There's a basic rule in business: the lower your unit price, the faster you ought to get paid. And it spells out one of the main challenges for Tom Shingleton, founder of WonderBake Inc. in Canton. How do you hang on a year for payment when you're in the business of producing $3.99 cookie sheets?
That's not what Shingleton was thinking about in 1992, when he left Ekco Housewares Inc. after 21 years to start his own company to make non-stick bakeware.
He was thinking about all the things that have gone right, such as building sales volume-which should reach $2 million this year-by landing contracts with high-volume retailers including Target and Wal*Mart.
Shingleton, who runs his 12-employee company with son Ted, has no delusions of surpassing his former employer, a $271-million-a-year housewares icon. But he does hope Ekco executives feel some heat in the kitchen as WonderBake products take over more and more of their shelf space.
"There appears to be enough room for all kinds of price points," says Perry Reynolds, spokesman for the Chicago-based National Housewares Manufacturers Association. "This is a David-and-Goliath story that bears telling."
But if WonderBake is going to hit its goal of capturing just 10 percent of the $200 million-a-year bakeware industry, Shingleton is going to have to overcome one big obstacle: the surprisingly seasonal nature of his business that means spending an entire year planning to do two-thirds of his business in the fourth quarter.
Tom Shingleton started at Ekco in 1964 as a manufacturing engineer. He left in 1973, but was asked to return seven years later as manager of the Canton plant. He went on to manage the Massillon facility. The sale of Ekco twice during the 1980s-and the accompanying upheaval-soured Shingleton's aim of retiring from the company.
Shingleton, who left Ekco in 1992, attracted eight investors to underwrite foray into the industry of discount silicon-coated bakeware. "I expected the first year to conquer the bakery world," he chuckles.
Shingleton's first challenge was finding a plant. He needed at least 20-foot ceilings and enough floor space to run an assembly line where bakeware is hanged then robotically coated and cured in 200-foot ovens. The North Canton complex he found offers 40,000 square feet.
WonderBake launched production on February 1995 with three cookie sheets and a pizza pan. Tom and Ted quickly secured appointments with six significant retailers: Acme, Dollar General Stores, Meijer Co., Federated Wholesale, Marc's and Wal*Mart.
"We sold three of those appointments," laughs Ted,. "We said, 'Hey, this is good.'"
Surely, business couldn't be this easy, they thought.
Wal*Mart's contract ended up being a one-time shot for a holiday shipment of cookie sheets.
"We were a promotional company the first two years, just like with Halloween candy and Valentine's cards," Tom says. "We'd disappear at Christmas and you'd still see the other company sitting on the shelf."
The father and son faced two major obstacles in landing new accounts. With only four products out of the 13 standard items that account for 95 percent of bakeware sales, they couldn't be a retailer's one-stop supplier.
"Customers would say, 'Why should I buy three from you and the rest from someone else?" Ted says.
The other issue was retailers' loyalty to suppliers such as Ekco and Newell. They were reluctant to squeeze shelf space and risk angering their longtime suppliers for an unfamiliar start-up.
In its first year, WonderBake generated a slim $300,000 in gross sales and ran production lines for only four months.
Costs were modest, however, because of the surprisingly low labor costs.
Tom designed the plant to follow a process he helped roll out at Ekco: hanging the product on conveyor lines by hand, then coating with robotic sprayers. The rest of the work, sorting, loading, unloading, labeling and boxing is handled today by seven plant workers.
The Shingletons limped through 1996-their second year of operation-with a continued dependence on seasonal orders. Sales reached $500,000.
Tom Shingleton started the business, knowing it would be seasonal. Relevant factors: college students' arrival in bare accommodations; an increase in baking resulting from cooler temperatures; and, of course, holiday goodies.
But to work toward full-time production and a year-round business, WonderBake had to expand its product line as quickly as possible, offering such standards as cake pans and muffin tins.
Cost was the obstacle: Creating a single stamping tool cost $60,000 to $80,000. Shingleton still managed to finance five new products in 1997 and three more in 1998.
This January, at the National Houseware Manufacturers Association show in Chicago, the Shingletons were proud to finally display all of the 13 basic bakeware items. "We got some credibility," Tom smiles. "We couldn't even get into that show before."
Though they now offer a full product line, the Shingletons are still fighting for shelf space and trying to give retailers a reason to buy from WonderBake.
In pitching Target in 1997, the Shingletons tossed out the idea of supplying the bakeware under Target's own successful private label, Trend Basics. Stores often have their own labels of clothing and household items. "We said, 'Why not bakeware?" Ted says. "They loved the idea."
Retailers use private labeling because it boosts their profit margin. "They can make 10 points more margin on our products than others," Ted says.
Reynolds, of the trade association, says: "Bakeware has traditionally been a branded product. [But] if a retailer wants to position opening price points, I suspect private label might be a good strategy."
Tom says WonderBake's cost of goods is roughly the same as Ekco's, for example. The difference is that WonderBake, for a variety of reasons, is willing to accept a lower margin.
"Customers at first would say, 'Wait a minute, I don't want to hurt my brand leader,'" Ted says. "But they like the private label. It didn't take us long to figure this out."
Tom maintains that WonderBake's non-stick coating process produces a pan that's better-or at least as good-as Ekco's. The spray-coating process was developed for WonderBake and is proprietary.
In any case, a handful of retailers, including West Coast giant Fred Meyer Inc., think enough of WonderBake's quality to sell it as private label-a market that now accounts for nearly half the revenue.
"That's our niche today," Ted says. "There's no doubt. Private label is the way to go."
While a broader product line and customer base are helping to cut the seasonality of the business, WonderBake still has to conquer the critical issues of projecting sales and managing cash flow.
Here's how big an issue it is: While WonderBake did $1 million in revenue in 1997, half of that wasn't collected until this year-more than a year after the Shingletons sat down to plan 1997 production.
On the front end, the raw materials come from overseas and must be ordered three to four months ahead of production.
The Shingletons start projecting for the year in December. Half the raw materials needed are ordered in January. Projections are revised in March, and a second shipment is ordered, even though the first shipment hasn't arrived yet.
"You know what they say: Projections are either lucky or wrong." Ted says.
Production begins in April for the fall season. The second metal shipment arrives in August. Heavy production runs from August through October.
Then there's the back-end problem: getting paid.
Most major retailers take two months. "Sixty days goes without saying," Ted shrugs. "They'll sometimes even ask for 2 percent/60 days."
On average, WonderBake gets paid 65 to 70 days after delivery, meaning raw materials that were purchased in December are received in March, stamped over the summer, delivered as finished product in September and paid for by the retailers in December-though the holiday rush often slows d own payment by retailers until after the start of the new year.
Tom says the only way he's been able to make it work is by securing extended terms of 60 days from his own suppliers for steel, coating and packaging.
He believes he's negotiated such favorable terms because of his own industry connections, as well as empathy from companies "because they know I'm a new business and they know I'm seasonal."
Tom says he's avoided a serious problem to date, in part, because he hasn't taken equipment loans or a line of credit. "I won't rule that out though."
Living within your means as a start-up is "very difficult," he says. "With capital expenses, I plan in the first half, purchase in the second half and pay for it the next year because that's when I know I'll definitely have money."
There's one other area of pressure that Shingleton feels from his customers: packaging.
Target, which has a dozen distribution centers and 800 stores, asks for boxes of six pans instead of the dozen that WonderBake used to pack into a single carton. That's how the retailer reduces the risk of excess inventory on shelves.
So WonderBake has to buy twice as many cartons for the same amount of sales. "What does that do to my costs?" Ted comments.
Managing WonderBake will become easier, Tom Shingleton believes, as it gains customers.
Target is by far WonderBake's largest customer, though Tom won't offer figures.
While Ted would like to increase sales to Target, he recognizes the danger. "All it would take is a new merchandise manager to come in and want to go upscale. We'd be out of there."
This year represents WonderBake's first year with its full product line, though production is at only running at one-sixth capacity, which is 6,000 pans a shift.
Tom expects to increase capacity in 1999 with another line of spraying guns. "Next year's going to be our milestone," he says.
The Shingletons can't help but fantasize about the future. And those dreams are a little easier to grasp on occasions when they stumble into a Target store, gravitate to the bakeware section and find their product-not Ekco's-on a coveted aisle end-cap.
"I always knew if we got beside their pans," Tom says, "we could compete."
"The key to our success," Ted adds, "is to have stuff on their shelves everyday, not just at the holiday."