|Snacks make up approximately 18% of the company's business.|
ORLANDO, FLA. — B&G Foods’ foray into the snack business reached a fever pitch in 2013 when the company acquired Pirate Brands and True North in separate transactions. The two deals came on the heels of the acquisitions of three snack brands in 2012: Rickland Orchards, New York Style and Old London. As a result of the investment, snacks now make up approximately 18% of the company’s business.
In 2014, B&G Foods worked to integrate the new businesses and learned some valuable lessons along the way, said Robert Cantwell, president and chief executive officer.
“We learned a lot, things we didn’t even understand when we bought snacks,” Mr. Cantwell said Jan. 13 in a presentation at the ICR XChange in Orlando. “One is we were a dry grocery business (with) 40-plus brands. The typical product in our portfolio has a year-and-a-half, two-plus years’ shelf life. So shelf life was never an issue.”
The company learned quickly it is an issue in the snack segment.
“We entered into this snack realm; this is now products that go out on that same invoice,” Mr. Cantwell said. “Pirate’s Booty has six months shelf life. If you are Kroger you will only take that product in your store if it has 4½ months remaining shelf life. So between production and shipment to that customer you have got a month-and-a-half tops to ship it.”
Then there were the customer service issues.
“We sell a lot of snacks in Costco,” he said. “If Costco goes out of stock in one of their outlets it is losing sales by the minute … So, we had service issues we had to learn through.”
Customer service also means more investment in sales, Mr. Cantwell said. He said a good business in snacks tends to have margins between 16% and 20%, and the reason margins tend to be lower than other retail categories is the cost of sales.
“There are a lot more salespeople that you need in the stores,” he said. “There is a lot more service you need to those customers as opposed to stuff that just sits on a dry grocery shelf.”
On top of the shelf life and customer service issues, the Rickland Orchards brand has struggled and the company wrote off most of the business in the third quarter of fiscal 2014.
Mr. Cantwell said despite the issues, B&G Foods would be interested in acquiring another snack brand, but it would be cautious in its approach.“We would consider doing more acquisitions in snacks, but we are going to be very disciplined,” he said. “We want a brand that has been around a reasonable amount of time that could ride along with Pirate's Booty. We are not just going to go after any random snack brand.”