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AdvancePierre Foods Featured in National Provisioner Cover Story - The Right Fit

Wednesday, June 1, 2011

From its initial announcement 10 months ago, the merger of Pierre Foods, Advance Food Co. and Advance Brands was touted as a perfect fit — a unification of “wonderfully complementary” companies under one corporate umbrella.

Today, while some systems integration remains on the to-do list, there is a light at the end of the tunnel for the company. Yet, long-term planning has not been put on the backburner at AdvancePierre during this transition,

based on the reality that the merger has been a smooth and fast-paced integration of businesses, strategies, cultures and employees with similar goals and concepts.

“The three companies just fit hand-in-glove, and they complement each other beautifully,” says Bill Toler, CEO of AdvancePierre Foods. It is a viewpoint that has played out to be true, has not changed since the merger was announced and has been adopted throughout the company.

The Pierre turnaround

Toler joined Cincinnati, Ohio-based Pierre Foods in December 2008, brought in to revive a company that had declared bankruptcy and had struggled to get itself back on track in light of extreme economic challenges. According to Toler, at the time Pierre was “a great company with a bad balance sheet.” “It was clearly a culture that had been successful for many, many years,” he explains. “But faced with an acquisition in 2007 that never got fully integrated, then the runaway raw-material prices in 2008, the company wasn’t prepared to make the decisions it needed to in order to stay ahead of that.” Toler and his team moved quickly to make those key decisions and turned Pierre’s fortunes around almost immediately. “We came out and had a record year the first year out of bankruptcy — a record for the 63-year history of the company,” he says. “We were able to fix the business quickly through a combination of shedding bad businesses, getting rid of items that didn’t make money, taking pricing to reflect commodity costs that had gone up in 2008, and also driving productivity inside our operations.”

Piecing together the puzzle

Not long after Pierre got back on its financial feet, merger discussions began between Pierre Foods, Advance Food Co. and Advance Brands. From the start, stakeholders on all sides saw the benefits of bringing together the companies. “By bringing these three companies together, it gives us the ability to compete across seven different channels, and three major lines of business,” Toler explains. Those three major lines of business are cooked proteins, Philly steaks, and sandwiches, while the seven channels Toler refers to are broad line foodservice, retail, schools, vending, convenience stores, club stores and industrial accounts. The transition has run smoothly, as AdvancePierre continues to integrate systems and strategies. The large-scale vision developed by the new company’s leadership remains on target, but Toler acknowledges that a learning curve exists in situations as complex as these. “Translating that vision all the way down to every individual affected by all our decisions takes time,” he says. “We’re taking three separate businesses and bringing them together to create a single corporate culture.” He admits that some changes can be painful, and because of that, the company has had to be careful not to make changes simply for the sake of change, especially given the potential effects on people and business. Thus, it pays for AdvancePierre to take its time and make the right decisions based on sound analysis, whether the final solution is in-house or not. “We have very good businesses, so how do we make them even better as one?” Toler says. “With that [mentality], you have a little more time to step back, make more careful decisions. It allows you to leave the status quo in place if you so choose and it also allows you to have some flexibility.” AdvancePierre’s executive management team reflects the search for what Toler calls the “best of breed” in making these decisions. “This is a true merger,” Toler says. “‘Who bought whom’ is not a driver or determining factor when making our decisions.” Lisa Frick, senior vice president of marketing and product development, confirms that AdvancePierre hasn’t rushed through decisions when it comes to integrating the business. “We have a lot of options to choose from, but we’re not just picking one of the three options,” she explains. “We have teams of people who are stepping back and saying, ‘OK, this is a whole new ballgame, we’re a much bigger business. Is there a different way that we should all be doing things?’ “It makes it a little tougher and probably a little slower,” Frick adds, “but in the end, we’ll be building the right kind of infrastructure for this type of business.” That infrastructure is led by a mix of talent from a variety of sources. Frick, Toler and Tony Schroder, who leads the convenience and vending business unit, came from Pierre Foods; Mark Allen, president of foodservice and schools, is a veteran of the Advance business; and Chris Kiser, who heads up the retail and club business unit, was an outside hire. Many of AdvancePierre’s executives have experience in the consumer packaged goods space, which AdvancePierre hopes to utilize to continue to drive product development, particularly in unique ways at the foodservice level.

An innovative edge

Another uniting force in the AdvancePierre merger was the original companies’ focus on innovation. Pierre Foods, Advance Food Co. and Advance Brands used different methods to provide customers with the products they needed and consumers wanted, but each made high-quality research & development and product innovation a primary goal. That continues today, and Frick believes AdvancePierre’s unique approach gives the company an edge in many of the channels it serves. “We think consumer insights is a real differentiator for us in the industry,” she says. “A lot of us come from packaged goods backgrounds and are used to that brand-management world, but in the foodservice world, you don’t see as much of the consumer-insights driven or research-based product innovation.” According to Frick, AdvancePierre can offer its customers added value as opposed to simply selling product off a price list. Amanda Smeller, director of consumer insights, explains that incorporation of an innovation system had been in the works at Pierre Foods before the merger and continues to develop today. “It was a matter of checking the trends to doing the primary research among different consumers, coming up with the different ideas, and then testing those ideas across multiple channels,” says Smeller. “We had established a three-year pipeline of ideas that would be moving forward that were generated from a multitude of different sources, including everything that would be line extensions or product improvements all the way to ‘new to company’ and ‘new to world’ products.” One of the first big rollouts through this new platform occurred before the merger — Pierre Minis,which Smeller says address consumer demands for portability and smaller sizes and shareability of foods. “We developed an entire line of mini sandwiches … across vending, c-stores, packaged in kits for foodservice,” she says. Pierre used its consumer insights and research to demonstrate that consumers

would like the product and purchase it, a tool the new company expects to use on a greater scale. “We did multiple taste tests with kids to come up with the right varieties in schools,” Smeller adds. “More than 2,000 8- to 15-year-olds took part in the tests to make sure the products were right before they were rolled out.” One adjustment that AdvancePierre must make centers on the innovation, marketing and research & development teams at AdvancePierre — and the proper balancing of efforts to get the desired results, explains Bernie Panchot, vice president, research & development. “The management of projects has become a very complex endeavor,” she says. “It’s a lot to balance, and we’re looking at how do you net out to the most important projects first and put your resources in the right places.” However, as the company pulls itself through the transition and develops that balance between these divisions, Panchot

thinks AdvancePierre will be strongly positioned to serve customers even better. “When we have great consumer insights, by the time we have a customer come to us with a great request, we can answer that better than our competitors based on what the consumer wants to see and our customer needs,” she explains. “The challenge is to stay ahead of the customer demand for those critical, strategic partners out in the industry.”

Driving forward

AdvancePierre hopes to leverage the relationship between its innovation, R&D and marketing divisions to find new opportunities for current products and technologies. Toler says cross-selling of product is an expected byproduct of the merger that AdvancePierre must exploit. “The sandwiches that have been so successful in retail, c-store and vending for Pierre are now being sold by the broad line foodservice team from Advance,” he says. “The Advance Philly steaks are now being sold into retail and club and put into sandwiches there through our retail business. We’re also getting ready to put it into our c-store division.” Building off that concept, Frick thinks the time is right to build categories of strength into other channels and segments. Burgers, for example, is a category in which AdvancePierre considers itself to be very strong, but possibly underleveraged in some segments. So the company will investigate whether it has all the right segments of the business covered, from premium items to value or certain taste profiles, in each burger category. “It’s taking the technology, trends and processes to the other channels,” Frick

says. “What people are looking for in many channels is very similar, and everybody kind of jumps on the low-sodium bandwagon or whatever is important at that time.” It is worth noting that, while Advance- Pierre plans for the future, it has not reached the end of the road as far as merger integration goes. The company’s distribution and ERP systems were in the process of being transitioned at press time. Toler says the company will move to a one-order, one-invoice capability at the end of May, which will allow customers to order products from all three origin companies on one truck. Furthermore, the company will transition from single distribution warehouses into a multiple distribution center network, to give customers more scale and the chance to buy products more easily. Yet as AdvancePierre navigates through these changes, it will maintain its focus on the basics, Toler says, which should be able to keep it on track. “We are very much a block-and-tackle kind of business that wants to keep growing through the stability of our channels, driving conversions against competition, expanding distribution and putting out new products where appropriate,” he says. With the power of three complementary business models and cultures building AdvancePierre today, Toler believes the company sits in a prime spot as the economy improves. “When you have the thinking of thousands of people across 10 different facilities,” he adds, “and you have a group that can capture the ideas and move them from plant to plant, and you have people looking at productivity constantly inside the business that really gives you the opportunity to fuel future growth and margin expansion by saving money through sharing of best practices.”