Sherwood Brands, Inc.

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Sherwood Brands, Inc.

1803 Research Boulevard, Suite 201
Rockville, Maryland 20850
U.S.A.
Telephone: (301) 309-6161
Fax: (301) 309-6162
Web site: http://www.sherwoodbrands.com

Public Company
Incorporated: 1985
Employees: 600
Sales: $52.8 million (2002)
Stock Exchanges: American
Ticker Symbol: SHD
NAIC: 311340 Nonchocolate Confectionary Manufacturing; 311821 Cookie and Cracker Manufacturing

Sherwood Brands, Inc. is a growing manufacturer of niche market candy and confections, and one of the major U.S. producers of seasonal candy and gift baskets. It sells its products through many nationwide retailers, including drugstore chains such as CVS, Walgreens, Eckerd, Long’s Drugs, Rite-Aid, and others; grocery chains such as Albertsons, Kroger, Winn-Dixie, and Safeway; mass merchandisers such as Wal-Mart, K-Mart, and Target; and through discount stores, convenience stores, wholesale clubs, and many other outlets. Almost half of Sherwood’s revenue comes from the sale of seasonal gift baskets, particularly Easter baskets and Christmas baskets and gift sets. Its remaining sales come from its several brands of candy and confections, which are marketed as premium brands at a value price. Sherwood’s brands include Cows and P.B. Cows butter toffee candies; Demitasse biscuits and wafers and Ruger brand wafers and cookies; several kinds of lollipops, including its attention-getting Tongue Tattoo line; Sherwood hard candy; Fruit Burst brand jelly beans; Elana Belgian chocolates; and Kastin’s Old Fashioned Candy. The company also provides jelly beans, lollipops, and other candies to private-label suppliers, and makes holiday gift sets with licensed trademarks from Pepsi, World Wrestling Foundation, and the games Monopoly, Scrabble, and Twister. The company was founded by Uziel Frydman, who retains about 80 percent of the stock of the publicly traded company.

Finding a Niche Market in the Mid-1980s

Uziel Frydman founded Sherwood Brands in 1985 after a full career as a consumer package goods specialist for several global companies. Frydman was raised in Israel, the son of an importer of meats and luxury goods. He earned a degree in civil engineering from the Technion-Israel Institute of Technology in Haifa in 1960, then came to the United States, where he took an MBA at Case Western University in Cleveland, Ohio. Beginning in 1971, Frydman worked at Lever Brothers (Unilever), the international conglomerate manufacturer of various household goods and packaged foods. Frydman worked in that company’s planning division until 1977, when he moved to a marketing job at the R.J. Reynolds Tobacco Co. Frydman learned two valuable lessons from his time at these companies. One was the importance of long-range planning. He told Candy Industry (March 2002) that “Everything that I do or think extends out two or three years.” He prided himself on his ability to see where his company was going several years down the line. At R.J. Reynolds he learned the importance of strong branding, which was so much a part of cigarette sales. Frydman also came to see that, powerful as leaders like Reynolds were, there were always small companies that managed to grab a sliver of the market. When he reached his late 40s, Frydman decided that he wanted to go into business for himself. He began by using his insight into consumer brands to scope out a niche market. When he looked at the candy and confection market, Frydman saw a lot of large contenders such as Hershey and Mars, but these still left room for small, savvy competitors. He decided that the best opportunities in the candy market in the mid-1980s were for premium brands. Frydman founded Sherwood Brands in 1985 in North Carolina, operating on the philosophy that his company would sell premium candy at an affordable price.

Sherwood’s first product was a line of Austrian imports, Ruger wafers. These were wafer cookies with a variety of flavored fillings. In Europe, wafer cookies were seen as a premium item, but their reputation in the United States was rather the opposite. Frydman’s company set out to change the recipe of the wafers to accord with American tastes, and then to package and market them as more of a high-end, though value-priced, sweet. Sherwood Brands eschewed the traditional European hazelnut filling in favor of vanilla, strawberry, and chocolate. Frydman also tinkered with the chocolate filling recipe to come up with something that tasted less distinctively European and more like other American chocolate goods. Sherwood Brands also revamped the Ruger packaging, opting for a printed, metallized package instead of clear plastic. The dark packaging increased the shelf life and gave the wafers a distinctive look. Sherwood also began importing Demitasse Tea Biscuits, bringing them in from a division of the Dutch company CSM.

Apparently Sherwood’s initial marketing foray went well. Candy Industry (March 2002) described Sherwood’s Ruger wafers as a “runaway success.” The company began bringing in other candies. Some early products were the Cows line of caramels and Zed gum. These were two innovative products that managed to stand out from the crowd. Cows caramels used an eye-catching black-and-white cow design on the packaging, and managed to sell well probably because of this. Zed gum represented a new area in the flavor range, advertised as super sour. It also colored the inside of the chewer’ s mouth, a factor children evidently found attractive.

From Importer to Manufacturer in the Early 1990s

As the business grew, Uziel Frydman hired two of his children to help run it. His son Amir Frydman had earned a degree in marketing from the University of North Carolina and then gone to work in the banking industry. Amir apparently preferred candy to banking, and asked his father to take him on. He became vice-president of marketing and product development and was credited with bringing out some of Sherwood’s more unusual brands. Frydman’s daughter Anat Schwartz then became executive vice-president of finance. After several years in business, Frydman decided the company would do better in a larger metropolitan area. In 1992 Sherwood Brands relocated to Rockville, Maryland, a suburb of Washington, D.C.

Through the mid-1990s, Sherwood Brands did not make any confections of its own, but imported them or had them made by contract manufacturers. The company had investigated opening its own manufacturing plant, but found the investment too costly. The company’s contract manufacturers had been providing good service at a reasonable cost, so there was really no need to change. Then in 1995 the European company that made Sherwood’s Demitasse Tea Biscuits was bought out by private investors and began to run under new management. The manufacturer began to compete directly with Sherwood, and the situation soon became unworkable. So at this point Frydman decided that Sherwood Brands would have to make its own tea biscuits. Frydman’s first consideration for opening a manufacturing plant was that it be far from the corporate offices. He looked at possible sites that were at least an hour and a half drive from Rockville, with some as much as three hours away. Frydman was concerned that Sherwood’s management would get too caught up in the manufacturing end of the business if it was any closer to Rockville. Ultimately, the company chose a former textile plant in Chase City, Virginia, and by the fall of 1996, Sherwood was marketing its own domestically produced Demitasse Tea Biscuits.

After a lot of trial and error produced a good tea biscuit at an acceptable cost, Sherwood began manufacturing more of its own confections. It next added a caramel and toffee production line, buying equipment from a variety of European and Japanese manufacturers. After investing in the plant and equipment, Sherwood considered going public to raise capital. The firm’s prospects seemed good. The overall candy and confection market in the United States grew steadily throughout the 1990s. Domestic shipments of confectionaries went from approximately $9 billion in 1990 to more than $15 billion in 1998. Sherwood’s sales had risen to about $18 million by 1998, and though it was a still a small company, it had some very large clients. By 1998 roughly 15 percent of Sherwood’s sales were to Wal-Mart, the nation’s largest retailer. Another 12 percent of Sherwood’s sales went to Wal-Mart’s subsidiary Sam’s Club. By that year it also had snagged other major nationwide retailers as clients, including the drug chains CVS and Rite Aid, the discount chain Dollar General, and the renowned K-Mart. In 1998 Sherwood Brands made an initial public offering on the American Stock Exchange. Uziel Frydman retained 80 percent of the stock, and the company remained in many ways a family business. But the stock offering allowed Sherwood to raise capital for acquisitions, and would let it use stock as a bargaining chip in future acquisition negotiations. The company made its first acquisition in September 1998.

Company Perspectives:

We make premium candy affordable. Sherwood Brands’ products —be it confectionery, baked goods or Easter baskets —all meet the highest standard in quality, taste, design and packaging available at a valued consumer price.

Entering the Gift Basket Business in the Late 1990s

Fresh with cash from its stock offering, Sherwood Brands bought up a troubled candy maker in Pawtucket, Rhode Island for $4 million. The E. Rosen Co. had operated School House Candy for almost 90 years, and it had manufacturing plants in Pawtucket and Central Falls in Rhode Island and two more in New Bedford and Fall River, Massachusetts. The company was bigger than Sherwood, with sales of about $42 million, and it was one of the leading suppliers of the holiday gift basket market. It also made jellybeans, lollipops, hard candy, and some holiday items, mostly supplying them to big chains like Wal-Mart and K-Mart, which sold them under their store brand names. But E. Rosen, which employed some 400 people in the area, had run into hard times and was unable to pay back a $15 million bank loan. It went into receivership in July 1998, and by September Sherwood had beat out more than a dozen other contenders to buy the business. The business was antiquated and did minimal marketing, although the candy production equipment was modern. Sherwood revamped the packaging and marketing of some of School House’s products and managed to make them into new hit candies. School House had been making a kind of lollipop that transferred a tattoo onto the licker’s tongue. But these had gone into generic packaging and not made much of a splash. When Sherwood took over, it jazzed up the Tongue Tattoo suckers and added Space Aliens, Smile Pops, and Valentine Suckers to the line. The product got extensive television coverage at the next year’s Candy Expo, and was even spoofed by late-night television talk show host Jay Leno. This gave Tongue Tattoos a much higher profile than it had ever had under School House management.

Another attractive aspect of the E. Rosen acquisition was its gift basket business. At first, Sherwood was interested in the candy manufacturing business only, and Frydman intended to sell off the gift basket division. But when a competitor offered what he thought was a suspiciously high price for the business, Frydman decided to retain it and develop it himself. Knowing nothing about gift baskets, Frydman hired out of retirement Harris Rosen, the former head of the company, and had him teach Sherwood’s staff the basics of the business. Frydman quickly realized what a good thing he had bought, particularly because there were so many opportunities to use Sherwood’s other products in the holiday baskets. Sherwood retained most of the original gift basket assembly workers in New Bedford, but worked on the design of the baskets with its own professionals. Within three years, holiday gift baskets accounted for almost half of Sherwood’s sales. Revenue had risen steeply, up to almost $60 million for 2001.

Other Acquisitions and Growth in the 2000s

Sherwood Brands hoped to pick up a venerable name in American candy in 2000 when it tried to buy the Clark Bar Candy Company. But Clark Bar went into receivership while Sherwood was still negotiating for it, and the deal turned into an auction with several contenders. Sherwood eventually lost out to the New England Confectionary Company. But in preparation for picking up Clark Bar, Sherwood had already bought a new production facility, a 70,000-square-foot space in Keysville, Virginia. The Keysville plant was only about 20 miles from Sherwood’s original facility in Chase City. When Sherwood bought E. Rosen, it had vowed to keep the business in Rhode Island, but it had searched fruitlessly for several years for a Rhode Island site to succeed the decrepit School House facilities. Reluctantly, the company gave up on Rhode Island and moved its manufacturing to the Chase City plant, which it expanded. Nearby Keysville then became a warehouse and distribution center. The company did keep its gift basket assembly plant in New Bedford, though, sometimes bussing in workers from nearby communities at peak production times.

Sherwood’s long-range plan included growth through line extensions and new products, and through acquisition. By 2002, the company had added several new products, including Strip-O-Pops lollipops and Fruit Burst jelly beans. It also made another acquisition that year, that of a small candy manufacturer in Brooklyn, New York, called Kastin’s. Kastin’s brought Sherwood its Kastin’s brand Old Fashioned Candy and a seasonal treat, Kastin’s Christmas Candy Mixes. Sherwood moved some of Kastin’s newer production equipment to its Chase City plant. Sherwood also began bringing out new products through licensing agreements. By 2002 the company had worked out licensing deals with several companies, and it was putting out Pepsi holiday gift sets as well as gift sets based on the games Scrabble, Monopoly, and Twister. In 2002 the company signed up with the California Milk Processor Board to license the well-known “Got Milk?” slogan. Sherwood used the “Got Milk?” tag for a line of calcium and vitamin-fortified caramels in several flavors. Seven caramels contained the calcium equivalent of a glass of milk. The company continued to focus on developing innovative candies and to extend its older brands with new flavors or varieties.

Sherwood also hoped to make more acquisitions. Late in 2002 the company acquired Asher Candy, of New Hyde Park, New York. Sales for 2002 were lower than 2001, reportedly due to weakened economic conditions overall in the United States. But Sherwood expected steady growth in 2003, especially after it finished expanding and consolidating its manufacturing at its Chase City plant.