When David V. Singer was named president and chief executive officer of Lance, Inc. in May 2005, he inherited a business with a number of strengths, including a rich corporate heritage, a reputation for manufacturing excellence and two top-selling niche brands in Lance sandwich crackers and Cape Cod kettle chips.
Despite the strengths, the company’s sales had been growing slowly and earnings were depressed, which had prompted the company’s board of directors to change leadership.
Once at the helm, Mr. Singer, who is a former top executive at Coca-Cola Bottling Co., identified a number of issues he believed were holding the Charlotte, N.C.-based company back — a decentralized organizational structure and holes in the company’s management team, inefficiencies in the company’s supply chain and direct-store-delivery system and problems with its information technology system. He went to work to fix them.
For the progress Lance has made transforming its corporate infrastructure, positioning the company for a new chapter of growth through product innovation and stepped-up marketing, Lance has been named 2009 Baker of the Year by Milling & Baking News and Baking and Snack magazines.
Changes have been made at Lance methodically and at a pace in line with a plan drafted by the company in 2005. Still, the road to growth has not been without bumps. Earnings last year were depressed because of the most dramatic surge in commodity prices in 30 years. More recently, Lance has been ensnared by a major recall of products containing peanut butter, even though the company’s own products were not part of the recall. Lance manufactures its own peanut butter. Mr. Singer said the company brought production in house a few years ago in order to assure it would be able to establish excellent food safety procedures and a culture that ensures these procedures are diligently followed. He described the company’s food safety record as "spotless." Still, it is too early to tell the degree to which its top-selling product — Lance sandwich crackers — will sustain collateral damage from the recall.
Despite the challenges, Wall Street has taken note of the progress at Lance. In 2008, Lance was one of only four grain-based foods companies tracked by Milling & Baking News (out of a universe of 27) to see a double-digit share price gain, up 12%.
In reviewing what has transpired at Lance, Mr. Singer does not diminish the many positives the company had when he arrived.
"Lance is five years from its hundredth anniversary," Mr. Singer said. "Clearly there is something special going on here for that to be going on for so long."
In addition to its strong manufacturing capabilities and the successful brands, Mr. Singer saw value in Lance having its own direct-store-delivery system, and he was impressed by what he called a "great culture."
Organizationally, outside talent was brought in to complement the company’s leadership, filling in a number of gaps at several levels. Lance was operating at the time as a series of independent companies, and Mr. Singer said centralizing the business — a process dubbed 1Lance — was viewed as a crucial need. The initiative has been described as an internal program designed to encourage a culture of teamwork and inclusion with the objective of focusing everyone at the company on working toward common goals. The disparate confederation that eventually led to the development of 1Lance had grown slowly over time: Vista Baking Co., Cape Cod Potato Chip Co., Tamming Foods, Tom’s, Brent & Sam’s, and most recently, Archway. Today, the company operates eight bakery and snack manufacturing plants in Arkansas, Iowa, Florida, Georgia, North Carolina, Ohio, Texas and Ontario.
Mr. Singer said of 1Lance, "It’s basically an umbrella program to take what was a decentralized, multi-company 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."
While the company’s plants were operating well, they were not strategically located geographically, Mr. Singer said. Rather than becoming more profitable as the company grew sales, the plants were situated in a way that the company actually would become less profitable as demand grew, he said.
"Our logistics system was set up more to be a baking business than the mixed business we are — both baking and salty snacks," Mr. Singer said.
While he saw the company’s D.S.D. system as an asset he also saw a serious need for upgrades.
"Our vans were almost all 10 to 20 years old, and our handheld computer system was 10 years old and falling apart," he said. "We had rampant turnover among our route salesmen."
Consistent with the overall business structure, the company’s information technology infrastructure was made up of a number of separate I.T. systems that could not talk to one another, Mr. Singer said.
In manufacturing, Lance has been helped in achieving its targeted changes through two opportunistic acquisitions, one of which was consummated shortly after Mr. Singer’s arrival and one just a few months ago.
The late 2005 acquisition of Tom’s Foods Inc. out of bankruptcy gave Lance snack foods production capacity in Florida and Texas and baking capacity in Columbus, Ga. The Archway deal, also purchasing a company out of bankruptcy, gives the company a plant in Ashland, Ohio.
When trailers were replaced, the company moved away from the 48-foot trailers that had been the standard, to new 53-foot trailers reflecting the increased growth of Cape Cod potato chips at the company.
"The old trailers were great for baking, but with salty snacks like Cape Cod we would cube out before we would weight out, and with fuel costs on the rise, we had to maximize poundage.," Mr. Singer said. "When replacing old trailers, we purchased new 53-foot trailers, which have had a positive impact on our costs. Our D.S.D. system was also recapitalized with an investment of millions of dollars. Our truck fleet currently averages well under five years old, and our handheld computers have been upgraded to modern technology. As a result of these investments and better practices, turnover among our route sales people has been cut by two thirds."
Additionally, the company purchased an Oracle ERP solution and is presently rolling this out across the facilities, a project that Mr. Singer estimated is well past 50% completed. Other steps aimed at enhancing efficiency and focusing on core sales included eliminating its D.S.D. vending business (the company still participates in the vending business through distributors) and exiting the West coast distribution of Cape Cod potato chips.
"There just wasn’t a pathway to profitability for that," Mr. Singer said.
When he joined Lance, Mr. Singer knew that considerable and fairly rapid change would be needed. Determined both to succeed and avoid upending Lance management along the way, Mr. Singer created a framework for effecting change, engaging LaMarsh and Associates, Inc., Chicago, to help with the process.
"Change is a big deal, and we have raised awareness of how change affects people," Mr. Singer said. "We’ve introduced a simple process that is scalable and repeatable, training senior leadership as well as the organization through to the director level."
Mark Carter, vice-president of strategic initiatives, added, "This has provided basic education in management, and we’ve really moved the needle quite a bit in that area. The proof in the pudding is when we see a new initiative come up, and we see the PowerPoint presentation, and there are slides that include a slide that reads ‘The change management thought around this are x, y and z.’"
The approach seeks to avoid blindsiding associates with decisions and their effects.
"Much of what this entails is common sense," Mr. Singer said. "We explain why a change is made, how it will affect people and what we expect from them.
"The point is to be up front with people. The objective is that people understand the change, even if it doesn’t necessarily make them happy."
Asked to elaborate further on this template for change, Mr. Carter replied,
"One way of looking at it is that we want everyone to avoid disseminating memos that begin with the phrase, ‘Effective Monday,’" he said. "In advance, we tell everyone where we’re going, why were going there, what it’s going to be like during the change and what the destination is."
Larger goals pursued by the company begin with making Lance a great stock to own for the long term, a great partner for customers, suppliers and communities and a great place to work.
Mr. Singer said the company has made great progress toward each objective, beginning with the company’s stock price. From the middle of 2005 until the end of 2008, a $100 investment in Lance stock would be worth just over $150, versus $107 as the average performance of a peer group Lance tracks and $80 for the S&P 500.
Mr. Singer describes the foundational work at Lance as "largely built." This assessment reflects both the changes that have been made and metrics that confirm the efforts are bearing fruit. Calling efforts to upgrade the D.S.D. system a "huge component," Mr. Singer said sales per route have climbed 40% since 2004 contributing significantly to a nearly 70% drop in sales person turnover.
"Sales per route are one of the key drivers of productivity, and we see more opportunity ahead," he said. "When you had heavy turnover and with the assets in bad shape, it was very difficult to make progress."
The acquisition of Brent and Sam’s, a private label cookie company based in North Little Rock, Ark., added other benefits, said Glenn Patcha, vice-president of sales and marketing. This bolt on acquisition gave the company a strong market position in the premium end of the private label cookie category.
With Lance annual sales beginning to approach $1 billion annually, Mr. Singer does not believe the company’s scale is where it needs to reach.
"A billion dollars is small in the snack business. We need to be larger and more important to our customers, which will also serve to spread our fixed costs across a larger volume base and make us a healthier business," he said.
Mr. Singer said the company is now in a position to eye strategic acquisition opportunities ahead in addition to the opportunistic ones it has made in recent years.
The critical mass issue supports Lance’s ability to reach higher profit margins, and Mr. Singer said the company’s "foundational" moves all have benefited the company from a margin perspective.
By making changes to the fundamental corporate infrastructure at Lance, the company now can support a much larger organization, and expansion will have a higher priority going forward, Mr. Singer said.
"Costs as a percentage of sales have come down, but progress has been masked by what happened in the commodities markets during late 2007 and throughout 2008," he said.
While many companies were hit hard by the rising commodity prices in 2007 and 2008, Lance has acknowledged that it was hit especially hard. Several factors contributed to that severe impact, Mr. Singer said. More importantly, steps have been taken to mitigate the risk that a similar problem will emerge again.
As part of the foundation building at Lance, the purchasing function at the company was being centralized when commodity prices began escalating rapidly in 2007. When the program was finalized, commodity prices were at all-time high levels. In June 2007, management was reluctant to take extensive forward ingredient coverage at prices far above historical averages in what appeared to be a bubble.
"We were chasing commodity increases into the third quarter of 2008," Mr. Singer said. "Lance begins with thin margins versus our competitors, and when you have thin margins commodity price moves hit you harder.
"Our current strategy gets us out of chasing commodity prices. That had been our intent all along, a margin management strategy, but we just hadn’t implemented it yet when this hit us."
In addition to this new margin management strategy and higher retail prices, Mr. Singer said, "Additional production capacity acquired greatly reduces the company’s need for major capital investments over the next two years.
"As we work our way into 2009 and 2010, we don’t need to add significant production capacity," Mr. Singer said. "We also don’t need to add a lot of people to grow our business, and as we grow sales, we will be leveraging additional profit margins."
Still, as the commodity price increase demonstrated, raising margins is no easy task and progress may be made in fits and starts rather than continuously. "We compare ourselves to a variety of industry peers whose margins range from 5% to 9%, and we believe we will be able to match those over time," said Rick Puckett, executive vice-president and chief financial officer.
The acquisition of Archway is expected to help the company shore up margins as the company focuses on growing sales through innovation and geographic expansion.
"Archway is central to those plans," Mr. Singer said. "It fits well into the Lance supply chain system with a well-located plant. We have the D.S.D. system to leverage the acquisition further in addition to an extensive independent distributor network system."
Archway also fits well into an overarching brand strategy at Lance, which is to own the No. 1 or 2 brands in niche categories like kettle chips or peanut butter sandwich crackers.
"We aren’t looking to go head to head with the huge snack companies," he said. "Archway has historically been one of the top brands in the premium, home style soft cookie category, so it fits well with our strategy."
Marketing increasingly will play a role in bolstering sales and margins going forward, Mr. Singer said. Efficiencies gained through the company’s foundational improvements will be directed toward "consumer driving" activities, Mr. Singer said.
In addition to national television advertisements for the Lance brand, the company is investing in print advertising for Cape Cod potato chips and radio spots for Tom’s snacks.
"The levels of spending in 2009 will be significantly higher than ever before," Mr. Singer said. "Innovation and brand building are the lifeblood for a successful snack food business," Mr. Patcha said. He said the company is targeting a "best in class" measure for new products.
The potential for growth of the key brands is considerable, he said, noting that current household penetration is only 12% and 5%, respectively, for the Lance and Cape Cod brands.
Explaining the amount of time that has elapsed before beginning this effort, Mr. Singer said the company has moved forward methodically and purposefully, and that the sequence was important.
This focus on new product development and marketing represents a dramatic departure from the approach taken by the company over the previous 3½ years, Mr. Singer said.
"We have been very inward focused and we needed to be, and now we’re coming out of this and focusing on external opportunities," he said. "We have clarified our brand positions, we changed consumer logos and we are about to launch an advertising campaign.
"You can’t build a house on sand. Until you have the foundation built, it would not have made sense for us to focus too much on building the house (new product introductions). It would just fall down. Now is the time to change. At a certain point the call needs to be made internally for change. The call is being made now."
Toward the objective of building a consistent new product pipeline, the company has created a standard stage-gate approach, Mr. Patcha said. Ideation and opportunity identification are followed by product development, and then commercialization to launch.
"It’s a collaborative process," he said. "We’ve brought new people in to ideate and then this cross-functional team applies the rigor and the discipline to identify, develop and launch. This combination has yielded some great ideas we are just getting ready to launch."
To the degree Lance has taken an introverted approach toward its business in recent years, Mr. Singer was quick to point out the company has not sacrificed growth during this period. Each of its top four product categories — Lance sandwich crackers, Cape Cod kettle chips, Tom’s snacks and private label — has generated double-digit annual sales growth consistently during this period.
Part of the growth in the Lance brand has reflected a shift in how it has been positioned in the marketplace. Historically, the Lance brand was targeted at young males and convenience stores — "up and down the street business," Mr. Patcha said.
"We rapidly have picked up market share in grocery and mass, and our business has evolved to be more families with kids," he said. "That’s where the bulk of the business now lies and where the bulk of the opportunity now lies."
New products that have been introduced in recent weeks include whole grain sandwich crackers under the Lance brand, tapping into both the whole grains and better-for-you trends. Also new are three 100-calorie pack sandwich crackers under the Tom’s brand.
Line extensions are planned, including Parmesan garlic Cape Cod potato chips, which Mr. Patcha said would be part of an ongoing cycle of refreshing brands.
While Lance’s basic categories of crackers, cookies and salty snacks may not be prime products for better-for-you foods, Mr. Singer said the company has made headway in healthier products and intends to make further progress. The No. 1 stock-keeping unit in the Cape Cod chips line is a 40% reduced-fat kettle chip.
Other pending new products include soft cookies under the Lance brand in convenience stores and an onion ring snack under the Tom’s brand.
"We offer a wide range of products, and some of our strongest products provide for that health and wellness need," Mr. Patcha said.
In addition to the reduced-fat chips and the 100-calorie packs to be introduced soon, Lance also is exploring the better-for-you trend with its minority investment in Late July, a maker of organic snacks.
"In the past we probably have been underrepresented in the market for healthier choices," Mr. Patcha said. "We want to be a larger player. We see the organic market, even though it’s under pressure because of the economic situation, as a major trend that is not subsiding.
"We are always looking for ways to make our products healthier. We were the first snack food company to remove trans fat from its products, we have a line of reduced-fat sandwich crackers, and we have removed high-fructose corn syrup from all products."
Blake Thompson, vice-president of supply chain, said Lance uses canola oil for the Cape Cod brand.
With 1Lance, the company has worked hard to unify the corporate effort behind its products, but Mr. Patcha said the brands will continue to retain their distinct identities, with Lance conveying simple, wholesome fun; Cape Cod, an indulgent reward; and Tom’s, a snack that gives more flavor, value and a unique eating experience.
"Our sales and marketing people understand what each brand stands for," Mr. Singer said. "The one thing about 1Lance is that Blake has responsibility for all of our manufacturing. We don’t have a separate Cape Cod company that has responsibility for making Cape Cod." Cape Cod chips represent a good case study of the value of the 1Lance model. Cape Cod products were historically manufactured only in Hyannis, Mass. The business had its own distribution system and generally did not sell or distribute other Lance products.
"There was no interaction with the rest of the Lance organization," Mr. Singer said.
Since moving to 1Lance, Cape Cod chips, Lance products and Tom’s all are sold from the same D.S.D. system. The Cape Cod chips are made at several plants, including several closer to population centers. To Mr. Singer, the separation made no sense.
"We needed to understand that Cape Cod is a brand, and not an independent business," he said.
Innovation efforts will not be limited to the company’s branded business. Currently, the company is No. 2 in the private label cookie category and has been making inroads, Mr. Singer said. The capabilities and capacity gained with the new Archway plant offers the company the opportunity to expand further.
"We have a great position in private brands, and we have an opportunity to make it better," Mr. Singer said.
While private label may be the most rapidly growing part of the Lance business, Mr. Singer said the expansion is only partly due to the weaker economy and the ongoing secular shift toward private label and away from branded products.
Mr. Singer said Lance in the past has had a reputation for excellent customer service as a leader in the value category of cookies.
"We have the No. 2 position, and we’re making a major shift," Mr. Singer said. "We’ve assigned a marketing executive, Todd Phillips, to our private brands business to give a consultative service to customers. He is able to present to them what we see is happening in the category, with consumers and
potential holes in their offerings. Todd has brought expertise in that area that really has given us credibility with
customers. We now offer a wider range of products including value products, mainstream products (chocolate chip and sandwich cookies), and premium products.
"While premium private label sales are a relatively small part of the business, it is important for our customers. Brent and Sam’s give us a dominant position in that business, which helps customers see all our capabilities from the top end to the bottom."
Mr. Phillips, who is vice-president of marketing for private brands, added, "We tell customers, ‘Now we can be your full-line supplier.’ We couldn’t have said that a few years ago."
To help reinforce the message of change, Lance decided to change its private label business from Vista Bakeries (which it had been called for many years) to Lance Private Brands.
"Together with the acquisition of Brent and Sam’s, it signaled we would bring the full resources of Lance and apply it against the private-label business, including category management resources and research and development," Mr. Phillips said.
Lance’s transformational changes, its focus on all three 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 claim to the Baker of the Year award.
This article can also be found in the digital edition of Milling and Baking News, March 24, 2008, starting on Page 29. Click