CHELSEA, MICH. — Several years after launching a trial in which Chelsea Milling Co. explored a move beyond its deep retail roots, the company has embarked on a $35 million capital project, the largest expansion in its 83-year history.
In an interview with Milling & Baking News, Howard S. (Howdy) Holmes, president and chief executive officer, said the project will include the installation of several bulk ingredient silos, the construction of small buildings, the upgrade of its flour transfer systems and the addition of a new mixing department. The project is aimed at giving Chelsea access to the food service and institutional markets.
At one level, Mr. Holmes said the project at Chelsea Milling should be viewed in the context of what he called “a long line of upgrades.” The Holmes family’s roots in milling date back to the 1800s, but it was in 1930 when Mr. Holmes’ grandmother developed and launched the first prepared Jiffy mix product that has been a singular focus of Chelsea for decades.
The Jiffy line includes brownie mix, cake mixes, corn muffin mix, pie crust mix, frosting mixes, multi-purpose baking mixes and nine varieties of muffin mixes. While a unique vehicle for sustaining a milling company, Mr. Holmes said it has been apparent for some time that growth prospects for the retail dry mix business are scant.
“We are 83 years in the retail business, and about 20 years ago it was clear the home baking market was not going to be a growth sector,” he said. “We had to think about how we would sustain ourselves the next 100 years.” Strategic analysis undertaken during the 1990s suggested Chelsea should broaden its focus into non-retail channels for its mix. Mr. Holmes said effecting the change proved time consuming.
“Since we had been a focused manufacturer for so many years dedicated to retail, our systems and mentality were focused,” Mr. Holmes said. “It took a number of years to plan out how we were going to penetrate the institutional and food service sectors. The steps we are taking now are the implementation and execution of that plan.”
The $35 million capital project follows by several years an initial trial effort launched with the November 2007 installation of a small heavily manual line for 50-lb bags.
“It was an experiment,” Mr. Holmes said. “We spent the next four to five years becoming a player in the institutional market. In August it will be replaced by an automated bag line.”
Even as Chelsea Milling tiptoed from its retail niche toward the institutional sector, customers “have not been tentative at all in their embrace of the company,” Mr. Holmes said. Sales have grown quickly. While he cited a number of factors behind the early success, Chelsea’s positioning as a value supplier has been “welcomed with open arms,” he said. Similarly, a net-net pricing approach (avoiding promotions or discounts from inflated list prices) has been embraced by customers.
“It didn’t hurt that we have a well-known brand name,” Mr. Holmes said. “We were a little surprised by the degree we were able to penetrate that market. Delighted I might add.”
Over only a few years, institutional sales have grown to account for 28% of Chelsea volume at present, a figure that is growing, Mr. Holmes said. At present, the company is producing 1.6 million boxes of dry mix per day for retail.
Even though the food service and institutional markets are new to Chelsea, the competitive landscape is not, Mr. Holmes said.
“Mostly it’s the same group of competitors we face at retail,” he said.
From a macro perspective, Mr. Holmes said the non-retail market is impossible for Chelsea to ignore. He cited data estimating the overall retail food sector at $550 billion per year with an identical figure for institutional and food service combined.
For the institutional market, Chelsea is selling mixes under the CMC brand name (as in Chelsea Milling Co.). Describing the market as “more of a commodity business” than retail or food service, Mr. Holmes said it is subject to sudden and abrupt price swings with changing costs.
“We didn’t want any negative reflection on the brand in that environment,” he said. “That’s why we chose the CMC brand. The food service product will be sold under the Jiffy brand.”
While Chelsea is selling essentially the same finished product into new business channels, the new infrastructure required to accommodate its new customer base is considerable, Mr. Holmes said. For starters, Chelsea did not have equipment to pack 2.5-lb and 5-lb boxes or 25-lb bags for food service.
The company is upgrading its flour transfer system and is adding a mixing department dedicated to food service and institutional. The upgrade has sped the transfer rate to 35,000 lbs per hour from 10,000.
Longer term, but not right away, additional flour milling capacity may be needed, Mr. Holmes said. He estimated current capacity at 4,700 cwts a day, which itself is a significant increase from the mill’s longtime daily capacity of 2,400 cwts.
“We may need it down the road, but it isn’t factored into the $35 million,” Mr. Holmes said. “As of now we will be able to meet future demand with current capacity. We need to get it out of the flour mill and into storage a lot quicker.”
Other elements of the project include the installation of nine bulk silos for major ingredients, including flour, corn meal and dextrose, items that will be pneumatically transferred to the mixing department. A new building is under construction, and new mixers will be installed.
Labor cost savings from the modernization will be considerable, and Mr. Holmes said the timing of the project was determined by a complicated array of factors, one of which was the demographics of the company’s workforce.
“That was a significant part of our thinking,” he said. “Currently, when you look at our employee profile, we have a workforce of 306. Out of them, 163 are 50 years old or older. There have been and will be lots of retirements. Getting into food service and institutional, the timing was very much coordinated to minimize the effect on workers.”
The Chelsea workforce already has contracted from 360 over the course of a few years, simply because of attrition.
“We have made a conscious decision that we will not displace workers because of technology,” he said. “We are sticking with that going forward. We’ve never laid anyone off. My father didn’t do it. My grandfather didn’t do it.”
He said the expansion project will largely be completed by spring 2014.