Monster-sized Chippery has gobbled up its share of the foodservice and fundraising channels and has its sights set on new ventures.

The nation, it seems, has betrayed indulgence. Whether it has been by low-fat followers, low-carb cravers or low-sugar seekers, indulgent bakery products have suffered.

Even Cookie Monster is a turncoat. Yes, even the venerable blue Muppet on public television’s “Sesame Street” is singing about healthy eating nowadays.

But there’s one real-life cookie (making) monster that seems to have turned a blind eye toward these party-poopers and has gone on doing what they do best: supplying gourmet cookies to foodservice and fundraising vendors across the nation.

Ask Dave Merkel, CEO and one of the founders of Chippery, just what he thinks about cookies, and you understand quickly why his Austin, Texas-based company has been a fast-growing success.

“I’ve never met anyone that doesn’t like cookies, from the smallest kid to the oldest person,” Merkel suggests. “It just crosses all those lines, and everybody eats them. And with so many flavors, there’s always a cookie for anyone’s tastes.”

Jeff McDonald, president of Chippery, says such thinking parlays into the company’s daily mantra: “Our strategy is to remain consistent. You gotta get up every day and make cookies,” he notes.

And that’s what Chippery has done, to the tune of $38 million in revenue in 2004, with an expected $47 million rolling in this year. According to McDonald, who joined the company in 1996 after leaving another cookie manufacturer, Chippery has experienced 20%-30% revenue growth in each of the last 10 years, and has targeted a similar growth rate in 2005.

Chippery has grown nicely in the foodservice and fundraising channels, which equate to roughly a 70/30 split of its business. But growth is not narrowly focused on that area. This monster is hunting for a company to gobble up and give it an entry into the in-store bakery/deli arena, where Chippery believes it can make waves very quickly.

“We’re looking to find a very talented company that maybe has hit [its] ceiling, or owners that want to get out, that make baked cookies in the clamshells,” McDonald explains. “It would be tremendous for us, because we do a great pre-baked product, but it’s a small part of our sales — several million dollars.”

Currently, Chippery offers pre-baked, individually wrapped, thaw-and-serve cookies in four flavors: Chocolate Chunk, Oatmeal Raisin, Peanut Butter and White Chunk Macadamia. They’re sold in two sizes, the 2.5-oz. Chompers size and the 4.5-oz. Whopper size. It also offers thaw-and-serve cookies in either 72- or 108-count boxes and seven flavors for large events.

The transition into the in-store bakery sector would be only the latest modification of daily life at Chippery. It’s been an always-evolving process for the company, which has made plenty of changes in strategies, operations and product offerings over the years.

“That’s the beauty of having a company is that nothing’s static,” Merkel says. “Everything is open for review always.”

For instance, recently, the company went through a major stock-keeping unit (SKU) rationalization to control costs, which were flying off the handle.

“What ends up happening, as a company grows — especially a fast-growing company — you don’t sometimes stop and breathe and think about what is profitable and what is not,” McDonald says. “It’s really great to have these cookies, but do we really need to have a 3-oz. Cranberry Walnut? We would come out with a new product, and we’d make in it four sizes, and then we had five warehouses plus Austin.

“Suddenly you have 24 items pumped in with none of them selling,” he says.

Since the rationalization of the product line, the number of SKUs has slipped from 380 to 260 in 2004.

“I apply the Shelley Rule: If my wife, Shelley, can make more in our kitchen at home than what we manufacture and sell, then we have to make a distinction,” McDonald jokes.

In all seriousness, however, McDonald believes the company was “reacquired” through the massive cost-reduction and refocusing program.

“We’d always been great top-line guys, where you always get the customer any way possible, and the profit will come,” he explains. “Well, we found that we had to be much better financial managers and figure out how we can best partner with our customers to make them the most money and make us the most money, too.”

Chippery is a major cookie manufacturer, and even though the name doesn’t always ring a bell with consumers beyond chefs and fundraising distributors, Merkel and McDonald know that Chippery has advantages over the other multi-million/multi-billion dollar companies making cookies.

First, they are quick to point out that Chippery is the only cookie manufacturer in the top five that focuses only on cookies. Second, Merkel identifies the integrity of the company as something he thinks gives Chippery an advantage.

“I have always thought from the very beginning, even when we were very, very small, our integrity was what we had to safeguard to the nth degree,” he explains. “Sometimes we make mistakes, and by gosh, we make plenty of them, but we always stand behind it. … We have a very good name in the industry that we will do what we say — we will deliver good product. And even if we do have a problem, we will make it good, regardless of the cost.”

Chippery started out as a retail yogurt/cookie chain with four stores in Austin in the late 1980s. According to Merkel, though, the retail sector wasn’t going to support the principals in the business. That’s when foodservice became the most attractive option.

“We had already done business with our yogurt/cookie stores with some foodservice distributors willing to take on our product, so that was a natural fit,” he explains. “Grocery was already a crowded segment, and the margins were very thin. … Foodservice was the easiest market to penetrate at that time.”

When McDonald joined the company in 1996, Chippery had brought in $2.5 million in revenue the previous year, before going on the decade-long tear of consistent growth leading to this year. Chippery’s amazingly broad portfolio of end users gives the company the opportunity to keep that consistency. Of the $27 million in foodservice business Chippery rakes in, not one end user generates more than 4% of the total, giving the company excellent protection from wild fluctuations in sales if an account should slip.

One of Chippery’s core strategies in foodservice is to find national accounts on the verge of growth, sell into them and then watch the chains add stores and grow the accounts accordingly. The strategy has worked in the past with fast-growing chains like Qdoba Mexican Grill and Atlanta Bread Co., McDonald says, and it will continue to be one of Chippery’s main competencies.

But selling the cookie dough wasn’t always a walk in the park. At first, McDonald says, they had to rough it a bit to build momentum behind the name in the foodservice industry.

“We were doing it the old-fashioned way,” he says. “We were sharing hotel rooms, … literally baking cookies in the room every morning and … making 15-20 cold calls by driving around to the back of a hotel and walking in where the Dumpster is, finding the guy with the black pants who was typically the chef, and trying not to interrupt him as he stirred his soup in a giant kettle and saying, ‘Hey, our product’s new in town, and we’d like you to try it.’”

That worked often enough to make Chippery, in McDonald’s words, “executive chef-driven.” The company has a leg up, too, because those chefs are looking for the highest quality, and Chippery is able to provide it, especially through its Chippery Gourmet cookie dough, a top-quality product that is offered in 12 flavors and four different packaging sizes.

There’s another benefit to being chef-driven, McDonald says.

“Executive chefs tend to be extremely mobile, so they might be a chef at one hotel or chain or country club, but when they go to their new city, they tell their distributor that they want Chippery,” he explains, “That’s been a huge value-add.”

Merkel agrees that approval from chefs has helped uncover additional business.

“We let the chef put it in the distribution,” Merkel explains. “[Then], that distributor obviously did not want to keep the product in there for one property or one account, so he would open the book for us, and we would get a license to hunt.”

To this day, he adds, the regional sales force spends much more time calling on chefs than distributors because chefs are “truly the ones that drive the product into the market.”

Chippery almost stumbled accidentally upon 30% of its current output in the late 1990s, when the company attended its first fundraiser trade show. McDonald, at first, was pleasantly surprised by the high interest in Chippery’s services, but he couldn’t devote enough time to fielding the calls from fundraising distributors, because, as he says, the value quotient for fundraising wasn’t as high as it was for foodservice. That’s when Merkel stepped in and took charge of investigating and building the fundraising channel. Merkel says that the discovery of that outlet was a blessing in disguise.

“In the food business, it’s very hard to find a segment that’s brand new and just smoking, and we just happened to be ready to go to [that] market in the 3-lb. tub,” he explains. In five to six years, Merkel continues, Chippery was able to grow the segment from virtually nothing to a $10 million to $12 million segment, “with no sales personnel, just the CEO sitting at his desk with one broker in California,” he continues. “It hit like wildfire in the fundraising business.”

According to McDonald, 12 million lbs. of cookie dough was sold through fundraising in 2004. The dough is currently sold in 3-lb. tubs and as preformed, unbaked cookie “pucks.” Merkel says that from Day One of its entry into fundraising, Chippery has succeeded because of the great integrity and customer service that it offers, as well as the critical mass to produce tractor-trailer loads of product in three to four hours. The company extends its strategy of integrity to its fundraising efforts as well.

“Everyone’s familiar with fundraisers, and there’s nothing worse than saying, ‘You’ll get your cookies Tuesday,’ and then it’s [late], when everybody’s showing up in the parking lot,” Merkel adds. “So we’ve been able to fill that void and always meet our ship dates, and I think that’s what’s made us successful.”

The fundraising season typically keeps the folks at Chippery busy from August through May, and Merkel says that the cycle is so precise that you “can almost set your watch by it.”

Schoolchildren might love the cookies, growing the fundraising business, but Chippery’s products make it easier on the parents as well. Merkel says that the convenience factor of the 3-lb. box of preformed cookies that Chippery sells through fundraising has helped build the segment by 80-90% annually.

“The beauty of our product is it goes from freezer to oven,” he says. “It’s not a slacked-out product. So the kids come home from school, and the mothers can throw three or four on there, close up the box and put it back in the freezer. And we find just a big, big surge in that.”

One of the more successful items in fundraising has been the Chippery’s Play-N-Bake product, which was introduced last year. Play-N-Bake, proclaimed on the box as “Tasty Stuff for Creative Appetites,” is a colorful box of four 12-oz. tubs of gourmet sugar-cookie dough in four fun colors: Yippee Yahoo Yellow, Rootin’ Tootin’ Red, Whoopie Doo Blue and Mean Dough Green. The box shows different cookie cutouts and decorative ways to use the multi-colored dough to make custom cookie creations, and Chippery has launched a special Play-N-Bake section of its Web site for consumers to get baking tips and directions on how to make colorful, detailed cookies resembling frogs, dogs, goldfish, schoolhouses, etc.

Play-N-Bake, which is packaged in the same general fashion as Hasbro’s Play-Doh modeling compound, is a credit to the innovation process at Chippery, Merkel says. It demonstrates what he believes is the secret to success in fundraising — to not get stale with your product line.

“People like new things, especially in the fundraising business,” he says. “When someone comes to your door for the 19th year in a row, the reason you’re buying that cookie dough is because you know your kid’s going to go over there and sell to them, and you want them to buy. So something new piques their interest, and they’re more prone to buy it.”

Play-N-Bake isn’t the only new product to hit the shelves, but it is probably the most unique. Merkel admits that innovation in the cookie business is tough, because the market is mature. But new flavors and recipes are always possible, and Merkel points to Chippery’s newest additions, Cranberry Walnut and the company’s new line of trans fat-free products, as examples.

Given the epic amount of cookie dough that Chippery pumps out every year, you’d almost expect a monstrous, expansive production floor, but when you visit the 92,000-sq.-ft. plant and headquarters, you’d be surprised. The plant is by no means a maze of crowded production, packaging and shipping operations.

It’s a tip of the cap to the company’s efficient processes and high workmanship, as well as its abilities to ease the burden of seasonal fluctuations in demand by storing ready-to-ship products in Austin or one of its five forwarding warehouses. Those warehouses (including Austin) cover the country well, located in Portland, Ore., Los Angeles, Chicago and Atlanta, and outside Philadelphia.

The production floor features three lines, one for filling tubs of frozen dough, one for producing boxes of frozen cookie “pucks” and the last for the pre-baked cookies that Chippery sells.

Flour and sugar are sifted before they are automatically dispensed into the mixers. Each of those ingredients has its own silo that holds approximately 100,000-lbs. All other ingredients are added by hand to one of Chippery’s two double-sigma mixers, which have capacities of 1,000 and 2,000 lbs.

Eggs are shipped and stored in 2,000-lb. bulk containers, shortening comes in 50-lb. blocks, and all other ingredients are shipped in 25-55-lb. boxes and bags. Inventory control is computerized, and although Chippery did not have bar-scan capabilities during Snack Food & Wholesale Bakery’s visit, Jonathan Searles, vice president of operations, expects the company to have it within the year.

Chocolate and nut meats are stored at 0°F in a 3,000-sq.-ft. room — which was the company’s original freezer until 2003, when the current cold-storage room was added.

The company has 8,000 sq. ft. of space dedicated to dry ingredient storage, and another 8,000 sq. ft. dedicated to dry packaging storage. A tempering room near the dock allows the company to soften its butters, shortenings and other ingredients prior to use without melting them.

After a batch is mixed, it is dumped into a hopper and wheeled to one of the lines.

On Line 1 (the tub line), the batch is poured into the dumper and a continuous vacuum filler, which dispenses a pre-portioned amount into the tubs, which are held up to the spout manually for filling. One operator can typically fill 45 tubs per minute by hand.

The operator places the filled tubs on a conveyor, and they are checkweighed at this point. After the tub caps are placed on automatically, they pass through metal detection and are given a heat-shrunken, tamper-evident seal.

Packaging of the tubs is done manually, so that the employees can check the seal on each one before putting it into a case. One case holds eight 3-lb. tubs. Cases are closed and labeled automatically. The box is code-dated and labeled for lot-tracking purposes.

Line 2 is the wire-cut line. Mixing and transfer of the batch are the same, but the batch is dumped into the hopper of a wire-cutter, which was added about six years ago, when, according to McDonald, Chippery wanted to give its cookies a look that was more homemade.

The wire-cutter deposits cookie pucks 12 across onto a conveyor that leads into a nitrogen tunnel, which can drop the temperature to as low as -300°F. The tunnel “frosts” the cookie pucks, freezing only the outer layer of dough. The pucks are frozen through in the cold-storage room. But a change is in the works at Chippery in the freezing department, McDonald explains.

“We’re changing over to an ammonia-based system — a spiral freezer — that will freeze it all the way through,” he says. “We’re still going to have the nitrogen freezing for some products and the spiral to give us both channels. The ammonia will allow us to do some dump-packing and some retail-oriented stuff, where you can … dump the cookies into a bag and have retail products, whereas if they’re just frosted and have them in a bag, there’s still the chance they could clump together.”

Currently, both Chippery’s dump-box packages and layer-packed boxes are filled by hand. Depending upon the size of the finished cookie, layer-packed boxes come in four different sizes — holding as many as 220 1.5-oz. cookies or as few as 75 4.5-oz. pucks. Dump-box cases are packed with one of two sizes — 1-oz. and 2/3-oz. frozen cookies. The cases hold about 320 of the larger cookies or 477 smaller ones. The boxes are inspected and sent through an automatic sealer, which tapes the boxes closed. Metal detection and an automatic code-dater are next.

Line 3 is the bake line, which Merkel and McDonald admit is not the company’s strength. Still, the company does some business in that channel in the form of individually wrapped and bulk thaw-and-serve cookies, and it is in the plans for the future.

“We don’t do it as efficiently as we’d like to, because we still handle the cookies with tender loving care,” McDonald continues. “They’re still baked on trays, and it’s not a tunnel oven situation. We’d like to get high-speed capability through acquisition to grow and have a third segment, which would be the grocery stores and in-store bakery segment.”

Cookies ready for baking come off Line 2, the wire-cut line, and go into the one rack oven that Chippery currently has. The oven can hold one rack with 60 pans of cookies at a time. Cookies bake for 18 min. at 325°F, though times and temperatures vary based on the product. The cookies are then hand-packed and sent to a holding freezer.

The Austin plant’s cold-storage room, where cases are palletized and kept until they are shipped, can hold 1,460 pallets of product. The cold-storage room is only a few years old, but it is an excellent example of Chippery’s willingness to improve its standing among cookie makers. It’s also a sign that innovation happens in the production area as well as with new products. For Chippery, new ideas are bouncing around all the time.

 “But as far as someone reinventing the chocolate chip cookie,” Merkel says, “hopefully that will never happen, and I don’t think it will.”

Unless, of course, the “cookie masters” at Chippery have a monstrous idea up their own sleeves.

Company: Chippery

Founded: 1984

Annual Sales: $46 million

Headquarters: Austin, Texas

Plant Size: 92,000 sq. ft.

Employees: 225

Products: Frozen cookie dough, preformed and in tubs, and thaw-and-serve cookies.

No. of Lines: Three (one tub-filling line, one pre-formed wire-cut line, one bake line)

Distribution: Approximately 550 foodservice distributors and 200 fundraising distributors nationwide.

CEO: Dave Merkel

President: Jeff McDonald

VP, Operations: Jon Searles

VP, Sales: Mark Deushane

VP, Finance: Mark Miller

VP, Business Development/Fund Raising: Randy Poiry