Hanover Foods Corporation

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Hanover Foods Corporation

I486 York Street
Hanover, Pennsylvania 17331
Telephone: (717) 632-6000
Fax: (717) 637-2890
Web site: http://www.hanoverfoods.com

Public Company
1924 as Hanover Canning Company
Employees: 1,856
Sales: $287.2 million (1999)
Stock Exchanges: OTC
Ticker Symbol: HNFSA
NAIC: 311421 Fruit and Vegetable Canning; 311411 Frozen Fruit, Juice, and Vegetable Manufacturing; 311919 Other Snack Food Manufacturing

Hanover Foods Corporation is the largest fully-integrated and independent food processor in the United States. The company grows, processes, packages, markets, and distributes a variety of food products under several different brand names. In addition to the Hanover brandwhich is the leading brand in frozen and canned vegetables and beans in Pennsylvania, New Jersey, Maryland, Virginia, and Delawarethe company also markets its products under the labels of regional food companies it has acquiredincluding Bickels, Superfine, Spring Glen Fresh Foods, Dutch Farms, Gibbs, Mitchells, Myers, Bonton Foods, Draper King Cole, Casa Maid, Sunny Side, Sunwise, Phillips, York Snacks, and L.K. Bowman. Hanover Foods Corporation is also a significant player in the lucrative private label business. The company operates plants in Pennsylvania, Delaware, New Jersey, and Guatemala, producing over 40 million cases of glasspack, canned, frozen, refrigerated, freeze-dried, and snack food products each year. Since 1995, however, Hanover Foods has been troubled by internecine strife, as different members of the Warehime family (who founded the company and still control some 60 percent of it) have been embroiled in legal struggles for control of the business.

Early Years

In the early years of the 20th century, Harry Virgil Warehime moved from Carroll County, Maryland, to Hanover, Pennsylvania. After settling there and supporting his family as a farmer, Warehime set out to expand beyond his fields and founded the Hanover Canning Company in 1924. The fledgling company canned peas, beans, and tomatoes grown by Warehime and other local farmers during the summer season, and processed sauerkraut in the winter.

Harry Warehimes son, Alan R. Warehime, joined the family business in 1934, after graduating from Pennsylvania State University with degrees in agriculture and economics. With Alan on board, the Hanover Canning Company grew at a steady pace throughout the 1940s. But true success arrived in the 1950s, as the company expanded tremendously, hiring large numbers of new employees. In 1954, Hanover Canning added frozen vegetables to its established line of canned products.

After Harry Warehime died in 1955, his son succeeded him as president and chief executive officer. As the Harrisburg Patriot explained on March 28, 1990, it was under [Alans] leadership [that] the company grew to become a national distributor and one of the leading independent food processors in the United States. Unlike other executives, Alan Warehime was known for his active involvement in the day-to-day operations of the company. Indeed, rather than isolate himself in his office, he was fond of walking the plant floors.

Perhaps it was his strolls through the Hanover Canning Company that led Warehime to formulate his food-processing innovations. Shortly after Hanover Canning introduced its line of frozen foods, it became the first company to produce premade salads in glass jars. These convenient, ready-to-eat items proved very popular with consumers, particularly Hanover Cannings glass-packaged 3-Bean Salad, which debuted in 1955. In the early 1960s, Warehime oversaw the development of individually quick frozen (or IQF) vegetables. Prior to this breakthrough, frozen vegetables were packaged in cumbersome block frozen bags which consumers needed to defrost entirely or otherwise break apart on their own. IQF vegetables, on the other hand, could be poured out with ease in simple-to-measure quantities.

Alan Warehime also presided over Hanover Cannings initial acquisitions. In the mid-1950s, Hanover Canning purchased Gibbs and Phillipstwo regional companies whose lines of canned and frozen vegetables complemented Hanovers products. In 1961, Hanover Canning entered into new territory when the company acquired nearby Snyders Pretzels and Chips which it rechristened Snyders of Hanover. With annual sales exceeding $2 million in 1960, this snack food company provided Hanover Canning with clear advantages. Founded in 1923, Snyders enabled its new parent firm to expand beyond the vegetable business, whichthough boomingwas characterized by low margins. Even more enticing was the fact that Snyders had built an extensive distribution network which could assist Hanover Canning in its efforts to extend into new geographic regions. After its spate of acquisitions, Hanover Canning opted to change its name to convey its new breadth. In 1962, it officially became Hanover Brands Inc.

In the late 1960s, Hanover Brands again broadened its product lines when it began to compete in the growing private label business. With private-label brands, Hanover Brands created food products for various retail stores and direct-home delivery distributors. The products were then sold under those brand namesnot its ownsparing Hanover the costs it accrued when marketing its own brand.

Hanover Brands continued to enjoy soaring sales in the 1960s and 1970s. In 1975, the company made a significant strategic move when it launched a new divisionAlcosa located in Guatemala City, Guatemala. By opening a plant in the warmer climes of Central America, Hanover Brands was seeking to regularize its vegetable business. Certain crops especially broccoli, cauliflower, and brussels sprouts (so-called cold crops)were difficult to produce consistently in the companys fields in Pennsylvania and Delaware. However, these crops could be grown virtually year-round in Guatemala, enabling Hanover Brands to produce a steady stream of frozen and canned cold crops.

Growth in the 1980s and Early 1990s

As it integrated Alcosa into its operations, Hanover Brands also continued to bolster its regional presence in the mid-Atlantic states. In the early 1980s, Hanover Brands made two key acquisitions that meshed with its strengths. With the purchase of Superfine in 1980, the company strengthened its position in the frozen and canned vegetable market. The addition of Myers to the Hanover stable of brands in 1982 made Hanover one of the leading vegetable processors in the region.

As part of an effort to focus on its core frozen vegetable business, Hanover Brands began to retreat from the snack-food market. To this end, the company spun off Snyders of Hanover into an independent company in 1981. Although the subsidiary had performed reasonably well, Hanover Brands had overextended the Snyders brand in the 1970sdabbling in snack foods experiments such as peanuts and soft sugar cakes. Newly independent, Snyders of Hanover refocused on its pretzel and potato chip sales. The smaller company did remain closely connected with Hanover Brands, though, as members of the Warehime family continued to preside over it.

During the mid- and late-1980s, Hanover Brands made a series of acquisitions that reinforced its dominance in the canned and frozen vegetable market. In March 1989, Hanover Brands announced its purchase of F.O. Mitchell & Bro. Inc.a leader in the canned corn niche. Soon thereafter, Hanover Brands made Aunt Kittys Soup Company a member of its empire.

A Changing of the Guard

The company suffered a tremendous loss in 1990, when Alan Warehime died on March 24. He knew every facet of the business, John Miller, the vice-chairman of Hanover Brands board of directors, told the Harrisburg Patriot. Succeeding his father at the helm was Alan Warehimes eldest son, John A. Warehime. Alan Warehimes other children were integral to the familys empire as well. Son Michael headed Snyders of Hanover, while daughter Sally Warehime Yelland served on Hanover Brands board of directors.

In his new capacity as chairman and CEO, John Warehime instituted a bold new strategy. While the company had long held a powerful position in the frozen and canned vegetable market, Hanover Brands was subject to the low margins of that business. Consequently, John Warehime sought to enter more lucrative sectors of the food processing industry. In keeping with this significant shift, Hanover Brands acquired Spring Glen Fresh Foods in 1990. Spring Glen was a leading producer of fresh foods, such as puddings, salads, deli items, meat loaf, pot pies, and lasagna, which were all hand-made and hand-packaged. Soon after finalizing the acquisition, the company underwent yet another name change, becoming Hanover Foods Corporation.

Company Perspectives:

Hanover Foods is very proud of its many employees, consultants and directors who have led Hanover Foods Corporation through 75 years of businessa feat that is accomplished by less than 2 percent of independently-owned companies. Through many difficult times, when its larger competitors have lost money or even closed their doors, Hanover Foods has prevailed and succeeded because of strong leadership, commitment and vision of top management and its board of directors.

Hanover Foods involved itself in the value-added foods sector in other ways as well. While integrating Spring Glen into its operations, the company also began to expand the product offerings sold under the Hanover brand to include meal starters. In 1991, Hanover launched a line of Stir Fry products that included pre-prepared vegetables and sauce packets. Consumers needed only to add meat to the mix to concoct a quick dinner. Soon thereafter, Hanover Foods purchased a food processing facility in Clayton, Delaware, which allowed the company to handle meat and seafood.

Legal Troubles Casting a Shadow

As John Warehime presided over Hanover Foods rapid diversification into new areas of food processing, though, he suffered a loss of credibility in 1992, when he and his wife, Patricia, were charged with federal income tax evasion at a separate company in which they were the sole shareholders. The couple had founded Food Services East, Inc., which operated The Cannerya chain of 14 food stores in Pennsylvania and Delaware. Although Patricia Warehime was sentenced to only a month in jail, and John Warehime received 100 hours of community service work as his punishment, the scandal created a year of embarrassment and humiliation for the Warehimes, the couples attorney told the York Daily Record on October 22, 1992.

The event was only the first in a series of costly legal battles that would plague the Warehime family and Hanover Foods for the remainder of the 1990s. In 1993, Michael Warehimethe president of Snyders of Hanover and a shareholder and board member at Hanover Foodsdiscovered that John Warehime had made unauthorized loans worth $4.1 million to his ailing Food Services East Inc. using Hanover Foods capital. Michael Warehime and his sister Sally Yelland drafted resolutions prohibiting such loans in the future and requiring John Warehime to provide collateral for the loans. According to the April 24, 1997 edition of the York Daily Record, John Warehime was outraged by this maneuver and referred to the proposals as the coup.

At an October 1994 meeting, the Hanover Foods board of directors eliminated cumulative votinga mechanism that empowered shareholders to combine their votes in electing board members. John Warehime then used his power as the sole trustee of the Alan R. Warehime Voting Trust to remove his siblings from the board. (In 1988, Alan Warehime had established the Voting Trust as a means of ensuring stability, and had named John Warehime as its trustee. Although the Trust expired in 1998, it gave John Warehime the right to vote a majority of common stock, including some shares owned by Michael Warehime.) New board members were nominated and approved in place of the ousted ones. Soon thereafter, the board voted to increase John Warehimes compensation package from $482,000 to $1.34 million. During the same period, Hanover Foods pre-tax earnings plummeted from $10.2 million to $2.68 million, the York Daily Record reported on April 26, 1997. He certainly got very rich last year in a bad year for the company, an irate attorney for Michael Warehime told York Daily Record on November 30, 1995.

A web of lawsuits ensued. In February 1995, Michael Warehime filed suit against his brother, claiming that John Warehime had used the family business to enhance his own financial status, with little regard for the members of the voting trust under his charge, as the York Daily Record explained on November 30, 1995. In September 1996, 12 shareholders filed a civil suit on behalf of the company against John Warehime and the directors.

The already grim situation continued to worsen. In 1997, Michael Warehime filed another suit to block his brother from amending the companys charter to create another class of stock. Michael Warehime alleged that the effort was a thinly disguised attempt by John Warehime to solidify his control since the Voting Trust was due to expire the following year. John Warehime countered that the new Class C stock would be used to raise $30 million in capital to fund future acquisitions to keep the company solvent. In any event, John Warehime also acceded to the recommendations of an executive compensation firm hired by the board in 1997 to retroactively diminish his salary. The various lawsuits remained unresolved in 2000.

Further Expansion in the Late 1990s

While the familys squabbles were tied up in the courts, John Warehime continued to oversee operations. In the late 1990s, he guided the company in its acquisition of a tomato-processing plant near Sacramento, California. With its capacity to create tomato paste and an array of derivative products (such as spaghetti sauce, vegetable juice, and puree) the plant would allow Hanover Foods to stabilize costs and strengthen its position in the tomato products market. In 1998, Hanover Foods also returned to its former business of snack foods when it acquired the Manheim, Pennsylvania-based Bickels Snack Foods. Seeking to capitalize on the higher margins of this food category, Hanover Foods purchased other snack foods concerns in 1999, namely York Snacks and Bonton Foods. Despite these changes, Hanover Foods also remained committed to its core of frozen and canned vegetables. To this end, the company acquired L.K. Bowman, a leading producer of canned mushrooms, in 1999.

Principal Operating Units

Alcosa; Bickels; Dutch Farms; Gibbs; Mitchells; Myers; Bonton Foods; Spring Glen Fresh Foods; Sunny Side; Sunwise; Superfine.

Key Dates:

Harry Warehime founds the Hanover Canning Company.
Alan Warehime succeeds Harry Warehime as president and CEO.
Hanover purchases Snyders of Hanover.
Company changes name to Hanover Brands Inc.
Hanover Brands establishes its Alcosa Central American branch.
Snyders of Hanover is spun off as an independent company.
Company changes name to Hanover Foods Corporation; John Warehime takes the helm of Hanover Foods; company acquires Spring Glen Fresh Foods.
Michael Warehime files suit against John Warehime and board of directors.
Hanover Foods acquires Bickels.
Hanover Foods acquires York Snacks and Bonton Foods.

Principal Competitors

Del Monte Foods Company; Pro-Fac Cooperative, Inc.; Seneca Foods Corporation.

Further Reading

Goulet, Neal, Feud Risks Foods Future, York Daily Record, April 24, 1997.

, Hanover Foods Head: Pay for Performance, York Daily Record, April 26, 1997.

, Sentencings End Year of Humiliation, York Daily Record, October 22, 1992.

Hayman, Rik, Brother Responds to Lawsuit, York Daily Record, November 30, 1995.

Memorial Service Set for Alan Warehime, Harrisburg Patriot, March 28, 1990.

Rebecca Stanfel