Tasty Baking Co.

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Tasty Baking Co.

2801 Hunting Park Avenue
Philadelphia, Pennsylvania 19129
U.S.A.
(215) 221-8500
Fax: (215) 223-3288

Public Company
Incorporated: 1914
Sales: $142.1 million
Employees: 1,200
Stock Exchanges: American
SICs: 2051 Bread and Other Bakery Products, Except
Cookies and Crackers; 2052 Cookies and Crackers; 2064
Candy and Other Confectionery Products; 2066 Chocolate
and Cocoa Products

Tasty Baking Co. is a Philadelphia-based company that, in the mid 1990s, was manufacturing and selling about 75 varieties of single-portion food products, most of them confectionery. The company marketed its products, including cakes, pies, cookies, brownies, pastries, doughnuts, muffins, and pretzels, under the trademark TASTYKAKE. Tasty’s products were being sold primarily to about 25,000 retail outlets in a six-state region ranging from New York to Virginia, but the company’s distribution network was spreading south and west. At the same time Tastykake baked goods remained a Philadelphia institution, honored alongside other distinctly local food treats like cheese steaks, hoagies, and scrapple.

Tasty Baking was founded in 1914 by Philip J. Baur and Herbert C. Morris. Baur came from a German-American family that was in the process of selling its large Pittsburgh bakery, and Morris, a salesman, was from a well-established Cleveland family. Baur and Morris wanted to develop small cakes packed at a bakery plant, in contrast to the loaf cakes that were handled and cut into portions by retail grocers under the unsanitary conditions of the time. Since the sale of the Baur bakery forbade any Baur to open a bakery within 100 miles of Pittsburgh, the two decided to make Philadelphia their base. They found a deserted, burnt-out plant in North Philadelphia with its own railroad siding and set up shop there.

On February 25, 1914, the Tasty Baking Co. was incorporated with capital of $46,000, half provided by Baur and his father, the other half from Morris’s father-in-law, Edward K. Sober. Baur was responsible for production, Morris for sales. Morris’s wife came up with the name of the new product, Tastykake. The early cakes were white, yellow, chocolate, raisin, molasses, and sponge. Sugar and flour were sifted by hand. After baking—at first in a single oven—the cakes were iced, cut into rectangles, wrapped, packed into boxes, and distributed to retailers who sold them for ten cents each. In its first year the company had impressive gross sales of $300,000; in 1918, sales reached $1 million.

By April 1915 Tasty Baking was serving stores as far away as Mt. Carmel and Reading, Pennsylvania, Trenton, New Jersey, and Wilmington, Delaware, as well as 13 Philadelphia routes. Morris would sell agents only as many cakes as he thought they could sell within the two days between the salesman’s visits. The salesman replaced anything that had become stale with a new cake and took the stale one back to the plant, where it was destroyed. All business was transacted in cash. When the system broke down because the agents got behind on their payments, Tasty Baking decided to hire its own distributors and pay them a salary, commission, and car allowance. This arrangement remained in operation until the mid-1980s.

In 1922 Tasty Baking constructed a new, five-story plant on Hunting Park Avenue in North Philadelphia. Two additions were built within three years. The new plant led to new products: the Junior, a lemon sponge cake with icing on top; a chocolate cupcake; and the revolutionary Krimpet, a finger-sized butterscotch sponge cake baked in a fluted pan. The latter two products sold two for a nickel and became the company’s best sellers. During this decade the Tastykake horse-drawn wagon was a familiar site on Philadelphia streets. Gasoline-fueled trucks and electric cars and trucks were also used, and Tasty products moved by rail and ship to more distant areas, but the last horse was not retired until 1941.

By 1930 the Hunting Park plant had five buildings and 350,000 square feet of floor space. Annual sales had climbed to $6 million. A lunchbox-size square apple pie called the Tasty-Pie proved a quick success. Newspaper advertisements, billboards, streetcar placards, and slides shown in movie theaters displayed Tastykake pastries or depicted children eating the products. The company weathered the Depression without layoffs by cutting their production costs. During World War II Tasty Baking employed 203 people, and company advertising promoted the sale of war bonds.

After Philip Baur died in 1951, his heirs purchased stock from the holdings of E. K. Sober’s daughter (Herbert Morris’s wife), giving the Baur family majority control of the private company. Vice-president Paul R. Kaiser assumed the presidency and Morris, who had served as president since the company’s inception, became chairman of the board. In April 1954 Kaiser was able to report that the Tastykake territory had grown to cover parts of nine states and the District of Columbia. By the end of the decade annual sales had grown to nearly $22.9 million. Net income first passed the $1-million mark in 1955.

Under the slogan “Automate or Abdicate” Kaiser advanced a program of installing spiral metal chutes, powered conveyor belts, and auxiliary equipment. The baking cycle, which took up to 12 hours in 1935, was cut to as little as 45 minutes in 1956.

Acquisition of a Battle Creek wrapping machine began an era of automatic wrapping. A larger and more modern laboratory was completed in 1956.

During the 1950s Tasty Baking’s traditional customers, mom-and-pop retail stores, began to give way to supermarkets. Radio and television were replacing the company’s traditional reliance on billboards and posters. Tasty began sponsoring Philadelphia Phillies baseball telecasts, featuring commercials starring Joe E. Brown, Betty White, and Shari Lewis and her puppets. Over the next 25 years the company extended its sponsorship to baseball’s Baltimore Orioles and Washington Senators, football’s Philadelphia Eagles and hockey’s Philadelphia Flyers, adding spokespersons ranging from musical impresario Dick Clark to Philadelphia sports heroes Bobby Clarke, Richie Ashburn, and Bill White.

One form of public relations the company badly needed, as the factory’s neighborhood changed, was forging better ties to the black community. In 1960 a two-month boycott of Tastykake products organized by 400 black ministers ended only after Tasty Baking agreed to’add blacks to its sales, clerical, and other previously all-white departments. Businesses and white residents continued to leave North Philadelphia, but the company chose instead to stay and fight decay. It organized the Allegheny West Foundation to rehabilitate housing, introduce new businesses, and support other forms of community development.

When Tasty Baking went public in 1961, its offered stock sold out the first day, the price rising immediately from $20 a share to $27 or $28. Officers and directors continued to hold nearly half the shares, however. In 1965 the company diversified for the first time by acquiring Phillips & Jacobs, Inc., a producer of industrial chemicals and wholesale printing supplies, for about $2.5 million in stock. The next year it added a Baltimore graphic-arts supply business, a potato-chip company, and a biscuit business. The following year it added Philadelphia and Atlanta graphic-arts companies.

By 1968 Tasty Baking was serving 30,000 stores in 12 states. Sales, in 1967, when net income was $2.8 million, reached $67.4 million, of which the baking operations accounted for 57 percent. Graphic arts accounted for 28 percent. The rest, 15 percent, came from the acquisition of potato-chip and pretzel manufacturers and three Ohio cookie distributors. The Baur family held 58 percent of the company’s voting stock by 1968, management held 12 percent, and the public held 30 percent.

In March 1970 Kaiser told a group of Philadelphia financial analysts that the Tastykake division was distributing 35 varieties of small cakes and pies to 28,000 stores in 12 states on a three-day-a-week basis. He said the graphic-arts division was supplying 17,000 items to the printing and allied trades in 14 states. The cookie-distribution companies were marketing a complete line of cookies, crackers, and biscuits to 4,000 retail outlets in Ohio and western Pennsylvania. Despite this expansion, the ratio of net profits to sales fell in 1970 for the ninth consecutive year; it was only 2.8 percent, compared to 5.8 percent in 1962.

Concluding that the potato-chip and pretzel businesses were a drain on earnings, Tasty Baking sold them in 1970. In the same year, Tasty Baking expanded in a new direction by acquiring Larami Corp., a Philadelphia toy manufacturer, importer, and distributor. By 1972 the company’s ratio of net profits to sales had improved slightly, but in the recession year of 1974 it was down to 2.6 percent: $3.5 million in net income on net sales of $132.1 million. In 1976, when net income peaked at $6.7 million on sales of $157 million, Tasty Baking made an unwise $5.5-million acquisition of Ole South Foods Co., a frozen-dessert manufacturer. Tasty eventually dissolved Ole South Foods in 1979; that year Tasty lost $2.2 million on net sales of $169.5 million—its first annual loss.

In 1981, Kaiser’s last year as chief executive officer, Tasty Baking charted a new direction. The aging population of the Middle Atlantic states, he said, meant ‘There’s been a decrease in the number of teens, and they’re the big snack and cake eaters.” The company introduced a chocolate-covered pretzel and also entered the breakfast-food market with Danish pastries and muffins. Finger-shaped cakes and cupcakes were packaged singly to attract more unit sales in single-person households. Tasty also entered agreements with distributors as far away as California. In a process learned from Ole South Foods, baked goods were frozen in Philadelphia, shipped under refrigeration, and thawed at their destinations. Larami Corp. formed a Hong Kong trading company to import premium nontoy gifts for direct-mail marketing by Tasty.

Kaiser’s 28-year reign came to an end in April 1981, when dissident shareholders, upset by three consecutive quarters of losses, forced his resignation. Philip J. Baur, Jr., president of the Tastykake division and Kaiser’s brother-in-law, succeeded him as chairman of the board. Nelson G. Harris, the company president since 1979, succeeded Kaiser as chief executive officer. Under new leadership, Tasty Baking retrenched. In October 1981 the company retreated from two of its major expansion projects, selling the toy manufacturer Larami and withdrawing from all but eight of its new markets in 40 states. In an October 1981 New York Times article, Harris explained, “We went too far too fast. The problems of distribution and transportation became prohibitive, and there was the problem of not advertising agressively enough.”

Although 1982 was a recession year, Tasty Baking halted a five-year decline in unit sales. Net income rose from $1.7 million in 1982 to $2.4 million in 1983 and $2.9 million in 1984, when net sales reached $222.4 million. Long-term debt was reduced from $19 million to $7 million. Tastykake distribution stabilized at 21 states, including California, where the company was sponsoring baseball’s San Diego Padres. (California was dropped in 1988, however.) Also during this time, subsidiary Phillips & Jacobs began serving the New York City market.

Tasty Baking reorganized its sales organization in 1985. While delivery persons had usually owned their own trucks and absorbed the cost of store returns, routes were now offered for sale to the driver-sales reps, who would become independent owner-operators of their territories. The company offered to finance the sales, with no down payment. According to Harris, the deliverymen “paid $50,000 or $60,000 and got something worth $110,000-$120,000…. We had 386 routes, and we sold them all. Today [in 1989] we have about 510 routes, and we’ve had 50 route splits.”

The sale of its routes raised $16 million for Tasty Baking and also made drivers more dutiful in tending their accounts. Such dedication was essential to the company, because most Tasty products contained no preservatives or artificial flavors and thus had shelf lives as short as four days. Sales rose ten percent immediately. Meanwhile, Harris allotted more than $40 million to upgrade the Philadelphia plant. Between 1981 and 1988 revenues doubled to $264 million, while profits rose more than sevenfold, from $1.3 million to $9.5 million.

In 1989 Tasty Baking repackaged its Tastykake products in bright yellow instead of the traditional blue and white. It began a new line of cakes and pies in flavors that changed monthly and introduced a line of honey-graham cookies, called Tasty Bears, aimed at children aged six to 12. The following year the company introduced both Chocolate Royals, oversize cupcakes filled with chocolate mousse and topped with icing, and Tasty-Lights, a low-fat cupcake. It found that the former sold much better than the latter, leading division president Carl Watts to conclude, “There’s a segment that may not want a snack cake every day. But when they do, they want it to be as indulgent as can be.” By the end of 1990, some 30 percent of Tasty’s bakery revenues were coming from products introduced since 1982, including Honey Buns and Pastry Pockets. Watts succeeded Harris as chairman and chief executive officer of the company in 1992.

In 1991 Tasty Baking introduced its premium Gold Collection line. Several new products were introduced in 1992, including Tasty Mini Cupcakes, and Lemon and Jelly reduced-fat Krim-pets cupcakes. That year Carrot Cake and Chocolate Chunk Macadamia Cookie cupcakes were added to the Gold Collection items. During 1993 new products included Dunkin’ Stix, Pound Kake, and Blueberry Mini Muffins. Also in 1993, the company spun off Phillips & Jacobs to its shareholders, who received two shares of its common stock for every three shares of Tasty Baking common stock.

In 1994 Tasty Baking launched a record six new snack-cake products. These included Kreme Krimpies, a Krimpet-shaped, creme-filled sponge cake; Whirly Twirls, a chocolate roll cake with white creme filling and a dark chocolate coating; and P.B. Krunch, a crunchy wafer layered between strips of peanut butter covered with a rippled chocolate coating. The other three were seasonal products: Bunny Trail Treats, Sparkle Kakes, and Kringle Kakes, for Easter, the Memorial Day/Fourth of July period, and Christmas, respectively. St. Patty’s Treats was to be introduced in 1995 to complete the company’s holiday coverage. Thirty-four percent of Tasty’s snack-cake sales in 1994 came from Tastykake products that did not exist 10 years before.

Stripped of Phillips & Jacobs, Tasty Baking had net sales of $142 million in 1994 and net income of $5.8 million from continuing operations. Its long-term debt was $10.3 million in July 1994. Officers and directors controlled about 9 percent of the common stock, whereas institutions held 44 percent.

In 1995 Tasty Baking was selling its products in about 30 states. In addition to its approximately 25,000 retail outlets in the Middle Atlantic states, it was selling through direct alliances with major grocery chains in the Midwest, South, and Southwest. Cakes, cookies, and doughnuts sold for 25 to 69 cents per package, with family packages and jumbo packs ranging from $1.99 to $3.39. Pies, pastries, and brownies typically retailed for 69 cents apiece or per package. Three varieties of English muffins ranged from $1.49 to $1.69 per package. Customers could also order a variety of Tastykake gift packs by calling a toll-free number.