Poore Brothers, Inc.

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Poore Brothers, Inc.

3500 South La Cometa Drive
Goodyear, Arizona 85338
Telephone: (623) 932-6200
Fax: (623) 925-2363
Web site: http://www.poorebrothers.com

Public Company
Incorporated: 1995
Employees: 190
Sales: $41.8 million (2000)
Stock Exchange: NASDAQ
Ticker Symbol: SNAK
NAIC: 42245 Confectionery Wholesalers; 55112 Offices of Other Holding Companies

Poore Brothers, Inc., with headquarters in Phoenix, Arizona, makes snack, party chips, and dips, and markets them under various brand names: Poore Brothers, Bobs Texas Style, Boulder Potato Company, Tato Skins, and Pizzarias. The company also makes salty snacks under a license from T.G.I. Fridays and produces items for grocery chains in Arizona and California under their store-brand names. In addition, it distributes its own products and those of some other snack-food companies in parts of Texas and throughout Arizona. Its products in its southwestern markets can be bought in food stores and from vending machines.

1986-87: Poore Brothers Foods Faces Tough Competition

Brothers Don and Jay Poore founded Poore Brothers Foods, in 1986, after selling an interest in a profitable Texas potato chip manufacturing operation, Groffs of Texas, Inc., that they had started in 1983. Before founding Groffs, the brothers had worked over 13 years for Mira-Pak, Inc., a manufacturer of potato chip packaging equipment.

The brothers decided that they again wanted to strike out on their own, opening a new business in Arizona. They had the knowhow for making kettle-cooked potato chips, and they knew a great deal about the chip packaging trade. They also believed that they could parlay their experience into a new and successful business venture.

The Poores opened their Goodyear, Arizona, potato chip factory in December of 1986. They also formed Poore Brothers Texas in 1986, created to provide distribution capabilities for their chips. Convinced that they could succeed by virtue of their product quality, the Poores did not bother to undertake any market or product research. They found it tough going initially, mainly because even their Arizona market, to which they at first restricted themselves, was already flooded with chips made by mass producers of nationally known brands. At the end of their first month, they had only sold $1,500 worth of chips, mostly to Christmas shoppers who were enticed not so much by the Poores chips, initially marketed under the Arizona Select brand, but by the decorative tins in which the brothers packaged them.

When the initial market shock wore off, the Poores struggled to convince area grocers to carry their line of chips. Their flavors helped some, but it was still very slow going. Sales through the end of 1987 had reached only $340,000, which resulted in a net loss of $100,000, putting the shoestring business at grave risk. The Poores persisted, though, and within a couple of years their company turned the corner financially.

Growth of Company Leads the Poores to Sell PB Foods

New marketing strategies helped. Late in 1988, the Poores introduced 1-ounce bags of chips for machine vending, a move that produced good results. Sales in 1988 rose to $1.5 million, then increased to $2.15 million the next year. By 1990, the operation was selling about 12 percent of all potato chips marketed in Arizona, ranking fourth behind Frito-Lay Inc., Clover Club, and Laura Scudders. The brothers had also founded Poore Brothers Distributing Co. and considerably expanded their product line to include such flavors as salt and vinegar, barbecue, sour cream and onion, Parmesan and garlic, dill pickle, and chili lemon. Gross sales for that year were expected to reach close to $3 million. Significantly, too, by 1990 the company had begun extending its market range beyond Arizona, making their product available through distributors in Minnesota, New Mexico, Southern California, and Texas.

In 1993, Mark S. Howells and some associates formed PB Southeast. That company acquired a license from PB Foods to manufacture and market Poore Brothers branded products. In the following year, PB Southeast opened a manufacturing plant in LaVergne, Tennessee, and before the end of year Howells and his directors entered negotiations with the Poores to buy out PB Foods. By 1994, the growth of PB Foods had forced some rethinking about how the company should be managed. Don and Jay Poore had in fact decided that their hands-on style of operating the business was no longer suitable, thus they amicably entered the sale negotiations with PB Southeast. The $4.05 million deal was consummated in May 1995.

Under the new owners, Poore Brothers was reorganized and incorporated. Restructured, it had four operating subsidiaries, all of which were acquired at the time of the sale. Two of the subsidiariesPoore Brothers Arizona, Inc. and Poore Brothers Southeast, Inc.were manufacturing companies. The other twoPoore Brothers Distributing, Inc. and Poore Brothers of Texas, Inc.were distribution companies. Don and Jay Poore continued to work at the Goodyear plant, making sure that the operation ran smoothly and that product quality was maintained.

New Owners Take Company Public before Confronting Financial Woes

In 1996, the company went public and made its initial public offering (IPO) in December of that year, setting the price of its common stock at $3.50 per share. The offering raised approximately $7 million, giving it necessary capital for undertaking both expansion and diversification. The companys chief strategy, reiterated through the next few years, was to grow through acquisitions, but the company also set out to market new products, something it also undertook in 1996. Using a new technology, Poore Brothers launched a new line of fat-free chips. Basing its optimistic expectations on the national mania over fat-free foods, the company anticipated that the line might soon double its annual sales, which, at the time, had reached $17.2 million. However, things did not pan out as planned and the company discontinued the line in 1997.

In February of that year, the companys operational reins were passed on to Eric J. Kufel, who assumed the posts of CEO and president. Just prior to taking those positions, he was serving as the senior brand manager at The Dial Corporation, where he was responsible for the performance of the Purex brand laundry detergent. He also brought other managerial experience from positions he had previously held with Coca-Cola and Kellogg, where he had also specialized in developing marketing plans for both new and established products, the kind of expertise needed to help Poore Brothers develop new markets and expand in its existing ones.

Kufel faced serious problems. Despite going public and developing its growth strategies, including its new products, Poore Brothers suffered financial woes for years after the exchange of ownership. Its annual revenues dropped off and the company operated in the red. In 1997, it lost $3 million on revenues of $15.7 million, and in 1998 it lost $874,090 on revenues of $13.2 million. However, the losses did not prevent investors from backing the company. They saw the companys potential to grow sales and acquire and integrate new business. Accordingly, under Kufels direction, Poore Brothers set out to purchase other companies, beginning in 1998, when, for an undisclosed amount, it bought Tejas Snacks LP. At the time, that companys Tejas Bobs Texas Style Potato Chips was a market leader in the $100 million Texas potato chip industry

Growth Through Acquisition, Partnering, and Product Line Extension

Poore Brothers, Inc. continued its growth through acquisition through the next three years. In 1999, it acquired Wabash Foods, LLC, taking over the operation ofthat companys leased facility in Bluffton, Indiana. There, using a licensed, patented process, Poore Brothers used a sheeting and frying process for turning out its Tato Skins and Pizzarias brand chips. Later it would also produce the salted snacks it makes under license from T.G.I. Fridays.

Like so many other companies, Poore Brothers entered a partnering mode towards the end of 1990s, both to promote its brand awareness and to gain market strength. Among other things, Poore Brothers developed a solid relationship with the Arizona Diamondbacks, a National League baseball franchise. It became one of the teams chief sponsors, and in 1999 started annually producing a commemorative 6 oz. Original Potato Chips honoring the ball club. The arrangement gave the company considerable local exposure and a chance to plan marketing strategies through such techniques as exit sampling, which was conducted at the end of several of the teams home games.

Company Perspectives:

We will achieve $100 million in revenues by keeping associates, consumers, customers, shareholders, and suppliers reaching for more by continuously improving the quality of our four cornerstones to success. Intensely Different Associates: We are talented, upbeat team players who thrive on delivering superior results. We come to work everyday to make a difference by embracing and leading constant innovation and positive change. Intensely Different Brands: Our key objective is to delight consumers with fun, premium quality brands that are better, different, and special. We contribute to category growth by consistently marketing consumer preferred snacking experiences not found anywhere else. Intensely Different Customer Service: We create raving fans of our brands and our Company by doing what we say were going to do with a smile and a thank you! Our Associates strive to build win-win business partnerships. Intensely Different Financial Responsibility: We invest wisely to pursue rapid revenue and profit growth that enhances shareholder value.

The hometown appeal was one thing, however, and a national appeal quite another. The company got a boost in that direction in February 2000 when it began selling its Tato Skins brand potato chips in about 200 Sams Club wholesale stores spread across 17 states, mostly in the east. More importantly, the following May, Poore Brothers teamed up with T.G.I. Fridays. At that time, plans were put in motion to launch of new line of T.G.I. Fridays brand salted snacks to be marketed in supermarkets, club stores, and mass merchandising outlets. In the multi-year agreement, the two companies began with the introduction of T.G.I. Fridays Potato Skins, Fire Bites, and Quesadillas, all made at Poore Brothers facility in Bluffton.

Poores revenues reached a record $41.7 million in its fiscal 2000 year, a 79 percent increase over the previous year. The revenue boost largely resulted from the companys acquisitions, which accounted for an additional $13.0 million in sales, plus the fourth-quarter introduction of the T.G.I. Fridays brand of salted snacks in club stores and vending machines. Importantly, it was the second year in a row that Poores showed a profit, and it was achieved despite the fact that in October 2000 a fire temporarily halted production at the companys Goodyear plant. The fire caused major damage to the roof of the processing area, and it forced Poore Brothers to source products from third-party manufacturers for months; however, workers at the plant were able to season and package the potatoes and other bulk products received from those manufacturers.

By April of 2001, only six months after their introduction, T.G.I. Fridays brand of salted snacks had become Poore Brothers number one selling brand. Up to that point, distribution had been limited to the eastern region of the country; the company then began distributing the brand into its western region channels. By that time, too, it had resumed full production of its kettle-cooked potato chips at its Goodyear plant and, according to Business Wire, its prospects for an accelerated growth in revenue seemed excellent. In fact, Kufel announced, Poore Brothers was on track to achieve its goal of 30-40 percent revenue growth in fiscal 2001. He also indicated that the company would continue it aggressive spending to improve it capabilities, market its T.G.I. Fridays brand of salted snacks, develop new products, and promote greater awareness of other company brands, pushing what its new intensely different catch phrase conveyed, the uniqueness of Poore Brothers products.

Principal Competitors

Frito-Lay, Inc.; The Hain Celestial Group, Inc.; Golden Enterprises, Inc.; Lance, Inc.; The Procter & Gamble Company.

Key Dates:

Don and Jay Poore found Poore Brothers Foods and Poore Brothers Texas.
Company forms Poore Brothers Distributing Company.
Mark S. Howells and associates form Poore Brothers Southeast.
PB Southeast opens plant in Tennessee.
Founders sell Poore Brothers Foods to PB Southeast.
Poore Brothers, Inc. goes public and makes IPO; the company also introduces fat-free line of chips.
Eric J. Kufel becomes CEO and president.
Company purchases Tejas Snacks LP.
Poore acquires Wabash Foods, LLC.
The company acquires Boulder Natural Foods, Inc. and the Boulder Potato Co.

Further Reading

Gabriel, Angela, Poore Brothers Bets Chips on Acquisitions for Growth, Business Journal-Serving Phoenix & the Valley of the Sun, May 7, 1999, p. 6.

Gonderinger, Lisa, Poore Bros. Seeks IPO Riches, Business Journal-Serving Phoenix & the Valley of the Sun, September 27, 1996, p. 1.

_____, Suit May Dip into Poore Bros. Cash, Business Journal-Serving Phoenix & the Valley of the Sun, May 23, 1977, p. 1.

Howell, S. Diane, Chipping Away at a Niche, Arizona Business Gazette, April 27, 1990, p. 16.

Lawsuit Against Poore Brothers Settled and Dismissed, PR News-wire, November 23, 1998.

Poore Brothers Reports Record Revenue and Profit; T.G.I. Fridays Salted Snacks Become Companys No. 1 Selling Brand; Arizona Plant Resumes Full Production, Business Wire, April 26, 2001.

Poore Brothers Teams Up with the Arizona Diamondbacks, Business Wire, March 17, 1999.

Poore Brothers Teams with T.G.I. Fridays to Introduce an Innovative Line of Salted Snacks, Business Wire, May 18, 2000.

Roberts, William A., Jr., Intended Intensity, Prepared Foods, October 2000, p. 17.

Teichgraeber, Tara, Poore Bros., T.G.I. Fridays Partner, Business Journal-Serving Phoenix & the Valley of the Sun, June 2, 2000, p. 5.

John W. Fiero