Raising The Bar
This article appeared in IMPO's May 2013 issue.
Hearthside Food Solutions is a young company with deep roots. Co-founded in 2009 by a group of investors led by Hearthside Chairman and CEO Rich Scalise, the company strives to be the largest and best contract manufacturer of snacks in the country. With its headquarters in Downers Grove, IL, and several processing facilities in Grand Rapids, MI, Hearthside Food Solutions boasts a network of 13 processing facilities across the country.
Scalise and his investors “saw an opportunity to create a company with greater access to capital,” according to Brian McNamara, Vice President of Sales and Marketing. The company was founded in the wake of Peanut Corporation of America’s massive recall, and Scalise and Hearthside’s new owners saw an opportunity to create a contract manufacturer with a keen eye on food safety.
So in April 2009, Hearthside opened for business, buying four operating snack manufacturing facilities from the Roskam Baking Company in Grand Rapids, MI. McNamara calls it a “shotgun start,” with over 2,000 employees “right out of the gate.” Roskam’s primary focus was on granola and cereal bars, which still make up a large portion of Hearthside’s product portfolio.
Thirteen months after Hearthside’s initial acquisition, the company purchased two additional businesses, including a cereal and granola processing facility from Golden Temple in Eugene, OR, and the Consolidated Biscuit Company in McComb, OH, which specializes in cookies, crackers, and baked bars. The acquisitions tripled the size of the company.
Hearthside Food Solutions has continued to grow and now operates 13 processing facilities across six U.S. states. The latest acquisition brought Hearthside back to Grand Rapids, where the company has added a fourth Roskam facility to its stable.
With the exception of the Golden Temple acquisition, all of the Hearthside Facilities are involved in the company’s primary focus, which is co-manufacturing bar and snack products for what McNamara calls “premier food companies.”
“We’re building a company and consolidating in these categories — baking, cookies, crackers, bars,” says McNamara. “Companies look to co-manufacturers. Small companies look to us because they don’t have the resources to launch and commercialize products. Big companies do it due to the potential complexity of a product or in categories where the cycle of innovation is such that they’d be continually investing millions of dollars every year to bring the product to market. We built a company in these categories that had the scale for the premier food companies to bring their ideas to market.”
McNamara estimates that Hearthside currently has over 100 contracts that govern their business, with 80 to 85 percent of the business devoted to contract manufacturing. When acquiring new businesses, in many cases Hearthside also acquired the clients previously contracted with the facilities being purchased.
McNamara says the contract manufacturing process “really varies by customer and by project.” Some clients approach Hearthside with recipe and instructions in hand. Others rely on a development partnership with Hearthside to help create a finished product that meets expectations.
Hearthside employs what McNamara calls “resident bar line wizards,” who are able to work on the line with customers to “tweak and fine tune formulations” before they go into full production. Hearthside operates a product development lab in McComb that has the capability of handling all the lines and products made in all the Hearthside plants across the country. In addition to the R&D facility, the company has added a smaller bar test line inside one of its Grand Rapids facilities and a small R&D facility in Eugene.
McNamara sees real growth in this area of the food industry “as people look to where they want new ideas for products to come from. A co-manufacturer might have as well-developed an R&D team as a traditional manufacturer. That’s evolving.”
Contract manufacturing presents challenges beyond meeting customer demands and supplying the R&D necessary to keep customer products at their finest. Occasionally, when customers see greater than expected success with products processed in co-manufacturing facilities, the companies will eventually choose to process the products themselves, as the cost of employing the technology to do so is overshadowed by the savings generated from processing the products themselves. Though the contract itself, which specifies terms such as length of agreement, provides a certain level of stability to the contract manufacturing business, the ability for food companies to opt out when the contract is up can create a less predictable revenue stream for contract manufacturers.