One That Got Away

Minnesota’s candy industry was dealt a blow last year when the acquirer of one of its largest candy makers declared it would move Minnesota jobs to Chicago.

In May 2012, Farley’s & Sathers Candy Company, which was headquartered in Round Lake, Minnesota, merged with Chicago-based Ferrara Pan Candy Company, becoming Ferrara Candy Company. IBIS World estimates that before the merger, Farley’s and Sathers had annual sales of $600 million, making it by far the largest candy company headquartered in Minnesota. Although the company had roots in Minnesota going back to the Depression era, most of the candy was made outside the state.

Founded in 1936 in Round Lake by John Sather, the innovator behind pegboard candy (hanging bagged candy), Sathers was primarily a rebagger that purchased bulk candy to bag and sell commercially. Sathers grew through several acquisitions but never manufactured candy in Round Lake. Sathers linked up with Chicago-based Farley’s in 1996, when Favorite Brands International acquired them both.

Handmade, Yes.
Homemade, No.

The candy industry has low barriers to entry, but it is not legal to sell candy made in one’s home commercially. Katherine Simon, food inspector supervisor for the Minnesota Department of Agriculture, says candy makers must not only be licensed, but also must have an outside facility.

“Anyone who is interested in starting a candy company would need to contact us first,” says Simon. “We inspect the facilities and talk about standard operating procedures, regulations, and the handling of food.” They look at labeling if the candy is sold retail. If the candy is sold in bulk, the company must meet requirements to sell to other food manufacturers.

At least once a year, Simon says, the Department of Agriculture inspects the plants where candy is made to be sure they are clean and sanitary. Annual license fees are based on gross annual sales and are fairly low, ranging from less than $200 for companies with annual sales of less than $125,000 to about $2,600 for companies with annual sales of more than $100 million.

“Start-up costs for candy producers can be fairly small,” says Simon. Compared to meat and dairy, for instance, “it’s a low-risk product. There’s not much specialized equipment needed to ensure food safety.” —F.H.

After a blizzard of ownership changes in the candy industry, Farley’s & Sathers reemerged in 2002 as a private equity firm’s vehicle for repurchasing a collection of orphaned candy brands. Over the next decade, Greenwich, Connecticut-based Catterton Partners gobbled up such well-known names as Brach’s, Chuckles, Jujyfruit, Now and Later, and Rain-Blo gumballs and put them under the Farley’s & Sathers umbrella.

Prior to the merger, Ferrara and Farley’s & Sathers had combined revenue of $900 million, representing 13.4 percent of estimated U.S. candy sales in 2012, IBIS World estimates.

Ferrara began closing the Farley’s & Sathers Round Lake headquarters in 2012, with plans to shutter it early this year, letting go all its remaining employees. The company has not said it will close its operation in Winona, which employs 125 workers, but others expect the plant will be shut down unless it can compete on costs with newer plants in Mexico. Ferrara Candy Company declined to comment for this story.

Sweetening the Strategy

Sometimes a new owner can give an established company a fresh start. Maud Borup began making fine chocolates in her St. Paul kitchen in 1907, but the company has changed hands four times since then. In late 2005, Christine Lantinen, a former product manager for Target who had also worked in the gift food business, saw a chance to take the company in a new direction.

“There was an opportunity to buy the brand,” says Lantinen. “I wanted to take the company wholesale rather than retail, which had been the focus.” Today, Lantinen contracts with candy manufacturers from across the country to sell both private-label and branded candy at retailers like Target, Wal-Mart, Kmart, and Safeway, as well as at specialty stores. With only eight employees and a shift in strategy, Lantinen has grown the Minneapolis company’s annual sales from $100,000 to $15 million.

“I love the category. It’s fun,” Lantinen says. “I never thought when I was a little girl that this is what I’d be doing.”

New candy companies continue to surface, in part because of the relatively low cost of entry and a local culture that appreciates great confectioneries.

Hope Klocker and her sister Jule Vranian started Sweet Jules, based in St. Joseph, Minnesota, with $10,000 in 2009.

While the company’s handling and shipping is done out of St. Joseph, its caramels are manufactured in North Minneapolis, where Sweet Jules rents space from Kindred Kitchens, an incubator for food-based businesses. “It’s a great resource for start-up businesses,” says Klocker.

Klocker and Vranian grew up working in their family’s restaurants in St. Joseph, Kay’s Kitchen and LaPlayette, but caramels were their favorite. “Every Christmas an aunt would send us caramels,” says Klocker. “My sister and I always said someday we are going to make these caramels and sell them.” Vranian, who worked as a pastry chef instructor at Le Cordon Bleu in Mendota Heights, refined the recipe, and now their caramels are offered in nine flavors including bananas Foster, Sicilian orange, cafĂ© Italiano, and salted.

The sisters have two part-time employees year-round, and their staff increases to about four employees during the high season. They sell mostly online and to stores in Minneapolis, Klocker says: Sugar Sugar, Salty Tart in the Midtown Global Market, Surdyk’s, and France 44 Cheese Shop are among their customers. “We are growing fast,” she notes with pride. “Our product is a high-end artisan candy made in a small factory with the highest-quality ingredients. We use only cane sugar. We use the best butter and cream. We don’t use any stabilizers or additives.”

Artisan Versus Big Candy

Artisan candy makers do appear to be making a comeback, says analyst Tang. “Small-batch candy is very nostalgic. More care and effort is put into these candy products. Artisan candy is handmade, many are high quality, even organic.” Such artisans are to the candy industry what craft beer makers are to brewers, she notes.

The challenge for Sweet Jules and other startups is distribution. “You have to talk to store managers and get them to try your product. There are a lot of candies out there,” says Klocker.

Brian McElrath, owner of Minneapolis-based B. T. McElrath Chocolatier, Inc., agrees. “Artisan candy makers are popping up all over the place,” he says. “Barriers to entry to make a chocolate truffle are very low.”

He started B. T. McElrath in 1997 with an investment of more than $100,000 and now has eight full-time employees, leasing 4,000 square feet of manufacturing space in Northeast Minneapolis that once housed the Betty Crocker test kitchen and General Mills research labs.

Pearson's Greatest Hits

The Salted Nut Roll turns 80 this year, but it’s a youngster compared with the Nut Goodie, which Pearson’s introduced in 1912. With its 1951 purchase of St. Paul–based Trudeau Candy Company, Pearson’s acquired the famed Seven-Up Bar, which is no longer made, and Mint Patties. In 1998, the company purchased the Bun Bar trademark from Clark Bar America, which was headquartered in Pittsburgh.

An artisan chocolate maker, McElrath is a distribution whiz. “We have national distribution for the most part. We are in at least 35 states, and I have a terrific network of brokers and a distributor in California,” he says. In the Twin Cities, he sells his fine chocolates at the Wedge co-op, Whole Foods, Kowalski’s, Mississippi Market co-op, Bibelot, Patina, and similar outlets.

McElrath has engaged Minneapolis-based Van Liermann & Associates, as well as eight sales reps, to represent his company. “I take advantage of the relationships they already have,” he says.

Sugar Sugar candy shop on Grand Avenue in Minneapolis sells B. T. McElrath, Sweet Jules, and other boutique candies such as Craftmade Toffee and Mademoiselle Miel, which makes honey bonbons made with fresh honey collected from rooftop apiaries, including one on the Foshay Tower.

“I love to sell local, but I specialize in licorice so I have a lot of Dutch, Finnish, and other European licorices,” says Joni Wheeler, who opened Sugar Sugar in 2009. “I also specialize in chocolate bars from boutique and bean-to-bar makers who import their own cacao beans.” She notes that one boutique product, B. T. McElrath’s buttered toast bar, is made with Rustica Bakery bread crumbs and Hope Creamery butter, thus supporting three local businesses.

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22 Pounds a Year

Local or otherwise, not everyone is a fan of candy. “There are people who are health conscious and against anything with sugar and high fat,” says McElrath. “That’s the business we are in, and we understand that.”

Then there’s the rest of us. On average, Americans eat 22 pounds of candy a year, or 1.8 pounds a month, according to IBIS World. That’s a lot of bonbons and allsorts.

Artisan candy may be on the rise, but the state’s largest candy companies continue to compete for their share of our collective sweet tooth.

With the addition of gummies to Kenny’s product mix this year, Nelson expects annual revenues to grow by $10 million to $35 million in 2013.

Pearson’s plans to grow, in part, by expanding its product line—“One thing that struck me when I came here is that we had no Halloween, Valentine’s, or Easter candy,” says Keller. In 2012, the company introduced bite-size Salted Nut Rolls, a Sea Salt Caramel Nut Goodie, and snowman-shaped Mint Patties, and will be offering heart- and bunny-shaped Mint Patties this year.

The company also is improving distribution, while repositioning some of its current products to appeal to today’s active consumers. Keller points out that the 2.2-ounce Salted Nut Roll, for example, offers athletes 8 grams of protein, 2 grams of fiber, and salt. It isn’t chocolate, so it doesn’t melt, and it can be stuffed into a golf or gym bag without crumbling.

There is something about candy, though, that defies a completely rational approach. “Part of the magic of the candy industry is that the love of a candy bar stays in the family just like loyalties for sports teams,” says Keller. The Upper Midwest fell in love with Pearson’s candy bars eight decades ago. And today’s Minnesota candy makers are making sure we have plenty of local confections to pass on to the next generation.

 


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