April 1, 2005
by Laurie Gorton
Yes! After more than a decade of double-digit growth, the tortilla business still offers more than enough opportunity for times to come. That’s the potential that positions Casa de Oro Foods for the future, and that’s also the reason Plaza Belmont, a private equity firm specializing in food manufacturing businesses, bought the company from ConAgra Foods in January 2004.
“Even the biggest name in the tortilla business has a market share of just 15%,” said John Stout Jr., c.e.o. of Plaza Belmont Management Group LLC, Shawnee Mission, KS. “That gives lots of room for growth by other producers.”
The new company, Casa de Oro Foods LLC, now headquartered at Louisville, KY, operates two plants and generates approximately $60 million in annual sales. That figure is expected to more than double in the next few years, according to Ted L. Longacre, Casa de Oro’s president, who observed that tortilla sales continue to climb 10% or more annually.
“And we have the opportunity to grow by adding to our customer base and product lines and by doing both correctly,” said Charles Kraut, director of quality assurance and product development.
TWO PLANTS. The two facilities — one at Louisville and the other at Omaha, NE — have a combined total of 280,000 sq ft of manufacturing and warehouse space. “The Louisville plant was acquired by ConAgra in 1998,” Mr. Stout explained. “It is a bigger plant, but older than the Omaha site, which opened in 1992.”
“Louisville is unique in that it is geared to manufacture a lot of different products, including flour tortillas, corn tortillas, tortilla chips, ready-to-fry tortilla chips, taco shells, meal kits and even breadsticks and pizza crusts,” Mr. Longacre said.
“One of the first things we had to do was narrow that focus and improve operating efficiency in the remaining product lines,” he continued. “As a result, we decided to sell one of the new processing lines that ConAgra installed just a few years ago and to concentrate on increasing the line efficiency and the capacity in our flour and corn tortilla production. We will be purchasing a new flour tortilla line for Louisville as part of the changing focus.”
Creating Casa de Oro Foods, ConAgra converted an idled food processing facility at Omaha to make tortillas primarily to serve one large quick service restaurant (QSR) account. “Within two years, we doubled the number of lines in the plant and expanded our customer base,” he continued. “We effectively ‘filled up’ the plant, but we do have ample land to expand there.”
Louisville, on the other hand, was purpose-built in the mid-1980s by the Chi-Chi’s restaurant group as a tortilla facility and operated as Mesa Foods. The plant experienced several additions over the years, reaching today’s 185,000 sq ft, but the site’s ample acreage still has room for future expansion.
“Chi-Chi’s ran the business until 1998, when I purchased it for ConAgra and made it a part of Casa de Oro,” Mr. Longacre said.
Mr. Longacre was the executive who took charge of Casa de Oro when it was formed by ConAgra in 1992. He had previously worked in the company’s flour and specialty grains companies for more than 25 years. Although he left ConAgra three years ago, he stayed in touch with many of the Casa de Oro managers. When Plaza Belmont acquired Casa in January 2004, Mr. Stout asked him to rejoin the business.
Although the company’s senior management team is split between the two plants at Omaha and Louisville, it operates as one team focused on improving results of the entire company. There is no “home office” mentality here. “We operate as a team, and we will continue to operate that way with strong managers in both locations,” said Mr. Longacre.
“Our senior operations manager, Jon Heussner, and our head of product development, Charlie Kraut, are both located at Omaha; however, both of them have been extremely active in making improvements to the Louisville facility,” he continued. In order to emphasize the importance of the dramatic improvements necessary at Louisville, Mr. Longacre decided to relocate there.
This plant runs two heat-press flour tortilla lines, three corn tortilla lines and one tortilla chip line. Most corn lines are fed by an on-site wet masa (cooked corn) operation, although prepared dry masa flour is also used for some items. “ConAgra put in two new processing lines a couple years ago, one for taco shells and the other for what I call flat breads, which includes pizza crust and bread sticks,” Mr. Longacre added. “While the new taco shell line fits into our future strategy, the flat bread line does not.”
“Although we are selling one line and getting out of the flat bread business, we are in the process of installing a new line to make tostadas, buying a new flour tortilla line and upgrading all of Louisville’s remaining lines,” Mr. Stout explained. He added that some updating projects have already started.
A GREAT BRAND. With Louisville, Casa de Oro diversified greatly in product offerings and markets served. Among the most important assets was the Chi-Chi’s retail brand, licensed to the company by the restaurant chain.
“The Chi-Chi’s brand is well recognized by the consumer, being one of the first big restaurant chains to feature Mexican foods,” Mr. Longacre observed. “The brand has great identity, and we plan to continue to expand our Chi-Chi’s line of products.”
Within 30 days, the company will introdu e Chi-Chi’s flour tortillas to retail markets m . To date, Chi-Chi’s items ha ve all been corn-based: tortillas, tto rtilla chips and taco shells. Casa a de Oro’s Louisville plant marketss to various food sectors. “We re s an d su permari-Chi’s and Mesa eran gacre explained. other h we serve are resfood ice and contract ing.. T hus we connect . or gro gg wth areas of the e summarized.
site gives access to roug he US population, an and d such major metropolitan areas as Atlanta, Chicago, Detroit, St. Louis and even Philadelphia are within a day’s drive. Casa de Oro’s retail products reach store shelves not only through distribution to warehouses operated by retail grocery customers but also through a DSD network operated by a third party. National institutional distributors handle QSR and food service products. Products move in ambient shelf stable, refrigerated and frozen forms.
FOOD ENTREPRENEURS. Casa de Oro (the company’s Spanish name translates as “house of gold”) entered a new phase of existence with its purchase on Jan. 30, 2004, by Plaza Belmont from ConAgra Foods, Inc.
Both Mr. Longacre and Mr. Kraut observed that the change in ownership brought a new entrepreneurial approach, which proved to be a real culture change. They said that decision-making has been pushed down to the operations level, and decisions are quick. At Louisville, the past year has brought a complete changeover in management and reorganization of production staffing. The results not only better plant efficiencies but also better staff morale.
“The business has changed a tremendous amount,” Mr. Longacre said of the past year under the new owners. With oversight from Plaza Belmont partner Bob Parnow, the Casa de Oro team carefully analyzed all aspects of the business with special attention to cost structures.
Digging into the cost structure at Louisville, Casa de Oro managers found efficiencies lagging because of a persistent pattern of overstaffing. Under previous managers, the solution to production problems was to add staff, resulting in substantial underutilization of labor. The new team arrived at the decision to downsize by 30 people to a current employment of 125. Some attrition occurred simply because of the culture change brought on by the new ownership.
“We really wanted to reorganize and downsize only once and not to drag it out,” Mr. Longacre said. “We looked at every product and every line, asking what is the best, most efficient way to run and staff the line. How many people ‘should’ be involved?
“With fewer people to monitor, supervision became more efficient,” he continued. “Since December, we have seen our measurements of production efficiency increase, and we have also seen morale improve. The re-manning changed the attitude of a lot of people. Their responsibilities changed, and they had to step up in their jobs.”
A good example of what the new attitudes can accomplish was described by Mr. Longacre as “the miracle of the 17 truckloads.” Louisville received a rush order for 17 loads of chips that had to be completed within a week as an add-on to the regular schedule. The customer stipulated that if the order did not get out in time, it would be cancelled completely.
“The first day, the warehouse employees loaded one truck, the second day two trucks,” he recalled. “With time getting short, they had to figure out how to accelerate floor-loading a truck in two hours and still get their regular schedule completed.
“Yes, the 17 truckloads were shipped on time, but it involved considerable ingenuity on the part of the staff,” he said. “It proved a success, and it boosted morale and teamwork.”
IGH CAPABILITIES. Over the years, Louisville accumulated 85,000 sq ft of manufacturing space through various additions. A large 80,000-sqft warehouse was the most recent. “The building has plenty of floor space available for more equipment and lines,” said Mr. Kraut.
Frying oil, flour and dry corn enter the facility via bulk storage silos. “We have the capacity to hold 190,000 lb of fry oil, 30,000 lb of liquid shortening, 360,000 lb of flour and 450,000 lb of corn.” All other raw materials are received in bags and boxes and held in a portion of the large warehouse.
Prep for flour tortillas starts with weighing out hand-adds and mixing the dough in 1,000-lb batches. From the Peerless horizontal mixer, dough moves into a Lawrence Double Drop OP/AL press line. Here it is divided into individual pieces, rested in an overhead proofer and automatically heat-pressed before going into the oven. The single system actually feeds two oven-and-cooler lines. The company makes its flour tortillas in diameters ranging from 6 to 13 in. and flavors including spinach and tomato, among others.
With the pending introduction of Chi-Chi’s flour tortillas, the company plans to add another flour tortilla system, similar in size to the dual line now operating.
After baking in a 3-pass oven, the tortillas cool on a multiple-tier cascade system that feeds them into automatic counter-stacker systems. Line operators pull off the stacked tortillas and place them in poly bags. When bagging shelf-stable products, the stacked tortillas can be fed into a Hayssen overwrapper equipped with gas-flush capacity. Assembly of dinner kits is also done on the Hayssen line. Operators stack finished packaged into shipping cases and stack them onto waiting pallets.
“Most flour tortilla users are going to shelf-stable products and getting away from refrigerated and frozen styles,” Mr. Kraut observed.
Adjacent to the flour tortilla packout area is one of the plant’s newest lines: a Rademaker yeast-raised dough makeup system. This flatbread line produces gordita shells, pizza crust, breadsticks and lavosh, among other products. It uses a 7-tier cascade-style proofer enclosed in a humidity- and temperature-controlled room. After baking, the flatbreads travel through an I.J. White spiral cooler in a separate climate-controlled room, allowing their internal temperatures to drop from 200°F to 35°F before packaging.
CORN SIDE. The oldest section of the plant houses the three institutional corn tortilla lines plus a new taco shell line. Corn cooking takes place in a mezzanine that allows gravity to feed the die-cut lines below. The company uses yellow and white varieties of corn, sometimes blending the two when formulations require.
Three banks of kettles supply cooked corn, with each bank having two 700-lb-capacity, steam-jacketed cooking kettles. After cooking, the corn is pumped into a single 1,400-lb tank that supplies the long rows of steeping tanks. Corn remains in these tanks for six to 18 hours before use. After steeping, the corn slurry is pumped to a separator where the steep water is removed and the flinty hulls washed out. The cooked corn is conveyed to a Maddox stone mill for grinding to form a masa that is fed directly into the cutters and formers.
“Some items use prepared masa flour,” Mr. Kraut explained, pointing out the Peerless horizontal mixer used to prepare such doughs.
The formers for the three corn tortilla lines can be switched around to allow the company to produce the maximum number of product styles: rounds, triangles and other cuts. After baking, round corn tortillas pass through a cutter to create wedge-shaped pieces, which are sold to restaurants to be fried before service.
Retail tortilla chips pass through a Maddox oven, equilibrator (cooler) and fryer. They leave via a draining and cooling system that uses an exhaust fan to draw off both heat and excess fat. The chips enter a tumbling drum for seasoning and move into the packaging room on a bucket elevator that feeds a large surge bin. This bin accumulates the chips ahead of the two Woodman vertical f/f/s baggers, each equipped with net-weighting systems. Package sizes range from 12 to 32 oz. Bags are packed into shipping cases and stacked onto pallets.
The corn side’s newest line line is a Heat and Control taco shell system. The taco shells are formed as round corn tortillas, then baked and cooled. The tortillas are then automatically loaded into forming moulds and fried. As they leave the fryer, they are draped over a flexible band to cool before reaching the stacking table. Line operators group the stillflexible shells manually and insert a small paper separator that helps the shells maintain their shape during packaging and shipping.
Mr. Kraut noted that a tostada line will soon be added adjacent to the taco shell system.
The grouped taco shells pass through a Rose Forgrove overwrapper before they reach a shrink tunnel. An erector automatically opens cartons, and an operator pushes the wrapped shells into them before they run through the sealing system. Finished packages are loaded into shipping cases, which are then stacked on a pallet.
In addition to its freezer section, the large warehouse is racked to provide 1,560 pallet slots for dry goods. The gravity-fed system assures firstin, first-out handling of finished products and raw materials.
“We try to keep at least two truckloads of Chi-Chi’s products on hand at all times for possible rush orders,” Mr. Kraut explained.
MUTUAL SUPPORT. “We have worked hard to make one company out of these two plants,” Mr. Longacre said. When communicating initiatives and programs, Casa de Oro brings its senior management teams from both locations together at one time to talk about issues. “We have one meeting in one place, not two at the separate sites,” he said.
Mr. Kraut, who has worked in both plants, agreed and said, “This is a big improvement. The cooperation between the two plants is increasing.”
Some functions such as marketing, finance and administration are housed at Louisville, while Omaha is the base for R&D, pilot plant and engineering activities. Decisions about new equipment, for example, are researched with the help of the Omaha engineering group.
Besides the updates, Casa de Oro plans to grow. “One of our goals is to increase sales by more than 20% per year, and in order to do this we will need new and more efficient equipment,” Mr. Longacre said. “In flour tortillas, we are planning to order a new high-speed line this summer. We have begun researching the various alternatives, and we will make our final decision within 90 days.
“In addition, we are fortunate to have a top-notch sales and marketing group, headed by Chuck Sinon and a retail group headed by Brad Palmer, who are committed to filling up this new capacity,” he added.
Growth is an important Plaza Belmont goal. “We are always looking for acquisitions,” Mr. Longacre observed. “At some point, I expect Casa de Oro will be national. Plaza Belmont is very active in adding to its business.”