Wise Foods, Inc.

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Wise Foods, Inc.

245 Townpark Drive
Suite 450
Kennesaw, Georgia 30144
U.S.A.
Telephone: (770) 794-2720
Fax: (770) 528-0668
Web site: http://www.wisesnacks.com

Private Company
Founded: 1921 as Wise Potato Chip Company
Employees: 2,000
Sales: $325 million (2005 est.)
NAIC: 311919 Other Snacks Food Manufacturing

Wise Foods, Inc. is a private company based in Kennesaw, Georgia, that makes and sells snacks through retail food outlets in 15 eastern seaboard states as well as Vermont, Ohio, West Virginia, Kentucky, Tennessee, and Washington, D.C. Best known for its potato chips—which come in several varieties, including jalapeno, unsalted, wavy, and all-natural under the Kettle Cooked label—Wise also offers Cheez Doodles, varieties of bagged popcorn, tortilla chips, pork rinds, cheez waffles, onion rings, Dipsy Doodle chips, Nacho Twisters, Quinlan brand pretzels, and French onion and nacho cheese dips. Wise is majority owned by Palladium Equity Partners, a New York City-based private equity firm specializing in middle market companies.

ORIGINS OF THE POTATO CHIP DATE TO THE MID-19TH CENTURY

A multitude of sources agree that the potato chip was invented in the summer of 1853 in Saratoga Springs, New York, the upstate summer destination for the well-healed who gathered for the prestigious horse racing season and other gaming and resort pursuits, including dining. One of the restaurants of the area, Moon's Lake House, boasted an irascible chef named George Crum who did not take kindly to criticism from the patrons. Should a diner have the temerity to return something to the kitchen, he was known to send back to the table the worst dish his fevered mind could concoct at the moment. It was during the 1853 season that a customer, alleged in some quarters to be Cornelius Vanderbilt, was dissatisfied with the fried potatoes he ordered, maintaining they were not crispy enough, and had them sent back to the kitchen. To gain revenge, Crum was determined to present his new nemesis with the crispiest fried potatoes imaginable. He sliced the potatoes in thin wafers, cooked them in hot grease, and as a final measure, according to some accounts at least, salted them excessively. Unaware apparently that he was being insulted, the diner tried the potatoes and loved them. The owner of the Moon's Lake House recognized an opportunity and put Crum's "potato crunches" on the menu. Later when he opened his own restaurant, Crum called them "Saratoga Chips," and as other restaurants across the country began to imitate him the name changed to potato chips.

Potato chips became available in grocery stores in the 1890s. The first potato chip factory was generally credited to William Tappendon of Cleveland, Ohio, who outgrew his home kitchen and converted his barn into a chip-making operation. More productive potato chip factories opened in the early years of the 20th century, including the plant opened by the Leominster Potato Chip Company in Leominster, Massachusetts.

Wise Foods started out as Wise Potato Chip Company, founded in Berwick, Pennsylvania, in 1921 by a young man named Earl Wise, Sr. He owned Wise Delicatessen and began making potato chips as a way to make use of excess potatoes, initially cooking them in his mother's kitchen, and then selling them to customers in brown paper bags. At the time, potato chips were generally kept in glass display cases or cracker barrels, and scooped into paper bags for customers. The bags developed grease spots and did not keep the chips fresh for very long, eventually leading to the development of waxed paper bags. Wise's chips proved an immediate hit with customers and soon the delicatessen owner became a regional potato chip mogul, remodeling a garage to serve as his initial factory. He had his first delivery truck by 1922. For a logo he decided on a picture of an owl, a creature known to be "wise."

Potato chips had become a favorite across the country, leading to a number of entrepreneurs getting involved in the potato chip business. Located in Hanover, Pennsylvania, rival Utz also was launched in 1921 by Bill and Salie Utz. A relative latecomer to chips, Herman Lay, would start out as a distributor for the Atlanta-based Barrett Potato Chip Co. before buying Barrett's Atlanta and Nashville factories and introducing Lay's Brand Potato Chips in 1938. It would be Lay who became the powerhouse in the fledgling snack industry, the only one to develop a national potato chip brand.

The snack industry and the fortunes of the Wise Potato Chip Company improved dramatically after World War II. Per capita consumption of potato chips in the United States increased from 1.91 pounds in 1945 to 2.56 pounds a decade later. According to a 1956 article about the rise of the snack food industry published in Barron's National Business and Financial Weekly in 1956, it was not just potato chips that benefited from Americans' love affair with snacks: corn chips, pretzels, popcorn, peanut butter sandwiches, crackers with cheese, and fried bacon rinds were also popular. Only peanuts dropped in sales, perhaps due to a backlash from consumers who had eaten more than they cared to during the food rationing years of World War II. Barron's speculated about the upward trend of snack foods: "The spread of the supermarket, for one thing, has permitted the prominent display of items in appealing transparent packages … 75% of all snack food purchases are made on impulse. The buyer spots the potato chips or popcorn and decides to take a package or two home with her detergent, frozen spinach and corn flakes." The impact of television also was cited. "Its grip, in fact, has been so strong as to encourage what might be called sustenance by snack—that is, nibbling tid-bits before the TV set rather than eating a full-course meal at the table. This factor is pointed up by the increase in sales of various dip preparations over the past two years. These preparations, of course, have boosted further the overall sales of the chips, crackers and other food bits that are dipped into them." Whatever the reason, the popularity of potato chips and other snack foods continued to grow into the 1960s.

SOLD TO BORDEN IN 1964

In 1964 the Wise Potato Chip company passed out of the Wise family, attracting the attention of Borden Condensed Milk Co. Founded in 1858 by Gail Borden to manufacture condensed milk, Borden became a top dairy company in the 20th century, spurred in part by the introduction of its Elsie the Cow marketing mascot in the 1930s. After World War II the company became involved in chemicals, in 1947 introducing the first household adhesive, Elmer's Glue-all. In the 1950s and 1960s Borden acquired a variety of companies involved in chemicals, paints, wallpaper, textile coatings, paper, and plastics. Borden's lucrative home milk delivery business came under pressure by the 1960s from private-label dairy products sold at the supermarket, prompting the company to assemble a slate of supermarket products, mostly packaged foods, in a diversification effort. Borden added familiar brands such as ReaLemon lemon juice, Cremora coffee creamer, Cracker Jack caramel popcorn, and Campfire marshmallows, and in 1964 it bought the Wise Potato Chip Company, the leading potato chip company in the eastern United States.

COMPANY PERSPECTIVES

Our mission is simple, to make real food for real people … great tasting snacks made from the finest ingredients and backed by exceptional customer service. From our familiar favorites to our newest varieties, we strive to be the snack you are proud to share with your friends and family.

In 1968 Borden Condensed Milk, now highly diversified, shortened its name to Borden, Inc. In a similar vein Wise Potato Chip company, which now sold popcorn, Cheez Doodles, Bravos Tortilla Chips, and other snack foods, changed its name to Wise Foods, Inc. In 1989 Wise acquired Moore's Quality Snack Foods, which also produced a full line of salty snacks, including potato chips, marketing mostly in Virginia and the Carolinas. Over the years, Borden acquired a number of other regional snack food businesses: Chicago-based Jays Foods, Indiana's Seyfort Foods, Humpty Dumpty Foods serving eastern Canada, Utah-based Clover Club Foods, and Guy's in Missouri. At its peak, Borden's snack foods business was second only to Pepsi-Co's market leader Frito-Lay.

Borden had assembled a wide range of food products that could have benefited from the company's national distribution system to become national brands, Wise Foods serving as a prominent example. However, starting in the mid-1960s, Borden was headed by chief executives with backgrounds in chemicals and little feel for the food industry. One of these CEOs, Romeo Ventres, launched a massive buying spree in the mid-1980s, spending about $1.9 billion to pick up scores of small regional food brands, including many snack food assets. According to Forbes, "The diversification plan was sensible enough, the execution disastrous. Sales grew to over $7 billion, but debt ballooned to over $2 billion…. Borden became an inefficient patchwork of declining brands and loosely related products. By the early 1990s Borden had one of the lowest profit margins and returns of any company in the food business."

Finally in 1993 Borden hired a CEO with a background in packaged foods, but the company was in such poor condition that when he put it up for sale later in the year Borden received no bids. Instead it began a divestiture program, which was slated to include Wise Foods and other snack food assets. Before buyers could be lined up, a subsidiary of buyout firm Kohlberg, Kravis, Roberts & Company (KKR) acquired the troubled Borden. While the $2 billion stock deal was receiving approval from the Securities and Exchange Commission (SEC), Borden arranged in October 1994 to sell the Wise and Moore's brands to Pittsburgh Food and Beverage, whose businesses included Iron City beer and Clark candy bars. The sale had been rumored for months, yet it was never completed. The agreement expired at the end of January 1995, and as a result Wise stayed in the Borden family, albeit on the periphery. The Wise assets were broken off to form Wise Holdings Inc. and became majority owned by B.W. Holdings L.L.C., an affiliate of Borden Inc. and KKR.

Now based in Kennesaw, Georgia, Wise invested a reported $55 million to rebuild its presence on the East Coast, which had eroded in recent years. The company also brought in executive talent, in 1997 hiring Terry E. McDaniel, who brought 18 years of food industry experience, holding positions at Ragu Foods, Tropicana Products, Inc., and Pillsbury Company subsidiaries Alpo Petfoods, Inc. and Haagen Dazs, Inc. He soon became acting president and in the spring of 1999 was named president and CEO. By the end of the 1990s Wise estimated that it held about a 10 percent share of the salty-snack business in its markets, a far cry from Frito-Lay, which boasted a 62 percent share across North America. In 1999 Wise generated sales of about $336 million, and operated four plants, located in Berwick and Denver, Pennsylvania; Spartanburg, South Carolina; and Bristol, Virginia.

NEW CENTURY, NEW OWNER

In October 2000 the company finally changed hands, bought by the private New York investment firm of Palladium Equity Partners L.L.C. for $96 million. Formed in 1997, Palladium had invested more than $700 million in a number of industries, including radio, television, and automotive components. Because Wise represented the firm's first involvement in the food business, Palladium teamed up with a specialist in the field, Ardale Enterprises, whose principals, J. Robert Hall and Keith Lyon, both had more than 20 years of food industry experience. As Palladium's cofounder, Timothy Mayhew, explained to Private Equity Week, "I've had enough humbling experiences to realize that I've never run a potato chip company…. It's very useful to have that experience on the investment team."

KEY DATES

1921:: The company is founded as Wise Potato Chip Company.
1964:: The company is sold to Borden Condensed Milk Co.
1969:: The name is changed to Wise Foods, Inc.
1995:: Kohlberg, Kravis, Roberts & Company acquires Borden and Wise.
2000:: Wise is sold to Palladium Equity Partners.

Palladium made sure that McDaniel and his management team were kept in place, giving them equity in Wise as an inducement. According to the Wall Street Journal, "The new ownership would help the company strengthen its share of the $19.38 billion snack-food business in the U.S. and expand into new snack categories." McDaniel also maintained that Wise was beginning to realize the fruits of its investments in the late 1990s, adding, "This is the third-largest and second-most-profitable category for supermarkets. There's a lot of opportunity for growth for everyone to enjoy."

For years the snack industry had to contend with questions about nutrition as it remained very much a part of Americans' eating habits. To assuage some of these concerns, potato chip makers introduced fat-free products using Olestra, but Wise took a wait-and-see attitude and avoided the not-so-profitable fad. It did, however, add new flavors to its chip lineup. All told, Wise entered the new century as number three in national market share in potato chips at 3.1 percent, trailing private-label chips with 6.4 percent, and Frito-Lay's towering 68 percent share.

Wise made some changes in the 2000s to improve its competitiveness. It closed the Quinlan Pretzel Co. plant in Denver, Pennsylvania, in 2002 and contracted with another area company to make pretzels under the Quinlan name. More important, in 2004 Palladium began infusing cash to help Wise in its efforts to cut into Frito-Lay's share in Wise's key markets, including the introduction of new packaging for all of its products. "We will take them on. We're not a globally, mass-produced chip maker like Frito-Lay," Wise's vice-president of marketing Jordi Ferre told Brandweek. "We make real chips for real people because our tightly-targeted grass roots efforts bring us closer to consumers." Much of the money would be spent on the New York City metropolitan area, Wise's largest market. The company linked itself to the popular New York Yankees baseball team by inking an endorsement deal with catcher Jorge Posada. In the summer of 2005 Wise forged direct ties to the New York Mets through a multi-tiered, three-year sponsorship deal that made Wise the Official Potato Chip of the Mets. As such, Wise products would be sold exclusively at Shea Stadium, where Wise also would receive extensive signage in center field. In addition, Wise would air frequent radio spots on the team's Spanish-language radio broadcasts. There was every indication that Wise would fortify its position in traditional markets, but whether it could successfully compete against Frito-Lay on a larger stage remained in doubt.