Pepperidge Farm & the Quest for 'What's Next'

February 1, 2004
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While researching the history of Pepperidge Farm, Mark Sarvary discovered that the core business values of its founder, Margaret Rudkin, are consistent with his own. Moreover, he realizes that the cultural values of the company’s past provide the driving force for its future.


Pepperidge Farm & the Quest for ‘What’s Next’

by DAN MALOVANY

 

Curriculum Vitae
Name: Mark A. Sarvary
Age: 44
Title:
President of Pepperidge Farm, Inc., Norwalk, Conn., and corporate vice president of Campbell Soup Co. Incoming President of Campball Soup North America, effective March 15
Previous Positions: Served as CEO of J. Crew Group from 1999 to 2002. Previously more than six years with Nestlé; held several top management positions, eventually advancing to president and general manager of the Frozen Food Division. From 1988-1993, served as a management consultant at Bain and Co. Started his business career in 1981 working for IBM in the United Kingdom.
B.S. in Physics from Kent
Education: University in the UK and an MBA from INSEAD Business School in France.
Family: Wife Judy. Four children ranging in age from 11 to 17. “They’re my primary activity outside of work,” he says.
Hobbies: Sailing.
Charities: Serves on board of directors of the United Way of Norwalk and Wilton, Conn

When it came to understanding Pepperidge Farm’s present, and planning for its future, Mark Sarvary took a page from the company’s past. Actually, it was more than a page; it was the whole life story of Margaret Rudkin, the company’s founder. One key source was her 1963 autobiography titled, The Margaret Rudkin Pepperidge Farm Cookbook, which Sarvary notes was the “first-ever cookbook to make it on the New York Times bestseller list.”

Soon after joining Pepperidge Farm as president in August 2002, Sarvary became intrigued with the legacy of Rudkin, who founded the company in the midst of the Great Depression and built it into one of the nation’s most recognized brands.

What Sarvary found out was that Margaret Rudkin was a gutsy businesswoman who took calculated risks over a quarter of a century to build what is now the highest-selling premium bread brand in the country. In fact, from 1937 until she sold it to Campbell Soup in 1961, Pepperidge Farm’s annual compound growth rate averaged a whopping 53% a year.
“By today’s standards, it could compare with Wal-Mart or Microsoft,” Sarvary notes.
Even if you take Pepperidge Farm’s annual sales rate for the last 10 years before Rudkin sold it, the company’s top line grew at a 19% clip — not a bad track record for a New England homemaker.
“What’s absolutely amazing is that a lot of people don’t know that story,” Sarvary explains. “She’s literally one of the greatest female entrepreneurs in America, and we want to make sure everyone in our organization knows the story and shares it with others.”
As Sarvary tells it, it’s a story about how Rudkin began baking an all-natural loaf of bread in 1937 after her son’s doctor noted that his asthmatic condition could be improved by eating good food — particularly high-quality, nutrient-rich bread.
It’s a story about eventually developing a top-quality product and selling the first loaf at a local grocery store for 25 cents when conventional breads were selling for 10 cents in those financially-strapped times.
“To get people to try it, she cut up slices and served them with butter, and by the time she got home, she had a message to bring more bread,” Sarvary explains.
It’s a story about how a pioneering Rudkin had the foresight to purchase a frozen foods company called Black Horse in 1958 before many supermarkets even had a frozen food section. It’s about how one year later she bought the rights from a Belgian company to bake chocolate-based, fine European cookies for the U.S. market. It’s about how she introduced an innovative Goldfish snack cracker in the U.S. market from Europe in 1962.
It’s also about how she invested thousands in advertising to build the Pepperidge Farm brand over the years and millions of dollars more on the latest technology to produce its premium baked goods and to eventually become the biggest bread company in the Northeast. Finally, it’s about investing in employees and being one of the first companies in the nation to offer company-paid health insurance to its workers. It is essentially a story about how the company fundamentally operates today.
“There were two things that made the company as successful as it was. First, to have the best products of its kind. She was very unequivocal about that,” Sarvary says. “Secondly, the focus on teamwork. Her first employees worked with her to the end.”
Intrigued by Rudkin’s legacy, he sat down with her son and grandson and talked about her past. That’s when two additional fundamentals became apparent.
“One was the concept of ‘What’s Next?’ Whenever she would go to a plant and be shown something, she would say, ‘That’s really excellent, but what’s next?’” he recalls.
The other was a passion for the business, which Rudkin espoused as a company spokesperson and later as she lectured at Harvard University and other leading schools. For Sarvary, Pepperidge Farm is not just about Milano cookies, Goldfish crackers, premium breads or frozen foods. It’s about these four fundamental values that make up the company’s culture today.
“You see them in the people who work here. They’re very proud of working at this company,” he explains. “They may not say those exact words, but those virtues and values that Margaret Rudkin lived by are what are driving the company today.”

Inheriting a Real Jewel
Sarvary likes telling the Pepperidge Farm story not only because its rich history is relevant today, but also because the fundamental driving forces of the company dovetail nicely into his management philosophy.
“What’s interesting for me, speaking personally, is that those four values are very consistent with what I believe and with the way I like to operate,” he says. “That’s part of why I find it a rewarding opportunity to be working here.”
The 44-year-old native of the United Kingdom came to Pepperidge Farm with an extensive background both in marketing innovative products and in managing performance-driven companies. In fact, because of his leadership, he was recently promoted to president of Campbell Soup North America. The new group includes Pepperidge Farm and three other business units.
Just prior to joining Pepperidge, for instance, Sarvary served as the CEO at the J. Crew Group clothing retail chain from 1999 to 2002. Previously, he spent six years at Nestlé where he advanced through a number of senior management positions, including vice president, business development in the food division and vice president, retail confections in the chocolate division. Eventually, he was named vice president, marketing of the frozen food division and later became its president and general manager.
Under his leadership, Nestlé Frozen Food experienced significant sales growth, reaching $1 billion, with record profits. He oversaw the Stouffer’s and Stouffer’s Lean Cuisine brands and added innovation to the frozen entrée category with such products as Skillet Sensations and Homestyle items.
Sarvary sees several similarities between Nestlé’s Frozen Food’s business and how Pepperidge Farm is run.
“Both began as family-run companies. The values and cultural family feeling, and the commitment to people [are] imbued at Stouffer’s as well as Pepperidge Farm,” he says.
Currently, Sarvary reports directly to Douglas Conant, Campbell Soup’s president and CEO, who described Pepperidge Farm last year as “a real jewel” in the Camden, N.J.-based parent company’s diverse portfolio of food businesses. Since purchasing the baking company more than 40 years ago, Pepperidge Farm’s sales have grown at an 8% annual rate and now approach $1 billion on a yearly basis.
While many snack and bakery food companies are struggling, sales of Campbell’s Biscuits and Confectionery segment, which includes Pepperidge Farm, Godiva Chocolatier and the Arnott’s biscuit company in Australia, rose an impressive 20% in the first quarter ending November 2, 2003. Campbell attributed the growth in the division partly to strong fresh bread and cookie sales at Pepperidge Farm. Specifically, Campbell Soup noted the success of Pepperidge Farm Mini Cookies, which include bite-sized versions of its popular Milano, Mint Milano, Brussels, Chessmen and Sausalito products.
Overall, packaged bread accounts for 35% of Pepperidge Farm sales while crackers, largely its powerhouse Goldfish brand, comprise 25%. Premium cookies and frozen baked goods, such as its garlic bread, puff pastry and pot pies, each contributed 20% to the top line.
Clearly, Sarvary is pleased with the jewel he inherited.
“I anticipate over an extended period of time that we will re-establish the growth rate that we achieved over the last 40 years,” he says. “We have the opportunity to grow in every category. We also have opportunities to enter categories where we don’t currently compete. That’s because we compete in the premium end of every category, whether it’s bread, cookies, snack crackers or frozen. What I have seen in the marketplace — not only here but also at Stouffer’s — is that the premium end of all of these categories is growing much differently than the mainstream or value segments.”
In a review of these four segments, Sarvary notes that the Pepperidge Farm Mini Cookies line is “going to be our biggest product introduction in cookies since American Collection, which became our Chocolate Chunk cookies.”
Campbell PromotCampbell Promotes Sarvary,
Gould to New Postses Sarvary,
campbell Soup announced that it is promoting Mark A. Sarvary, president of Pepperidge Farm, as president of the newly formed Campbell Soup North America. Jay Gould, Pepperidge’s chief marketing officer, becomes the new president of the baking business. The promotions become effective on March 15.
Under Campbell Soup North America, Pepperidge Farm becomes one of four business units that Sarvary will oversee. The other divisions include U.S Soup, Sauces and Beverages, and Campbell Away From Home in the U.S., Canada, Mexico and Latin America, and Godiva Worldwide. Together, all four units had about $5 billion in sales during the previous fiscal year.
Sarvary, 44, joined Campbell in 2002 as president of Pepperidge Farm. Under his leadership, Pepperidge Farm has continued to deliver solid growth. Sarvary, a former senior executive at Nestle USA, was the chief executive of J. Crew Group, Inc. from 1999 to 2002.
Meanwhile, Gould becomes president of Pepperidge after only a relatively short stint at the company. Prior to joining the company in December 2002, he spent seven years at Coca-Cola Co. in numerous roles, including vice president of portolio development and innovation in Coke’s Global Marketing division.
Prior to that, Gould worked at General Mills from 1995-2002. From 1992-1995, he ran his own specialty frozen food company called Full Service Marketing.
Gould received a masters degree in general management from Harvard Graduate School of Business. He also has an undergraduate degree from the University of Dayton.
Meanwhile, the snack cracker segment, he adds, had “a phenomenal year last year,” partly because of the introduction of Goldfish Colors. More recently, the company repackaged and added new varieties to its Flavor Blasted Goldfish snacks line, which is geared toward teens and ’tweens — an older demographic than for regular Goldfish crackers. Unlike the previous milk carton packaging, the new format for Flavor Blasted Goldfish features a resealable foil bag with bright colors and high-impact graphics.
“By investing in new packaging, new positioning and new advertising focused against them, we plan to reinvigorate the Flavor Blasted items and grow our business with older kids,” Sarvary says.
At the same time, while Pepperidge Farm’s frozen baked products remain strong, the company plans to enhance its pot pie line with improvements in the fillings and crust. Moreover, sales of its Pepperidge Farm Farmhouse, Swirl and Light Style breads are rising in the double-digit range — despite the low-carb diet craze and being the highest-priced items in a category that’s essentially experiencing little or no growth. Sarvary attributes the strong performance to several factors.
“It’s fair to say that extended shelf life has been valuable for us. Consumers are really recognizing the improved quality. Our healthy breads are doing well,” he says. “Many of our breads have attractively low net carbs. However, our primary requirement is that our breads taste great. We are not going to make anything that doesn’t taste great.”

Polishing the Jewel
While the company is being driven culturally by Rudkin’s four core values, Sarvary and Pepperidge’s senior management team have developed a five-pronged “Acceleration Plan” to figuratively polish the “real jewel” and strategically spark further growth.
Specifically, the plan includes a focus on innovation, on strengthening the brand, on increased distribution, cost-effectiveness, and valuing people.
“Innovation is crucial in the categories in which we compete, in the sense of product news and line extensions that are good complements to what already exists,” Sarvary says. “Particularly in the cookie and cracker business, people are looking for variety and innovation and new news. It’s part of what you need to be successful in your core items.”
Sarvary defines innovation between two parameters. At one end, there are line extensions, such as the vanilla or raspberry Milano cookies introduced last year. “They are not new eating occasions, but they do keep excitement in the category and keep our business robust,” he says.
At the other extreme, he’s looking for “significant” new product innovations.
Goldfish Colors are a great example of innovation within the frame of the existing product line,” he says. “They’ve created excitement. They are fun. They are different from anything we did before.”
The Mini Cookie line, he says, involved “borderline” innovation.
“Although minis are very derivative of the regular cookies, they’re a different eating occasion, and people consume them in a different way because they’re more of a bite-sized snack,” he explains.
Perhaps even more so, Sarvary considers the introduction of Pepperidge Farm pot pies some years ago as a significant innovation that continues to drive incremental business.
“While related to us and consistent to our baking heritage, pot pies are a totally different category and a totally different eating occasion,” he says.
So “What’s next?” for Pepperidge Farm? Sarvary is holding his cards close to his vest, but he offers some teasers. For instance, the company will be relaunching its Chocolate Chunk collection. Through research, the marketing department discovered that time-pressed shoppers had difficulty differentiating not only flavors, but also which cookies were soft varieties and which ones were crispy.
“It was written on the package, but given the one second that people have to choose their cookies, it wasn’t as clear as it could have been so we were looking for ways to make it as easy as we can for the consumers to select the variety that they want,” he says.
In the bread aisle, Pepperidge Farm has a good history of adding softer varieties and whole grains that cater to consumer preferences.
“Our customers are very sensitive to the changes that we make in the consistency or texture of our breads,” he says. “We have over time added new or different varieties to meet our customers’ preferences.”
To be successful with new-and-improved products, the process first involves identifying the main attribute that consumers like most and determining how to improve it to enhance the premium pleasure of the eating experience.
However, Sarvary stresses that improving a premium product requires much more than adding a greater amount of some key ingredient. To determine the critical attribute, Pepperidge conducts consumer research to figure out how to make the product, let’s say, more convenient, more snackable, more portable, less messy for dashboard dining or even more striking on the retail shelf with greater eye-catching graphics.
Improving a product could also involve creating, reformulating or repackaging it for additional eating occasions or for consumption during different parts of the day.
Currently, for instance, Pepperidge Farm is testing Big Swirl, which are heartier slices of the popular-selling Swirl breads. However, the company is not just giving consumers a thicker slice of bread. It includes factors like how the butter soaks in, and aroma.
“It’s important not to think of it so simply as ‘more stuff for your money,’” he says. “It involves a deep understanding of what it is that people value in a product.”
Often, Sarvary says, the company discovers that it can’t improve on something consumers like, but it can give them more.
Take Milano cookies, for example.
“Our best-selling Milano is the double-chocolate Milano,” he explains. “Our second best-selling item is our single-chocolate Milano. Some people like more chocolate and some people like less. Adding more chocolate may have improved it for those who prefer that, but it may worsen it for those who don’t.”
With Goldfish crackers, on the other hand, young consumers value the fun and playfulness of the snack cracker with an attitude. Creating Goldfish Colors added more “fun” to the product.
“You can improve on your products if you understand what the consumer really values,” Sarvary notes. “Merely changing something for change’s sake is a very bad idea. To this day, some of our best-selling breads, cookies and crackers are those that we’ve had for the longest time.”

Connecting the Dots
Like Rudkin Sarvary values his team to oversee research and development, advertising and brand building, Sarvary brought in ex-Coca-Cola executive Jay Gould as chief marketing officer. Gould was recently promoted to president of Pepperidge Farm. (See accompanying story.) With a powerhouse name like Pepperidge Farm, which is among the top 3% of all brands in America in terms of consumer awareness and household penetration, Gould’s primary focus has been coordinating all components that can strengthen the brand’s development.
Last year, the company launched a major integrated marketing campaign to get its brand-loyal consumers to connect the dots, so to speak. Despite strong brand awareness and household penetration overall, research showed only a low level of cross-purchasing by consumers within the Pepperidge Farm brand.
“We have a great opportunity to increase the portion of people who love our bread to try our cookies, or those who love Goldfish crackers to try our frozen products,” Sarvary says.
While Goldfish skews toward young children, the demographics among consumers who buy Pepperidge Farm bread, cookies and frozen baked goods are similar. To promote across its premium lines, the company developed an advertising campaign using a new animated character, known internally as “O. Howie Bakem.” When the advertising broke last year, company employees volunteered to go to the stores to hand out coupons that were good on any three Pepperidge Farm items. The company also developed in-store merchandising displays that encouraged cross-purchasing of its bakery products.
“Using the same advertising to represent our cookies, bread, and frozen products enables us to build the Pepperidge Farm brand and at the same time build sales of the individual items,” Sarvary says.

Focus on Distribution
In addition to brand development, the company has broadened its distribution into new channels. Sarvary reports that the company has had “great success” moving beyond the traditional supermarket to include convenience stores, mass merchandisers, club stores, drug stores and other channels of trade.
“We don’t think about alternate channels, we think about where the consumers are,” he says. “Where they are is where we want to be.”
The company’s distribution network has more than 3,000 independent distributors or sales development associates (SDAs) who distribute products over 3,500 routes. In recent years, the company has supplemented its direct-store-delivery (DSD) program with cross dock pallet distribution. So far, the synergies have worked well.
Here’s how the systems complement each other. Just prior to a major promotion, pallet shipments are made to all of the stores in a chain. Then, the SDAs work to set up and maintain special displays. After the promotion ends, they put the remaining products back on the shelves.
“By coordinating a central delivery of pallets to stores to coincide with the promotion and having the SDAs work to refill those promotional displays and make sure they are properly positioned, we have the best of both worlds,” Sarvary says. “As a result, we have been very successful in these promotions, not only with the mass merchandisers, but also with major customers in the market. How many customers have the opportunity to have these people in their stores every day, checking and filling the displays?”
Pepperidge Farm’s core packaged bread and roll market is currently concentrated east of the Mississippi. But the company is exploring options for getting distribution in Western U.S. states as well.

Focus on Operations
Throughout its history, Pepperidge Farm has invested in automation and the latest technology to ensure that it can consistently produce its high-quality products. Back in 1938, Rudkin spent what was then a whopping $1,000 on an automated dough mixer and in 1947 invested $625,000 to build one of the most state-of-the art facilities at the time.
“She was very nervous about spending that much money, but she wanted to have the best factory in the industry,” Sarvary recalls. “Two years later, she built a second one.”
The tradition continued after Campbell Soup purchased Pepperidge Farm. In the late 1980s, it built one of the most automated bakeries at that time in Lakeland, Fla. In the early 1990s, the company spent $180 million to build a 611,000-sq.-ft. plant in Denver, Pa.
Last year, Pepperidge invested $72 million to build a 265,000-sq.-ft. plant in Bloomfield, Conn. The bread, roll, stuffing and crouton facility replaced the 56-year-old Norwalk plant next to the company’s headquarters and added much-needed capacity and quality control to its core market in the Northeast and mid-Atlantic. (See accompanying plant feature.)
With the Bloomfield plant on line, Sarvary says, “We now have capacity to accommodate future growth. Demand for our breads is continuing to grow.”
In addition, news reports leaked out that Pepperidge is investing an estimated $16 million in its Lakeland plant to install a new snack cracker line that reportedly will produce a new product for the company later this year. Sarvary declined to elaborate on the project at this time.
Additionally, the company operates bakeries in Pennsylvania, Florida, Illinois, Ohio, South Carolina and Utah. Pepperidge Farm has ongoing efforts to significantly boost production capacity and enhance product quality with minimal capital investment.
“We’ve done a variety of things to increase our capacity by 15% without a significant amount of capital investment by, for example, improving the air circulation so that we keep our ovens hotter and by adding radio frequency units to increase the throughputs of our ovens,” Sarvary says. “They cost something, but it’s relatively little compared to the cost of a new oven. By working on the temperature gradings of our ovens, we have improved our throughput, especially on the Goldfish lines.”
To consistently improve the company’s overall performance, Sarvary says he plans to follow in Rudkin’s footsteps and constantly ask his team “What’s next?” to ensure that Pepperidge Farm is exceeding its customers’ and consumers’ expectations.
“Consumers are incredibly discriminating. People really tell the difference between products. If you diminish the quality or change the taste, people notice it immediately. It’s part of the reason why Pepperidge has been successful. They have not diminished the quality over time,” he says.
“People also understand the value of premium,” he notes. “They can discriminate between something that is good and something that is very good. Moreover, they are prepared, especially with something like cookies or crackers, to pay a premium for something that is a little better because it won’t break the bank. They appreciate the added value and they’re willing to pay for it.”
By constantly asking “What’s next?” Pepperidge Farm will continuously challenge itself to remain “a real jewel” in the Campbell Soup diversified portfolio of businesses. Besides being a driving force for the company today, asking “What’s next?” is a rhetorical question that will determine what the future holds for the company, Sarvary says.

For Sarvary, having memorized the book on Pepperidge Farm, it looks like he’s ready to write the next chapter.

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