1000 Italian Way
Excelsior Springs, Missouri 64024
Telephone: (816) 502-6000
Fax: (816) 502-6080
Sales: $189.3 million (1998)
Stock Exchanges: New York
Ticker Symbol: PLB
SICs: 2098 Macaroni & Spaghetti; 5149 Groceries & Related Products, Not Elsewhere Classified
We are a customer-driven company. Our customer-driven strategy means we are totally committed and dedicated to fulfilling the needs of our customers (and helping them grow their pasta business while we're at it!). This approach has allowed us to build long-term customer alliances with companies such as SYSCO Corporation and Sam's Club and other industry leaders in expanding sectors of the institutional and retail markets.
The second largest pasta producer in North America, American Italian Pasta Company (APIC) produces more than 80 dry pasta shapes, selling its pasta to supermarket chains, food processing companies, and food service companies. APIC produces pasta for private label brands and its own brand, Pasta LaBella. The company's manufacturing facilities, located in Excelsior Springs, Missouri and Columbia, South Carolina, are vertically integrated operations using the most advanced production technology in the industry. APIC's manufacturing facilities, capable of producing more than 600 million pounds of pasta per year, are key to its success. In late 1998 the company's third production facility, located in Kenosha, Wisconsin, was under construction.
Richard C. Thompson brought an eclectic professional past with him when he founded APIC in 1986. During the 1970s he was involved in real estate surrounding the Houston Astrodome. During the early 1980s he turned his attention to the oil and gas business, forming an exploration firm, Kinson Resources Inc., to make a living wildcatting in North Dakota. The cyclical nature of the oil and gas business, which descended into one of its deepest ruts during the early 1980s, convinced Thompson to search for a business with fewer market fluctuations and led him to explore food manufacturing as an option. Food production sprang to mind not only because "there's always a demand for food," as Thompson once remarked, but also because North Dakota was home to a prized crop: durum. Renowned for its superior pasta-making qualities, North Dakota durum was imported by Italian companies, who converted the wheat into pasta and then exported the pasta back to the United States. Thompson decided to use North Dakota durum to start his own pasta-making company, and he began enlisting the support of financial backers. From the start, he decided to focus on producing premium-grade pasta and avoid competing against low-priced, mass-produced brands manufactured by industry giants such as Hershey Foods and Borden Inc. "If we're going to survive," Thompson explained, "we cannot compete on price. If we do, we'll get stepped on, thrown away, chewed up, and walked over." Accordingly, Thompson devoted a considerable amount of time to researching pasta making. He spent four years in the United States and two years in Italy learning how to make pasta, searching for the method his company could use to produce superior pasta. "I want my pasta to be known as the finest in the world, bar none," Thompson declared, "including the Italians."
Aside from producing a premium brand that would limit direct competition with low-priced brands, Thompson's strategy also hinged on something else, something that would make his company a rarity among U.S. pasta producers. Most manufacturers purchased their pasta flour from commercial mills, rather than producing it on their own, but from the start Thompson preached vertical integration, striving to realize the financial benefits of owning his own flour-making facility and the greater control over quality such ownership would give him. He decided to build his production plant in Excelsior Springs, Missouri, selecting the location because of the presence of pure spring water and, more important, because of Excelsior Springs' proximity to rail lines accessing North Dakota durum. The $50 million, state-of-the-art facility began production in 1988, officially making Thompson's APIC a participant in the growing pasta industry. At the time, pasta consumption in the United States was on the rise, a trend that would continue into the 1990s as a national passion for pasta intensified. The average American ate 17 pounds of pasta a year in 1988, up from 13 pounds a year in 1981, which translated into a $2 billion market by the time Thompson's plant began producing its first shipments. Into this market APIC entered as a newcomer in 1988; a decade later the company would hold sway as a dominant force, ranking as the second largest pasta producer in the United States.
Business began on a high note when Thompson secured contracts to supply his pasta to the A&P grocery chain and SYSCO Corp., the largest restaurant supply firm in the country. These two customers purchased the company's initial production output, pushing APIC's first-year sales into the $20 million range, while Thompson pursued contracts with other institutional customers and began negotiations with brokers in several foreign countries. Thompson's goal was to make APIC the first U.S. company to ship pasta to Italy, a feat that would go a long way toward legitimizing his pasta as the "finest in the world." To accomplish this objective and to give APIC a product to increase sales domestically, Thompson invested his efforts in the creation of what he termed a "super-premium" brand, the pasta product that would drive the company's sales upward, distinguish APIC as a premier pasta maker, and fuel expansion into foreign markets, particularly into the much-vaunted Italian market. The company's signature brand debuted in January 1990, introduced under the name Pasta LaBella. As Thompson had planned, APIC's flagship brand stood apart from other mass-produced brands such as American Beauty and Creamette. Pasta LaBella was stocked in the deli section, away from competitors shelved on the pasta aisle, and its retail price of approximately $2.65 for a one-pound package was $1.50 more than most other American brands. Although the sales generated by Pasta LaBella only accounted for five percent of APIC's revenue volume during the brand's first year, the brand attracted a wealth of new business that promised to be the beginning of more to come. The 800-store Kroger chain began stocking LaBella, as did several other large retail chains, such as IGA, Payless, Hy-Vee, and Price Chopper. Several restaurant chains replaced their Italian pasta brands with LaBella as well, but in Thompson's mind the true measure of success was LaBella's entry into the Italian market. "Everyone remembers the first company to do something," Thompson mused, "just like everyone remembers the first person to walk on the moon. But who cares about the second or third?"
APIC's place in the annals of business history was secured in May 1990 when Thompson attended a European trade fair for food brokers. At the trade fair Thompson reached an agreement to sell LaBella through an Italian grocery store called Casa di Risparmio di Parma, making APIC the first U.S. company to sell pasta in Italy. APIC's historic achievement fanned excitement at company headquarters, inducing Thompson and his management team to develop ambitious plans. As negotiations were under way to sell LaBella through a 400-store distributorship in Italy, a LaBella pasta sauce was developed, slated for introduction by the end of December 1990, while LaBella olive oil and LaBella breadsticks were in earlier stages of development. By the end of 1990 sales were up 60 percent from the previous year's total, prompting Thompson to expand production capacity. He increased production capabilities at the company's Excelsior Springs plant 200 percent, giving APIC the ability to make 150 million pounds of pasta per year.
New Management in 1991
In 1991 a host of changes swept through APIC that few outside observers could have foreseen. According to one report, the investors who had financially helped Thompson build his Excelsior Springs plant grew worried by the end of 1990 that APIC would not meet certain financial objectives and would fall short of reaching the new, expanded production capacity at the company's plant. In the midst of this reported anxiety, a $76 million buyout of APIC by Hershey Foods was announced in early 1991. Thompson welcomed the deal, but the U.S. Justice Department intervened and launched an investigation into the proposed buyout. After a three-month inquiry, the Justice Department ruled against the proposed acquisition in March, stating that the union of APIC and the second largest pasta producer in the United States would result in higher prices for consumers. In the wake of the scuttled buyout, Thompson stepped aside, vacating his posts of president and chairman of the board to make room for what industry pundits termed "professional managers." Horst Schroeder, formerly the chief operating officer for Kellogg, was named chairman of the board, and Timothy Webster, formerly APIC's chief financial officer, was promoted to president, along with a number of other promotions that gave APIC a revamped management team. The change in leadership was a smooth transition, without any finger-pointing at Thompson or much to suggest that Thompson's leadership had led to failure. "This is a step all entrepreneurial companies go through," explained Webster, "where the creator hands the baton to his managers." Thompson, who ranked as APIC's largest shareholder, retained a seat on the company's board. Under the new management, however, a new business plan emerged, one that was substantially different from the philosophy espoused by Thompson. Said Webster, "Our focus is on the high-volume segments. We need to be a manufacturing-driven company until the plant [capacity] is utilized."
From 1991 forward APIC strove to be a low-cost producer of pasta, rather than a company seeking to make the "finest pasta in the world." The new strategy sought to utilize the full strength of the company's unique manufacturing capabilities, capitalizing on the vertically integrated operations that had been established by Thompson. Although making quality pasta had not been abandoned as a company goal (APIC touted itself as the only pasta maker to use high temperature drying, reportedly the best way to process wet pasta), operating as a low-cost producer had moved to the forefront of the company's pursuits. Toward this end Webster and his staff achieved encouraging results. Using aggressive marketing and citing the advantages of the company's own mill operations, Webster convinced a number of large customers to purchase their pasta from APIC. Supplier contracts with companies such as Wal-Mart, Publix, Pillsbury, Kraft, and General Mills fostered consistent, strident financial growth, assuaging any anxiety investors might have experienced. Sales rose to $39 million in 1992 and then began increasing by at least 20 percent each year as APIC headed toward the mid-1990s. As the company's customer base of grocery chains, restaurants, and food processing companies increased in number, pushing sales upward and stretching production capacity to its limit, a different type of APIC took shape. The APIC of Thompson's era had sought to distinguish itself from the established giants in the industry by producing a higher-priced, higher-quality product, but during Webster's era the pursuit of becoming a low-cost producer had developed APIC into a giant itself. By the mid-1990s APIC was one of the major producers with which it had avoided directly competing during the late 1980s and was well on its way toward becoming the largest pasta producer in the United States. The prospect of reaching the industry's number one position was not a "goal in and of itself," Webster noted, as the company steadily increased its market share. "But we do want to continue to grow," he added. "If it were to happen, we'd certainly have grins on our faces."
Late 1990s Expansion
By 1995 any fear of not reaching full production capacity at the company's Excelsior Springs plant had been thoroughly eliminated. The company was ready, in fact, to build a second manufacturing facility. Construction of the new plant began in 1995 in Columbia, South Carolina, its completion lifting APIC's production capacity to roughly 300 million pounds of pasta per year. By the end of 1996 sales had eclipsed the $100 million mark, climbing to $121 million. APIC, by this point, was the third largest pasta producer in the United States, trailing only Hershey Foods and Borden Inc., and it was regarded widely as the most efficient producer. Its two manufacturing plants, which made more than 80 shapes of pasta, utilized the most advanced production technology in the industry, a distinction used as a persuasive marketing tool to win new customers and one that was making it increasingly difficult for other companies to compete with APIC on a low-price basis. The fruits of APIC's decade-long investment in its manufacturing facilities were realized in 1997, a year that saw the company achieve great strides while its largest competitor began to retreat.
In early 1997 CPC International, a global food company that marketed 45 varieties of pasta, announced APIC would become the exclusive producer of its Mueller's brand of pasta, the leading brand in North America. The contract represented an extraordinary boon to APIC's business, one that could not have been gained without its state-of-the-art manufacturing facilities. "By joining with APIC," a CPC International senior executive remarked, "we make a leap from the oldest production technology in the industry to the newest." The addition of the Mueller's brands led to a $45 million expansion at APIC's Columbia plant, where Mueller's was scheduled to begin production in January 1998. News of the Columbia facility expansion was followed by the announcement of a $20 million expansion at the company's Excelsior Springs plant, which had been planned for at a later date but was accelerated once APIC executives learned of their biggest rival's future plans. In mid-1997 Borden announced that it would start to close its pasta-producing plants after deciding to stop manufacturing private-label brands and pasta for the "ingredients business," which included making noodles for products such as Hamburger Helper. APIC moved in to fill the void created by Borden's retreat, implementing an expansion program designed to increase its production capacity by 60 percent, making it the second largest pasta producer in North America.
As work was under way to increase APIC's production capacity to more than 600 million pounds of pasta per year, the company decided to convert to public ownership. In October 1997 APIC's initial public offering on the New York Stock Exchange raised $87 million in net proceeds, giving the company the financial resources to pay for expansion. Following the public offering, Thompson stepped forward to remark, "It's been wonderfully exciting and a dream come true. I'm a proud papa." There was good reason for Thompson's elation. "Everything looks to be going very, very well for them," one stock analyst remarked. "They continue to gain market share." In November 1997 the likelihood of further gains in market share appeared assured when APIC announced preliminary plans for a third pasta production plant in Kenosha, Wisconsin, to be constructed through a joint venture with Harvest States. Following this exhaustive period of expansion, the company entered its tenth year of production, by which time both expansion projects at Columbia and Excelsior Springs were completed. The results were impressive. In 1998 revenues increased from $129 million to $189 million and net income swelled from $5 million to more than $15 million, both record results. On this bright note, APIC prepared for its second decade of business, having successfully climbed the rungs of its industry to hold sway as a dominant presence in the North American pasta market.
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