Worthington Foods, Inc.

views updated

Worthington Foods, Inc.

900 Proprietors Road
Worthington Ohio 43085
(614) 885-9511
Fax: (614) 885-2594

Public Company
1939 as Special Foods Inc.
Employees: 461
Sales: $88.2 million (1994)
Stock Exchanges: NASDAQ
SICs: 2075 Soybean Oil Mills; 2099 Food Preparations Not
Elsewhere Classified

Worthington Foods, Inc., has grown from a tiny manufacturer of specialty foods into a leader of the U.S. markets for vegetarian foods and meat alternatives. The company continued to hold a leading 65 percent share of the meat alternatives market in 1994 despite intense competition from Americas largest food conglomerates. By the mid-1990s, Worthington Foods offered four branded lines of healthy foods: Morningstar Farms targeted the mass market, while Worthington, LaLoma, and Natural Touch were geared specifically toward the health food and Seventh-day Adventist markets. The introduction of such new products as Spicy Black Bean Burger, Bettern Burger, and Ground Meatless in 1995 helped the company expand its presence in the institutional food service and restaurant markets. Worthington Foods net income declined by over one-third from $2.79 million in 1992, when the company made its initial public stock offering, to $1.79 million in 1993, but rebounded strongly to $4.33 million in 1994.

The business traces its heritage to 1939, when Dr. George T. Harding III founded Special Foods in Worthington, Ohio. Harding adhered to Seventh-day Adventist dietary strictures, which proscribe consumption of pork, ham, shellfish, caffeine, and tobacco, among other foods and beverages. Most followers eschew meat and other animal products altogether. Formally established in 1863, the Seventh-day Adventist Churchs concern for bodily health led to the establishment of hospitals, sanitariums, and medical schools (as well as elementary and secondary schools, colleges, and universities) throughout the United States and eventually around the world.

Harding established Special Foods to supply vegetarian foods to his fathers nearby sanitarium (health spa). He also hoped that the existence of a reliable supply of vegetarian foods would encourage the development of a mid-Ohio Adventist community. With companies like Michigans Battle Creek Foods Company, Tennessees Madison Foods, and Californias Loma Linda Foods (owned by the General Conference of Seventh-day Adventists) as models, Harding, his wife Mary Virginia, and four other investors bought and refurbished a fire-damaged house and started production in 1939.

Special Foods early products were fashioned after nut meats, first concocted by Dr. John Kellogg, the first Adventist to become a medical doctor. They combined roasted peanuts with gluten (derived from flour) and seasonings to form meatless, yet high-protein main courses like PROAST, a substitute for dark meat, and NUMETE, a substitute for light meat. A 1989 company history acknowledged that Special Foods early manufacturing practices were primitive: a garden hose was a key piece of equipment, for example.

Nevertheless, Special Foods attracted a following. Bill Robinson, one of the companys founding investors and a former salesman for Battle Creek Foods, was its first employee. He coordinated sales to Seventh-day Adventists and health food shops such that by 1941 the company was selling $20,000 worth of vegetarian foods each year. Robinson soon emerged as Special Foods top manager. He brought in James Hagle to assist with and later assume general managerial duties in 1942.

Hagle came on board just in time to guide the company through the challenging, yet rewarding, World War II era. Government rationing during this period both hindered and helped Special Foods. Tin shortages compelled the use of glass packaging, which was heavier and more expensive to ship than Special Foods usual metal cans. The suspension of imports from Germany cut off supplies of yeast and other specialty flavorings, but the company managed to procured these ingredients from the Anheuser-Busch Company. Rationing of red meat, however, helped boost demand for Special Foods growing array of meat substitutes, known in the industry as meat analogs. The firms 50th anniversary history noted that even New Yorks Waldorf Astoria Hotel was serving CHOPLETS, a mock veal cutlet. Hagle encouraged the growing interest with advertisements in health food magazines and through direct mail. The company sometimes sacrificed profits to ship its products across the country in the hopes that wartime consumers would keep buying in peacetime. By the wars end, Special Foods sales had burgeoned to nearly $300,000 annually, the company had built a new manufacturing and warehousing facility, and its offices were moved to a separate building.

However, when World War IPs food rationing ended, Special Foods customer base evaporated, leaving it with excess employees and equipment. Although the company struggled through the immediate postwar era and suffered its first loss in 1947, it did not scale back operations. Instead, Hagle worked to regain the companys wartime vigor by instituting research and development and boosting marketing efforts. Hagle hired Allan Buller, a former supply sergeant, to serve as assistant manager and brought on Warren Hartman to guide product development efforts. These changes were capped with the 1945 name change to Worthington Foods, Inc. In 1948, founder George Harding was engaged as president of Loma Linda University, a Seventhday Adventist institution in California. Hagle advanced to Worthington Foods presidency, and Allan Buller became secretary-treasurer and general manager.

Worthington Foods first new postwar product was a meatless wiener, a hand-packed, canned hot dog with a plastic casing. Demand for the new main dish, called Veja Links, ran so high that the company had to purchase an automatic linking machine to keep up with orders. Other new offerings included sandwich spread, soy milk, a vegetable gelatin, and sesame oil.

The company also augmented its product line through two major acquisitions. The first came in 1950, when Worthington Foods bought International Nutrition Laboratories. Founded by Dr. Harry Miller, this Ohio company produced soy-based foods, including Millers Cutlets (renamed Vegetarian Cutlets). News of Dr. John H. Kelloggs death was followed quickly by an offer to sell his 91-year-old Battle Creek Food Company to Worthington Foods late in the decade. The two additions supplemented Worthington Foods fledgling national sales network and helped push annual revenues over the $1 million mark.

Worthington Foods supported its growing distribution to mainstream supermarkets through the establishment of several warehouses across the United States. The companys facilities were often established near Seventh-day Adventist institutions in order to cater to that core market. By 1967, Worthington Foods boasted storage buildings in Portland, Oregon; San Leandro, California; Orlando, Florida; Beltsville, Maryland; South Lancaster, Massachusetts; and other locations.

Before the end of the decade, Worthington Foods midwifed the birth of an innovation in food technology that provided the companys entree into the mass market. It came from a highly unlikely source: the automotive industry. Scientist Robert Boyer had experimented before and during World War II with production of manmade fabrics and plastics from soybeans. The protein spinning process he used reduced soy protein to a liquid, then extruded it through tiny holes to form solid fibers. Although Boyers soy fibers were not strong enough to form a material that could be used by automakers or the military, their texture closely resembled that of meat. The scientist made up several samples that looked like ham, beef, and lamb and set out to find a food manufacturer that could help him make them taste like those meats. After pitching his idea to such major food companies as Ralston Purina Company, Swift, and General Mills, Inc., Boyer took his samples to Worthington Foods, where they were met with an enthusiastic reception.

Unable to fund the massive capital investments necessary to build and operate a soybean mill, Worthington Foods contracted with Ralston-Purina to process soy meal into soy fiber and committed itself to purchasing the 10,000-pound-per-day output. New soy fiber-based products included White Chik, a chicken substitute; Prosage, a sausage analog; Stripples, a bacon-flavored product; and the self-explanatory Beeflike. Holiday Roast featured a plastic wishbone.

Unlike Worthington Foods other meat analogs, which were canned, the soy fiber products could not withstand the high temperatures involved in shipping. This exigency forced the food manufacturer to become Americas first producer of frozen meat analogs. The company made major investments in freezer trucks as well as freezers at the plant, warehouses, and even in supermarkets, which were not generally equipped to handle frozen food at that time.

Worthingtons revolutionary product development of the 1960s coincided with a global scarcity of protein. A 1969 report on vegetable protein prepared and published by Stanford University ranked Worthington Foods ahead of such major food and grain conglomerates as Central Soya and Archer Daniels Midland by virtue of its diverse line of market-ready products.

Worthington Foods made and received a number of merger and acquisition overtures in the wake of the Stanford Report. The late 1960s were consumed with bargaining over operational and moral issues. Worthington entertained offers from Beatrice Company, Hershey Foods Corporation, Quaker Oats Company, W.R. Grace & Co., long-time partner Ralston Purina, and even The Coca-Cola Company. Coca-Colas proposal was declined in part because of the beverage companys emphasis on caffeinated soft drinks. Ironically, however, Worthington Foods was also unable to agree on terms of a merger with Adventist Church-owned Loma Linda Foods. Worthington Foods accepted a takeover offer from Miles Laboratories in 1970 and became Miles Worthington Division through an exchange of stock. Aside from the fiscal arrangements, Miles complied with Worthingtons Sabbath-keeping requirements and its ongoing service to the Seventh-day Adventist market.

Worthington thrived during its decade under Miles patronage. Sales doubled from $6 million to $12 million, production volume quadrupled, and the research and development department expanded tenfold. Worthington also benefited greatly from the marketing and distribution expertise Miles had garnered over decades of promoting such familiar products as One-A-Day vitamins and Alka-Seltzer antacid. Supported by multi-million-dollar annual advertising budgets and Miles own food brokerage networks, Worthington flourished. During this period, Worthington launched its Morningstar Farms line of cholesterol-free vegetarian foods for the grocery trade, while the well-established Worthington brand continued as the trademark for products sold in Adventist and health food stores. The Morningstar Farms label spawned a new product, cholesterol-free Scramblers, a frozen substitute for whole eggs, in the mid-1970s.

In 1978, Miles was itself acquired by Germanys Bayer AG in a friendly takeover. Still led by Hagle and Buller, Worthingtons management engineered a precarious buyback offer comprised of bank loans, bonds sold to Miles, and personal loans and investments. Some of Worthingtons top executives bet their lifes savings on the success of the reborn company. Sixty-five-year-old vice-president Allan Buller, for example, remortgaged his home and liquidated his retirement funds to participate in the buyback, which was completed in October 1982.

Worthington Foods suffered a small loss in 1982, but returned to profitability in 1983. That year, Hagle recruited Dr. Dale Twomley from Andrews University (an Adventist institution) to serve as Worthingtons vice-president for development. With an eye toward succeeding Allan Buller as chief executive, Twomley spent the ensuing three years learning the ins and outs of the meat analog business.

By the time Twomley advanced to president and CEO in 1986, Worthington Foods annual sales had grown to $28 million. They more than doubled within Twomleys first five years at the helm, to over $70 million in 1991, as Worthington benefited from Americans changing dietary habits. Over the course of the 1980s, Americans consumption of red meat declined by over 12 percent, and the number of people who classified themselves as vegetarians or semi-vegetarians multiplied eight times. Nationwide sales of soy-based foods grew from $178 million in 1980 to $664 million in 1992. Due to growing health concerns regarding cholesterol, Morningstar Farms Scramblers had become Worthingtons best-selling product and the $125-million egg-substitute segments number-two seller by the end of the 1980s.

Worthington Foods internal growth was supplemented with the 1990 acquisition of Loma Linda Foods LaLoma Inc. meat-substitute and breakfast cereal businesses. The venerable California-based company had sold its infant formula business and Loma Linda trademark to Nutricia Netherlands Inc., a Dutch health food manufacturer with about $500 million in annual sales, in 1988.

After operating in a niche market for 50 years, Worthington began to encounter stiff competition from such mammoth food companies as Archer-Daniels-Midland Co., RJR Nabisco Holdings Corp., and Pillsbury Company in the late 1980s and early 1990s. These giants market savvy and supermarket clout gave them a decided advantage over the tiny Ohio specialist. Morningstar Farms had several weapons in its arsenal: superior flavor, freezer-to-microwave convenience, low cholesterol, and no animal fats. Believing that superior taste will win the race, Worthington missed the early 1990s crusade against fat.

Rival companies fat-free burgers and egg substitutes began to erode Morningstar Farms market share and overall profits: net income declined from $2.79 million in 1992 to $1.79 million in 1993. The company raised $21 million through a 1992 initial public offering to fund production increases, reformulations of old products, and new product launches. The company reduced levels of fat in its traditional meat analogs by one-fourth to one-half, thereby lowering the products calories as well. New meat alternatives, including Garden Vege Patties, Chik Patties, Prime Patties, and Deli Franks, helped the company garner increased sales without cannibalizing the old products. Worthington Foods also created a foodservice division in 1990 to cater to the restaurant and institutional markets. The growing popularity of vegetarianism made Worthingtons products appealing to many of these nontraditional outlets. During the early 1990s, the company won contracts with such major fast food companies as Burger King, Dennys, International House of Pancakes, and Subways. After declining from $20.17 million in 1989 to $18.82 million in 1991, Worthingtons meat analog sales grew to $22.48 million by 1994.

Worthington Foods record sales of $88.2 million and record earnings of $4.3 million in 1994 seemed but a foretaste of its future. Soyatech, a market research firm, projected Americas total annual soyfood sales to increase from $664 million in 1992 to nearly $1.5 billion by the turn of the twenty-first century. If Worthington could retain its leading share of the meat analog market, it would share in this potential bonanza.

Further Reading

Herold, June R., Worthington Buying Anti-Cholesterol Cereal Line, Business First-Columbus, November 13, 1989, p. 3.

A History of Worthington Foods, Worthington, Ohio: Worthington Foods, Inc., 1989.

Phalon, Richard, Thin in the Wrong Places, Forbes, June 8, 1992, p. 62.

Reid, Robert, Worthington Foods Prospers From Fitness Fads, Business First-Columbus, December 11, 1989, p. 15.

Whalen, William J., Is The End Near? A Look at Seventh-day Adventists, U.S. Catholic, April 1994, p. 14.

April Dougal Gasbarre