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.”
When Townsley came into the company many leaders had grown up through the system, spending decades at Bob Evans. They didn’t know anything else. So, as Townsley evolved the food division into more sophisticated manufacturing and employees left or retired, management brought in people who could help on that journey.
For example, he says the company’s sales department went from transaction selling to local market managers to category managers. Of the sales force of about 20, only a half dozen had the necessary skill set and attitude to make it through that transition.
“The rest, we brought in from larger organizations like a Sara Lee or Kraft,” Townsley says.
It wasn’t easy to reorganize the employees, though, after the restaurant sale. The food business was efficient, so there wasn’t much excess, but management had to identify who belonged in food and who belonged in restaurant. Then the middle group had to either go to food, restaurant or be eliminated. Bob Evans Farms ended up with about 1,000 people.
“We were actually more cost effective by separating the business than by running them together,” Townsley says. “Those conversations are never easy, but as far as the health of the business, it was decisions that we had to do.”
A clearer picture
Now that the restaurant and food businesses have been separated, it’s easier to tell the long-term growth story. Townsley says the company didn’t always know how the restaurants were going to perform from quarter to quarter. Bob Evans Farms wouldn’t be set up to take advantage of that growth without selling off the restaurants.
In his new role as president and CEO of Bob Evans Farms, which started this year, Townsley is spending a lot of his time talking about that growth story and plans for the future.
The company has demonstrated double-digit growth in its refrigerated side dish business for 20 years, and he believes that won’t stop any time soon with market trends, such as consumers shopping more on the perimeter of grocery stores for fresh and refrigerated products and Bob Evans Farms’ expanded capacity.
The company still had to make adjustments along the way. Bob Evans added a fourth line to its Lima facility last fall, but Townsley says that expansion should have taken place 12 months earlier.
“We were a little slow on the uptake as far as not really understanding the needs, and so even though we got through the last holiday season, we would’ve been better off if we would’ve had that line earlier,” he says. “I don’t think we missed sales, but we probably caused ourselves to be not quite as efficient and cost effective as we could’ve been if we would’ve started up a little bit earlier.”
When it comes to growth and strategy, you can learn from your experiences. The late decision to add another line, however, helped Bob Evans Farms determine it should go ahead and pursue another acquisition — Pineland Farms.
Townsley says the business would have been out of capacity in the next 18 to 24 months, so it needed to either build a facility or acquire someone. Building a new facility can cost $100 million before selling the first $3 package of mashed potatoes because of costs from the construction and startup.
With only five U.S. facilities that produce side dishes at the size and scale Bob Evans Farms needed, owning two of the five allows it to control a significant amount of the manufacturing capacity. The company has more than 50 percent market share of refrigerated dinner side dishes in the country, as well as a number of private label clients.
Bob Evans Farms has the capacity now to grow, especially with more resources and reach under Post Holdings. It plans to distribute more products to the West Coast, get into new markets like convenience stores and to increase its food service clients.
“We’re getting calls almost on a weekly basis from large national chains of restaurants that are looking for solutions to help them with some of their labor challenges in the back of the house,” Townsley says.
A five-pound bag of pre-cooked mashed potatoes that is made with real potatoes, milk and butter is less labor intensive than someone peeling, mashing and boiling potatoes in the kitchen.
He’s excited about the future.
“We are pleased at the prospect of combining our complementary portfolios with Post Holdings,” Townsley said in a September press release when the sale was announced. “This transaction creates enhanced and certain value for our stockholders, while providing further resources and reach to deliver the Bob Evans experience to a broader audience of consumers and retailers. We are very proud of our 70 year history as a beloved brand and eager to begin this next chapter of growth.”
- Take advantage of opportunities with strategic thinking.
- Sophisticated operations require the right people to run them.
- Tell the story of your long-term growth strategy.
The Townsley File:
Name: Mike Townsley
Title: President and CEO
Company: Bob Evans Farms Inc.
Born: Xenia, Ohio
Education: Bachelor of Science in agriculture, with a background in animal science/meat science, The Ohio State University
What was your first job and what did you learn from it? Baling hay. You quickly learned that your skill set dictates what part of the process you wanted to be in.
So, you didn’t want to be up in the hayloft, stacking hay in the hot barn? Well, unfortunately, I became proficient at it, and they wanted to keep me there.
What business leader do you most admire and why? A gentleman that ran Iowa Beef Processors, named Bob Peterson. I probably learned as much from Bob as anyone. Bob was a real driver of the business, and literally he was, for the meat industry, kind of a Vince Lombardi. He would call president staff meetings, essentially it was corporate management — and at that time, I was on the sales and marketing side. Three or four times a year, he would have these meetings and he literally approached things like a football coach. When you left that meeting, you were ready to run through the wall because you believed that we were the best in the industry and that we were going to crush our competition, because we were the low-cost producers and we did things better than everybody else.
What do you like to do when you’re not working? I have three children: one works in Washington, D.C., the other is in New York City and my other son is in special operations in the Navy. So, we spend a lot of our time visiting and traveling with them.
What’s your favorite dish to order at the Bob Evans Restaurants? I stick to the Rise and Shine, which are the basic two eggs, sausage, hash browns and toast. But there is a unique product in the restaurants that my grandfather introduced me to at Bob Evans Restaurants some 50 years ago, and that’s deep-fried cornmeal mush.