How Herr's competes with the likes of Frito-Lay

By Marjorie Preston
Photography by Mitro Hood

An early photo of Herr Foods Inc., founder James Stauffer Herr shows a barefoot teen with rolled-up shirt sleeves, standing outside a barn and holding a steer by a rope. The steer gazes directly into the camera. Herr’s eyes are downcast. Neither one looks very happy.

Flavor of
the moment

Its competitors have size. But Herr’s has flavor. If you’re looking for something out of the ordinary, like jalapeño-flavored cheese curls or sweet potato ripple chips dusted in cinnamon sugar, Herr’s is your brand.

With 82 flavors for its 15 product categories, its leaders know that tastes change over time and even the best-researched new flavors can flop.

FAVES

BARBECUE CHIPS: After careful consideration, Herr’s began adding seasoning to its beloved potato chips in 1958. Barbecue was its first flavored variety and is still in production today.

BABY BACK RIBS CHIPS: President Ed Herr estimates this unique flavor is the company’s best-selling chip.

HOT SAUCE CHIPS: With the appetite for spicy foods on the rise, Herr’s has responded with more “hot” flavors, including this ripple chip seasoned with Texas Pete’s Hot Sauce.

FLOPS

CHOCO-CURLS: Kids love cheese curls, and they love chocolate, so it stood to reason they’d love the two in combination. But chocolate powder, peanut butter and marshmallow-flavored curls just didn’t sell.

YUCCA CHIPS: Imported from a sister company in Panama, this product never caught on. Chairman and CEO J.M. Herr blames the name.

As he relates in his 2012 memoir, Life with Flavor, as a young man, Jim Herr was not especially fond of farm work on the Lancaster County spread where he grew up, taking care of 2,000 laying hens.

“Every day I would sit and clean eggs, eggs and more eggs,” Herr writes in the book published shortly after he died on April 5, 2012 at age 87. “And every day I would search the newspaper for leads on a different kind of job” — one that would enable him to work with people, not poultry.

In 1946, when he learned that a local potato chip business was for sale, Herr saw his chance. He had little savings, an eighth-grade education and no experience in the food industry. But he also had a can-do spirit and a work ethic forged down on the farm. Without telling his sweetheart, legal secretary Miriam Hershey, the 21-year-old country boy approached her employer, Sam Wenger, and asked for a loan. He walked out with a check for $1,750, enough to pay for two black kettles, a three-potato slicer and a 1936 Dodge panel truck.

From those humble origins, the couple, who would soon marry, launched the venture that became Herr Foods, which now has $250 million in annual sales. Herr would ultimately rub shoulders with presidents — his book was endorsed by president George H.W. Bush — and in 1992, as chairman of the National Federation of Independent Business, he even discussed with then-Russian president Boris Yeltsin how to create a free enterprise system in the country, telling him “small business was the backbone of a healthy modern economy.”

As Jim Herr relates in his memoir, the family empire was built on hard work (the newlyweds sometimes worked from 4 a.m. until 11 p.m.); integrity (the book is liberally sprinkled with biblical proverbs); plus a product that would soon prove irresistible to the American palate.

Land of the giants

Sixty-eight years after its founding, Herr’s line of potato chips, pretzels, cheese curls and other munchables are sold in 28 states, Canada and Latin America. With 1,500 employees, 20 warehouses and two plants in Pennsylvania and Ohio, it’s one of the top five independently owned snack food businesses in the nation, processing some 75,000 tons of potatoes each year and shipping an estimated 10 million bags of chips per month.

But in an industry dominated by the likes of Frito-Lay — a colossus whose brand value exceeded $11 billion in 2013 — Herr’s is comparatively small potatoes and must continually reinvent and fine-tune its business, both to maintain market share and to grow it. Chairman and CEO J.M. Herr, who took the reins from his father in 2005, and his brother Ed, who became president the same year, take it all in stride. The oldest sons of “Jim and Mim” both say the competition is invigorating.

“It keeps us on our toes,” says J.M. Herr, relaxing at the company’s corporate headquarters in rural Nottingham, PA. “We’re an increasingly snacking people — we eat on the run — so the market is good, and it’s growing faster than the food industry in general. But that’s attracted a lot of big companies, and one of the biggest challenges is just the competitive environment. Nabisco is now a snack company, not just a cracker company. Pepperidge Farm is a now snack company. And the behemoth of Frito-Lay has so much marketing muscle and power.”

“We’re an increasingly snacking people, so the market is good and it’s growing faster than the food industry in general. But that’s attracted a lot of big companies, and one of the biggest challenges is just the competitive environment.”
J.M. Herr, chairman and CEO, Herr Foods Inc.

Consolidation has created other giants. In the past few years, another Pennsylvania company, Snyder’s of Hanover, nearly gobbled up one competitor (Utz Quality Foods, in merger called off in 2009) and merged with another (Lance) to become one of the largest snack-food companies in the world. Industry leader Con-Agra now owns a multitude of snack-food brands including Jiffy Pop, Orville Redenbacher and Fiddle-Faddle.

“When we were growing up, snack food growth was pretty steep; we had double-digit growth year after year after year,” says Ed. “Today, the market is pretty mature. In this day and age, we’re always working on productivity, always figuring out how we can get more efficient, how we can get more product for less labor, because it is extremely competitive.”

Kale chips, anyone?

Then there are the upstarts: Boutique operations like Popchips, a West Coast company that touts the healthfulness of its product, has publicly taken a “non-GMO pledge,” and plans to eventually offer its organic chips in biodegradable bags. In 2013, Forbes listed Popchips among its Most Promising Companies; according to the magazine, the manufacturer earned $93 million in 2013, its sixth year of operations.

“These days, you have people who say, ‘I want non-GMO, it has to be organic, it’s got to have a certain amount of fiber, it can’t have this kind of oil or that kind of oil — that’s what I want, and I’m willing to pay for it,’” observes J.M. “There is that niche out there. But it is a niche. So one of our jobs is to figure out which areas we want to play in. Do we want to go after that customer, or let somebody else make kale chips for them?
“The good news is there’s a lot of opportunity out there, because the market is expanding with all these segments.”

In response to consumer demand, the company has grown its product line from a single item — those good, old-fashioned original chips — to more than 800 SKUs, including 40-plus flavors of baked and fried chips and crisps, half a dozen popcorn varieties, nine kinds of pretzels, onion rings, corn chips and tortilla chips, pork rinds, salsa and the ever-popular cheese curls.

Healthy business

Herr’s has claimed its share of the exploding “lite” snack market. In 2009, the company introduced a line of gluten-free Baked Potato Crisps, now available in eight flavors. In 2007 came a low-fat variation of the classic Kettle Cooked chips, a “figure-friendly snack treat without … guilt.”

Last April, the company rolled out its Good Natured Selects brand of baked multigrain crisps. Made with “a blend of oats, potato flour and a combination of poppy, flax, sesame and caraway seeds,” the gluten-free snacks come in three flavors: Original Grains, Artisan Cheddar Cheese and Tuscan Garden Medley (the latter was named one of the Most Innovative New Products of the year at the 2013 Sweets & Snacks Expo in Chicago). And in May 2013, the company acquired a majority stake in Silk City Snacks, a New Jersey-based manufacturer of low-fat, low-calorie, salt-free products including waffle-sandwich snacks, Italian-style pizzelles and popped chips.

Announcing the partnership, J.M. hailed it as a way to “expand our portfolio of manufacturing capability … and respond to consumers’ growing interest in more diverse, natural and low-fat snacks.” But for most Americans, “real” potato chips still rule, penetrating more than 90 percent of households in the U.S.

“We are probably best known for being a flavor-chip company,” says Ed. “We have our go-to’s, like barbecue chips (the original seasoned chip, debuted in 1958), sour cream and onion, and salt and vinegar. And one that really took off for us was Baby Back Rib; we sell more Baby Back Rib Chips than any other chips across the country.”

Good try…

One novelty turned out to be a flash in the pan, literally.

“Choco-curls,” says Ed. “We make the best cheese curls. Kids love cheese curls. So all of us, including marketing and R&D, thought kids would like Choco-curls. They were kinda sweet, with chocolate powder, peanut butter and marshmallow. We tasted it and thought, ‘This is really good!’ I personally thought it was going to sell like crazy. But then we put it out there, and it just flopped.”

Another fail: a variety of chips Herr’s imported from a sister company in Panama. J.M. blames the name: yucca chips. “It never really got off the ground,” he says.

Not so with the hot stuff. With the appetite for spicier snacks on the rise, Herr’s has added Jalapeño Poppers and, for the brave-hearted, even Hot Sauce-Flavored Potato Chips. Seasonal snacks include baked sweet potato crisps with cinnamon and white chocolate-and-peppermint pretzels, both holiday favorites.

“You can’t position yourself as the best potato chip — all the companies make a pretty damn good potato chip. What they have done is focused on value and flavor.”
John Stanton, board member, Herr Foods Inc.

Herr’s is always on the lookout for the next best thing. When a new idea sounds promising, the research and development team puts it to the test with rigorous consumer research. In 2011, Daryl Thomas, senior vice president of sales and marketing, explained the process to Food Processing magazine. “We compare feedback to our flavor benchmarks and then prepare prototypes, set up blind in-store tastings using a variety of metrics — intention to buy, different product attributes they like and affirmation that they like what we think is a good idea,” he said.

“There is some art in the science,” Thomas continued. “Sometimes we are surprised at how good consumers think the product is, or sometimes not. We strive to reduce the risk of going to market, and the consumer voice is in the center of what we do.”

The company minimizes its investment by producing small batches of new products to see if they’ll fly. Historically, said Thomas, just 20 percent of new products are still in the market two years after they’re introduced. “But 80 percent of our new products remain,” he said. “That affirms the adage, ‘The harder I work, the luckier I get.’”

Taste of success

In the mid-1940s, when Jim and Mim Herr were first starting out, they spent their date nights selling fresh-cooked chips in 5-cent bags. They averaged $30 a week in sales. At the time, potato chips — first created by a restaurant chef in the late 1800s — were still considered a luxury food. But they soon went from an occasional indulgence to a mainstay of the American pantry.

“Dad and Mother had an amazing ability to build relationships and sell to people,” says Ed, “but it was also the right place at the right time. World War II had just passed. America was enjoying a good economy and a lifestyle that afforded them more leisure time. People were having more children. In the 1950s, TV came along, so what’s a good partner to leisure when the family gets together to watch a movie or football game? Well, let’s have some snacks.

“At the same time, supermarkets took off. Before that, people were making bread at home; the only thing they went to the store for was to buy flour and sugar. Now, all of a sudden, there were A&Ps and Acmes selling bread and cookies and crackers. Everything happened all at the same time.”

Soon the enterprising couple was selling to supermarkets instead of individual households, then expanding their operations and workforce. “They just kind of grew with the industry,” says J.M., “and with people’s consumption.” By the 1970s, Herr’s was the No. 1 seller of potato chips in the Philadelphia area, and began branching out — to New York, New Jersey, Virginia, Ohio and beyond.

The Mid-Atlantic region continues to be the company’s stronghold. But even in a crowded and fiercely competitive field, there’s plenty of room to grow.

“I think they have plans for it and are working in that direction, internationally,” says Joe Pace Jr., of Pace Target Marketing, a retail food marketing business in Williamstown, NJ. “The business may have to be massaged and changed slightly, but they don’t change what they believe in. The foundation remains. I enjoy my relationship with the Herrs because they stand for all the right things: integrity, quality and a commitment to provide the best product and service to the customer.”

“We like to think we can compete on a national and maybe a global scale,” says Ed Herr. “It’ll come down to what kind of product we come up with and how we get it out there marketing-wise.”

Back to basics

In a November 2013 study, First Industry Research reported that there are as many as 500 snack-food companies competing for business in the U.S. alone, producing combined annual revenues of about $30 billion. Also in 2013, global market research firm IBISWorld reported that the industry has enjoyed steady growth over the past five years despite the recession, which, at its nadir, caused consumers to cut back on impulse buys. With some economies on the upswing, revenues are ascending, with consistent gains expected through 2018.

“We would say our products are pretty recession-proof,” says Ed Herr. “When you’re pinching pennies, you can get a good size bag of chips for a couple bucks and get a lot of satisfaction out of it.” He concedes that hard times have resulted in pricing pressure. “In order to continue to sell at a certain volume, you have to be at a price point that puts a little bit of squeeze on margins. So that can be a result of a recession, too. But we have seen growth right through times like that.”

Saint Joseph’s University Professor John Stanton, editor in chief of the Journal of International Food and Agribusiness Marketing and a member of Herr’s board of directors, is confident the company will continue to hold its own against industry giants like Frito-Lay because of two key brand differentiators.

“You can’t position yourself as the best potato chip — all the companies make a pretty damn good potato chip,” Stanton says. “What they have done is focused on value and flavor. That is their strength.”
Despite the clamor for new and improved snack foods — for baked-not-fried, whole-grain snacks, 100-calorie packs, and all the rest — 25 percent of snack food revenues still come from one product: potato chips. Just like the ones Jim and Mim used to make.

“It’s kind of a staple,” says Ed Herr. “We’re lucky that way.” CEO

Marjorie Preston is a freelance writer based in Media, PA. Contact us at editorial@smartceo.com.

 
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