When the news came out at the beginning of 2017, it was the talk of the town — Bob Evans was splitting, selling off its restaurant business to Golden Gate Capital.
Bob Evans Farms Inc., now comprised of what was formerly Bob Evans Foods, has a five-year supply agreement with the restaurants.
“Most of the time you think that if you bring organizations together, you can save money,” says President and CEO Mike Townsley. “What we found through this process was it was actually lower cost to operate them independent of each other than it was to operate them jointly.”
The restaurant and prepared foods businesses were different, he says. The joint services, such as finance and IT, had to accommodate both operations and it actually took more resources to do that. When the restaurants were sold off, Bob Evans Farms was able to reduce resources and head count.
In the time since, Post Holdings Inc. agreed to buy Bob Evans Farms for an equity value of approximately $1.5 billion. The transaction is expected to be complete the first quarter of 2018 and Townsley will continue to lead Bob Evans Farms.
When Townsley became president of Bob Evans Foods nearly 10 years ago, he wanted to make more strategic decisions and put the food business in the best position for long-term success.
Originally the Bob Evans sausage business was larger than its restaurant line. From 1980 to 2005, Bob Evans grew to almost 600 restaurants and Townsley says considerable capital from the food division, which included side dishes like mashed potatoes, was channeled into those restaurants.
“When we started making those decisions back in 2008, there really wasn’t anything broken about the business at that time. But we looked forward to say, ‘OK, what do we believe this business can be and how do we need to be positioned to take advantage of it?’” Townsley says. “So there’s been a lot of heavy lifting that’s gone on over the last 10 years that got us to this point today.”
In order to take its products national, the company left direct store delivery and started shipping to retailers’ warehouses. A manufacturing network of nine facilities supported that direct store delivery network.
With help from the consulting firm, A.T. Kearney, and a network optimization study, Bob Evans reduced those nine facilities to a more efficient three, using lean manufacturing and additional capital to expand the facilities it kept, he says. In fact, in the past five years, Bob Evans has taken out more than $15 million in costs with lean.
“But that still didn’t address the issue of our fastest-growing line of business, which was almost half of business at the time — our refrigerated side dishes,” Townsley says. “We didn’t control any of that manufacturing; that was all co-manufactured.”
To gain control of such an important component, in 2012, Bob Evans bought one of its co-packers, Kettle Creations, which had a plant in Lima, Ohio. Today, that facility has more than doubled in size.
Poor restaurant performance and an active investor eventually led to the decision that a separation of the food and restaurant businesses was the best way to create shareholder value, Townsley says.
After company debts were paid with the proceeds from the restaurant sale, Bob Evans Farms acquired another refrigerated side company, the Pineland Farms Potato Co. in Maine, and paid out a special dividend to shareholders.
Bob Evans Farms now has three lines of business: refrigerated sides, the largest and fastest-growing portion that represents more than half of its business; breakfast sausages, which has No. 1 market share in the Great Lakes and Mid-Atlantic regions; and its smaller frozen food business. Its customer base is about 65 percent retail and 35 percent food service, and it sells under the brands Bob Evans, Owens, Country Creek and Pineland Farms.
Help for the journey
While the Bob Evans Farms culture of quality products and service remains the same — a famous quote by Founder Bob Evans: “Quality is long remembered after price is forgotten” — the quality of employees has increased during Townsley’s time with the company.
“Because, back in the day at Bob Evans, the currency of the day was tenure,” he says. “If you worked at Bob Evans and obviously didn’t do anything egregious, you were going to be employed here a long, long time. And, again, there’s nothing wrong with that, but we are a publicly traded company. There are performance expectations.”