Vlasic Foods International Inc.

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Vlasic Foods International Inc.

Vlasic Plaza
6 Executive Campus
Cherry Hill, New Jersey 08002-4112
U.S.A.
(609) 969-7100
Web site: http://www.vlasic.com

Public Company
Founded: 1997
Employees: 9,200
Sales: $1.5 billion (1997)
Stock Exchanges: New York
Ticker Symbol: VL
SICs: 2035 Pickles & Pickle Products; 2038 Frozen Specialties, Not Elsewhere Classified; 2099 Food Preparations, Not Elsewhere Classified

Spun off from Campbell Soup Company in March 1998, Vlasic Foods International Inc. is an independent public company manufacturing and marketing well-known convenience food products. Its brands in the United States and Canada include Vlasic pickles, Open Pit barbecue sauce, and Swanson pot pies and frozen dinners. Internationally, its holdings include Kattus, a leading specialty foods distributor in Germany; Swift, the number one canned meat pate in Argentina; and Freshbake frozen foods and SonA and Rowats pickles and canned beans and vegetables, leading brands in the United Kingdom. Vlasic is also the top mushroom producer in the United States and one of Argentina’s largest exporters of processed beef products.

Early Days: 1940s to 1969

Joseph Vlasic, a Croatian immigrant who settled in Detroit, started his first business, a creamery, in the 1920s. He built that into Michigan’s largest wholesale milk distributorship, expanded to include Polish hams, and, during World War II, added pickles, marketing them to Detroit’s Polish community. Eventually he formed Vlasic Food Products, Inc.

Robert J. Vlasic took over the West Bloomfield, Michigan businesses from his father in 1963, when the elder Vlasic retired. From the beginning, the Vlasics produced pickles that were easy to transport. The raw cucumbers were put in jars and covered with hot brine. Once the jars were sealed, they were ready to go. Called hot-pack pickles, they required no refrigeration, unlike cold-pack pickles, and lasted longer than pickles cured in vats. Bob Vlasic bought and expanded three pickle plants, sold off the other businesses, and introduced a bow-tie-wearing cartoon stork in its ads. By 1967, the company had sales of about $10 million.

In 1947, Campbell Soup Company began growing its own mushrooms at Prince Crossing, Illinois. Campbell acquired Omaha-based C.A. Swanson & Sons in 1955, expanding into the relatively new area of frozen foods. Swanson had originated its trademarked TV Dinner the year before, with turkey, corn-bread stuffing, gravy, peas, and sweet potatoes served in a three-compartment aluminum tray and packaged in boxes illustrated to look like televisions, complete with knobs. An ad in Frozen Food Age in 1954, stressed the convenience of the new dinner: “Revolutionary New Food Trend! Swanson TV Dinners. Just what housewives want—no work, no thawing needed. Out of the box into the oven—25 minutes later a hearty turkey dinner ready to eat on its own aluminum serving tray.”

Swanson had introduced its frozen pot pies (chicken, turkey, and beef) in 1951, and in the next three years produced 100 million frozen meat pies. Swanson had sales of about $100 million when Campbell bought it, with its frozen meals accounting for about 60 percent of sales. With Campbell’s resources behind it, Swanson soon was producing 25 million TV Dinners a year. During the 1960s, Campbell removed TV Dinners from the packaging, calling them simply Swanson Dinners. In 1969, Campbell developed a line of frozen breakfasts and marketed them under the Swanson name.

Becoming Number One: 1970–77

The decade of the 1970s saw an important advancement in pickle production, with the addition of calcium to the brine, allowing packers to reduce the amount of salt needed by half and still get firm pickles. In 1970, Vlasic and H.J. Heinz Company each had 10 percent of the national pickle market. Seven years later, Vlasic had become the nation’s largest pickle maker, with the company’s bow-tied cartoon stork mascot delivering one-quarter of all the pickles sold at retail in the United States and bringing in over $100 million in sales a year. Heinz was still at 10 percent of the market.

Bob Vlasic explained his company’s growth to Forbes in a 1997 article, “Most of our competitors were manufacturing oriented, generations of fine pickle makers and proud of it. We came in exactly the opposite, as marketers who manufactured to have something to sell.”

Vlasic may have been more entrepreneurial than his competitors, but his success led to an investigation by the Federal Trade Commission. According to the Forbes article, “Vlasic’s marketing strategy is to bombard the consumer with pickle power. This year it will spend more than $2 million—more than all its competitors combined—on television advertising. It also has introduced the largest product line, 138 items (including relishes, peppers and sauerkraut) that can be introduced into a store en masse.”

The fact was that to succeed in the pickle business, a company had to be willing to spend, making discount deals with stores year-round even though people made most of their pickle purchases during the summer and at holidays. A packer contracted with farmers for cucumbers at least a year in advance. To get shelf space for the next year’s supply, he had to reduce the price of a jar to encourage people to buy. Otherwise, inventories would back up in the warehouse or curing tanks.

Vlasic’s competitors complained that the company came into a market, dropped the price on its jars to gain distribution, then moved on. Vlasic countered that the competition was good for the business. “We haven’t driven anybody out of business nor do we intend to. Our merchandising makes competitors try harder and then overall sales improve,” argued Vlasic president Dennis Sullivan in the Forbes article. That appeared to be the case, at least in California. Within a year of Vlasic entering the market in 1976, pickle volume had grown eight percent. But the company was not successful in every market. Private regional producers as well as pickle divisions of corporations proved more popular in markets ranging from St. Louis to Seattle to Atlanta.

But things began to slow down in 1977. Vlasic had spent over $20 million since 1970, building two new plants and buying and completely renovating a California operation. The price of cucumbers had increased more than 35 percent since 1973, to almost $4 a bushel, and the company’s bank loans to finance the buying of its cuke inventory (a very seasonal buildup) were running as high as $20 million. Earnings on its $100 million in sales were only about $1.3 million, and the company’s debt-to-equity ratio stood at over 2-to-1.

Meanwhile, things were beginning to change at conservative Campbell Soup Company. Harold A. Shaub, who was named president of Campbell in 1972, had decentralized the company’s operations, organizing it into divisions built around its major product lines and was beginning to hire outsiders to shake up the marketing efforts. In 1973, Swanson introduced a new line of meals and pot pies under the name Hungry Man, with larger-sized portions of meat and vegetables. “When I came to it, the company was a producer of canned foods,” Shaub told Business Week in 1980. “Now, I like to think of us as being in a consumer goods business.

Vlasic Joins Campbell and Adds Specialties: 1978–89

In 1978, Campbell Soup Company bought Vlasic Food Products, which had sales the previous year of $102 million. Campbell paid $35 million in capital stock for the company, one of Campbell’s largest acquisitions ever. As a wholly owned subsidiary of Campbell, Vlasic Foods, Inc. now had the manufacturing, distribution, and financial backing it needed to keep growing. Campbell had gained the leading pickle producer, a strategic move in its bitter war with Heinz, the number two pickle company.

Two years later, R. Gordon McGovern succeeded Shaub as president of Campbell, and that company acquired Swift-Armour S.A. Argentina, a major beef processor. In 1982, Vlasic bought Win Schuler Foods, a specialty-foods producer, and Campbell reintroduced its Swanson frozen breakfasts using the name “Great Starts.”

In 1985 Vlasic made its jars more consumer-friendly, fashioning the jars themselves shorter and easier to store, increasing the size of the jar opening, and adding a “made” date on the lid to emphasize freshness. Even more importantly for its marketing, the company introduced color coded labels on its jars. Surveys, interviews, and taste tests had found that shoppers were confused with all the varieties on the shelf and reluctant to try a new brand when there was no information on the labels about the taste. Under Vlasic’s new system dills got green labels, sweets had yellow, and bread and butter pickles were wrapped in orange. And the colors were not the only difference. A flavoring scale at the bottom of each label rated the type of pickle inside from 1 (lightly seasoned) to 4 (highly seasoned).

The cosmetic efforts with its jars may have been a factor in Vlasic’s ability to increase its unit sales by two percent that year in what was a flat pickle market. Vlasic was far and away the top pickle company, having increased its share to one-third of the $580-million-a-year pickle market. But that market was not growing.

In an effort to boost revenues, Vlasic and Campbell decided the subsidiary should expand into other specialty food areas. Vlasic’s first move, in late 1986, was into olives, with the test marketing of an extensive line, including Spanish and California Ripe olives, under the Vlasic name. Campbell then paid $7.1 million for Bonduel Pickling Co. Inc., a 33-year-old Wisconsin marketer of the “Milwaukee’s” brand of pickles. Bonduel had been acquired by Milwaukee Cheese Co. Inc. in 1977 as a wholly owned subsidiary, and was sold when Milwaukee Cheese went into bankruptcy.

Vlasic continued its expansion in 1987, with the purchase of Open Pit barbecue sauce from General Foods Corp. Open Pit, which General Foods introduced in 1960, was a leading brand in the Midwest, but had only about 10 percent of the national market. The purchase pitted Vlasic against Kraft Foods, Inc., which controlled about 51 percent of the $325 million barbecue sauce market.

The following year, Campbell bought some of the assets of San Francisco-based Specialty Brands Inc., including an olive processing plant in Spain and the Early California line of olives. The Early California brand, which was to be marketed by Vlasic, accounted for about 27 percent of the ripe olive market in the United States. The purchase made Campbell and Vlasic number one in ripe olives and in the total U.S. olive market. In 1988, Campbell also acquired Freshbake Foods Group PLC, a British producer of frozen foods.

Meanwhile, Swanson made changes to its frozen dinners in 1986, removing the brownie from the dessert options and replacing the aluminum dinner tray with a microwavable plastic version. The original tray was placed in the Smithsonian Museum of American History. The public raised such an uproar about the missing brownie that the company brought it back the next year. In 1988, Robert J. Vlasic became chairman of Campbell, and in 1989, Swanson introduced the microwavable pot pie with two crusts.

Operating in Mature Markets: 1990–97

At the beginning of the decade, David J. Johnson, from Australia, became president and CEO of Campbell. In 1991, as its sales topped the $6 billion mark, Campbell consolidated key components of Vlasic into its Camden, New Jersey headquarters, eliminating about 140 positions at Vlasic, and relocated Vlasic’s marketing and administrative divisions from Michigan to Camden. Two years later, in 1993, Bob Vlasic retired from Campbell. That same year Campbell completed a new $120 million Swift-Armour beef processing plant in Argentina and dedicated a multimillion-dollar expansion of its Omaha, Nebraska frozen food operation.

In an effort to increase the market for pickles, Vlasic introduced two new concepts. To entice more people to eat pickles at non-traditional times, Vlasic came up with the idea of “Pickles To Go!” in 1993. Two pickle spears were packaged in a foil laminate pouch for on-the-go eating, without the drips and mess associated with eating pickles.

In 1994, Vlasic introduced Sandwich Stackers. By cutting the pickle lengthwise in broad, flat slices instead of the traditional wedges, Vlasic was going after the huge market of pickle-free sandwiches. About two-thirds of the pickles sold in a year went on sandwiches, but only about four percent of the 35 billion sandwiches eaten in the United States each year came with a pickle. Even without heavy advertising, the new offering increased Vlasic’s pickle sales by about seven percent a year and captured 65 percent of the $50 million in new pickle sales in the United States during 1994.

But these and other efforts such as Swanson’s Fun Feast kids’ meals introduced in 1992, were being made in mature markets with low potential for growth. Swanson faced competition not only from other manufacturers of frozen meals, but from prepared meals available in grocery stores and fast-food restaurants. Making matters more difficult, Campbell practically ignored Vlasic and Swanson during the 1990s, spending little on product development and advertising. Instead, the company acquired bakery, soup, and sauce operations, began selling soups in China and South America, introduced a new soup label design and glass jars, and launched a new soup advertising campaign, the largest in the company’s history. Between 1991 and 1995, Campbell increased sales by one billion dollars, from $6 billion to $7 billion.

By 1997, Campbell was looking for a buyer for Swanson, but was not able to agree on a price with the various candidates. In September, Campbell announced it would create a spinoff company of its “nonstrategic” businesses in order to concentrate on its core businesses: soups, sauces, baked goods, and chocolates.

The new company consisted of seven low-growth businesses with combined sales of $1.5 billion, about 18 percent of Campbell’s total 1997 sales. Campbell allocated $500 million in debt to the new company, temporarily named Specialty Foods, and received a cash payment of $500 million. After initial positive responses from investors, the New York Times raised a basic question: “Is the spinoff a canny move of tax avoidance that will greatly benefit both Campbell and its new corporate offspring, or is it simply a strategy for dumping Campbell castoffs into a new company that will excite little interest on Wall Street?” Vlasic Foods International was incorporated in November 1997.

A New Company with a Famous Name: 199$ to the Present

Vlasic Foods International, Inc. became an independent company on March 30, 1998. Campbell shareholders received one share of the new company for every ten Campbell shares they held. Heading Vlasic was Robert F. Bernstock, the Campbell executive responsible for its U.S. grocery business.

Vlasic Foods operated in three segments. Its frozen foods segment accounted for 40 percent of sales in fiscal 1997 and included Swanson and Freshbake, a leading U.K. brand of steak and kidney pies and other frozen meat pies, sausages, pastries, and pies. In addition to pickles and condiments marketed under the Vlasic and Milwaukee brands, the grocery products segment, representing 36 percent of sales, consisted of Open Pit barbecue sauce; Son A and Rowats pickles, canned beans and vegetables in the United Kingdom; Swift canned meat pátés, cold cuts, hot dogs, and other grocery products in Argentina; and Kattus, a specialty foods distributor in Germany. Finally, in the agricultural products category, with about 24 percent of sales, Vlasic Foods owned and operated eight mushroom farms in the United States, making it the largest producer of fresh mushrooms in the country. The company was also one of Argentina’s leading beef processors through its Swift-Armour operations, selling to more than 60 countries. Campbell was a major customer of Vlasic Foods’ mushrooms and beef.

In May 1998, Vlasic moved to its new headquarters in Cherry Hill, New Jersey. Earnings were lower than expected, with consumption of Vlasic pickles down seven percent and that of the Swanson line off about six percent. Sales for both brands were down about ten percent. Berstock announced that Vlasic would double advertising spending on the two brands to $10 million, introduce a new dill pickle product in October, and begin distributing its products through Wal-Mart Stores’ Sam’s Club outlets. He predicted that sales and earnings would improve in fiscal 1999.

Analysts questioned whether Bernstock would be able to deliver, believing that the company needed a complete makeover, according to the Bergen County Record. But having turned V8 vegetable juices, a declining brand, into one of Campbell’s fastest-growing items, the Vlasic Foods president and CEO hoped he could do the same for pickles and frozen meals by investing in marketing and product development and by cutting costs.