Eskimo Pie Corporation

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Eskimo Pie Corporation

901 Moorefield Park Drive
Richmond, Virginia 23236
U.S.A.
(804) 560-8400
Fax: (804) 330-3537
Web site: http://www.eskimopie.com

Public Company
Incorporated: 1922
Employees: 185
Sales: $74.1 million (1996)
Stock Exchanges: NASDAQ
SICs: 2024 Ice Cream and Frozen Desserts; 6794 Patent Owners and Lessors; 2087 Flavoring Extracts/Syrups, Not Elsewhere Classified; 2671 Paper Coated/Laminated/Packaging

Having celebrated its 75th anniversary in 1996, the Eskimo Pie Corporation boasts one of the best-known names in the frozen novelty industry, with a 90 percent awareness among consumers. At that time, its eponymous chocolate-covered ice cream treat held a third-ranking 7.5 percent of the frozen novelty market. But by then, Eskimo Pie brand goods only generated about one-third of the company’s total revenues, with the remainder coming from ice cream, novelties, and frozen yogurt under several brands sublicensed from other food companies. Operated as a subsidiary of Reynolds Metals Co. for nearly 70 years, the company was founded in Iowa and is now headquartered in Richmond, Virginia. Eskimo Pie went public in 1992, becoming one of the few remaining independent marketers of frozen novelties in a highly fragmented and hotly contested industry dominated by global food giants. Eskimo Pie sustained a $2 million loss on declining sales of $74.1 million in 1996. The disappointing results prompted the resignation of CEO and Chairman David Clark, who was succeeded by longtime board member Arnold Dreyfuss.

Origins in 1920s

The company was founded by Christian K. Nelson, who with his family had emigrated from Denmark to Iowa in 1893 when he was just an infant. Fifteen years later, the teenager had his first flirtation with the ice cream industry when he talked his dairyman father into diversifying into ice cream. Notwithstanding this foreshadowing of his future career, Nelson studied to be a teacher at the University of Nebraska and served as principal of an elementary school for two years before enlisting in the Army in 1918. Upon his release from stateside service, Nelson taught Latin at Onowa (Iowa) High School and operated an ice cream shop during summer breaks.

Company legend has it that he launched the frozen novelty industry in 1921 in response to a young customer’s indecision. The oft-repeated story recounts that eight-year-old Douglas Ressenden only had enough money for one treat, but could not decide between an ice cream sandwich and a chocolate candy bar. Nelson, too, soon found himself confounded over the dilemma and started to wonder, “why not combine the two treats?” The teacher with the heart of an inventor spent the next few months formulating a mixture of cocoa butter and chocolate that would cling to a core of vanilla ice cream.

Early Success Spawns Imitators

Nelson introduced his “I-Scream Bar” at the local Fireman’s Tournament that summer to accolades, but had trouble licensing the concept to the area’s ice cream manufacturers. Nelson presented his new product to seven regional dairies, but was rejected by every one. In July, the 25-year-old called on Russell Stover, then plant manager of the Graham Ice Cream Co. Infected with Nelson’s entrepreneurial aspirations, Stover agreed to pay half the fee to patent the confection in exchange for a half-interest in the new enterprise. They received their patent for “an ice cream confection containing normally liquid material frozen to a substantially hard state and encased in a chocolate covering to maintain its original form during handling” early in 1922. Stover has been credited with changing the name of the novelty to the now-famous Eskimo Pie.

To their surprise and delight, the partners launched an Eskimo Pie frenzy, averaging sales of one million per day by the spring of 1922. In order to meet burgeoning national demand without incurring costly investments in production and distribution, Nelson and Stover licensed regional dairies and ice creameries to make Eskimo Pies, extending the roster to over 1,500 licensees by the end of 1922. Licensees paid the partners a royalty of four cents on every dozen novelties. The partners wrapped their product in aluminum foil—another new invention—and soon grew to become U.S. Foil’s biggest client, a relationship that would prove fortuitous to both companies in the years to come.

Eskimo Pie’s resounding success soon drew unlicensed imitators, and the partners found themselves spending thousands every day to defend their patent in court. A devastating blow came in 1923, when rival producers convinced the courts to rescind Eskimo Pie’s patent. A disaffected Russell Stover sold his interest in the embattled business to attorney Clem T. Wade for $30,000. The Stovers moved to Denver and founded what would become one of America’s largest manufacturers of boxed confections, Russell Stover Candies, Inc. In 1924, Nelson also conceded a measure of defeat, selling his company to R.S. Reynolds’s U.S. Foil Co. that same year. Later renamed Reynolds Metals Co., the foil company would continue as Eskimo Pie’s parent until 1992.

Subsidiary of Reynolds Metals, 1924-92

The new parent moved its subsidiary’s headquarters to Kentucky in 1926. Christian Nelson continued to work at Eskimo Pie throughout much of its near 70-year interim under Reynolds Metals, concentrating primarily on research and development. Packaging for delivery was a concern throughout the 1920s. Late in the decade, Nelson designed shipping and display cases that incorporated dry ice to keep Eskimo Pies “hard as bricks.” After a seven-year “retirement,” the inventor returned to Eskimo Pie in 1935, this time acting as a traveling spokesman in charge of franchisee relations. Turning once again to research in the post-World War II era, Nelson assisted in the development of a proprietary ice cream extrusion process to automate the production of ice cream novelties.

The company continued throughout this period to operate much as it had; one observer later quipped that it was “frozen in time.” It maintained consistent quality throughout the nation by selling ingredients (notably its special “Midnite Sun” chocolate coating), production equipment, and packaging to licensees and collecting royalties. Problems began to surface by the 1970s, however. Straying into manufacturing and distribution, the company soon found itself in an unhealthy competition with its own licensees. Consolidation in the formerly regionalized dairy industry also meant that Eskimo Pie increasingly dealt with margin-squeezing conglomerates like Borden and Safeway. Furthermore, mergers and acquisitions in the food industry in general gave competing novelties the backing of global food manufacturers like Nestlé S.A., Unilever N.V., and M&M Mars Co.

Under the direction of Fenton N. Hord, the company returned to its historical role of licenser by 1978. In the mid-1980s, Eskimo Pie pared its roster of licensees from over 100 to under 50 by creating geographic licenses. Early launches of sugar- and fat-free versions of traditional products helped give the company a slight advantage in the “ice cream wars” of the 1980s. Earnings rose from $1 million on $23.5 million sales in 1980 to $2.5 million on revenues of $47.2 million in 1990, while the company’s share of the frozen novelty market doubled from 3.3 percent in 1987 to 7.8 percent in 1992.

Initial Public Offering in Early 1990s

Citing a desire to concentrate on its core metals businesses, Reynolds put Eskimo Pie on the auction block in 1991. When negotiations with longtime rival Nestlé failed, the parent elected to launch an initial public offering of its 84 percent stake in January 1992. (Coincidentally, Eskimo Pie founder Christian Nelson died that same spring. CEO Clark told Washington Post’s Jonathan Glater that the 98-year-old “had an Eskimo Pie every day.”) Offered at $17, the shares quickly rose to over $20 in its first day of trading.

The company celebrated its 75th anniversary in 1996 with an important role in the Smithsonian Institution’s salute to frozen novelties. But that year’s fiscal results were nothing to crow about; an unusually long, cold spring hit Eskimo Pie especially hard, helping to reduce the year’s sales to $74.1 million. Even more devastating was a $2 million loss on the year. The stock’s performance has reflected Eskimo Pie’s anemic bottom line; shares topped out at nearly $25 in 1992, dropping to a low of $7.50 in October 1996 before rebounding somewhat to $11 in May 1997.

The simmering rivalry with Nestlé continued throughout the decade. In 1993, the Switzerland-based food juggernaut purchased the Heath name from Leaf, Inc. and subsequently pulled its smaller rival’s license to the candy bar brand, thereby robbing Eskimo Pie of more than 10 percent of sales. Eskimo Pie returned the favor in 1997, hiring David B. Kewer, an executive with strong experience in the ice cream industry, away from Nestlé S.A.

Company Perspectives:

Eskimo Pie Corporation, headquartered in Richmond, Virginia, created the frozen novelty industry in 1921 with the invention of the Eskimo Pie ice cream bar. Seventy-five years later, the Company markets and manufactures through its own plants and licensed dairies a broad range of frozen novelties, frozen yogurt, ice cream and sorbet products under the Eskimo Pie, Welch’s, Weight Watchers, SnackWell’s, OREO, and RealFruit brand names. The Company has also recently begun to license the Eskimo Pie name in other product categories and continues to manufacture ingredients and packaging for sale to the dairy industry.

Kewer’s strategies for the late 1990s included a re-emphasis on the company’s well-recognized and somewhat neglected core brand. The support included a resumption of television advertising backed by a $3 million budget. Marketing efforts, including an animated web site featuring games and contests, were targeted especially to youngsters. Kewer also hoped to capitalize on Eskimo Pie’s strong recognition via a licensing push beyond the ice cream industry, hinting that lines of branded snack foods and clothing might be in the company’s future.