International Multifoods Corporation

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International Multifoods Corporation

Multifoods Tower
P.O. Box 2942
Minneapolis, Minnesota 55402
U.S.A.
(612) 340-3300
Fax: (612) 340-3338

Public Company
Incorporated: 1892 as New Prague Flouring Mill Company
Sales: $2.28 billion
Employees: 8,231
SICs: 2038 Frozen Specialities Nee; 2053 Frozen Bakery Products Except Bread; 2041 Flour & Other Grain Mill Products; 2045 Prepared Flour Mixes & Doughs

International Multifoods Corporation was once known as one of the “Big Three” in U.S. flour milling, along with General Mills and Pillsbury. But in the past two decades the company has undergone sweeping restructuring strategies—first diversifying heavily into consumer foods and animal feeds in the 1970s and early 1980s, then divesting itself of such interests (including its original product, Robin Hood flour) and fortifying its stake in the food vending industry in the late 1980s and early 1990s—to focus primarily on its U.S. Foodservice division and secondarily on its Canadian Foods and Venezuelan Foods divisions. To emphasize its most recent strategy, the company has adopted the abbreviated signature of “Multifoods.” The U.S. Foodservice division, which accounts for 75 percent of all Multifoods sales, is driven by Vendors Supply of America, Inc., (VSA), the domestic leader in vending distribution, with nearly $ 1 billion in annual sales. Since its acquisition in 1984, VSA has grown rapidly in what remains a highly fragmented market; its continuing health is welcome news to Multifoods shareholders, many of whom consider the bold move by Archer Daniels Midland to acquire, in 1990, a 9.4 percent investment in the once floundering company as a singularly auspicious development.

Multifoods traces its roots to the Polar Star Milling Company, an initially prosperous southern Minnesota business that was unable to weather the soaring railroad freight rates and plunging flour prices of the early 1890s. When the Faribault company declared bankruptcy in 1891, owner Francis Atherton Bean was destitute but not despairing. The following year, with a loan from his brother-in-law, the fifty-year-old Bean rented a mill located in New Prague that had also gone out of business. Due to a close-knit, cooperative atmosphere, and the wheat-buying and accounting expertise of Bean’s son, F. A. Bean, Jr., the New Prague Flouring Mill Company became a success within a few short years. In 1896 the former owner decided to reclaim and manage the mill; again undaunted, Bean attracted more than $30,000 in capital from local investors and constructed a new mill, which operated under the same name. Increased production and storage capacity as well as an improved location were among the key factors that allowed Bean to expand in the next few years and purchase additional mills in Blue Earth and Wells, Minnesota.

In 1908 the company launched its first, and one of its most successful, international ventures with the purchase of the McLean Mill in Moose Jaw, then the largest city in Saskatchewan, Canada. Given a growing population, rich agricultural land, and dependable railway lines, Bean, Sr., saw considerable potential for the business, which opened the following year as Saskatchewan Flour Mills Ltd.; the parent company now became International Milling and thus commanded heightened status at home, despite its still primarily regional thrust. Bean’s vision was confirmed three years later when the company purchased another mill in Calgary, Alberta. Expansion continued and the Canadian operations were soon renamed Robin Hood Flour Mills, Ltd., a designation reflecting the rising popularity of the company’s brand name flour, first introduced around 1910 exclusively for the Canadian markets.

According to several accounts, perhaps the high point for the company’s founder came at Christmas time in 1911 when Bean decided to secretly visit, over a two-week period, all the yet unpaid creditors of the failed Polar Star business from back in 1890. Although he had no legal obligation to do so, Bean resurrected and satisfied all the old bills in full, paying both principal and interest for what amounted to more than $200,000. In so doing, he not only ensured himself an unforgettable Christmas, he also secured his place as one of the most loved and respected of all Minnesota entrepreneurs.

In 1923 the company moved its headquarters to Minneapolis in order to become a major national competitor in the flour-milling industry. To accommodate the northward flow of Kansas winter wheat, the company acquired mills in Sioux City and Davenport, Iowa. It also realized that other similar-sized Minnesota “interior mills,” including the Commander group (later Com-mander-Larabee Corporation), centered in Montgomery, were quickly gaining a foothold in the Minneapolis flour district. By the mid-1920s, at least 17 such companies had entered this industry center. Equally important to millers, particularly those interested in establishing a presence in the East and a gateway to the European export trade, was Buffalo, New York, which International Milling succeeded in entering by the end of the decade.

In Canada, meanwhile, under the leadership of Charles Ritz, Robin Hood Flour was attaining national distribution, promoting itself as a high quality, “milled from washed wheat” flour and successfully pricing itself above the competition. By 1945 Robin Hood would become the leading consumer flour in Canada, a position it has never since relinquished. This marketing-success-in-the-making inspired Bean’s successor, W. L. Harvey, to bring the Robin Hood name to the United States, along with its chief architect. Beginning in 1937, Ritz replaced the company’s several regional brands with Robin Hood and then launched a full-scale media blitz, going head-to-head with two chief competitors, Pillsbury’s Best Flour and General Mills’s Gold Medal Flour. Because of Robin Hood’s late entry into the market, results of the long-running campaign were disappointing. As Atherton Bean, grandson of the founder and the company’s fifth president later remarked, “There is an adage in the industry. You can be first or second and be confident of success, but if you’re third or fourth you’re at risk.” Unfortunately, that was the position of Robin Hood Flour in the United States. International Milling, nevertheless, became a formidable foe in the industrial flour market, and from the war years through the 1950s, with the purchase of 15 mills, the company spread into a number of new markets in the central and eastern regions of the country. Beginning in 1951, the company also entered the formula feed business and became a major supplier of enriched grains to livestock farmers in the Upper Midwest.

In 1958 International Milling, which had been exporting not only to Europe, but also Africa, the Middle East, the Orient, and South America, made a momentous decision: to extract itself from markets with political and economic difficulties and focus on one that promised both stability and lucrative returns. The obvious choice at the time was Venezuela, a solid export market—of which the company controlled more than a third—that remained virgin territory for North American investment. The decision was aided by the Venezuelan government’s threat in 1956 to close off the import trade; by promising to establish its own wheat mill within the country, the company circumvented the potential loss of market. Located in the Caribbean port city of Puerto Cabello and christened Molinos Nacionales C.A. (MONACA), the mill became a subsidiary of Robin Hood Flour Mills, Ltd., of Canada. Under the early direction of Andre Gillet, MONACA quickly became a leading Venezuelan food corporation, branching out into rice processing, corn milling, spices, bakery mixes, oat cereals, and animal feeds. Most importantly, MONACA was eminently profitable from the beginning, typically contributing 20-30 percent of total earnings on only eight to ten percent of net sales.

Gillet’s tenure at MONACA, which extended until his return to Minneapolis in 1968, coincided with Francis Atherton Bean’s presidency and chairmanship of the company. The 1960s saw considerable shifts in domestic eating habits and International Milling—with the extra capital supplied by going public in 1964—responded by aggressively entering the consumer foods markets. This policy of expansion and diversification, which was common in the industry, was officially implemented by William G. Phillips, a former president of Glidden-Durkee who Bean hand-picked to restructure the company. Phillips oversaw some 43 acquisitions during the next decade and soon had a multi-faceted company (signified by its new name of International Multifoods, adopted in 1970), operating more than 900 Mister Donuts stores, the Boston Sea Party restaurant chain, a meat-processing plant, several decorative products manufacturers, and a score of small, niche-market food products.

By 1980 the company reported revenues exceeding one billion dollars. Throughout this time, during a fifteen-year period stretching until 1984, the company reported uninterrupted growth in earnings. Yet such signs were misleading. Long before the 1984 decline, the company had become aware of its lagging market shares in nearly all its consumer products; only Kretschmer Wheat Germ represented a market-leading product. Multifoods’ ability to compete with the major food corporations was hampered not only by its relative anonymity among consumers but also by its many indiscriminate purchases.

A new restructuring was in order and Phillips appointed Gillet to handle the daunting task of reshaping the now ungainly corporate giant. Complicating matters was the looming threat of an unfriendly takeover and the disgruntlement of shareholders, obliged to accept a less than ten percent return on equity while the industry average was close to 20 percent. The metamorphosis that Gillet effected during the next several years was, according to analyst Jim McCartney, “one of the deftest sleight of hand tricks in corporate America’s history. By quietly selling off pieces and buying new ones, Gillet gradually transformed [Multifoods] from a flour milling and consumer foods company into a food service distribution and manufacturing company.” Gone was Robin Hood Flour, the cornerstone of the company (the U.S. trademark rights were sold to General Mills and the mills themselves to ConAgra, though international Robin Hood operations remained), as well as a host of other less substantial enterprises. In their place was a list of food purveyors that promised a new synergy and direction for the company. The single most important purchase Multifoods made at the time was the 1984 acquisition of Denver-based Vendors Supply of America. A vending distributor with $200 million in annual sales, VSA was bought for $15 million and then carefully developed into a convenient one-stop supplier to vending operators, with 19 warehouses serving 48 states. The foodservice industry that VSA caters to has blossomed into a $262 billion market, an ever-increasing proportion of which the subsidiary plans to dominate.

Since 1989, Gillet’s visionary lead has been strengthened by the cost-conscious programs of CEO Anthony Luiso, a former executive of Beatrice and a veteran of the food trade. Luiso joined Multifoods in 1986 as head of restaurant supply operations and contributed to a 21 percent rise in revenues, which totaled $1.7 billion; profits for the same year vaulted an astonishing 82 percent to $33 million. One of the toughest decisions facing Luiso is deciding the fate of MONACA. Despite outstanding earnings in 1990 (25 percent of total operating earnings on only nine percent of net sales), or for that matter a lengthy record of strong performance, MONACA is continually vulnerable to the inflation-prone economy of Venezuela. In addition, several analysts have come to view the flour- and feeds-processor as a cumbersome appendage for the new Multifoods, even given MONACA’s number one and two positions in its three primary businesses.

Looking ahead to the 1990s, Multifoods can be expected to focus increasingly on its domestic operations. According to Luiso, more than 70 percent of company revenues are now derived from U.S. ventures that have only been in place since the mid-1980s. Such rapid and dynamic change may cause investors to be wary, yet any fears may not be justified given Multifoods’ wholesale capture of leading positions in virtually every market it has entered, from surimi (imitation seafood) and bakery mixes to burritos and specialty meats. Once tagged “the wallflower of Wall Street,” Multifoods is a rejuvenated company, promising a solid commitment to its shareholders. Luiso, voluntarily one of the lowest paid of all Fortune 500 chief executives, has gambled a sizeable chunk of his own money to ensure this. In a now notorious 1989 agreement, he pledged to purchase, within a five-year period, some 153,000 shares of IMC stock at a price near its 52-week high. As he told Eric Wieffering in August 1990, “Three years from now, we plan to be the best at being responsive to our customer base. If we do that, then we can more than double the size of this company in the next five years. Remember, I’m betting a million bucks, and, to me, that is real money.”

Principal Subsidiaries

Fantasia Confections, Inc.; JAC Creative Foods, Inc.; Mexicana de Inversiones FEMAC, S.A. de C.V. (45 percent); Mixco Intl., S.A. de C.V. (49 percent); Molinos Nacionales, C.A. (MONACA); Multifoods Bakery Distributors, Inc.; Multifoods Bakery International, Inc.; Prepared Foods, Inc.; Robin Hood Flour Ltd. (Canada); Vendors Supply of America, Inc.