut brand baby food products, including cereal; and branded and private label crackers and cookies, including Ry-Krisp, Bremner crackers, and Chex Mix snacks. Although the spinoff was intended to primarily benefit the cereal business, Ralcorp also became the recipient of some assets that were even less complementary than baby food and snacks: the Breckenride and Keystone Colorado ski resorts and American Redemption Systems, a coupon redemption business. In addition to the two ski resorts and a coupon redemption center, Ralcorp facilities included five cereal plants, two cracker and cookie plants, and two baby food plants. All told, the businesses posted revenues of $902.8 million and net profits of $42.6 in fiscal 1993 (ended on September 30). Cereal provided the lion’s share of sales, nearly $550 million, with the unbranded private-label cereal showing strong growth. The new company was also saddled with approximately $400 million in debt. According to Business Week, “Analysts suspects Ralston’s cagey chairman, William P. Stiritz, of unloading a bunch of losers.” Nevertheless, Ralston sought Securities and Exchange Commission (SEC) and Internal Revenue Service (IRS) approval for the tax-free spinoff, and once it passed scrutiny Ralcop began business as an independent company in April 1994. Under terms of the plan, Ralston shareholders received one share of Ralcorp for every three shares of Ralston Purina Group Stock they owned. Moreover, Ralcorp would not be able to shed any of its assets for two years in order to comply with tax laws.

Assuming the job of chief executive officer was Richard A. Pearce, who ran Ralston’s human food businesses. He quickly took steps to cut costs and improve efficiency in order to boost profits and service the company’s heavy debt load. He also invested in new plant technology in order to support the company’s fast growing private label cereal business, a segment in which Ralcorp was dominant. Now Ralcorp would be better able to duplicate popular branded cereals, legally permissible because brand cereals relied on nonproprietary manufacturing processes. Only trademarks and names were protected. As a result, Ralcorp produced a version of Kix named Silly Spheres, Post Grape Nuts became Nutty Nuggets, and Kellogg’s Apple Jacks were recast as Apple Dapples. Pierce targeted major cereals that had no store-brand equivalent, hoping to introduce as many as four knockoffs each year. It was a segment that offered a great deal of promise, the private label cereal segment growing at an 8 percent clip each year while branded cereals grew at just 3 percent. Because private label cereals were able to undercut the major brands by as much as $1 a box, and retailers were able to earn twice the profits as they did on brand cereals, Ralcorp had no worries about gaining shelf space. Nonetheless, private label cereal still only accounted for 6 percent of all cereal sales, and Ralcorp, despite being America’s fourth-largest cereal maker, was still a small player in an industry dominated by such powerhouses as Kellogg’s and General Mills. It they elected to slash prices on their cereals, Ralcorp faced a very serious challenge. Indeed, when in the spring of 1996 a price war in the breakfast cereal industry broke out, Ralcorp lacked the resources to effectively compete, especially with its branded products. As soon as the two-year 1RS ban on selling assets expired in April of that year, the company began to unload some properties. It sold most of its interests in ski resorts, then in August 1996 announced that it was selling its Chex line of branded cereals and snacks to General Mills. In order to effectuate the transaction, Ralcorp spun off a new company under the same name with the remaining assets. Old Ralcorp then merged with General Mills, leaving the new Ralcorp with virtually no debt and some $500 million in annual revenues. Several weeks after the sale to General Mills was announced, Pearce resigned from the company.

Martin Gillet & Co. Acquired in 1999

Ralcorp’s focus was now to build up its portfolio of private label food products. In 1997, it acquired the Wortz Company, a private label cracker and cookie maker. In 1998, Ralcorp acquired Flavor House, a private label and branded snack nut company; Sugar Kake Cookie Inc., a private label and branded cookie manufacturer; and Nutcracker Brands, Inc. a private label and value branded snack nut company. To help finance this expansion into private labels, Ralcorp sold Beech-Nut Nutrition Corporation in 1998 for $68 million in cash. In 1999, the company continued its buying spree, adding Southern Roasted Nuts, a private label snack nut company, and Ripon Foods, a private label and branded cookie company. It was also in March 1999 that Ralcorp diversified into new product lines when it purchased a private label salad dressing and mayonnaise company named Martin Gillet & Co., a significant step which eventually led to the creation of the Carriage House Companies.

Martin Gillet, founded in Baltimore, Maryland, in 1811, was originally a tea importer. The business remained under the control of the Gillet family for nearly 150 years. In the 1870s, it became the first company to move beyond the sale of traditional 40-pound chests of tea when it began to offer tea packed in quarter-pound, half-pound, and one-pound boxes. In 1955, Martin Gillet was sold to Joseph J. Katz, whose family owned it until Ralcorp’s acquisition. Katz attempted some innovations of his own, such as the stringless tea bag he introduced in 1961, but eventually Martin Gillet exited the tea business in favor of mayonnaise and salad dressings, most of which was produced under a supermarket label or for food service or restaurant use, as well as the company’s Our Family Recipe label. At the time of its acquisition, Martin Gillet was generating annual sales in the $70 million range. In addition to its general offices and a manufacturing facility located in Baltimore, the company also operated plants in Kansas City, Kansas, and Los Angeles, California.

Ralcorp continued to build its portfolio of private label food producers in 2000. It acquired Cascade Cookie Company, Inc. for $22 million, followed by the $31.5 million purchase of James P. Linette, Inc., a chocolate candy manufacturer that was subsequently integrated into Ralcorp’s snack nut business. The most significant acquisition in 2000, and the tenth in just three and a half years, was The Red Wing Company, Inc., a $132.5 million deal. Based in Fredonia, New York, Red Wing not only produced private labels products that complemented Martin Gillet, such as spoonable spreads and pourable dressings, it also offered Ralcorp even greater diversity by creating a critical mass in the shelf-stable wet fill category of food products. Additional Red Wing private label products included peanut butter, preserves and jellies, honey, syrups, tomato-based sauces, barbeque sauces, and specialty sauces. Red Wing also brought with it cocktail mix products, including the Major Peters and Jero Bloody Mary mixes. By adding nearly $350 million in annual sales, the acquisition of Red Wing pushed Ralcorp’s annual sales level beyond the $1 billion mark.

Company Perspectives:

The Carriage House Company, Inc., one of America’s leading store brand food manufacturers, has roots that predate the store-brand food industry.

Red Wing was founded in 1912, originally a subsidiary of the Cudahy Packing Company that operated as a seasonal packer, producing juice from apples and grapes grown in western New York. It added ketchup in 1926 and jellies and preserves in 1930. The 1955 acquisition of the American Preserve Company of Philadelphia expanded Red Wing’s product lines, which grew to include peanut butter in 1966, followed by salad dressing, mayonnaise, syrup, and barbecue sauce in the early 1970s. RHM Holdings (USA) acquired the company in 1977 and over the next 15 years added to the business. In 1990, the Indiana Division of Naas Foods, Inc. was merged into the operation. Naas was originally an upstate New York processor of dried apples, cider, and cider vinegar, and like Red Wing moved into ketchup in the 1920s. Because Indiana was the major producer of tomatoes at the time, the company soon moved its operations to Sunman, Indiana. In 1992, RHM acquired Sunstar Foods for its Red Wing subsidiary, a deal that brought with it a major plant in Streator, Illinois. Red Wing’s ownership changed hands in 1992 whenits parent company was acquired by Tomkins PLC, a British conglomerate with interests in auto parts, firearms, and bakeries. When the company decided to concentrate on its automotive business, Red Wing became expandable and Ralcorp was able to acquire it.

Carriage House Created in 2000

Red Wing’s New York facilities soon became a hub for Ralcorp’s activity in the shelf-stable condiments category. Shortly after closing the Red Wing acquisition, management announced that it was closing the Martin Gillet salad dressing and mayonnaise plant in Baltimore and moving the operations to Red Wing’s Dunkirk site, thus bringing to an end nearly two centuries of a presence in Baltimore for Martin Gillet. Most of the 195 jobs were transferred to Dunkirk, with a smaller number moving to Martin Gillet’s factory in Kansas City. Ralcorp also expanded both the Dunkirk plant and the Fredonia, New York, operation, which added a warehouse. More importantly, Ralcorp formed The Carriage House Companies, Inc. to encompass the combined businesses of Martin Gillet and Red Wing, the headquarters of the subsidiary to be located at the Fredonia site.

Ralcorp soon added to Carriage House in January 2001 when it completed the $55.6 million acquisition of the wet products portion of The Torbitt & Castleman Company, LLC, a division with $80 million in annual sales. Like the other companies of Carriage House, Torbitt & Castleman boasted a long history. It was established in Louisville, Kentucky, in the 1870s as a small grocery wholesaler and eventually began to produce syrup. With the acquisition of land in Oldham County, Kentucky, the company expanded its operations, producing a full range of sauces and condiments for private labels, contract packaging, and the food service industries. Torbitt & Castleman was then acquired by The Northern Group in the 1980s. The company’s wet products were picked up by Carriage House included syrups, flavored syrups, jellies and jams, Mexican sauces, barbecue sauces, and other specialty sauces.

Carriage House posted revenues of $125.8 million in fiscal 2000, followed by $420.5 million in fiscal 2001, the increase mostly due to the timing of acquisitions. In fiscal 2002, the subsidiary generated sales of $451.5 million and contributed $13.5 million in profits to its corporate parent. With a weak economy, exacerbated by the loss of a major customer and increases in the cost of ingredients, the company faced a difficult short-term business climate, necessitating some cost-cutting steps. The situation appeared to grow even worse in November 2002 when Carriage House experienced a strike at its Fredonia and Dunkirk facilities following stalled contract talks with Local Union No. 266 of the National Conference of Fireman and Oilers, S.U.I.U. The strike of 540 union employees lasted less than a week, however, and both sides went back to working together to grow the business. Despite the adverse impact of a troubled economy in 2003, Carriage House appeared well positioned in the long run to become an even larger player in its private label niche.