Orval Kent: Whitman's new Pet project

Prepared Foods, April, 1989 by Alison Otto

Orval Kent: Whitman's new Pet project

Whitman Corp. has divested its railroad business, but the company is still thinking like a conductor.

In December, after a busy year of restructuring, Whitman bought its Pet subsidiary a ticket to ride into the refrigerated foods business.

Pet's new project, Wheeling, Ill.-based Orval Kent Food Co., may help Pet get a warm reception in refrigerated foods--a category that so far has chilled the efforts of other companies like Campbell and General Foods.

Who made the salad?

For Whitman, which says it has $1 billion or more to lavish on an acquisition, buying a small salad company like Orval Kent might seem like small potatoes--make that "potato salad."

Orval Kent has pared a reputation in the salad business, but its focus has been on behind-the-scenes areas like foodservice and supermarket delicatessens. Consequently, it doesn't share Pet's strong retail brand identity.

Still, the acquisition may prove strategic. Orval Kent only generates $200 million in sales, but it controls 29% of the $700 million refrigerated salad market. And what the company lacks in sales volume and brand power, it may make up for in distribution prowess.

Moveable Feast

Orval Kent's products are available in about 15,000 supermarket delis across the country. The company also sells to seven of the top 10 fast food and restaurant chains.

The company's distribution system came together through two key acquisitions, Delsaco, an East Coast salad producer purchased in 1985, and Alex Brands, a West Coast salad company, acquired in 1986.

With these businesses and Orval Kent's base operation in the Midwest, the company manufactures and distributes about 200 million pounds of salad a year.

"In effect, we have created a national `milk run' system with our products," says company president and CEO Richard Kent. "This gives us the ability to deliver on a timely basis--to take what amounts to a local kind of business and make it national."

And this is where Kent thinks that the company, with Pet's backing, will have an advantage over the other food companies that are trying to carve out a piece of the rapidly growing refrigerated foods category.

"You've seen company after company try to get into the salad area over the years, and none has succeeded," says Kent. "And the reason is in the obituary of every refrigerated product--and that is the distribution system."

Failure is far from the minds of Pet and Orval Kent marketers. So far, the two companies haven't wasted much time laying groundwork for new products.

A line of refrigerated entrees is due out within six months. Kent says the company hasn't finalized the selections yet, but possibilities include lasagna and other pasta dishes, chicken and beef fajitas, chili, and barbecued pork.

Likewise, a refrigerated soup, which will draw on Pet's experience with its Progresso soup line, won't be far behind.

Bulk versus brand

Kent has a strong opinion about the possibilities in the foodservice market, and that's likely to be where the company will continue to focus.

Orval Kent has dabbled with a retail prepared salad called Salad Singles, but this is only about a $5-million business, and distribution is limited to a fourth of the country. Fresh products for delis and foodservice are more practical, says Kent.

"These other products (like Kraft's Chillery line) are in the dairy area; they're trying to compete against the deli, and I don't believe that is very fruitful. Where would you buy your salads--from the deli or from the shelf, pre-packaged?"

So far, too, branded refrigerated products have been expensive. This has created a stumbling block for manufacturers. "We're getting the first wave of products in there but they're still overpriced. They might need to be in the $2 range to be successful," says Bruce Axtman, an associate with Willard Bishop Consulting.

Richard Cristol, executive director of the newly formed Chilled Foods Assoc., agrees. "As a category, this product is going to be premium until volume levels get up," he says. Cristol, however, looks to the frozen entree market as an example of what could happen with branded refrigerated food.

"A lot of people said the frozen entree business would never pay," he says. "But it may turn out that foodservice is a bigger market."

Priming profits

The Orval Kent purchase does have its down sides. At this point, potato salad, cole slaw, and other commodity salads still make up about half of the company's sales. Other drawbacks are high manufacturing costs and the seasonality of the salad business.

The end result is that operating margins lag well below Pet's 16%--a problem Whitman chairman and CEO Karl Bays is anxious to remedy.

Bays is looking to lift a page from Pet, which five years ago was one of the least profitable companies in the food business. Through its emphasis on higher value products, Pet has parlayed lines like Old El Paso Mexican foods, Progresso soup, and Accent spices into some of the top brands in the food industry.

Last year, Pet's margins were second to Kellogg's. In 1988, sales rose 8% to $1.5 billion, and earnings shot up 18%, to $235 million.