Snyder's-Lance getting its operating footprint in order

by Keith Nunes
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Snyder's-Lance brands
Snyder's-Lance is undergoing a sizable stock-keeping unit rationalization plan.
 

CHARLOTTE, N.C. — Snyder’s-Lance, Inc. continues to undergo change. The company is upgrading its operations to bring its performance in line with its peers. Efforts under way include an investment in automation, a sizable stock-keeping unit rationalization plan as well as other programs designed to improve supply chain and trade efficiencies.

Changes undertaken to date by the company include the hiring of Brian J. Driscoll as president and chief executive officer this past June. Other initiatives include the closing of a manufacturing plant in Perry, Fla., in August and the reduction of the company’s global workforce by approximately 250.

Brian Driscoll, Diamond Foods
Brian Driscoll, president and c.e.o. of Snyder's-Lance

“We believe that the plans we will discuss today in some detail would begin to address and affect our lagging operating margin performance versus our peers,” Mr. Driscoll said Sept. 28 during the company’s investor day with securities analysts.

The challenge facing management is to address maintaining revenue growth while also improving earnings growth and operating margins. In the latter two categories the company significantly lags its peers in the snack segment.

Alexander Pease, Snyder's-Lance
Alexander Pease, c.f.o. of Snyder's-Lance

“Our net price realization over the last, call it, three years in a peer set that's increased by about 3%, ours has gone down by about three points,” said Alexander W. Pease, chief financial officer. “We've had this explosion of complexity in both manufacturing and the brands that has led to all of these issues that we've been struggling with.”

One of the issues the company is struggling with is 8 of its 11 plants are operating at utilization rates below 80%, which Mr. Pease said is considered best in class. Another issue revolves around s.k.u.s and the fact that 57% of Snyder’s-Lance’s s.k.u.s make up 5% of gross sales.

“We throw trade dollars at all of these (s.k.u.s),” he said. “We haven't gotten shelf space behind a lot of these s.k.u.s. So, there's a whole range of inefficiencies that you'll see as we go into this topic in depth …”

Randy Chapman, Snyder's-Lance
Randolph Chapman, chief strategy officer of Snyder's-Lance

Randolph A. Chapman, chief strategy officer, said of s.k.u. proliferation, “The pattern is really predictable, and the story goes a little bit like this. Faced with an increasingly competitive environment with constantly changing retail trends and consumer preferences, a company will strive to get an advantage.

“And in so doing, will launch a litany of s.k.u.s and items to make sure that their products are in every pack format that they can in the changing retail environment. To make sure that the shapes and the flavors really resonate with the changing consumer palate. And in so doing, complexity explodes, costs rise.”

The company plans to use commercial scanning data and product substitution to bring its number of s.k.u.s under control.

Snyder's-Lance product portfolio
Snyder's-Lance plans to use commercial scanning data and product substitution to bring its number s.k.u.s under control.
 

“When we get it right, what we're going to see for ourselves is longer runs, more efficiencies,” Mr. Chapman said. “We're going to have fewer scrap, fewer write-offs. You can imagine, even at the shelf for us, we're going to be asking our sales team and our I.B.O. partners to execute and fill fewer products. This is going to focus execution, it's going to focus our operations, and it's going to crush that complexity that's been getting in the way of some of our performance.”

An additional obstacle for the company is a lack of automation throughout its plants. Snyder’s-Lance currently has 175 packaging lines throughout the company’s chip, pretzel and bakery plants, according to Kirk Jensen, chief supply chain officer, and few are automated.

Kirk Jensen, Snyder's-Lance
Kirk Jensen, chief supply chain officer for Snyder's-Lance

“They're very manual, boxing product and stacking it also manually,” he said. “To understand what that means, we have operators on each of these lines, multiple operators, taking the box off from the pallet, they are forming the box, hand taping the box, setting it on a pack stand, they take the bags off the machine that are coming at probably half speed because it takes a while to make that box, which means you have extra machines because you have to keep the fryers and the ovens running.”

In the next 12 months management plans to install at least 30 automated systems throughout the supply chain.

“And we're going to aggressively add more of those over time,” Mr. Jensen said. “Now that all sounds interesting; there's obvious benefits from the labor standpoint, but the benefits from keeping our lines operating at the right efficiency; those are exponential benefits. Every time we start and stop an oven or a fryer, because of the packaging bottleneck that causes issues and waste and other things.”

Snyder's-Lance facility
Snyder’s-Lance currently operates 175 packaging lines throughout the company’s chip, pretzel and bakery plants.
 

Inventory management is another target for the company. Snyder’s-Lance currently has 120 locations that handle inventory, and, according to Mr. Jensen, fewer than 10% have any form of automation.

“Order practices are not optimal along these facilities either,” he said. “We have many examples that we're shipping three trucks from our plant warehouses to our forward warehouses versus two because of the cube optimization opportunities. Millions of cases are handled across this network multiple times by design. We're going to change that design.”

An initial analysis by the company showed that in a single region savings may total as much as $3 million to $4 million with an investment in a more automated warehouse program.

Snyder's-Lance brands: Kettle Brand, Late July, Snyder's of Hanover, Snack Factory Pretzel Crisps
Inventory management is another target for Snyder's-Lance.
 

John T. Maples, Snyder’s-Lance’s chief customer officer, said by the end of 2017 the company will have generated sales in the range of $2.2 billion to $2.5 billion.

“For 2018, given all of the activities around pricing and s.k.u. rationalization, in particular, we expect to be at or just slightly below the category growth,” he said. “That should rebound by 2019 as things start to stabilize to get us back in line with category growth. And then by 2020, we anticipate to be a point or two above category growth. We backed away from the old communication around an absolute 3% to 5% growth rate and try to index our growth aspirations toward the category.”

Using the first quarter of 2017 as a 12-month trailing baseline, operating income is expected to be $179 million, in line with the company’s target of $175 million of operating improvement over the next three years. Earnings per share are expected to be in a range of $1.10 to $1.20.
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