Grocery shopping would probably fail to show up on a typical teen-ager’s Top 10 List of Things to Do. But for a young Tim Crull, shopping for food was something to look forward to.
“As a teen-ager, I used to love to go to supermarkets. I’d go shopping for my mother. I still go to the stores . . . looking for what’s new. To me it’s part of the game.”
These days, the 59-year-old president of Carnation Co. is a player in one of the toughest games around: the $475-billion U.S. food industry.
Beginning tomorrow, Crull becomes an even more formidable opponent as he takes charge of the far-flung companies--including Carnation, Stouffer Foods and Hills Bros. Coffee--that make up the U.S. holdings of Swiss foods giant Nestle.
Nestle, by combining its U.S. subsidiaries under one corporate umbrella, hopes to create a company large and diverse enough to survive in the food industry big leagues during the 1990s.
While the consolidation may be a long and complicated process that could result in layoffs, industry analysts say the move will help Nestle regain lost ground in some key businesses and remain competitive in the tougher times that lie ahead.
Despite more than $6 billion in annual sales, Nestle USA is dwarfed by giants such as ConAgra, with 1989 sales of $15.5 billion, and Phillip Morris’ Kraft General Foods subsidiary, the nation’s largest food firm, with more than $22 billion in revenue during 1989.
“Nestle is starting to realize that results have been somewhat sluggish in the U.S.,” said food industry analyst Nomi Ghez at Goldman Sachs & Co. “They have not been taking full advantage of their size.
“Reality is forcing them to look at these opportunities more aggressively. They have very strong brands in the U.S., but in the last two or three years, they have been losing market share in very important categories.”
Some of the lost ground has come in the frozen food area, where Stouffer’s Lean Cuisine has been battling inroads made by ConAgra’s Healthy Choice line. In the coffee business, Nestle’s Hills Bros. division contends with an increasingly aggressive Kraft General Foods.
The Friskies Pet food division has come under severe competitive pressures lately, analysts say. Carnation’s foray into the infant formula business has also fizzled, and the company, over the objections of pediatricians and advocates of breast feeding, will begin advertsing its Good Start formula directly to mothers, beginning in January.
Furthermore, Nestle, like other food companies, must cope with a recession after the boom years of the last decade.
“The ‘80s were a very awesome time for the food industry,” said Ronald B. Morrow, a food and tobacco industry analyst at Smith Barney, Harris Upham & Co. “In the ‘90s, costs are increasing. Some areas (such as cereals) are slowing down. It will not be as robust as the ‘80s.”
Timm F. Crull, an easygoing man who joined Carnation in 1955, knows of the challenges and is preparing Nestle USA and its employees for them. The move toward a more aggressive, fast-lane approach is reflected at Carnation’s new, post-modern headquarters in Glendale, where employees are still trying to figure out the meaning of avant-garde works created by California artists. That’s a big departure from the prints of Carnation ads that decorated the walls of the company’s former Wilshire Boulevard home.
“It’s a statement of what our company is and wants to be,” Crull said of the company’s bold new tower and works of art. “The art here is to give our employees a creative environment to work in.”
As chief executive officer of Nestle USA, Crull will oversee the single largest national market for Nestle, which had worldwide sales of nearly $31 billion in 1989. While Crull minds the food business, Chairman James M. Biggar will tend to the Wine World division and Stouffer Hotels & Resorts.
Nestle’s much-applauded consolidation efforts have already begun. Last June, it consolidated all its food service divisions at the Glendale office. It is now in the process of merging the distribution networks.
“Nestle has many sales forces in the United States,” Crull said. “Do we need seven sales forces or can we do it better with two or three? These will be things we will review.”
So far, no employee has lost a job as a result of the consolidation. But Crull says he cannot guarantee jobs in the long run. “We don’t really know” if people will be laid off, he said.
The advantages of Nestle’s efforts outweigh any short-term difficulties, analysts say. Kraft and General Foods, for example, were able to cut costs by $300 million to $400 million the first year after their merger. A larger, consolidated operation “also gives you more muscle with the (retail) trade and better chance to get shelf space,” said Ghez.
Crull is eager to begin reaping the benefits of consolidation. “By putting them together, we will have a lot of synergies that will make us a lower-cost producer. It will also give us more advertising dollars that will make us more competitive with the Procter & Gambles and the Kraft General Foods companies.”
Besides cutting costs, Crull seeks other advantages. “We can move the strong brands into other areas, which is more difficult to do when you have separate companies. Stouffers is very strong in the frozen food business, but there is no reason why they can’t be in the refrigerated business, which Carnation has done very well with, with their Contadina Fresh.”
In fact, the Contadina line of refrigerated pastas and sauces has been a major success for Carnation, proving highly popular with young consumers who crave fresh, gourmet-type meals but lack the time and skills. Industry sales of refrigerated items total about $400 million and are growing rapidly, Crull says.
“There seems to be a lot of growth in refrigerated,” Morrow said. “So there is a lot of potential right there. That’s kind of the future for Carnation.”
Nestle USA’s research and development operation will become more focused on coming up with such products as Contadina Fresh--originally developed by a company that Carnation acquired--that take advantage of changing demographics and lifestyles.
Despite spending millions on research, food companies can still lag consumer behavior, as Carnation discovered. In developing the Contadina Fresh line, Crull said, researchers first believed that consumers would heat the sauce in a pan. Instead, they popped it into the microwave to cut down on the estimated 12 minutes it takes to prepare a Contadina meal.
As a result, Carnation researchers repackaged a sauce container more suitable for the microwave.
“American lifestyle is like a treadmill--it gets faster and faster and faster,” said Crull. “People want that convenience to the point where they are almost willing to sacrifice taste and quality. It’s our responsibility to develop products that maintain or improve taste and quality while giving them . . . convenience.”
Nestle S.A. 1989 sales: $30.6 million 1989 profit: $1.5 billion Employees: 196,940 Factories: 421 Nestle USA Annual sales: $6 billion to $7 billion. Major divisions: Carnation Brands: Carnation, Friskies pet food, Contadina, Coffeemate, Buitoni Major divisions: Neslte Foods Brands: Quik, Nestle Crunch, Nescafe, Nestea, Taster’s Choice Major divisions: Stouffer Food Brands: Stouffer’s frozen foods, Lean Cuisine Major divisions: Hills Bros. Brands: Hills Bros., MJB, Chase & Sanborn