Dean Foods Company History
Franklin Park, Illinois 60131
Telephone: (847) 678-1680
Fax: (708) 671-8744
Incorporated: 1925 as Dean Evaporated Milk Company
Sales: $3.02 billion (1996)
Stock Exchanges: New York
SICs: 2026 Fluid Milk; 2024 Ice Cream & Frozen Desserts; 2033 Canned Fruits & Vegetables; 2035 Pickles, Sauces, & Salad Dressings
Through thoughtful acquisitions and careful financial management, Dean Foods Company has grown from a small regional dairy into a diversified food company with sales of more than $3 billion. Dean's steady growth has been achieved by acquiring strong regional brands, then boosting their profits by modernizing operations and increasing productivity. The company is the leading fluid milk, frozen vegetable, and pickle processor in the United States. Its brands, which include Dean's, Birds Eye, Freshlike, and Veg-All, in addition to many regional brand names, are supplied to grocery chains, retail stores, and food service outlets. Dean's product line includes ice cream, frozen desserts, canned vegetables, relishes, salad dressings, dips, and non-dairy creamers.
Early 20th-Century Beginnings
Sam Dean, Sr., was working with a brokerage firm in Chicago when he decided to start his own company. As he had been brokering evaporated milk, it seemed logical to enter that business. When he founded the Dean Evaporated Milk Company in 1925, it consisted of one plant in Pecatonica, Illinois. Soon, two more plants were added. Dean entered the fresh milk industry in the mid-1930s, and until 1947 Dean's market was mostly fluid milk in Northern Illinois. In 1947 Dean also entered the ice cream business.
The company's strategy of growth through careful acquisition began with its founder. In order to expand geographically, Dean began acquiring solid performers in other regions. Until World War II, Dean had been strictly a Midwestern dairy. After the war, it spread further, going as far as Kentucky. A research and development lab was established as early as 1943. One of the lab's first innovations was a powdered non-dairy coffee creamer. This marked the origin of another company strength: more than half of Dean's later growth came from expanded markets and new products.
A major milestone for the company came in 1961 with the purchase of Green Bay Food Company. This acquisition marked Dean's entry into the pickle business and Green Bay continues to lead this profitable Dean division. Four years later, Howard M. Dean, grandson of the founder and at the time a supply officer for the U.S. Navy, was tapped by his uncle, who was then chairman, to join the company. Howard Dean became company president in 1970, along with some other changes in management that signaled a new era for Dean Foods. Included in that new era was an acquisition strategy--perfected by Kenneth J. Douglas--that set the stage for the company's next decade. Most often, Dean absorbed well-known regional brands and companies that were small and healthy. Dean provided them with infusions of capital--especially to upgrade facilities--and access to marketing and management expertise.
Dean was remarkable for its decentralized management structure, allowing acquired companies relative autonomy. In nearly all cases, acquired companies saw increased earnings within a year or two of joining the Dean family. With one exception, all acquisitions through 1992 were privately held companies, often family owned. While other industry giants relied on brand-name, premium-priced products, Dean made its reputation through low-margin markets, providing regionally labeled goods to leading grocery chains and restaurants. For this reason, the Dean name was often not as recognized as some of its regional product lines. The company built its success on local favorites.
Expansion in the 1960s and Beyond
Dean acquired a few more Midwestern dairy concerns in the 1960s, including Wisconsin's Fieldcrest Sales, purchased in 1966. Changes in the dairy industry, where competition necessitated economies of scale, caused many smaller companies to look to Dean for survival. Seven out of the 12 companies Dean acquired up to 1991 had approached Dean. Gandy's Dairies, Inc., of Texas was acquired in 1976, followed by Bell Dairy Products and Price's Creameries in 1978. Creamland Dairy of Albuquerque, New Mexico, also joined the family that year. In 1980 Florida companies McArthur Dairy Inc. and T.G. Lee Foods, Inc., were purchased, granting Dean a solid entry into that region. Later, Hart's Dairy of Florida was added to that state's holdings. Moving out of the largely Midwestern markets proved profitable for Dean as early as 1985, when its Southern and Southwestern regions became the company's strongest performers.
Dean began serving Pennsylvania and eastern Ohio with its 1984 purchase of a Sharpsville, Pennsylvania, dairy. A Kentucky-based dairy specialty company brought Dean into that area through a 1985 acquisition. Dean's sales hit the $1 billion mark in 1985, after 13 consecutive years of record earnings. Early that year, Jewel Food Stores was forced to close its own dairy operations after an outbreak of salmonella. The Chicago-area Jewel stores at that time accounted for nearly one-third of retail grocery business there. Dean stepped in to assist Jewel, providing the stores' fluid milk supply within 48 hours of the onset of the crisis. That single market accounted for nearly 90 percent of Dean's sales growth that year; however, the growth wasn't immediately reflected in profits because of the costs of expansion and start-up services.
Meanwhile, Dean's dairy division was also benefiting from increased public awareness of the health benefits of calcium. Fluid milk consumption, after 20 years of stagnation, increased in 1984 and 1985. Research linking osteoporosis, or bone deterioration, to calcium-deficient diets not only gave a boost to milk sales, but generated a new product line, as Dean Foods quickly introduced Nature's Calcium Plus and other calcium-added items.
Dairy products accounted for nearly 70 percent of Dean's total sales in 1984. Fluid milk was the largest dairy category at that time, but Dean's ice cream business was also thriving. Dean was area franchiser and exclusive supplier to more than 400 Baskin-Robbins stores in the West and Midwest. Ice cream sales nearly doubled when Dean began supplying Jewel in 1986. Several more healthy dairy companies were added to the fold about this time, including Reiter Dairy, Inc., of Akron, Ohio in 1986. Representing $100 million in annual sales in that state, with excellent brand identity and growth records, Reiter's product line included fluid milk, cottage cheese, and ice cream. Ryan Milk Company of Kentucky, also acquired in 1986, brought with it a line of aseptic products and a distribution network that reached 40 states. Ryan brought Dean solidly into the ultra-high-temperature (UHT) processed products market. UHT products have longer shelf lives and include such things as flavored milks, half-and-half, whipping creams, and non-dairy coffee creamers, of which Dean is the nation's largest producer. With the purchase of Elgin Blenders, Inc., in 1986, Dean began supplying stabilizers and other products to McDonald's Corporation.
While best known for its dairy products, Dean's fastest-growing area was its specialty segment. Specialty foods included such things as pickles, dips, sauces, and relishes. In 1986 Dean merged with Larsen Company to enter the vegetable business. Considered the creator of canned mixed vegetables, Larsen was a cornerstone in the canned and frozen vegetables industry as the processor of such successful retail brands as Veg-All and Freshlike. Larsen's annual sales were $170 million. This acquisition was one of Dean's largest and represented a notable diversification. It also reflected a revised corporate strategy regarding acquisitions--one that targeted companies with larger sales and different markets. At the time, more than three-quarters of Dean's volume was in dairy operations. The expense of this merger, combined with a bountiful crop at that time which lowered prices, hurt Dean initially, but the company recovered. With increased public attention to diet and health concerns, sales of frozen vegetables especially soared in the 1980s. By 1987 Dean ranked third in frozen and canned vegetable sales, after Pillsbury's Green Giant and Nabisco's Del Monte. Dean also began to service international vegetable markets. However, the vegetable glut combined with higher raw-milk prices in 1987 to slow Dean's net income that year. Profits for the company were flat. Whereas the government stabilized prices in the milk industry by buying surpluses, a surplus of vegetables meant only waste and depressed margins.
Dean purchased Verifine Dairy Products Corp. at the end of 1987. The $25 million Wisconsin dairy was quickly computerized and its automated systems updated. Fairmont Products, Inc., of Belleville, Pennsylvania, came on board that year as well. In large part because of these two purchases, Dean's fluid milk sales grew 14 percent in 1988. That same year, Dean spent $9 million to settle a price-fixing case brought by Florida school boards. The charge was that two of Dean's subsidiaries were among ten dairies and distributors that conspired to rig bids for school milk supply contracts in Florida between 1965 and 1987.
Dean greatly strengthened its position in the frozen vegetable market by purchasing Richard A. Shaw, Inc., in 1988. Shaw's annual sales in 1989 were $55 million. The California-based company supplied major grocery chains and food service accounts and was Dean's entry into the West Coast vegetable market. Shaw also helped round out Dean's Midwestern produce line with crops grown mostly in the West. Dean then expanded its canned vegetable business in 1989 with the acquisition of Big Stone Inc. This Minnesota-based vegetable processor had sales of $24 million and two processing plants located near thriving sources of corn, peas, and green beans. Still more prime growing areas were accessed with the 1990 purchase of Bellingham Frozen Foods, Inc., whose plants in Washington and Michigan garnered annual sales of $30 million. A 1988 drought brought prices back up after they had been depressed by the earlier crop surplus, though this same drought depressed milk production.
Dean also made some internal changes in 1989: Howard Dean became chairman; William Fischer became president; and Kenneth Douglas became vice-chairman. The cost of acquisitions and the anti-trust settlement, combined with a drought-related fall-off in milk production, caused a dip in earnings going into 1989. Another drain was the company's unprofitable transportation unit, which operated in a highly competitive market, providing a wide range of transportation and distribution services. Only 20 percent of the division's business was transporting Dean's products.
Dean sold its retail Baskin-Robbins ice cream business in 1989, but continued to be the stores' sole supplier for two of their major distribution areas. Shortly after that sale, Dean acquired Charles F. Cates & Sons, Inc., a pickle processor based in North Carolina with annual sales of $84 million. This boosted Dean's presence in the East and Southeast. Meanwhile, the company was the target of takeover talk and updated its poison-pill strategy late in 1989. Dean also continued its product innovations, introducing a very successful non-fat yogurt with artificial sweetener and Extra Light sour creams and dips. A frozen yogurt, which Dean had introduced 14 years earlier with no success, suddenly began performing well with the trend toward nutritional and health awareness.
Dean launched 1990 with the purchase of Mayfield Dairy Farms, Inc. As one of the largest remaining family-owned dairy farms, Mayfield was a force in the Southeast&mdash′imarily Tennessee and Georgia--with annual sales near $110 million. Another new product was introduced in 1990: a low-fat milk with reduced lactose, a sugar that causes digestion problems for some milk drinkers. Dean also acquired Ready Food Products, Inc., of Philadelphia, a specialty dairy processor representing sales of $28 million. Expanding its specialty food segment helped Dean to balance the shortfall in dairy profits caused by further increases in raw-milk prices in 1989 and 1990. The operating earnings in specialty foods exceeded Dean's dairy products segment for the first time in fiscal 1990.
Three more dairies acquired in early 1991 brought with them $150 million in annual revenues. At the same time, Dean sold its McCadam Cheese Company unit, a private-label, New York supplier of natural cheeses. As raw-milk prices returned to pre-drought levels by summer 1991, the company refocused on its acquisition program. Dean purchased Cream o'Weber Dairy, Inc., of Utah in April 1991. It also acquired Frio Foods, Inc., a Texas-based vegetable processor, and Meadow Brook Dairy Company of Pennsylvania. The Cream o'Weber purchase typified Dean's strategy: even before the acquisition was completed, Cream o'Weber's plants were being consolidated and updated. Another advantage of being part of the Dean team was the sharing between divisions. An example of this came during the frozen yogurt boom in 1990, when Dean's T.G. Lee and McArthur affiliates wanted to enter this market. Starting a new product from scratch might have taken more than six months. Instead, these dairies were able to take advantage of the expertise of a fellow Dean division, Mayfield Dairy Farms, which produced one of Dean's best frozen yogurts. In just about five weeks, these companies had a new product on the market under their own names. Sharing between companies and a decentralized management style are part of what makes Dean so successful.
Dean passed the $2 billion mark for the first time in 1991. However, an excess of crops in fiscal 1992 put a squeeze on Dean's profits in the vegetable segment. While revenues increased to $2.3 billion, net income dropped to $62 million, down from $72.5 million the previous year. At this time, Dean's vegetable line was 55 percent frozen and 45 percent canned, with roughly two-thirds of its output for private labels. Dairy remained Dean's primary business, with more than 21 milk processing plants and nearly six percent of the total market, making Dean a very close second to Borden, the industry leader.
In early 1993 Dean acquired W.B. Roddenbery Co. Inc., a processor of pickles, peanut butter, and syrup that generated approximately $57 million in annual sales. Based in Georgia, the company's brands had widespread regional name recognition and were expected to help strengthen Dean's existing Specialty Foods segment. Relentless rain in the summer of 1993 seemed to promise relief from the oversupply and resulting low prices that had plagued the vegetable business in recent years; however, Dean found that the weather raised its processing costs without providing immediate price increases, as the company was locked into low-priced contracts with its retail customers.
In January 1994, Dean Foods completed negotiations with Yarnell Ice Cream Co. to manufacture and distribute a line of low-fat and non-fat dairy products under Yarnell's Guilt Free brand, and two months later Dean purchased Birds Eye frozen foods from Kraft General Foods for $140 million. Noting the strength of the Birds Eye brand name, Howard Dean called the purchase "a strategic acquisition" that "positions Dean for volume and profit growth." Dean also announced plans to purchase Curtice-Burns Foods for approximately $173 million; however, the companies were unable to resolve obstacles to the acquisition, and the deal fell through. In early 1995 Dean's CFO, Tim Bondy, resigned abruptly, and Dean's stock dropped eight percent on this news: according to observers, Bondy was the mastermind behind Dean's growth-by-acquisition strategy, and his departure raised eyebrows on Wall Street. Within a week, the company announced that earnings for its third quarter (ending in February) would be substantially lower than previously estimated, and its stock dropped an additional six percent. According to the company, interest costs and tax rates contributed to the earnings decline.
Throughout 1995 Dean continued its shopping spree, purchasing Rio Grande Foods, a $40 million frozen vegetable processor based in Texas; Noral Crosetti Foods, a $45 million frozen vegetable processor based in California; and the salad dressing and dairy operations of Merico Inc., worth about $70 million annually. Whenever possible Dean worked to consolidate operations of its new acquisitions, seeking to effect efficiencies and move production closer to retail markets to reduce transportation costs.
The following year, Dean invested heavily to update the brand image of its dairy line, redesigning its packaging in bright colors with eye-catching graphics. Seeking to strengthen the Dean brand identity in a commodity market, the company began advertising milk's rich calcium content on its cartons and to approach marketing in general with the mindset of a large beverage producer. In this vein, Mayfield Dairy Farms, a Dean division based in Tennessee, developed a highly successful plastic, single-serving milk bottle. A hit with consumers, the plastic bottles were convenient, portable, and saleable in vending machines. Industry consultant Jerry Dryer noted the potential of such packaging for expanding the portability and popularity of milk, observing: "A square carton doesn't fit in the cup holder of your minivan."
By 1996 Dean's rapid expansion into the vegetable business was taking a severe toll on earnings, as excess production, stagnant prices, and weak demand hurt vegetable processors throughout the country. Dean announced that it would undergo a wholesale restructuring, closing 13 plants--including seven vegetable plants--eliminating 840 jobs, and hiring a consultant to examine every other aspect of its business. Its recent acquisitions had made Dean the third-largest vegetable processor in the United States, with vegetables accounting for 20 percent of its revenues. Dean expected the restructuring to eliminate $50 million in costs annually. The restructuring also entailed a shift in focus, with Dean reemphasizing dairy and pickles at the expense of vegetables, particularly canned vegetables.
In January 1997 the company announced the selection of Phil Marineau, the former head of Quaker Oats' Gatorade unit, as president and COO. Marineau replaced Thomas L. Rose, who retired from those positions but maintained a position as vice-chairman of the board. Analysts applauded the selection of Marineau for his extensive experience in packaged foods marketing, an area in which Dean was not traditionally strong. Said analyst John McMillin of Prudential Securities, "As a Dean Foods stockholder, I am thrilled that Dean could find such a qualified person."
Dean soon announced the purchase of Meadows Distributing Company (a $70 million distributor of ice cream in the Chicago metropolitan area) and the $35 million Marie's line of salad dressings, dips, salsas, and fruit glazes. In addition, Dean entered into a joint venture with River Ranch, of Salinas, California, to produce a line of branded fresh vegetables under the Birds Eye name. Fresh produce in U.S. supermarkets was an $18 billion a year business; with the increasing popularity of branded fresh vegetable lines, Marineau speculated that the new venture could soon generate $100 million annually. At the same time, Dean announced that it was investing $10 million to promote its new line of Birds Eye frozen baby gourmet vegetables.
For the 1997 fiscal year, Dean generated earnings of $86.7 million, up from a loss of $49.7 million in 1996. Revenues rose seven percent to $3.02 billion.
Principal Subsidiaries: Bell Dairy Products, Inc.; Cream o'Weber Dairy, Inc.; Creamland Dairies, Inc.; Dean Pickle & Specialty Products Company; Dean Foods Vegetable Company; Dean Dairy Products Company; Dean Foods Company; Dean Foods Amboy; DFC Transportation Company; Fairmont Products; Liberty Dairy Company; Long Life Dairy Products; Mayfield Dairy, Inc.; McArthur Dairy, Inc.; Meadow Brook Dairy Company; Price's Creameries; Reiter Dairy, Inc.; Rod's Food Products; Ryan Milk Company, Inc.; T.G. Lee Foods, Inc.; Verifine Dairy Products Corporation.
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