Hearthside: Doing it the Right Way

Full Story “Doing it the Right Way” from September 2013 Baking & Snack by Dan Malovany.

EXCERPT – HEARTHSIDE DOING IT THE RIGHT WAY: “When we take a step back and look at the past four years, it’s hard not to say, ‘Holy cow. No wonder I’m tired,’ ” said Brian McNamara, vice-president of sales and marketing, Hearthside Food Solutions, Downers Grove, IL.

In 2009, Hearthside Food Solutions began a series of acquisitions that has made it one of the nation’s largest co­manufacturers of snacks and baked goods. With the backing of Wind Point Partners, a Chicago-based private equity investment firm, the then newly created company acquired a substantial portion of the assets from Roskam Baking Co., based in Grand Rapids, MI.

Then in May 2010, in a swift, bold move, Hearthside purchased Consolidated Biscuit Co., based in McComb, OH, as well as the cereal division of Golden Temple, Eugene, OR. In 2011, it acquired another Roskam Baking facility in Grand Rapids that produced granola.

Hearthside’s latest milestone — one that propelled its annual sales north of $1 billion — came this spring with the merger of Ryt-way Industries, a Lakeville, MN, provider of contract manufacturing services and packaging equipment; it was also a part of Wind Point Partners’ portfolio of companies. Hearthside also sold off its Golden Temple division to Post Holdings for $158 million and used the profit to fund the Hearthside/Ryt-way merger.

To Rich Scalise, Hearthside’s chairman and CEO, the merger of the ­complementary businesses makes perfect sense. Hearthside produces an array of snacks, cereal and baked goods, including cookies, crackers, croutons, stuffing, pretzels, rye bagel chips, popcorn, snack mixes, bread sticks, toaster pastries, muffins and more, and in a big way. The company, for instance, cranks out more than 3 billion cold-pressed and baked bars on an annual basis.

In order to win, we have to be faster at what we do, We have to be flexible, and we have to add additional value. And value is not just about price. It’s about the whole equation of quality, service and ­employee engagement.
Rich Scalise

Ryt-way specializes primarily in contract packaging of dry foods. It also produces packaging equipment under the Cloud Packaigng Equipment brand. Its expertise on the back end of the production line can open new opportunities for both businesses. Together, the combined company has 20 manufacturing facilities and 7,500 employees in seven states.

“As we look at our customer base and growth, packaging is playing a bigger and bigger role on the consumer side,” explained Mr. Scalise, a 35-year veteran of the food industry. “Day-part snacking is huge. There’s snacking at breakfast, lunch and dinner. All of a sudden, you’re seeing a proliferation of new products, packaging sizes and different shapes.”

While the increase of 100-Cal packs has softened, the demand continues to multiply for even smaller airline-pack snacks, individually wrapped bars and sandwich crackers in cups as well as to variety packs, club store bags and family-sized boxes of cookies. “Customized packaging is one of our solutions,” Mr. McNamara said. “With Ryt-way, we’re able to do it in a much more ­powerful way.”

In the contract manufacturing world, the ability to survive — and even thrive — relies on how a company adjusts to constantly shifting trends while maintaining the ability to be fast and flexible yet drive value, according to Mr. Scalise.

“In order to win, we have to be faster at what we do,” he observed. “We have to be flexible, and we have to add additional value. And value is not just about price. It’s about the whole equation of quality, service and ­employee engagement.”

Redefining speed to market: Combining Hearthside and Ryt-way isn’t an idea that came out of the blue. Throughout the past few years as a part of Wind Point’s portfolio, the two companies’ management teams exchanged information about the challenges and opportunities they faced in their respective industries, and there was a growing realization that it might be a good idea to combine their businesses someday.

In several cases, they served the same customers, which make up a “who’s who” of multinational corporations that market many of the top-selling household brands in the snack, baking, food and retail industries. In other cases, the combined customer base provides potential new business for both Hearthside and Ryt-way.

“When we looked at our customers and how we do business, it just made sense,” Mr. Scalise said. “This is a perfect complement not only for the baking and ­snacking sides of our business, but there is also a bigger opportunity to serve our customer base. And there’s a whole other set of customers who are packaging products who we can service with other products that we can do.”

Moreover, Hearthside and its customers are redefining the role of the traditional contract manufacturer, according to Mr. Scalise. “When we started, we were great commercialization experts,” he said. “Our customers came to us with their base formulas, and we helped commercialize them through our production and packaging capabilities. Today, we are starting to evolve, and our customers are evolving, too.”

Instead of being considered part of the procurement process, Hearthside now strives to be acknowledged as part of a customer’s supply chain. It didn’t happen overnight. “It’s been very gradual, but it’s been a dramatic change from just four years ago,” Mr. Scalise said. “The great branded companies are going to market more quickly, but they need our help, so they’re going outside of their organization and reaching out to us.” (story continues on bakingbusiness.com)