Schreiber Foods, Inc.

views updated

Schreiber Foods, Inc.

425 Pine Street
Green Bay, Wisconsin 54301
U.S.A.
Telephone: (920) 437-7601
Web site: http://www.sficorp.com

Private Company
Incorporated: 1945 as L.D. Schreiber Cheese Co.
Employees: 4,500
Sales: $2.2 billion (2004)
NAIC: 311513 Cheese Manufacturing

Schreiber Foods, Inc., is the largest privately held cheese company in the world. Schreiber manufactures primarily private-label cheeses. That is, it mostly does not sell its own brands, but produces cheese for others. Its products include natural cheeses, processed cheese products, and cream cheese. It is one of the leading suppliers of cheese to fast-food restaurant chains, supplying the cheese slices that go on cheeseburgers to 17 of the top 20 hamburger chains. Some 90 percent of cheeseburgers in the United States are made with Schreiber products. It is the second largest producer of cream cheese in the United States, behind giant industry leader Kraft. Schreiber also sells private-label cheese and dairy products to grocery stores, to club and warehouse stores, to the military, to school foodservice programs, and to drugstores and discount stores. The company's own brands include Raskas cream cheese, Clearfield processed and natural cheeses, and Ready-Cut cheese products. Schreiber maintains 22 production facilities spread across Wisconsin, Arizona, Georgia, Missouri, Pennsylvania, Texas, and Utah, as well as in Germany, Mexico, and Brazil, and it runs four distribution centers in the United States. Schreiber also participates in joint ventures with companies in Brazil, France, Germany, India, and Mexico and operates overseas subsidiaries in Europe and the Middle East. The company started small and then expanded as it gained prominent nationwide customers such as McDonald's. The privately owned company was bought out by its employees in 1999.

Fighting for a Market in the 1940s and 1950s

Three men are credited with founding Schreiber in 1945, but the name, idea, and capital came from Chicago businessman L.D. "Barney" Schreiber. Schreiber was a trader on the Chicago Mercantile Exchange, well versed in the dairy industry. He had written the quality standards for butter for the U.S. Department of Agriculture in 1935 and had made a fortune through various farm ventures and his L.D. Schreiber Co. In the early part of the 20th century, one company, the Kraft Cheese Company, dominated the market for processed cheese. Processed cheese is made by blending different cheeses under heat. Kraft's founder, James L. Kraft, held patents for most of the technology needed to make this type of cheese, and competitors could not get a foot in the door. But Kraft's patents expired in 1938. This evidently was the inspiration for Barney Schreiber. He contacted an experienced cheese production manager, Merlin Bush, in 1945 and asked him to set up a new division of Schreiber's existing company, to be called the L.D. Schreiber Cheese Co. The new company would make processed cheese, getting in on this previously closed market. Bush accepted Schreiber's offer, and then hired Daniel David Nusbaum as plant manager. Bush, Nusbaum, and Schreiber put the new company together.

The first Schreiber plant was located in an old brewery building in Green Bay, Wisconsin. Wisconsin was one of the largest dairy producers in the United States, and centrally located Green Bay was the capital of the state's industry. Green Bay was also the home of the dairy cooperative Marketing Association of America (MAA). MAA bought cheese from hundreds of small farms and factories throughout Wisconsin and distributed it to larger vendors. Schreiber formed a close relationship with MAA that lasted until 1994, buying almost all its cheese through the group.

Schreiber's location was good. Its timing, however, was not so great. Although World War II ended in 1945, for several more years, the country was still governed by wartime regulations that had a profound impact on what a business could or could not do. Raw materials, such as metals for machine parts, were tightly restricted, making it doubtful that Schreiber could get a new plant going. Hiring was also difficult, and production of cheese was rationed. Rationed products were apportioned by a points system that could change without notice, making profit projections perilous. Nevertheless, the company plunged into the cheese business. As it happened, its first major customer was the U.S. government. The catch was that the order was for processed cheese in seven-pound cans. Merlin Bush bid on and won the contract even though his company had no can production line. Schreiber hurriedly put together a system for canning cheese. Making cheese for the government provided the company with steady business for the next several years. Schreiber's other early large customer was the grocery chain Safeway. Safeway had recently ended its relationship with another Green Bay cheese company, and Schreiber stepped in. It made private-label cheese products for Safeway's vast chain of groceries.

Schreiber bought its first production plant outside of Wisconsin in 1950, in order to keep up with growing demand from Safeway. This was in Carthage, Missouri. Schreiber poured money into technology as it built and renovated, trying to keep up with industry leader Kraft. Kraft brought out a landmark product, sliced cheese, in 1948. Schreiber needed to offer a private-label alternative to Kraft. But it could not use Kraft's patented process or equipment. Schreiber's production manager Nusbaum experimented with a blowtorch, heating the surface of cheese slices so that they dried and did not stick together. This may not have been how Kraft did it, but it worked, and allowed Schreiber to put out its own private-label sliced cheese line. Schreiber also applied its engineering know-how to packaging. In the late 1950s, the company came out with a new plastic packaging system that gave its cheeses significantly longer shelf life than its competitors. With several steady customers and nimble innovation, Schreiber grew solidly through the early 1960s.

New Ownership and New Challenges in the 1960s

The small company was modestly profitable in its early years, and by the early 1960s, it had established a wider range of customers. In 1962, Barney Schreiber decided to sell the company to cofounders Bush and Nusbaum, Bush's sons, who were very active in the business, and several other employees. This core group of 13 managers borrowed close to $500,000 to buy 49 percent of L.D. Schreiber Cheese Co. Then the company incorporated as a stand-alone company, no longer a division of L.D. Schreiber Co. The new owners had taken a substantial financial risk, borrowing against their homes to raise the cash to pay off Schreiber. Within a few years, the company faced a grave crisis that could have led to bankruptcy. And the company ran into a similar catastrophe again a few years later.

In 1965, Safeway notified L.D. Schreiber Cheese that one of its customers had gotten seriously ill from eating contaminated cheese made under Schreiber's aegis. The cheese actually was manufactured by a Missouri company, Standard Milk, but Schreiber acted as a middleman between Standard and Safeway, and it had guaranteed the quality of Standard's product. The contaminant turned out to be a toxin derived from the staphylococcus bacteria, and a court ordered four million pounds of Standard's cheese impounded until it could be proved safe. Unable to sell this huge inventory, it seemed likely that Schreiber would go out of business. Schreiber's own testing had shown that only a small portion of the embargoed cheese was contaminated, but it needed to prove this to the government in order to be able to sell the product. Schreiber's leaders met fruitlessly with the Food and Drug Administration (FDA) in Washington, D.C., and after the first day's meeting, concluded that their company would have to fold. As a last hope, the executives returned to the FDA the next day and met with a microbiologist. This scientist advised the men to work with another government agency, the Communicable Disease Center (CDC) in Atlanta, Georgia, to come up with a reliable test for the suspect cheese. In a collaborative effort, Schreiber's scientists and government researchers found a way to test the cheese for the toxin. Schreiber worked for many months to test the entire four million pounds. A year after the first case of food poisoning surfaced, the government lifted the ban on Schreiber's inventory. The company sold almost all the embargoed cheese, and actually turned a profit, as the cheese had become more valuable with age.

Then in 1968, the company faced another major problem with its inventory. In this case, cheese manufactured for a government contract was rejected because of unsightly brown lumps. The lumps were not contaminants but a phosphate emulsifier that had caked instead of blending. The emulsifier was manufactured by the chemical company Monsanto. Schreiber had alerted Monsanto that their emulsifier sometimes caused the lumping problem, and Monsanto pledged to do something about it. But somehow the lumpy cheese got produced anyway, and the government eventually turned back to Schreiber some 5.5 million pounds of unacceptable product. Schreiber was again in danger of bankruptcy, as the value of the unsellable cheese was more than the company's net worth. So it did two things. The company sued Monsanto, and it devised a way to salvage the lumpy cheese. The only hope was to filter out the unsightly lumps. No cheese filtering technology existed at the time that would do this specific job. So Schreiber engineers took it on themselves to invent a filtering machine. The company was able to rescue the rejected cheese and sell it at a profit. Schreiber settled its suit against Monsanto in 1974.

Company Perspectives:

Today, Schreiber still uses "16 ounces to the pound" as shorthand for two cornerstones of its character: unquestionable integrity and an ongoing commitment to quality. Schreiber has come a long way from its modest beginnings, but honesty and integrity are values the company will never leave behind.

Developing Bigger Markets in the 1970s

Schreiber began marketing its cheese products to fast-food restaurant chains in the late 1960s. This added significantly to the company's production volume. But Schreiber was still a small player in the fast-food market, which was dominated by Kraft, Borden, and Pauly. In the early 1970s, Schreiber increased its sales to the leading hamburger chain McDonald's year by year. McDonald's was just one of many companies with which Schreiber did business in 1970, but by 1974, the restaurant chain had become Schreiber's largest customer. Over the next few years, sales to McDonald's and other fast-food chains became half of all Schreiber's business.

The company had to build more plants in order to keep up with this growing demand. Schreiber did very well in the 1970s, with the number of pounds of cheese produced rising by more than 200 percent, and total sales rising by more than 600 percent. Schreiber opened plants in Utah and Missouri, and in 1977 moved to much larger corporate headquarters in Green Bay. The company had become a major player in the fast-food industry, and it made many changes to adapt to its new circumstances. Schreiber invested heavily in innovative technology, first at its newest plant and then at its existing facilities. Schreiber also hired a management consultant to look at communication within the organization. Many patterns that had worked when the company was small no longer served, and it took outside help to find ways to change. Founder Merlin Bush's son Robert became president of Schreiber in 1978. He had worked for the company since graduating from college. Yet he realized that the company needed someone with different expertise. When he stepped aside in 1985, the new president, Jack Meng, was the first Schreiber top executive not related to the three company founders. (An earlier president had been the son-in-law of Barney Schreiber.)

Acquisitions in the 1980s and 1990s

In 1980, the company changed its name from the L.D. Schreiber Cheese Co. to Schreiber Foods, Inc. The name change signified that the company was ready to move beyond just cheese, yet it became even more of a force in the cheese market in the 1980s. Schreiber began growing through acquisitions in the 1980s, giving it greater presence on the East and West Coasts. By the middle of the decade, Schreiber had drawn nearer to the dominant U.S. cheese manufacturer, Kraft. In 1983, Schreiber decided to build a production facility in Maryland, getting it closer to eastern markets. The announcement came just weeks after Pennsylvania-based Clearfield Cheese Co. revealed that it was relocating to Baltimore. After some consideration, Schreiber thought better of building the Maryland facility. Instead, it acquired rival Clearfield Cheese. Clearfield had been considered the second leading retail cheese processor behind Kraft, though some analysts gave Schreiber the number-two title. By purchasing Clearfield in 1985, Schreiber clearly claimed the number-two ranking for itself, and drew closer to Kraft. The acquisition gave Schreiber its needed East Coast distribution center, plus production facilities in Missouri, Utah, and Pennsylvania.

Schreiber made another acquisition in 1985, within a week of purchasing Clearfield. The company bought California-based Westland Foods Corporation, a manufacturer of pre-cooked bacon. Westland had sales of around $7 million annually, and its principal customers overlapped with Schreiber's, as it sold mostly to fast-food restaurant chains. Schreiber also opened a new production facility in 1985, ramping up a plant in Tempe, Arizona to manufacture cheddar cheese.

Schreiber continued to make acquisitions in the 1990s. The company had a strong relationship with the fast-food chain McDonald's, which gave Schreiber the designation "World Standard" in 1990. Schreiber gained another huge customer in the early 1990s, the discount store chain Wal-Mart. Schreiber began selling to Wal-Mart in 1992, and that company soon became one of Schreiber's largest accounts. Schreiber introduced profit-sharing to its employees as it continued to do well. Schreiber modernized its plant equipment in the 1990s and also refined its sales and marketing. The company one-upped its competitors by promising to deliver to customers the exact amount ordered, at a time when the industry standard was for delivery of the promised amount plus or minus 10 percent. In many ways Schreiber had left its small-town roots behind by the 1990s, becoming a truly national business with ties to some of the biggest corporations in the United States.

Schreiber also began moving into international markets, following many of its large customers into the global arena. The company had made some international joint ventures in the 1980s, but these were short-lived. It opened a plant in Mexico City in 1980, but withdrew in 1982. Another joint venture in Northern Ireland lasted from 1980 to 1985. Schreiber Foods started over in the 1990s, going into overseas joint ventures only where it already had a clear market demand. Its multinational customers, such as McDonald's, were deriving an ever-increasing percentage of sales from markets outside the United States, so Schreiber needed to follow along. It started European operations in 1992, with a German joint venture, and that same year began operating in Saudi Arabia. The company began operating in India in 1996, finding a large, low-cost dairy market, though with little distribution infrastructure. Schreiber moved into Brazil in 1999. Over the next few years, Schreiber developed another European joint venture, opened a production facility in Mexico, and eventually had sales offices around the world.

Filling the Number-Two Slot in the 2000s

Schreiber Foods continued to acquire smaller companies in the 2000s, cementing its position as the second-place company in an industry long dominated by Kraft. By 2000, Schreiber's sales had passed the $1 billion mark and were on their way to $2 billion. The company had achieved a formidable presence in the fast-food market by the beginning of the decade. Its processed cheese slices were found on 90 percent of the nation's cheeseburgers. New acquisitions helped it keep up with its growing production needs. The company bought several Wisconsin cheese factories from ConAgra in 2000, and later that year also acquired a Pittsburgh, Pennsylvania manufacturer, Pinnacle Cheese Company.

Key Dates:

1945:: The company is founded in Green Bay.
1950:: The company opens its first plant outside Wisconsin.
1962:: Managers buy the company from L.D. Schreiber.
1965:: Much of the company's inventory is recalled because of contamination.
1970:: Fast-food chain McDonald's is gained as a customer.
1977:: The company moves to larger headquarters.
1985:: The company picks a new president from outside the families of the founders.
1992:: Schreiber acquires Wal-Mart as a customer.
2002:: Private-label cream cheese maker Raskas is acquired.

In 2002, Schreiber made a key acquisition in the Southeast, buying Deep South Products, Inc. from Winn Dixie Stores. The purchase included a warehouse and production facility in Gainesville, Georgia. Schreiber increased its penetration into southeastern markets with the Deep South acquisition, and also gained a gateway into markets in the Caribbean. Also that year, Schreiber made a purchase that greatly increased its production of private-label cream cheese. Schreiber bought a venerable, family-owned cream cheese maker based in St. Louis, called Raskas Foods, Inc. Raskas was a medium-sized company, with sales of $185 million, yet it had a huge market share, making as much as 80 percent of the private label cream cheese in the United States. Raskas determined that it was not a big enough player to remain profitable in the 2000s, faced with competition from the much bigger Kraft as well as volatility in the markets for raw materials. Schreiber stepped in, buying Raskas for an undisclosed amount and gaining a St. Louis manufacturing plant, research facility, and distribution center, and Raskas factories in Texas and Pennsylvania.

The Raskas acquisition gave Schreiber even more of a leg up on Kraft. The industry leader saw its market share fall in the 2000s, while Schreiber and other private-label makers gained. Schreiber continued to build its cream cheese assets, buying another manufacturing plant in 2003. This was a cream cheese and sour cream facility in Fredericksburg, Iowa owned by ConAgra Foods. By that year, Schreiber's sales had passed $2 billion, and with its growth in cream cheese, it was becoming more of a full-line dairy product maker. The company followed the ConAgra purchase with an announcement that it was spending $24 million on a distribution plant in Utah so it could more easily serve West Coast cream cheese markets. In 2004, Schreiber bought Level Valley Creamery, a Wisconsin manufacturer of cream cheese, sweetened condensed milk, and butter and milk powders. Level Valley had sales of around $125 million annually. It had been a major competitor of Raskas before Schreiber absorbed the St. Louis company. Over just a few years in the early 2000s, Schreiber had done much to consolidate the private label cream cheese market in the United States.