Del Monte Corporation

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Del Monte Corporation

One Market Plaza
P.O. Box 193575
San Francisco, California 94119-3575
(415) 442-4000
Fax: (415) 442-4894

Private Company
Incorporated: 1916 as California Packing Corporation
Employees: 14,500
Sales: $1.43 billion
SICs: 2033 Canned Fruits & Vegetables; 2086 Bottled and Canned Soft Drinks

The Del Monte Corporation, doing business as Del Monte Foods, is the largest canner of fruits and vegetables in the United States. Yet its size now is little more than half what it was at the beginning of the 1980s, when it was under the ownership of R. J. Reynolds Industries. R. J. Reynolds became RJR Nabisco, which in 1988 was consumed by Kohlberg Kravis Roberts & Co. (KKR). KKR quickly divested itself of a number of RJR Nabisco properties, including Del Montes fresh fruits operations (purchased by British-based Polly Peck International) and its processed foods and Japanese rights (purchased by Kikkoman). Although Del Monte management and an investor group led by Merrill Lynch & Co. bought the companys remaining businesses in early 1990, they were also forced to divest various branches of the company, including the Hawaiian Punch and European canned food divisions. In mid- to late 1992 plans surfaced for more Del Monte sales, both of the original and the ancillary businesses. Nevertheless, as the decade progressed, San Francisco-based Del Monte Foods remained intact and tied to its heritage: that of a quality marketer of fruit under an internationally recognized, albeit increasingly confused, brand name.

Del Monte traces its origins to the pioneering nineteenth-century figures in West Coast canning Daniel Provost and Francis Cutting. Along with the influx of settlers from the California gold rush came a need for new regional food manufacturers, and these men led the way. While Provost holds the distinction of forming the first foodpacking operation there, Cutting became the first of a long line of entrepreneurs to manufacture metal and glass containersrather than having them shipped from the Eastand the first to export California-processed fruit back to the East Coast as well as Europe. As the California orchard industry grew, so did the canning industry; a virtual boom in agriculture came to the region during the 1800s, following construction of the first railroad networks, and dozens of canneries were established.

One such business, the Oakland Preserving Company, was launched in 1891. At this time, uniformity in labeling and product quality, under the auspices of the recently established California Canned Goods Association, was becoming a foremost marketing concern. The intent of this service organization was to ensure that the label California grown stood for an uncommonly high standard; its efforts ultimately led to effective legislation governing the canning industry. Oaklands own efforts in this area generated the Del Monte brand, a name that would soon become synonymous with exceptional value.

During this time the need arose for sustaining high consumer demand within an industry that now seemed to be rapidly outgrowing its economic limits. Talks of consolidation among canners eventually produced the California Fruit Canners Association (CFCA) in 1899. CFCA represented a historical merger of 18 separate canneries, including the Oakland Preserving Company. Upon consolidation, CFCA was so vast that it comprised approximately half of the entire California canning industry and ranked, in effect, as the largest canner of fruits and vegetables in the world. There were several key promoters of the CFCA consolidation, including Frederick Tillman, Jr., of Oakland Preserving; Sydney Smith of Cutting Fruit Packing Company; Robert and Charles Bentley of Sacramento Packing; and Mark Fontana and William Fries of Fontana & Co. By popular assent, Fries became the companys president.

Given CFCAs wide area of operations and the strong wills of its various principals, true integration of the canneries never materialized. Furthermore, the retention of a large number of name brands prevented CFCA from developing a strong, cohesive marketing presence during its early years. Nonetheless, the multidimensional cannery prospered, spreading beyond the borders of California with the acquisitions of the Oregon Packing Company and the Hawaii Preserving Company. Like the other canneries already within the fold, these continued to operate fairly autonomously. However, as William Braznell pointed out in his History of the Del Monte Corporation, One notable concession made to corporate solidarity was the adoption of the Del Monte label as the associations premier brand. The brand name, courtesy of Tillman and the Oakland Preserving Company, derived from a coffee blend prepared by Tillman and a partner for the Hotel Del Monte in Monterey as early as 1886. Now the Del Monte label graced over 50 products, including squash, sweet potatoes, peppers, berries, jams, jellies, cranberry sauce, and olives.

CFCAs reliance upon commission agents to sell most of its produce led to a curious chain of events and, ultimately, the formation of the California Packing Corporation (Calpak), the immediate ancestor of the Del Monte Corporation. For some time, CFCA employed San Francisco-based J. K. Armsby Co., the West Coasts largest wholesaler, as its exclusive agent. After CFCA terminated the arrangement, Armsby sought out the regions second-largest manufacturer, Central California Canneries (CCC). This new arrangement soured when the Armsby brothers, J. K. and George, began rapidly accumulating stock in CCC. George, the more aggressive and visionary-minded of the two, had begun to conceive of a single, dominant food concern that would, at the very least, include the Armsby Co., CCC, and CFCA. Although CCC president William Hotch-kiss managed to repel the takeover attempt, he eventually proved amenable to the idea of such a merger.

On November 19, 1916, after numerous meetings, disagreements, and compromises, George Armsbys dream was realized and the monolithic Calpak was formed. Joining the three major companies in the merger were Alaska Packers Association and Griffin & Skelley. Save for Alaska Packers, all of the consolidated companies were headquartered in San Francisco within a short distance of each other. By 1917, a new headquarters had been established and a committee system of management adopted. J. K. Armsby and Fries were elected to serve as president and chairperson, respectively. Like the CFCA merger, the Calpak merger presented a host of organizational problems for the new management, not the least of which was establishing production consistency within the 71 plants in California, Washington, Oregon, and Idaho, as well as the territories of Alaska and Hawaii. According to Braznell, what held everything together was the understanding by the owners that California Packing Corporation would present a solid front in the market place. There would be only one premium Calpak labelDel Monte. It would stand for products of uniformly high quality, and it would be promoted for all it was worth.

A year after the merger, Calpak made promotional history by placing its first Del Monte advertisement in the Saturday Evening Post. Mass advertising was a new medium, and Calpaks intent was to use it to create a national market for its Del Monte label. What the company hoped to overcome was the prevailing image among consumers that canned goods were rainy day items, adequate though not preferable replacements for fresh produce. The concept of brand loyalty was another potential stumbling block for the company, for most grocers at the time were full service, filling customers orders themselves and paying little attention to manufacturers or labels. Piggly Wiggly was among the first grocery chains to alter this practice. By the 1920s the evolution toward self-service supermarkets in the grocery industry was well underway, and the success of the Del Monte marketing plan was ensured.

However, Calpak entered the 1920s in a precarious situation. Although earnings were some $7 million on revenues of $85 million following record-high commodity prices, an agricultural depression loomed, made worse by the plight of many farmers who had heavily mortgaged their land to sink new capital into their operations. The company weathered the crisis better than many of its growers, strengthening itself through the establishment of a national sales network and the initiation of mass production, quality assurance, and other internal systems that both improved efficiency and enhanced the Del Monte brand. A major development came in 1925, when Calpak acquired Rochelle Canneries of Rochelle, Illinois. The purchase of this Midwest company signified Calpaks expansion into corn and pea packing, then the two most lucrative segments of the vegetable canning industry. Related acquisitions included plants in Wisconsin and Minnesota. Several overseas ventures, in such countries as the Philippines and Haiti, also highlighted the decade.

With the onset of the Great Depression, Calpaks earnings crumbled. From 1930 to 1931 they fell from $6.16 per share to just 90 per share. In 1932, the company posted the worst losses in its history. Yet, within two years, earnings began to rebound and, after one more unfavorable year, the company was firmly back in the black. In addition to the poor economy and fierce competition from other major canners, Calpak also faced pressure at the time from a flurry of new canneries. Enormous changes within the industry also came about as a result of the agricultural labor movement. The International Longshoremen and Warehousemens Union (ILWU), after demonstrating its clout through well-planned strikes, eventually won the right to represent cannery workers in wage, plant safety, and benefit negotiations.

Having aided the allied effort during World War II, while sustaining profit losses and the temporary closing of operations in the Philippines, Calpak emerged a much stronger company during the late 1940s due to the postwar expansion and rising per capita consumption of canned products. In 1948 the company acquired East Coast producer Edgar H. Hurff Co. Two years later Calpak moved into new headquarters, and in 1951 the company named its seventh president, Roy Lucks. Braznell characterized him as: coolly logical, an avid student of management sciences a leader who recognized no jurisdictional boundaries and no allegiances other than those owed to the corporation and its shareholders. Under Lucks, wrote Braznell, Calpak/Del Monte moved into the modern era.

By 1951, Calpak had an estimated worth of $158 million and annual revenues of $223 million. Yet it remained an unwieldy business whose potential for growth had barely been tapped. Until the end of his presidency in 1963, Lucks drove the company forward not so much by acquisition as by a devotion to marketing research, field sales, new promotions, new product introductions (including fruit drinks), and a consolidation of its operating units. Of course one merger did prove singularly beneficial to Calpak. This was the purchase of a two-thirds interest in Canadian Canners Limited in 1956. The $14-million-dollar deal attracted considerable attention from industry analysts, for it not only gave Calpak a controlling voice in the operations of the worlds second-largest fruit and vegetable canner, but it also ensured a dominant position for the company in the prized British trade bloc.

When Jack Countryman succeeded Lucks, he fortified Del Montes competitive advantages by establishing a highly efficient warehouse distribution system. In 1967, in an attempt to heighten the companys profile and attract new management talent, he gave Calpak the name it had come to prize above all others, Del Monte. After streamlining its now famous shield logo, the Del Monte Corporation launched boldly into the new territory of soft drinks (which was abandoned after four years) as well as an entire line of canned fruit drinks (which survived until 1974). Other forays included potato chips, frozen french fries, fruit turnovers, frozen prepared entrees, and real estate. Only the last two held any real promise for the company. Strong earnings growth typified the period not because of these attempts at diversification but because of Countrymans parallel commitment to international expansion. The president also proved astute in thwarting a potential takeover from United Fruit (now Chiquita Brands) by acquiring a Miami-based banana importer which, under a U.S. District Court antitrust ruling, nullified any such attempt. United would later sell its Guatemalan operations to Del Monte for $20 million, thus conferring status on the canner as a potentially major player in the fresh fruit market. Alfred W. Eames, Jr. assumed the reins from Countryman in 1968, just prior to a canners recession. Accordingly, profits during 1969 and 1970 dropped substantially.

Profit Improvement Project, or PIP, teams dominated Del Monte corporate culture during the 1970s. U.S. Grocery Products, U.S. Subsidiaries, International Grocery Products, and Seafood were named as the companys major divisions and decentralization became the guiding management philosophy. By 1978, Del Monte had weathered several economic crisesthe devaluation of the dollar, rising manufacturing costs, and price freezesto emerge with record sales of $1.56 billion. Through conservative management of its assets, it was positioning itself for a pivotal acquisition of large proportions that might render it less vulnerable to downswings in its core industry. However, the companys balance sheets were beginning to look so attractive that its privately issued stock, which was once closely held but now freely traded among a widening circle of private investors, began unexpectedly ratcheting upward. In August 1978, J. Paul Sticht and Joseph Abely, Jr. of R. J. Reynolds Industries arranged a meeting with the new Del Monte president, Dick Landis. In a little over a month an agreement to merge, worth $618 million, was reached and then officially ratified in early 1979, with Del Monte becoming the acquired rather than the acquirer.

For the next ten years, Del Monte benefited from the added RJR Foods labels (Hawaiian Punch, Chun King, Patio, etc.) but also suffered from RJR managerial impulses. The company underwent at least four reorganizations, as well as a succession of managers, and saw its longtime San Francisco headquarters moved to Miami. All of this came to an abrupt end in 1988, when KKR effected the biggest leveraged buyout in U.S. history, purchasing RJR for more than $24 billion. In order to reduce debt incurred by the transaction, substantial portions of Del Monte were auctioned off to overseas buyers. A new Del Monte management led by Ewan Macdonald, who had served as marketing vice-president since 1985, salvaged the remainder of the business via another leveraged buyout in 1990. The cost of this acquisition was $1.48 billion, 80 percent of which was financed with outside capital. According to Fara Warner in Adweeks Marketing Week: Del Monte is one of the success stories to come out of the RJR leveraged buyout, despite the heavy debt load the current owners incurred in buying Del Monte from RJR; sales have grown annually by 9 percent during Macdonalds tenure. Most attribute the success to Macdonalds strategy of advertising only in magazines. Yet, a $50 million dollar campaign to introduce the failed Del Monte Vegetable Classics, a considerable portion of which was earmarked for television ads, belied this strategy. Although Del Monte still ranks number one in brand preference in several categories and controls 16 percent of the $3.5 billion canned vegetable market, its future is far from clear. In May 1992, a number of newspapers reported that Italian financier Sergio Cragnotti, owner of Cragnotti & Partners Capital Investment, was preparing to offer a cash and debt-assumption package worth $800 million for the U.S. food concern. George Anders, writing in the Wall Street Journal, surmised that If Del Montes owners arent able to fetch more money for the food company, they may choose to forgo a sale at present and hold on to the business for another year or two, in hopes of brighter sales prospects later on.

Further Reading

Braznell, William, Californias Finest: The History of the Del Monte Corporation, San Francisco: Del Monte Corporation, 1982; Paris, Ellen, Swimming Through Syrup, Forbes, November 21, 1983; Elliott, Dorinda, Dole and Del Monte Are Staying PutNo Matter What, Business Week, November 18, 1985; Maremont, Mark, Meet Asil Nadir, the Billion-Dollar Fruit King, Business Week, September 18, 1989; Waldman, Peter, RJR Completes Del Monte Sale for $1.48 Billion, Wall Street Journal, January 11, 1990; Loeffelholz, Suzanne, Thrice Shy: Del Monte and Sansui Are the Jewels in Polly Pecks Crown, Financial World, May 29, 1990; Del Monte Names Macdonald CEO, Advertising Age, October 22, 1990; Johnson, Bradley, Vexed over Vegetables: Churlish Children Hawk Del Montes New Line, Advertising Age, January 14, 1991; A Century of Growing, San Francisco: Del Monte Corporation, 1991; A Time to Grow, Brand News: A Quarterly Publication for the Employees of Del Monte Foods, March 1991; Refinancing of Debt Related to Buy-Out Is Completed, Wall Street Journal, September 13, 1991; Warner, Fara, Whats Happening at Del Monte Foods?, Adweeks Marketing Week, November 18, 1991; Anders, George, Italian Financier Begins Talks Aimed at Buying Del Monte for $300 Million, Wall Street Journal, May 28, 1992; Warner, Fara, Del Monte Has a Rendezvous with an Italian Suitor, Adweeks Marketing Week, June 1, 1992.

Jay P. Pederson