Ghirardelli Chocolate Company

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Ghirardelli Chocolate Company

1111 139th Avenue
San Leandro, California 94578
U.S.A.
(510) 483-6970
(800) 877-9338
Fax: (510) 297-2649
Web site: http://www.ghirardelli.com

Wholly Owned Subsidiary of Chocoladefabriken Lindt & Sprungli AG
Incorporated: 1852
Employees: 300
Sales: $100 million (1998 est.)
NAIC: 311320 Confectionary Chocolate Made from Cacao Beans

Ghirardelli Chocolate Company is one of the leading producers of chocolate in the United States. It was long one of the premier chocolate manufacturers in the West. Its historic factory in San Francisco is now a key landmark in that city, where it functions as an urban mall called Ghirardelli Square. The company’s main manufacturing facility is in San Leandro, California. The company has a significant business selling chocolate wholesale. In the 1990s Ghirardelli increased its retail business, selling bagged candies in grocery stores and other outlets, as well as Ghirardelli brand baking chocolate and cocoa. Ghirardelli also operates several ice cream and chocolate stores, mainly aimed at the tourist trade. A family-owned company for over 100 years, Ghirardelli passed through a series of owners in the 1980s and 1990s, and was bought in 1998 by the Swiss confectioner Chocoladefabriken Lindt & Sprungli.

Early Years

Ghirardelli Chocolate Company was founded by an Italian, Domenico Ghirardelli, who was born in Rapello, Italy, in 1817. Domenico’s father was a merchant, and he apprenticed his son to a confectioner and spice importer. Domenico learned the trade, then moved to South America and went into business for himself. He worked for a time in Montevideo, Uruguay, and then settled in Lima, Peru. While in South America, Ghirardelli changed his first name from the Italian Domenico to the Spanish Domingo. Ghirardelli’s shop in Lima was next door to that of a cabinetmaker, James Lick. Lick was either a restless or an adventurous fellow. In any case, he decided to leave Peru for California. He landed in San Francisco on January 11, 1848, just 13 days before gold was discovered at Sutler’s Mill, precipitating the California gold rush. Lick had brought with him 600 pounds of his neighbor Ghirardelli’s chocolate. He soon wrote to Ghirardelli that conditions were ripe in California. He had sold all the chocolate he had with him, and he advised the confectioner to come north. So Domingo Ghirardelli promptly followed Lick to San Francisco. At first he sold chocolate, coffee, liqueurs, and other items to the gold miners, and by 1852 he had established a store in San Francisco. Ghirardelli’s company had several locations in its early years, and apparently business was up and down. But by 1885 the company was importing 450,000 pounds of cocoa beans a year, as well as importing and grinding spices and selling coffee, wine, and liquor. Chocolate manufacturing was the mainstay of the business. The equipment needed to sort, blend, roast, and grind cocoa beans took up a lot of space, and the expanding business meant the company needed bigger quarters. Domingo Ghirardelli retired in 1892, leaving the company to his sons, and in 1893 the company purchased a square block in San Francisco bounded by Beach, Polk, Larkin, and North Point Streets. This area luckily survived the earthquake and fire of 1906, and Ghirardelli continued to expand its facilities, erecting new buildings in what became known as Ghirardelli Square. The Ghirardelli site had originally housed the Pioneer Woolen Mill, and Ghirardelli hired the mill’s architect to design each of its new buildings. The company built a Cocoa Building in 1900, the Chocolate and Mustard Building in 1911, the Power House in 1915, and finally a clock tower and apartment building in 1916. These were all built of red brick with white trim, and the site is still considered architecturally impressive.

Business boomed during World War I, when the factory operated around the clock producing chocolate for the armed forces. Domingo Ghirardelli, Jr., the founder’s eldest son, was president of the company through this period until 1922. That year he stepped down, and his younger brother, Domingo Lyle, became president. The company flourished during the 1920s. Ghirardelli was the largest chocolate factory west of the Mississippi. Besides bulk chocolate and cocoa, the company made retail goods such as instant chocolate malted milk powder. Ghirardelli also did a sizable business in mustard. The company was actually the only mustard manufacturer west of the Mississippi. It sold mustard under the Ghirardelli brand, and also made all the mustard sold under the Schilling brand.

Decline in the 1950s

Domingo Lyle Ghirardelli retained the presidency until 1958, though he worked closely with his brothers and other family members in executive positions. The company’s manufacturing plant used large, expensive equipment, and Ghirardelli had three mechanics working full time keeping the machinery in good working order. Ghirardelli imported cocoa beans from all over the world, from the Ivory Coast to Panama, Samoa to Colombia. Each bean had different characteristics, and blending them for the proper taste and color was a sophisticated art. By the 1950s, much of the company’s machinery had become antiquated, and the business was exceedingly labor-intensive. As well as using elaborate machinery for processing chocolate, the company also made its own cans and boxes, manufacturing everything it needed for its business except for paper goods. It was clearly no longer an up-to-date factory, but the Ghirardelli family apparently had little initiative to make major changes at that point.

As the Ghirardelli family grew, the number of stockholders increased. By the 1950s there were 40 outside stockholders, and these people generally wanted to be paid a dividend instead of seeing the money reinvested in the plant. The mustard business came to a halt shortly after World War II, when Schilling, Ghirardelli’s major customer, was bought up by McCormick, a Chicago-based spice company. Ghirardelli was not making much money, and the management was reaching retirement age. In the early 1960s, the company let word get out that it would consider selling the business.

Ghirardelli had several offers for the company, from scrap dealers or rival chocolate manufacturers, but nothing panned out. Then in 1962 the company received an offer for its land and buildings from Mrs. William P. Roth and her son William Matson Roth. The Ghirardelli family accepted the offer, and the Roths formed the Ghirardelli Center Development Company to renovate the buildings and make them into the block of shops and restaurants now known as Ghirardelli Square. Then in 1963 the Golden Grain Company offered to buy the chocolate company. Golden Grain was another family-run business founded by Italian immigrants, the De Domenicos. Begun as a macaroni maker, the company had gained nationwide appeal with its introduction of Rice-A-Roni. Ghirardelli’s machinery was mostly sold to scrap dealers, and Golden Grain started from scratch, constructing a new, modern manufacturing facility in nearby San Leandro, California. Thus Ghirardelli operated as a subsidiary of Golden Grain, in all-new quarters.

Changes in Ownership in the 1980s and 1990s

Ghirardelli was apparently a profitable but small business under Golden Grain. It had strong name recognition, particularly in the West. Under its new owner, the company continued to produce both wholesale chocolate for the confectionary, baking, and dairy industries, and premium retail branded items. By the mid-1980s, the company was doing well, but it only accounted for a little over ten percent of Golden Grain’s total sales. In 1986 Quaker Oats, the Chicago-based food conglomerate, acquired Golden Grain, and with it, Ghirardelli. Quaker hung on to Ghirardelli for three years, then announced that the company was for sale. Ghirardelli was bringing in an estimated $35 million in annual sales at the time, but Quaker considered it too small, and not a good fit with its other grocery product lines. However, it took another three years before Quaker could find a buyer. In that time, Ghirardelli redesigned its packaging to give it a more modern and upscale look, and this move was linked to an upsurge in sales. Finally in March 1992 Quaker announced that a Boston investment firm, Thomas H. Lee Company, was buying Ghirardelli. Terms of the deal were not made available, but later disclosures put the price at around $40 million. Annual sales had grown to about the same amount by the early 1990s, though industry watchers also noted that Ghirardelli faced harsh competition from other large chocolate producers such as Hershey and Nestle. Thomas H. Lee controlled a slew of consumer products manufacturers, including the General Nutrition Companies, Playtex Family Products, and others.

Company Perspectives:

Founded in 1892, Ghirardelli is one of the oldest and most venerable chocolate makers in the U.S. Ghirardelli focuses on high product quality and maintains a leading position in the rapidly growing premium chocolate segment of the U.S. market.

Thomas H. Lee held on to Ghirardelli for only four years. Ghirardelli’s president and CEO was Jack Anton, who had led the Thomas H. Lee investment group in the takeover of the company. Anton oversaw great growth in the company’s sales during this time. Ghirardelli began opening retail shops, in an effort to find a new market. It had three soda fountain and chocolate shops in San Francisco, and in 1994 Ghirardelli announced it would open more such stores in upscale retail venues in other cities in California and in Chicago. Retail sales accounted for only about 15 percent of the company’s total sales, but it seemed the area open for the most growth. Ghirardelli also worked on expanding its presence in grocery stores with branded baking products such as cocoa and chocolate chips. While the company was owned by Thomas H. Lee, its branded products surpassed industrial products in percentage of total sales. By 1994, around 60 percent of total sales were in the branded products division. Total annual sales rose from $37 million in 1992 to about $75 million just two years later. The company pushed to get its products in more grocery stores and other retail outlets in major markets, particularly in big cities in the Northeast and Midwest. In November 1994, Ghirardelli announced that it had forged a distribution deal with the Sam’s Club food chain, a grocery chain owned by Wal-Mart. This move helped Ghirardelli reach a national market. By 1994, almost half the company’s sales were in markets east of the Rocky Mountains, up from just 20 percent when Thomas H. Lee first acquired Ghirardelli. Ghirardelli had also boosted growth by doubling the number of products it sold, making 125 different food items by 1994. It marketed its baking goods in supermarkets by setting up displays, a recipe center, and a toll free customer support line. With increased marketing and distribution, its grocery sales grew at 50 percent annually in the early 1990s.

In 1996 CEO Anton bought out Thomas H. Lee Company with the help of a Dallas investment firm called Hicks, Muse, Tate, & Furst, Inc. Hicks, Muse was called “one of the most successful LBO [leveraged buyout] artists in the country” by Business Week magazine in a July 1, 1996 article. The firm specialized in a “buy and build” strategy, where it bought up small companies in related areas and ran them together. Other food companies it owned in the mid-1990s were Campfire marshmallows, Chef Boyardee, Bumble Bee tuna, and Ranch Style beans. Hicks, Muse paid $65 million for Ghirardelli. Jack Anton continued as CEO, and kept the company on its growth course. Ghirardelli’s new chairman was C. Dean Metropoulos, who managed food acquisitions for Hicks, Muse. Hicks, Muse let it be known that it was satisfied with Ghirardelli’s present course, which had resulted in annual growth of about 13 percent a year over the past four years. Therefore, the new ownership did not constitute big changes for Ghirardelli. Rather, Hicks, Muse let the company go on with its expansion.

But the relationship with Hicks, Muse was also short-term. In January 1998, Ghirardelli announced that it had been acquired by the Swiss chocolate maker Chocoladefabriken Lindt & Sprungli AG. Jack Anton maintained his position as president, so despite the quick turnover in ownership in the 1990s, there was continuity in management. Lindt & Sprungli was a leading producer of premium chocolates in Europe. Its major markets were Switzerland, Germany, and France. Since 1993, the company had been on an expansion program, and its acquisition of Ghirardelli fulfilled its objective of increasing its share of the North American market. Lindt brand chocolate had more of a presence in the eastern United States than in the West, so its purchase of Ghirardelli gave it better coverage of the entire country. Lindt announced that it was pleased with Ghirardelli’s growth, which had averaged 20 percent annually over the five years preceding the sale, and did not anticipate making major changes.

Ghirardelli had sales of over $100 million by the time of Lindt’s purchase. It had grown impressively since Quaker let it go. In 1999 the company was still on an expansion track, working on increasing its presence as a national brand by getting more items on supermarket shelves. It rolled out bagged miniature chocolate squares in March 1999, and announced that it was coming up with more premium chocolate items soon, such as chocolate bars in velvet bags and specialty Christmas treats.