Tom's Foods Inc. History

Address:
900 8th Street
Columbus, Georgia 31902
U.S.A.

Telephone: (706) 323-2721
Fax: (706) 323-8231

Website:
Wholly Owned Subsidiary of Heico Acquisitions
Incorporated: 1925 as Tom Huston Peanut Company
Employees: 1,583
Sales: $195.7 million
NAIC: 311919 Other Snack Food Manufacturing

Company Perspectives:

Quality snacks for every taste.

Key Dates:

1925:
The company is founded by inventor Tom Huston.
1932:
The bank takes over the company from Huston.
1966:
General Mills acquires the company.
1983:
Rowntree-Mackintosh acquires the company.
1988:
The company changes ownership after a management-led buyout.
1993:
Tom's is sold to Heico Acquisitions.

Company History:

Tom's Foods Inc. is a privately owned, Columbus, Georgia-based company that distributes more than 300 snack food products, 250 of which it manufactures. Tom's specializes in single-serve and vending machine sales. Its business is divided among five food categories: nuts, sandwich crackers, chips, baked good, and candy. In the 1920s, the company was built on its toasted peanuts, but Tom's now offers a variety of flavored peanuts, cashews, pistachios, and sunflower seeds. Peanut butter filled sandwich crackers was another early success and the sandwich category is now supplemented by cheese filled crackers and cream filled cookies. Tom's chips products include potato, tortilla, and corn chips, as well as popcorn, pretzels, and extruded products like cheese puffs. Tom's baked goods include cookies, cakes, and pastries. In the candy category, Tom's sells candy coated nuts, candy bars, hard and rolled candies, and novelty candies. Tom's maintains manufacturing facilities in Columbus, Georgia; Knoxville, Tennessee; Perry, Florida; Corsicana, Texas; and Fresno, California. Although Tom's products are best known in the South, they are distributed in 43 states through company-owned and independent distributors.

1925 Origins

Tom's was founded in 1925 by Tom Huston, who was born in Alabama, raised in Texas, and relocated to Columbus, Georgia. With a penchant for invention, a fondness for peanuts, and a dislike for shelling them, Huston as a young man invented a shelling machine. Peanuts (technically a legume and not a true nut) were originally cultivated in Peru and came to America from Africa by Spanish slave traders who fed them to their captives. Farmers in Virginia were the first to plant peanuts in the United States, but they did not become a popular crop in the Deep South until the 20th century. After decades of cotton cultivation, southern soil was exhausted and rapidly eroding. Ironically, it was a man born into slavery, George Washington Carver, through his research at the Tuskegee Normal and Industrial Institute, who would convince Southern farmers to plant peanuts and soybeans, which--because they were legumes--would restore nitrogen to the soil. In addition, the crops would also provide much needed protein to the diets of Southerners. Carver also developed hundreds of products that could be derived from peanuts, which would become one of the largest cash crops in the South. When Huston invented his shelling machine, however, the peanut was far from an established crop and most farmers could not afford to buy his $5,000 machine, at least not in cash. Instead they paid him in peanuts.

Forever creative, Huston decided to sell roasted peanuts. He was not the first to hit upon this idea. In 1906, an Italian immigrant named Amedeo Obici who was selling peanuts at his Wilkes-Barre, Pennsylvania, fruit stand began jobbing two-ounce bags of peanuts. His business would take on the name of Planters Peanuts. Huston developed his own roasting process, fashioned a toasted peanut log, and invented a narrow cellophane sleeve as packaging. With three employees, he hit the streets of Columbus in April 1925 to sell "Tom's Roasted Peanuts" at a nickel a package. Huston turned to Carver for advice on improving peanut crops, making a number of trips to Tuskegee. Tom Huston Peanut Company was the only one of its kind to seek Carver's expertise. As a result, Huston was able to improve the peanuts crops he relied on, which led to increased growth and new products. Within two years of the company's founding, Tom's peanuts were being sold around the country, generating more than $4 million in sales, and the company was relocated to its present day site. Also during the 1920s Tom's added a line of peanut butter, Red Robin Peanut Butter, and began producing peanut butter sandwich crackers under the Red Robin label. The crackers were made by outside bakeries and prepared in the factory by hand feeding into machines for sandwiching.

Huston continued to grow the business into the 1930s, but his inventiveness got the best of him. His attempt to launch a business in frozen peaches failed, the bank holding his notes foreclosed, and Huston lost his peanut company. Far from ruined, however, Huston would move to Miami, Florida, where he launched a pet equipment manufacturing company called House of Huston.

In 1932, the bank hired Walter Richards as president of Huston Peanut. He then formed an investment group to buy the business from the bank and eventually took the company public. Tom Huston Peanut, as well as the entire snack food industry, enjoyed tremendous success during the post-World War II era. In 1950, the company posted sales of $8.9 million, but five years later that number would grow to $16.4 million. Earnings also showed strong growth, jumping from $2.45 a share in 1953 to $4.34 in 1955. To take better advantage of its close proximity to an excellent peanut crop, the company built 14 silos to replace warehouses for storing peanuts, in this way providing more efficient storage and handling while freeing up more space for manufacturing. Not only was production done in Columbus but also through a dozen affiliates located around the country. For distribution, Tom Huston Peanut steadily added to a fleet of trucks that grew to number more than 1,200. Potato chips and popcorn, made by outside companies under the Tom's label, would also be added for distribution. By the 1960s, Tom Huston products could be found in 44 states, sold through 250,000 retailers. A key to the company's success was its network of independent distributors. Unable to match the marketing budgets of larger rivals, Tom's kept its distributors happy by frequently bringing out new products and offering strong point-of-sale support. Many of Tom's distributors would stay on generation after generation. To keep pace with the rising demand for snack foods, Tom Huston Peanut upgraded its manufacturing facilities, installing new production and wrapping machinery, and opened a state-of-the-art plant in Corsicana, Texas. By 1964, the company was approaching $20 million in annual sales and posting a string of record-breaking profits. It was especially strong in the vending segment.

New Ownership in the 1960s

In 1966, ownership of Tom Huston Peanut passed out of the control of local ownership. It was acquired by General Mills, Inc. for $75 million in stock. The name of the company was now changed to Tom's Foods. While a subsidiary of General Mills, Tom's ran afoul of the United States Justice Department, which charged that the company conspired to restrain trade by entering into agreements with competitors, requiring them to gain Tom's approval before selling their products to independent distributors. Starting in the late 1970s, Tom's attempted to move beyond independent distribution and enter the national supermarket channel. General Mills brought in people with marketing experience in this area, and the Great American Chip product line was developed. However, it never took off, failing to achieve national penetration.

Tom's changed ownership again in 1983, this time to an overseas owner, Rowntree-Mackintosh, which paid $215 million in cash for a company that at this point was posting annual sales in the neighborhood of $225 million. Rowntree-Mackintosh was a British company with roots dating back to 1725, when a Quaker woman named Mary Tuke opened a grocer's shop in York, a city that would emerge as England's chocolate capital. In 1862, the company that Tuke founded sold its chocolate and cocoa business to Henry Isaac Rowntree. In the 1890s, J. Mackintosh Limited, which made soft toffees, was established. Later, the company began making chocolates and other candies, and in 1969 it merged with Rowntree's Cocoa Works. Over the next decade, Rowntree-Mackintosh grew to become an international marketer of confections and grocery products, with revenues in excess of $1 billion. Its best known brands were Kit Kat, Rolo, and After Eight, which in the United States were either licensed or marketed by Hershey Foods. In the early 1980s, Rowntree began looking to the United States, hoping to find an acquisition with a strong distribution network that it could use as a vehicle to handle its products into the U.S. market for itself. Rowntree eventually settled on Tom's to fill that role and later supplemented its U.S. holdings by acquiring Sunmark Inc., makers of Sweetarts, Willy Wonka, and Nerds.

Rowntree's ownership of Tom's would be short lived, however. During this time, the company launched a franchising program for its distributorships, and many of the independents converted to the franchise model. Nevertheless, after five years, Tom's saw its business improve only marginally, with 1987 sales estimated to be $247 million. Snack foods were falling out of favor with consumers, who were paying closer intention to nutritional considerations. The business was also becoming highly competitive as larger companies like Frito-Lay and Borden were able to dominate by spending more money. In January 1988, Rowntree announced that it intended to sell Tom's along with Rowntree Snack Foods in order to concentrate on its core confectionery business. Borden as well as Golden Enterprises of Birmingham Enterprises were reported suitors, but in April 1988 Tom's management team, leading a private group called T.F. Acquisition Corporation, emerged the winner, agreeing to pay $200 million. At the same time, Rowntree found itself the unwanted target of takeover attempts by Swiss chocolatiers Souchard and Nestlé. Several months after selling Tom's, Rowntree would be swallowed by Nestlé in a $4 billion takeover.

Tom's management was headed by president Mike Dillon. Funding was arranged through Citicorp bank. Tom's was back in the hands of local ownership after more than 20 years, and although the company was highly leveraged it was in relatively good shape. During the 1980s, Tom's had upgraded it production facilities, replacing all of its packaging equipment in the previous five years, overhauling the cracker-sandwich production line, and building a new state-of-the-art peanut shelling plan in Columbus as well as new potato chip plants in Perry, Georgia, and Knoxville, Tennessee. As the result, Tom's could put its money to use in growing the business and expanding its network of independent distributors.

Two years after buying the company, Tom's management announced an aggressive five-year plan to grow the business. According to Food & Beverage Marketing, Tom's was the third-largest snack food marketer in the United States, although it trailed Frito-Lay and Borden by a considerable margin. Tom's strategy relied on the expansion of its franchisees to achieve greater coverage, which would translate into more calls to customers and better service. The company's system included more than 700 independent distributors, of which 320 were franchise operations. The goal was to grow that number to 1,200. In order to support that level the company would have to increase its sales by an estimated $400 million. Tom's was strong in the vending machine channel and with mom-and-pop retailers, which together accounted for about 40 percent of all sales. Convenience store sales were also strong, but Tom's was able to achieve only limited sales to supermarkets, where the snack food category was experiencing its best growth. The competition for supermarket shelf space was cut throat, with stores charging exorbitant slotting fees--from $200 to $1,000 per foot of shelf space for annual contracts--and manufacturers all too willing to pay. Even some independent retailers were now demanding slotting fees if they were a dominant force in their local markets. Given Tom's unsuccessful efforts a decade earlier, when it had the backing of General Mills, to make inroads into supermarket sales, the company's chances to achieve a better result under more difficult conditions appeared unlikely. The second part of Tom's strategy was adopting "unique price points," providing value to consumers and higher margins to retailers.

However, this idea, even when coupled with traditionally strong customer service, would not be enough to overcome disadvantages in the marketplace, and Tom's would fall far short of its goals.

Heico Acquires Tom's in 1993

In May 1993, Tom's was acquired by Heico Acquisitions, a Chicago-based investment company. Heico was founded by Michael Heisley in 1979 after buying conglomerate Conco, Inc. He sold all of Conco's assets except for Spartan Tool Company, maker of sewer cleaning equipment, and Field Controls Corporation, which made climate control components. Heisley then adopted the Heico name and during the 1980s began buying up distressed manufacturing companies in the Midwest, preferably business-to-business manufacturers, at a time when many Rust Belt factories could no longer compete against foreign companies. Heisley bought these companies on the cheap, then turned them around. After the region began to recover, Heisley looked elsewhere for opportunities. In the late 1980s, for example, he acquired Nutri/System, which was on the verge of bankruptcy. Buying Tom's Foods was out of character for Heisley, but he was a difficult man to pigeonhole. He would buy the Vancouver Grizzlies National Basketball Association team and at one point attempted to acquire New York's upscale department store Barney's, Inc.

Over the next decade, under Heico's ownership, Tom's upgraded its information technology and production facilities. It also moved away from the independent distributor model, instead launching a company-owned and operated direct store delivery/vending distribution network. As a result, Tom's gained better control over sales and improved earnings, but this did little to change the company's underlying limitations. Because it was too small to compete against the giants in the snack industry, sales fell below the $200 million level in fiscal 1995. A new management team was hired in January 1995, headed by Rolland G. Divin, the former CEO of Chun King, Inc. Soon a new program was instituted to increase profitability, update old products and introduce new ones, increase operating efficiencies, and expand the company's distribution network, but as Tom's entered a new century, these changes provided little help, and the company posted a string of losing years. Tom's carried too much debt and, according to Moody's, had a negative net worth. The Tom's brand remained strong in the Southeast and Southwest with its single-serve products sold in vending machines, convenience stores, and other small retailers, but it was not competitive in the supermarket and mass merchandise channels. Tom's had a rich heritage and strong brand recognition in some parts of the United States, but its future as an independent company was very in doubt.

Principal Competitors: Kraft Foods Inc.; Lance, Inc.; Wise Foods, Inc.

Further Reading:

  • Chandler, Susie, "What Would Columbus, Georgia Be Like Without Tom's Foods, Inc.," Columbus Times, May 10, 1987, p. B3.
  • DuBois, Peter C., "Goobers to Cashews," Barron's National Business and Financial Weekly, June 19, 1961, p. 11.
  • Hallman, Tom, "Tom's Getting Back Its Hometown Flavor," Atlanta Journal, May 31, 1988, p. E1.
  • McDermott, Michael J., "Tom's Wants More," Food & Beverage Marketing, October 1990, p. 16.
  • Willatt, Norris, "Profits in Nibbling," Barron's National Business and Financial Weekly, June 4, 1956, p. 5.

Source: International Directory of Company Histories, Vol. 66. St. James Press, 2004.