Mark Devaney reviews The American Italian Pasta Company and its recipe for success.
There are parallels between serving pasta and running a business. Both may seem simple, but proper preparation and attention to detail mark the difference between a bland meal and an Epicurean delight; or between a floundering company with no growth plan and an international leader with strong products, cutting-edge technology, committed employees, and great upside potential. And if there’s one company that knows how to make pasta, and how to make money making pasta, it’s the American Italian Pasta Company.
The company was formed in the 1980s when an American entrepreneur met an Italian pasta maker. The former had the entrepreneurial flair, while the latter knew how to produce pasta like that found in the old country. In the beginning the two did well, but in time their partnership ended and the company seemed headed for oblivion. But in 1990, Wall Street investors stepped in to set up a corporate management team led by Horst W. Schroeder and Timothy S. Webster that turned the company around. Today AIPC has 565 employees and is the largest- and fastest-growing producer and marketer of pasta in North America. According to AIPC’s most recent quarterly earnings report, the company realized $91.8 million in revenues, a 19 percent increase above fiscal third quarter 2001 on 17 percent volume growth. In fact, the volumes were up in all businesses, according to the report, much to the delight of Webster, president and chief executive officer, who cited cost reduction as one key to growth.
“Our manufacturing costs are down, led by improved labor productivity, our purchasing initiatives are yielding benefits, and our logistics costs are down significantly,” said Webster. “We had outstanding sales results driven by unit volume increases in all major business units.”
AIPC’s customer base is vast and diverse. Sysco, perhaps the most well known national brand in the restaurant supply business, is its largest customer. In addition, many hotels, schools and other institutions turn to AIPC for pasta products. Webster identified several key market segments. The ingredient category where AIPC products are part of another finished product such as frozen food, soups and deli salads offered by brands such as General Mills, Kraft, and ConAgra, constitutes about one-third of the company’s business.
According to Webster, roughly another third of AIPC’s volume comes from the private label or store brand market where the company was first to bring brand building to private label pasta and remains a leading producer for brands such as Wal-Mart, Kroger, Winn Dixie, Stop & Shop and Giant, among others. In addition, club stores including Sam’s Club and Costco are AIPC customers. AIPC also offers its own pasta brands: Mueller’s, Anthony’s Pennsylvania Dutch, R & F, Ronco and Luxury.
“The consumer is typically motivated by two things: price and the brand they grew up on,” said Webster. “Overcoming the brand that they grew up with takes a massive investment and years of patience to earn a return on that investment. We want to be in a position with our private label to service the first and have the brand in the local markets to overcome the second.
“We didn’t acquire companies, we acquired brands for two reasons,” explains Webster. “It strengthens our relationship with consumers and makes operations far more efficient, and very profitable. We’ve acquired enough brands to make AIPC a turnkey solution for the retailer. We can offer private label from our domestic or Italian plants or a club store style package.”
With operations as large as AIPC’s, technology has become a key ingredient. “We really have revolutionized the industry from a technology perspective,” said Webster. “Our technology thesis has two key elements: vertical integration and efficiency.”
AIPC does its own milling integrated within its plants, the first U.S. pasta company to do so, according to Webster. AIPC also is at the forefront of the tremendous progress that has been made in pasta making equipment. The biggest lines in the U.S. produce 15,000 to 20,000 pounds an hour or more than 25 million pounds per year.
People, places and pasta
According to Webster, the key to determining the location of American Italian Pasta Company facilities is identifying locations that optimize the cost of inbound and outbound transportation of raw materials. Measured not in square feet but in pounds of pasta produced annually, current AIPC plants include Excelsior Springs (350,000 million pounds); Columbia S.C., (330,000 million pounds); Kenosha, Wis., (200,000 million pounds) and Tolleson, Ariz., (100,000 million pounds). AIPC also operates a facility in Verolanuevo, Italy, much to the delight of the locals because the previous owners had shut down the plant, which had put residents out of work.
“People are as important as place,” said Webster, who believes wholeheartedly in finding and retaining employees that will view AIPC as much more than a job. “It takes special people with talent and drive and the right attitude to succeed and it’s our job to make them feel like they are part of something special. We want them to feel like they are building something with a personal and emotional and economic stake. Lately, there has been a lot of noise about management and suspicion about public companies. At AIPC we take good care of our customers and people and treat our suppliers fairly because we are committed to building something that is long term and sustainable.”