Baker of the Year: Tasty Baking

by L. Joshua Sosland
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Perhaps the best way to grasp the distance Tasty Baking Co. has come during the past several years is with a favorite Charlie Pizzi story.

Among the many needed changes the president and c.e.o. of Philadelphia, PA-based Tasty identified after joining the company in February 2002 related to basic information technology.

“When I arrived here, there were less than personal computers company-wide,” said Mr. Pizzi. “Total. Today, we have more than 500 computers spread throughout the organization.”

The personal computer situation was but one of many systems and processes at Tasty that needed updating in 2002, but convincing certain associates of the need for computers was diffi cult. The company operated largely “computer free” for 80 years, encompassing a full generation of the information age. When supervisors told subordinates that processes were going to be electronic, the reception was not always warm or enlightened.

“I remember the head of operations told a male associate he’d have to begin working on a computer,’” Mr. Pizzi recalled. “The associate replied, ‘I’m not going to do that. Computers are for women.’ So the supervisor responded, ‘Then you’d better wear a dress to work tomorrow!’”

At any business, successful or not, change is a challenge. But the extraordinary “to the very foundation” changes implemented at Tasty Baking Co., culminating with the soon-to-be-opening new flagship baking plant at the Navy Yard in Philadelphia, have earned the company the 2010 Baker of the Year Award from Baking & Snack and Milling & Baking News magazines.

FRESH START.

While there is no question that the course set by Mr. Pizzi after joining the company was central to the achievements leading to this award, he was quick to acknowledge the importance of a new management team he assembled with skills complementary to his and remarkably successful at executing major corporate projects amazingly smoothly.

In fact, Mr. Pizzi said the support he has received extends beyond the company’s management base. He credited a newly reconstituted board of directors and a supportive relationship with the company’s principal bank: Citizen’s Bank.

Just four years shy of its centennial, Tasty bakes and markets a wide range of single-serve cakes, pies, donuts, snack bars, pretzels and brownies under the Tastykake brand. With about 200 varieties total, including limitededition product, and $175 million in annual net sales in fiscal 2008, Tasty’s best-known products are sponge cakes marketed under the Krimpet and Juniors brands and chocolate-enrobed cakes sold under the Kandy Kake brand. Its line of sugar-free cakes and snack bars are sold under the Sensables brand.

On paper, Mr. Pizzi may appear to have been an unusual selection as someone to spearhead the turnaround of a struggling business. In fact, c.e.o. of Tasty Baking was Mr. Pizzi’s first major job of any kind in the private sector. He was president of the Philadelphia Chamber of Commerce when he was recruited to take the helm at Tasty.

“I had always been involved in economic development,” he said. “I was the city commerce director, responsible for institutions like the airport and the port. Then I moved to the chamber of commerce. I spent my entire career interacting with high-powered individuals but never walked in their shoes.”

While this career journey may look unusual from the outside, Mr. Pizzi said this pattern actually was the norm at the chamber. His predecessor there currently is running a large publicly traded company, and his successor also is now c.e.o. of a large business.

Even though he carefully considered the decision to join Tasty, Mr. Pizzi said the condition of the company was not what he expected when he took the top post.

“I thought it was a company that was not running on all cylinders,” he said. “What I found was a business that had stalled and needed to be completely re-engineered. It was — and is — a great brand.”

Once on board, Mr. Pizzi embarked on a 100-day plan that continues to guide the company eight years later. The opening of the new Navy Yard baking plant represents the culmination of strategies crafted during those first months and adjusted as time progressed.

Mr. Pizzi said his first step in 2002 was meeting with a wide range of the company’s executives. “I asked one central question: ‘What do you think?’” he said. “Then I listened. After listening, I set about creating a central vision to bring great people together with this great brand.”

Communicating the need for change was important to Mr. Pizzi, and his early actions featured a mix of the substantive and the symbolic.

The company spent nearly a million dollars physically cleaning up the old headquarters building, and it installed a workout facility in a vacant part of the company’s baking plant.

“I wanted everyone to understand things were going to be different,” he said. “The gym made an impression. ESPN showed Kirbee the Krimpet, our mascot, on the treadmill. It made their ‘plays of the day.’”

Symbolism aside, Mr. Pizzi has worked to ensure that passion brought to the company is matched every step of the way with data-driven decisions, logic and discipline.

VISION OF STRENGTH.

The plan the company put in place was based on five pillars: investing in the company’s brand, product innovation, core routes growth, geographic expansion and operational efficiency.

Toward the re-engineering of the company, Mr. Pizzi said the financials were the first priority.

“We created discipline, rigor and a thorough upgrade of talent,” he said. “That took about a year and encompassed all kinds of changes. For instance, we had a legacy defined-benefit pension program. We moved to a defined-contribution program.” Mr. Pizzi gave particular credit to James Ksansnak, Tasty’s board chairman, for helping work with him and the executive leadership to get the financial systems in order. Once the financial systems were in place, the next major project was not difficult to identify. Bringing the company into the 21st century required a number of projects, the most ambitious of which was the installation of an enterprise resource planning (ERP) system. SAP, which has US offices in Philadelphia, was engaged, and the project was completed on time and on budget, Mr. Pizzi said.

Autumn Bayles, senior vice-president of strategic operations, who headed the SAP transition, recalled the process as one of about 30 that were done in the information technology (IT) arena in the past several years.

“When Charlie drafted the five pillars, he was very committed to taking the company’s technology forward,” said Ms. Bayles, who was c.i.o. at the time. “We said, ‘Without progress on IT, you won’t be able to move forward on most of those pillars.’”

In addition to the ERP system, Ms. Bayles said a range of data collection projects were completed, and the company’s handheld DSD (Direct Store Delivery) computers were replaced.

As important as this project and the subsequent construction of a new baking plant may be for Tasty’s success, Mr. Pizzi is acutely aware that operational effi ciency alone does not translate into success for any company. Tasty has taken a number of steps to update its product portfolio, but Mr. Pizzi said the new facility will allow Tasty to reach out to consumers in ways the company has not been able to do for many years.

“The snack cake category needs to be exciting,” he said. “But before we could worry about the category, we had to fix this company’s problems. When I arrived, there was almost no advertising spending. The company was losing relevance in the marketplace.”

MODERN REALITY.

While traditional snack cakes may not fit perfectly into the health-and-wellness trend, the products still have a place in the diet, according to Mr. Pizzi. “One of our Kandy Kakes contains 90 calories,” he said. “A pastry in the leading coffee chain contains more than 400. We need to be sure we’re communicating and that the consumer is not misinformed.”

As the company progressed in its various projects, it became clear that the largest impediment to achieving success was its antiquated production infrastructure at Philadelphia. The company’s Hunting Park plant had been operating since 1922.

Fifty miles from Philadelphia, the company also has a 174,000-sq-ft plant at Oxford, PA, a former Keebler plant acquired in 1996.

That the Hunting Park plant, in its ninth decade of operations was a problem was not particularly a revelation, Ms. Bayles acknowledged. “The company knew the plant was a problem, but every time they looked at it, money was an impediment,” she said. “Justifying the capital expenditure was too diffi cult.”

While the company explored a wide range of options, including expanding the Oxford plant, Mr. Pizzi said ultimately he was able to tap into his heritage experience in economic development to help retain Tasty’s presence in Philadelphia.

He worked closely with Gov. Ed Rendel, Liberty Property Trust and the Philadelphia Industrial Development Corp. to develop a creative solution leading to a move of the company’s headquarters and the Hunting Park baking operation into the Philadelphia Navy Yard, a new waterfront development spread across 1,200 acres.

As part of a mix of public and private funding, Tasty’s state and local taxes on the site (excluding tax on wages) have been waived until 2026.

“Citizen’s Bank is our lead bank, and we really needed them,” Mr. Pizzi said. “We closed our deal in September 2007, two months before banks began shutting down. We got in just under the wire.”

The location near downtown Philadelphia has a number of benefits. For instance, it is situated adjacent to two interstate highways (I-95 and I-76) and offers rail access.

Ms. Bayles, who led the SAP transition, is a trained engineer and had earlier career experience as a management consultant, was placed in charge of the transition.

Among the most fundamental changes at Tasty during the Pizzi era, Ms. Bayles identified a hard and fast commitment to data-driven decisions as perhaps the most transformative. This discipline was key in the ultimate decision to build in the Navy Yard vs. other alternatives.

“Yes, we would not have left Philadelphia without a compelling reason, but at the end of the day, it was all based on the math,” she said of the decision. “We looked at how much space we needed. We looked at transportation and distribution issues. Fortunately, the city and state had passion about the project, too.”

Beyond the challenges of financing, Mr. Pizzi said he was deeply concerned about execution. “We had to be sure our products tasted the same off the new lines as they did off the old ones,” he said. “These products had been made in the same plant since 1922.”

LEEDING EDGE.

The project, largely completed, has been done on budget and on time, Mr. Pizzi said. The new building has been registered for certification by Leadership in Energy and Environmental Design (LEED) with the US Green Building Council. “It is the greenest baking plant in the US at the present time,” Mr. Pizzi said.

Ms. Bayles noted Philadelphia has been a hot spot for LEEDcertified buildings. Still, she said the decision to pursue the certification was carefully weighed.

“We knew it would be challenging, but it would be a good way to demonstrate corporate responsibility and that consumers would like it as well,” she said. “But the other side was, at what cost? When we looked into it, the investment was not showstopping. The benefits outweighed the incremental cost.”

In planning the new facilities, the decision to seek LEED certification meant the company needed to select certain materials, with a particular focus on local sourcing and recycled materials, and also was prevented from using certain chemicals.

Some LEED criteria were “off the table for baking,” Ms. Bayles said. For example, emissions are unavoidable in a baking plant, and sanitation requirements were a constraining factor in some cases.

Because the state of Pennsylvania has a program subsidizing solar energy, Tasty will be installing a bank of solar panels on the roof of the baking plant. When operational, the panels will cover a small, but meaningful, percentage of the company’s power needs.

Rebuilding infrastructure at Tasty Baking has included significant steps to shore up the company’s sales systems, said Robert Brown, senior vice-president of sales. The sales department has undergone a major reorganization.

“The department span of control had grown too wide, and we needed better field management put into place,” he said. “A few years back, we had one district manager for every 20 routes. Now, it is one for every 13. It allows us to better support our customers and our distributors.”

The company operates approximately 480 routes in its core regions and uses third-party distributors to the north from Boston, MA, to New York, NY, and to the south from Richmond, VA, to Miami, FL.

Additional significant changes could be forthcoming in the Tasty sales system. The company is piloting new route structures in expansion markets and continues to evaluate them periodically.

“We think a different approach will allow Tasty to provide better service over time,” Mr. Brown said. “It has become increasingly diffi cult recruiting talented individuals responsible for selling, delivery, driving and loading. This is a systemic challenge, not just at Tasty.”

If successful, the new approach could be adopted in certain Tasty markets and then staged elsewhere when distributors sell routes, Mr. Brown said.

Despite manufacturing constraints, Tasty has achieved success in new product development, Mr. Brown said. In turn, these accomplishments have given the company confidence it can play in markets other than snack cakes.

“Between sugar-free Sensables, protein bars and whole-grain bars, we’ve had some success,” he said. “Who would have thought that we would have a successful Tasty protein bar in Wawa stores? We need to leverage adjacent categories without losing sight of the core Tasty customer.”

Mr. Brown said geographic expansion has been and will remain a vehicle for growth at Tasty. Most recently, the company added distribution into the Carolinas.

“We’ve been steadily filling in the Swiss cheese holes in the East,” he said. “We are looking for profitable volume. We do have national distribution customers, and these accounts are attractive, too.”

In marketing, the importance of relevancy was emphasized by Jon Silvon, director of marketing. “In the core 75-mile radius around Philadelphia, it is all about enhancing relevancy and connecting with consumers,” he said. “We do this by being modern, contemporary and trendy. Sponsorships such as radio station studios, local sports teams (the Phillies, the Eagles and the Flyers) and some mass media campaigns really get our name in front of our target market. Our marketing is aimed mainly to moms and men. We shy away from marketing directly to children.”

The company has begun tapping into modern vehicles for marketing, including social media such as Facebook, Twitter and the Web site www.tastykake  . com. “Kirbee the Krimpet has his own Facebook fun page,” Mr. Silvon said. “We are pressing for interaction and direct consumer connection. We want one-on-one relationships with consumers. We are going for quality over quantity when comparing with other companies’ social media connections.”

FUTURE VISION.

With all the changes that have been successfully implemented, will Tasty be able to achieve profitable growth in the years ahead? During the Pizzi era, Tasty’s financial results may be described as modestly profitable with limited top-line growth.

The new plant and other changes instituted in recent years will change the complexion of the company’s financial picture, said Paul Ridder, senior vice-president and c.f.o.

Tasty has not issued operating guidance the years ahead, but Mr. Ridder was willing to quantify the expected savings from the new baking plant as important.

“We could not envisage the Tasty Baking Co. of the future and getting there with the Hunting Park facility,” Mr. Ridder said. “From my perspective, that was the major deciding factor to go forward with the Navy Yard project. We needed the $13 million to $15 million in annual free cash flow we will get from this project.

“The plant will allow us increased financial resources for investment in the business and bring new products to the marketplace.” For a company currently generating this degree of annual free cash flow, the impact on profitability will be dramatic.

Mr. Pizzi hinted at still more dramatic changes in the future, noting that the company’s board has a strategic planning committee. “Strategically, we’re always looking for what’s around the corner,” he said. “I believe we have transformed this great company, but we aren’t finished yet.”

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