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PACE
FOODS SUCCESS STORY
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Foods manufactures, markets and distributes Mexican
sauces. During the 13-year period from 1982 to 1995, the management
team of Pace Foods increased sales from $13 million to $250 million.
In 1995, the company was sold to Campbell Soup Company for $1.1
billion based on a multiple of 4 times revenue and 24 times cash
flow -- the highest multiples ever paid for a food company.
During the 13-year period leading up to the sale, management perfected
a regional roll-out of the company's product line from Texas to
the rest of the United States that allowed
a pay-as-you-go marketing plan by gradually expanding the products
to high per capita consumption markets in geographically contiguous
areas. The rollout was achieved without a direct sales force as
all sales were generated through food brokers managed by contract
regional managers.
As the product line was rolled out, management increased margins
through aggressive pricing and tight control of trade promotion
allowances. At the time of the sale, advertising and consumer promotion
were 15% of sales while trade promotion expenditures were only 6%
of sales. Using the cash flow from its increased margins and growth,
the company funded plant expansions and the highest consumer impact
programs in the industry, including a nationally famous television
campaign. The success of this campaign allowed the company to obtain
distribution at retail accounts without paying slotting fees.
Through its positioning and advertising, the company's products
attained a top of mind brand awareness of 60% in core markets and
35% awareness nationwide at the time of the sale. The company's
share of the retail Mexican food sauce market increased from 8.3%
in 1982 to 28% in 1995, and share of the food service branded market
increased from 5% to 42% over the same period.
During this period of growth, management was very focused on ensuring
exceptional employee performance. Base salaries were held in check
while pay-at-risk bonus programs were increased for company, team
and individual performance. This pay-at-risk program was implemented
for all 500 company employees, both salaried and hourly. Under the
program, the 3 or 4 most important end business results of each
position became bonus goals. Scoreboards and measures tied to key
bonus measures were displayed and posted in the plants and offices
so all employees knew where they stood on their bonus goals at all
times.
In addition to this program, management implemented a recruiting,
selection and hiring process allowing the company to attract top
notch talent from across the United States and limit personnel turnover
to less than 2%. At the same time, management introduced process
improvement projects to three administrative areas of the company
that reduced headcount even as annual transactions were increasing.
Management developed a quality control program that insured the
best product in the marketplace in terms of flavor, texture and
consistency. Pace products contained no preservatives or artificial
ingredients. Only the freshest jalapeno peppers were used year round
to give a unique texture to the product.
Pace Foods was the first company in the industry to introduce heat
levels for its products in response to varying consumer preferences
(this was made possible by the company's development of a proprietary
jalapeno pepper that contained no heat); the first to create labor
saving pallet displays for club stores and supermarkets; and the
first to produce a salsa base product for the food service industry.
The company was also the first in the industry to establish a Consumer
Hotline to solicit consumer feedback about its products. Additionally,
the company led the industry in consumer friendly labeling improvements
which included full nutritional disclosure, open code dating and
a 24-hour customer service "800" number.
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