Hickory Farms, Inc.

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Hickory Farms, Inc.

1505 Holland Road
Maumee, Ohio 43537
U.S.A.
(419) 893-7611
Fax: (419) 893-0164
Internet: http://www.hickoryfarms.com

Private Company
Incorporated: 1960 as Hickory Farms of Ohio, Inc.
Employees: 2,300
Sales: $160 million (1995 est.)
SICs: 5499 Miscellaneous Food Stores; 5147 Meats and Meat Products; 5143 Dairy Products; 7331 Direct Mail Advertising Services

Once the nation’s largest specialty food retailer, Hickory Farms Inc. has been called “Middle America’s gourmet.” While the company’s chain of mall stores and kiosks specializes in summer sausage, cheeses, candies, fruit baskets, nuts, and specialty meats and seafood, an increasing emphasis on mail order marketing characterized the early 1990s. Founded in Toledo, Ohio in the late 1950s, Hickory Farms went public in 1970 and was acquired by General Host Corp. in 1980. After two decades of unabated growth, Hickory Farms suffered two consecutive annual losses under its new parent. The chain was then spun off to a management-led investment group in 1987, and it remained privately-held into the,mid-1990s.

Post World War II Origins

The roots of Hickory Farms stretch back to the late 1940s, when Richard Ransom and his cousin Earl Ransom started a produce business in Sandusky, Ohio, known as Dick’s Markets. Seeking a business to even out their highly seasonal work, the cousins casted around for new opportunities. Convinced that there was demand for old fashioned wheels of Swiss and cheddar cheeses like those they remembered from their youth, they tested their idea in a small booth at a 1950 home show in Toledo. That first booth was so successful that the partners began licensing two-person crews to set up kiosks at local and regional fairs around the country. They soon added a four-pound, two-foot-long smoked summer sausage dubbed the “beef stick” to their product line, and renamed their business “Hickory Farms” after the hickory-smoked sausage. By 1959, Hickory Farms was selling 1.5 million pounds of beef stick via over 250 temporary booths as well as mail order. By 1964, the company claimed to have booked more booth space at fairs and exhibitions than any other business in the world.

The Ransoms established their first retail outlet in Toledo in 1959. The company fostered a country store image with store-fronts modeled after a red barn and friendly staffers wearing red and white checked shirts and denim skirts. Heavy sampling of sausages, cheeses, and jams was the order of every day. Richard Ransom, who quickly emerged as the company leader, put a great deal of stock in this marketing method, saying, “We think we have the finest products on the market and the best way to get people to agree with us is to give them a sample.” Ransom positioned sample displays in the doorways of his store to attract customers, then offered free coffee to keep them in the store for an extended period of browsing, tasting, and, it was hoped, buying.

Hickory Farms opened its first franchised store outside Toledo in 1960, the same year the company was incorporated. The stores quickly evolved into “seasonal monsters.” In Hickory Farms’ case, 40 percent of its sales were made during the fourth-quarter gift-giving holiday season, when its annual balance sheet traditionally went from the red to the black.

Chairman and chief executive officer Ransom earned a reputation as a strict manager with rigid standards and “Prussian discipline,” known for his “obsessive” control of—and support for—franchisees. He insisted on tight controls because, as he told Marketing Magazine’s Steve Blickstein in a June 1972 interview, “the public can get along without our product very well.” Ransom charged a low initial franchise fee, then collected five to six percent of each outlet’s weekly gross sales. He insisted on standardization, asserting in the Marketing Magazine interview that “A successful franchise is nothing more than the continuation of a good idea. It’s a repetition of success that eliminates excuses for failure.” Ransom was especially sold on the power of promotion, requiring each franchise to invest at least five percent of its gross sales on advertising, asserting that when “advertising goes down, sales go down. It’s that simple.” He gauged each store’s success according to weekly sales reports.

Ransom’s rigidity notwithstanding, Hickory Farms franchises were so highly sought-after that the CEO stopped “selling” them in 1965, when he said he started “granting” them. The chain achieved rapid growth by encouraging its franchisees to own more than one store. Hickory Farms had 57 retail outlets by 1965, and opened its 100th store just three years later. The parent company’s revenues exceeded $3 million by the late 1960s.

Highly Successful 1970s Give Way to Dismal 1980s

Hickory Farms’ 1971 initial public offering launched a decade of rapid growth, when annual revenues multiplied tenfold. By 1975, franchising had enabled the chain to grow to over 300 units in 43 states and Canada. Although the franchise strategy had encouraged growth without significant capital expenditures by the parent company, Ransom sought to retain more profits in the corporate coffers by acquiring franchises and establishing company-owned stores. By late 1977, the parent company owned 60 outlets.

Ransom, who moved from president to chairman and chief executive officer in 1975, revived the booth idea that year, using small kiosks in malls to penetrate markets too small for a full-sized store and to supplement permanent store sales during the holiday season. Hickory Farms enjoyed an average annual growth rate of 20 percent during the decade. By 1980, the chain had over 500 stores, 80 of them company-owned. Chain-wide revenues grew from about $100 million in 1976 to over $164 million in 1979.

This phenomenal growth attracted a suitor at the dawn of the new decade. After an initial purchase of 15 percent of the chain’s equity, General Host Corp. acquired all of Hickory Farms from its founder and shareholders for a total of $40 million. The specialty foods chain became the most profitable subsidiary in General Host’s $750 million family, which included L’il General convenience stores, Hot Sam’s pretzel shops, and Van de Kamp’s Frozen Foods, among other holdings. Hoping to use Hickory Farms as the core of a successful food retailing group, the new parent acquired the new subsidiary’s largest single franchisee, Hickory Farms Sales, for $11 million. The 113-store addition brought the number of company-owned stores even with franchised units, at about 200 locations each.

But General Host’s hopes that the steady growth and high profitability enjoyed by Hickory Farms would be repeated throughout the conglomerate were not realized. Instead, Hickory Farms began to resemble its erratically profitable parent. Although it was “America’s best-known brand of specialty foods” and owned more individual stores than ever, the chain suffered back-to-back losses totaling $3.5 million in 1985 and 1986. Retail analysts blamed mismanagement, declining mall traffic, and increasing competition from upstart specialty foods sellers like HoneyBaked Ham, for the chain’s decline.

No matter what the causes, by 1986 General Host had decided to refocus on it subsidiary Frank’s Nursery and Crafts, the 157-store chain of gardening superstores it had acquired in 1983. Divesting its other interests, including Hickory Farms, took more than a year of fits and starts. Two deals—one with a management group and one with Nutrition World, Inc., a Chicago operator of specialty food stores—fell apart due to the acquirer’s inability to secure financing. Finally, in 1987, a group of managers and investors led by Robert DiRomualdo—who had succeeded Richard Ransom as president and CEO middecade—were able to garner the $51 million financing necessary to acquire their company. They paid $38 million for Hickory Farms, and used the remaining $13 million to get the company on its feet.

DiRomualdo was credited not only with returning Hickory Farms to profitability, but also with re-engineering it for new market realities. But after four years at the helm, he surprised the company’s employees and officers alike when he resigned abruptly and without comment in 1988. Hickory Farms brought in an outsider, Thomas Frank, to guide the company into the 1990s. The 47-year-old boasted two decades of experience with Kentucky Fried Chicken and Procter& Gamble.

The 1990s and Beyond

The Hickory Farms of the early 1990s was a much smaller operation than that of the early 1980s, with less than 200 full-sized stores total—less than half its peak number of outlets. As many longtime franchisees neared retirement age, the parent organization sought to boost the number of company-owned stores through acquisition. Hickory Farms purchased its largest remaining franchisee, Hickory Farms Northwest, in 1991, adding 14 stores in Washington and Oregon. Other smaller store purchases brought the total number of company-owned stores to over 100 and reduced franchised locations to 55 by 1992. CEO Frank also scaled back Hickory Farms’ packaging operations, closing plants in California, New York, and Oregon and consolidating that work at the Toledo headquarters.

Company Perspectives:

With a gift from Hickory Farms, you never have to worry about the correct size, color or fit because everyone loves great-tasting food! You can send a gift from Hickory Farms with complete confidence knowing your friends, family and co-workers will savor, share, and enjoy it … and appreciate your thoughtfulness. Hickory Farms: It’s the gift everyone loves to get!

Frank set out to revitalize Hickory Farms’ mall stores and simultaneously cultivate more vital marketing outlets. The new CEO established a National Training Center in Toledo to reem-phasize the service component that had always been so important to Hickory Farms stores. But recognizing the ascendance of catalog shopping in the harried 1990s, Frank also resurrected a mail order operation that had been phased out in the early 1970s. The company diversified from its traditional country style beef stick and cheeses through acquisition of several catalog operations in the early years of the new decade. In 1991, it bought Blue Diamond Growers’ Almond Plaza catalog business, which sold almonds and other nuts. The acquisition of Catalogue Marketing, Inc. a California-based division of Geo. A. Hormel& Co. followed in 1992. This purchase added Mission Orchards, a cataloger featuring premium fruit gifts; California Cuisine, a mail order gourmet food seller; and mail order meat gifts from Austin Street Market. In 1994, Hickory Farms acquired ConAgra Inc.’s ConAgra Consumer Direct, which included a mail order catalog business selling steaks and snacks. Renamed Catalog Marketing of Illinois, the ConAgra purchase also complemented Hickory Farms’ growing premium/incentive business, which sold gift packages used by employers to reward their employees. A site on the World Wide Web promoted these relatively new operations electronically. By the mid-1990s, Hickory Farms’ product line had burgeoned to include fresh fruits, sun dried tomato pesto, brie, steaks, seafood, and petit fours. By 1995, the chain’s estimated sales had nearly recovered to the high of $164 million recorded in 1979, with about 15 percent of the total coming from mail order marketing.