Master of Convenience

by Dan Malovany and Lucy Sutton
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When it comes to acquisitions, J&J Snack Foods’ strategy is all about being the biggest fish in a small pond. As the largest player in the US frozen soft pretzel market, the Pennsauken, NJ-based company uses its expertise to identify struggling small businesses whose assets could be incorporated under its vast umbrella to further secure its leadership as a provider of convenience and handheld foods.

“I think we’re very successful at that old school kind of acquisition — things that are broken and in need of a little TLC, energy and entrepreneurship,” said Gerard Law, senior vice-president and assistant to the president. “Our salespeople are out there pushing the envelope ­every day to grow the buisness, so when they get something new, they’re very excited. We have the know-how and the lean management infrastructure needed to be able to tuck acquisitions in quickly and successfully.”

Since the company’s beginnings in 1971, when Gerald Shreiber, J&J’s chairman, CEO and president, bought a failing soft pretzel manufacturer, the business has relied on hard-working values to pull its myriad acquisitions firmly into the black.

Although soft pretzels command an 18% share of revenue and are still considered its flagship product line, J&J is also a leader in niche snack categories such as churros, funnel cakes, cookies, snack bars, frozen baked foods, frozen appetizers, burritos, frozen juice treats, frozen beverages and, most recently, dog treats. In fact, its portfolio of frozen and fresh bakery products — primarily biscuits, breads, fig and fruit bars, cookies, muffins and donuts, but not including pretzels — account for about one-third of all sales.

Well before anybody even talked about handheld and on-the-go as the hot trends in the baking and snack industries, J&J was a leader in the convenience food market, and it continues to be so.  Most recently, it reported annual sales of $830.8 million. The company, publicly traded on Nasdaq as JJSF, has 3,000 employees and operates 14 plants. Its products are sold under such brands as SUPERPRETZEL, ICEE, Funnel Cake Factory, Patio, Country Home Bakers, Tio Pepe’s Churros and Mrs. GoodCookie, just to name a few.

According to Mr. Law, the key is to not only compete in various snack and bakery product categories but also command such a dominate share of the market as to nearly own the category. “We started with pretzels, then we added churros, frozen beverages, frozen novelties and funnel cakes, which are niche products with strong barriers to entry,” he said. “We’ve been able to successfully acquire and integrate competitors over time to keep those niches ours.”

As well as diversifying its product categories, J&J solidified its leadership position by broadening its scope in the retail and foodservice channels. These include everything from movie theaters, amusement parks and sports arenas to schools, convenience stores, in-store bakeries and quick-service restaurants (QSRs). Its omnipresent SUPERPRETZEL soft pretzel warmers and displays, which the company makes in-house and provides to its customers, can be found at almost every point of sale.

 “We’re fortunate that we have a presence across all food channels, so when we see consumer channel migration with the economy — we compete in those stores as well, and we can still adequately compete,” said Alissa Davis, J&J’s director of marketing. “There’s a shift in consumer purchasing as their habits change with the economy, but fortunately for J&J, we are in all of

those outlets.”

 

Ever-changing mosaic

J&J doesn’t have just one growth strategy, according to Mr. Law. Rather, the company takes opportunities as they arise and then determines if the pieces fit into its puzzle. For many of J&J’s acquisitions, the key ­involves identifying niche products that it can place into its vast distribution system, then introducing them to as many of its customers as possible. As the company continues to evolve, its product portfolio resembles a constantly changing mosaic.

“We size up what comes across our desks and evaluate whether it’s a fit and whether there’s a good return,” Mr. Law explained. “We are conservative with our spending, so we’re not going to step in something that’s a game-changer for the business or our core values.”

J&J’s acquisitions over the years have allowed the company to enter new markets. Five years ago, for example, the business acquired Daddy Ray’s, a small fig and fruit bar manufacturer based in Moscow Mills, MO. Since the purchase, Daddy Ray’s revenue has tripled, and it just completed a ­100,000-sq-ft expansion geared to producing cookies for the value or dollar store channel, where J&J had no exposure in the past and which exploded in recent years as the economy slowed.

“Now we have frozen novelties and pretzels there, as well as cookies,” Mr. Law said. “If we had not acquired Daddy Ray’s, we would have missed the boat. That was a fortuitous acquisition.”

Meanwhile, the company’s 2007 acquisition of the Whole Fruit brand from CoolBrands International provided J&J with a higher-end, frozen novelty brand with exposure to the health and wellness arena, where they had little presence in the past.

More recently in 2011, J&J purchased the frozen handheld business from ConAgra Foods, Omaha. In addition to acquiring burritos and dough-enrobed protein products sold under Patio, Hand Fulls and other brands, the deal included two USDA-inspected facilities in Weston, OR, and Holly Ridge, NC, that allowed J&J to launch protein-filled sandwiches and broaden how it defines the snacking occasion. “The snack is no longer just a midafternoon snack for people,” Ms. Davis noted. “It’s on-the-go, it’s a meal, it’s all encompassing — and that’s for foodservice and retail consumers. We’re expanding our products and how we can compete in new categories.”

In the foodservice arena, J&J has gone from niche markets to mainstream QSR chains as the company ramped up its manufacturing and quality assurance practices, including becoming certified

Level 2 by the Safe Quality Food (SQF) Institute as a part of the Global Food Safety Initiative.

“This has really allowed us to become a longstanding partner and premier co-manufacturer with our customers,” Mr. Law said. “Our quality systems have matured, but we’re still entrepreneurial, edgy and hard working and maintain a flat management structure. That mix really keeps us agile when working with the customer base.”

In retail, J&J focuses on what its customers want and merge those preferences with the latest in consumer trends, according to Ms. Davis. “The trends tend to trickle in from foodservice,” she said. “We evaluate how the category is performing and what we are capable of doing as a snack food and niche snack food manufacturer. We then identify what we can make that we do not currently offer to expand our business.”

 

All things pretzel

Even in the mature soft pretzel market, J&J’s sales increased about 12% in 2012, and the company

continues to search for ways to expand its product offerings. Last summer, it acquired Kim and Scott’s Gourmet Pretzels, a Chicago-based company reported to do about $15 million in annual sales. Like J&J, Kim and Scott’s had a retail and foodservice presence and brought in new customers. The niche company’s products are also all-natural. “There’s a halo of wholesomeness with that brand that we thought was attractive,” Mr. Law said.

J&J adopted a take-no-prisoners approach when Mr. Shreiber founded the business, according to Tom Weber, senior vice-president who oversees production at several of the company’s plants. Take its mechanical soft pretzel twisters. In 1982, the company obtained exclusive license rights for the manufacture and sale of AMF pretzel twister machines. Today, the company owns nearly all of them, according to the company’s website. “There were about 120 made, and J&J owns 119 of them,” Mr. Weber noted.

When it comes to operations and new product development, the company attempts to blend agility with automation and leverage its size and scale while maintaining an entrepreneurial approach.

Building flexibility into a high-speed facility can be seen throughout J&J’s plant located in Pennsauken, NJ. Around 500 employees — 400 in operations and 100 in customer service, sales, accounting and marketing — work at the 200,000-sq-ft complex, which houses seven lines and can crank out 2.1 million pretzels every 24 hours. 

The plant’s versatility is reflected in the sizes of its mixers. The six BEW and Peerless horizontal mixers range from 400 to 1,000 lb. Small batches keep the dough fresh and pliable. They also allow J&J to make changeovers on the fly.

“People don’t want just a plain pretzel,” Mr. Weber said. “They want more and more varieties of them. As a result, we’re not seeing longer runs. We’re seeing requests for more sizes, more flavors in different types of packaging. We’re becoming more nimble in what we produce.”

Ingredient handling is also designed for versatility. The plant’s four silos range from 45,000 to 115,000 lb and hold soft, hard and blended flours that are distributed to the lines via use bins. Bulk handling also includes 2,000- and 5,000-lb Fleischmann’s cream yeast tanks. Most minor ingredients, including salt, sugar, starch and flavor bites, are hand-scaled.

The operation has five traditional soft pretzel lines. Four lines — each with six employees — make 2,000 lb of product an hour. The six pretzel twisters on line No. 1 produce 14,400 2.5-oz pretzels hourly. The eight twisters on line No. 2 make 16,800 small pretzels an hour. Four on line No. 3 create 5,500 5-oz pretzels an hour. Versatile line No. 4, with four big twisters and six smaller ones, can make pretzels in multiple shapes and sizes (see “New twists on pretzels” on Page 50).

Fed by a Schroeder continuous mixer, line No. 5 comprises eight king-size twisters and makes 4,000 lb or 12,000 of the top-selling 5-oz SUPERPRETZELs each hour. It’s nicknamed “the dream line” because in the mid-1990s, Mr. Shreiber told his chief engineer that he wanted to build a line that had twice the capacity of the four older ones and employ half the people.

“The engineer told him, ‘That’s impossible’ and that he was dreaming,” Mr. Weber recalled.

It took a year for Mr. Shreiber’s dream to come true, and today, the line — operated using only three employees in the makeup area — and its 88-ft Reading Bakery Systems direct-fired oven still remains the workhorse in the Pennsauken facility.

Taking a delicate approach

Production of SUPERPRETZELs filled soft pretzels — including its popular cheddar cheese, jalapeño cheese, pizza-flavored and cream cheese varieties — occurs on two co-extrusion lines in an enclosed 50 to 55°F temperature-

controlled room.

On each identical line, four augurs spread the fillings “like soda straws” into the dough, which is folded over to create four rows of continuous tubes or noodles, according to Mr. Weber. Four orifice cutters working at a rate of between nine and 65 cuts per minute — depending on the product — then crimp the noodles into pieces that look much like a string of sausage links. The system uses orifice cutters — instead of guillotines — to seal the filling inside the dough.

Every 30 minutes, QA personnel take a filled sample from the line, slit it lengthwise, scrape out the cheese and weigh it to make sure it contains the proper ratio of dough and cheese. With some fillings costing about eight times the amount of a piece of dough, the company wants to make sure the line is running efficiently to minimize waste, Mr. Weber noted.

The lines produce 1-oz bites as well as 3.5- and 6.25-oz filled soft pretzels. Because the filled pieces are delicate, larger filled pretzels must be hand-twisted at a rate of 20 pieces per minute for each employee. Every two hours, six hand twisters on each line rotate to other positions in the plant for ergonomic reasons.

After traveling through an IJ White spiral proofer kept at 90 to 95°F and 50% humidity for 25 minutes, the pieces enter a spiral retarder for 25 minutes set at 50°F to create a skin on the dough and to help retain the filling’s moisture through the process. They then go through a caustic bath that provides the proper texture and generates the pretzels’ reddish-brown color after baking. The pieces pass under a waterfall topper prior to entering a Reading Bakery Systems direct-fired oven and bake for about 5.5 minutes at about 330 to 380°F. Because of the filled pretzels’ delicate nature, the bake time is longer and the temperature lower than the 4-minute and approximately 500°F bake used for traditional SUPERPRETZELs.

The newer filled-pretzel lines include Allen-Bradley touch-screen controls that monitor the process — much of it is in a temperature-controlled environment. On the other hand, all controls on the conventional soft pretzel lines are mechanical, and proofing is done at ambient temperatures, prompting mixer operators to adjust dough temperature and the amount of yeast in the formula to accommodate for plant ­conditions. Likewise, while PLCs automatically control the baking process on the filled-pretzel line, oven temperatures on the other pretzel lines must be adjusted manually by turning burners on and off during the day.

For cooling on the conventional lines, freshly baked pretzels flip upside down onto a belt under the ovens and then right side up to a second conveyor that leads to the spiral freezers. On the filled-pretzel lines, however, the pieces travel on spiral coolers for more delicate handling that keeps toppings from falling off the pretzels.

Plethora of packaging

The facility has four ammonia-fed spiral blast freezers — one for the extruded lines, one for lines No. 1 and No. 2, a third for lines No. 3 and No. 4, and a fourth for the twin dream line. Each spiral is about 1,200-ft long, allowing the pretzels to freeze at 20°F for 30 to 35 minutes. Overall, the freezers handle about 15,000 lb of pretzels an hour.

After freezing, the products travel along four belts across an enclosed bridge to a separate packaging and distribution warehouse. Kosher-certified pretzels are then routed to the top conveyor to prevent any non-kosher materials from falling on them.

In the packaging room, systems range from individual wrappers and retail packs to two bulk packers. For its popular retail pack found in supermarket freezer cases, J&J uses UBE systems to stack six SUPERPRETZELs and a packet of encapsulated salt into a bag, which receives a Kwik Lok closure. Prior to cartoning at a rate of 45 per minute, a Smith’s Detection Eagle Pack X-ray system scans the bag and actually conducts what Mr. Weber called a “reverse X-ray” to make sure it contains a salt pack. If the system doesn’t see the salt pack, the package is rejected. A laser printer burns a “best by” date onto each carton.

Each line has Safeline metal detectors that check for ferrous and nonferrous materials. A Rovema vertical form/fill/seal machine makes 5-lb stand-up bags. A Heat and Control system is used to vertically form/fill/seal smaller packages and pillow packs. The largest is a 50-count foodservice pack used for carnivals, sporting arenas and amusement parks. Those packs come with 5-oz salt packs.

Two bulk packers fill bags by weight rather than count. For filled pretzels, yellow-colored bags designate jalapeño- and cheddar-filled pretzels, blue for cream cheese varieties and red for pizza flavors. The room also houses a penny packer that fills eight-count bags with frozen SUPERPRETZELs. “We’re able to be very channel specific in what we produce,” Mr. Weber noted.

Set at -10°F, the 70,000-sq-ft holding freezer contains 4,000 pallet positions, or 20 to 30 days of products, depending on the time of year. HighJump software systems ensure pretzels are shipped on a first-in, first-out basis. Overall, the facility ships about 24,000 cases daily.

To streamline distribution, the warehouse pre-stages about 18 trucks worth of product on the day prior to shipping. Because the Pennsauken facility makes only 12,000 cases daily, half of the products — including churros and others — must be shipped in from J&J’s sister plants. Complicating matters, Mr. Weber notes, are partial pallets that must be manually assembled. “We do a lot of mixing and matching,” he said. “It’s not unusual to have two or three varieties of handheld products on a single pallet.”

As the company grows, it’s taking a much more methodical approach to the market by conducting more extensive consumer research to ensure it is introducing customer-

driven products in the channel-specific packaging.

“We need $25 million to $30 million in new products a year today,” Mr. Law said. “We just can’t have an idea du jour and take it to the market. However, I don’t think we’re ever going to lose that blue-collar, kind of lean, entrepreneurial spirit. We’re approaching a billion dollars in annual sales, but we still run J&J like a million-dollar company.

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