Tasty Baking Company

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Tasty Baking Company

2801 Hunting Park Avenue
Philadelphia, Pennsylvania 19129
U.S.A.
Telephone: (215) 221-8500
Fax: (215) 223-3288
Web site: http://www.tastykake.com

Public Company
Incorporated: 1914
Employees: 1,100
Sales: $226.35 million (1999)
Stock Exchanges: New York Pacific Boston
Ticker Symbol: TBC
NAIC: 311812 Commercial Bakeries

Based in Philadelphia, Tasty Baking Company is one of the country’s oldest and largest independent baking companies. A baker of individual snack cakes since 1914, the company manufactures and sells approximately 100 varieties of food products, including breakfast baked goods, single portion cakes, cookies, pies, brownies, snack bars, pretzels, and large family sized cakes and pies under the Tastykake, Dutch Mill, Aunt Sweeties, and Snak n’ Fresh brands. From three bakeries, Tasty distributes its products to supermarkets and convenience stores throughout the Mid-Atlantic states, where it is the leading producer of snack cakes. An aggressive national distribution program is seeking to position the Tasty brand as a leader in the Midwest, South, Southwest, West Coast, and the Hawaiian Islands, as well as in Canada and Puerto Rico. While the Tasty Baking brands reach a total of 47 states, Tastykake baked goods are still regarded as a Philadelphia institution, honored alongside such other distinctly local food treats as cheese steaks, hoagies, and scrapple.

A Strong Start in 1914

Tasty Baking was founded in 1914 by Philip J. Baur and Herbert C. Morris. Baur came from a German-American family in the process of selling its large Pittsburgh bakery, while Morris, a Boston egg salesman, was from a well-established Cleveland family. Together, Baur and Morris decided to develop small cakes, pre-wrapped fresh at a bakery plant before distribution to the local grocer, in contrast to the loaf cakes that were handled and cut into portions by the grocers under the unsanitary conditions of the time. Since the sale of the Baur bakery forbade any Baur to open a bakery within 100 miles of Pittsburgh, the two decided to make Philadelphia their base. They found a deserted, burnt-out plant in North Philadelphia with its own railroad siding and set up shop there.

On February 25, 1914, the Tasty Baking Co. was incorporated with capital of $46,000, half provided by Baur and his father, the other half from Morris’s father-in-law, Edward K. Sober. Baur was responsible for production, Morris for sales, and Morris’s wife came up with the name of the new product, Tastykake. From the onset, the company focused on using only the finest ingredients delivered fresh daily to the bakery. This included farm fresh eggs, Grade A creamery butter, real milk, cocoa, spices and natural flavorings. Sugar and flour were sifted by hand. The early cakes were produced in white, yellow, chocolate, raisin, molasses, and sponge cake varieties. After baking—at first in a single oven—the cakes were iced, cut into rectangles, wrapped, packed into boxes, and distributed to retailers who sold them for ten cents each. In its first year the company had impressive gross revenues of $300,000. By 1918, sales had reached $1 million.

By April 1915, Tasty Baking was serving stores as far away as Mt. Carmel and Reading, Pennsylvania; Trenton, New Jersey; and Wilmington, Delaware, as well as 13 Philadelphia routes. Morris would sell an agent only as many cakes as he thought that agent could sell within the two days between visits. The salesman replaced anything that had become stale with a new cake and took the stale one back to the plant, where it was destroyed. All business was transacted in cash. When this system broke down because the agents got behind on their payments, Tasty Baking decided to hire its own distributors and pay them a salary, commission, and car allowance. This arrangement remained in operation until the mid-1980s.

In 1922, Tasty Baking constructed a new, five-story plant on Hunting Park Avenue in North Philadelphia. Two additions were built within three years. The new plant led to new products: the Junior, a lemon sponge cake with icing on top; a chocolate cupcake; and the revolutionary Krimpet, a fingersized butterscotch sponge cake baked in a fluted pan. The latter two products sold two for a nickel and became the company’s best sellers. During this decade the Tastykake horse-drawn wagon was a familiar site on Philadelphia streets. Gasolinefueled trucks and electric cars and trucks were also used, and Tasty products moved by rail and ship to more distant areas, but the last horse was not retired until 1941.

By 1930 the Hunting Park plant had five buildings and 350,000 square feet of floor space. Annual sales had climbed to $6 million. A lunchbox-size square apple pie, called the TastyPie, proved a quick success. Newspaper advertisements, billboards, streetcar placards, and slides shown in movie theaters displayed Tastykake pastries or depicted children eating the products. The company weathered the Depression without layoffs by cutting its production costs. During World War II, Tasty Baking employed 203 people, and company advertising promoted the sale of war bonds.

The Kaiser Era: 1953-81

After Philip Baur died in 1951, his heirs purchased stock from the holdings of E.K. Sober’s daughter (Herbert Morris’s wife), giving the Baur family majority control of the private company. Vice-President Paul R. Kaiser became president, and Morris, who had served as president since the company’s inception, became chairman of the board. In April 1954, Kaiser was able to report that the Tastykake territory had grown to cover parts of nine states and the District of Columbia. By the end of the decade, annual sales had grown to nearly $22.9 million. Net income first passed the $1 million mark in 1955.

Under the slogan “Automate or Abdicate” Kaiser advanced a program of installing spiral metal chutes, powered conveyor belts, and auxiliary equipment. The baking cycle, which took up to 12 hours in 1935, was cut to as little as 45 minutes in 1956. Acquisition of a Battle Creek wrapping machine began an era of automatic wrapping. A larger and more modern laboratory was completed in 1956.

During the 1950s, Tasty Baking’s traditional customers, mom-and-pop retail stores, began to give way to supermarkets. Radio and television were replacing the company’s traditional reliance on billboards and posters. Moreover, Tasty Baking began sponsoring Philadelphia Phillies baseball telecasts, fea-turing commercials starring Joe E. Brown, Betty White, and Shari Lewis with her puppets. Over the next 25 years, the company extended its sponsorship to baseball’s Baltimore Orioles and Washington Senators, football’s Philadelphia Eagles and hockey’s Philadelphia Flyers, adding spokespersons ranging from musical impresario Dick Clark to Philadelphia sports heroes Bobby Clarke, Richie Ashburn, and Bill White.

As the factory’s neighborhood changed, the company sought to establish better public relations ties with the surrounding African American community. In 1960, a two-month boycott of Tastykake products, organized by 400 black ministers, ended after Tasty Baking agreed to add African Americans to its sales, clerical, and other positions. Moreover, the company chose organized the Allegheny West Foundation to rehabilitate housing, introduce new businesses, and support other forms of community development in its home of North Philadelphia. Over the years, Tasty Baking remained committed to neighborhood improvement and sponsored numerous rehab projects and new constructions benefiting the North Philadelphia community.

When Tasty Baking went public in 1961, its offered stock sold out the first day, the price rising immediately from $20 a share to over $27 per share. Officers and directors continued to hold nearly half the shares, however. In 1965, the company diversified for the first time by acquiring Phillips & Jacobs, Inc., a producer of industrial chemicals and wholesale printing supplies, for about $2.5 million in stock. The next year it added a Baltimore graphic arts supply business, a potato chip company, and a biscuit business. The following year it added Philadelphia and Atlanta graphic arts companies.

By 1968, Tasty Baking was serving 30,000 stores in 12 states. Sales in 1967, when net income was $2.8 million, reached $67.4 million, of which the baking operations accounted for 57 percent. Graphic arts accounted for 28 percent. The remaining 15 percent came from the acquisition of potato chip and pretzel manufacturers and three Ohio cookie distributors. The Baur family held 58 percent of the company’s voting stock by 1968, management held 12 percent, and the public held 30 percent.

In March 1970 Kaiser told a group of Philadelphia financial analysts that the Tastykake division was distributing 35 varieties of small cakes and pies to 28,000 stores in 12 states on a three-day-a-week basis. He also noted that the graphic arts division was supplying 17,000 items to the printing and allied trades in 14 states. The cookie-distribution companies were marketing a complete line of cookies, crackers, and biscuits to 4,000 retail outlets in Ohio and western Pennsylvania. Despite this expansion, the ratio of net profits to sales fell in 1970 for the ninth consecutive year; it was only 2.8 percent, compared to 5.8 percent in 1962.

Concluding that the potato chip and pretzel businesses were a drain on earnings, Tasty Baking sold them in 1970. In the same year, Tasty Baking expanded in a new direction by acquiring Larami Corp., a Philadelphia toy manufacturer, importer, and distributor. By 1972 the company’s ratio of net profits to sales had improved slightly, but in the recession year of 1974 it was down to 2.6 percent: $3.5 million in net income on net sales of $132.1 million. In 1976, when net income peaked at $6.7 million on sales of $157 million, Tasty Baking made an unwise $5.5-million acquisition of Ole South Foods Co., a frozen dessert manufacturer. Tasty eventually dissolved Ole South Foods in 1979; that year Tasty lost $2.2 million on net sales of $169.5 million—its first annual loss.

Company Perspectives:

Quality preparation: the key ingredient in Tasty’s growth.

Charting a New Direction: The 1980s

In 1981, Kaiser’s last year as chief executive officer, Tasty Baking charted a new direction. The aging population of the Mid-Atlantic states, he said, indicated “a decrease in the number of teens, and they’re the big snack and cake eaters.” The company introduced a chocolate-covered pretzel and also entered the breakfast food market with Danish pastries and muffins. Finger-shaped cakes and cupcakes were packaged singly to attract more unit sales in single person households. Tasty also entered agreements with distributors as far away as California. In a process learned from Ole South Foods, baked goods were frozen in Philadelphia, shipped under refrigeration, and thawed at their destinations. Larami Corp. formed a Hong Kong trading company to import premium non-toy gifts for direct-mail marketing by Tasty Baking.

Kaiser’s 28-year reign came to an end in April 1981, when dissident shareholders, upset by three consecutive quarters of losses, forced his resignation. Philip J. Baur, Jr., president of the Tastykake division and Kaiser’s brother-in-law, succeeded him as chairman of the board. Nelson G. Harris, the company president since 1979, succeeded Kaiser as chief executive officer. Under new leadership, Tasty Baking retrenched. In October 1981, the company retreated from two of its major expansion projects, selling the toy manufacturer Larami and withdrawing from all but eight of its new markets in 40 states. In an October 1981 New York Times article, Harris explained, “We went too far too fast. The problems of distribution and transportation became prohibitive, and there was the problem of not advertising aggressively enough.”

Although 1982 was a recession year, Tasty Baking halted a five-year decline in unit sales. Net income rose from $1.7 million in 1982 to $2.4 million in 1983 and $2.9 million in 1984, when net sales reached $222.4 million. Long-term debt was reduced from $19 million to $7 million. Tastykake distribution stabilized at 21 states, including California, where the company was sponsoring baseball’s San Diego Padres. (California was dropped in 1988, however.) Also during this time, subsidiary Phillips & Jacobs began serving the New York City market.

Tasty Baking reorganized its sales organization in 1985. While delivery persons had typically owned their own trucks and absorbed the cost of store returns, routes were now offered for sale to the driver-sales reps, who would become independent owner-operators of their territories. The company offered to finance the sales, with no down payment. According to Harris, the deliverymen “paid $50,000 or $60,000 and got something worth $110,000–$120,000…. We had 386 routes, and we sold them all. Today [in 1989] we have about 510 routes, and we’ve had 50 route splits.”

The sale of its routes raised $16 million for Tasty Baking and made drivers more dutiful in tending their accounts. Such dedication was essential to the company, because most Tasty products contained no preservatives or artificial flavors and thus had shelf lives as short as four days. Sales rose ten percent immediately. Meanwhile, Harris allotted more than $40 million to upgrade the Philadelphia plant. Between 1981 and 1988, Harris’ business strategy and initiatives resulted in revenues doubling to $264 million, while profits rose more than sevenfold, from $1.3 million to $9.5 million.

In 1989 Tasty Baking repackaged its Tastykake products in bright yellow instead of the traditional blue and white. The company also began a new line of cakes and pies, in flavors that changed monthly, and introduced a line of honey-graham cookies, called Tasty Bears, aimed at children aged six to 12. The following year the company introduced both Chocolate Royals, oversized cupcakes filled with chocolate mousse and topped with icing, and TastyLights, a low-fat cupcake. Finding that the former sold much better than the latter, leading division president Carl S. Watts concluded: “There’s a segment that may not want a snack cake every day. But when they do, they want it to be as indulgent as can be.” By the end of 1990, some 30 percent of Tasty’s bakery revenues were coming from products introduced since 1982, including Honey Buns and Pastry Pockets. Watts succeeded Harris as chairman and chief executive officer of the company in 1992.

Growth Through New Products: 1991-95

In 1991 Tasty Baking introduced its premium Gold Collection line. Several new products were introduced in 1992, including Tasty Mini Cupcakes, and lemon and jelly filled reduced-fat Krimpets cupcakes. That year carrot cake and chocolate chunk macadamia cookie cupcakes were added to the Gold Collection items. During 1993, new products included Dunkin’ Stix, Pound Kake, and Blueberry Mini Muffins. Also in 1993, the company spun off its printing supplies subsidiary, Phillips & Jacobs, to its shareholders, who received two shares of its common stock for every three shares of Tasty Baking common stock.

Key Dates:

1914:: Company is founded in Philadelphia.
1922:: A new, five-story plant constructed in North Philadelphia.
1951:: Baur family gains majority control of company, and Paul R. Kaiser becomes CEO.
1961:: Company goes public.
1965:: Company acquires Phillips & Jacobs, Inc.
1970:: Company acquires Larami Corp., a Philadelphia toy manufacturer, importer, and distributor.
1981:: Nelson G. Harris succeeds Kaiser, and expansion plans are curtailed. Larami Corp is sold.
1985:: Sales force is reorganized.
1989:: Tastykake repackages products and introduces new line of cakes, cookies, and pies.
1992:: Carl S. Watts becomes CEO.
1993:: Phillips & Jacobs is spun off.
1994:: Record launch of six new snack-cake products.
1998:: Company enters food service market.

In 1994, Tasty Baking launched a record six new snack-cake products. These included Kreme Krimpies, a crumpet-shaped, creme-filled sponge cake; Whirly Twirls, a chocolate roll cake with white creme filling and a dark chocolate coating; and P.B. Krunch, a crunchy wafer layered between strips of peanut butter covered with a rippled chocolate coating. The other three were seasonal products: Bunny Trail Treats, Sparkle Kakes, and Kringle Kakes, for Easter, the Memorial Day/Fourth of July period, and Christmas, respectively. St. Patty’s Treats were introduced in 1995 to complete the company’s holiday coverage. Thirty-four percent of Tasty’s snack-cake sales in 1994 came from Tastykake products that did not exist ten years before.

Stripped of Phillips & Jacobs, Tasty Baking had net sales of $142 million in 1994 and net income of $5.8 million from continuing operations. Its long-term debt was $10.3 million in July 1994. Officers and directors controlled about nine percent of the common stock, whereas institutions held 44 percent.

In 1995 Tasty Baking was selling its products in about 30 states. In addition to its approximately 25,000 retail outlets in the Mid-Atlantic states, it was selling through direct alliances with major grocery chains in the Midwest, South, and South-west. Cakes, cookies, and doughnuts sold for 25 to 69 cents per package, with family packages and jumbo packs ranging from $1.99 to $3.39. Pies, pastries, and brownies typically retailed for 69 cents apiece or per package. Three varieties of English muffins ranged from $1.49 to $1.69 per package. Customers could also order a variety of Tastykake gift packs by calling a toll-free number. By August, the company had acquired Dutch Mill Baking Company.

Also that year, responding to the growing fat-free and lowfat food market, Tasty Baking introduced a new line of eight low-fat snacks. Having failed at an earlier attempt, in 1989, to launch a line of low-fat products, the company spent nearly a year reengineering its product line to eliminate fat without compromising the taste of Tastykake.

Improving and Expanding Operations: 1996-99

In 1996 Tasty Baking stepped up efforts to improve its packaging facilities, seeking to ensure product freshness while increasing the speed at which its products could be boxed or packaged. Also during this time, Tasty Baking acquired a new bakery in Oxford, Pennsylvania, from competitor Keebler Co., and set about refitting it for the production of yeast-raised products, including Danish and sweet rolls.

Seeking to attract new customers and bolster sales, the company entered the lucrative dessert cookie market in 1997 by launching a premium line of chocolate chip and oatmeal raisin cookies. Packaged in 12-ounce boxes, under the brand name of Tasty Collections, the premium cookies retailed at $2.99. The company also introduced its Cream Bars, dark chocolatecovered chocolate cake with vanilla or peanut butter filling. With these new cookie entries and the popularity of its brand name, the company reasoned, it could carve out at least some portion of the then $3.6 billion cookie market. While Tasty Baking held 64 percent of the market for sweet cakes in the Mid-Atlantic states, Entenmann’s (a unit of Bestfoods) was the market leader of box-packed homestyle cookies.

Elsewhere, the company continued its expansion efforts. In August 1998, it began selling Tastykake products in the Chicago area. Also, recent deals struck with two distributors, Metz Baking of Deerfield, Illinois, and St. Louis-based Earthgrains Co. expanded the company’s distribution to 46 states. In November, Tasty Baking entered yet another market, food service. Through its Oxford facility, the company began selling breakfast foods (Danish pastry, bear claws, coffee, and donuts) in bulk pack containers to college cafeterias, hospitals, and large corporations.

In April 1999, Tasty Baking announced that it would begin offering family-sized packages of sweet baked goods, starting with eight varieties in its core marketing area. Expanding its market range into the dinnertime dessert menu, the move also reflected the company’s systematic buildup of product offerings to achieve maximum flexibility in a variety of eating markets.

By moving specifically into the dessert market, the company hoped to boost revenues, which had only experienced modest growth over the two previous years: 1.8% ($149.3 million) between 1996 and 1997 and one percent ($150.7 million) between 1997 and 1998. The company also hoped to effectively compete with Entenmanns’s bakeries and increase the productivity at its Oxford plant.

Sales, however, continued to be slow through midyear 1999. A new line of Classic Baked Goods had performed well; however, sales of the company’s core product lines were not as healthy. In a company statement, Carl S. Watts, Tasty Baking’s president and CEO, attributed the declines to “competitive pressures, combined with our recent realignment and discontinuance of routes in certain sales territories, excessive hot June weather, as well as our concentrated effort to bring promotional cost under more control, resulted in this decrease in gross sales.”

During this time, undeterred by sluggish financials, Tasty Baking entered the multi-serve pie market. Large eight-inch in diameter versions of Tasty’s four-ounce, single serve apple and lemon pie predecessors were initially introduced, with pumpkin pie set for debut in time for the holiday season. The company planned to make the Oxford plant more profitable and would eventually bake the larger pies at that facility, while continuing to produce the single-serve pies at Hunting Park.

The company’s 1999 fourth quarter results increased net sales. Initiatives taken by the company through the first three quarters of 1999 were credited, including improved profitability of route and national sales operations; restructure of promotional efforts; improved operating results from the bakery modernization program; and improved operations at the Oxford facility.

2000 and Beyond

Tasty Baking approached the new millennium boosting its sales opportunities through a national distribution venture with Aramark Corporation. By agreement, the Tastykake brand assumed “preferred vendor” status in Aramark’s Refreshment Services division. This enabled the Tastykakes product to be distributed throughout Aramark’s refreshment services system that distributed more than 1.5 million cups of coffee to 60,000 business and industry locations throughout the United States.

As market research had indicated that Tasty Baking needed to broaden its Classic Baked Goods line of family-sized cakes and packaged cookies, the company planned two extensions of the line: the Raspberry Danish Strip and Cheese Danish Strip. At least five more extensions, including Danish rings and cinnamon buns, were also planned. Again, the new marketing initiative was designed to capture market share from its chief rival, Entenmann’s.

New venues for Tasty Baking during this time were Wal-Mart stores nationwide, and Vons and Ralph’s Grocery stores in California. Moreover, the company looked toward the Hawaiian Islands, where it entered into a distribution agreement with Hawaii Baking Company, Hawaii’s largest baked goods supplier. In addition to introducing its traditional line of products in California and Hawaii, Tasty Baking planned to add a new product, Tropical Delights, cupcakes filled with tropical flavors such as papaya, guava, pineapple, and coconut.