200 East Lake Street
Wayzata, Minnesota 55391-1662
Telephone: (612) 594-3300
Fax: (612) 340-3338
Incorporated: 1892 as New Prague Flouring Mill Company
Sales: $2.61 billion (1997)
Stock Exchanges: New York
Ticker Symbol: IMC
SICs: 2038 Frozen Specialties, Not Elsewhere Classified; 2053 Frozen Bakery Products Except Bread; 2041 Flour & Other Grain Mill Products; 2045 Prepared Flour Mixes & Doughs; 2024 Ice Cream & Frozen Desserts; 5141 Groceries--General Line; 2000 Food & Kindred Products; 2038 Frozen Specialties, Not Elsewhere Classified; 2051 Bread, Cake & Related Products; 2037 Frozen Fruits & Vegetables; 2053 Frozen Bakery Products Except Bread
The processes we are putting in place will ensure that International Multifoods is a stronger, more competitive organization with all of its people motivated by the common desire to create sustainable improvements in financial performance and value for shareholders. That desire and the winning attitude it fosters is finding its way into all corners of the organization.
International Multifoods Corporation was once known as one of the "Big Three" in U.S. flour milling, along with General Mills and Pillsbury. But the company has undergone sweeping restructuring strategies--first diversifying heavily into consumer foods and animal feeds in the 1970s and early 1980s, then divesting itself of such interests (including its stake in the U.S. portion of its original product, Robin Hood flour) and fortifying its stake in the food vending industry in the late 1980s and early 1990s. In the late 1990s, International Multifoods was composed of three business units: Multifoods Distribution Group, North America Foods, and Venezuela Foods. To emphasize its global interests, the company has adopted the signature of "International Multifoods."
The Multifoods Distribution division accounts for 67 percent of all International Multifoods sales and 34 percent of its earnings. Vendors Supply of America, Inc., or VSA, is the most dynamic component of the group--the domestic leader in vending distribution, it has nearly $1 billion in annual sales. Sales are almost evenly divided between foodservice and vending distribution. Since its acquisition in 1984, VSA has grown rapidly in what remains a highly fragmented market; its continuing health is welcome news to International Multifoods shareholders, many of whom consider the bold move by Archer-Daniels-Midland to acquire, in 1990, a 9.4 percent investment in the once floundering company as a singularly auspicious development.
The North America Foods Group is composed of the Robin Hood Foods unit, in Canada, and the U.S. Foods unit which provides frozen bakery items and mixes for various bakeries and foodservice vendors throughout the country. This group employed almost 2,000 people in the late 1990s, and was comprised of more than 45 sales and marketing offices in North America.
The third group in the International Multifoods family is Venezuela Foods. Located in the Caribbean port city of Puerto Cabello and christened Molinos Nacionales, C.A. (MONACA), its wheat mill was established in the mid-1950s. MONACA was initially a subsidiary of Robin Hood Flour Mills, Ltd., of Canada. Under the early direction of Andre Gillet, MONACA quickly became a leading Venezuelan food corporation, branching out into rice processing, corn milling, spices, bakery mixes, oat cereals, and animal feeds. Most importantly, MONACA was eminently profitable from the beginning, typically contributing 20 to 30 percent of total earnings on only eight to ten percent of net sales. In the late 1990s, MONACA accounted for approximately "14 percent of the company's local sales and 25 percent of operating earnings," according to an International Multifoods document. Consumer foods comprised half of the unit's sales, with animal feeds and commercial foods coming in second and third. MONACA was credited with great profitability because of efficiency in production and distribution. Costs were kept low, and brand recognition was high among consumers.
Origins in the 1890s
International Multifoods traces its roots to the Polar Star Milling Company, an initially prosperous southern Minnesota business that was unable to weather the soaring railroad freight rates and plunging flour prices of the early 1890s. When the Faribault-based company declared bankruptcy in 1891, owner Francis Atherton Bean was destitute but not despairing. The following year, with a loan from his brother-in-law, the 50-year-old Bean rented a mill located in New Prague, Minnesota, that had also gone out of business. Due to a close-knit, cooperative atmosphere and the wheat-buying and accounting expertise of Bean's son, F. A. Bean, Jr., the New Prague Flouring Mill Company became a success within a few short years. In 1896, the former owner decided to reclaim and manage the mill; again undaunted, Bean attracted more than $30,000 in capital from local investors and constructed a new mill, which operated under the same name. Increased production and storage capacity as well as an improved location were among the key factors that allowed Bean to expand in the next few years and purchase additional mills in Blue Earth and Wells, Minnesota.
In 1908 the company launched its first, and one of its most successful, international ventures with the purchase of the McLean Mill in Moose Jaw, then the largest city in Saskatchewan, Canada. Given a growing population, rich agricultural land, and dependable railway lines, Bean, Sr., saw considerable potential for the business. The McLean Mill opened the following year as Saskatchewan Flour Mills Ltd., and the parent company now became International Milling and thus commanded heightened status at home, despite its still primarily regional thrust. Bean's vision was confirmed three years later when the company purchased another mill in Calgary, Alberta. Expansion continued and the Canadian operations were soon renamed Robin Hood Flour Mills, Ltd., a designation reflecting the rising popularity of the company's brand name flour which was first introduced around 1910 exclusively for the Canadian markets.
According to several accounts, perhaps the high point for the company's founder came at Christmas time in 1911 when Bean decided to secretly visit, over a two-week period, all the yet unpaid creditors of the failed Polar Star business from back in 1890. Although he had no legal obligation to do so, Bean resurrected and satisfied all the old bills in full, paying both principal and interest for what amounted to more than $200,000. In so doing, he not only ensured himself an unforgettable Christmas, he also secured his place as one of the most loved and respected of all Minnesota entrepreneurs.
The Move to Minneapolis, the 1920s
In 1923 the company moved its headquarters to Minneapolis in order to become a major national competitor in the flour-milling industry. To accommodate the northward flow of Kansas winter wheat, the company acquired mills in Sioux City and Davenport, Iowa. It also realized that other similar-sized Minnesota "interior mills," including the Commander group (later Commander-Larabee Corporation), centered in Montgomery, were quickly gaining a foothold in the Minneapolis flour district. By the mid-1920s, at least 17 such companies had entered this industry center. Equally important to millers, particularly those interested in establishing a presence in the East and a gateway to the European export trade, was Buffalo, New York, which International Milling succeeded in entering by the end of the decade.
The Robin Hood Brand and Mid-Century Growth
Meanwhile in Canada, under the leadership of Charles Ritz, Robin Hood Flour was attaining national distribution, promoting itself as a high quality, "milled from washed wheat" flour and successfully pricing itself above the competition. By 1945, Robin Hood would become the leading consumer flour in Canada, a position it has never since relinquished. This marketing-success-in-the-making inspired Bean's successor, W. L. Harvey, to bring the Robin Hood name to the United States, along with its chief architect. Beginning in 1937, Ritz replaced the company's several regional brands with Robin Hood and then launched a full-scale media blitz, going head-to-head with two chief competitors, Pillsbury's Best Flour and General Mills's Gold Medal Flour. Because of Robin Hood's late entry into the market, results of the long-running campaign were disappointing. As Atherton Bean, grandson of the founder and the company's fifth president later remarked, "There is an adage in the industry. You can be first or second and be confident of success, but if you're third or fourth you're at risk." Unfortunately, that was the position of Robin Hood Flour in the United States. International Milling, nevertheless, became a formidable foe in the industrial flour market, and from the war years through the 1950s, with the purchase of 15 mills, the company spread into a number of new markets in the central and eastern regions of the country. Beginning in 1951, the company also entered the formula feed business and became a major supplier of enriched grains to livestock farmers in the Upper Midwest.
Focus on Venezuela, 1958
In 1958 International Milling, which had been exporting not only to Europe, but also Africa, the Middle East, Asia, and South America, made a momentous decision: to extract itself from markets with political and economic difficulties and focus on one that promised both stability and lucrative returns. The obvious choice at the time was Venezuela, a solid export market--of which the company controlled more than a third--that remained virgin territory for North American investment. The decision was aided by the Venezuelan government's threat in 1956 to close off the import trade; by promising to establish its own wheat mill within the country, the company circumvented the potential loss of market.
Andre Gillet's tenure at MONACA extended until his return to Minneapolis in 1968, and it coincided with Francis Atherton Bean's presidency and chairmanship of the company. The 1960s saw considerable shifts in domestic eating habits and International Milling--with the extra capital supplied by going public in 1964--responded by aggressively entering the consumer foods markets. This policy of expansion and diversification, which was common in the industry, was officially implemented by William G. Phillips, a former president of Glidden-Durkee whom Bean hand-picked to restructure the company. Phillips oversaw some 43 acquisitions during the next decade and soon had a multifaceted company (signified by its new name of International Multifoods, adopted in 1970), operating more than 900 Mister Donuts stores, the Boston Sea Party restaurant chain, a meat-processing plant, several decorative products manufacturers, and a score of small, niche-market food products.
Restructuring During the 1980s
By 1980, the company reported revenues exceeding one billion dollars. Throughout a 15-year period stretching until 1984, the company reported uninterrupted growth in earnings. Yet such signs were misleading. Long before the 1984 decline, the company had become aware of its lagging market shares in nearly all its consumer products; only Kretschmer Wheat Germ represented a market-leading product. International Multifoods' ability to compete with the major food corporations was hampered not only by its relative anonymity among consumers but also by its seemingly indiscriminate purchases.
Restructuring was in order and Phillips appointed Gillet to handle the daunting task of reshaping the now ungainly corporate giant International Multifoods had become. Complicating matters was the looming threat of an unfriendly takeover and the disgruntlement of shareholders, obliged to accept a less than ten percent return on equity while the industry average was close to 20 percent. The metamorphosis that Gillet effected during the next several years was, according to analyst Jim McCartney, "one of the deftest sleight of hand tricks in corporate America's history. By quietly selling off pieces and buying new ones, Gillet gradually transformed Multifoods from a flour milling and consumer foods company into a food service distribution and manufacturing company." Gone was the U.S. portion of Robin Hood Flour, the cornerstone of the company (the U.S. trademark rights were sold to General Mills and the mills themselves to ConAgra, though international Robin Hood operations remained), as well as a host of other less substantial enterprises. In their place was a list of food purveyors that promised a new synergy and direction for the company. The single most important purchase International Multifoods made at the time was the 1984 acquisition of Denver-based Vendors Supply of America. A vending distributor with $900 million in annual sales, VSA was bought for $15 million and then carefully developed into a convenient one-stop supplier to vending operators, with 20 warehouses serving 48 states. The foodservice industry that VSA catered to had by the early 1990s blossomed into a $262 billion market.
The Luiso Years, 1989-96
From 1989 to 1996, Gillet's visionary lead was followed by the cost-conscious programs of CEO Anthony Luiso, a former executive of Beatrice and a veteran of the food trade. Luiso joined International Multifoods in 1986 as head of restaurant supply operations and contributed to a 21 percent rise in revenues, which totaled $1.7 billion; profits for the same year vaulted 82 percent to $33 million. One of the toughest decisions Luiso faced concerned the fate of MONACA. Despite outstanding earnings in 1990 (25 percent of total operating earnings on only nine percent of net sales), or for that matter a lengthy record of strong performance, MONACA had long been thought to be vulnerable to the inflation-prone economy of Venezuela. In addition, several analysts came to view the flour-and feeds-processor as a cumbersome appendage for International Multifoods. With little fanfare, Luiso resigned from International Multifoods in May 1996. Tony Kennedy of the Star Tribune characterized Luiso's seven years of corporate shuffling as "mostly ineffective restructuring.... It has been more than five years since the stock sold for more than $30." Six months after Luiso stepped down as CEO of International Multifoods, Gary Costley came on board, wooed away from a deanship at Wake Forest University's Babcock School of Business. With many years of service at Kellogg's, Costley was not just an ivory tower visionary. The board of directors wanted action taken to boost the stock earnings of International Multifoods, and Costley was going to deliver it.
Looking to the Future
Looking ahead to the 21st century, International Multifoods could be expected to focus increasingly on shareholder value. Once tagged "the wallflower of Wall Street," International Multifoods was by the late 1990s a rejuvenated company, promising a solid commitment to its shareholders. The critical element for Costley was EVA. An invention of the New York consulting firm Stern Stewart & Co., EVA stood for "extra value added." As Costley put it in the Saint Paul Pioneer Press, "If an asset doesn't contribute to shareholder value, I get rid of it." To arrive at the EVA figure, one must multiply net assets by return on assets minus the cost of capital. As a business academic Costley had become an EVA disciple, and the chairmanship of International Multifoods might be thought the perfect practical test case. On one of his first days at Multifoods Tower, the old International Multifoods headquarters in Minneapolis, Costley admired a painting in the boardroom. Someone volunteered that it was worth $100,000, to which Costley said, "Sell it." He rounds out his support of EVA by explaining, "Money is not free. If you want to use someone else's money, you have to pay for it," as reported in the Pioneer Press article "From Theory to Practice." "If it takes more and more assets to make the same amount of money, you are destroying shareholder value." The new company headquarters made better economic sense to Costley without his losing face. The new building was smaller and smarter, modeled on the English manor style, and set in suburban Wayzata, Minnesota. While the company decided to buy the building, Costley continued to cut corners by vowing to lease any surplus space.
Costley's management style resulted in a more efficient and profitable International Multifoods. Perhaps the best way to evaluate Costley's initial success was to look at annual earnings per share of International Multifoods: bounced up from 15 cents in February 1997 to $1.09 a year later. But Costley reported that in 1998, International Multifoods had a negative EVA of $42 million. Efforts to boost EVA included a realignment of the North American Foods business unit, splicing the VSA and Specialty Distribution into one distribution unit, naming Jeffrey Boies as the president of that new group, and rebranding Multifoods as International Multifoods, complete with a new corporate logo. While Costley hoped to show a rapid EVA improvement to his investors, the price of International Multifoods shares had already soared. The merest mention of EVA "causes investors' hearts to go pitter patter," said Gail MarksJarvis, the Pioneer Press's business columnist. Whether or not EVA would eventually be proven a fad, it was a sign of economic discipline in a corporate chairman, and a tool to provide the shareholders with the best return possible. International Multifoods was now positioned by Costley to be a lean contender well into the 21st century.
Principal Subsidiaries: Fantasia Confections, Inc.; JAC Creative Foods, Inc.; Mexicana de Inversiones FEMAC, S.A. de C.V. (45%); Mixco Intl., S.A. de C.V. (49%); Molinos Nacionales, C.A. (MONACA); Multifoods Bakery Distributors, Inc.; Multifoods Bakery International, Inc.; Prepared Foods, Inc.; Robin Hood Flour Ltd. (Canada); Vendors Supply of America, Inc.
Principal Operating Units: Multifoods Distribution Group; North America Foods; Venezuela Foods.
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