EXECUTIVE ROUNDTABLE

Dairy Field, Sep 2004

Two generations of management discuss the growth and future of Old Home Foods.

The Hanson family has been part of the Minnesota dairy industry since 1912, when P.A. Hanson started the Rice Street Dairy in St. Paul. Today, P.A.'s grandson, Rick Hanson, serves as chief executive officer, chairman of the board and third-generation owner of the company that evolved into Old Home Foods.

In September 2002, Geoff Murphy became the first person outside the Hanson family to lead the company when he was named its president. A veteran of Yoplait and Colombo, Murphy is poised to take the helm at Old Home after Hanson retires as CEO in March 2005.

During a recent visit to Old Home's corporate headquarters, Dairy Field asked Hanson and Murphy for their thoughts on the company's growth, future and success amid a field of much larger competitors. Responses have been edited for space.

Dairy Field: What kind of expansion opportunities do you see on the horizon?

Rick Hanson: We are either number one or number two in almost all the categories we're in. I don't know how much opportunity there is for us to push the market-share ceiling in this market. So I think our major opportunity is adjacent geography and outside of our primary marketing area.

Geoff Murphy: We do a lot more advertising than your average cultured dairy company, whether it's bus sides or billboards, radio or television. We do a lot, and even though we have, for example, the number-one share in cottage cheese, every now and then we'll hit on. something that will garner us even more share. We've not put any low-carb products on the market - new ones, that is. But cottage cheese is low carb, so we highlighted that in an outdoor campaign and actually saw our share go up eight or nine points. If you've got a 45 share and your product is 30 percent more expensive than your next branded competition, that's pretty good.

DF: How far do you see your market expanding?

Hanson: It just depends on what timeline you're looking at. There's no reason we can't be another Ben & Jerry's or what-have-you that's national.

Murphy: That's with our branded products. We are a national company. You can purchase products made here at Old Home in all 50 states, just not necessarily under the Old Home name. We have a number of branded co-pack customers.

Hanson: Also, in terms of potential growth, it has been a great opportunity for us to become familiar with cultured organic and soy, even though we don't manufacture any of it for ourselves.

DF: What are some of your brand's selling points you drive home to consumers?

Murphy: Quality and freshness.

Hanson: And I think we've earned it after almost 80 years now. We have done a better job of freshness than our competitors. Cultured dairy is our bread and butter, as opposed to a byproduct like it is for most sizeable dairies. As far as I know, we're the only cultured dairy company that has its own DSD system that completely services the store shelves.

Murphy: For a number of years, our campaign was "the freshest place in the dairy case," and I think our consumers relate to that. They know the product is made here locally and we bring it right to the shelves. Whenever we do focus groups, our consumers continually talk about the quality of our products, and they just wouldn't consider purchasing another label for their family. And we don't mess with the quality of our products. A good example is our vanilla yogurt - it's made with a natural bourbon vanilla that just a few years ago was about $60 to $80 a gallon. The last purchase we made was $550 a gallon. But we're not going to change the product. That's what people expect. We're fortunate that we can pass some of that price on to our consumers because they are loyal and they know they're getting the best.

DF: How have infrastructure improvements enhanced operations?

Murphy: When I got here in '98, the three cup fillers were all rotaries from the '50s. All those lines have been replaced within the last five years, two within the last three years. That allowed us to do a number of things - most of our products were still in waxed paper, even just a few years ago. So we were able to transition out of that. We made a huge investment getting into beverages. We saw that as a good opportunity and completed the installation in the fall of 2002 before it really took off, which puts us in the nice position of having to turn away potential business for that line. We've invested a lot in capacity, both on the processing side and the packaging side. We replaced our entire refrigeration system. That's kind of the turning point in our investment. In the recent past, we invested in capacity - probably doubled our capacity. Now we're going to be investing more in efficiencies, to really drive cost out so we can be more effective.

DF: What are the biggest challenges for your company and the dairy industry as a whole?

Hanson: I think for the dairy industry, it's being in a commodity business, hard to distinguish one branded product from the other. Of the 35 dairies that were around here 35 years ago, there's now five. So we've been able to distinguish and market our product. Some of the other dairies are doing a lot of the stuff we're doing, in terms of outdoor and media, but we've been doing it for many years, and it has paid off. People are convinced our products are as good as they can get.