Dan Malovany: Trust in Instinct
How Hearthside Food Solutions is making the most of its opportunities.
BakingBusiness.com, May 2, 2011
by Dan Malovany
Timing is everything. Two years ago, in many ways, it was the worst of times. Baking and snack companies were just rebounding from a year of high commodity prices when the peanut recall — one of the worst on record — blindsided many of the largest players in the industry, costing them hundreds of millions of dollars in cleanup, lost sales and damage control for their powerhouse brands.

As new product activity plummeted and unemployment skyrocketed, even Rich Scalise, a 30-year veteran of the industry, admitted he had some concern. He had just become the president and CEO of a newly formed company called Hearthside Food Solutions.

With the backing of Wind Point Partners, a private equity firm, Hearthside had just purchased a substantial portion of Roskam Baking, Grand Rapids, MI, and entered the quiet world of contract manufacturing in the spring of 2009. The company’s strategy involved identifying strong family-run businesses and acquiring them to build a business of scale that could also allow it to be nimble enough to partner with some of the biggest brands in the food industry. “I thought the premise was spot on,” Mr. Scalise recalled. “It was all about providing food safety and consolidation. The premier branded companies needed to know who their partners are. They needed to know the ones who are producing products for them have excellent food safety reputations and have the wherewithal to grow with them.”

Actually, the recall along with the nation’s emerging financial crisis created the perfect time for Hearthside to make its presence felt. While many companies had difficulty getting any form of loans, the company had access to liquidity from Wind Point Partners. That allowed Hearthside to seize the moment 11 months later and acquire Consolidated Biscuit and the cereal business of Golden Temple to become one of the nation’s largest baking and snack industry co-manufacturers.

In many ways, Mr. Scalise and Hearthside’s executives understood these needs all too well. For decades, many of them managed the megabrands of major food companies such as Quaker, ConAgra and Ralcorp. In fact, Mr. Scalise had served as president and COO of a $3 billion ConAgra division and most recently led a $750 million unit at Ralcorp. “We have been in our customers’ shoes at one point in time from a management point of view, so we know their needs,” he explained.

Specifically, he added, those needs center around being fast and flexible. It’s about continually lowering costs through operational efficiencies, ongoing training and capital investments. It’s about building trust by becoming a customer’s trusted supply chain and providing food safety in the long run for billion-dollar brands. It’s about been there, done that. “Our premise is, ‘Treat us like one of your fixed assets, not as a traditional co-manufacturer, and together, we can find value,’” Mr. Scalise said. “When we talk about continuous improvement and metrics, our customers get what we’re doing.”

With commodities on the rise and value-conscious consumer confidence still at low levels, Mr. Scalise said he remains a bit concerned about the future, but not as much as he was in 2009. During the past two years, he has seen new product activity roar back and then continue to run full throttle in 2010. “We work with companies that have tremendous marketing power and marketing minds, and they were not going to sit back and let private label take over their businesses,” he said.

Yes, a little concern about future unknowns can be a good thing. That’s what keeps you sharp. In the end, however, it’s not only about relying on experience and recognizing opportunity, but it’s about trusting your instinct as well.