In the midst of industry consolidation, Horizon Food Group brings intermediate wholesalers together to share, as partners, the strengths of collective ownership while maintaining the entrepreneurial autonomy that made them each successful in the first place.

To sell or not to sell? That's one of the toughest questions facing dozens of intermediate wholesale bakeries each year. In some cases it's a matter of succession. Facing their retirement years, the owners realize that the next generation is not interested, not ready or not able to run the family owned business. In other cases, it's a decision of survival for independent companies. In these days of retail and industry consolidation, often the choice is either to acquire or be acquired.

For Bill Reynolds, president of Cutie Pie Corp., the issues were the desire for growth and the need for capital. In 1996, Reynolds and Bill Fenimore, executive vice president and chief operating officer, wanted to transform the Salt Lake City based company into one of the nation's leading producers of snack pies. To do that, Curie Pie would require millions of dollars in capital investment to install the equipment and infrastructure needed to expand its presence in the market. As an intermediate wholesaler with some $15 to $20 million in annual sales at the time, Curie Pie Corp. options were limited. It faced taking on huge debt, and that was if it could even convince lenders to provide the money it needed. "We had been profitable for many years and were growing quite nicely," Reynolds notes. In fact, Curie Pie had acquired California Pie Co. in Livermore, Calif., in 1992 to further boost its share of the highly lucrative West Coast market. "We were doing well," he adds, "but to go to the next level for our company, we needed to join forces." 

Selling the company to a major competitor in the baking industry was not an option. As Fenimore explains, "We had been in the hunt to join forces with someone who had deep pockets that would allow us to keep operating the business for years to come. And, we weren't looking for the traditional venture capitalists who are in for five [years] and out." 

Through mutual acquaintances, Reynolds and Fenimore met Phil Estes and Jim Shorin, the managing partners of Horizon Holdings, LLC. In 1989, Estes and Shorin formed the San Francisco based private investment firm, which specializes in partnering with proven managers and acquiring independent companies that are manufacturers or distributors of food, recreational or consumer products and have revenues between $10 and $50 million. 

As a former vice president in the corporate finance department at Drexel Burnham Lambert, Estes became an acquisition specialist who helped clients acquire small to mid-sized companies. A lawyer and CPA, Shorin had worked for Bain Co., a leading management consulting firm. Shorin specializes in post acquisition strategies, such as formulating marketing plans or implementing operational and financial controls. 

Despite assurances from Estes and Shorin that Horizon was investing for the long haul, Reynolds and Fenimore remained cautious, talking to other Horizon partners and Curie Pie's consultants as well. "After we started talking to [Horizon], we talked to people who we consult with and when they heard the term 'venture capitalists,' they said, 'Venture capitalists? You better be careful. When they come in, you either perform or you're gone'.” 

Today, nearly four years later, Reynolds is still around and he "cannot sing their praises enough."  

"One of the things that Horizon Food Group brings to the table is that they are deal makers. That is their real strength," Reynolds says. "They understand the financial and deal making process and have access to people who can make things happen. We're just pie makers. We weren't financiers. That's what we needed then and what works now." 

Over the last decade, Estes and Shorin have acquired seven food, beverage and distribution companies, which together have more than $70 million in annual sales. Horizon is not so much one company, but rather a fleet of small to mid sized businesses sharing purchasing, human resource, administrative and other common economies of scale, with Estes and Shorin guiding them from the helm. Horizon's holdings include such companies as Curie Pie, Ne-Mo's Bakery in Escondido Calif.; South San Francisco based biscotti company La Tempesta and Coffee Bean International in Portland, Ore. 

"We view ourselves as the sum of very strong pieces," Estes explains. "Each of our companies under the Horizon Food Group is a very successful, well-run, profitable company that produces quality products stand alone. Putting those companies under a common parent and letting them enjoy the benefits of common ownership makes each of them stronger. It makes them stronger individually and stronger collectively."

In addition, Horizon works with the management of each acquired company to install comprehensive financial controls, develop growth oriented business plans and promote a culture of prudent risk taking that, in the end, maximizes the value of each investment. 

"We try to balance those benefits of being part of a bigger group with entrepreneurial autonomy that we like to leave at each operating company," Shorin notes. "We like that energy from individual ownership and having control of their own destiny. We look for companies that are a strategic fit where we can bring some special advantages from our group or that we, ourselves, can bring." 

Horizon Food Group typifies a new and growing breed of baking companies today. For that reason, SF&WB named HFG its year 2000 Intermediate Wholesale Baker of the Year.

The acquisition of Curie Pie, in many ways, is a perfect example of how Horizon's business strategy works. Estes and Shorin first worked with Reynolds and his management team to identify the snack pie producer's strengths and how to leverage them.

Curie Pie produces freeze/thaw snack pies out of its Salt Lake City plant and distributes them nationally through such channels as school breakfast and lunch programs, and the supermarket shelves both under private label and the Cutie Pie brand. Out of its Livermore facility, Curie Pie's wholly-owned subsidiary primarily produces fresh snack pies, which are distributed under the Home Run brand via independent distributors to retail outlets throughout California. Typically, the 3oz. pies sell three for $1 or, on promotion, four or five for $1. 

"We clearly had a sense of Curie Pie as a low-cost producer," Shorin says. "We felt that it could go further if they understood their costs and the drivers of these costs, and that was a key part of our strategy. We didn't inject it and say it had to happen right away. It was a gradual process because there are systems that are built up, and you want to be gentle on the changes you make so that they are internalized." 

Working with Reynolds and his management team, Horizon developed cost controls that minimized downtime, reduced waste and streamlined purchasing. 

"We now measure production on a per pie basis, and we go out three decimal places," Reynolds says. "When I joined the company 16 years ago, I would say, 'What's the big deal about a penny?' Now we talk about tenths and hundredths of a cent." 

Moreover, Horizon invested capital in processes that enhanced operational efficiencies and in equipment that improved throughput and drove down costs. For instance, in its Livermore facility last year, the company added a second, larger snack pie line that produces both fresh and freeze/thaw pies. If a national chain runs a promotion, a very large spike in orders doesn't swamp the Salt Lake City plant, where throughput was also enhanced. The Livermore facility can now handle part of the surge in production, allowing the company as a whole to respond more quickly to its customers' needs, Reynolds explains. 

Last year, Curie Pie also purchased Houston based Huffman Bakery, a former, competitor of Curie Pie that produces pies and honeybuns. Huffman Bakery is being renovated to increase operational efficiencies, much like what was done in Salt Lake City and Livermore. The strategy here is to supply fresh pies to the highly populated Texas market, much like the company does in California, which has 34 million people. 

"In Utah, you have only 2 million people, so 9 8 % of what we make is shipped frozen across the country," Reynolds says. "The opportunity we face in Houston is supplying a market with fresh product that we now supply with frozen. With fresh product, we can save on transportation costs and provide even greater service and value to our customers in that southwestern market." 

Switching from frozen to fresh pies is part of a comprehensive strategy that Curie Pie plans to replicate in other highly populated markets across the nation. In addition, Curie Pie may produce honeybuns like those made in Houston out of its Livermore plant, where it has space to add an additional line. Synergies among its acquisitions, Shorin says, are integral to Horizon's long-term growth. 

"In terms of looking for additional partners, we think about it in a couple ways," Shorin says. "From the perspective of each of the companies, they are typically looking for add-ons within their business that would be geographic expansions, geographic fill-ins or perhaps bringing in a product that they cannot manufacture, which would be a good fit for them. From the holding company perspective, we are definitely looking for complementary acquisitions, which would be companies that bring us into new channels, are not competitive within the existing group and can bring us some unique product capabilities into our existing channels." 

Take Horizon's acquisition of Ne-Mo's last year. The company produces a wide variety of freeze/thaw premium muffins, Danish, cinnamon rolls and single-serve cakes out of its 58,000sq.-ft. plant. Although it’s a sweet goods producer like Curie Pie, Ne-Mo’s sells its products in different channels, namely fast-food chains, C-stores, vending machines and fundraising events throughout the nation. 

Horizon's initial strategy for Ne-Mo’s is different from Curie Pie's (see accompanying story). Adds Estes, "We look at the puzzle for them, and see what we can do. We do not use a cook cutter strategy this worked last time so let's do it again sort of thing." 

Specifically, Ne-Mo's Bakery distributes a substantial amount of product nationally especially along the East Coast from its facility out West. Acquiring a second or third facility would save on distribution costs. 

As Shorin explains, "Ne-Mo's is a frozen plant, and therefore has a more national reach. We are very big on the East Coast right now in fact, we're all over Manhattan and it doesn't make sense to supply everything from San Diego. So, ultimately, we plan to have a manufacturing facility on the East Coast." 

In the near term, Shorin adds, selling Ne-Mo’s products in distribution channels where Curie Pie is strong and vice versa provides a "huge opportunity" for the company as a whole. Currently, the companies are working on formulating products and packaging to execute that strategy.

"The core fit is selling other sister companies' products in your channel when they have been designed for your channel," Shorin notes. 

Overall, Horizon moves deliberately in acquiring new companies. There's no urgency to acquire businesses for acquisition's sake. As Estes explains, some companies just don't fit into Horizon's strategy.

"We have historically not looked in the bread, frozen food or dairy case section. We tend to be a little more niche oriented than those. We also try to stay way from outright commodities or situations where there is an agribusiness component where we are growing what we bake. We feel our strengths are in other areas," Estes says.  

Some businesses, Estes adds, are just too large. "We tend to focus on certain sized companies because that's where we feel we can add value. They are a better fit for where we are now. It would be unrealistic for us to look at a $500 million company as an acquisition," he explains. 

Providing the necessary capital investment is one area where Horizon can provide value to intermediate wholesale bakeries. 

Moreover, Horizon Food Group can offer highly sought executives a piece of the action. Overall, HFG's equity holders include Estes and Shorin and about four-dozen wealthy individuals and family trusts recruited by them over the years. Other stockholders include Horizon's board of directors, who are private business people or Horizon's major investors, and key executives like Reynolds and Fenimore who manage the day to day activities of companies like Curie Pie Corp. The executives can also earn options for the purchase of additional equity based on performance.  

Since all of Horizon's partners own stock on the same terms, Estes says, all investors win or lose based on the company's overall performance.

A case in point is Curie Pie Corp. With all of its wholly owned subsidiaries, Curie Pie Corp. today looks like a mini mirror reflection of its parent company. In fact, by mid-summer, the three operating plants will be placed under a new entity called Horizon Snack Foods, Inc. 

In addition to its three bakeries, the company last year purchased one of its independent distributorships, which handles its fresh product in California. Fresh pies from the Livermore facility are also shipped via independent direct store distributors (DSDs) throughout the Pacific Northwest and parts of Arizona. Reynolds sees more acquisitions in the future as opportunities arise. 

“What HFG has done on a macro basis, we have replicated on more of a micro basis in 1999," he notes. 

Moreover, the company last year formed the Horizon Transportation Group, a subsidiary that coordinates the national distribution of Curie Pie frozen snack pies by independent operators, who transport the product to grocery, school or foodservice warehouses. Fenimore recruited a transportation expert who coordinates shipping and arranges backhauls at the end of the route to control shipping costs because owner operators don't have to spend time searching for the next load. 

Cutie Pies produces 3oz. snack pies, namely for families and especially kids. The company also produces 4.5oz. pies, namely for C-stores where a core clientele of teens and young men have a larger appetite. 

Topselling flavors are apple followed by chocolate and cherry, almost neck and neck. Other varieties include blueberry, lemon and peach. Curie Pie limits its line up to only six varieties because the business is driven by volume, Reynolds says. Trendy flavors like guava may appeal to a select group of consumers, but there are not enough of them to justify rolling out the variety as a part of the low-cost producer's portfolio. 

Currently, the company is redesigning its packaging for Home Run pies with a smiling bear swinging a bat for the fences to create a uniform identity for the brand, adds Robert T. Nelson, vice president of sales & marketing. The Home Run brand is used for fresh pies out West and will be the preferred brand when the company begins selling fresh pies in the Texas market. 

Nearly 200 employees work at the three snack pie plants. In Livermore, 80 employees work on two shifts, six days a week. Major sanitation and preventive maintenance is done nightly, Fenimore says. 

The California plant houses two lines one that produces fresh pies only and a newer second line with fresh and freeze/thaw pie capabilities. Bulk flour is stored in a 75,000lb. silo while bulk shortening and vegetable oil are stored in separate 8,000 gallon tanks. Most minor ingredients are stored in a warehouse next door, with only two days of ingredients and packaging stored inside the plant. Agriculture commodities, such as fruit, come from government surplus supplies via the U.S. Department of Agriculture because the company produces pies for the school breakfast and lunch programs. Fenimore notes that those pies tend to have a reduced fat content, partly because Curie Pie must follow nutrition guidelines that dictate the amount of dough, fruit and other components of products that are served in the nation's schools. Being able to receive surplus commodities, Fenimore adds, helps Curie Pie maintain its mission as a low-cost producer. 

Snack pie production actually begins the day before with the makeup of fillings from scratch. Here, in two jacket kettles, operators heat starch, corn syrup, water and frozen tempered fruit in 350lb. batches to about 180°F, then reduce the mix down to 90°F when it is placed in a trough and rolled into a cooler set at 40°F for use the next day. 

Typically, the operators’ make up four to five batches of fillings the amount depends on the variety and the amount being used the next day to eliminate unnecessary cleaning. The key to processing fillings is to mix them quickly to avoid pulverizing the fruit into a slurry. 

"The longer you mix, the more you break up the fruit identity," explains Raymond Morris, plant manager. "Some fruit, like blackberry, gets broken up anyway. However, with fruit like apple, you want to preserve the chunks to maintain the quality of the final product." 

At the Livermore plant, line one produces fresh pies while a larger line two produces both fresh and freeze/thaw pies. Overall line efficiencies are in the 90-95% range, although during the time of SF&WB’s visit, the facility ran upwards of 98% during the weekend, Morris says. Dough is mixed in one of three #8 horizontal mixers, and then fed into an extruder, which continuously feeds the line's makeup system. Line speeds here are proprietary, but the company notes that the makeup system has been modified so that the line can produce snack pies at a rate that is significantly faster than industry standards. 

"Before, we used to chunk the dough into the line's feeder. Now, we use an extruder, which allows us to produce a consistent batch on the line and to operate more efficiently," notes Ron Krause, corporate engineer.

After passing through four sets of rollers one major and three minor sets the 8-in. wide dough sheet travels to a filling station. Here, filling is continuously pumped into the middle of the sheet as it is being automatically folded. Continuous filling not only allows the pies to be produced at a faster rate, but it also ensures that a precise amount of filling goes into each product, Krause explains. 

After filling, the sheet travels through a rotary or die cutter that not only cuts the individual pies, but trims off a "tail" of excess dough, which is automatically recycled into the extruder's hopper. Curie Pie's snack pies are rectangular instead of having rounded ends. This allows the company to minimize scrap and produce pies more quickly, Morris says. 

The snack pies then travel single file through a metal detector and on to a reciprocating conveyor, where the pies are lined up 17 to 18 across, then deposited and fried for about 4 minutes. After frying, the pies travel under a 200-gallon waterfall glazer, which coats the pies with a glaze set at 120°F. Then the pies travel under fans, which fix the glaze. Next, the products enter the cooler, which is set at about 50-60°F to reduce the internal temperature of fresh pies to an ideal 80°F for packaging. 

"We don't want it too cool or too warm, or the product will sweat inside the package," Fenimore says. "That will cause it to stick to the film, and we could possibly lose some shelf life as well." 

After cooling, the pies travel to an accumulator and then are wrapped prior to being placed in bakery trays, then loaded into trucks at one of the plant's four shipping bays. 

Currently, the wholesaler is exploring the possibility of installing robotics in its plants to streamline packaging. However, the system must be flexible to handle changes in packaging and the marketplace. 

"The philosophy here is that, if you bring to us a cap-ex project and the ROI works out, then we'll do it," Fenimore says. "What matters is how quickly the project will pay back." 

Although it sounds like an oxymoron, "prudent risk taking "whether it be with capital expenditures or with acquisitions is one of the terms that Horizon's executives like to toss around. Growth, Shorin says, should be evolutionary and not revolutionary. That's why the company takes a methodical approach to growing its businesses. 

Unlike venture capital firms of the '80’s, Shorin adds, Horizon's mission is to build equity for the long run. Profitable investors, he adds, must be patient enough to wait for the right opportunities.

 "We think about it much longer than five years," he says. "It's not five and out for us. We are building a base for a long-term investment" SF&WB

Reprinted with permission of Stagnito Communications Inc./An MWC Company 1935    Shermer Road  Northbrook, IL 60062

Tel: (847) 205-5660 Fax: (847) 205-5680. @ 2000 Snack Food & Wholesale Bakery