Through strategic acquisitions, organic growth and an eagle’s eye for identifying new opportunities to expand, J&J Snack Foods has transformed itself into a diversified food company that’s emerged as a major player in the baking industry as well.

By Dan Malovany

Gerry Shreiber doesn’t quite see things the way traditional executives do. Some business leaders prefer to be well grounded in their strategic vision. Shreiber, however, would rather assess his competitive landscape from a bird’s eye view where he can seize new opportunities for growth.

That’s a perspective that has served him well since 1971 when he bought a money-losing soft pretzel company with only eight employees and $400,000 in annual sales at a bankruptcy auction and, through acquisition upon acquisition, transformed J&J Snack Foods into the nation’s largest soft pretzel company that now controls some 80% of the market.

Today, more than 30 acquisitions later, the diversified food company’s soft pretzels, churros, funnel cakes, frozen juiced treats, frozen beverages and other niche products can be found in sports stadiums, movie theaters, theme parks, malls, supermarket freezer cases and throughout the foodservice industry.

The king of convenience foods that’s discovered fertile niches before they’ve become trendy has experienced 37 straight years of sales growth or 149 consecutive times of quarter-after-quarter sales increases and has been named by Forbes magazine as one of the best 200 small companies seven times.

“Over the years, we have had the good fortune to find some pieces of coal that shined in different ways,” says Shreiber, J&J’s chairman, president and CEO. “We’re able to work hard enough and rub hard enough to make them glitter.”

Spotting those diamonds in the rough continues to pay off in a big way. In fiscal 2008, the Pennsauken, N.J.-based company had $629 million in annual revenue, and while net earnings slipped primarily because of skyrocketing commodity and fuel prices last year, both sales and profit are tracking at a record pace this year.

In fact, the company recently reported that it’s on a record pace for profit and sales. For the third quarter ending June 27, sales rose 2% to $179.8 million over the same period last year while earnings soared 38% to $14.9 million. For the nine months of fiscal 2009, sales climbed 4% to $470.3 million while earnings jumped 58% to $26.5 million. Going forward, Shreiber sees organic sales growth ranging from 3% to 7% range, depending on the economy. With acquisitions, he’s optimistic that overall growth will be at a double-digit pace over the next five years.

J&J Snack Foods owes the bulk of its success to taking the road less traveled by becoming the market leader in product categories where there are significant barriers to entry. To gain control of the soft pretzel market, the company even purchased the technology to mass produce them when it acquired AMF Pretzel Twister in 1982 and now owns 120 of 130 of those machines in the world.

“What’s different with our company is the uniqueness of the product such as pretzels, churros and funnel cakes that are a niche,” says Robert Radano, senior vice president and COO.

However, during the last decade or so, J&J Snack Foods has become a major player in more mainstream baking categories such as cookies, cookie dough, sweet goods, bread, rolls, snack bars and biscuits, to name a few. In fact, 35% of its revenues in 2008 came from conventional fresh and frozen bakery products compared with 20% of sales for soft pretzels.

Shreiber now estimates sales of conventional frozen and fresh baked goods along with its soft pretzels, churros and other bakery-related niche products will add up to around $400 million of the company’s annual sales, making it a major player in the industry.

From Niche to Diversified

Most of J&J Snack Foods’ 10 bakery production facilities were acquired initially to build production, add new customers or develop new channels of distribution for its core line of soft pretzels and other core products, which are mostly sold in the foodservice channel but also in supermarket freezer cases.

The company’s acquisition strategy isn’t an easy process, but it also isn’t complicated. It involves identifying the proper opportunity, analyzing it for synergies, buying it at a fair price, fixing it to make it profitable and expanding it via organic growth.

“We look for companies where we could add our resources to and complement them, or they can do the same thing for us,” Shreiber says.

For example, take the company’s purchase of its Bridgeport, N.J.-based Uptown Bakeries, which served as a captive bakery for Wawa convenience stores. About a decade ago, J&J Snack Foods had been knocking on the door at the C-store chain to sell its soft pretzels, but to no avail. As luck would have it, the $14 million business eventually became available at the end of 2000. Although it was losing money, the bakery gave J&J Snack Foods the chance to put its soft pretzels in more than 500 Wawa stores.

“With the Uptown Bakeries operation, we were blessed,” Shreiber says. “We have a terrific customer partner in Wawa. We just had to fix the bakery.”

That involved improving process lines, changing the infrastructure and putting a new management team in place along with a new approach to the business.

“We had to have a can-do attitude with our partner of Wawa,” Shreiber explains. “‘You want something? Yes, we can do that. No, it won’t be six weeks. It will be six days,’ and that was a little bit different from how they were operating before. Even though the store count has gone up 10% over the years, our business has more than doubled, which means we’re selling more units in the same number of places on a continual basis.”

One of its most significant moves was its 2004 purchase of Country Home Bakers, which had fallen into bankruptcy. Initially, J&J Snack Foods targeted the Atlanta-based baker because they competed against each other in the frozen cookie market. Country Home Bakers not only bolstered its position, but it also provided a key entry into the highly competitive in-store bakery market as well.

Shreiber, who is fond of sports analogies, gives his Monday morning quarterback perspective on the purchase.

“You can pick up yards at a time if you’re a football team,” he says. “First and 10, second and nine, third and eight, but the acquisition of Country Home Bakers gave us enough critical mass [in the] in-store bakery [channel] that we were able to expand it and then take other core products into the in-store bakery part of the business, which expanded our niches.”

At the time of the acquisition, Country Home Bakers had $55 million a year in revenue, but a good portion of the business was losing money.

“We had to improve its manufacturing operation,” Shreiber says. “We changed its management staff. We made it leaner, quicker and more efficient.”

That meant hiring Vince Melchiorre who now serves as the division’s president as well as senior vice president and CMO for J&J Snacks Food as a whole. Turning around the business wasn’t easy.

“Losing money with Gerry Shreiber is not a good thing, and there were a lot of tough questions that had to be answered,” Melchiorre says.

With commodities skyrocketing last year, that meant raising prices or replacing unprofitable business with new money making ones, when possible. It also meant consolidating a good portion of the company’s cookie business under the Country Home Bakers umbrella in Atlanta.

“Country Home has become the hub of all baked products, including cookies, breads and biscuits,” Melchiorre says. “It’s similar with Pennsauken with bringing in pretzels and frozen novelty. That’s the hub for those products.”

Ironically, the division’s frozen biscuit business provided another shot in the arm for ailing Country Home Bakers, which was contract manufacturing for Hom/Ade Foods. That Pensacola, Fla.-based company sold biscuits throughout supermarkets in southern states. In 2007, J&J Snack Foods acquired Hom/Ade, which had about $35 million in annual sales

“It’s real easy to talk about the game after the game is over, if I hadn’t walked this one or walked that player,” Shreiber says, “but when we acquired Country Home [Bakers], biscuits represented a fair amount of its private label production.”

Although a small player in the frozen biscuit category, Shreiber says, Hom/Ade had potential to play in the major leagues. Today, Melchiorre adds, it’s the No. 2 supplier of frozen, raw biscuits in the retail channel, and there’s more opportunity for growth.

“Its sales are mostly retail,” he notes. “Now the foodservice team can get hold of it and ask our national customers about being a biscuit supplier and trying to build business on the other side, which is what we’re doing. That’s how our businesses can complement one another.”

Perhaps more importantly, he notes, a profitable Country Home Bakers had more than $60 million in revenue in 2008.

Better Lucky and Good

Not all acquisitions have been blockbuster ones. In fact, most of J&J Snack Foods’ growth has come from taking small niche operators such as Moscow Mills, Mo.-based Daddy Ray’s, which had $15 million a year in annual sales of fig and fruit bars and whose products were similar to what J&J Snack Foods also produces in its California operation.

In this case, Shreiber’s eclectic and straight-shooting style paid off because Daddy Ray’s owner “wanted to sell but not to the [gosh-darn] suits in New York,” to paraphrase what was actually said.

“We made a deal in 75 days, and the business has doubled since we acquired it not because we were so brilliant,” Shreiber notes. “We thought it was a niche. It added and complemented to what we were already making, and something else happened. The economy suddenly hit a wall, and consumers turned around and said, ‘Let’s start shopping at dollar stores.’ The biggest market for Daddy Ray’s Fig and Fruit Bars was dollar stores.”

In addition to business, J&J Snack Foods acquired 11 acres of land and an 80,000-sq.-ft. facility that needs to be expanded to meet up with its growth. This time, its niche acquisition didn’t have to be fixed.

How lucky is that?

“It’s kind of like, ‘Gee, surfing is fun if you know how to surf,” says the sports-minded Shreiber. “Well, we got on the board at the right time [with Daddy Ray’s], and it’s still going well for us.”

Under the J&J Snack Foods umbrella, operations like Country Home Bakers and Daddy Ray’s continue to operate as their own separate entities that are responsible for their own profit-and-loss statements and business plans.

“Gerry doesn’t want to buy these companies and have them all become amalgamous or mashed together,” Melchiorre says. “They operate as individual businesses with their own leadership team, and they do their own thing and their job is to grow their businesses. That’s the fun part of being here versus other places. We have all of these different kinds of capabilities in a very entrepreneurial environment.”

Shreiber’s management style is to let these niche businesses operate in a semi-autonomous manner while the parent company blends administrative, human resources, engineering and purchasing support and coordinates sales, marketing and new product development synergies to maximize revenues, explains Tom Weber, vice president of operations.

“What some companies do when they purchase a facility [is] they force it into their structure. We haven’t done that,” Weber says. “We’ve tried to wrap the corporate support groups around the businesses as they were before we purchased them.”

In 2008 and so far in 2009, J&J Snack Foods hasn’t made any acquisitions. In fact, it’s been surprisingly quiet on that front. That’s not because Shreiber and his team aren’t looking to add companies to their portfolio. In fact, the publicly traded company has a solid cash flow and no debt. In reality, the multiples for making purchases had risen to a point where the company took a pass. The risk-reward, Shreiber says, wasn’t worth the energy or the money.

“Interestingly, the growth over the past two years has been all organic,” he says. “Somebody once asked me, ‘Geez, Gerry, it’s a great strategy you have. You made these acquisitions and then you don’t do anything for two years, and you let [the business] settle and you made more [money] as a result.’ I replied, ‘It wasn’t a great strategy. It was the way it fell out. You play cards, and sometimes you make that open-end straight.’ We made three [purchases] in 2007. We made nothing in 2008. Don’t give up on 2009 yet.”

At least, that’s what eagle-eyed Shreiber sees for J&J Snack Foods from his perch in the tree.