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January 2008
One Lance
By Ellison Clary

     A Charlotte company that built an enviable record of success through eight decades, Lance, Inc. found itself in economic doldrums by 2003. Earnings had shrunk from $1.50 a share to about 60 cents and board members were restless.

     The dwindling profit weighed heavy, despite the fact that the snack food firm that traces its roots to 1913 was debt-free and still churning out sandwich crackers, cookies, peanuts and potato chips.

     So the board switched leadership, installing board member David Singer as president and chief executive. Taking the reins in May 2005, Singer set about revamping a culture he found to be paternalistic and set in its ways into one that values teamwork and inclusion and welcomes change.

     He focused his vision for Lance on increasing market share, becoming more profitable and growing bigger. He summarized that image in the slogan “One Lance.”

     “We have one company and we have three different things we do,” explains the 52-year-old Singer, who joined the Lance board in 2003 while he was chief financial officer of Charlotte’s Coca-Cola Bottling Company Consolidated. “We do contract sales, private label sales and branded sales. We don’t have separate companies.”

     Separate companies is what it felt like to Singer when he took over and found what he called “silos” everywhere he turned.

     He stops to explain the Lance businesses. There’s the myriad snack foods it produces for the Lance brand, but there’s also a Cape Cod Potato Chips brand of kettle chips the company acquired in the 1990s. Then there are the cookies and crackers it produces for other labels, done largely in its Vista Bakery acquisition in Burlington, Iowa. And there’s contract manufacturing, such as the Oreo cookies Lance turns out for Nabisco and the various products it makes for Kraft Foods and others.

     “When I got here, all these businesses were run separately,” Singer says. “None of them were very big. These companies didn’t even buy corrugated boxes together. It’s hard to be attractive to a supplier if you’re buying smaller quantities.”

     That wasn’t the only source of malaise. Core markets were declining because people were buying more snacks at the grocery store rather than the gas station or the corner restaurant, traditional Lance mainstays. Distribution was growing more difficult because of cities and towns with clogged streets. Chain restaurants were buying crackers from conglomerates who also sold them mayonnaise and pickles.

     To be sure, three former Lance chairmen—Bill Disher, Pete Sloan and Philip Lance Van Every, son of Lance Packaging Company co-founder Salem Van Every—are enshrined in the North Carolina Business Hall of Fame. Further, Singer vows they richly deserve the honor.

     “The company had been very successful because of the business model it had,” Singer says. Lance used sales people with geographic routes who operated much like independent contractors. “Lance was good at making a really good product, doing it cost-effectively and getting it to people with entrepreneurial ability and letting them be successful.”

 

Adapting to New Realities

     The prior model had worked so well for so long that it was doubly hard for the company to adapt to new business realities, Singer points out. “We had a lot of things that just weren’t competitive with other snack food companies.”

     The well-defined Lance culture featured some extremely attractive elements. “There was a real family atmosphere,” he says, which led to longevity. “In our Charlotte plant, you’ll find people who have worked here for 35, even 45 years.”

     The down side was that the paternalism under which managers told employees what to do and praised them for doing it well didn’t encourage finding better ways to operate.

     Then there were the silos. People in manufacturing didn’t interact with or try to help those in distribution or sales. Folks who ran the Vista bakery in Iowa didn’t interact with those at the Lance bakery in Charlotte, even though their processes were similar. There was no cooperation on a concept as simple as how to load more product on a tractor-trailer truck.

     So Singer, who helped Coca-Cola Consolidated grow into the country’s second largest Coke bottler, instituted his One Lance concept to encourage everyone to cooperate and work for common goals: more profitability and growth.

     Promoting that effort is Singer’s quarterly video that he arranges for everyone in the company to view. In his communications, Singer outlines progress toward becoming One Lance and lists objectives for even more improvements.

     Singer brought in some key executives to help him. He found a chief financial officer in Rick Puckett, recruited from United Natural Foods, Inc., an organic grocery wholesaler. He added Blake Thompson to run the supply chain and preside over purchasing, manufacturing and logistics. Thompson came from Tasty Baking of Philadelphia, makers of Tastee Cakes; he’d formerly been with snack giant Frito-Lay. From ConAgra, Singer enticed Glenn Patcha to head up Lance sales and marketing.

    Glenn Patcha recruited Christine Hade from the frozen foods division of Kellogg’s to be vice president of innovation. Hade is building a cross-functional team to design new products that not only appeal to consumers but fit in the Lance manufacturing and distribution system.

     “We want to create an adaptive culture,” Singer says. “We want to get comfortable with making changes.”

     At least one long-term Lance board member likes what he sees. “Dave has assembled a wonderful team,” says Charlotte’s Bob Sisk, who has served on the Lance board since 1989. “That is absolutely necessary to bring a company fully into the modern world of the 21st century,” says the man who retired from the firm he built, Piedmont Engineering, in 2002.

     “What they’ve been able to do already is substantial,” Sisk adds.

 

Lance Size a Dichotomy

      Lance’s size is something of a dichotomy. Lance crackers own the top share of the sandwich snack market in its sales area, which consists of 35 states in the east and southeast. Those various cracker concoctions sell twice as much as nearest competitor Keebler. Further, Cape Cod Potato Chips own the top share of kettle chips, a product that offers a firmer bite than a regular chip.

      Lance employs about 1,300 in Charlotte, most in its one-million-square-foot plant off South Boulevard near Pineville. Companywide, employment is about 4,400.

      Lance has grown from $600 million in sales in 2004 to $730 million in 2006 and projects $760 million for 2007.

     But Singer is quick to explain why those numbers are deceiving. “Frito-Lay grows more in a year than Lance is big,” he smiles. He clicks off other giants in snack foods, names such as Kraft, Kellogg’s and General Mills. “If you look at size numbers one through 10, we would rank pretty high,” he adds. “The problem is the difference between the guy ahead of us and us—it’s four-fold or six-fold.”

      And yet, when Singer took over, there was a capacity problem. The company was struggling to keep output steady with demand and was too often resorting to overtime at the Charlotte facility. So Singer leaped at the opportunity to buy Tom’s Snack Company out of bankruptcy in 2005.

     Besides its hometown of Columbus, Ga., that company had manufacturing plants in Perry, Fla., and Corsicana, Texas, that Lance could use to ease the product-producing crunch, particularly for Cape Cod Potato Chips that were being made in Hyannis, Mass., a long haul from the Florida potatoes Lance was buying.

     The Tom’s acquisition took Lance from $600 million in sales to almost $700 million.         
     “When you add that big a percentage, you create opportunities for people that are here,” Singer points out. If you’re Frito-Lay, you can’t grow by 30 percent. For us, we have opportunities to improve and grow in much bigger chunks. That’s the story I used to get management folks to come here.”

     Before Singer signed on, Lance had eliminated trans fats from its products, even though that means more expensive production. Singer wants to build on that and make major inroads in what he calls “the better for you market.” Already, Cape Cod Potato Chips are cooked with canola oil and can be made with 40 percent less fat. Singer has just formed a partnership, including an ownership position, with “Late July”, an organic sandwich cracker maker.

 

Company-Wide Computer Will Help

     “This is not very exciting,” Singer apologizes as he moves on, “but one big change we’re implementing is a new computer system for the whole company. When you look at how much it will affect us; that will be huge.”

     Instead of people with yellow pads and spreadsheets, Singer says, the computer system will turn forecasting sales into a scientific and efficient process. It can also facilitate research into changing dietary preferences.

     Singer says his favorite Lance product is a cheese on wheat sandwich cracker, “although there are very few of them I don’t like.”

     A Pennsylvania native, he shows no remorse that Lance eliminated its version of a Southern favorite—the “moon pie”—some years ago. Lance was buying the product, which features a crème filling between two circular graham crackers covered with chocolate, from another producer and stopped that practice for simplicity’s sake.

     Lance also has discontinued its vending machines that were ubiquitous in the South. They were no longer profitable.

     Perhaps the biggest Lance challenge currently is dealing with skyrocketing prices on flour and cooking oil. In the case of flour, U.S. farmers are responding to the demand for ethanol by planting more corn, at the expense of wheat. Coupled with weather woes in other parts of the world, this means wheat prices, which had been around $4 a bushel, have sometimes skyrocketed as high as $9.5 a bushel.

     “The difference between $4 a bushel and $9 for our company is $40 million a year,” Singer says with a head shake. “That’s about how much the company made in 2004.”

     At the same time, vegetable oil has jumped from about a quarter a pound to 46 cents. “That’s another $20 million,” he says.

     Lance told Wall Street that commodity costs in the fourth quarter have forced it to revise earnings per share to 76 to 80 cents; its earlier estimate was 86 to 92 cents per share.

     That effect on performance is frustrating, Singer says, for himself and Lance employees. Still, he sees his One Lance innovations working, both as he travels to the various plants and as he looks at financial performance.

     That bodes well for Lance’s future, he believes. “We’re building a team that can run a business that’s much larger,” Singer says. “We’ve proven with Tom’s that we can make an acquisition effectively. We’re fixing those fundamental elements. As we weather through this commodity thing, our margins will start to improve and we can start to make some acquisitions.

     “With the team we’ve assembled, and with everyone working together, this business has the capacity to really grow in terms of both sales and profitability,” he says.
Ellison Clary is a Charlotte-based freelance writer.
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