Tootsie Roll Industries, Inc.

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Tootsie Roll Industries, Inc.

7401 South Cicero Avenue
Chicago, Illinois 60629
U.S.A.
Telephone: (773) 838-3400
Fax: (773) 838-3564
Web site: http://www.tootsie.com

Public Company
Incorporated: 1922 as Sweets Company of America
Employees: 2,200
Sales: $487.7 million (2005)
Stock Exchanges: New York
Ticker Symbol: TR
NAIC: 311330 Confectionery Manufacturing from Purchased Chocolate

Tootsie Roll Industries, Inc., is one of the largest candy companies in the United States, with headquarters in Chicago and operations in Illinois; Massachusetts; Tennessee; Wisconsin; Mexico City, Mexico; and Concord, Ontario. Best known for producing the candies that bear the company name—the chewy, chocolate cylinders in the distinctive brown, white, and red wrappers—the company has manufactured and sold confectionery products for more than 100 years. In addition to the famous Tootsie Roll, the company manufactures lollipops and hard candy under the brand names Tootsie Roll Pops, Caramel Apple Pops, Charms, Blow Pops, and Blue Razz, as well as Mason Dots, Zip-A-Dee-Doo-Da-Pops, and chocolate covered cherries under the Cella's trademark. In 2004, the company made the largest acquisition in its history, integrating Concord Confections of Toronto, Canada, a market leader in the bubble gum category, and thereby gained ownership of the Dubble Bubble brand and Razzles, Cry Baby, and Nik-L-Nip candies.

EARLY HISTORY

The genesis of the company that has been a familiar part of the American cultural landscape for nearly a century can be traced to the Brooklyn kitchen of a newly arrived immigrant from Austria, Leo Hirshfield. In 1896, after having already developed such successful products as Bromangelon, a jelling powder that would later serve as the prototype for modern day gelatins, Hirshfield concocted a thick, chewy chocolate mixture, which he divided into bite-size rolls, wrapping each piece with paper to keep it clean and sanitary. The hand wrapping—believed to be an industry first—enabled Hirsh-field's product, named "Tootsie Roll" after his daughter Clara "Tootsie" Hirshfield, to stand out among the competitor's candy-counter offerings, which were sold by the scoop out of large barrels or jars. The new penny candy was an instant success with the children in Hirsh-field's Brooklyn neighborhood. He soon realized that he would need more capital to promote and expand his candy business to meet the growing demand. To that end, he merged his operation with a local candy manufacturer, Stern & Staalberg, just a year later. Sales continued to boom, and by 1922 the company, renamed Sweets Company of America, was listed on the New York Stock Exchange.

The Great Depression put a temporary halt to the remarkable growth of the young company. It was during this period, though, that William Rubin, a box manufacturer whose family would control Tootsie Roll for the better part of the century, quietly began purchasing shares in the Sweets Company of America. As the nation's economy improved, Tootsie Roll began to receive more orders; by 1938, the company was ready to expand again, opening up a modern, 120,000-square-foot facility in Hoboken, New Jersey. With the help of such innovations as the conveyor belt, which ushered in the era of mass production, the company again enlarged its operating facilities, adding 40,000 square feet to the plant in 1941.

While the World War II economy forced many candy companies to suspend production, it proved quite a boon for Tootsie Roll. Highly valued for its "quick energy" properties and its ability to stay fresh for long periods of time, Tootsie Rolls were included in G.I. rations. While the company's involvement in the war effort, to be sure, resulted in gains on its balance sheet, it also contributed largely to the company's enduring status as an American icon. Frederick Arnold, in his autobiography of his days as a World War II fighter pilot, Doorknob Five Two, told, for instance, how he carried Tootsie Rolls with him on every mission, rewarding himself with a segment after each completed stage. This ritual proved a lifesaver when his plane was shot down over the Sahara; stranded in a stone quarry for three days, he sustained his energy with his Tootsie Rolls, and after he was taken in by a native tribe who shared their raw dog meat with him, he returned the favor by giving them a Tootsie Roll segment and a cigarette.

POSTWAR EXPANSION

With the postwar boom in the U.S. economy and the increased availability of raw materials such as sugar and cocoa, Tootsie Roll was able to take full advantage of the competitive edge it had gained. Under the direction of William Rubin—who by 1948 had worked his way up to the post of company president—Tootsie Roll continued to expand. With Rubin's appointment came a stronger focus on the marketing and advertising efforts of the company. In 1950, he came up with a Life magazine ad that became a rich part of company lore; surrounded by the words "Sweet!, Popular! And Wholesome!" was pictured a beaming 18-year-old woman who embodied those adjectives, Rubin's daughter and future company president, Ellen Gordon. In the 1950s, while continuing to advertise in magazines, newspapers, and on the radio, the company also put some of its advertising dollars into the fledgling medium of television, becoming the first regular advertiser on classic children's programs such as the Howdy Doody Show and the Mickey Mouse Club.

COMPANY PERSPECTIVES

We believe that the differences among companies are attributable to the caliber of their people, and therefore we strive to attract and retain superior people for each job. We believe that an open family atmosphere at work combined with professional management fosters cooperation and enables each individual to maximize his or her contribution to the company and realize the corresponding rewards. We do not jeopardize long-term growth for immediate, short-term results. We maintain a conservative financial posture in the deployment and management of our assets. We run a trim operation and continually strive to eliminate waste, minimize cost and implement performance improvements. We invest in the latest and most productive equipment to deliver the best quality product to our customers at the lowest cost. We seek to outsource functions where appropriate and to vertically integrate operations where it is financially advantageous to do so. We view our well known brands as prized assets to be aggressively advertised and promoted to each new generation of consumers. We conduct business with the highest ethical standards and integrity.

Under Rubin's leadership, the company experienced 15 consecutive years of record growth and opened up a second operating plant in Los Angeles to accommodate the ever increasing demand of its customers. In 1962, Melvin Gordon took over chief executive duties, and the company continued along this pattern of growth, with net earnings nearly tripling during the first six years of the decade. In 1966, the company changed its name to Tootsie Roll Industries, Inc., and opened a large midwestern plant in Chicago's South Side, which would later become company headquarters. By 1970, both the Hoboken and Los Angeles operations had been consolidated in Chicago to facilitate both distribution and production. From this more central location, goods could be shipped more efficiently throughout the United States, and such fundamental commodities as corn syrup, a product of the midwestern corn refineries, could be more easily obtained. Starting in the late 1960s, the company also began exploring foreign markets, establishing a subsidiary in Mexico, where the candy became known as "Tutsi." Encouraged by its success south of the border, Tootsie Roll, after negotiating a licensing agreement in the Philippines in 1969, branched into Canada in 1971.

Tootsie Roll also looked towards acquisitions as a means of expanding. In 1972, the company purchased the Mason and Bonomo division of the Candy Corporation of America, adding such established brand names as Mason Dots, Mason Licorice Crows, and Mason Mints, as well as Bonomo Turkish Taffy and Bonomo Sour Balls, to its repertoire. The decade was not without its hardships, though. In 1974, a 600 percent increase in sugar prices, combined with a similar rise in cocoa prices, forced the company to reexamine the size and price of some of its products. "We had to take a hard look at things," Ellen Gordon—Melvin's wife and, at the time, a company director—explained in a Chicago Tribune article, noting that "we had to make some pieces smaller and increased the price of other items, but that was true of the entire industry." While Nestlé raised its prices that year, Hershey reduced the size of its chocolate bars.

Having proven her business savvy in her ten years with the company, serving as a director responsible for managing outside investments and the pension fund, Ellen Gordon joined her husband at the top of the management team, taking over as president in 1978. In 2006, the married team of Chairman and CEO Melvin Gordon and President and COO Ellen Gordon controlled 80 percent of the company's voting power. After guiding the company through the cocoa-sugar crisis, they were faced with a challenge that would again test their management skills: the Tylenol crisis of 1982. At the outset of that year's Halloween candy-buying season, traditionally the company's most profitable period, seven Chicago area people died after taking Extra Strength Tylenol capsules, causing many parents throughout the country to worry that their children's trick-or-treat candy might be poisoned. While sales for the candy industry as a whole suffered in the wake of the Tylenol scare, Tootsie Roll—already known for its public service announcements to the media to promote safe Halloween candy giving—recorded a slight increase in sales, and, just two years later, sales jumped almost 20 percent. The Gordons, in a 1985 Chicago Tribune article, cited two primary factors behind the rebounding sales figures: first, an increase in distribution through the sale of more products in stores that already carried the Tootsie Roll line and the introduction of products in stores that did not; and second, the development of new products, such as the "foot of Tootsie," a larger version of the original Tootsie Roll. Halloween would remain the largest selling period and major focus of marketing efforts.

KEY DATES

1896:: Austrian immigrant Leo Hirshfield invents the Tootsie Roll.
1917:: The name of the company is changed to Sweets Company of America; the company begins to advertise nationally.
1922:: Sweets Company of America is registered with the New York Stock Exchange.
1931:: The Tootsie Pop is invented.
1938:: Sweets Company moves from New York City to a larger plant in Hoboken with conveyor belt systems for mass production.
1942:: The candy is included in World War II rations to give troops "quick energy."
1966:: The company's name is changed to Tootsie Roll Industries, Inc.
1968:: Tootsie Roll expands operations to include the Philippines and other areas of the Far East.
1978:: Ellen Gordon is named president of Tootsie Roll Industries, Inc.
1985:: Company acquires chocolate covered cherry manufacturer Cella's Confections.
1988:: Tootsie Roll acquires the Charms Company and becomes the world's largest lollipop producer.
1993:: The company acquires brands from Warner-Lambert Company, including Junior Mints, Sugar Daddy, Sugar Babies, and Charleston Chew.
2000:: O'TEC Industries and Andes Candies join Tootsie Roll and production of Fluffy Stuff Cotton Candy begins.
2004:: Tootsie Roll acquires Dubble Bubble bubble gum producer Concord Confections of Toronto, Canada.

During the 1980s, Tootsie Roll strengthened its position in the candy market through key acquisitions. In 1985, the company purchased Cella's Confections, Inc., a New York-based manufacturer of chocolate-covered cherries, putting "Tootsie squarely into an adult market," according to the Chicago Tribune writer Gormon, by adding "changemakers"—the small, foil-wrapped candies often offered at check-out counters—to their product line. Three years later, the company invested another $65 million on the acquisition of the Charms Company, a purchase which enabled Tootsie Roll to gain a virtual lock on the lollipop market. Such additions, according to Pat Magee of Candy Industry, were successful due to the Gordons' focus on acquiring companies "that will fit well into their own philosophy of candy making, their own marketing methodology." Magee noted that the company added "snap and pizzazz to the companies that they buy," primarily by "upgrade-[ing] the packaging." Also during this time, Ellen Gordon invested $10 million in a manufacturing modernization program and a new, sophisticated computer system was installed.

As the company moved into the late 1980s and early 1990s, "Tootsie on Roll," became a familiar phrase within business circles, aptly describing the company's continued growth in spite of the recessionary environment. Net sales rose more than 80 percent between 1987 and 1990, while net profits increased 75 percent during the same period. As Malcolm Berko stated in an Akron Beacon Journal column, the company appeared "nearly impervious to economic cycles." Berko noted that "since 1979, Tootsie Roll's dividends have increased three-fold, sales have tripled, book value has jumped five-fold, net profit margins have doubled while sales sweetened from $60 million to $220 million" in 1991.

A primary factor behind the success of Tootsie Roll was undoubtedly the distinctive quality of its products. While customers were inundated with the multitude of shapes, sizes, and colors of the various chocolate bars and other sweets offered in the candy aisle, the trademark packaging of Tootsie Roll products stood as something of an American classic. That the company's products achieved the status of a "national institution" was due in no small part to the creativity of its television advertising. One especially successful commercial initiated in the 1970s featured a young boy asking a venerable Mr. Owl, "How many licks does it take to get to the center of a Tootsie Pop?" After taking three licks, Mr. Owl bit into the candy and concluded that three licks was all it took. Tens of thousands of children, however, actually wrote the company with their own answers—usually between 800 to 2,000 licks, according to company reports. The ad was still prompting responses in the 1990s, when two American soldiers, stationed in the Middle East during Operations Desert Shield and Desert Storm, concluded that it took a little over 1,600 licks to reach the Tootsie Roll center.

Noting that the company was a mainstay on Forbes' honor roll of small companies and CFO magazine's list of America's strongest companies, analysts pointed to Tootsie Roll's efficient style of management. "People ask us how we can compete against the giant candy corporations," stated Melvin Gordon in an interview with Midway reporter Jack Klobucar. Gordon explained, "we wonder how they can compete against us. We can make decisions on the spot; we have hands-on management that's impossible in most billion-dollar companies." One of the strategies behind the Gordons' successful company was their hands-on, "vertical" style of management. As Melvin Gordon explained in an interview with Compass Readings' Jane Ammeson, "We try to be vertical wherever we can. We have our own sugar refinery, probably the only candy manufacturer in the world with its own. We have our own printing press and rebuild our own machinery in-house. We bought our own advertising agency. We even make the sticks for the Tootsie Roll Pops." By maintaining control over these services, Midway's Klobucar observed, "they not only reduce operating costs but also reinforce their independence—a commodity almost as precious as chocolate."

Many analysts expected Tootsie Roll to continue its consistent pattern of growth through the 1990s, based on the company's plans for further acquisitions and more foreign expansion. In 1993, the company obtained Warner-Lambert's chocolate and caramel brands—Junior Mints, Charleston Chew, Pom Poms, Sugar Babies and Sugar Daddy's—for an estimated $81 million. The new brands "were a natural to join the Tootsie family," Ellen Gordon told Snack Food's Wendy Kimbrell. "We have, while keeping the nostalgia and general look of the products, designed new packaging for the some of the Warner-Lambert products, so they fit better with our existing line," Gordon noted. Analysts regarded the strategy as successful: sales from the new brands contributed to the company's 6 percent increase in total sales for 1993. Moreover, Tootsie Roll's record sales figures for the first nine months of 1994 were achieved principally as a result of the Warner-Lambert brands.

With the 1993 passage of the North American Free Trade Agreement (NAFTA), which promised to relax trade restrictions between the United States and its neighboring countries of Canada and Mexico, Tootsie Roll was expected to place more emphasis on its operations to the north and south. In an interview for Snack Food magazine, Ellen Gordon predicted more intense competition as a result of NAFTA, commenting, "there's no doubt about it—Mexican candies will come into the U.S. and American candies will go down into Mexico." Nevertheless, as her husband was quick to add, Tootsie Roll had "unique products down there. Tutsi has been advertised in a major way ever since it started in Mexico in 1968 on Televisa, the nation's largest TV network."

TOOTSIE ROLLS ON INTO THE NEW MILLENNIUM

In 2000, Tootsie Roll acquired O'TEC Industries and began to manufacture Fluffy Stuff Cotton Candy as well as the thin chocolate mints known as Andes Candies. In 2004, the company made the largest acquisition in its history, integrating Concord Confections of Toronto, Canada, a market leader in the bubble gum category. Concord Confections' products were sold primarily under the Dubble Bubble brand but also included Razzles, Cry Baby, and Nik-L-Nip candies.

Sales in 2005 reached $488 million, an increase of $68 million over 2004, and a new record for the company. Highlights for the company included the continued integration of Concord Confections. Under the leadership of the married team of CEO and COO, the company's long-term strategy focused on state-of-the-art operations and low cost production of major product lines. Another key component of the company's strategy was the pursuit of growth through expanding distribution of existing brands and new product introductions. In August 2000, in an interview with Candy Industry Ellen Gordon said "We do see ourselves as innovators. Innovation is coming up with a new way of doing things—be it in technology, ingredients, or marketing. We are developing new ways of doing things all the time."

Tootsie, Charms, and Concord products are sold in Canada and over 75 other countries in Europe, Asia, and South and Central America. In 2005 the company was recognized by Business Ethics magazine as one of the 100 Best Corporate Citizens. Tootsie showed no signs of slowing down and continued to target for acquisition companies that would complement its product line.

Jason Gallman

Updated, Suzanne Clark York

PRINCIPAL SUBSIDIARIES

Andes Candies Inc.; Cambridge Brands Inc.; Charms LLC; Concord (GP) Inc.; Concord Brands, Ltd. (Canada); Concord Canada Holdings ULC; Concord Confections Holdings USA, Inc.; Concord Confections, Ltd. (Canada); Concord Partners LP; JT Company, Inc.; The Sweets Mix Company, Inc.; Tootsie Roll of Canada Ltd.; Tootsie Roll Worldwide Ltd; Tootsie Rolls-Latin America; TRI de Latinoamerica S.A. de C.V.; Tutsi S.A. de C.V. (Mexico); World Trade & Marketing Ltd.