Jonathan Katz

The last several years haven't been kind to Chicago's candy-making industry. In 2001, Mayor Richard M. Daley pleaded with Congress to revise the U.S. sugar policy after Brach's Confections Inc. announced it would cease operations at its Chicago confections plant by 2003.

Most recently, the Archibald Candy Corp., the parent company of Fannie May and Fannie Farmer candy, closed and filed for bankruptcy in January. Employment by Chicago's candy manufacturers has fallen from approximately 15,000 workers to 8,000 since 1970, according to published reports. Yet, somehow, Tootsie Roll Industries Inc. continues to thrive in a struggling market.

Headed by the husband and wife team of Melvin and Ellen Gordon, the company's 2003 fourth-quarter sales of $92.1 million were 2 percent higher than fourth quarter 2002 sales, according to the company's most recent financial statement. With approximately 1,950 workers and annual sales close to $400 million, President and COO Ellen Gordon attributes much of Tootsie Roll's continued success to effective promotions and marketing, and selective acquisitions.

Whether it's the legendary Tootsie Roll -- the company produces more than 60 million a day -- or more recently acquired brands such as Junior Mints, Charleston Chew or Sugar Daddies, the Gordons stick with tradition by packaging all of the company's brands in its brown, red and white image. And the Tootsie Roll, though slightly smaller than the original, still sells for the same one-cent unit price that it did more than 100 years ago. Automation and technology have helped keep the Tootsie Roll at the same price, Gordon says.

"We update our products to make our packaging contemporary and fresh, while we also maintain some of the old nostalgia," Gordon says. "And that's really important because, while we want to perpetuate some of our products as part of Americana from generation to generation, we have to make sure we're contemporary, awesome, cool."

Even diet fads don't seem to affect business. Most of the candy is low fat, and Tootsie Pops contain no fat.

"There is a place in a well-balanced diet for a sweet or a treat," she says. "We believe that, and our sales have been very, very good."

A family affair

At age 71, Gordon doesn't have the typical corporate executive background. She spent the first 20 years of her "50-some-year" marriage to Melvin raising their four daughters, while Melvin, 83, has served as chairman of Tootsie Roll since 1962.

Gordon studied at Vassar and Wellesley colleges while starting a family before transferring to Brandeis University, where she first majored in mathematics and then in Russian. She says she always had an interest in linguistics, and that it has helped her with analytic work in business. She attended Harvard graduate school before leaving to join her husband at Tootsie Roll.

"Many years ago, as a housewife, Ellen listened to business skills and became attuned to them and became enamored with business as a career," says Melvin Gordon. "She's had a good background by listening to the problems I faced in business."

In 1978, Ellen Gordon was one of only two women to be elected president of a company on the New York Stock Exchange. In a time when the feminist movement was still gaining steam, Gordon was doing the unthinkable. It was so uncommon that she says she would receive letters addressed to Mr. Ellen Gordon.

"There just weren't very many women executives -- it was very scarce, so it was different," she says. "People weren't used to seeing women as executives. I think men weren't used to having women in their groups, and I think it was an adjustment. It was an adjustment for women, too, and a lot of that is better now, although it is continuing."

Gordon considers her husband a mentor, someone who was instrumental in her learning process as a businesswoman. But that doesn't mean the couple always agrees on everything. To resolve disputes, the two negotiate like typical business partners would.

"We've had a pact since we began," says Melvin Gordon. "We don't do anything until we lobby each other until we come to a consensus."

Ellen Gordon says that, for the most part, the system works well.

"I've done it for so many years that I'm used to it," she says. "You've got to talk it out, persuade each other. The awful thing is he tried to lobby me in the middle of the night at two in the morning.

"He would tap me on the shoulder and say, 'What do you think of ... '"

Staying ahead of the pack

Acquisitions have played a major part in Tootsie Roll's ability to not only stay afloat while others sank but in its ability to increase profit margins. In 1988, Tootsie Roll bought out the Charms Co., known for its Charms Blow Pops. That investment made Tootsie Roll Industries the world's largest lollipop producer.

Five years later, the company purchased the caramel and chocolate brands of the Warner-Lambert Co., which included Junior Mints, Sugar Daddies, Sugar Babies and Charleston Chew. And it ventured into the cotton candy business in 2000 with the acquisition of O'TEC Industries and its Fluffy Stuff Cotton Candy. Also that year, it acquired Andes Candies, which includes the Andes Créme de Menthe Thins, Cherry Jubilee Thins and Toffee Crunch Thins, as well as a line of Mint Patties.

A lot of care goes into purchasing another company or product.

"It has to be a brand," says Ellen Gordon. "And it has to have a niche, a message, and we take a look at it and see what we can bring to the table, if our marketing or manufacturing expertise can help it. We have to look at it and see what potential there is for us and how it fits into our organization."

Tootsie Roll has walked away from some deals that management did not consider "the right fit for various reasons," Gordon says. But there are still deals to be made -- the company plans to continue growing its line of brand names to keep it going for another 100 years.

"We keep our nose on the times," Gordon says. "Styles have changed. We keep coming out with new products and things that would fit the times better and fit the consumer better at that time."

The company also continues to invest in its own equipment to stay lean and productive. Tootsie Roll invests millions of dollars to ensure that its plants are state-of-the-art, Gordon says. The company continually implements new equipment and updated information technology to run more efficiently, using its in-house design team to build some of the machinery.

Monitoring costs

As the race for the White House heats up in the upcoming months, free trade and the loss of manufacturing jobs -- including those in the candy-making industry -- will be hot campaign issues.

Many in the industry blame government subsidies to sugar growers for the rising cost of sugar. Tootsie Roll has tried to combat the problem by buying futures for sugar to hedge. However, Gordon says sugar isn't the only cost factor to monitor; corn syrup, cocoa, chocolate, packaging and labor also play a major role.

Gordon says she can't comment on whether the same issues that have shut down other candy manufacturers or driven them out of Chicago and the United States could also force Tootsie Roll out of the area. (The company also has plants in Tennessee, Massachusetts, Wisconsin and Mexico City.)

"We're happy to be here," Gordon says. "We've been here since the 1960s."

Gordon says she and her husband eventually plan to hand the business over to their four daughters, who are all experienced business professionals.

Bottoms up

Brainstorming for new ideas at Tootsie Roll doesn't always start at the top; the process often flows from the bottom up. Gordon says the company cross-trains its employees in various areas to encourage creativity, and she has an open-door policy in which any employee may request an appointment to speak with her.

"We try to get the ideas of the people who work for us to come out because we know they have the key," Gordon says. "As the employees begin to get in touch with you, their confidence increases and our confidence in them does, and then their performance increases."

Despite reports of a recent labor dispute and threatened strike by one of the company's unions -- the union in February ratified a new four-year pact --Gordon says employees tend to stay at Tootsie Roll for their entire careers.

"I like that because it gives us a chance to know everybody and their families, and I like having that feeling that it's a good company, a profitable company," she says. "I want people to be happy. They spend a lot of time at work and you take them away from their families by making them come to work, so I want it to be a good place. But it's not always perfect. Some days it's not so easy."

Melvin Gordon describes his wife as a persistent leader with an uncanny ability to multi-task.

"Ellen has a sharp, keen mind and the ability to see into the future," he says. "She comes in with a list arm's length long and gets everything done in a day. She won't take no for an answer."

HOW TO REACH: Tootsie Roll Industries, (773) 838-3400 or www.tootsie.com

Wednesday, 17 March 2004 11:58

The Gordon file

Born: 1931. New York

 

Education: B.A., Russian, Brandeis University

 

First job: Giving piano lessons to neighborhood kids

 

Career moves: Started working at Tootsie Roll in 1970 as a corporate secretary. Moved up to investments, then vice president of product development and quality assurance before being named president and chief operating officer in 1978.

 

Boards: Northwestern Kellogg School of Management, Harvard Medical School, University of Chicago Pritzker School of Medicine, Unilever Bestfoods, Stanford School of Business

 

What is the greatest business lessons you have learned?

 

People. They truly are the company's best, most precious assets. We make sure to protect our brands. You have to be lean. Be frugal, but spend on opportunities. Make investment spending in your products and your brands.

 

What has been your greatest business challenge, and how did you overcome it?

 

Creating profitable sales. Purchasing a quality product that has the same formula as the original one for about 107 or 108 years now. The quality has to permeate almost every aspect of what you do, and you have to be sure that you never cut your quality. We invest a lot of money in our own company.

 

Whom do you admire most in business?

 

There are so many wonderful executives I can't think of one in particular. Certainly the founders, the Andy Groves of the world. I admired them for their hard work, innovation, their integrity, their creativity and their ability to build teams.

Wednesday, 17 March 2004 11:57

The entertainer

Richard Melman's entrepreneurial career began about 40 years ago, with $3,500, a partner and an ad in the Chicago Tribune that said "inventions wanted will finance."

Ten years later, Melman opened R.J. Grunts, a trendy burger and shake joint, which became the first of more than 70 concept-based restaurants nationwide and in Japan that comprise Lettuce Entertain You Enterprises Inc. (LEYE).

Innovation and an unconventional management style have helped Melman grow LEYE into a privately held company with an estimated $210 million in sales in 2002, about 5,000 employees and more than 40 business partners.

"I sort of like to think of myself as the daydreamer of the company," says Melman, LEYE chairman of the board. "I don't sit in a lot of board meetings and stuff. I like to be where the public is. I like to be in the restaurants. I like to be working with the partners and their development."

Melman continues to expand and dream up new ideas for his restaurants, which feature everything from Spanish tapas (Café Ba-Ba Reeba) to French cuisine at the Eiffel Tower restaurant in the Paris Las Vegas Casino Resort. He says there are five or six developments in the works, including a new Café Ba-Ba Reeba in Las Vegas.

Melman spoke with Smart Business about the state of the restaurant business and how LEYE continues to expand in an increasingly competitive market.

 

With more than 40 corporate partners, what's the key to maintaining strong relationships with your associates?

A number of years ago, people would call me and say, 'How do you set up your partnerships? How are you able to make them work?' And I'd always turn them over to my lawyer.

He called me one day and he said, 'You know, Richard, what I do is not magic in the way we put together the deals for partners and so forth. It really has to do with the fact that you like partners.'

I think if you trace back in my history, you'd see that I like partners. Obviously, I had an opportunity to do things by myself but found that I could feel better about what we did if I had partners who cared. So I never minded sharing. My goal is not to be the richest guy in the world, and I think it really starts from the fact that I like partners and understand partners and partners have been good luck for me.

 

How do you manage disagreements with partners?

Often, I give up the stock but I don't give up the control. I think ultimately there needs to be a mechanism to be able to resolve disputes, and I keep control of that.

So I might be involved in a deal where I control 22 percent of the stock, but I'll have the voting rights.

 

Where do you get the ideas for your menus and styles of restaurants?

 

I've always paid attention to what people need. I also look for holes in the marketplace.

There's certainly a lot of Italian restaurants out there, but if I can figure out a way to do an Italian restaurant that hasn't been done in Chicago, I'm usually interested in it. My sons are traveling in Italy right now and have called me a couple times to tell me about things that they've seen and enjoyed, and I've picked up some ideas just from what they've said.

Let me put it this way; the hardest thing for me is to decide what type of restaurant I want, and I'm talking about going into details. That is the hardest decision to make.

Then I have to surround myself with the people who can make me realize that dream, and it usually starts with food people. So I'm never far away from our test kitchen. I'm never far away from the people who have the talent to make our idea come through, and it always starts with the food.

 

How do health trends, such as the recent low-carb craze, affect the restaurant business?

 

The first restaurant that I opened, R.J. Grunts, actually had fruit juices that were made to order, and we had natural biotic food and we had organic food, so I was aware of health and food early on. The funny part about it was the natural biotic food did not work very well.

What did work in those days was the vegetarian stuff. People didn't understand it so much. It wasn't that important to them. After all these years, it seems people are really serious about it, and so I think it's a very important thing, and I think it's important to have choices for people.

Whether it's the Zone diet or the South Beach diet or the Atkins diet, I don't know what's going to be en vogue a year from now, but I know people are certainly more concerned with what they eat.

 

How important is staff training with such diverse restaurants?

 

It's crucial. I also get involved with that a lot. We're always re-examining how we do things.

We made a decision that we want this company to go on for many years. We're not a public company; we're a privately held company, and we want to be around for another 33 years, and I think a lot of it has to do with our culture, and our culture has to do with the hiring, training and developing and keeping people happy.

The people are Lettuce Entertain You. The people are Richard Melman. I don't think there's a year that goes by where we don't change how we train and develop.

 

How have your personal business experiences helped you to consult at major restaurant chains such as McDonald's?

 

I always think that if I were to go to a real estate consultant, the guy that I would want to go to is a guy who was successful in the real estate business -- a guy that's really done it rather than somebody who's taught a real estate class or has no real experience.

So I thought that we should take our senior guys, and instead of them retiring, they can go into the consulting arm. We don't do a lot of it. We are very cautious about what we take. I take two or three projects a year.

 

What advice is sought by restaurant owners?

 

Some people have a concept that they think is stale. We are sort of farmers. We grow concepts, and sometimes people want to see what should be changing in their concept.

Sometimes people want to tighten up and want to know how we run things. Sometimes they need cultural help.

 

What's the most significant change you've noticed in the restaurant business since you started?

 

I think it's a more sophisticated business than it was. The Internet has made a gigantic difference.

The customers are more sophisticated. The competition is stronger. The ability to make money is more difficult. The government has made it more difficult -- there's more rules and regulations. I think back at it when I started -- I didn't know one-tenth of what I know now, and it was in many ways easier to be successful. I think everything is more advanced.

How to reach: Lettuce Entertain You, (773) 878-7340 or www.leye.com

Wednesday, 02 June 2004 11:52

Built from scratch

While attending the University of Washington in the late 1960s, Pethinaidu Veluchamy sold magazine subscriptions at college campuses to help pay his tuition. Then Veluchamy, who was working as an agent for Time Magazine, Newsweek and Reader's Digest, discovered that instead of selling each magazine separately, he could package them into one brochure and increase sales.

With that experience in hand, in 1974, while working on his Ph.D. in chemical engineering at the University of Illinois, he started his first business, University Subscription Service. Then, using his profits as seed money, he started a mass mailing service for direct marketing companies and a credit card embossing service.

Thirty years after starting the subscription company, Veluchamy owns nine businesses that provide services for the direct marketing industry, Mutual Bank and several real estate holdings. Combined, Veluchamy Family Companies generates more than $225 million in revenue and employs more than 1,500 people, making it one of Chicago's largest minority-owned firms.

His Creative Automation is one of the few companies authorized by the U.S. Postal Service to provide a National Change of Address database for customers. Versatile Card Technology, headquartered in Downers Grove with facilities in the United States, Mexico, Asia, Europe and Brazil, produces more than 800 million credit cards, bankcards and Smartcards per year.

His real estate holdings include a 23-story office building and three 250,000-square-foot, multitenant shopping centers in the Chicago area.

"With all these companies, I have to rent the real estate from somebody, so I started buying the buildings and renting to the companies," Veluchamy says. "It's a nice opportunity. When you make money, you have to shelter it the proper way. Real estate is one of the things that gave me the opportunity to shelter the income."

Veluchamy spoke with Smart Business about his growing enterprises, direct marketing trends and issues facing minority business owners.

 

How have recent federal efforts to eliminate unwanted phone and e-mail solicitations affected your direct marketing business?

 

It has helped us because, with all the telemarketing, they were taking some of the business, and they cannot do that now. So the best way to beat them is through direct mailing. It's a very good idea.

When I go to the office every day, for every five real e-mails I get, 50 of the other ones (are spam). I just delete them.

Not only is it taking up space in the computer, you have to keep increasing memory.

 

How do oversee so many different operations?

 

With each company, I have a president. Me and my family own all these companies. The president runs that company, I give them guidance, and I periodically discuss with them any issues or problems.

I get involved and try to resolve them. I have good people.

 

What challenges do you face as a minority business owner?

 

Honestly, I have been in this country for 30-some years now, and I have never faced any problems being a minority. In most other cases, (customers) go for quality of services, pricing and how good you can deliver a product. If you do that, that's all they care about.

 

What are the main cultural differences between the way Indian and U.S. businesses operate?

 

In the U.S., you don't have any government interference. If you have a business plan, you have the money and the people, you go.

In India, the government interferes. Whatever you want to do, you have to get permission. That's the kind of thing that sometimes I'm not used to. I have a credit card company in India, and I have a spinning mill that employs more than 600 people.

There, the government harasses the union and sometimes causes problems. Everything's a bureaucracy. Right now, it's changing, but not to the level where America is.

I tell you, this is the best country in the world.

 

You've earned degrees in India and the United States. What's the difference between the educational systems?

 

In India, I graduated with a bachelor's in chemistry. At that time, in 1967, when I came to this country, it was different. The educational system is changing throughout the world.

There, I would study maybe one month out of the year. Here ... you've got to do homework every day. Now that's happening in India now, too.

The educational system is good in this country. You get all the lab facilities and all those things. You get a better education here than you do in India, but it is getting better there now.

 

Your bank staff is multilingual and serves much of Chicago's Indian community. Why is it important to you to hire minority employees?

 

When I get business from a company like United Airlines, they promote minority companies. Also, I'm from India, and this country is the best in the world, and I know how much I went through. And if they're qualified, if I can help some people who are available, I do give an opportunity to them.

 

What new business ventures are you working on?

 

With all these companies, we do more than $225 (million) to $250 million, and each company is expanding a little bit because the economy now is picking up. I am expanding my embossing operations, and we are expanding Creative Automation.

We are getting some new technology. If an opportunity comes in with a good business to suit us, I might have an interest to buy that one.

 

What advice would you give to someone who is considering becoming an entrepreneur?

 

The best advice from my experience is that if you want to own or start a business, start on your own. Don't do a partnership with any of your friends or a close relative because that can become a problem.

Start small and grow. Work hard and keep in touch with the business all the time. If you work hard and do proper planning, you will be successful. How to reach: Veluchamy Cos., (800) 773-1588 or www.veluchamy.com