<
StockTalk
>
TMF Interview With Ben & Jerry's Homemade Inc. CFO Frances Rathke
December 17, 1998
With Brian Graney (TMF Panic)
Founded in 1978 in a renovated gas station in Burlington, Vermont by Ben Cohen and Jerry Greenfield, Ben & Jerry's Homemade <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BJICA)") else Response.Write("(Nasdaq: BJICA)") end if %> is today one of the country's top makers of super premium ice cream. The company's revenues through the first nine months of this year are up 20% year-on-year to $164.9 million, while the firm's share price has posted a 43.5% year-to-date advance. We spoke with Ben & Jerry's CFO Frances Rathke about the company's growth prospects and strategy for the future.
TMF: You sell some of your ice cream through your own retail outlets. I was wondering about the general growth strategy for that aspect of the business. Where do you expect that business to go in the future?
Rathke: Our scoop shop business right now makes up only a small percentage of our sales -- less than 10 percent. I think it's a very viable and successful way to market our product and ties in with our social [mission] in a much more human way in all the various markets. So, we've done a lot of work over the last years, really ensuring our model works well.
|
"We fundamentally believe people buy our product because it's the best product out there."
|
Right now, we have approximately 180 stores out there and we've been opening about 20 to 30 a year in the last years. And we're going to, in '99 and going forward, really rev that up to something like 60 stores a year. And we believe we have a great opportunity out there.
TMF: How do you choose which markets to enter with the stores rather than just selling ice cream through supermarkets and other retail outlets?
Rathke: Typically, what we like to do is, once again, to make sure that the store is successful as well as draw in more customers. We try to locate choice locations and really high-traffic areas around the country. We have identified certain markets where our brand has strong awareness, plus they make sense [by attracting] primarily tourists. We have those prioritized in what we call our retail operations group. And then when requests come in -- and we get tons of requests for people who want to be a scoop shop owner -- we match them up to our high priority locations and then work with people. We take the lead in terms of scoping out locations that we think make sense and then find the right match in terms of franchisee.
TMF: The big news out of Ben & Jerry's this year involved the decision to drop Dreyer's <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DRYR)") else Response.Write("(Nasdaq: DRYR)") end if %> as a distributor in favor of H�agen-Dazs as a distributor. How did this decision come about, if you could walk us through it?
Rathke: It wasn't a quick decision. This was something that was going on for years. There's a couple of factors that drove that decision. One is the fact that we had been getting more and more dependent on Dreyer's -- they made up about 60 percent of our sales in terms of selling to one customer. And we felt we wanted to be able to ensure that we didn't have that much sales in one person's hand to better control our destiny. That was one piece of it.
|
"So, I don't think there's room for another competitor in a big way, but I think where we see growth is, as we said, in new flavors and products."
|
Second, we are finding that more and more of our sales are being driven by out-of-home businesses like convenience stores and the Mom-and-Pops and other points of distribution. And Dreyer's does a very good job at the supermarkets, but we really needed to get better coverage in the smaller classes of trade. So, H�agen-Dazs has actually a very good system in that area of distribution, and we felt we could grow our business at a faster pace by allowing H�agen-Dazs to distribute our product in some of those classes of trade.
Third was the economics. I think under the H�agen-Dazs scenario or arrangement we're going to have better margins by selling through them, and we're going to do our own direct selling where we believe we need to control more of our [merchandising] in supermarkets and other classes of trade.
TMF: Isn't there some kind of inherent risk, though, having a main competitor -- actually maybe even your arch rival -- distributing your product?
Rathke: There is a risk definitely, but there's also a risk with selling to a Dreyer's or other distributors who are also manufacturers of competing items. And although we don't compete directly with Dreyer's brand or Edy's brand on the East Coast, I think it's just another product on their truck that you constantly have to be marketing yourselves, ensuring that you get the requisite space you deserve. So, like I said, the arch rival thing is a factor that we're going to have to ensure that we keep on top of.
But H�agen-Dazs right now is acting as a delivery agent for us. They're not acting as our sales force. So, it gets back to in the liquor trade -- H�agen-Dazs is owned by Pillsbury, which is owned by Grand Met [now Diageo <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DEO)") else Response.Write("(NYSE: DEO)") end if %>]. Grand Met is very big into the liquor business and that's how liquors are distributed -- on one truck [are] competing brands.
TMF: How are your distribution arrangements set up? Are the distributors paid a certain amount of Ben & Jerry's revenues or the baseline earnings or something else?
Rathke: A distributor buys products from us at a certain list price.
TMF: So it's more like a wholesale arrangement?
Rathke: Exactly.
TMF: You recently started a new marketing effort, including a new radio campaign. How important is the issue of your brand name compared to the price issue in the ice cream business? What have you found is a successful way to promote your brand?
Rathke: We compete in the super-premium end. We fundamentally believe people buy our product because it's the best product out there. It's very unique, the flavors. You can't buy it in the premium segment or in the regular ice cream class. I think if you really want Chunky Monkey, we're the only place you can get it. And we feel to consumers it's a very small luxury -- it's only $3 or $3.20 a pint, so for some a purchase is much more for an indulgence treat for yourself versus a staple in your freezer.
|
"We've done a lot of research about our brand and I think our awareness is very, very high. People know about Ben & Jerry's. They love the company."
|
We also don't promote our product that often as being a super-premium because people don't really go in a store just to buy super-premium on [a price] deal. They really go for the uniqueness of the flavor and to have a real indulgence luxury.
TMF: How do you get more profits out of a company like Ben & Jerry's down the road? I know you have your "caring capitalism" view that's very much against laying off workers. So, would it be just price increases that's going to drive profitability down the road?
Rathke: Our top line is up about 20 percent this year. That's not really due to price increases. That's due to new business development as well as even something in a mature market like the United States where super-premium is well established as well as our brand; we have seen phenomenal growth this year.
Why is that happening? I think because of our unique flavors. The radio helped. We revved up our radio campaign this summer from four markets last year to about 12 to 14 this year. I think it's allowed people to hear in their head, "Oh, yeah. I love Ben & Jerry's. I love the company. I'm going to go out and buy it." I think it really drove sales this year.
So, I think we have a lot of growth. Our strategy is to improve our profitability at a better rate than our increases in sales and that's due to the fact that we have excess capacity. So, for every new pint we can sell, it helps fill up the plant and that helps improve our margin. Beyond that, we plan to grow internationally this year. We entered Japan. We're exporting our product, so that helps fill up the plant as well.
TMF: That's what I was going to ask about -- the international expansion. How do you see that really driving revenues over the next 10 to 15 years? Is that where a larger portion of Ben & Jerry's revenues is going to come from?
Rathke: I think international is definitely an engine for growth, but I think we also see definitely still room for growth domestically with new products and swift service.
TMF: Do you think the market domestically for super-premium products is completely saturated or do you think there may be more competitors that will enter in the next 10 or 15 years?
Rathke: I think right now it's really a two-horse race. It's H�agen-Dazs and Ben & Jerry's. There have been a [smattering] of competitors come in but they haven't been able to gain enough clout on a national level and they've ended up sort of being a flash in the pan, year-to-year kind of thing -- you get one in there, then they sort of fall out the next year.
So, I don't think there's room for another competitor in a big way, but I think where we see growth is, as we said, in new flavors and products. From a supermarket standpoint, our category is a very profitable business for the supermarket owner as well as the small class of trade owners, the convenience stores and the Mom-and-Pop. So, I think as the price wars continue on the other side of the ice cream business we will be able to educate and explain why we deserve more shelf space out there.
TMF: Are there any attempts to get into other premium product categories, such as different food items, or is it pretty much ice cream all the way?
Rathke: We've done a lot of research about our brand and I think our awareness is very, very high. People know about Ben & Jerry's. They love the company. They respect the company. They know it's fun and funky and has great flavors and top quality. We believe that can translate successfully into other categories of frozen desserts.
TMF: Your social mission is very well known. My understanding from your website was that you give away 7.5 percent of your annual pre-tax earnings to charities and your own foundation. How have shareholders responded to your social activity? Do they really perceive it as a benefit or a hindrance to shareholder returns?
Rathke: I believe, from day one, this is how the company was founded. So, prior to going public, we already had a foundation and social initiatives embedded in the company's philosophy and vision. So, when we did go public and the investors read our prospectus, I think they understand the intrinsic value of the fact that we're a company that does good that also translates into consumer loyalty. Therefore, I think it's not perceived as a hindrance as much as an enhancement or part of the brand image.
TMF: Great. That about does it for my questions.
Related links:
Got an idea for StockTalk? Who would you want us to interview and what should we ask? Drop us a note at [email protected].
<% =headlines %>
|