Galaxy Nutritional Foods, Inc.

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Galaxy Nutritional Foods, Inc.

2441 Viscount Row
Orlando, Florida 32809
U.S.A.
Telephone: (407) 855-5500
Toll Free: (800) 808-2325
Fax: (407) 855-7485
Web site: http://www.galaxyfoods.com

Public Company
Incorporated: 1987 as Fiesta Foods & Galaxy Foods, Inc.
Employees: 168
Sales: $40 million (2003)
Stock Exchanges: American
Ticker Symbol: GXY
NAIC: 311513 Cheese Manufacturing

Galaxy Nutritional Foods, Inc., develops, produces, and distributes plant-based dairy and dairy alternative products for the retail and food service markets. The company’s products are made with plant proteins such as soy, rice, and oats, offering consumers more nutritional substitutes for traditional dairy products. Galaxy makes a full range of products that complement the company’s core line of cheeses, including butter, milk, yogurt, cream cheese, pizza, and ice cream. The company’s brand names include “Galaxy Nutritional Foods,” “Veggie,” “Nature’s Alternative,” “Veggie Lite Bakery,” “Veggie Café,” “Soyco,” “Soymage,” “Wholesome Valley,” “Lite Bakery,” and “Formagg.” Galaxy’s products are sold domestically and internationally to a variety of purchasers, including retail stores, restaurants, cafeterias, hospitals, and schools.

Origins

Galaxy’s founder, Angelo S. Morini, invented the company’s defining product, a healthy cheese alternative, decades before health-consciousness swept through U.S. society. Morini began experimenting with a new way to produce cheese in 1968, the year he received a B.S. degree in Business Administration from Youngstown State University. Although his academic training was in business, Morini also had a penchant for science, the discipline that would aid his development of Formagg, a cheese substitute with decidedly healthier characteristics than natural cheese. Morini, the president of his high school’s science club, dramatically altered the fat profile of natural cheese in his experiments begun in 1968. He removed the highly saturated butterfat present in natural cheese and replaced it with partially hydrogenated soybean oil, which contained healthier monounsaturates and polyunsaturates. The result, after tinkering with the recipe, was what Morini dubbed Formagg, a cheese substitute that contained no cholesterol, lactose, or butterfat. Formagg contained one-third fewer calories than natural cheese and provided more calcium, vitamins, and minerals than its conventional counterpart.

After receiving his degree from Youngstown State, Morini held a number of jobs, each related to food. When he was not working on the development of Formagg, he worked at his family’s chain of grocery stores, located in New Castle, Pennsylvania, and operated under the banner Morini Markets. Morini also worked for General Foods Company and the food service division of Pillsbury Company before he founded his own company, Fiesta Foods & Galaxy Foods, in 1972. The company was producing a mozzarella cheese substitute for Morini’s pizza business in Elwood City, Pennsylvania, and quickly found other customers. The company’s success, in fact, became its own undoing. Fiesta Foods & Galaxy Foods grew to be a $10 million-in-sales business in a rush, but labor and financial problems just as quickly overwhelmed Morini. “The bank I was with wouldn’t lend me the money to grow,” he remembered in a March 20, 1989 interview with the Pittsburgh Business Times. Morini was forced to shutter the business, but it would not be long before Formagg resurfaced in the marketplace.

Not long after Fiesta Foods & Galaxy Foods choked on its own growth, the company’s future was aided by the first stirrings of a more health-conscious populace. Nutritionists began urging the public to reduce the sodium, cholesterol, and saturated fats in its diet, advice that an increasing number of Americans heeded. Morini brought his company back and centered Fiesta Foods & Galaxy Foods on the industrial and food service market. In both of these segments the company scored success.

Expansion in the 1980s

The 1980s represented a formative decade for Morini’s entrepreneurial concern, presenting both prosperous conditions and trying events. In 1980, the company adopted a new corporate title for its character-building period of development, changing its name to Galaxy Cheese Company. From Morini’s boyhood hometown of New Castle, Galaxy Cheese entered a decade that would require it to expand and remodel its headquarter facility 13 times, indicating the growth that the company experienced during its second decade of existence. During the 1980s, the United States was the fastest-growing cheese consumption nation in the world, providing a fertile climate for Galaxy Cheese’s growth. By 1984, the company was generating more than $6.5 million in sales and growing at a pace that required Morini to treat his company as a burgeoning corporate concern. He filed for an initial public offering (IPO) of stock, turning to Wall Street to supply the capital needed to fuel Galaxy Cheese’s expansion. The IPO was completed in September 1987, occurring at exactly the wrong time to ensure Galaxy Cheese ended the decade with the vitality that had characterized the company before the IPO.

On October 17, 1987, weeks after the IPO, the stock market suffered a severe crisis, collapsing on a day that quickly became known as “Black Monday.” The financial catastrophe cost Galaxy Cheese $1 million, forcing the company to virtually eliminate its advertising budget. From there, the company’s troubles deepened. At roughly the same time as Black Monday, Galaxy Cheese lost its most important customer, a national food distributor named Pueringer Distributors, Inc. Another company acquired Pueringer, leading to the loss of Pueringer’s business, which had accounted for 42 percent of Galaxy Cheese’s total sales. To exacerbate matters, the price of casein, a derivative of skim milk and a main ingredient in Formagg, soared, jumping from $.96 to $2.30. These pernicious developments struck Galaxy in relatively quick succession, sending the company reeling and barring it from profitability for the next several years.

Despite the calamity of the late 1980s, Galaxy ended the decade on a solid footing. Profits had yet to return, but there were nevertheless other signs of strength. The company’s headquarters occupied 60,000 square feet in Northgate Industrial Park, where Galaxy’s manufacturing facility was able to produce two million pounds of Morini’s signature cheese each week. (The plant was operating at 20 percent of capacity at the end of the 1980s, however.) Sales during the second half of the 1980s had increased robustly, tripling to more than $15 million. Furthermore, the loss of Pueringer had one positive influence on the company, providing some solace for an otherwise stinging blow. Morini had planned to lessen the company’s distribution of Formagg to the industrial market and increase its presence in more lucrative markets, namely the retail and food service markets. The loss of Pueringer accelerated the company’s shift away from the industrial market, where profits ranged between 5 percent and 15 percent, and sped its entry into the retail and food service markets, where profit margins ran as high as 65 percent. By the end of the 1980s, Galaxy products were available in more than 35 states, with full national coverage expected by the beginning of the 1990s.

Product Line Extensions in the 1990s

Galaxy’s market presence spread well beyond the United States by the beginning of the 1990s as its product line deepened. Galaxy products were available in Kuwait, Australia, and Canada, with penetration into West Germany, France, Belgium, and Japan expected to occur in the near future. As the company widened its distribution scope, it also expanded its product line. Galaxy’s industrial, retail, and food service divisions produced items such as grated Parmesan and Romano flavored Formagg, shredded Mozzarella, Provolone, Cheddar, and American flavored Formagg, and Longhorn, Monterey, Jack, and Colby Formagg loafs. The company also produced several varieties of pizzas and a line of cheesecakes and cream cheeses. In addition to its industrial, retail, and food service divisions, Galaxy also operated a health food division that catered to health food stores. Through Soyco Foods, the company offered a line of soy and vegan products, including cheese, butter, and sour cream.

During the 1990s, Galaxy greatly expanded its product offerings, completing its development from a substitute cheese producer into a broadly based dairy alternative company. As part of this developmental process, the company moved its headquarters, abandoning Morini’s home turf in New Castle. In June 1991, Galaxy moved to Orlando, Florida, where it unveiled a state-of-the art manufacturing facility. From Orlando, the company began shipping its popular products to its two principal markets, retail and food service. Attention to the industrial market, once the mainstay of the company, had waned. Instead, Galaxy now focused its efforts on the supermarket chains, mass merchandisers, and natural food stores that composed the retail sector, and the restaurants, cafeterias, hospitals, and schools that composed the food service sector. One year after the move to Orlando, the company changed its name to reflect the transformation that was taking place. In June 1992, the company dropped Galaxy Cheese Company as its corporate title and adopted the more inclusive name of Galaxy Foods Company.

Company Perspectives

Our corporate mission is to extend and improve the quality of life everywhere by providing innovative, healthy foods which may significantly reduce the risk of certain diseases linked to the consumption of high fat, high cholesterol foods and other foods with harmful ingredients. With our great tasting and timely product line, we believe we are well on our way to accomplishing this mission. In fact, we are convinced that eating foods which combine primarily plant-based, all natural, nutraceutical ingredients such as those from Galaxy Nutritional Foods will become a way of life in the 21st century.

As consumer consciousness of nutrition increased during the 1990s, Galaxy responded by developing an ever-broadening selection of products. The company used its research and development offices in Orlando to become the premier U.S. producer of a diverse line of low and no fat, no saturated fat, low and no cholesterol, and no lactose cheese and dairy-related products. Among the product line extensions devised during the 1990s, none ranked of greater importance than the company’s Veggie line. Introduced in 1996, the Veggie brand comprised a selection of soy-based products that quickly became the company’s greatest contributor to annual revenues, bolstering its presence in the retail sector. The company developed an unusual marketing strategy for its Veggie brand, selling its plant-based dairy alternatives in produce sections of supermarkets rather than selling its products through supermarket dairy cases.

During the late 1990s, the line separating mainstream supermarkets and specialty health food stores became increasingly blurred. Conventional grocery stores were now stocking items previously found only in health food stores, a trend that worked decidedly in Galaxy’s favor. The healthy and natural foods category—the segment in which Galaxy held sway—became the fastest growing part of the retail food market, providing ample demand for the company’s 100,000-square-foot facility in Orlando. In 2000, Galaxy Foods Company again changed its name to better reflect its product focus, becoming Galaxy Nutritional Foods, Inc.

Despite the favorable business climate, Galaxy experienced some difficulties, particularly as the company entered the 21st century. In 2001, when the company generated nearly $45.4 million in sales, it reported a loss of more than $6 million. The following year, the company’s 30th anniversary, was pocked by a massive $19 million loss. A number of factors were to blame, including production and shipping difficulties, rising overhead costs, and a change in production focus that whittled the company’s product line from 400 items down to 200 items. The production problems, which involved a new slicing machine, were resolved by September 2001, but the damage done was clearly identifiable by the end of the company’s fiscal 2002 in March of that year.

Galaxy was able to recover from the losses recorded in 2001 and 2002, and it did so with a new leader. In December 2002, Christopher J. New, Galaxy’s chief operating officer, was appointed as the company’s chief executive officer. Morini reduced his responsibilities to those accorded to the posts of president and vice-chairman. In the transition of day-to-day control from Morini to New, Galaxy posted comforting financial totals for the company’s fiscal 2003. For the year, the company registered $1 million in net income, the result of four quarters of positive operating profits. Further encouraging news arrived in June 2003, when Galaxy entered into a master distribution and licensing agreement with Fromageries Bel S.A., the number one branded cheese company in Europe. Under the terms of the agreement, Fromageries Bel secured the exclusive rights to distribute Galaxy products in more than 30 European countries. In the years ahead, similar partnerships, coupled with the company’s continued efforts to capitalize on the fastest growing sector of the retail food market, promised to hold it in good stead. Galaxy, an industry pioneer, stood poised for growth, its management intent on building on the success established by Morini.