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American Italian Pasta Company

American Italian Pasta Company

4100 North Mulberry Drive, Suite 200
Kansas City, Missouri 64116
U.S.A.
Telephone: (816) 584-5000
Fax: (816) 584-5100
Web site: http://www.aipc.com

Public Company
Incorporated:
1986
Employees: 589
Sales: $417.4 million (2004)
Stock Exchanges: New York
Ticker Symbol: PLB
NAIC: 311823 Dry Pasta Manufacturing; 422490 Other Grocery and Related Products Wholesalers

The largest pasta producer in North America, American Italian Pasta Company (AIPC) produces more than 220 dry pasta shapes, selling its pasta to supermarket chains, food processing companies, and foodservice companies. AIPC produces pasta for private-label brands and its own brand, Pasta LaBella. The company grew significantly through several acquisitions it completed in the early years of the new millennium. Its expansion came to a standstill in 2004, however, when the low-carb diet trend caused demand for carbohydrate-rich pasta to plummet. In 2005, the company launched an internal investigation into its accounting practices amid shareholder class action lawsuits that claimed that AIPC's officials proffered misleading financial data.

Origins

Richard C. Thompson brought an eclectic professional past with him when he founded AIPC in 1986. During the 1970s he was involved in real estate surrounding the Houston Astrodome. During the early 1980s he turned his attention to the oil and gas business, forming an exploration firm, Kinson Resources Inc., to make a living wildcatting in North Dakota. The cyclical nature of the oil and gas business, which descended into one of its deepest ruts during the early 1980s, convinced Thompson to search for a business with fewer market fluctuations and led him to explore food manufacturing as an option. Food production sprang to mind not only because "there's always a demand for food," as Thompson once remarked, but also because North Dakota was home to a prized crop: durum. Renowned for its superior pasta-making qualities, North Dakota durum was imported by Italian companies, who converted the wheat into pasta and then exported the pasta back to the United States. Thompson decided to use North Dakota durum to start his own pasta-making company, and he began enlisting the support of financial backers. From the start, he decided to focus on producing premium-grade pasta and avoid competing against low-priced, mass-produced brands manufactured by such industry giants as Hershey Foods and Borden. "If we're going to survive," Thompson explained, "we cannot compete on price. If we do, we'll get stepped on, thrown away, chewed up, and walked over." Accordingly, Thompson devoted a considerable amount of time to researching pasta making. He spent four years in the United States and two years in Italy learning how to make pasta, searching for the method his company could use to produce superior pasta. "I want my pasta to be known as the finest in the world, bar none," Thompson declared, "including the Italians."

Aside from producing a premium brand that would limit direct competition with low-priced brands, Thompson's strategy also hinged on something else, something that would make his company a rarity among U.S. pasta producers. Most manufacturers purchased their pasta flour from commercial mills, rather than producing it on their own, but from the start Thompson preached vertical integration, striving to realize the financial benefits of owning his own flour-making facility and the greater control over quality such ownership would give him. He decided to build his production plant in Excelsior Springs, Missouri, selecting the location because of the presence of pure spring water and, more important, because of Excelsior Springs' proximity to rail lines accessing North Dakota durum. The $50 million, state-of-the-art facility began production in 1988, officially making Thompson's AIPC a participant in the growing pasta industry. At the time, pasta consumption in the United States was on the rise, a trend that would continue into the 1990s as a national passion for pasta intensified. The average American ate 17 pounds of pasta a year in 1988, up from 13 pounds a year in 1981, which translated into a $2 billion market by the time Thompson's plant began producing its first shipments. Into this market AIPC entered as a newcomer in 1988; barely more than a decade later the company would hold sway as the dominant force, ranking as the largest pasta producer in North America.

Business began on a high note when Thompson secured contracts to supply his pasta to the A&P grocery chain and SYSCO Corporation, the largest restaurant supply firm in the country. These two customers purchased the company's initial production output, pushing AIPC's first-year sales into the $20 million range, while Thompson pursued contracts with other institutional customers and began negotiations with brokers in several foreign countries. Thompson's goal was to make AIPC the first U.S. company to ship pasta to Italy, a feat that would go a long way toward legitimizing his pasta as the "finest in the world." To accomplish this objective and to give AIPC a product to increase sales domestically, Thompson invested his efforts in the creation of what he termed a "super-premium" brand, the pasta product that would drive the company's sales upward, distinguish AIPC as a premier pasta maker, and fuel expansion into foreign markets, particularly into the much-vaunted Italian market. The company's signature brand debuted in January 1990, introduced under the name Pasta LaBella. As Thompson had planned, AIPC's flagship brand stood apart from other mass-produced brands such as American Beauty and Creamette. Pasta LaBella was stocked in the deli section, away from competitors shelved on the pasta aisle, and its retail price of approximately $2.65 for a one-pound package was $1.50 more than most other American brands. Although the sales generated by Pasta LaBella accounted for only 5 percent of AIPC's revenue volume during the brand's first year, the brand attracted a wealth of new business that promised to be the beginning of more to come. The 800-store Kroger chain began stocking LaBella, as did several other large retail chains, such as IGA, Payless, Hy-Vee, and Price Chopper. Several restaurant chains replaced their Italian pasta brands with LaBella as well, but in Thompson's mind the true measure of success was LaBella's entry into the Italian market. "Everyone remembers the first company to do something," Thompson mused, "just like everyone remembers the first person to walk on the moon. But who cares about the second or third?"

AIPC's place in the annals of business history was secured in May 1990 when Thompson attended a European trade fair for food brokers. At the trade fair Thompson reached an agreement to sell LaBella through an Italian grocery store called Casa di Risparmio di Parma, making AIPC the first U.S. company to sell pasta in Italy. AIPC's historic achievement fanned excitement at company headquarters, inducing Thompson and his management team to develop ambitious plans. As negotiations were under way to sell LaBella through a 400-store distributorship in Italy, a LaBella pasta sauce was developed, slated for introduction by the end of December 1990, while LaBella olive oil and LaBella breadsticks were in earlier stages of development. By the end of 1990 sales were up 60 percent from the previous year's total, prompting Thompson to expand production capacity. He increased production capabilities at the company's Excelsior Springs plant 200 percent, giving AIPC the ability to make 150 million pounds of pasta per year.

New Management in 1991

In 1991 a host of changes swept through AIPC that few outside observers could have foreseen. According to one report, the investors who had financially helped Thompson build his Excelsior Springs plant grew worried by the end of 1990 that AIPC would not meet certain financial objectives and would fall short of reaching the new, expanded production capacity at the company's plant. In the midst of this reported anxiety, a $76 million buyout of AIPC by Hershey Foods was announced in early 1991. Thompson welcomed the deal, but the U.S. Justice Department intervened and launched an investigation into the proposed buyout. After a three-month inquiry, the Justice Department ruled against the proposed acquisition in March, stating that the union of AIPC and the second largest pasta producer in the United States would result in higher prices for consumers. In the wake of the scuttled buyout, Thompson stepped aside, vacating his posts of president and chairman of the board to make room for what industry pundits termed "professional managers." Horst Schroeder, formerly the chief operating officer for Kellogg, was named chairman of the board, and Timothy Webster, formerly AIPC's chief financial officer, was promoted to president, along with a number of other promotions that gave AIPC a revamped management team. The change in leadership was a smooth transition, without any finger-pointing at Thompson or much to suggest that Thompson's leadership had led to failure. "This is a step all entrepreneurial companies go through," explained Webster, "where the creator hands the baton to his managers." Thompson, who ranked as AIPC's largest shareholder, retained a seat on the company's board. Under the new management, however, a new business plan emerged, one that was substantially different from the philosophy espoused by Thompson. Said Webster, "Our focus is on the high-volume segments. We need to be a manufacturing-driven company until the plant [capacity] is utilized."

Company Perspectives:

The following AIPC goals are the founding principles of our Company and incorporated the values that have given us the vision and focus to produce the world's finest pasta. Growth & Profits: Achieve short and long-term growth in sales and profits and maximize value to our shareholders. AIPC's People: Build a team of quality-minded and results-oriented people and provide an environment that encourages innovation, continuous improvement, superior performance, recognizes achievements and helps our people reach their full potential. Quality: Provide products and services of superior value and quality in a culture that strives for continuous quality improvement in everything we do. Corporate Identity: To be a customer-driven and quality-minded Company based on and committed to our guiding principles of integrity, fairness, performance and consistency.

From 1991 forward AIPC strove to be a low-cost producer of pasta, rather than a company seeking to make the "finest pasta in the world." The new strategy sought to utilize the full strength of the company's unique manufacturing capabilities, capitalizing on the vertically integrated operations that had been established by Thompson. Although making quality pasta had not been abandoned as a company goal (AIPC touted itself as the only pasta maker to use high-temperature drying, reportedly the best way to process wet pasta), operating as a low-cost producer had moved to the forefront of the company's pursuits. Toward this end Webster and his staff achieved encouraging results. Using aggressive marketing and citing the advantages of the company's own mill operations, Webster convinced a number of large customers to purchase their pasta from AIPC. Supplier contracts with companies such as Wal-Mart, Publix, Pillsbury, Kraft, and General Mills fostered consistent, strident financial growth, assuaging any anxiety investors might have experienced. Sales rose to $39 million in 1992 and then began increasing by at least 20 percent each year as AIPC headed toward the mid-1990s. As the company's customer base of grocery chains, restaurants, and food processing companies increased in number, pushing sales upward and stretching production capacity to its limit, a different type of AIPC took shape. The AIPC of Thompson's era had sought to distinguish itself from the established giants in the industry by producing a higher-priced, higher-quality product, but during Webster's era the pursuit of becoming a low-cost producer had developed AIPC into a giant itself. By the mid-1990s AIPC was one of the major producers with which it had avoided directly competing during the late 1980s and was well on its way toward becoming the largest pasta producer in the United States. The prospect of reaching the industry's number one position was not a "goal in and of itself," Webster noted, as the company steadily increased its market share. "But we do want to continue to grow," he added. "If it were to happen, we'd certainly have grins on our faces."

Late 1990s Expansion

By 1995 any fear of not reaching full production capacity at the company's Excelsior Springs plant had been thoroughly eliminated. The company was ready, in fact, to build a second manufacturing facility. Construction of the new plant began in 1995 in Columbia, South Carolina, with its completion lifting AIPC's production capacity to roughly 300 million pounds of pasta per year. By the end of 1996 sales had eclipsed the $100 million mark, climbing to $121 million. AIPC, by this point, was the third largest pasta producer in the United States, trailing only Hershey Foods and Borden, Inc., and it was regarded widely as the most efficient producer. Its two manufacturing plants, which made more than 80 shapes of pasta, utilized the most advanced production technology in the industry, a distinction used as a persuasive marketing tool to win new customers and one that was making it increasingly difficult for other companies to compete with AIPC on a low-price basis. The fruits of AIPC's decade-long investment in its manufacturing facilities were realized in 1997, a year that saw the company achieve great strides while its largest competitor began to retreat.

In early 1997 CPC International, a global food company that marketed 45 varieties of pasta, announced that AIPC would become the exclusive producer of its Mueller's brand of pasta, the leading brand in North America. The contract represented an extraordinary boon to AIPC's business, one that could not have been gained without its state-of-the-art manufacturing facilities. "By joining with AIPC," a CPC International senior executive remarked, "we make a leap from the oldest production technology in the industry to the newest." The addition of the Mueller's brands led to a $45 million expansion at AIPC's Columbia plant, where Mueller's was scheduled to begin production in January 1998. News of the Columbia facility expansion was followed by the announcement of a $20 million expansion at the company's Excelsior Springs plant, which had been planned for a later date but was accelerated once AIPC executives learned of their biggest rival's future plans. In mid-1997 Borden announced that it would start to close its pasta-producing plants after deciding to stop manufacturing private-label brands and pasta for the "ingredients business," which included making noodles for products such as Hamburger Helper. AIPC moved in to fill the void created by Borden's retreat, implementing an expansion program designed to increase its production capacity by 60 percent, making it the second largest pasta producer in North America.

Key Dates:

1986:
Richard C. Thompson establishes AIPC.
1988:
A $50 million, state-of-the-art facility in Excelsior Springs, Missouri begins production.
1990:
The company's signature brand debuts under the name Pasta LaBella; AIPC becomes the first U.S. company to sell pasta in Italy.
1991:
Thompson resigns as president and chairman; a new management team is elected.
1997:
AIPC becomes the exclusive producer of the Mueller brand of pasta; the company goes public as the second largest pasta producer in the United States.
2000:
The company acquires the Mueller's pasta line.
2001:
Seven regional pasta brands are purchased from Borden Foods Corporation.
2004:
The low-carb diet trend forces sales and profits to fall dramatically.
2005:
AIPC launches an internal investigation into its accounting practices; shareholders file class action lawsuits against the company for filing misleading financial information.

As work was under way to increase AIPC's production capacity to more than 600 million pounds of pasta per year, the company decided to convert to public ownership. In October 1997 AIPC's initial public offering on the New York Stock Exchange raised $87 million in net proceeds, giving the company the financial resources to pay for expansion. Following the public offering, Thompson stepped forward to remark, "It's been wonderfully exciting and a dream come true. I'm a proud papa." There was good reason for Thompson's elation. "Everything looks to be going very, very well for them," one stock analyst remarked. "They continue to gain market share." In November 1997 the likelihood of further gains in market share appeared assured when AIPC announced preliminary plans for a third pasta production plant in Kenosha, Wisconsin, to be constructed through a joint venture with Harvest States. Following this exhaustive period of expansion, the company entered its tenth year of production, by which time both expansion projects at Columbia and Excelsior Springs were completed. The results were impressive. In 1998 revenues increased from $129 million to $189 million and net income swelled from $5 million to more than $15 million, both record results. On this bright note, AIPC prepared for its second decade of business, having successfully climbed the rungs of its industry to hold sway as a dominant presence in the North American pasta market.

The New Millennium

AIPC experienced marked growth in the early years of the new millennium. In 2000, the company acquired the Mueller's pasta line from Unilever PLC's Bestfoods subsidiary. This was followed by a $67.5 million purchase of seven regional pasta brands from Borden Foods Corporation in 2001. Two pasta brands from Archer Daniels Midlands were added to AIPC's holdings in 2002. As part of its strategy to bolster its European business, AIPC bought the Lensi brand from Pastificio Lensi, a small Italian pasta manufacturer, later that year. AIPC rounded out its acquisition spree in 2003 with the purchase of Martha Gooch/La Rosa, Golden Grain, and Mrs. Leepers pasta brands.

By now, AIPC enjoyed a dominant position in the North American pasta market. Its closest competitor was Barilla Holding, an Italian company that entered the U.S. market in 1996. From 2000 to 2003, revenues grew from $248.8 million to $438.8 million. Net income also rose significantly, from $27.5 million in 2000 to $42.6 million in 2003.

AIPC's success came to a sudden halt the following year. Americans began following new dietary trends led by the Atkins and South Beach diet plans. These diets were based on low carbohydrate consumption, which spelled disaster for companies in the pasta industry. Indeed, the company deemed 2004 the most challenging year in its history. As the popularity of the Atkins and South Beach diets skyrocketed, demand for pasta products fell sharply. In fact, AIPC claimed that from mid-2003 to the end of 2004, pasta consumption in North America fell by more than 100 million pounds. As a result, AIPC moved to reduce manufacturing capacity and inventory levels, as well as its workforce. During 2004, the company's employee count fell by 14 percent and operations at its Kenosha, Wisconsin manufacturing facility were suspended.

In response to the low-carb consumer craze, AIPC launched a version of low-carb pasta in February 2004. Demand for the new pasta was weak. Overall, revenue fell by 4.9 percent in 2004 and net income dropped from $42.6 million in 2003 to just $3 million in 2004.

The company faced a second challenge in August 2005 when it failed to report its third-quarter earnings due to an ongoing internal investigation into its accounting practices. Founder Richard Thompson stepped down from AIPC's board of directors that month. At the same time, shareholders filed class action lawsuits against AIPC, claiming that the company provided misleading financial information in order to inflate AIPC's share price. In September of that year, the company hired turnaround specialists Alvarez & Marsal in an attempt to revitalize the company's financial position. Although the low-carb fad appeared to be slowing down by 2005, AIPC's future remained in question. Management hoped to overcome its financial challenges and put its accounting investigation to rest in order to resume its focus on putting pasta on North American dinner plates for years to come.

Principal Subsidiaries

American Italian Pasta Company; AIPC Wisconsin, L.P.; AIPC Sales Company; IAPC UK Ltd.; IAPC Holding UK Ltd.; Pasta Lensi, S.R.L. (Italy); IAPC B.V. (Netherlands); IAPC CV (Netherlands); AIPC Finance, Inc.; AIPC South Carolina, Inc.; AIPC Missouri LLC; AIPC Arizona LLC; IAPC Italia Leasing S.R.L. (Italy).

Principal Competitors

Barilla Holding S.p.A.; Dakota Growers Pasta Company Inc.; New World Pasta Company.

Further Reading

"American Italian Pasta Co.: Seven Regional Pasta Brands to Be Brought from Borden," Wall Street Journal, June 5, 2001.

Bassing, Tom, "Pasta Maker Restructures After Buyout Bid Squelched," Kansas City Business Journal, June 14, 1991, p. 2.

Brockhoff, Anne, "Romance, Intrigue of IPOs Intoxicate Some Executives," Kansas City Business Journal, December 12, 1997, p. 22.

Clevenger, Brenda, "That's Not Italian," Ingram's, November 1990, p. 59.

Collins, Martha, "Using Their Noodles," Ingram's, July 1992, p. 40.

Davenport, Carol, "Richard C. Thompson, 38," Fortune, November 6, 1989, p. 196.

Everly, Steve, "American Italian Pasta Co. To Expand Excelsior Springs, Mo. Plant," Knight-Ridder/Tribune Business News, July 2, 1997, p. 7.

Levine, Joshua, "Yankee Noodles Dandy," Forbes, November 12, 1990, p. 310.

"Missouri Pasta Maker To Sell 5.4 Million Shares of Common Stock," Knight-Ridder/Tribune Business News, April 30, 1998, p. 4.

"Mueller's Pasta Line Sold," New York Times, October 5, 2000.

Otto, Alison, "Where Are They Now?," Prepared Foods, October 1991, p. 47.

Reeves, Scott, "No Fireworks, Just Pasta: An IPO with Real Growth and Actual Earnings," Barron's, October 6, 1997, p. 39.

Roth, Stephen, "Public Offering Poises American Italian for No. 1," Kansas City Business Journal, November 14, 1997, p. 3.

Stein, Mark A., "Mamma Mia!," New York Times, October 23, 2005.

"United StatesPasta & NoodlesCompetitive Landscape," Data-monitor Market Research Profiles, November 1, 2004.

"USA: American Italian Pasta Outlines Strategic Plan for 2005," Just-Food, October 28, 2004.

Welbs, John, "Pasta Giant Expands in South Carolina To Begin Production for Mueller's," Knight-Ridder/Tribune Business News, April 15, 1997, p. 41.

                                      Jeffrey L. Covell

                          update: Christina M. Stansell

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American Italian Pasta Company

American Italian Pasta Company

1000 Italian Way
Excelsior Springs, Missouri 64024
U.S.A.
(816)502-6000
Fax:(816) 502-6080
Web site: http://www.pastalabella.com

Public Company
Incorporated: 1986
Employees: 400
Sales: $189.3 million (1998)
Stock Exchanges: New York
Ticker Symbol: PLB
SICs: 2098 Macaroni & Spaghetti; 5149 Groceries & Related Products, Not Elsewhere Classified

The second largest pasta producer in North America, American Italian Pasta Company (APIC) produces more than 80 dry pasta shapes, selling its pasta to supermarket chains, food processing companies, and food service companies. APIC produces pasta for private label brands and its own brand, Pasta LaBella. The companys manufacturing facilities, located in Excelsior Springs, Missouri and Columbia, South Carolina, are vertically integrated operations using the most advanced production technology in the industry. APICs manufacturing facilities, capable of producing more than 600 million pounds of pasta per year, are key to its success. In late 1998 the companys third production facility, located in Kenoshá, Wisconsin, was under construction.

Origins

Richard C. Thompson brought an eclectic professional past with him when he founded APIC in 1986. During the 1970s he was involved in real estate surrounding the Houston Astrodome. During the early 1980s he turned his attention to the oil and gas business, forming an exploration firm, Kinson Resources Inc., to make a living wildcatting in North Dakota. The cyclical nature of the oil and gas business, which descended into one of its deepest ruts during the early 1980s, convinced Thompson to search for a business with fewer market fluctuations and led him to explore food manufacturing as an option. Food production sprang to mind not only because theres always a demand for food, as Thompson once remarked, but also because North Dakota was home to a prized crop: durum. Renowned for its superior pasta-making qualities, North Dakota durum was imported by Italian companies, who converted the wheat into pasta and then exported the pasta back to the United States. Thompson decided to use North Dakota durum to start his own pasta-making company, and he began enlisting the support of financial backers. From the start, he decided to focus on producing premium-grade pasta and avoid competing against low-priced, mass-produced brands manufactured by industry giants such as Hershey Foods and Borden Inc. If were going to survive, Thompson explained, we cannot compete on price. If we do, well get stepped on, thrown away, chewed up, and walked over. Accordingly, Thompson devoted a considerable amount of time to researching pasta making. He spent four years in the United States and two years in Italy learning how to make pasta, searching for the method his company could use to produce superior pasta. I want my pasta to be known as the finest in the world, bar none, Thompson declared, including the Italians.

Aside from producing a premium brand that would limit direct competition with low-priced brands, Thompsons strategy also hinged on something else, something that would make his company a rarity among U.S. pasta producers. Most manufacturers purchased their pasta flour from commercial mills, rather than producing it on their own, but from the start Thompson preached vertical integration, striving to realize the financial benefits of owning his own flour-making facility and the greater control over quality such ownership would give him. He decided to build his production plant in Excelsior Springs, Missouri, selecting the location because of the presence of pure spring water and, more important, because of Excelsior Springs proximity to rail lines accessing North Dakota durum. The $50 million, state-of-the-art facility began production in 1988, officially making Thompsons APIC a participant in the growing pasta industry. At the time, pasta consumption in the United States was on the rise, a trend that would continue into the 1990s as a national passion for pasta intensified. The average American ate 17 pounds of pasta a year in 1988, up from 13 pounds a year in 1981, which translated into a $2 billion market by the time Thompsons plant began producing its first shipments. Into this market APIC entered as a newcomer in 1988; a decade later the company would hold sway as a dominant force, ranking as the second largest pasta producer in the United States.

Business began on a high note when Thompson secured contracts to supply his pasta to the A&P grocery chain and SYSCO Corp., the largest restaurant supply firm in the country. These two customers purchased the companys initial production output, pushing APICs first-year sales into the $20 million range, while Thompson pursued contracts with other institutional customers and began negotiations with brokers in several foreign countries. Thompsons goal was to make APIC the first U.S. company to ship pasta to Italy, a feat that would go a long way toward legitimizing his pasta as the finest in the world. To accomplish this objective and to give APIC a product to increase sales domestically, Thompson invested his efforts in the creation of what he termed a super-premium brand, the pasta product that would drive the companys sales upward, distinguish APIC as a premier pasta maker, and fuel expansion into foreign markets, particularly into the much-vaunted Italian market. The companys signature brand debuted in January 1990, introduced under the name Pasta LaBella. As Thompson had planned, APICs flagship brand stood apart from other mass-produced brands such as American Beauty and Creamette. Pasta LaBella was stocked in the deli section, away from competitors shelved on the pasta aisle, and its retail price of approximately $2.65 for a one-pound package was $1.50 more than most other American brands. Although the sales generated by Pasta LaBella only accounted for five percent of APICs revenue volume during the brands first year, the brand attracted a wealth of new business that promised to be the beginning of more to come. The 800-store Kroger chain began stocking LaBella, as did several other large retail chains, such as IGA, Payless, Hy-Vee, and Price Chopper. Several restaurant chains replaced their Italian pasta brands with LaBella as well, but in Thompsons mind the true measure of success was La-Bellas entry into the Italian market. Everyone remembers the first company to do something, Thompson mused, just like everyone remembers the first person to walk on the moon. But who cares about the second or third?

APICs place in the annals of business history was secured in May 1990 when Thompson attended a European trade fair for food brokers. At the trade fair Thompson reached an agreement to sell LaBella through an Italian grocery store called Casa di Risparmio di Parma, making APIC the first U.S. company to sell pasta in Italy. APICs historic achievement fanned excitement at company headquarters, inducing Thompson and his management team to develop ambitious plans. As negotiations were under way to sell LaBella through a 400-store distributorship in Italy, a LaBella pasta sauce was developed, slated for introduction by the end of December 1990, while LaBella olive oil and LaBella breadsticks were in earlier stages of development. By the end of 1990 sales were up 60 percent from the previous years total, prompting Thompson to expand production capacity. He increased production capabilities at the companys Excelsior Springs plant 200 percent, giving APIC the ability to make 150 million pounds of pasta per year.

New Management in 1991

In 1991 a host of changes swept through APIC that few outside observers could have foreseen. According to one report, the investors who had financially helped Thompson build his Excelsior Springs plant grew worried by the end of 1990 that APIC would not meet certain financial objectives and would fall short of reaching the new, expanded production capacity at the companys plant. In the midst of this reported anxiety, a $76 million buyout of APIC by Hershey Foods was announced in early 1991. Thompson welcomed the deal, but the U.S. Justice Department intervened and launched an investigation into the proposed buyout. After a three-month inquiry, the Justice Department ruled against the proposed acquisition in March, stating that the union of APIC and the second largest pasta producer in the United States would result in higher prices for consumers. In the wake of the scuttled buyout, Thompson stepped aside, vacating his posts of president and chairman of the board to make room for what industry pundits termed professional managers. Horst Schroeder, formerly the chief operating officer for Kellogg, was named chairman of the board, and Timothy Webster, formerly APICs chief financial officer, was promoted to president, along with a number of other promotions that gave APIC a revamped management team. The change in leadership was a smooth transition, without any finger-pointing at Thompson or much to suggest that Thompsons leadership had led to failure. This is a step all entrepreneurial companies go through, explained Webster, where the creator hands the baton to his managers. Thompson, who ranked as APICs largest shareholder, retained a seat on the companys board. Under the new management, however, a new business plan emerged, one that was substantially different from the philosophy espoused by Thompson. Said Webster, Our focus is on the high-volume segments. We need to be a manufacturing-driven company until the plant [capacity! is utilized.

Company Perspectives:

We are a customer-driven company. Our customer-driven strategy means we are totally committed and dedicated to fulfilling the needs of our customers (and helping them grow their pasta business while we re at it!). This approach has allowed us to build long-term customer alliances with companies such as SYSCO Corporation and Sams Club and other industry leaders in expanding sectors of the institutional and retail markets.

From 1991 forward APIC strove to be a low-cost producer of pasta, rather than a company seeking to make the finest pasta in the world. The new strategy sought to utilize the full strength of the companys unique manufacturing capabilities, capitalizing on the vertically integrated operations that had been established by Thompson. Although making quality pasta had not been abandoned as a company goal (APIC touted itself as the only pasta maker to use high temperature drying, reportedly the best way to process wet pasta), operating as a low-cost producer had moved to the forefront of the companys pursuits. Toward this end Webster and his staff achieved encouraging results. Using aggressive marketing and citing the advantages of the companys own mill operations, Webster convinced a number of large customers to purchase their pasta from APIC. Supplier contracts with companies such as Wal-Mart, Publix, Pillsbury, Kraft, and General Mills fostered consistent, strident financial growth, assuaging any anxiety investors might have experienced. Sales rose to $39 million in 1992 and then began increasing by at least 20 percent each year as APIC headed toward the mid-1990s. As the companys customer base of grocery chains, restaurants, and food processing companies increased in number, pushing sales upward and stretching production capacity to its limit, a different type of APIC took shape. The APIC of Thompsons era had sought to distinguish itself from the established giants in the industry by producing a higher-priced, higher-quality product, but during Websters era the pursuit of becoming a low-cost producer had developed APIC into a giant itself. By the mid-1990s APIC was one of the major producers with which it had avoided directly competing during the late 1980s and was well on its way toward becoming the largest pasta producer in the United States. The prospect of reaching the industrys number one position was not a goal in and of itself, Webster noted, as the company steadily increased its market share. But we do want to continue to grow, he added. If it were to happen, wed certainly have grins on our faces.

Late 1990s Expansion

By 1995 any fear of not reaching full production capacity at the companys Excelsior Springs plant had been thoroughly eliminated. The company was ready, in fact, to build a second manufacturing facility. Construction of the new plant began in 1995 in Columbia, South Carolina, its completion lifting APICs production capacity to roughly 300 million pounds of pasta per year. By the end of 1996 sales had eclipsed the $100 million mark, climbing to $121 million. APIC, by this point, was the third largest pasta producer in the United States, trailing only Hershey Foods and Borden Inc., and it was regarded widely as the most efficient producer. Its two manufacturing plants, which made more than 80 shapes of pasta, utilized the most advanced production technology in the industry, a distinction used as a persuasive marketing tool to win new customers and one that was making it increasingly difficult for other companies to compete with APIC on a low-price basis. The fruits of APICs decade-long investment in its manufacturing facilities were realized in 1997, a year that saw the company achieve great strides while its largest competitor began to retreat.

In early 1997 CPC International, a global food company that marketed 45 varieties of pasta, announced APIC would become the exclusive producer of its Muellers brand of pasta, the leading brand in North America. The contract represented an extraordinary boon to APICs business, one that could not have been gained without its state-of-the-art manufacturing facilities. By joining with APIC, a CPC International senior executive remarked, we make a leap from the oldest production technology in the industry to the newest. The addition of the Muellers brands led to a $45 million expansion at APICs Columbia plant, where Muellers was scheduled to begin production in January 1998. News of the Columbia facility expansion was followed by the announcement of a $20 million expansion at the companys Excelsior Springs plant, which had been planned for at a later date but was accelerated once APIC executives learned of their biggest rivals future plans. In mid-1997 Borden announced that it would start to close its pasta-producing plants after deciding to stop manufacturing private-label brands and pasta for the ingredients business, which included making noodles for products such as Hamburger Helper. APIC moved in to fill the void created by Bordens retreat, implementing an expansion program designed to increase its production capacity by 60 percent, making it the second largest pasta producer in North America.

As work was under way to increase APICs production capacity to more than 600 million pounds of pasta per year, the company decided to convert to public ownership. In October 1997 APICs initial public offering on the New York Stock Exchange raised $87 million in net proceeds, giving the company the financial resources to pay for expansion. Following the public offering, Thompson stepped forward to remark, Its been wonderfully exciting and a dream come true. Im a proud papa. There was good reason for Thompsons elation. Everything looks to be going very, very well for them, one stock analyst remarked. They continue to gain market share. In November 1997 the likelihood of further gains in market share appeared assured when APIC announced preliminary plans for a third pasta production plant in Kenosha, Wisconsin, to be constructed through a joint venture with Harvest States. Following this exhaustive period of expansion, the company entered its tenth year of production, by which time both expansion projects at Columbia and Excelsior Springs were completed. The results were impressive. In 1998 revenues increased from $129 million to $189 million and net income swelled from $5 million to more than $15 million, both record results. On this bright note, APIC prepared for its second decade of business, having successfully climbed the rungs of its industry to hold sway as a dominant presence in the North American pasta market.

Further Reading

Bassing, Tom, Pasta Maker Restructures After Buyout Bid Squelched, The Kansas City Business Journal, June 14,1991, p. 2.

Brockhoff, Anne, Romance, Intrigue of IPOs Intoxicate Some Executives, The Kansas City Business Journal, December 12, 1997, p. 22.

Clevenger, Brenda, Thats Not Italian, Ingrams, November 1990, p. 59.

Collins, Martha, Using Their Noodles, Ingrams, July 1992, p. 40.

Davenport, Carol, Richard C. Thompson, 38, Fortune, November 6, 1989, p. 196.

Everly, Steve, American Italian Pasta Co. To Expand Excelsior Springs, Mo. Plant, Knight-Ridder/Tribune Business News, July 2, 1997, p. 7.

Levine, Joshua, Yankee Noodles Dandy, Forbes, November 12, 1990, p. 310.

Missouri Pasta Maker To Sell 5.4 Million Shares of Common Stock, Knight-Ridder/Tribune Business News, April 30, 1998, p. 4.

Otto, Alison, Where Are They Now?, Prepared Foods, October 1991, p. 47.

Reeves, Scott, No Fireworks, Just Pasta: An IPO with Real Growth and Actual Earnings, Barrons, October 6, 1997, p. 39.

Roth, Stephen, Public Offering Poises American Italian for No. 1, The Kansas City Business Journal, November 14, 1997, p. 3.

Welbs, John, Pasta Giant Expands in South Carolina To Begin Production for Muellers, Knight-Ridder/Tribune Business News, April 15, 1997, p. 41.

Jeffrey L. Covell

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