Grist Mill Company

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Grist Mill Company

21340 Hayes Avenue
P.O. Box 430
Lakeville, Minnesota 55044
U.S.A.
(612) 469-4981
Fax: (612) 469-5550

Public Company
Incorporated: 1917
Employees: 646
Sales: $78.92 million (1995)
Stock Exchanges: NASDAQ
SICs: 2048 Prepared Feeds, Not Elsewhere Classified; 2043 Cereal Breakfast Foods; 2041 Flour & Other Grain Mill Products; 2064 Candy & Other Confectionery Products

Minnesota-based Grist Mill Company manufactures cereal, cereal snacks, and confectionery products, such as ready-to-eat (RTE) cereals, granola bars, fruit-filled cereal bars, and pie crusts. Most of Grist Mill’s products are sold under private supermarket labels, including 13 private labels of the 50 largest supermarket chains in the United States. Many of Grist Mill’s private label cereals are meant to imitate well-known branded cereals of industry giants Kellogg’s and General Mills. However, in 1995, Grist Mill rolled out a line of six premium private label cereals—Honey Glazed Corn Flakes; Extra Fruit Muesli; Extra-Raisin Raisin Bran; Apple Cinnamon Corn Flakes; Honey Glazed Bran Flakes; and Extra Fruit Low-Fat Granola—to be sold as original products. In addition to its 18 RTE products, Grist Mill manufactures a limited line of its own name-brand products and contract manufactures several products for other companies. The RTE cereal market was worth about $8 billion in 1995, with approximately $500 million of those sales going to private-label cereals. Grist Mill’s $14 million in 1995 RTE sales, representing about four percent of the private-label market, placed it a distant third behind the Ralston Purina Group spinoff Ralcorp Holdings of St. Louis, with nearly 60 percent, and Minneapolis’s Malt-O-Meal Company, with approximately 25 percent. Private-label RTE cereals, however, had captured only about six percent of total cereal sales—compared to the 20 percent share private labels held in the $175 billion total grocery industry—leaving room for expansion. With its new and future product introductions, Grist Mill expected to increase its market share to about ten percent by the turn of the century. The bulk of Grist Mill’s $80 million 1995 sales remained in the wholesome snack (granola bars, etc.) category, which Grist Mill continued to dominate in the United States.

Grist Mill’s origins may be traced to a grain mill in Los Angeles established in 1917. By the 1930s, that business had evolved into one of the country’s first natural foods stores. During the 1960s and 1970s, interest in natural foods began to spread throughout the country. In 1971, the assets of several companies, including the former Grist Mill store, were combined and moved to Lakeville, Minnesota. Operating as Grist Mill, the new company’s original facilities were a modest 20,000 square feet. Production of its first granola cereal began that same year.

In 1973 Ronald Zuckerman and two partners bought a 65 percent share in Grist Mill for $85,000. In that year. Grist Mill began to supply its first private label product, known as “100% Natural Cereal.” Contract manufacturing began the following year, with production of Enrights Natural Cereal. Grist Mill added another product in 1975, supplying the granola for the first of the granola bars, the Crunchola, marketed by Sun-mark. Three years later, Grist Mill’s sales had reached $1.3 million. Zuckerman, together with other members of the company’s management, bought controlling interest in Grist Mill in 1981.

Zuckerman changed the focus of the company, taking an entrepreneurial direction that would see revenues jump to $23 million by 1985. The company began to expand its facilities beyond its original 20,000 square feet and brought in personnel “from more sophisticated environments to help the company become more sophisticated,” as Glen Bolander, who would become the company’s president and CEO, told Candy Industry. Bolander himself, a former independent food distributor, joined Grist Mill in 1982 in charge of sales. In 1982, Grist Mill also began production of private label graham cracker pie crusts. For the time being, the company’s focus was on its private label business, and on expanding its sales and distribution networks to stimulate demand. Sales more than tripled over the previous year, to $4.2 million.

Production facilities were expanded to 50,000 square feet in 1983, including the addition of the company’s first granola bar production line. Sales rose to $6.6 million, with a net loss of $3,000, but the company returned to profitability in 1984 with a $350,000 net on $12 million in revenues. Production of Grist Mill’s private label granola bars began that year, and by 1984, two more granola bar lines were added. With a contract from Ralston Purina to manufacture that company’s “S’mores” granola bars, Grist Mill added another 40,000 square feet of production space.

Zuckerman and Bolander took Grist Mill public in 1985, selling 24 percent of the company for $7 million. The company added chocolate-coated granola bars to its product line and moved into confectionery with the first of its real fruit snacks, Fruit Bits. The company also began production of RJR Nabisco’s “Goodstuff” chocolate candy bar, then purchased the rights to that product when RJR Nabisco dropped it after its test marketing. While Grist Mill’s private-label and contract manufacturing business grew, Zuckerman and Bolander made plans to take the company in a new direction. Using some of the cash raised in its initial public offering, Grist Mill entered the name-brand business, selling its Fruit Bits, and soon its RTE cereals as well, under the Grist Mill label. The company’s strategy was to market low-end products priced between the private label and larger name brands. In 1986, name-brand products accounted for five percent of Grist Mill’s grocery product line. By the end of the decade, name-brand products made up 35 percent of its grocery division.

Sales slipped as the company refocused itself. Its contract and industrial manufacturing business, which contributed over $6 million in revenue in 1986, suffered when Grist Mill’s primary granola bar company left that market. However, the rollout of its fruit snacks led to more than $5.5 million in sales in 1987. Grist Mill added another 50,000 square feet to its plant in 1987-89. In 1988, the company expanded its fruit snacks line and established a self-standing Confections Division, with a separate sales and distribution network. Sales, which for three years were stuck at around $23 million, climbed to $31.7 million in 1988 and to $44 million in 1989. Profits were also up, increasing to $2.9 million, and now accounting for nearly seven percent of revenues.

In 1990 Grist Mill bought Tempo Confections, of Danville, Illinois, for $125,000. Tempo, formerly Chuckles Company, had been manufacturing much of Grist Mill’s fruit snacks candies since their rollout. Renamed Grist Mill Confections, Inc., the new subsidiary added 125,000 square feet of production capacity, 125 employees, and annual production of 12-20 million pounds to Grist Mill’s own 20 to 25 million pounds per year. Confectionery rose to account for 19 percent of Grist Mill’s sales, while the bulk of its business remained in grocery, at 74 percent. Contract and industrial, which had been the core of Grist Mill’s business, was by then scaled back to seven percent of sales.

Driven by its name brand products, sales jumped again to $60 million in 1990. By 1993, private label sales would account for less than 25 percent of Grist Mill’s grocery business. However, consumer preferences were shifting as well. Private label products had begun to lose their reputation for lower quality, and, aided by the recession of the early 1990s, began to take more and more market share from the name brands. As it built its name brand business, Grist Mill all but neglected its cereal line, which evolved little beyond its core granola base. Competitors, especially Ralcorp and Malt-O-Meal, moved into the private label business, gaining dominant positions. At the same time, Grist Mill’s confections divisions faced its own problems. The company’s core candy bar, Goodstuff, had been less than successful, and was eventually dropped as unprofitable in 1993. That year brought more trouble to the confections division when the Farley Candy Co. introduced a private-label fruit snacks line. Modeled after Grist Mill’s own fruit snacks, Farley’s products sold for as much as 20 percent less. Grist Mill, however, lacked the money needed to counter with strong promotion campaign, and instead was forced to lower its prices. While Grist Mill managed to retain its market share—as much as 80 percent—the lower profit margins resulted in a 70 percent earnings drop for fruit snacks through 1994. Overall, Grist Mill’s revenues fell from $67 million in 1993 to $55 million in 1994.

Zuckerman retired from Grist Mill in 1993, and Bolander took over as president and CEO. Zuckerman remained as chairman of the board. After discontinuing the Goodstuff bar, Bolander moved to scale back on fruit snack production, returning the company’s focus to private label granola bars and cereals. Prior to 1993, Grist Mill’s cereals had featured only granola and bran cereals. Grist Mill now moved to become a full-line cereal provider. The company stepped up the introduction of new private label products—such as corn flakes, frosted flakes, crispy rice, raisin bran, and bran flakes, as well as cereals modelled after such popular name-brand cereals as Kix, Cheerios, and Fruity Pebbles, adding 16 new products through 1995. With revenues rising to nearly $80 million that year, and earnings climbing to $4.6 million after the low of $1.2 million in 1994, the company also broadened its distribution, adding more customers and increasing its presence on existing customers’ shelves.

In 1995, Grist Mill rolled out a new line of six premium cereals. Unlike its other cereals, which were meant to imitate existing brand name cereals, the new cereals were to be sold as original private label products. Yet the company’s strongest sales and growth was with its granola and cereal snack bars; in 1994 Grist Mill added to its contract manufacturing business with production of Nabisco’s brand-name granola bars. By the end of 1995, with six-month sales outpacing the previous year by 27 percent, Bolander was forecasting fiscal year 1996 revenues reaching to the low $90 million range. While it still trailed private-label competitors Ralcorp and Malt-O-Meal, the refocused Grist Mill appeared poised to make up for lost time.