Herr Foods Inc.

views updated

Herr Foods Inc.

20 Herr Drive
Nottingham, Pennsylvania 19362-0300
U.S.A.
Telephone: (610) 932-9330
Toll Free: (800) 344-3777
Fax: (610) 932-2137
Web site: http://www.herrs.com

Private Company
Incorporated: 1946
Employees: 1,400 (est.)
Sales: $200 million (2005 est.)
NAIC: 311919 Other Snacks Food Manufacturing

Located in Nottingham, Pennsylvania, Herr Foods Inc. is a snack food manufacturer, distributing its products to 19 states, mostly in the northeastern United States. In recent years, Herr's has expanded into the Midwest to Ohio, Michigan, and Illinois; in the Mid-Atlantic to Virginia and North Carolina; in the Southeast to Georgia, Florida, Alabama, Mississippi, and Louisiana; and in the Southwest to Oklahoma. In addition, the Caribbean is supplied from a licensed operation in the Barbados. The company built its business on potato chips, which it offers in a variety of flavors and size. All told, Herr's offers 340 products, including cheese curls, crackers, pretzels, nuts, pork rinds, onion rings, tortilla chips, and meat sticks. The company's factory—located near Lancaster, Pennsylvania, which is known for its Amish tourism industry—has become a destination for families and school groups, who take tours of the facilities and sample potato chips and other snacks still warm from the fryers. Herr's also operates Herr Angus Farm, a nearby 400-acre operation that raises cattle, wheat, soybean, corn, and barley. About half of the cattle feed consists of potato peelings from the plant and snacks that fail to meet quality control standards or simply fall to the floor. Potato waste water is sprayed on the fields for irrigation, and sludge is used as fertilizer. Moreover, excess starch from rinsing potatoes is collected and sold to a paper company for use in making glossy magazine covers; and heat from the fryers is used to provide hot water and heat to the plant. Herr's is family owned, headed by the second generation of the Herr family.

POTATO CHIPS A 19TH-CENTURY DISCOVERY

Herr's founder, James Stauffer Herr, was just one of a multitude of businessmen around the country who made and sold potato chips in 1946 when he got his start. Potato chip historians are in general agreement that the potato chip was invented in 1853 in Saratoga Springs, New York, a place where the upper crust of society, and the gambling set, gathered in the summer for the prestigious horse racing seasons. In addition to gaming and the other resort pursuits, visitors entertained themselves by frequenting the area's many restaurants, including Moon's Lake House, which was known for its surly chef, George Crum, who did not gladly suffer the criticism of his customers. One day, as the story goes, a dissatisfied diner (who, according to some sources, was none other than shipping magnate Cornelius Vanderbilt) sent back to the kitchen a dish of fried potatoes because they were not crispy enough. Infuriated, Crum decided to insult the patron by slicing the potatoes into razor-thin wafers, cooking them in hot grease, and then salting them beyond reason. Much to Crum's surprise the diner was not insulted. Rather, he loved the potatoes, a reaction not lost on the owner of Moon's Lake House, who added the dish to the menu as "Crum's potato crunches." After leaving to start his own restaurant, Crum billed them as "Saratoga Chips," and it was by this name that restaurants around the country began to offer them. With time the Saratoga name was dropped and the potato chip was born.

HERR'S POSTWAR ORIGINS

Potato chips moved from the restaurants to the grocery stores in the 1890s. It is believed that the first potato chip factory was established in Cleveland, Ohio, by William Tappendon, whose potato chip business outgrew the kitchen of his house, prompting him to convert his barn into a makeshift production plant. The potato chip grew so popular as a snack by the start of the 20th century that small factories cropped up all over the country, several of them in Lancaster, Pennsylvania, alone.

One of them was called "Verna's Potato Chips," operating out of a small house on Charlotte Street in Lancaster. In 1946 the owners decided to sell the business and placed a classified ad in the local newspaper. In March of that year the ad was seen by 21-year-old James Herr, the son of a dairy and poultry farmer in nearby Willow Street, Pennsylvania. He borrowed $1,750 to buy Verna's, whose owners assured him that they would teach him the business. The lessons did not last very long. Two days later they moved out of town. Lacking a mentor in the potato chip business, Herr drew on the advice of his girlfriend's employer, an attorney named Samuel Wenger. Fortunately, the potato chip business was not especially difficult to master on the production side, and Herr, with the help of a part-time worker, soon fell into a regular routine: in the morning peel, slice, and fry the potatoes in huge iron kettles with 100-pound lumps of lard; and in the afternoon package and sell the chips door-to-door, either in half-pound tins or five-cent bags. It wasn't especially gratifying work. "It was too greasy," Herr confided in an interview with Lancaster's Sunday News. "I wasn't so sure I liked it." But Herr remained steadfast, determined to pay off his loan. He also married, and his wife, Mim, helped run the business.

Weekly sales were just $30 a week in the early days of the company, but the business soon began to take off. In 1947 Herr's Potato Chip Company outgrew its Lancaster location, and Herr took over an empty tobacco barn on his family's farm. Now familiar with the chip business, Herr also began to innovate, developing his own cooking processes that resulted in better tasting potato chips, resulting in stronger company growth. The old tobacco barn no longer suited the business, and in 1949 Herr began renting a 3,600-square-foot bakery in West Willow, Pennsylvania.

Herr's reached a pivotal moment in its history in September 1951 when the production facility was completely destroyed by a fire. The equipment had been shut down and Herr was out making his deliveries when cooking oil apparently dripped onto an extremely hot fire brick and caught fire. Herr had insurance on his equipment and received $4,000. In an interview with the Philadelphia Business Journal, Herr recalled the decision he faced: "I could take this $4,000 and stick it in my pocket and quit and get another job, or we could keep our customers and start over. So we had to make a tough decision quick. We decided to keep our customers and start over."

COMPANY PERSPECTIVES

From meager beginnings, through many challenges and difficulties, Herr Foods has survived and prospered. The legacy that Jim Herr passed on to the next generation of leadership has become the solid foundation for the future.

Herr raised money from family and friends and secured a bank loan, and in 1952 acquired 37 acres of land in Nottingham, Pennsylvania, and built a 4,500-square-foot plant that included the company's first automated cooker. His decision to remain in the potato chip business was rewarded, as the company flourished. To keep up with demand, he added a 7,000-square-foot warehouse in 1956. His success, however, was something of a personal burden. He was raised a Mennonite and continued to practice his faith, which was similar to Amish beliefs in that it emphasized a simple life and frowned upon worldly success. According to the Fresno Bee, in an article that examined the way Mennonite businessmen balanced their business and spiritual lives, Herr discussed how he dealt with negative opinions from some Mennonite church members toward his commercial success, saying, "I had to overcome whether I could be in business and be a good Christian…. The church now recognizes that they need business people as well as farmers."

Aside from its founders' hard work, Herr's benefitted from a dramatic increase in the consumption of snack foods in post–World War II America. The consumption of potato chips in the United States increased from 1.91 pounds in 1945 to 2.56 pounds just a decade later. It was not just potato chips that were being consumed by snack-hungry Americans. According to a 1956 article about the rise of the snack food industry, which was published in Barron's National Business and Financial Weekly, corn chips, pretzels, popcorn, peanut butter sandwiches, crackers with cheese, and fried bacon rinds were also gaining in popularity. Speculating on this trend, Barron's wrote: "The spread of the supermarket, for one thing, has permitted the prominent display of items in appealing transparent packages…. 75% of all snack food purchases are made on impulse. The buyer spots the potato chips or popcorn and decides to take a package or two home with her detergent, frozen spinach and corn flakes." The impact of television was also cited. "Its grip, in fact, has been so strong as to encourage what might be called sustenance by snack—that is, nibbling tid-bits before the TV set rather than eating a full-course meal at the table. This factor is pointed up by the increase in sales of various dip preparation over the past two years. These preparations, of course, have boosted further the overall sales of the chips, crackers and other food bits that are dipped into them."

FIRST FLAVORED POTATO CHIPS INTRODUCED: 1958

Herr's took the first step in diversifying beyond the basic potato chip in 1958, when the company added seasoning to produce barbecue chips. A wide variety of flavored potato chip would follow in the years to come, including Salt and Vinegar, No Salt, Slightly Salted, Sour Cream, Sour Cream and Onion, Pizza, Pennsylvania Dutch, Dill, and Cheddar.

The consumption of potato chips and other snack foods continued to grow in the 1960s. To keep pace, Herr built a new 21,000-square-foot production plant on the Nottingham property, next to the Herrs' home. That same year the company was incorporated under the Herr's Potato Chips, Inc., name. Just five years later another 23,000 square feet were added to the plant, followed by 8,000 square feet in stock rooms a year after that. Furthermore, the 1960s saw Herr's establish its first outside distribution operation, located in Egg Harbor, New Jersey. By the end of the decade the company was running five sales routes from this location and another 35 out of Nottingham.

Herr's also addressed the long-term problem of the limited shelf life of potato chips in the 1960s. The company had always sold its chips in wax paper bags, but they allowed too much light to penetrate, and excess light caused chips to grow stale quickly. One attempt to address this problem was the 1963 introduction of the 20-ounce cardboard barrel, suggested by a packaging salesman. Not only could Herr's sell chips in volume, the cartons were easily assembled, offered protection from light, and helped prevent the chips from breaking. The "King Style" barrels proved popular with consumers for the next dozen years, but they also proved more costly to transport, which became a major consideration in the early 1970s, during a time of oil shortages and rising gasoline prices. The cost of the barrel packaging also increased. In 1977, the barrel was discontinued as a packaging option. Three years earlier, however, the company had found another way to extend the shelf life of its potato chips, by switching to foil bags.

KEY DATES

1946:: James S. Herr buys a Lancaster, Pennsylvania, potato chip company.
1951:: Fire destroys the company facilities.
1958:: The first flavored potato chip is introduced.
1984:: The company is renamed Herr Foods Inc.
1989:: A visitors' center is added.
2000:: James M. Herr succeeds his father as CEO.
2005:: James M. Herr assumes chairmanship of the company.

During the 1970s Herr's began introducing non-potato chip snacks. Cheese curls were introduced in 1976, followed two years later by popcorn. More products were added in the 1980s, including pretzels in 1981, corn and tortilla chips in 1983, and onion rings in 1984. It was also during this period that the company adopted the Herr's Foods name (1984) and established the Herr Angus Farm. Rather than a further attempt at diversification, the farm was actually a way to address the mounting waste disposal problem that came with the company's success. The company had plenty of land, about 1,000 acres in all, that it had acquired around the plant, and a large portion of that property was set aside for the raising of cattle. A farm manager was engaged to run the business and work with a nutritionist to develop a feed mix that incorporated plant scraps. Food production waste water was used to irrigate the crops the farm raised for much of the cattle's diet. The company also began recycling starch found in the waste water to sell to paper manufacturers, and a steam heat exchanger was installed at the plant to recover and make use of energy lost in chip processing. Moreover, Herr's saved a great deal of money each year by paying distributors to return shipping boxes to the plant for reuse. As a result of these efforts, Herr's produced little waste and no toxic substances, and its environmentally responsible operation received an award from the Pennsylvania State University.

Steady growth in the 1980s led to further expansion of Herr's facilities, which grew to a total of 212,000 square feet in 1986 with the addition of more warehouse space. In 1989 the company added a 15,000-square-foot Visitors Center next to the plant, which included a 140-seat theater. From here tourists learned about the company and the chip-making process through a film that featured a Jim Henson puppet-mascot, Chipper the Chipmunk. Tours of the plant were also launched from the visitors' center.

Well established in the northeast, Herr's looked to international markets in the late 1980s. To support sales efforts in the Caribbean, a manufacturer in the Barbados was licensed to manufacture Herr's products. By the start of the 1990s Herr's was selling its products in eight states: Pennsylvania, New Jersey, New York, Maryland, Delaware, Virginia, West Virginia, and Ohio. It was a time of uncertainty in the snack industry because of the rise of Eagle Snacks Inc., a subsidiary of deep-pocketed Anheuser-Busch, which took on industry leader Frito-Lay on a national stage. A price war ensued, having a negative impact on regional companies like Herr, which were hard pressed to match price cuts. Nevertheless, Herr's was able to maintain its place and enjoy a 10 percent rate of growth in the early 1990s, so that by the middle of the decade the company was generating about $100 million a year. Profits were then invested in the company to stimulate further prosperity.

To promote the brand, James S. Herr became a spokesperson for the company in its television commercials in the early 1990s. By this time, his sons were deeply involved in the running of the business. James M. Herr joined his father in the early 1970s and was named president and chief operating officer in 1989. His brother, Ed Herr, would replace their father as company spokesperson in 1998. A third brother, Gene Herr, became "chief potato buyer." Their father, well into his 70s, eased into retirement in 2000 by turning over the chief executive officer position to James M. Herr in 2000. He stayed on as chairman of the board until 2005 when he relinquished that title to his son as well.

In the new century, Herr's continued to add new products. In 2002, for example, the company introduced Thick Cut Potato Chips, New Old Fashioned Butter Sticks, and Changing Cheddar Magic Popcorn. Sales grew to the $200 million level, and Herr's distribution expanded to other parts of the country, taking advantage of the warehouse operations of customers such as Wal-Mart. While the northeast would remain Herr's focus, there was every reason to believe that the regional snack food manufacturer would continue to make inroads in other markets across the country in the years to come.

Ed Dinger