Riviana Foods Inc.

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Riviana Foods Inc.

2777 Allan Parkway
P.O. Box 2636
Houston, Texas 77252-2141
U.S.A.
(713) 529-3251
Fax: (713) 529-1661
Web sites: http://www.carolinarice.com;
http://www.mahatmarice.com;
http://www.successrice.com

Public Company
Incorporated: 1986
Employees: 2,656
Sales: $450 million (1998)
Stock Exchanges: NASDAQ
Ticker Symbol: RVFD
SICs: 0112 Rice; 2044 Rice Milling; 5149 Groceries and Related Products; 5431 Fresh Fruits and Vegetables

Riviana Foods Inc. is the largest processor and marketer of rice products in the United States. The company buys rough or green rice from independent growers and processes it at plants located in Louisiana, Texas, Arkansas, and Tennessee. Although none of its brands of packaged rice outsells Uncle Ben’s Converted brand of rice, Riviana leads the industry in total sales of rice produced for domestic consumption. Riviana’s familiar brands include Mahatma, Success, Carolina, River, and WaterMaid. Under these names, Riviana sells an array of processed rice in different grains and types, including dried, instant, prepared, and brown rice. The company also provides various supermarket and grocery chains with rice under private labels and food manufacturers with bulk rice for an array of processed foods, including breakfast cereals. In addition, its foreign subsidiaries in Belgium and the United Kingdom sell rice and processed foods in Europe, while those in Central America process and sell fruits, vegetables, cookies, and fruit drinks.

Origin and Early Development: 1910-30

By 1910, American rice growers and millers faced a serious problem—a market glut created by overproduction and a price that had bottomed out. The industry was plagued by its haphazard, inefficient system of small, independent mills, which were driving milling costs up and quality down. In 1911, looking for a solution for Louisiana rice producers, a consortium of millers merged to become Louisiana State Rice Company.

The move was spearheaded by Frank A. Godchaux, Sr., the general manager of two mills in rural Louisiana. The consortium soon chartered Louisiana State Rice Milling Company of New Orleans (LSRMC), created to improve both the efficiency of the mills and the quality of their rice. It combined the assets of more than 30 of the state’s 70 rice mills.

LSRMC had tough going in its early years. It was unable to eliminate depressed prices resulting from excessive production, cheap foreign competition, and a frustrating lack of domestic interest in rice as a food staple. In 1916, it reorganized as the Louisiana State Rice Milling Company, Inc. (LSRMCI), still hoping to solve the problems nagging the industry. LSRMCI combined 12 Louisiana mills, but it quickly added two mills in both Arkansas and Texas. It could not shake off the industry’s doldrums, however, and struggled for several years. Its one bright point was the 1919-20 season, when it recorded a promising surplus of about $320,000. But it would not prove as successful again until the mid-1930s, despite its valiant efforts to promote its product domestically. By 1924, the company had divested several marginal and idle properties, leaving a cluster of six mills in south-central Louisiana, one in Arkansas, and a California subsidiary.

In 1925, LSRMCI also began standardizing its rice merchandising, marketing its best quality short-grain Blue Rose rice in 100 pound pockets, soon to be sold under the Water-Maid brand name. In that same year, Godchaux and some associated investors acquired a controlling interest in the company, and Godchaux’s son, Frank A. Godchaux, Jr., entered the business. Over the next four years, the Godchauxs sold the California subsidiary and got their finances in good enough shape to survive the economic debacle that started in 1929.

The Depression and War Years: 1930-45

The Great Depression hit the rice industry hard. It devastated export sales, forcing American farmers and mills to hold surpluses that in turn caused prices to plummet, leaving the industry in total disarray. Under the Administration of Franklin D. Roosevelt, there were efforts to bail farmers and millers out through price supports, but many of the New Deal initiatives were delayed by legal entanglements. By 1935, the industry faced the unhappy prospect of having the largest unsold surplus in its history. The government responded by imposing a processing tax designed to curtail milling enough to stabilize the industry, but, delayed by the Supreme Court, it went into effect too late to help the industry.

Through careful management, LSRMCI fared better than many of its competitors. It survived and even prospered some during the 1930s. It managed by redoubling its marketing efforts. It also introduced the popular Mahatma brand, its name for its finest long-grain rice. But there was luck, too; unlike many other banks, LSRMCIs banks remained solvent through the bad years.

In the 1936-37 season, Frank A. Godchaux, Jr., replaced his father as president of LSRMCI and took charge of managing the company’s operations. He ran into immediate difficulties the following year, when farmers held their crops with the futile hope that economic conditions at both home and abroad would improve, forcing prices up. But LSRMCI weathered this and other problems to become, by the early 1940s, the best managed operation in the industry.

World War II brought its own special problems. Both the Lend-Lease and Selective Service Acts had a negative impact on the rice industry, as did the closing of foreign markets. Unable to make solid market projections, LSRMCI had to pass up an opportunity to purchase its chief competitor, the Standard Rice Milling Company, after that company’s president and principal stockholder, W.R. Morrow, died. The war convinced the Godchauxs that greater attention should be given to marketing packaged rice for household table use. It also brought a major account with Kellogg, which used LSRMCIs Water Maid rice for its famous Rice Krispies cereal.

Recovery and Merger: 1946-65

LSRMCI had serious postwar problems, including government allegations of price control and mandatory set aside violations. Competition was also picking up. In 1946, the Champion Rice Milling Company emerged, soon becoming the River Brand Rice Mills, Inc. It purchased the Southern Rice Sales Co. and several other enterprises. Southern, founded in 1911 by Julius R. Ross, had proved a troublesome marketing rival of LSRMCI since its had begun packaging and selling rice under the “Carolina” and “River Brand” names in the late 1920s. Combining that marketing ability and the milling capacity of four mills, River quickly became a major headache for LSRMCI, demanding as much attention as commodity-market fluctuations, consumer tastes, and federal regulations.

The competition spurred greater marketing efforts by LSRMCI. To promote its sales, the company put more funds into advertising, which, in the 1950s, included television spots and the publication of free recipe books that garnered national attention. In 1950, Frank A. Godchaux III joined the company and was soon named vice-president, charged with sales. He faced toughening competition, especially from Uncle Ben’s Converted rice, which, thanks to its ads on the Gary Moore television show, was quickly growing in popularity. In spite of the increasing success of converted and “minute” rices, and America’s emerging fast-food life style, LSRMCI doggedly pursued the principle that rice was an economy food and delayed marketing value-added lines.

The 1950s proved a troublesome decade for LSRMCI. It faced decreasing profit margins and stagnant sales. However, these factors did stimulate company efforts to improve its efficiency, largely through modernizing and centralizing billing and accounting operations. Some relief came in the late 1950s, when new government programs permitted commercial rice stocks to qualify for subsidies, even when exported. It was a timely measure, for in 1961, after the Castro regime came to power in Cuba, the punitive trade embargo closed one of LSRMCIs more lucrative markets.

By the early 1960s, Frank A. Godchaux III was pressing for innovations geared to America’s new love affair with quick and easy foods. The company introduced Mahatma Yellow Rice, using real saffron, and sped up its research on a freeze-dried method of producing a quick-cooking rice. It was also trying to find a more effective milling method of removing rice hulls, research in which River Brand Rice Mills was also engaged. In 1964, the two companies pooled their efforts, forming Food Engineering International (FEI), a jointly-owned and financed research and development company.

Company Perspectives:

We are focusing on achieving meaningful improvements in profitability by: utilizing technology to improve the efficiency of our operations; exploring new ways to provide the products that today’s consumers want and need; seeking joint venture partners that offer unique expertise or market position; evaluating acquisition opportunities that are a good strategic fit with our existing operations; and controlling expenses and administrative costs.

By that year, almost total control of the company’s day-to-day operations had passed to Frank A. Godchaux III and his brother, Charles R. Godchaux. Frank became president after his grandfather’s death in 1965. Surrounded by an older management team mostly recruited by their grandfather, the younger Godchauxs grew concerned about the company’s future prospects and began merger negotiations with River Brand, their FEI partner. They felt that, in tandem, the two companies could compete successfully in the domestic table-rice market then dominated by Uncle Ben’s and Minute rice brands. On September 2, 1965, through a stock-exchange arrangement, the two companies merged under the River name—later changed to Riviana Foods Inc.—with Frank A. Godchaux III as chairman of its board. Riviana soon began aggressive marketing in the convenience food market through both expansion and diversification.

Diversifying and the Colgate Merger: 1966-76

Riviana first started streamlining its operations by centering its milling and packaging facilities in Houston, Memphis, and Abbeville, Louisiana. It also looked for new export markets, especially in South Africa, where it owned Quix-Riviana Foods (Pty) Ltd. But most importantly, Riviana started acquiring other food-product companies. These included the Pangburn Company, a candy maker and marketer; the Austex Foods Division of Frito-Lay, Inc., which processed convenience-food items like tamales and chili; the Hill’s Packing Company, a processor and seller of pet foods; Hebrew National Kosher Foods, a processor of meat products; the Romanoff Caviar Company, which marketed imported and domestic caviar and manufactured dehydrated, granulated instant beef and vegetable and chicken flavored products under the MBT brand name; and several small restaurant chains and delicatessens, including Trim’s, a chain of Mexican food restaurants in Texas.

Riviana’s expansion also necessitated organizational changes. The company soon established four operating divisions: the Grocery Products, Specialty Foods, International, and Retail Divisions. Each of these operated as a profit center with full authority over the policies of the subsidiaries under its control. All divisions prospered and grew, especially those milling and marketing rice products, the demand for which greatly escalated during the Vietnam War. The company also pursued new foreign markets. In 1970, it purchased Central American food processing and distribution properties from W.R. Grace & Co., including Pozuelo S.A. in Costa Rica and Alimentos Kern de Guatemala, S.A., producers and marketers of a wide variety of foods.

In the domestic market, diversification produced promising results, but Riviana’s staple remained rice, which accounted for about 50 percent of its sales. Overall, sales between 1965 and 1970 climbed from about $30 million to almost $145 million. By 1968, Riviana’s success had gained it a listing on the New York Stock Exchange. It also attracted the attention of Colgate-Palmolive Company’s CEO, David R. Foster, who had begun his own campaign of aggressive diversification. In June 1976, Colgate bought Riviana by trading 1.1 shares of Colgate for each share of Riviana common, a sale amounting to about $180 million. Theoretically, Riviana was to continue as a quasi-independent division under its own management, thus Riviana viewed the merger as an opportunity for even faster growth. Reality would soon dampen those expectations.

Divestments and an End to Colgate’s Ownership: 1976-86

Larger sales gains from the merger with Colgate simply failed to materialize. Both domestic and international economic problems slowed the sale of rice products, though Riviana’s subsidiaries did well, particularly Hill’s Pet Food, Hebrew National, and the Central American operations. In 1977, Riviana reorganized, hoping to reverse steadily declining rice sales. It created Riviana Rice USA, a new division in control of domestic rice sales and marketing, with Charles R. Godchaux as president. Frank A. Godchaux III also reorganized his division, Riviana International Inc. However, stiff competition from nonprofit farmer-owned cooperatives continued to erode the company’s market share and force prices down. In 1978, Riviana attempted to gain back its lost ground by more aggressive pricing and by building a new parboil plant, strategies that worked to a very limited degree and still left Riviana struggling to maintain its financial equilibrium.

In 1979, Foster, in ill health, resigned as Colgate’s CEO and chairman. Colgate then began selling off what Foster himself had called “rundown acquisitions.” Over the next two years, it sold off all of Riviana’s domestic subsidiaries except Hill, leaving only Hill’s Pet Nutrition, Riviana Rice USA, and Riviana International intact. Then, in 1980, Riviana struck a new nadir. In ill health, the company’s president and CEO resigned. While Hill’s remained quite profitable, Riviana, with just a seven percent market share, was losing out to the rice cooperatives. Other problems followed. The company lost a major mill in Memphis to fire in 1983 and took a temporary market beating when national publicity argued that a long-used crop fumigant was contaminating its rice products. Facing the possibility of Colgate’s selling off what remained of Riviana’s holdings, the Godchauxs began organizing an investment group to purchase the company back.

In 1986, operating as Lastarmco, Inc., controlled by the Godchauxs, the investors bought all of Riviana’s holdings except the Hill’s subsidiary. The basic price Lastarmco paid in a complex agreement was $23.9 million. The new company was incorporated as a private company—Louisiana State Rice Milling Company, Inc. (LSRM)—and merged with Lastarmco. In 1987, its name changed to Riviana Foods Inc. The Godchaux family held about 62 percent of new company’s stock, and Frank A. Godchaux III and Charles R. Godchaux served, respectively, as chairman and vice-chairman of the board of directors.

Promise and Growth: 1987-99

With net sales of $244 million and a $9.3 million profit in 1987, Riviana quickly demonstrated renewed promise. It bene-fitted from supportive farm legislation and the rising per capita consumption of rice in the United States, which, in 1991, at 20.5 pounds a year, was almost three times what it had been in 1961. Determined to reduce its dependency on the volatile bulk-rice commodities market, the company continued to pursue an increased share of the convenient instant rice market then dominated by General Foods. In 1988, it built a new research and development facility in Houston, and the next year opened its new Food Service Kitchen at the Houston Technical Center, where it tested food service equipment with consumer rice products. Riviana also entered a 1989 agreement with Riceland Foods, Inc., the nation’s leading rice processor. Named Rivland Partnership, the joint enterprise set out to make and market rice flour from a new facility in Jonesboro and within a year was dominating that market.

There were still problems in Riviana’s re-emergence as an industry leader. After four years of growth, in 1994 Riviana’s net income dropped, despite an increase in sales. The company then decided to go public once again, and in December 1995 requested the SEC’s permission to offer 21.6 percent of its privately-owned common stock. At the same time, Riviana’s operational leadership passed to Joseph Hafner, the company’s president and CEO, but the Godchauxs continued to hold a controlling interest in the company.

In 1995, Riviana’s sales reached $427 million, returning the company to its projected levels of sales and profits. In fact, its net income, at $19.13 million, rocketed to 71 percent over the previous year’s net. Since then, the company has had a slow but steady increase in both figures. It has also undertaken some new steps towards broadening its markets. For example, in 1997, Riviana began working with Tiger Oats Ltd. in South Africa, with plans to market value-added rice products there. Increasingly dependent on its lines of packaged rice for its profits, Riviana would continue its aggressive search for additional convenience-food markets.

Since domestic rice consumption was continuing to rise, Riviana was expected to fare well into the next century. In the United States, it sold its branded and private-label rice products to all but one of the top 20 supermarket chains in 1999. Only its Central American subsidiaries were going through an unstable period, plagued by destructive weather, economic problems, and political unrest. Hafner remained optimistic, however, confident that the region would stabilize and that Riviana would be able to use its branded-market position as a base for the introduction of new lines and upgraded packaging. Further expansion and product development should enhance Riviana’s presence, both at home and abroad.

Principal Subsidiaries

Riviana International Inc., consisting of Pozuelo, S.A. (Costa Rica); Alimentos Kern de Guatemala, S.A.; Boost Distribution C.V. (Belgium); Steven & Brothers Ltd. (U.K.)