Fannie May Holdings

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Fannie May Holdings

also known as: archibald candy corporation founded: 1920

Contact Information:

headquarters: 1137 w. jackson blvd. chicago, il 60607 phone: (312)243-2700 fax: (312)243-5806 toll free: (800)333-fmay email: [email protected] url: http://www.fanniemaycandies.com

OVERVIEW

The Archibald Candy Corporation, the privately owned parent company of Fannie May Candies and Fanny Farmer Candies, has sold confections since the 1920s through its retail candy chain stores. Fannie May and Fanny Farmer Candy have a combined number of over 330 stores and are located in 22 states, primarily in the Midwest and the East. Archibald Candy manufactures approximately 75 percent of its products and obtains the remainder from outside vendors. Its product line consists of over 125 items, including chocolates, mints, toffee, and eggnog creams (all made by Archibald Candy); products such as ice cream, nuts, gift items, and novelties are purchased from vendors. In addition to its own stores, Archibald Candy provides confections to approximately 6,000 other retailers. Archibald also sells through catalogues and fundraising events.

In 1996 Archibald Candy Corporation sold chocolates for an average of $10.50 per pound. As such, Consumer Reports rated its chocolates the best value of 11 chocolates tested. The main factors were taste and texture, and Archibald Candy's chocolates were described as "very tasty, at about one-third the price of the top three" and having "good taste at a very good price." The chocolate ranking number one overall went for $38.00 per pound, by comparison.

COMPANY FINANCES

Archibald Candy is a privately held company selling a diverse line of confectionaries through its own stores and other retailers in the United States. Annual sales at fiscal year end August 1997 were $121.9 million. This reflects an increase over August 1996 sales of $117.3 million, and $115.6 million in August 1995. However, net income dropped from $5.6 million in 1995 to $1.4 million in 1996 and $1.2 million in 1997.

HISTORY

Oddly enough, Fannie May Candies and Fanny Farmer Candies were both started only one year apart, by two different men in two different cities. Fannie May Candies was founded in Chicago in 1920 by H. Teller Archibald and Fanny Farmer Candies was founded in 1919 by Frank O'Connor in Rochester, New York.

No one knows why H. Teller Archibald named his company Fannie May, but he founded it on a philosophy to "make the best quality candy possible and always sell it fresh." After Archibald started the first store, he created a candy kitchen on West Madison Street that remained until the end of the 1930s, at which time Fannie May bought property at 1137 West Jackson Boulevard in Chicago, which is the company's headquarters to this day. By the mid-1930s Fannie May had expanded outside of Illinois and had a total of 47 shops. Sticking to the company philosophy of quality, Fannie May sold less candy during World War II rather than substitute cheaper ingredients and sell the same amount. When candy would run out each day, the store would close until more could be manufactured. Fannie May Candy factories now manufacture 40 million pieces of candy each year.

In 1919 Frank O'Connor started Fanny Farmer Candies in Rochester, New York, and he named the company after Fannie Merritt Farmer. Fannie Farmer, known as the "mother of measurements," is famous for The Boston Cooking School Cookbook, now known as the Fannie Farmer Cookbook, which she wrote in 1896. She had her own cooking school and was reputed to be the first woman to lecture at Harvard Medical School. Mr. O'Connor owned the largest retail candy company in Canada, Laura Secord Candy Shops, when he decided to open Fanny Farmer Candies in Rochester four years after Farmer's death. He later opened stores throughout New York and, in the 1920s, expanded into other states. Mr. O'Connor's mission was markedly similar to H. Teller Archibald's, that is, "Make the finest, freshest chocolate available."

STRATEGY

H. Teller Archibald and Frank O'Connor had a simple strategy for success—quality. The Archibald Candy Corporation to this day lays claim to that single philosophy, which, for H. Teller Archibald, was to "make the best quality candy possible and always sell it fresh." Frank O'Connor's goal for Fanny Farmer Candies, to "make the finest, freshest chocolate available" fit easily into the overall Archibald Candy Corporation philosophy.

In 1996 Archibald Candy launched an advertising campaign through The Walden Group, an Illinois-based ad agency. According to Walden, Fannie May presented little challenge; most of Walden's customers require the resolution of some kind of problem, but Fannie May's ad campaign needed only to focus on pleasure. Walden focused on the Fannie May line of summer candies, which are designed to fare well in hot temperatures. The ad agency created a poster of these candies in the form of a harvest. Later Robert Redford, filming on location in Chicago, was in a Fannie May store and asked if he could get a copy of the poster, which has proven to be a popular item in itself. In addition, Walden created a television campaign for Archibald, which features the Easter Bunny's ears drooping sadly as she discovers that being responsible for delivering Fannie May Candies means being unable to eat any.

FAST FACTS: About Fannie May Holdings

Ownership: Fannie May Holdings, a privately held firm, is controlled by affiliates of TCW Capital and Jordan Industries.

Officers: Thomas H. Quinn, Chmn. & CEO; Ted A. Shepherd, Pres. & COO; Joseph S. Secker, CFO; Donna Snopek, VP Finance & Accounting, & Secretary

Employees: 2,050

Principal Subsidiary Companies: Fannie May Holdings wholly owns Archibald Candy Corporation, which is the parent company of Fannie May Candies and Fanny Farmer Candies.

Chief Competitors: Fannie May Candies and Fanny Farmer Candies are primarily met with competition from: Godiva; Burdick; Whitman's; Russell Stover; and Teuscher.

In 1997 Archibald Candy created a new specialty division with the purpose of launching and marketing a new product line, the Fannie May Candies Celebrated Collection. The specialty division is an addition to the existing sales division, and markets the new product line to upscale department stores, gift shops, and specialty retailers. The product consists primarily of seasonal assortments, and is marketed only at the company's three peak seasons: Christmas, Valentine's Day, and Easter.

INFLUENCES

When Fannie May Candies opened its first store in Chicago in 1920, its mission of selling quality candy at affordable prices was rewarded with overall success. As a result, H. Teller Archibald opened another store, again in Chicago, which was met with similar success. Subsequently, Archibald expanded within the city, throughout Illinois, and ultimately outside of Illinois into other states. It seemed only natural, in 1994, that Archibald Candy Corporation purchase Fanny Farmer Candies, bringing the number of stores to over 330.

CURRENT TRENDS

In 1997 Archibald Candy executed the biggest retail expansion in its history. The plan was to break out of its traditional markets, which were franchises located in the Midwest, and move into 30 new markets with state-ofthe-art retail merchandising units (RMUs). To launch its products outside of areas where Fannie May Candies were traditionally sold, Archibald Candy licensed the brand to kiosk vendors in malls and shopping centers across the nation. The company focused on seasonal sales during its three peak holidays—Christmas, Valentine's Day, and Easter. According to Thomas Vitacco, national sales director for Archibald Candy, Fannie May and Fanny Farmer Candies produce approximately 60 percent of revenues during those three holidays. "Everyone agreed that if we could simply focus on those seasonal spikes in business, we would optimize our profitability in our expansion effort," Vitacco said. "Why incur the expense of rent and labor during the moderate times when you can avoid doing that with temporary, seasonal retail?"

In partnership with Schutz International, Archibald created the Fannie May kiosk. The kiosk is of modular construction and allows flexibility to comply with any restrictions developers may have imposed. Vitacco explained, "What we've created is a very modular device that expands horizontally and vertically, so we can adjust it to fit a 10 ft. x 12 ft. pad all the way up to a 10 ft. x 18 ft. pad. Therefore, when developers tell us their measurement requirements, we are able to fit within their range."

Ted Shepherd, Archibald's chief executive officer, was primarily responsible for devising the licensing strategy. Shepherd felt that licensing "was a cleaner proposition and a faster way to market than traditional franchising." Licensing has its benefits over franchising, as owners don't have to pay the franchise fees or royalties to the parent company. Seasonal or temporary kiosks provide new retailers an opportunity to sell products and gauge results without a long-term commitment to a lease. The candy was sold at Houston's The Galleria, Greenspoint Mall, Town & Country Center, West Oaks Mall, Memorial City Mall, Willowbrook Mall, and Sharpstown Center. In addition, seasonal kiosks were opened in Las Vegas's major retail facilities and operated between November 1997 and April 1998 in Las Vegas's Meadows Mall, Boulevard Mall, the Fashion Show, the Peccole Ranch Town Center, and the Galleria at Sunset. In addition, at least 10 kiosks were opened in Atlanta and other areas.

CHRONOLOGY: Key Dates for Fannie May Holdings

1919:: Fannie Farmer Candies founded in Rochester, New York by Frank O'Connor
1920:: Fannie May Candies founded in Chicago, Illinois
1935:: Fannie May begins expanding outside of Illinois
1937:: Refrigeration is developed, allowing Fannie Farmer to build stores farther away from production facilities
1994:: Archibald Candy purchases Fannie Farmer and becomes nation's largest candy retailer
1997:: Executes biggest retail expansion in its history, licensing the brand to vendors and shopping centers across the nation

In order to increase efficiency and handle the company expansion as effectively as possible, Archibald streamlined its production process through Infinium Process Manufacturing. Infinium provides Archibald with a "P/ERP" system, a real-time Process Enterprise Resource Planning system, which automates production while ensuring compliance to environmental regulations. P/ERP is an information system that combines Infinium's financial management, human resources, and materials management. According to Richard Pawlicki, Information Systems Director at Archibald, ". . . Infinium's P/ERP solution stands out because it is engineered and designed explicitly for process manufacturers. Infinium will allow us to effectively manage our future growth and provide us with the opportunity to move into new distribution channels."

Fannie May has taken steps to improve its packaging procedures. Although the company still performs some tasks by hand, such as hand coating its chocolate-covered raisins, peanuts, almonds, and bridge mix, it has focused on improving automation in other areas in order to increase productivity and to reduce the cost of labor and the potential for injury from heavy lifting. For instance, the case packaging process was done manually until the purchase of an A-B-C Packaging Machine, which partially automated the case packaging process. The cases are erected and sealed mechanically while loading remains a manual process. Quality control has also been a focus. Fannie May recently began using Hi-Speed Cornerstone checkweighing systems. Check-weighers help to find overfill problems. The check-weighers contain a Micromate control system, which are linked to Fannie May's computers, allowing the company to analyze statistics. The statistics are helpful in identifying and resolving overfill patterns. This system also makes recordkeeping easier so the Food and Drug Administration can easily review them during a possible audit.

PRODUCTS

In 1998 Fannie May Candies introduced new product lines and gift ideas. It also refurbished the look of its traditional boxes. One of the new product lines was the introduction of the individually wrapped product as a single-serve piece suitable for individual consumption. Focusing on the more popular, mainstream candies, Fannie May created single-serve pieces for its Chews, which include coffee, caramel, chocolate, and cherry flavors.

In January 1997, at the International Fancy Food and Confection Show in San Francisco, Archibald Candy introduced a new product line called Fannie May Candies Celebrated Collection. The product is sold only during the peak seasons and features a collection of various miniatures and seasonal novelties in fancy, seasonal packaging. Specific items include Miniature Pixies and the Mint Meltaway Combination. Assorted Chocolates are sold in sizes ranging from 3.7 ounces to 19 ounces and prices are between $4.00 to $20.00, respectively. To launch the Celebrated Collection, Archibald Candy formed an addition to its existing sales division. Called the Specialty Sales Division, its function was to launch and market the product to card and gift shops, upscale department stores, and specialty retailers during the peak seasons.

DECODING A BOX OF CHOCOLATES

Have you ever opened up a box of chocolates and bit into half a dozen pieces before you found the one for which you were looking? Or perhaps you're the type of person who sticks their finger into the bottom to see what it is, and then you put it back in the box because it's not the right flavor! Do you know that there is an easier way to tell what's inside the chocolate piece without breaking, biting, or guessing? Each piece has a "code" written into it, and if you know the "code" for you favorite type of chocolate, you'll never again be disappointed when choosing a piece of chocolate.

There are three ways to identify each piece of candy in a box of chocolates: by its unique shape, by the type of chocolate used, and by the squiggle mark on top of the confection. Based on whether the chocolate is round, rectangle, square, or oblong, and the type of chocolate used, you can make an educated guess about what's inside. However, the only sure-fire way to determine the contents of the candy is through the squiggle mark on top of each piece. The squiggle identifies the candy's contents. In order to be sure what is contained in every chocolate in your box, you must be able to "decode" the squiggles.

Fannie May and Fannie Farmer Candies offer a large assortment of chocolates and other confections, including what they call "The Confectionary Concoction." These include respective candies from Fannie May and Fanny Farmer such as: Pixies and Pecan Dixies, a combination of pecans and caramel in milk chocolate; Trinidads and Capris, a pastel coating mixed with toasted coconut surrounding a chocolate cream center; Mint Meltaways and French and Frosted Mints, a mint-flavored chocolate center in milk chocolate or coated in a pastel; Debutantes and Miniatures, bite-size pieces of popular candy; and Sweet Persuasions Truffle and Truffles, candies featuring untraditional cream centers, such as Amaretto, Pina Colada, Creme De Menthe, French Vanilla, and White Russian. Fannie May and Fanny Farmer also sell their standard lines of products, which include Eggnog Creams for the holidays; vanilla butter-creams in milk or dark chocolate; Truffle Petites, which are chocolate mixed with crushed almond pieces around a chocolate cream center; Raspberry Creams; Carmarsh, a marshmallow and caramel center; Chocolate Toffee; and Buttercrisp.