Road to RICH's
September 1, 2005
Road to RICH’s
by DAN MALOVANY
As it celebrates its 60th anniversary, Rich Products Corp. sets a new goal of becoming a $3 billion company through organic growth, strategic acquisitions, new product innovation and closely partnering with its customers.
Some rules are made to be broken. Then there are those golden rules that have withstood the test of time because they so clearly define a company’s mission and its core values.
For Rich Products, its founder, Bob Rich Sr., defined the golden rule shortly after he founded the Buffalo, N.Y.-based company in 1945.
“Back in the early days, ‘Cater to the customer’ became his mantra,” says Kevin Malchoff, group president for Rich’s U.S./Canada business. “There’s something about the customer focus that was important 60 years ago that is still important today.”
As it celebrates “60 delicious years,” the company’s rule for the road to success is still “Caring for Customers Like Only a Family Can.”
Known for introducing the first non-dairy whipped topping, also known as “the miracle cream from the soya bean,” Rich Products has flourished over time to become one of the nation’s largest privately held food companies, with more than $2 billion in sales.
Still headed by its founder and his son, Bob Rich Jr., the diversified food manufacturer sells more than 2,300 products ranging from frozen dough, baked desserts, pizza and appetizers to bakery mixes, beverages, seafood, deli meats and non-dairy products in more than 70 nations. Organizationally, the company has three business units under its one umbrella: Its U.S./Canada group, the Rich international group and its Rich-SeaPak group, which distributes more than 400 shrimp, appetizer, meat and entrée products.
In the baking industry, Rich Products is one of North America’s largest suppliers to the foodservice and in-store bakery channels with a portfolio of more than 1,700 varieties of product, including cheesecakes, ice cream cakes, donuts, cookie dough, par-baked rolls, sliced artisan breads, éclairs, cream puffs, scones, baked pretzels and more.
To consumers of baked goods, however, Rich’s is anything but a household name. Rather, the company prefers to work behind the scenes, letting its customers be the stars.
“We want to be the brand behind the brand,” Malchoff says. “Our brand is not going to get through to the consumer very often in a foodservice location or an in-store bakery. That is different from a lot of our competition who have consumer packaged brands.
“They get up in the morning and say, ‘How do we wow the consumer and get our brand out to them?’ We sit here and say, ‘How do we make our customers successful? What do they need as far as products, customer-support programs or training that will help them achieve their objectives and their goals?’ That mindset is critical for us,” he adds.
Although its consumer focus hasn’t changed over the years, the dynamics of the market have.
“There’s consolidation going on in all parts of the business,” Malchoff explains. “If you thought you could live on past relationships alone, you’d be wrong. Customers today are demanding. They expect our help in terms of innovative products and thinking through how to grow their businesses, so it’s a different expectation in the foodservice and in-store bakery channels than it was 10 years ago.”
Rich’s $3 Billion Goal
To respond to these changing dynamics, Rich Products has been rewriting the rules of the road to success over the last year to turn such consolidation into an avenue for growth. Although currently ranked 129th on Forbes list of leading private firms, company officials openly talk about an annual sales goal of $3 billion by 2008, with its bakery and non-dairy businesses leading the way.
Unlike other snack and bakery companies, which have relied in the recent past almost solely on acquisitions for expanding sales, Rich Products is taking the road less traveled. Specifically, its strategic plan calls for one-half to two-thirds of the additional $1 billion in annual revenues to come from organic growth.
“We’ve done a lot of strategic work over this last year, and our takeaway is that we have a lot of opportunity to sell our existing product line to customers who maybe haven’t experienced them yet,” Malchoff says. “We believe there’s a huge opportunity to sell more than what we make today.”
Most of its growth will come from operations in the United States and Canada, which currently account for 65% to 70% of revenues. For a company that owns 153 patents internationally, it’s not surprising that Rich’s plans to leverage innovative new technology, new product categories and custom-developed products to achieve its lofty goal.
Still, when opportunity has stared the company in the face, Rich Products hasn’t been hesitant to acquire companies with unique or superior-quality products.
In February, for instance, Rich’s purchased Rolling Pin Manufacturing Co. a donut manufacturer. The acquisition not only gave Rich’s, already the largest manufacturer of donuts for the in-store and foodservice bakery channels, added capacity in the West Coast, but it also provided additional benefits.
“Rolling Pin gave us the best-quality donut out there,” Malchoff says. “They gave us quality products that further enhanced our line. We can take the lessons from that [acquisition] and improve our overall portfolio. It sets us up clearly as the best place to go for donuts for either foodservice or in-store bakeries.”
Likewise, two years ago, Rich’s purchased Mother’s Kitchen, the Burlington, N.J., producer of premium frozen cheesecakes, cakes and other fully finished frozen desserts. The acquisition nicely complemented Rich’s Jon Donaire business, the Santa Fe Springs, Calif., frozen dessert producer that it purchased in 1998. In addition to providing an East Coast presence, Mother’s Kitchen produced heavier, New York-style cheesecakes that are different from the lighter, California-style desserts produced by Jon Donaire.
“With Mother’s, we have the ability to make similar products, even identical ones, on both coasts,” Malchoff explains. “As our customers are national, instead of shipping a product from Mother’s in New Jersey to California, we can make it out in California and be more efficient. That’s become one of our strengths, especially with fuel costs going up.”
Driven by Innovation
Malchoff believes that a substantial portion of Rich’s growth can come from its existing customer base. It’s all about getting the word out on how the company can be a one-stop supplier.
“One of our challenges is our customers know only of the products they use today,” he says. “A restaurant that uses our pizza dough may not even realize that we’re in the dessert business. We’re leveraging where people already believe in us and where we have great credibility. We are figuring out ways to bring in other products in places where we are making the sale.”
More often than not, however, boosting sales will require new product innovation, notes Ray Burke, president of Rich’s in-store bakery/deli division.
“To support organic growth, we’re aggressively developing new products and new platforms, and we’re looking to upgrade the overall quality of some of our product categories,” he explains.
Using new technology it developed, Rich Products recently rolled out Exact Bake breads that allow in-store bakeries to take products directly from the retarder to the oven. By simplifying the proof-and-bake process, Rich’s goal was to help in-store bakeries reduce shrink and train employees in half the time as in the past, but the company found out Exact Bake provided additional benefits.
“When we formulated that new technology, one of the benefits was an improved flavor and texture of the bread product,” Burke says. “We have the convenience of a no-proof bread, we’ve got flavor and texture improvement, and we have a process that enables retailers to be a lot more consistent in their bread production because they don’t have to use a proofbox.”
Rich’s has also joined forces with outside organizations to develop new products. To bring indulgence to a new level, the company worked with the Culinary Institute of America of Hyde Park, N.Y., to the Cinn-Sational Gourmet Cinnamon Roll.
To provide healthier alternatives with great taste, the company’s RichLife line features high-fiber par-baked bread, rolls and pizza crusts that are lower in overall fat, contain no trans fat and have half the carbohydrates as conventional products. For those seeking healthy indulgence, the line includes sugar-free cookies and a reduced-fat cheesecakes with no sugar added.
Rich’s also has imported innovative concepts from its international divisions as well. Its Tres Riches, a pre-made mixture of the “three milks” that are used to make Tres Leches cakes, came from its Mexican operations a few years ago. With the Hispanic population growing in the United States, the products are gaining momentum and creating a new platform for the company.
Many concepts are not revolutionary, but they do make production easier for in-store bakers. The company’s Bettercreme whipped icing, for example, now comes in a rainbow of colors in pre-packed, easy-to-use pastry bags. Recently, it rolled out Cookies-n-Créme Bettercreme with Oreo cookie particulates.
“It saves the retailer the labor of mixing the ingredients into the icing so it’s ready to go, which allows the retailers to merchandise more of the product because they’re not constrained by production,” Burke says.
Rich’s uses the stage-gate process for new product development. Each new product idea needs to pass through a gate where product developers meet with upper management to evaluate the product and the business plan behind it. If the product passes through the gate, the new product moves to the next stage for more extensive and detailed testing, marketing and research. If it doesn’t pass through the gate, the product remains at the same stage where it’s re-tested or where the business plan may have to be rewritten.
To coordinate its innovation efforts, Rich Products created a product management and innovation (PMI) team, which consists of a cross-functional group of marketers and product developers who work with customers to develop unique products and solutions. Throughout the year, the PMI teams conduct a “discovery concept” of various foodservice operators and retailers to discover the latest hot new products on the market and to develop concepts for new ones. Rich’s also holds innovation fairs, where teams from across the world bring their most creative product concepts under one roof for top management to review.
“To be a much larger business, we want to be on the cutting edge of technology, and we want to have very robust product categories that are constantly introducing new product to retailers,” Burke says. “We want new products that set them apart, whether they’re new varieties, flavors, textures or technology. We’re constantly exploring new product formats to help our customers reduce their labor costs and help them make more consistent products.”
Acting as Category Manager
To support its new product innovation programs, Rich Products invests heavily in research, including ethnographic studies, consumer focus groups, taste-profiling and taste-testing. For foodservice operations, it buys menu trend studies and works with independent foodservice research firms, such as Chicago-based Technomic.
“We purchase proprietary data on the in-store bakery that gives us information on various product categories, production formats and geographic trends,” Burke says.
In many ways, Rich Products serves as the manager for the entire in-store bakery category. To maximize labor efficiencies, the bakery works with retailers to develop comprehensive programs that are tailored to the supermarket employee’s skill levels and its consumer base. In some cases, a chain may have multiple store formats ranging from price-impact models and regular banner stores to upscale, fresh-store concepts and organic and health-oriented outlets.
“We do an extensive review of their operations, their products and category performance,” Burke explains. “We benchmark that category performance against the markets that they’re in and overlay some of the national trends by category to see if they’re under-indexed or over-indexed in that category as far as potential. Within that whole process, we work with them on SKU [stock-keeping units] rationalization, merchandising approaches and other aspects of their in-store bakery.”
Consumer consumption surveys, for instance, would likely show that Northeasterners eat more muffins than people on the West Coast. As a result, a retailer the Northeast would probably have a higher concentration of muffins than one out West.
Such a customized approach to the in-store bakery/deli channel is also necessary because of the diverse way in which retail customers operate. Large-chain accounts may have their own warehouse distribution system and centralized purchasing structure. On the other hand, a strong group of independent retailers may work through grocery wholesalers and distributors.
Because of consolidation and the size of large accounts, Malchoff adds, the foodservice and in-store bakery business is much different than it was a decade ago. Although working with customers has become increasingly sophisticated, Rich Products’ approach to its business is fundamentally the same as it was 60 years ago.
“The bigger the customer, the more they expect from us to understand their business, their consumers and the dynamics of what makes their business tick and help come up with ideas that will drive their success,” Malchoff explains.
Strategically, that means partnering with its major customers on a more intimate basis.
“Being a partner is more than saying, ‘Here’s a product that we think your customers are going to like.’ It’s doing the homework and understanding who walks into the store and what they are looking for,” Malchoff adds. “When we go to accounts, we come in with a process called ‘targeted menu development,’ which means we understand their consumers, we understand their equipment, we understand what the consumers want to buy and we know what’s selling today.”
That’s the map Rich Products has followed on its road to success.
At a Glance
Company: Rich Products Corp.
Location: Buffalo, N.Y.
Annual Sales: $2.1 billion
No. of Plants: 22 plants in North America, 10 of which are bakery related, and eight international plants. The company also has three frozen dessert facilities.
No. of Employees: 6,500
No. of Products: 2,300
Bakery Products: A full line of frozen baked, par-baked and frozen dough products for the retail, in-store bakery and foodservice channels. Also produces a full line of frozen baked desserts, including cheesecake, mousse cakes, ice cream cakes and more. In addition, supplies bakery mixes, icings, toppings and other ingredients.
Chairman: Robert E. Rich
President: Robert E. Rich Jr.
Executive V.P. of Innovation: Melinda R. Rich
COO: William G. Gisel Jr.
U.S./Canada Group President: Kevin R. Malchoff
President, In-Store Bakery Division: Raymond R. Burke