Utz Quality Foods, Inc.

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Utz Quality Foods, Inc.

900 High Street
Hanover, Pennsylvania 17331
U.S.A.
Telephone: (717) 637-6644
Toll Free: (800) 367-7629
Fax: (717) 633-5102
Web site: http://www.utzsnacks.com

Private Company
Incorporated: 1921
Employees: 1,800 (2004)
Sales: $235 million (2003 est.)
NAIC: 311919 Other Snack Food Manufacturing

Utz Quality Foods, Inc., is one of the leading makers of potato chips in the United States and also produces other salty snacks such as corn chips, pretzels, popcorn, and cheese curls. Utz products are distributed to more than a dozen states on the East Coast and via the firm's Web site. The company is owned and managed by descendants of founders Bill and Salie Utz.

Early Years

The beginnings of Utz Quality Foods date to 1921, when William Utz of Hanover, Pennsylvania, decided to quit his shoe factory job and go into the potato chip business. Utz and his wife Salie, a skilled cook in the "Pennsylvania Dutch" style, felt they could make a better-tasting chip than other producers in their area, and they invested $300 to buy the necessary equipment. Working at first from a small outbuilding behind their home, the Utzes were able to produce about 50 pounds of chips per hour, which they began selling under the name Hanover Home Brand Potato Chips.

With Salie doing the cooking, Bill Utz delivered the chips to stores and farmer's markets in the Hanover and Baltimore, Maryland areas. As sales grew, production was moved into a room in their house, and then to a new cement block building in their backyard. In 1936, the Utzes dramatically boosted production by buying an automatic fryer that could produce 300 pounds of chips per hour. Their small plant's capacity was soon outpaced by growing sales, and over the next five years it was expanded until it had nearly doubled in size.

After World War II, sales continued to grow, and in 1949 a larger plant was built on ten acres in Hanover. Like its predecessor, it would see numerous expansions over the ensuing years. Management of the firm was now being handled by Francis Xavier "F.X." Rice, a business school graduate who had married the Utzes' daughter Arlene. After the deaths of Salie Utz in 1965 and Bill Utz in 1968, F.X. Rice became president of the firm.

The early 1970s saw Utz purchase another plant in Hanover, which was soon renovated. The firm began making pretzels in 1971 and several years later added popcorn. In 1976, the company built a third plant in Hanover, which boosted potato chip production to 7,000 pounds per hour.

Utz now had the best-selling chip in south central Pennsylvania and Baltimore, Maryland, and during the 1970s the firm's territory was expanded to include the rest of Maryland, Washington, D.C., Delaware, Virginia, and West Virginia. In 1978, F.X. Rice retired, and his son Michael took over the job of president, with Arlene Utz Rice serving as board chairman.

Major Expansion Completed in 1983

In 1980, the firm broke ground on its largest building project to date, the expansion of its newest plant into one of the most modern snack food manufacturing facilities in the United States. Completed in 1983, it would house the firm's administrative offices as well as most manufacturing and distribution operations. By this time, Utz route salesmen had begun using handheld computers to record daily sales for transmission to headquarters, and the firm's potato chips had been rated the best-tasting in the United States by Food & Wine magazine.

In 1983, the company also bought equipment to produce a new line of "hand-cooked" potato chips, whose crunchier texture and stronger taste had begun to find favor with the public. Over the next few years, the firm's plants were expanded yet again to house more chip fryers. In 1986, production of cheese curls began, to be followed by corn and tortilla chips. With annual sales growth averaging 13 percent, by 1989 the firm's output had increased to 500,000 pounds of chips per week.

Production of potato chips was a straightforward process. Potatoes, largely sourced from farms in the region, were either used fresh or stored until needed in underground cellars with a capacity of 40 million pounds. After being run through peeling and washing machines, workers cut off bad parts as they passed along a conveyor belt to a high-speed centrifugal slicer. There, they were cut into slices (.055 inches thick for plain chips or .062 inches thick for rippled ones) before being fried at 390 degrees in cottonseed oil. They were then conveyed past a salter or machines which dispensed flavorings like Bar-B-Q or Sour Cream and Onion before being sealed in flexible bags and boxed for shipment. The public was allowed to view the production process on a factory tour that was offered each weekday.

The firm used different methods for each type of snack it produced. Grandma Utz's Handcooked Potato Chips, for example, were cooked in three bathtub-size fryers in boiling lard that was agitated by an employee with a sanitized garden rake to keep the chips from sticking together. After six minutes they were removed, hand-salted, and packaged.

The firm had worked over the years with horticulturists to develop strains of potatoes that were ideal for chip-making. Round, rather than oval, ones were preferred, as less was wasted in peeling. Moisture and sugar content were also important, and these too had been optimized.

Byproducts of Utz's manufacturing process included potato peelings, which were sold to animal food producers, and starch, which was converted to a slurry and sold to paper manufacturers. The firm had also recently begun to recycle its unsold past-date chips by turning them into animal feed.

Pretzel Sales Surge in the Early 1990s

Utz was now seeing a dramatic increase in pretzel sales, which by 1991 had come to comprise nearly 10 percent of total revenues, following several years of growth by 20 percent annually. Factors boosting demand included low fat content and price, which was roughly one-third less than other salted snacks. To keep up, by the summer of 1992 Utz was baking pretzels around the clock. In August, the firm added a third pretzel oven, which doubled production, but sales continued to rise, and additional ones came online over the next several years.

By the mid-1990s, Utz employed over 1,000 and had annual sales estimated at more than $100 million. In 1996, the company added a new distribution warehouse, which it would subsequently expand.

Utz products were now being sold in seven Mid-Atlantic states and were especially popular in Baltimore and Washington, D.C., where the firm's potato chips had a 40 percent market share. The company used a variety of promotional techniques, including advertising, giveaways, and in-store displays, and in early 1996 a billboard in New York's Yankee Stadium began to feature the Utz logo, replacing that of rival chipmaker Bon Ton Foods. The move was made by a regional distributor which controlled the sign and had recently dropped the Bon Ton account in favor of Utz. To keep up with its steady growth, the firm was once again in the process of modernizing all three of its plants.

In January 1998, Utz sued the University of Maryland after that institution barred its products from campus and removed its advertising signs from sports arenas. The school had recently signed an exclusive contract with Pepsico, Inc., whose Frito-Lay unit's brands would replace Utz products on campus. Utz was in an ongoing struggle with the dominant Frito-Lay, and worked to distinguish itself with moves such as creating regionally popular varieties like Crab Chips or by gaining Kosher certification for all of its regular potato chips, which helped boost sales in cities like New York, which had a large Jewish population.

Beginning in 1996, Frito-Lay had begun marketing potato chips fried in Procter & Gamble's olestra, an oil that was not absorbed by the body and thus resulted in a lower calorie count. Though the Wow! line did not prove as big a hit as anticipated, in large part because of a government-required label warning about potential digestion problems, in 1999 Utz introduced an olestra chip of its own. Yes! chips, with half the calories of traditional ones, were offered in regular, ripple, and Bar-B-Q varieties.

The year 1999 also saw the firm begin using UtzFocus, a Web-based data tracking system that allowed it to analyze sales down to the single store, which helped boost the efficiency of its distribution force. The company had recently created a public Web site as well, which offered information about its products and allowed visitors to buy them through the mail. Utz now employed more than 1,300 and had annual revenues of approximately $150 million.

In March 2000, Bill and Salie Utz's daughter Arlene Utz Hollinger died. She had served as board chairman until 1992. Family involvement remained strong, and several fourth-generation Utzes had begun working for the firm.

Utz Sponsors NASCAR's Rusty Wallace in 2001

The firm got a promotional boost in January 2001 when popular NASCAR driver Rusty Wallace began sporting the Utz logo on his car and uniform. Wallace was a fan of Utz chips and had approached the company about working on its behalf. He subsequently agreed to perform a variety of promotional duties for the firm. Chip varieties available at this time included Crab, Bar-B-Q, Carolina Bar-B-Q, Salt & Pepper, Onion & Garlic, Red Hot, Salt & Vinegar, Sour Cream & Onion, Grandma Utz's, Homestyle, and Kettle Classics. Annual sales were now estimated at $200 million.

Company Perspectives:

The steady growth of Utz Quality Foods is a reflection of Utz quality … in its facilities, in its products, and in its people. Together, effective management and a dedicated work force have provided the very best products to an ever growing marketplace for over 83 years.

Early 2001 saw introduction of russet potato chips. This potato variety produced a darker chip due to the caramelization of its higher sugar content. The firm was seeing strong growth in its old-fashioned kettle chips at this time, as increasing numbers of consumers sought a crispier, more flavorful chip. Utz was also selling more chips with spicy flavorings, while the low-fat product lines, including pretzels, were in decline. Sales climbed to $218 million during the year, boosted in part by a Consumer Reports magazine taste test that ranked Utz the best-tasting chip in the United States. The year had also seen Utz purchase a manufacturing facility and warehouse from Hanover Direct, Inc. for $4.7 million.

Moving to further increase sales in the New York metro area, in 2002 the firm hired Dircks Associates to design outdoor advertising that would be placed on 200 billboards in the city's five boroughs. Utz chips were now available in a total of ten states via 20 distribution centers. Its products were sold in a wide range of outlets, ranging from gas stations and small convenience stores to mass merchandisers like Wal-Mart and Costco.

In the summer of 2003, Utz was named the "Official Salty Snack" of the Philadelphia Eagles football team, and the firm introduced a special one-pound bag of chips bearing the Eagles' logo. The company's "Utz girl" logo would be displayed in the Eagles' ballpark, where its products would be sold by food vendors. Though only available on the East Coast, Utz was now the number three potato chip in the United States, behind only Frito Lay and store brands. Procter & Gamble's Pringles, while not a true potato chip, also had greater market share than Utz. For 2003, earnings hit an estimated $235 million, up 4 percent from the year before.

In February 2004, Utz acquired the New England distribution rights of Bachman Co., whose products would be distributed with Utz's all the way to Maine. The firm also began to make sweet potato kettle chips and reduced-carbohydrate baked crisps from soy flour. The latter product was introduced in response to the Atkins and South Beach diet crazes that were then sweeping the country. Followers of the low-carbohydrate diets shunned both potato chips and pretzels, each of which was high in carbohydrates. Development of a low-carbohydrate potato variety was in the works, but the public soon tired of the fad and many dieters began to return to carbohydrate-rich potato and grain-based foods by year's end.

For over 80 years, Utz Quality Foods, Inc. had experienced almost continuous growth. The firm's commitment to quality and its unbroken line of family management were both key factors in its success. Though operating in a highly competitive field, Utz's products commanded strong consumer loyalty, and the company's future growth looked to be a given.

Principal Competitors

Frito-Lay, Inc.; The Procter & Gamble Company; Snyders of Hanover; Herr Foods, Inc.; Wise Foods, Inc.; Bickel's Snack Foods, Inc.

Key Dates:

1921:: William and Salie Utz begin making and selling potato chips from their home.
1936:: A new automatic chip fryer boosts production six-fold.
1949:: A larger plant is built in the firm's hometown of Hanover, Pennsylvania.
1968:: F.X. Rice is named president of the company after father-in-law William Utz's death.
1970s:: The firm begins making pretzels and popcorn at a second Hanover plant.
1976:: A new, larger plant is built to house most of the company's potato chip production.
1978:: Michael Rice takes over as president from his father.
1983:: An extensive upgrade of the main plant is completed.
1980s:: Production of "hand-cooked" chips, cheese curls, and corn chips begun.
1990s:: Pretzel sales grow rapidly.
2001:: A new Hanover facility purchased; the firm sponsors NASCAR's Ricky Wallace.
2004:: Distribution is expanded to New England.