Silhouette Brands, Inc.

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Silhouette Brands, Inc.

100 East Highway 34, Suite 113
Matawan, New Jersey 07747
U.S.A.
Telephone: (732) 583-3005
Web site: http://www.skinnycow.com

Public Company:
Incorporated: 1994
Sales: $65 million (2002 est.)
Stock Exchanges: OTC
Ticker Symbol: SIHB
NAIC: 31152 Ice Cream and Frozen Dessert Manufacturing

Silhouette Brands, Inc., is a Matawan, New Jersey-based manufacturer of fat-free novelty ice cream products sold under the “Skinny Cow” logo. The company’s flagship product is its low-fat, ice cream sandwich, the only hand-made sandwich in the industry. According to Silhouette, hand-made ice cream offers better flavor retention because of its ability to be soft-served at higher temperatures. In addition, Silhouette offers Bongo bars, no-fat ice cream dipped in chocolate and served on a stick, low-fat and fat-free sundae cups, and fat-free fudge bars. Distributed by Dreyers Grade Ice Cream, Skinny Cow items are found in all 50 states and are available through some 150 supermarket chains in more than 18,000 stores.

Early 1990s Origins

Prior to devoting themselves to the low-fat ice cream business, co-founders Saverio Pugliese and Marc Wexler were involved in beer distribution and in the course of business came to know one another. Aside from beer, Pugliese also became involved in the low-calorie ice cream business, establishing a short-lived venture selling a product in the metropolitan New York market called Slender Delight. In the early 1990s, Pugliese attended a food show where he sampled a low-fat, low-calorie soft serve ice cream that he liked a great deal and became convinced that there was a market for it, despite the fact that years of disappointing diet ice creams and frozen yogurts had disenchanted a large number of consumers and crippled the category. At first, he arranged to go into business with the formulator of the mix but soon carried on alone with nothing more than the basic formula and belief in the product. He then went to Horseman Dairies in Queens, New York, to refine his soft serve recipe. Several months later, he and Wexler became closer friends after attending the Kentucky Derby together. Wexler shared Pugliese’s enthusiasm over the ice cream mix, and in 1992 the two men agreed to quit their jobs and go into the ice cream business full time. They scraped together $30,000 in funding, borrowing from banks as well as relatives, and began operating out of Wexler’s Matawan home.

At first, Pugliese and Wexler’s plan was to sell their soft-serve mix to ice cream and frozen yogurt shops, using the Silhouette brand name that the two men agreed upon. (For a graphic, they came up with a figurine that according to Pugliese looked like an “alien.”) Borrowing a van from Pugliese’s mother, the partners loaded up gallons of their mix and began to make cold calls at shops in the resort towns of the New Jersey Shore. The soft serve proved popular, and they slowly built up a solid base of customers in New Jersey and the New York metropolitan area. Nevertheless, the two men were still barely able to make a living. In order to expand beyond low-volume, mom-and-pop stores, they decided to develop and market a lowfat, low-calorie ice cream sandwich using their soft serve as a base. Through one of Wexler’s contacts from his previous job, they were introduced to a small factory located in the Greenpoint section of Brooklyn that specialized in novelty ice cream products. Wexler and Pugliese, through trial and error and numerous taste tests, settled on the right combination of soft serve and low-fat chocolate wafers. Once satisfied that they had a good product to sell, they produced a supply of ice cream sandwiches, which at first they called The Silhouette Diet Ice Cream Sandwich, and once again loaded up Mrs. Pugliese’s van, packed with dry ice, and began to make cold calls to delis and bodegas in the Upper West Side of Manhattan. Their pitch was simple: buy one case (six packages, with six sandwiches in each package), get one case free, no money up front, and the partners would return in a week to see if the items had sold. Invariably, the sandwiches did sell and the stores reordered.

Silhouette Brands Incorporated in 1994

In conjunction with the launch of a new product, in January 1994 Silhouette Brands was incorporated in the State of Delaware, with Wexler serving as Chairman and Secretary and Pugliese as President and Director. Judging by how well the ice cream sandwich sold despite the lack of any promotion, Wexler and Pugliese knew they had a terrific product, but they were still relegated to selling to mom-and-pop outlets. From their days selling beer, they knew that the key was to gain entry into supermarkets. Sihouette’s first major break in entering grocery channels came through a cousin of Pugliese who held a secretarial position with the Mel Weitz Food Towns 16-store, Long Island supermarket chain. She was able to arrange an appointment with the buyer, John Rowan, who was won over by the partners’ offer of four cases for the price of two. According to Pugliese, he and Wexler made their first delivery of Skinny Cow sandwiches to a Mel Weitz store in his mother’s beat-up van and were immediately intimidated by all the trucks of the major ice cream companies, a feeling only exacerbated when the sliding door of the van immediately fell off. Nevertheless, they made their initial delivery and took up as much shelf space as possible, much to the annoyance of the store manager. They may have lacked experience in the ways of supermarket distribution, yet three days later they were summoned to replenish the freezer case. Again, without promotion of any kind, in store or out, the sandwiches found eager consumers and were sold out.

While continuing to sell soft serve mix to yogurt and ice cream stores, Silhouette marketed its ice cream sandwiches for approximately two years before creating a logo to replace its crude “alien” graphic. The partners brainstormed for some time in search of a catchy name, and it was Wexler who was credited with coming up with the Skinny Cow name. In finding an appropriate graphic, the partners reworked its earlier figurine idea, which now turned into a thin cow wearing a bikini. It was ultimately refined into the company’s current logo featuring a cow standing in a model’s pose. During this same period of time, Silhouette was also able to gain entry into Key Food supermarket chains in Queens and Shop Rites and Dagastino’s in the New York metropolitan area, as well as Food Towns in the southern part of New Jersey. When the company reached the point that it was selling more cases of sandwiches a week than Wexler and Pugliese could deliver in their aging van, it had to find an alternate means of distribution. Mattus Ice Cream took on the product and began placing Skinny Cow in a number of other New York metropolitan grocery chains: Waldbaums, A&P, Gristedes, and Associated. The number of cases sold each week grew to 500. A significant reason for the growth of the company was due to members of Weight Watchers who spread the word about Skinny Cow sandwiches, a two-point snack on the organization’s point-counting diet system. The product developed a cult-like following among their dieters, creating word-of-mouth advertising that retailers can only dream about. To meet the growing demand for its products, Silhouette opened a small factory in Greenpoint.

The next major step in the development of Silhouette and expansion beyond the New York Metropolitan market was the move to a new distributor, Dreyer’s Grand Ice Cream, Inc., one of America’s top ice cream manufacturers and distributors. The switch to Dreyer’s was not without consequence, as Silhouette was forced to pay a reslotting fee with a number of accounts in order to secure space in grocers’ freezer cases. The resulting increase in sales, however, more than covered these initial costs. Sales immediately jumped from 500 cases a week to 2000 and in a short period of time increased to 10,000. In the meantime, Silhouette was entering new markets at a steady rate, carried by major supermarket chains around the country: Randalls in Texas, Farm Fresh in Virginia, and Jewel in Chicago. According to Pugliese, Dreyers was somewhat reluctant at first to aggressively push Skinny Cow into many of these markets and required some prompting from Silhouette’s founders. The Weight Watcher’s phenomenon continued to grow, fueled to a large degree by Internet discussion boards where Skinny Cow ice cream sandwiches were praised and all but revered. As Silhouette continued to add new customers at an accelerating clip, Dreyers became equally enthusiastic about expanding into new markets. Because its growth outstripped the production capacity of its Brooklyn plant, Silhouette entered into a co-packing arrangement in 1998 with Mr. Cookie Face, Inc., a Lakewood, New Jersey, maker of ice cream novelties that operated a state-of-the-art manufacturing plant. Silhouette’s sandwiches were hand served, its Bongo bars hand dipped, and both hand packed by the manufacturer. Quality was maintained by weekly product tests conducted by Mr. Cookie Face personnel.

Annual sales grew from $600,000 in fiscal 1997 to $1.8 million in 1999 and more than $5.5 million in 2000. In the meantime, family members who had lent money to Wexler and Pugliese were repaid, a fact that Wexler told Newark’s The Star Ledger he was especially proud of. To help support the growth of the business, Silhouette next began to develop a varied line of ice cream sandwiches, adding such traditional flavors as chocolate and strawberry, as well as coffee, mint, and chocolate-peanut. In 2000, Silhouette began to test market in New York a caramel flavored sandwich, “Dulce De Leche.” It also offered combination packs of chocolate and vanilla ice cream sandwiches, vanilla and coffee, vanilla and strawberry, and vanilla and mint. In addition, Silhouette developed and introduced entirely new ice cream novelty products. The first was the Bongo ice cream bar, launched in 1998, which came in two versions: vanilla ice cream dipped in reduced-fat milk chocolate and chocolate ice cream dipped in reduced-fat dark chocolate. The item was packaged three to a box. Bongo bars were so successful that in fiscal 1999 it accounted for roughly 28 percent of Silhouette’s total sales.

Company Perspectives:

Silhoutte Brands is devoted to satisfying the desires of health conscious consumers by providing them with the best tasting, guilt-free alternatives available in the entire ice cream industry. We are dedicated to manufacturing the finest low-fat and fat-free ice cream items.

Wal-Mart Distribution Deal in Early 2000s

In 2000, Silhouette entered into distribution deals with a number of major American supermarket chains, including Eagle Food Centers, Genuardi’s Family Markets, H-E-Butt Grocery Co., and Stop & Shop Supermarkets. By the end of the year, Skinny Cow products were sold in over 3,500 stores, and of that number some 2,100 were locations added in the year 2000 alone. In July 2001, the company announced its most important distribution agreement when it was authorized to sell its ice cream sandwiches to nearly 1,000 Wal-Mart Supercenters located throughout the country. Two months later, Dreyers was able to take Silhouette in depth into the Seattle market, gaining access to 115 Safeways, 79 QFC stores, 25 Brown and Cole Locations, and 21 Haggen stores. The year-end results for fiscal 2001 reflected Silhouette’s rapid growth, with revenues increasing from $5.5 million in 2000 to more than $27.7 million in 2001, while net income increased from $129,218 to $433,658. Less successful during this period was the company’s attempt to license its name for a store in Rockville Centre, named the “Silhouette Café,” with Wexler and Pugliese each owning a 25 percent stake in the business. The concept did not work and the store soon closed.

By the start of 2001, Silhouette’s Skinny Cow products were found in 18,000 stores located throughout all 50 states, which represented a quantum leap over the 3,500 stores that distributed Silhouette just two years earlier. In spring 2002, the company launched two new products to further stimulate sales, which were already growing at an impressive rate. One was a four-ounce, fat-free ice cream chocolate fudge bar. The other was a five-ounce sundae cup, which came in low fat and fat free varieties and two flavors: vanilla ice cream with strawberry topping or chocolate ice cream with a chocolate fudge topping. Business was so good for Silhouette in 2002, in the midst of a troubled economy, that sales more than doubled over the previous year, reaching $65 million. The company was now shipping 60,000 to 65,000 cases of its products each week. Moreover, the cases now carried twelve units instead of six, further emphasizing the company’s rapid growth since the mid-1990s, when reaching weekly sales of 2,000 cases containing six units represented a major milestone.

Silhouette played a significant role in revitalizing the low-calorie, low-fat category of novelty ice cream products, which had suffered from years of poor tasting items on the market. Now larger, well financed companies were entering the sector with better products, poised to provide Silhouette with stiff competition. According to Dairy Foods, the frozen novelties category offered the greatest opportunity for growth in the frozen dessert market, worth in excess of $20 billion each year, of which 25 percent consisted of frozen novelties. With a solid brand and a strong presence in the marketplace, Silhouette appeared well positioned to continue its impressive growth. Innovation was the key to the future of the category, and the company was pursuing a number of new ideas. In 2003, it introduced single-pack ice cream sandwiches and single-pack fudge bars in the Walgreen’s drug store chain. It was also looking to roll out a fat-free Cookies and Cream ice cream bar. From its early years, Silhouette had sold shirts, but now on its Web site it began to market other Skinny Cow branded merchandise, such as bags and coffee mugs. It was the development of new frozen novelty items, however, that would be the key to future growth. In an April 2003 interview, Pugliese talked about the possibility of a Skinny Cow milk shake but was reluctant to talk about any other products in the pipeline.