Gerber Products Company

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Gerber Products Company

445 State St.
Fremont, Michigan 49413-0001
U.S.A.
(616) 928-2000
Fax: (616) 928-2723

Public Company
Incorporated: 1901 as Fremont Canning Company
Employees: 12,871
Sales: $1.26 billion
Stock Exchanges: New York Midwest
SICs: 2032 Canned Specialties; 2361 Girl/Children’s Dresses & Blouses; 3069 Fabricated Rubber Products Nee; 3089 Plastics Products Nee.

A longtime giant of the baby food industry, Gerber Products Company enjoys a solid reputation as the largest supplier of baby products in the world. Gerber has dominated this market since its introduction of the first commercially successful baby food in 1928, establishing a 71 percent U.S. market share despite serious and recurrent competition, such public relations crises as the glass scares of 1984 and 1986, various management transitions and takeover threats, and several failed diversification strategies. The strong, steady growth from fiscal 1988 through fiscal 1992 of Gerber and its most important subsidiaries, including Gerber Childrenswear, Inc., and the Gerber Life Insurance Company, is the result of the firm’s realignment with the slogan “Babies are our business … our only business!” Under the recent direction of Alfred A. Piergallini, Gerber has promised to pursue a “superbrand” strategy of both domestic and international expansion within this one market that it arguably understands and can capitalize on as none of its competitors can.

Gerber traces its origins to the Fremont Canning Company, a small packager of peas, beans, and fruits in rural Michigan begun by Frank Gerber (1873-1952) and his father in 1901. At that time, Gerber also served as a partner in his father’s tannery. When the tannery closed in 1905, Gerber focused all his efforts on building the canning company. By 1914 he had expanded his plant to permit year-round production. Three years later, with the death of his father, Gerber became president of the company and saw its sales exceed $1 million for the first time. Following a brief postwar dip in profits, Fremont Canning experienced steady growth during the 1920s.

By 1926 Frank Gerber’s son Daniel (1898-1974) had risen to assistant general manager of the company. A year later Daniel’s wife, Dorothy, made a monumentally significant suggestion: that Dan persuade his father to begin manufacturing and selling strained baby foods in order to end the tedious chore of cooking, mashing, and otherwise preparing solid foods for infants. Frank and Daniel undertook extensive preliminary research before launching the concept, thoroughly testing the products, contacting nutrition experts, distributing thousands of samples, and conducting follow-up market research interviews. The baby food line was introduced successfully in 1928, and the Gerbers’ careful implementation of the idea, relying on both professional and public endorsement, established the foundation upon which the present-day business rests.

The key to Gerber’s successful marketing plan for baby food was the advertisement placed in Good Housekeeping, which enlisted mothers of young children to participate directly in a coupon redemption program. The introductory offer—six cans of Gerber’s soup and strained vegetables for $1.00 and the name of a favorite grocer—stressed the nutritional and time-saving value of Gerber’s foods and sought to generate enough responses that the canning company could offer proof to grocers of the new demand for stocking baby food on their shelves. The campaign was overwhelmingly successful, resulting in national distribution within six months and first-year sales of 590,000 cans with gross revenues of $345,000. In effect, the Gerbers had created a new industry, served previously only by pharmacists, and then only under special circumstances and at a high cost to the consumer. (Pharmacies typically priced 4.5 oz. cans at 35 cents each; the Gerbers, through mass production and marketing, were able to sell their cans at just 15 cents each, still a premium price given the cost of adult foods but nonetheless now well within the reach of the average American household.)

The company’s monopoly on the market did not last long. By 1935 more than sixty other manufacturers had introduced their own vitamin-rich, pressure-cooked, sealed baby foods. However, Fremont Canning held its commanding lead because of the widely held and well-earned perception that the Gerber name was synonymous with quality and expert-backed research. In addition, no other company possessed a logo approaching the appeal of the “Gerber Baby,” which was already famous; or a research and education department that flooded the market with useful pamphlets on parenting, feeding, and child psychology; or such a model spokesperson as Dorothy Gerber, whose newspaper column “Bringing up Baby” held sway with thousands of mothers nationwide. During the difficult years of the Great Depression, the Gerbers underscored their strength and vision for the future by implementing a state-of-the-art agricultural program, expanding into the Canadian market, doubling their line of foods, and topping $1 million in annual sales.

The 1940s marked the full maturation of the baby food producer. By 1941 the company, which was meeting a demand for a million cans of baby food each week, was renamed the Gerber Products Company. Two years later the company abandoned production of adult foods altogether and opened a second baby food plant in Oakland, California. Given the post-World War II baby boom, Gerber’s timing could not have been better: by 1948 it was poised to channel all its resources toward satisfying a domestic demand that had swelled to 2 million cans daily. That same year, the company adopted its trademark slogan: “Babies are our business . . . our only business.”

The 1950s saw the addition of three new plants—in Asheville, North Carolina; Rochester, New York; and Niagara Falls, Ontario—and an official changing of the guard that occurred with the death of Frank in 1952. Under the leadership of Dan Gerber, the company embarked on a new mission of expansion and diversification. Highlights of this era, which extended until Gerber’s relinquishment of the CEO position in 1971, included the launching of the Gerber toy line in 1955, a listing on the New York Stock Exchange in 1956, the opening of a Mexican subsidiary in 1959, and the introduction of a large line of baby-related products in 1965. At the time of Daniel Gerber’s death in 1974 the company could boast that it was the world’s largest baby-food manufacturer, with sales of $278 million and an enviable domestic market share of nearly 70 percent. This was all the more remarkable since Gerber Products was just concluding a five-year price war with its competitors, at the beginning of which it held only a 53 percent share.

Ironically, at this high point the company had amended its slogan to read simply, “Babies are our business,” a reflection of the company’s slow drift away from the formative philosophy of the 1940s. In 1977 the company faced down a major threat when Anderson, Clayton, and Company, a food products firm based in Houston, launched a serious takeover attempt. Fortunately, the probability of a long legal battle dissuaded Anderson from further action and preserved Gerber’s independence. Within two years, Gerber began in earnest a major campaign of diversification—in part to offset expected declines in birth rates—with the acquisition of CW Transport, a freight carrier based in Wisconsin. Although furniture, toy, and other subsidiaries followed, by 1989 Gerber had divested itself of many of these fringe ventures in order to refocus on its more profitable baby food, baby care, and clothing lines.

Perhaps the most serious threat to Gerber during the 1980s arose not from its broad policy of acquisition but from the public relations crises of 1984 and 1986. Gerber responded to the first of these two crises—involving reports alleging the presence of glass fragments in jars of baby juice—by recalling some 550,000 jars in a 15-state region. This cautionary action was viewed favorably by the public, and financial damage incurred by the company was limited to only a short-term, 4 percent drop in sales. The second glass crisis—which, like the first, sparked investigations that ultimately exonerated Gerber—involved some 645 complaints spread over 40 states. This time Gerber, headed by William L. McKinley, chose to remain silent and to take no action other than offer its cooperation with federal investigators. The decision proved unpopular and contributed at least in part to a drop in profits from $69 million in 1985 to $54 million in 1987; McKinley departed shortly after the resolution of the glass scare and was replaced by Leo D. Goulet.

Goulet’s sudden death in 1987 forced the company’s board of directors to seek new management from outside the company. Their search culminated in the hiring of David W. Johnson, who was perceived by many as a much-needed antidote to the company’s apparent lack of direction and vitality. Johnson’s aggressive reemphasis, through advertising and product development, on Gerber as a major food company resulted in a 46 percent improvement in earnings from 1987 to 1988. However, with Gerber at the threshold of $1 billion in annual revenues, Johnson left the company to become CEO of Campbell Soup. Johnson’s replacement, former Carnation senior vice-president Alfred A. Piergallini, has effectively sustained the Gerber reorientation through a “superbrand” development and marketing strategy, most notably with the introduction of the 16-product Tropical line of baby foods in 1991 and the 23-item Gerber Graduates line in 1992. As Piergallini wrote in the company’s 1991 annual report, “Our ability to offer food, clothing, and care items for children from birth through three years of age under a single major brand sets us clearly apart from our competitors. We will leverage this advantage by expanding into new channels of distribution domestically and, over time, internationally, through the development of an infant and children’s category approach for our retail customers.” In 1991 Gerber entered foreign markets including the USSR, Thailand, Brazil, Chile, and Sweden, and in February 1992 purchased 60 percent of Alima, S.A., a Polish producer of food and juices. Of special significance to Gerber was the fact that although 98 percent of the world’s births occur outside the United States, only 10 percent of Gerber’s sales derived from this still largely untapped market.

Curiously, although 1992 marked a record year of sales and earnings for Gerber, punctuated by a strong performance of its insurance subsidiary and a prudent streamlining of Gerber Chil-drenswear, the company approached 1993 with uncertainty. Since July 1992 Gerber had been attempting, unsuccessfully, to unload Buster Brown Apparel, a once-profitable supplier of high-fashion clothing that had shown a trend toward declining sales. More importantly, Gerber was experiencing heavy competition in the form of a “discounting blitz” from H. J. Heinz Co. and Ralston Purina Co.’s Beech-Nut unit, which was undercutting Gerber’s prices by as much as 28 cents per jar. Although the price-cutting storm had shown signs of abating by the end of 1992, Gerber’s stock nonetheless suffered in December due to lowered earnings and food sales volume estimates for fiscal 1993. Commentators noted that Gerber might also have difficulty recapturing its baby food market share, which had fallen in September to 67.6 percent.

On the positive side, Gerber stood by its pledge to vigorously promote itself both at home and abroad. With its line of more than 240 food products in 58 countries, the largest research facility of its kind in the world, and the realistic expectation that birth rates would remain high rather than decline, the Gerber Products Company was expected to weather the 1990s far ahead of the competition. The billion-dollar baby care industry, of which Gerber controlled less than a 10 percent market share, was just one of several areas in which the company planned to expand its presence. Domestic and foreign acquisitions, as well as the full utilization of Alima as a European base of operations, were other likely possibilities for fueling Gerber’s future growth. Gerber also showed signs of resorting to one of its earliest and most successful strategies: that of creating new perceptions of nutritional needs for infants. Piergallini’s 1992 message to shareholders stated: “We will employ strategies to increase consumption of baby food, build baby food market share, and expand the baby care and apparel businesses. U.S. consumption of baby food begins at about 5-6 months of age and falls off at about 16 months. This is not good. Babies’ special nutritional and developmental needs are not met with adult foods and breast milk or formula alone.” While experts might debate this last contention, Gerber will no doubt move toward accomplishing the task it has set itself with all the verve and studious planning its founders first displayed more than sixty years ago.

Principal Subsidiaries

Alima-Gerber, S.A. (60%); Buster Brown Apparel, Inc.; Gerber (Canada) Inc.; Gerber Childrens-wear, Inc.; Gerber Family Services, Inc.; Gerber France, S.A.R.L.; Gerber Life Insurance Company; Gerber Polska; Gerber Products Company of Puerto Rico, Inc.; Gerber Products Company Singapore (PTE.) LTD.; Productos Gerber de Centroamerica, S.A.