Kettle Foods Inc.

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Kettle Foods Inc.

3125 Kettle Court
Salem, Oregon 97301
U.S.A.
Telephone: (503) 364-0399
Fax: (503) 371-1447
Web site: http://www.kettlefoods.com

Private Company
Incorporated: 1981 as N.S. Khalsa Co.
Employees: 250
Sales: $60 million (2000 est.)
NAIC: 311919 Potato Chips and Corn Chips/Snacks Manufacturer; 311423 Dried/Dehydrated Fruits and Vegetables Manufacturer; 311911 Salted and Roasted Nuts and Seeds Manufacturer

Kettle Foods Inc. of Salem, Oregon, is a maker of healthful gourmet snack foods: Kettle Chips, Kettle Crisps Baked Potato Chips, Krinkle Cut Kettle Chips, Kettle Tortilla Chips, Kettle Roaster Fresh Nut Butters, and Kettle Quality Handcrafted Nuts. The company has facilities in Salem, Oregon; Springfield, Ohio; and Norwich, England. Its products are sold in all 50 states, Canada, the Pacific Rim, the United Kingdom, and Western Europe.

1978 Entry Into the New Natural Foods Market

Cameron Healy founded Kettle Foods as the N.S. Khalsa Co. in Salem, Oregon, in 1978, wholesaler of nuts, cheese, and trail mixes. With a $10,000 bank loan and no working capital, Healy (who then went by the name of Nirbhao Singh Khalsa) sold his all-natural items from a dilapidated van to natural food stores along Interstate 5 in Oregon. According to the company’s web site, he had no master plan, but knew that he “wanted to develop products of natural integrity that could be flexible in both the natural food and mainstream markets” since “the priority for quality lifestyles and values would be growing into more mass markets as baby boomers matured.”

Healy first had entered the natural food industry in 1972 when he invested $1,000 to start the Golden Temple Bakery in Eugene, Oregon. Golden Temple, which grew out of the local yoga and Sikh communities, produced granola and whole grain breads, which it distributed to natural food stores throughout the Willamette Valley. Healy, a native of Bend, Oregon, and son of businessman Bill Healy, the driving force behind the Mt. Bachelor ski resort, had never intended to enter business, according to a 1989 Statesman Journal article. At the University of Oregon, he had majored in general social science while pursuing a spiritual path involving kundalini yoga; he had converted to Sikhism in 1971. His business was a way to earn a living that fit and promoted his values and, as it grew, a way to employ other members of the commune where he lived. A year and a half later, upon completing college, Healy donated the bakery to the commune and moved to Salem, Oregon, where he taught yoga and started the Golden Temple Natural Food Distributors. After five years in the distribution business, Healy decided to get back into manufacturing, concentrating on turning commodity products into minimally processed branded food products.

For the first year, N.S. Khalsa Co. sold nuts. Healy then expanded into roasting nuts and making nut butters. Nuts proved too limited, however, and so he turned to chips. “People love potato chips,” he was quoted as saying in a 1999 Statesman article. “I knew if I could create a distinctive enough product, there would be a mystique about them.”

Healy began experimenting with frying Oregon potatoes in his nut roaster at night in 1982 after a trip to Hawaii to the Maui Potato Chip Co. to learn about the original Maui old-fashioned chip, which he discovered was made with Klamath Falls potatoes. In keeping with his all-natural philosophy, N.S. Khalsa Co.’s potato chips were made from premium Russet Burbank potatoes grown in the Hermiston area of hot eastern Oregon on small, family-owned farms. These were cut thick, with the potato skin left intact, seasoned with natural ingredients, and stirred by hand in large kettles of high-oleic safflower oil. At that time, they were the only hand-cooked potato chips in the western United States.

Potato chips, however, had a long and colorful history in the United States. According to food historians, potato chips originated in 1853 at the Moon’s Lake House Hotel in Saratoga Springs, New York, when chef George Crumb fried thinly sliced potatoes for a particularly demanding patron, who kept sending his French-fried potatoes back to the kitchen, complaining that they were not sliced thin enough. What was sent back by the chef in revenge became known as the Saratoga chip. By the 1920s and 1930s, every town in the United States had its own potato chipper where the chip maker sliced up bunches of potatoes and fried them one batch at a time. In the 1940s and 1950s, most chip manufacturers switched to a continuous method of production—automated conveyor belts that met the growing demand for chips. Potato farmers started breeding the sugars out of potatoes to accommodate this process because the variable sugar content in potatoes such as the Russet Burbank demands a more individualized frying process.

Healy originally wanted to call his chips “pot chips” because that is what they were called in the 1920s and 1930s on the east coast, but friends and family dissuaded him from doing so. So the chips became Kettle Chips to evoke their traditional manufacturing method. They were packaged in paper sacks printed in earth tones with the company’s logo, a man stirring chips in an old-fashioned kettle. The company’s first two years of making old-fashioned chips were times of experimentation and lessons learned about the way sugars develop in potatoes. “There were times,” Healy said in the Statesman in 1999, “We had to pull product off the shelves because the quality wasn’t there.” Still, with its potato chip line just a year old, N.S. Khalsa Co. reached $3 million in sales.

Rapid Expansion Throughout the 1980s–90s

Throughout the early 1980s, Kettle Chips were a strong item in natural food stores, which then enjoyed a $1.9 billion market segment in the United States. They also spread slowly into independent grocery stores. With little money for marketing, the company could not afford to buy shelf space in the larger national grocery chains, which is the way in which other potato chips were marketed. At first, Kettle Chips were available in only two versions—salted and unsalted—but in time the company added flavored varieties, such as New York Cheddar with Herbs, Yogurt and Green Onion, and Red Chile. By 1986, the company had revenues of $4.5 million, and Fred Meyer, a regional food chain in the Northwest, named N.S. Khalsa its “Vendor of the Year.”

In 1987, with company sales doubling annually and a 15 percent annual growth in business, Healy took a seven-week break to motorcycle around Europe with his 19-year-old son. During this trip, Healy met Tim Meyer, a Salem native turned London resident, and the two decided to begin Kettle Chips’ expansion into England. In 1988, Meyer and Healy made contact with an English potato merchant and set up an agreement with Tuckers, a British chips company in Norwich, England, to rent part of their factory. Sales of Kettle Crisps soared almost immediately, and by 1989, Kettle Crisps (which is what they were called in the United Kingdom) were selling throughout England, Scotland, and Wales, and at a few locations in Sweden and Germany. Breaking into the English market was far easier than breaking into the market at home, according to a 1989 Statesman Journal article, because the market in the United Kingdom was nationwide, whereas in the United States, there were regional markets. After five years at the Tuckers plant, Kettle Foods Ltd. moved to a new, larger site in Bowthorpe, on the outskirts of the city.

N.S. Khalsa Co. changed its name to Kettle Foods in 1988. The company purchased new equipment at home and began to make gains in the Canadian market, where it set up a manufacturing and distributing agreement with Lifestream Natural Foods of Vancouver, British Columbia. Healy, who owned about 90 percent of the company’s stock, oversaw his business turn revenues of $6.4 million in 35 states and several foreign counties, about half of it in chips. The company, still committed to making use mostly of local products, bought about 100,000 pounds of potatoes each week from Klamath County. It controlled, according to company estimates, somewhere between 6 and 10 percent of the potato chip market in Oregon and between 2 and 5 percent in Washington state.

By the late 1980s to early 1990s, the company was outgrowing its 25,000-square-foot domestic plant. In 1994, Kettle Foods fried more than 6.5 million pounds of potatoes a year and produced almost five million bags of potato chips, a 480,000 increase from 1993. In 1995, 50 percent of the company’s overall sales came from chips, which it sold throughout Oregon, Washington, and northern California, as well as in Canada and Japan; 30 percent came from nuts and trail mixes sold in bulk to grocery stores in the western United States; and 20 percent from tortilla chips and soybean margarine. Overseas, Kettle Foods Ltd. exported chips to Ireland, Germany, France, Holland, and Belgium. Healy, who formally reclaimed his family-given name in the fall of 1995, spent about two days a week at the Salem plant. The rest of the time, he worked from his Portland home or assisted his son in developing a brewery in Kona, Hawaii.

Company Perspectives:

Through the commitment of our people, we handicraft great tasting, all natural snack foods.

Key Dates:

1978:: Cameron Healy founds N.S. Khalsa Co. in Salem, Oregon.
1980:: The company begins making nut butters, its first branded products.
1988:: The company changes its name to Kettle Foods Inc. and purchases five acres of vacant land; the company rents part of the Tuckers factory in Norwich, England.
1993:: Kettle Foods Ltd. moves to a new, larger site in Bowthorpe.
1997:: Kettle Foods acquires a second processing plant in Springfield, Ohio.
2000:: The company moves into its new headquarters and production facilities.

By mid-1997, Kettle Foods had acquired a second processing plant in Springfield, Ohio and began expanding aggressively in the Midwest and in eastern markets. Still, about 60 percent of the potatoes the company purchased came from a half dozen growers in the Willamette Valley, the remainder from farms elsewhere in Oregon, Washington, and Idaho. The company as a whole employed 80 people at its Salem headquarters and more than 200 people at its Norwich subsidiary.

By the late 1990s, Kettle workers rotated among five different buildings, one each for potato chips, tortilla chips, baked chips, peanuts, and offices. Then in 2000, the company moved its headquarters and production to a five-acre site it had purchased earlier on Mill Creek in Salem. There it combined the production lines for its various chips under one 61,000-square-foot roof. The nut mixes and butters stayed behind at the original Salem site, still manufactured using the company’s original nut fryer. With the move, Kettle’s processor began to operate around the clock six days a week, more than doubling its chip production. The company retained a half-time employee to manage its wetland acreage and restore them to their original state.

Continuing Innovation at the Turn of the Century

The company introduced its e-commerce service in 2000. Online customers became able to buy chips by the case. Overseas, Kettle expanded its factory in England as Kettle sales in that country reached almost twice what they were in the United States. Yet Kettle Foods continued to embrace the philosophy upon which the company was founded: Making good snacking foods by hand with attention to ingredients.

In the new Salem plant, large signs lined the corridor: “Be passionate about quality” and “Create good will in every action.” In 2001, Kettle Foods began to offer seasonal additions of chips and organic chips made from organic potatoes cooked in oil from organically grown safflower seeds. With sales of natural food products topping $32 billion in 2000—a 7 percent increase from 1999 totals—Kettle Foods’ commitment to all-natural products and to making the theory of sustainable agriculture work in the real marketplace seemed likely to find many customers worldwide.