How does learning about such things help you as a CFO?
If you can facilitate getting that product to market cheaper, you’re going to have a competitive advantage. So I work with our purchasing and supply-chain folks on how to take advantage of the harvest, be first in line for the high-quality product, and get that product to our facility as fast as we can.
You seem to be all about efficiency, but then again, so are your customers.
Yes, we had one retailer complain that our truck took too long to unload. He said, “I’m paying somebody for four hours to unload this truck. I think it’s reasonable for me to pay them for one hour. Next month you’ve got to do it in less than an hour. Have a good day.” Seriously, that was the entire discussion.
We got our supply-chain folks involved, studied our approach, and identified what my kids call the “duh” factor. The way we had been loading the truck facilitated the operations of our warehouse rather than our customer’s warehouse. So we changed how we packed the truck to align with the layout of the customer’s warehouse. A month later we cut the unloading time from four hours to 45 minutes. And the next time that customer came to us and told us that we had a competitor offering a price that was lower than ours, we were able to [emphasize the value of] the entire supply cycle. You become a partner with that retailer because you’re not just talking about a product for a price.
What’s your biggest challenge?
Demand planning. For example, when we first launched “cocoa roast” almonds two years ago, we didn’t think it was going to be as successful as it turned out to be. We didn’t have enough cocoa. Cocoa doesn’t come from around the corner. Cocoa comes from out of the country. And we had to scramble like crazy to get enough to meet the demand. That’s a good-news situation. But when there’s demand there you want to meet it.
Recently, the demand for peanuts got to be so strong that we couldn’t source enough canisters for the peanuts. We went back to our supplier and it took steps that ultimately saved us, but for a period of time we were literally hand-to-mouth. We probably had eight hours’ worth of inventory of canisters.
You faced another sort of canister challenge as well.
Yes, all of our tree nuts are a tremendous hit in an 11-ounce opaque container with a three-walled internal construction, which gives you a longer shelf life. So when we began offering peanuts we packaged them similarly, and they flopped. The consumer has gotten used to buying peanuts in a 16-ounce clear jar — it’s a cheaper commodity, it’s a greater quantity, and people can see it. So we changed our packaging, and sales really took off. As we like to say in this company, we fail fast, learn, and move on.
Nuts used to be viewed as high-calorie snack food, but now they get a lot of press as a health food. Has that affected your business?
Absolutely. The trend to healthier fats has very much helped our business. Walnuts and almonds are high in Omega 3 fatty acids. We like to say it’s not a healthy snack, it’s a healthier snack. Certainly, given the current emphasis on in-home meals, putting some glazed walnuts or pecans on top of a salad or pasta is a great way to add some minerals and vitamins. You just don’t overdo it.
Given the vulnerability of nut crops to weather, do you hedge against that?
Unfortunately, on the nut side, there is no Chicago Board of Trade hedge. The way you hedge is to buy from a variety of sources. For example, we source walnuts from growers up and down California. So if there’s a drought in the south but not in the north, you’re covered; if there’s a frost in the north but not in the south, you’re covered. That I would call a self-hedge as opposed to a financial-exchange hedge.
With corn, on the other hand, our price derives from the price of No. 2 yellow corn on the Chicago Board of Trade. That price will float up and down, and you can buy corn futures out two years.
The other hedge that we have is in investing heavily behind our brands, which include Diamond Nuts, Emerald Nuts, and Pop-Secret popcorn. If we need to move prices up because Mother Nature did her thing, we’re able to move prices up. We’ve got good integrity with our retailers, and they know that when the market turns around, we take the pricing back down.