The Earthgrains Company

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The Earthgrains Company

8400 Maryland Avenue
St. Louis, Missouri 63105-3668
U.S.A.
Telephone: (314) 259-7000
Fax: (314) 259-7036
Web site: http://www.earthgrains.com

Public Company
Incorporated: 1927 as Win M. Campbell Corporation
Employees: 26,300
Sales: $2.6 billion (2000)
Stock Exchanges: New York
Ticker Symbol: EGR
NAIC: 311812 Commercial Bakeries; 311821 Cookie and Cracker Manufacturers

The Earthgrains Company is the second largest bakery in the United States, supplying a variety of breads, buns, rolls, and sweet baked goods to markets in the South, Midwest, South-west, and California. The company’s major brands include Rainbo, Grant’s Farm, Colonial, Old Home, Master, Break Cake (sweet goods), IronKids, and San Luis Sourdough, as well as the company’s Earth Grains brand. The company also holds franchise licenses to produce bread products under the Holsum, Roman Meal, Sunbeam, Taystee, Country Hearth, and other brand names. Earthgrains sells bread and baked goods in Spain and Portugal under Bimbo, Martinez, Silueta, Semilla de Oro, Madame Brioche, and other brand names.

Earthgrains also sells refrigerated dough products in the United States and Europe. Products include cinnamon rolls, biscuits, cookie dough, pie crusts, puff pastry, and rolled dough. Most products are sold under private label retailer brands; Earthgrains offers the Merico, Sun Maid, and other brands in the United States and the Raulet and CroustiPate brands throughout Europe. Earthgrains is the largest manufacturer of refrigerated dough products in France.

Founding of Cooperative Association of Bakeries

For most of its existence The Earthgrains Company operated under the name Campbell Taggart, after Winfield Campbell, the founder of the company, and A.L. Taggart, an early investor. Campbell, former president of Continental Baking, started the company in 1925 with the idea to develop a national association of local bakeries that produced a large selection of quality baked goods. The Win M. Campbell Corporation began with one bakery in Kansas City, The Manor Baking Company, which sold bread door-to-door from 15 horse-drawn carriages. The company grew to six bakeries within three years. Taggart became a partner in the company in 1928, then renamed Camp-bell Taggart Associated Bakeries. Taggart’s investment made it possible to expand the company to 19 bakeries with operations in nine states within a year. The bakeries produced bread under several brands, including Colonial, Rainbo, Holsum, Kilpatrick, and Betsy Ross.

As an association of bakeries, Campbell Taggart’s local bakeries made decisions about productivity, labor, and delivery, while the company’s executive committee of subsidiary presidents concerned itself with procuring supplies at volume rates, thus enabling small bakeries to compete with large corporations. This form of consolidation occurred during the 1930s, when Campbell Taggart acquired 25 bakeries, and during the 1950s, when grocery store chains, such as Kroger and Safeway, introduced their own brands of bread products. Independent bakeries either went out of business or affiliated with larger companies.

When Bill O. Mead sold his family’s bakery to Campbell Taggart in 1960, he took successive positions with the parent company through which he redirected its course. Mead initiated the purchase of American Foods, Inc., renamed Merico, Inc., which produced refrigerated bread dough, cookie dough, and canned biscuit dough. In 1970 Mead became CEO and chairman and Connie B. Lane, a cost-control analyst who started with the company in 1947, became president. At that time Campbell Taggart operated bakeries in 74 cities in the south, southwest, and west.

Mead and Lane sought to improve operations through a more centralized organizational structure that replaced the executive committee. Mead and Lane fired ten subsidiary presidents, consolidated certain bakery operations to improve efficiency, and closed several plants. Spending more than $40 million annually on capital investments in baking facilities, Campbell Taggart became among the most efficient commercial bakeries in the industry. Lane developed a system for cost control that allowed him to monitor the profitability of each bakery on a weekly basis. Using computer printouts of sales and expenses, Lane analyzed 60 bread products by a number of criteria, such as pounds of waste per employee and number of unsold loaves of bread. Mead implemented a manager training program and revised the company’s incentive programs to include everyone in the company, from route salesmen to executives.

Mead and Lane sought growth through international markets. In 1971 Campbell Taggart formed a joint venture with the Mexican bakery, Grupo Bimbo, to introduce American-style sandwich bread in Spain. Bimbo, S.A. produced the bread with a slightly saltier flavor for Spanish tastes. The product became popular quickly and the venture built five plants in less than ten years. Campbell Taggart formed a similar venture, Plus Vita, to sell American-style bread in Brazil. In addition, under the subsidiary Europate, S.A., located in France, Campbell Taggart expanded Merico’s market for refrigerated dough products.

As public nutritional concerns generated a demand for whole grain breads, Campbell Taggart introduced a superpremium line of whole grain bread and bakery products under the Earth Grains brand. Launched in 1975, the new brand included 40 products, such as Yogurt Bran, 100% Whole Wheat, and other pan-baked breads. Campbell Taggart produced the branded products at three large plants in Oakland, California; Paris, Texas; and Fort Payne, Alabama. At Paris and Fort Payne the bread was flash-frozen for long distance distribution. Wholesale bakeries kept the bread frozen until they needed it, then thawed it through a special process. Sales of Earth Grains products offset the decline in sales for white bread. In addition, the premium bread products sold at $1.00 per loaf retail, compared with $0.66 per loaf of enriched white bread.

As sales of Earth Grains brand products grew steadily, Campbell Taggart introduced a line of sweet baked goods to compete with the popular Entenmann’s brand. The company overdid its initial production with 55 new products in six months. Executives found it difficult to compete with a company that took several years to establish a loyal customer base and many of the products sold poorly. Campbell Taggart cut the line to 12 baked sweet products that sold well, such as walnut sticky buns and French-style puff pastries.

Campbell Taggart expanded its capacity for producing snacks and baked goods with the acquisitions of the Coosa Baking Company in Rome, Georgia, and the Penn Dutch Cookie Corporation in Fleetwood, Pennsylvania. Coosa produced cookies and wafers, while Penn Dutch produced cookies and snack crackers. In addition to marketing existing company brands and private label brands, the two bakeries began to produce products under Campbell Taggart brand names.

New products under Campbell Taggart’s existing facilities included new refrigerated dough products, such as Merico Hot ‘n Fresh Quick Breads and large, flaky biscuits under the new Mountain Man brand. Merico also produced Earth Grains new frozen garlic bread and French bread pizza.

Late 1970s Diversification, Capitalizing on Distribution Channels

The company decided to capitalize on its distribution network to diversify the kinds of food products that it sold. In 1977 Campbell Taggart bought the El Chico chain of more than 90 Mexican restaurants in 11 states and the El Chico line of canned and frozen foods. Campbell Taggart intended to sell the prepared foods along the same distribution channels as its refrigerated dough products and bread line. Campbell Taggart executives discovered a number of problems at El Chico, however, including a great deal of waste and outdated production methods at the commissary. Lane established portion and cost control measures and installed new automated equipment, such as a tortilla maker, which produced 800 corn tortillas per minute. With improved efficiency Campbell Taggart doubled the number of frozen food entrees, under the brand name El Charrito, to 27.

After an evaluation of every El Chico restaurant, Lane found extreme variations in the quality of food and service at each restaurant, leading to the closure of 18 restaurants. Campbell Taggart revised the menu, introduced measures to create uniformity in the food, and created a management training program. The company upgraded the interiors of many restaurants and opened 26 new restaurants in 1978 and 1979.

Campbell Taggart’s international subsidiaries continued to do well. Installation of a high-speed production line in 1978 allowed Plus Vita to keep pace with increased demand for its bread products from McDonald’s and other fast-food restaurants in Brazil. When a competitor closed its doors, Europate, S.A. became the only European supplier of canned refrigerator products in Europe. Campbell Taggart obtained complete ownership of Bimbo, S.A. and began construction on a sixth plant in southern Spain in 1978.

Company Perspectives

In four years, we have gone from a turnaround company to a proven industry leader. So, what do we do to improve further? We’re sticking with our game plan: We’ll continue to get bigger and better in the United States and Europe by taking advantage of acquisitions to drive profitable growth, by serving customers better, by controlling costs, and by delivering quality, value and variety to consumers. We have created the best growth and improvement model in the industry, and we have the best people and products to execute our plans. We believe records are made to be broken.

A decade after Mead and Lane took the lead at Campbell Taggart, the company became one of the top bakeries in the country. Sales increased from $31 million in 1969 to $1.1 billion in 1980, and net earnings increased from $8.1 million to $36.2 million. Dividends tripled and the company’s stock split three times. In addition, the company surpassed its main competitors—ITT Continental Baking, Interstate Brands, and American Bakeries—in terms of operating income, at $75 million in 1980. Campbell Taggart weathered a recession and the higher cost of energy, labor, and commodities in 1979 and 1980 as Lane’s cost controls allowed the company to maintain stable profit margins.

Campbell Taggart continued to diversify in the area of food production with the 1981 acquisitions of Larry’s Food Products, Rod’s Food Products, Herby’s Foods, and Royal Food Products. Larry’s prepared precooked meals served in schools, hospitals, nursing homes, restaurants, and corporate cafeterias. Products included sausage, beef, and chicken patties packaged in individual portions. With customers in 39 states, Larry’s operated a state-of-the-art plant in Gardenia, California.

Campbell Taggart merged Rod’s Food Products and Royal Food Products into Merico. Both companies produced refrigerated salad dressings, sandwich spreads, snack dips, and dairy and nondairy toppings. Rod’s customers included food brokers for retail distribution and the foodservice industry. Its sales territory encompassed ten western states served by a modern plant located in City of Industry, California. Royal served customers in the Midwest and East through a plant in Indianapolis.

Herby’s Foods of the Dallas-Ft. Worth area prepared and distributed fresh sandwiches, burritos, and desserts to convenience stores in Texas, Oklahoma, New Mexico, Arkansas, and Kansas. The company operated similar to a bakery, with daily delivery directly to the store. The company also produced the Mrs. Vees line of frozen sandwiches, distributed wholesale in 23 states.

Within its line of bakery products, Campbell Taggart expanded with the acquisition of Janin, S.A., which merged with Campbell Taggart’s French subsidiary, Europate, S.A. Like Europate, Janin produced refrigerated and frozen dough products to retail stores and the foodservice industry.

1982 Acquisition by Anheuser-Busch Brewing Company

In 1982 Campbell Taggart began negotiations to be purchased by Anheuser-Busch Brewing Company. In order for the acquisition to go through, Campbell Taggart sold the El Chico restaurant chain, because Texas law would not allow Anheuser-Busch to own restaurants that held liquor licenses. Once that transaction was complete, Anheuser-Busch bought Campbell Taggart for $560 million, almost 20 times 1981 profits of $41.7 million.

Under Anheuser-Busch ownership Campbell Taggart continued to build on its previous success with new products, new markets, and product improvements. For Eagle Snacks, another subsidiary of Anheuser-Busch, Campbell Taggart produced cheese crackers and pretzels, which the company also distributed to 40 markets. In 1982 the company launched the Grant’s Farm brand of premium, soft wheat breads; within two years Grant’s Farm products sold in 18 markets. Merico formulated a croissant recipe for Burger King’s new breakfast sandwiches, becoming the number one croissant supplier to the fast-food chain from the start.

Campbell Taggart restaged its line of frozen Mexican foods in 1985 and its line of Pattycake snack foods in 1987. The company reformulated its El Charrito recipes for a more distinctive taste, added new products, and repackaged the products with new graphics. Campbell Taggart renamed the Pattycake brand of snack cakes, including doughnuts, cupcakes, and other baked sweets, Break Cake, and repositioned promotion of the products to children.

Campbell Taggart continued to update baking facilities, close older plants, and build new ones. The company modernized the Kilpatrick Baking Company plant in Oakland, California, spending $11.5 million for state-of-the art technology and enabling the company to close an outmoded facility in San Francisco. Other modernized bakeries included the St. Louis, Sacramento, Charlotte, and Denver facilities, as well as several Merico facilities. In 1989 the company started construction on a new, 162,000-square-foot bakery under the Colonial Baking Company name in Atlanta. The capacity of the $25 million facility allowed for the production of 167 loaves and 1,200 buns per minute.

Key Dates

1925:: Company is founded by Winfield Campbell; incorporates two years later as Win M. Campbell Corporation.
1928:: A.L. Taggart joins company, renamed Campbell Taggart Associated Bakeries.
1960:: Company begins production of refrigerated dough products.
1971:: International joint venture, Bimbo, S.A., introduces American-style sandwich bread in Spain.
1975:: Company launches Earth Grains brand of premium breads.
1977:: Diversification begins with acquisition of El Chico restaurants and frozen foods.
1982:: Company is acquired by Anheuser-Busch Brewing Company.
1989:: Company introduces IronKids bread.
1994:: Company is restructured to focus on bread and baked goods.
1996:: Spinoff as independent public company; company is renamed The Earthgrains Company.
1998:: Acquisitions spur national, international growth.
2000:: Company acquires Metz Baking Company.

Public concern for nutritional health again played a role in new product development. In 1990 Campbell Taggart introduced the IronKids brand of bread, formulated for children’s taste, texture, and color preferences, while providing children with a high-fiber bread enriched with iron and other nutrients. In addition to television advertisements, in-store displays, and promotional coupons, Campbell Taggart promoted the bread in conjunction with the IronKids Health and Fitness Program. Started in 1985, Rainbo and Colonial bakeries sponsored the program, which involved local triathalons for children, from seven to 14 years old. Campbell Taggart introduced the IronKids bread in five markets in the South, with systemwide implementation in 1991. Campbell Taggart appealed to adult tastes and health concerns with a line of low-calorie and low-fat products, such as an Earth Grains bread at 35 calories per slice. Earthgrains advertising capitalized on the new Food Pyramid, which recommended six to ten servings of carbohydrates daily with the tagline, “Bread is Best.”

Restructuring, Spinoff in 1996 of The Earthgrains Company

After some product lines did not garner the returns expected, Anheuser-Busch decided to focus the company’s business on bread and bakery products. With Barry Beracha as CEO, restruc-turing in 1994 involved the sale of Larry’s Food Products, Rod’s Food Products, and Royal Food Products, as well as the El Charrito line of frozen foods. Campbell Taggart learned that ethnic foods did not serve the same customer base as its bread line; although 99 percent of American households purchased bread on a regular basis, Mexican foods had a much narrower range of buyers. Management operations consolidated and relocated from Dallas to St. Louis, resulting in an almost completely new management and research staff. The company’s new facili-ties included a new 44,000-square-foot technical center for ingredient testing and the development of new products. Campbell Taggart introduced new products through its Merico subsidiary, but later decided to sell Merico; the company continued to market refrigerated dough through Merico. In 1996 Anheuser-Busch decided to spin off Campbell Taggart as an independent public company, renamed The Earthgrains Company.

The focus of the new company became product development, improvements to existing products, operational efficiency, and new merchandising methods. Earthgrains withdrew from markets where established bread companies were difficult competition, closed eight inefficient, outmoded plants, and directed production toward premium breads and baked goods with higher profit margins. Earthgrains used a strategy of acquisition to maximize its production and distribution capacity, allowing for the introduction of the company’s products into new territories. The $193 million acquisition of Atlanta-based Coopersmith included a 163,000-square-foot facility in Decatur, Georgia, with the capacity to produce 800 rolls of dough and 152 loaves of bread per minute. The acquisition gave Earthgrains new markets in the South and Southeast, which allowed the company to maximize production at existing facili-ties. Coopersmith also had a bakery in New Bedford, Massachusetts, outside of Earthgrains’ territory, which the company traded for cash and an Interstate Bakeries plant in Grand Junction, Colorado, to supplement production at Earthgrains plants in Denver and Pueblo. The 1998 acquisition of San Luis Sourdough in San Luis Obispo and the 1999 acquisition of Redding French Bakery of Redding, California, positioned Earthgrains in the burgeoning market for artisan round breads.

International growth involved acquisitions, new markets, and new products. Purchases included refrigerated dough manufacturers Chevalier Servant, S.A. in 1998 and Patrick Raulet, S.A. in 1999. Patrick Raulet produced brand name and private label brands of refrigerated rolled dough for home-baked quiches, tarts, and pies. EuroDough expanded Raulet’s product line with new refrigerated dough products, such as the CroustiPate brand pizza kit, which provided refrigerated dough and all of the ingredients for making pizza. With the 1999 acquisition of Reposteria Martinez Group, Bimbo, S.A. gained a new line of fresh baked sweet goods for distribution with Bimbo bread products. Bimbo used the facilities at Reposteria Martinez to support expansion of its premium products, including the new Madame Brioche brand of French sweet rolls.

Earthgrains combined new information technology and existing production capacity to improve customer service. In August 1998 Earthgrains reached an agreement with Kroger to produce and distribute that company’s private label bread and rolls. While Kroger closed its Texas Bakery, Earthgrains utilized bakeries in Dallas and Houston to supply 174 Kroger stores in Texas and Louisiana. Earthgrains route drivers delivered Kroger brand breads with Earthgrains’ branded products. Using the company’s Vendor-Managed Inventory (VMI) system, delivery personnel accessed sales data and category management data from hand-held computers to determine the right mix of products and appropriate product display in accordance with each store’s demographics. Earthgrains made a similar arrangement with Albertson’s, producing and distributing bread to Super Saver and Lucky grocery stores in northern California.

VMI integrated the hand-held inventory management computers and scan-based trading (SBT), an electronic data inter-change that tracked sales directly from scanners at the cashier’s stand. The paperless transactions increased sales and profit margins, reduced waste, and provided accurate invoice management. Through its Efficient Customer Response partnerships, Earthgrains provided efficient inventory tracking and restocking to Wal-Mart, Schnuck Markets, H.E. Butt grocery stores, and Jitney Jungle Stores of America in Mississippi. In conjunction with the system, Earthgrains consolidated accounting functions of local bakeries into the new Financial Share Services Center in St. Louis. Local bakeries downloaded data from the hand-held computers to the computer network for financial management and analysis in St. Louis.

In November 1999 Earthgrains announced that it planned to acquire Metz Baking Company, one of the largest regional commercial bakers in the country, for $625 million. Assets of the company included 21 bakeries that served customers in 18 states. Metz held the major market for bread products in Chicago, Minneapolis, and Milwaukee, producing Old Home and Master brands, and holding the license for the Roman Meal, Country Hearth, Pillsbury, and Healthy Choice brands. The acquisition would give Earthgrains market coverage for 50 percent of the U.S. population.

New products launched in 2000 focused on premium bread products with high profit margins and higher retail prices. New artisan breads included Earth Grains superpremium International Hearth Rosemary and Olive French Bread and San Luis Sourdough Garlic Round. Premium products included Grant’s Farm Cornflour bread and Merico Hearty Layers Flaky Biscuits (a refrigerated dough product). Patrick Raulet introduced rolled dough pie kits with lemon, apple, French cream custard, or salmon filling.

In March 2000 the Metz acquisition was finalized and Earth-grains appeared well positioned to rise above the competition. Within the territory it controlled, the company now ranked as the largest producing bakery for bread, buns, rolls, and bagels. Earthgrains had come a long way indeed from its humble beginnings back in 1925.