Baker of the Year 2009: Lance, Inc.

by Steve Berne
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The more things change, the more they stay the same. This pessimistic statement and attitude is the antithesis of the current state of affairs at Lance, Inc., Charlotte, NC. The company, five years shy of its century mark, clearly has done many things right over the years to sustain its longevity. However, while the company was growing through acquisitions and capacity expansions, the early 2000s brought signs of wavering sales and decreased profitability. Senior management and the board of directors were aware of changing market trends and consumer buying habits, and in late 2004, the board believed a fresh look, approach and management team were what the company needed to move things forward.

That was the first and most crucial step in a series of transformational changes that instigated monumental advances in every aspect of the business. The hiring of David Singer, previously executive vice-president and c.f.o., Coca-Cola Bottling Co., helped set the course of change.

“Lance was a solid company with strong values,” said Mr. Singer, president and c.e.o. “We had core strengths — two No. 1 brands (Lance sandwich crackers and Cape Cod potato chips), great manufacturing capabilities, experienced employees, our own direct-store-delivery (DSD) system and good corporate and family values. However, from our analysis, we had four areas that needed work.”

Organization, supply chain, DSD and information technology (IT) were the areas he identified. In regard to organization, Mr. Singer said, “We needed talent and expertise that wasn’t at the company at the time, specifically in IT and Supply Chain. Lance was set up as multiple small companies with minimal interaction between them — like silos linked only at the periphery.” Under Mr. Singer’s direction, Lance reorganized to a centralized approach so it could effectively make impactful changes that would streamline all functions in the company and generate significant bottom line savings.

Mr. Singer noted very tight capacities regarding supply chain. “Plants needed upgrades so, as we grew, the plants could handle the added needs of multiplant production and distribution and so they could be more profitable as well. We were geographically stretched and needed integration. Logistics were set up as bakery businesses versus a mixed-product business that included salty snacks.”

In addition, an antiquated DSD system, trucks that were old and too small, handheld computer systems that were sorely outdated and cumbersome, and rampant salesperson turnover — all these had to be improved to effectively move forward, according to Mr. Singer.

Lastly, he evaluated the IT systems. “We had multiple systems throughout the company,” he said. “None were tied together in any way and, in some cases, were still paper based. There was no easy way to get data to make good decisions, and the systems wouldn’t support the supply chain system that was being revamped.”

These four legs were to be the foundation of the new Lance — to accentuate the strengths, shore up the weaknesses and take the company forward. How the company has done this, where it is positioned today and what it plans for the future are all reasons Baking & Snack and Milling & Baking News magazines named Lance, Inc. the 2009 Baker of the Year.

SOLID FOOTING

The aforementioned ideals culminated into what Mr. Singer would coin 1Lance. “It’s basically an umbrella program to take what was a decentralized, multicompany mindset and bring everything together in a centralized, functionalized approach, making sure we had common goals and that everyone understood how we were doing and where we were going.”

Mr. Singer assembled an equally strong senior management team that includes Mark Carter, vice-president of strategic initiatives; Earl Leake, senior vice-president of human resources; Glenn Patcha, senior vice-president, sales and marketing; Rick Puckett, executive vice-president, c.f.o. and treasurer; and Blake Thompson, senior vice-president, supply chain.

The mandate of understanding involved every employee in the company. “We started providing quarterly videos on the state of the company, our goals, projects, product trends and other matters,” Mr. Singer said. “These are available to all plants and personnel in break rooms and offices.”

“Since 2005, we have made phenomenal progress,” added Mr. Thompson, whose previous experience includes stints at Frito-Lay and Tasty Baking. “At the end of 2005, as we were gearing up projects to move 1Lance forward, Tom’s Foods became available, and we saw this as an opportunity to kick start the supply chain portion of the foundation. It gave us production centers in Florida and Texas, enabling us to produce product much closer to customers and gave us baking capacity in Columbus, GA, to relieve capacity issues at other Lance facilities.”

Another supply chain initiative was switching from 48-ft trailers to 52-ft trailers. “This is very significant when shipping lightweight products such as potato chips and other salty snacks,” Mr. Thompson noted. “We were cubing out before we weighted out, and with fuel costs on the rise, we had to maximize poundage.”

Also, the company recapitalized its DSD system, spending millions of dollars purchasing new vans. Most of its fleet was more than 10 years old. Lance implemented a new easy-to-use handheld solution for its salespeople. These devices provided salespeople and office staff tremendous capabilities to improve their effectiveness at, and for, their customers. The new handhelds also provide the company with usable data for forecasting and trending. “Our personnel turnover among route salespeople dropped by more than two-thirds,” Mr. Singer noted.

New delivery vans and the new DSD handheld accounting systems may not sound like the most glamorous topic, but the resulting change in morale, attitude, turnover and sales is astounding, according to Mr. Patcha. “Not only did the personal pride of the route salespeople improve, but also the power of the handhelds improves accountability and trending capabilities that benefit everyone, including the drivers. The bottom-line result was a nearly 40% higher sales per route compared with 2005.”

“We also ceased our DSD vending business,” Mr. Patcha added. “As we moved forward on making all these changes, we had to stay focused, and the vending business was not a core competency. We still sell product in vending machines but do so through vendors, not through DSD.”

The company also exited West Coast operations for its Cape Cod business. “With no great prospects for profitability at the time, we really needed to focus on our three core businesses — branded, private label and contract manufacturing — and the most profitable sales scenarios for each segment,” Mr. Patcha said.

CAPACITY FOR INNOVATION

As part of the foundation of change, innovation was a key cornerstone for Lance. To help set this in play, the company brought in Christine Hade as vice-president of branded marketing and innovation.

“Helping set up an innovation culture required a real shift in mindset,” Ms. Hade said. “Ideation includes cross-functional ‘alignment,’ a stage-gate process, and a constant focus on reinforcing the equity of our brands. The strategic roadmap set by the executive team is to focus on core brands. It allows a constant pipeline for new products.”

In a May 2008 Baking & Snack article (“Focused Innovation,” page 25), Ms. Hade noted stage-gate is fully engaged, and the innovation team uses the process to organize its efforts. This approach alternates team-evaluation stages with management-decision gates. Stage-gate answers the competitive need for lean, rapid and profitable new product development under today’s ever-shorter product life cycles.

“The principles of stage-gate are to clearly identify the stages at which actions are needed and the gates where information and results are reviewed,” Ms. Hade explained. “Stage-gate moves new product development from ideation to feasibility to launch.”

Although the process is intended as a rapid means to get new products to market, occasionally, it can lengthen the time required. At Lance, it’s actually done both. “In some cases, we will get to market faster. In others, it may force us to slow down to better validate the concepts,” Ms. Hade said.

Strong equity comes from promotion (advertising), partnerships (Late July), and investment (acquisitions such as Tom’s, Archway and Brent & Sam’s), according to Ms. Hade. For the first time, Lance will debut print, radio and TV advertising of its core products. “Our goal to retailers and consumers, as well as internally, is to ensure there is complete brand understanding. For example, our overall theme of branded sandwich crackers is ‘wholesome, fun, simple and back to basics,’” she said.

EMERGING BUSINESS

Such dramatic changes within a company after so many years affected the entire enterprise. “In general, such a dynamic process tends to make people inward focused, and we were inwardly focused for several years getting these programs started and implemented,” Mr. Singer stated. “Now, we are starting to open up and become externally focused, with innovation programs, brand positioning, refreshing brand logos and a first-time-ever national TV advertising campaign. Not that we weren’t customer focused before, but we needed to get our house in order to ready ourselves for continued growth.”

In spite of its inward focus, Lance had double-digit growth every year between 2005 and 2008, on both sandwich crackers and kettle chips.

“During the initial years, we brought in consultants who helped increase our awareness of change and how that affects a business and the people you are asking to change, and you can see we were going through some very rapid and sweeping changes,” Mr. Carter added.

He also stated that Lance wanted to develop a simple process that could be implemented whenever change was made and make sure it was scalable and repeatable — the basics of change management.

“Ultimately, it translates to common sense but brings it to the surface to be sure we are explaining why we are changing, how everyone will be affected and what we expect,” Mr. Singer noted.

“We were very upfront and open with employees,” Mr. Singer said. “While it may not make all employees happy to hear about change, it justifies actions by the company, and employees respect that. As part of the process, we outlined objectives of change that focused around three basic areas: be a great stock to own, be a great business partner and offer a great place to work.”

The proof of the pudding is comparing where Lance once was in these three areas to where it is today, according to Mr. Singer. One example he cited was for shareholder value. “Compare the value of a $100 investment in Lance made in 2005 to its value today,” he said. “It is worth $180. This compares to the same investment amount in our competitors being worth only $107, and in the S&P 500 market only worth $80 at the end of 2008.”

Restating his point, Mr. Singer noted that internal focus involved operational improvements and physical expansion. External objectives include acquisition into innovation and new product lines, capacities, capabilities and territories as well as cost savings.

The recent Archway acquisition is part of the external focus going forward. Our DSD and supply chain foundation allows faster integration of that business into the Lance fold, and vice versa, Lance sees great opportunities to leverage that acquisition, including using the capacity to support the private label segment, according to Mr. Thompson.

Employee factor. “From an employee perspective, we found most were anxious for change, embraced it and were excited about its prospects,” Mr. Thompson said. “That’s unusual for a 95-year-old company. You might think employees would fight change, thinking ‘Why change now?’ But our approach to change and the dedication of our employees came together to energize effective change.”

Management made a concentrated effort to communicate its corporate destination. “We could have dictated change and gotten some things done quicker, but we wanted also to effect a cultural change for long-term

objectives,” Mr. Carter noted. “So we did things on a much more measured pace, thereby building an organization that is engaged and adaptable to change in the future as well as now. We really value our people, not only in their capabilities but also their ability to contribute.”

An example of this contribution comes in the form of Lance’s “vision stream” approach to continuous improvement. Vision stream is a concept that establishes an engaged environment of employees identifying opportunities and affecting change. Structured teams throughout the organization focus on different areas. Each has an executive sponsor to help remove obstacles. Cross-functional members add perspective. Objectives include productivity, quality, safety, cost reduction and others. “It offers real opportunity for employees to be involved and make a difference and adds to our continuous improvement culture,” Mr. Singer stated.

CHANGE CALL OUT

The major endeavors put in place by Mr. Singer, his top management team and the entire employee base are nothing short of amazing. “We are a good size company, currently at around $850 million compared with $565 million at end of 2004,” Mr. Singer stated. “We’ve made great progress in a short time.”

However, he said the company is small compared to the behemoths in the food industry.

And Lance is focused on getting larger. Its recent acquisitions of Brent & Sam’s, Archway and Tom’s and its partnership with Late July (an organic bakery) position Lance to be more effective by spreading costs over a larger base and becoming more important to its customers.

According to Mr. Singer, a $1 billion company has more opportunity and capability to do things than a $500 million company, and Lance wants to grow its branded and nonbranded segments internally and through acquisition.

“The foundation we have established helps improve profit margin by bringing down cost of sales,” he noted. “Unfortunately the unprecedented commodity increases during the past year masked many improvements, but we adjusted our pricing and pretty much put that behind us. And margins have been restored.”

Management believes that even with current commodity volatility in 2009 and 2010, those initiatives and cost savings will become very evident and start to show through. “The next two years also puts us in a great position to grow in size with little additional investment compared with the past few years,” Mr. Thompson added. “This too will result in even better profit margins. That in turn will leverage our returns on investment.”

After three years of structural change, internal focus and foundation building, the Lance turnaround is complete, according to Mr. Singer. “We are on solid footing to advance,” he said.

ROOM FOR SNACKS

Part of any change and growth for a grain-based food company is new product introductions. Although snack foods have taken a beating because of the trend favoring health and wellness, Lance’s business is strong, and its new products dabble on the fringe of the latest trends.

“In February, we introduced whole-grain sandwich crackers, the first of its kind in the market,” Mr. Patcha said. “We also introduced portion-controlled 100-Cal packs of mini-sandwich crackers.”

In addition, the company cycled in fresh packaging and numerous line extensions such as its Cape Cod Parmesan and Garlic flavored chips. “Our No. 1 SKU in Cape Cod is the 40% reduced-fat variety, a product viewed as a better alternative to regular chips,” Mr. Patcha said. “We plan to continue building on that platform.”

In convenience stores, the company is introducing soft chocolate chip and peanut butter cookies under the Lance brand. It’s also launching a new line of onion rings, a salty snack under the Tom’s brand.

To stay on top of health trends, the company previously removed trans fat from all its products and has introduced reduced-fat sandwich crackers as well. Anticipating similar outcry over high-fructose corn syrup, all HFCS has been removed, and its Cape Cod brand uses only canola oil.

“As a side note, the current household penetration of the Cape Cod and Lance brands is around 5 and 12%, respectively, so we have plenty of room to grow both brands,” Mr. Patcha noted.

In addition, the company instituted visual brand identity upgrades to Lance and Tom’s with new logos. “Brand loyalty is very important to us and our customers,” Mr. Patcha said. “And this is part of the reason for the new ad campaign.” For Lance, it is “simple, wholesome fun.” Cape Cod promotes “indulgent reward,” while Tom’s is a brand that “‘gives you more (flavor, value).”

For efficiency, management noted there will be some crossover in manufacturing and other internal elements but not externally. 1Lance is an internal program designed to encourage a culture of teamwork and inclusion that helps everyone focus on working toward common goals. From a product prioritization perspective, branded items are the company’s lifeblood. “The Lance brand is No. 1; we’ve developed Cape Cod to a very respectable self-sufficient entity; and Tom’s continues to grow and carve its niche,” Mr. Singer pointed out. “However, our private brands represent a strong leg of our business, and we are careful not to cannibalize the two product streams. Our R&D and innovation departments work simultaneously in all these areas, and we take advantage of synergies and production efficiencies.”

PUSHING PRIVATE

The company holds a strong No. 2 position in private brand business; however, it is in the process of making a strategic shift, according to Mr. Patcha. “We’ve been known for providing good service for value cookies and crackers, but there is an opportunity to gain share in other segments as well and bring a stronger consumer marketing perspective to private brands,” he said.

Todd Phillips, vice-president marketing for private brands, is charged with this task. This new position was created in 2007, and previously, Mr. Phillips spent nine years as vice-president marketing of branded items. “We’re taking an unusual approach,” he said. “I speak with customers from a consultative perspective, providing product and market expertise and corporate credibility.”

The company is also expanding into mainstream private brands, also known as national brand equivalents. The Brent & Sam’s acquisition plays a big part in this program. “It is on the premium end of private brands, and this has brought a lot of credibility to the company to expand this market,” Mr. Phillips said. “It provides us a significant foothold in this market, and it is another good example of being externally focused.”

“We are now capable of supplying value, national-brand equivalent, as well as premium,” Mr. Singer added. “We can be a strategic partner versus just a transaction-based company.”

The value segment was Lance’s focus, and it did very well. However, recent growth in premium-level private label products prompted a new focus in marketing. “I play more of a consultant role to our customers, taking a branded approach to private label,” Mr. Phillips said.

The company’s Vista Bakery facility in Burlington, IA, was renamed Lance Private Brands, portraying a new approach to that side of the business. “It also enabled us to take advantage of the total resources of Lance and more recently Brent & Sam’s as part of the 1Lance approach,” Mr. Phillips noted. “Brent & Sam’s gave us a kick start in credibility.

“In my role, I am able to bring in category management resources, strategic approaches to sales and marketing, and R&D and technology as well,” he continued. “Reaction has been very favorable from retailers, with a lot of projects and new business. Ideation was retailer driven but is now equally driven by our R&D and innovation groups. We are no longer just reactionary.”

Lance’s transformational changes, its focus on all its market segments and its strong strategic plan for continued growth are quite noticeable to the industry and commendable in a time of commodity and consumer uncertainty. Its capacity for innovation more than merits its recognition as Baker of the Year.

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