American Italian Pasta Company - Company Profile, Information, Business Description, History, Background Information on American Italian Pasta Company
Kansas City, Missouri 64116
U.S.A.
Company Perspectives:
The following AIPC goals are the founding principles of our Company a nd incorporated the values that have given us the vision and focus to produce the world's finest pasta. Growth & Profits: Achieve shor t and long-term growth in sales and profits and maximize value to our shareholders. AIPC's People: Build a team of quality-minded and resu lts-oriented people and provide an environment that encourages innova tion, continuous improvement, superior performance, recognizes achiev ements and helps our people reach their full potential. Quality: Prov ide products and services of superior value and quality in a culture that strives for continuous quality improvement in everything we do. Corporate Identity: To be a customer-driven and quality-minded Compan y based on and committed to our guiding principles of integrity, fair ness, performance and consistency.
History of American Italian Pasta Company
The largest pasta producer in North America, American Italian Pasta C ompany (AIPC) produces more than 220 dry pasta shapes, selling its pa sta to supermarket chains, food processing companies, and foodservice companies. AIPC produces pasta for private-label brands and its own brand, Pasta LaBella. The company grew significantly through several acquisitions it completed in the early years of the new millennium. I ts expansion came to a standstill in 2004, however, when the low-carb diet trend caused demand for carbohydrate-rich pasta to plummet. In 2005, the company launched an internal investigation into its account ing practices amid shareholder class action lawsuits that claimed tha t AIPC's officials proffered misleading financial data.
Origins
Richard C. Thompson brought an eclectic professional past with him wh en he founded AIPC in 1986. During the 1970s he was involved in real estate surrounding the Houston Astrodome. During the early 1980s he t urned his attention to the oil and gas business, forming an explorati on firm, Kinson Resources Inc., to make a living wildcatting in North Dakota. The cyclical nature of the oil and gas business, which desce nded into one of its deepest ruts during the early 1980s, convinced T hompson to search for a business with fewer market fluctuations and l ed him to explore food manufacturing as an option. Food production sp rang to mind not only because "there's always a demand for food," as Thompson once remarked, but also because North Dakota was home to a p rized crop: durum. Renowned for its superior pasta-making qualities, North Dakota durum was imported by Italian companies, who converted t he wheat into pasta and then exported the pasta back to the United St ates. Thompson decided to use North Dakota durum to start his own pas ta-making company, and he began enlisting the support of financial ba ckers. From the start, he decided to focus on producing premium-grade pasta and avoid competing against low-priced, mass-produced brands m anufactured by such industry giants as Hershey Foods and Borden. "If we're going to survive," Thompson explained, "we cannot compete on pr ice. If we do, we'll get stepped on, thrown away, chewed up, and walk ed over." Accordingly, Thompson devoted a considerable amount of time to researching pasta making. He spent four years in the United State s and two years in Italy learning how to make pasta, searching for th e method his company could use to produce superior pasta. "I want my pasta to be known as the finest in the world, bar none," Thompson dec lared, "including the Italians."
Aside from producing a premium brand that would limit direct competit ion with low-priced brands, Thompson's strategy also hinged on someth ing else, something that would make his company a rarity among U.S. p asta producers. Most manufacturers purchased their pasta flour from c ommercial mills, rather than producing it on their own, but from the start Thompson preached vertical integration, striving to realize the financial benefits of owning his own flour-making facility and the g reater control over quality such ownership would give him. He decided to build his production plant in Excelsior Springs, Missouri, select ing the location because of the presence of pure spring water and, mo re important, because of Excelsior Springs' proximity to rail lines a ccessing North Dakota durum. The $50 million, state-of-the-art fa cility began production in 1988, officially making Thompson's AIPC a participant in the growing pasta industry. At the time, pasta consump tion in the United States was on the rise, a trend that would continu e into the 1990s as a national passion for pasta intensified. The ave rage American ate 17 pounds of pasta a year in 1988, up from 13 pound s a year in 1981, which translated into a $2 billion market by th e time Thompson's plant began producing its first shipments. Into thi s market AIPC entered as a newcomer in 1988; barely more than a decad e later the company would hold sway as the dominant force, ranking as the largest pasta producer in North America.
Business began on a high note when Thompson secured contracts to supp ly his pasta to the A&P grocery chain and SYSCO Corporation, the largest restaurant supply firm in the country. These two customers pu rchased the company's initial production output, pushing AIPC's first -year sales into the $20 million range, while Thompson pursued co ntracts with other institutional customers and began negotiations wit h brokers in several foreign countries. Thompson's goal was to make A IPC the first U.S. company to ship pasta to Italy, a feat that would go a long way toward legitimizing his pasta as the "finest in the wor ld." To accomplish this objective and to give AIPC a product to incre ase sales domestically, Thompson invested his efforts in the creation of what he termed a "super-premium" brand, the pasta product that wo uld drive the company's sales upward, distinguish AIPC as a premier p asta maker, and fuel expansion into foreign markets, particularly int o the much-vaunted Italian market. The company's signature brand debu ted in January 1990, introduced under the name Pasta LaBella. As Thom pson had planned, AIPC's flagship brand stood apart from other mass-p roduced brands such as American Beauty and Creamette. Pasta LaBella w as stocked in the deli section, away from competitors shelved on the pasta aisle, and its retail price of approximately $2.65 for a on e-pound package was $1.50 more than most other American brands. A lthough the sales generated by Pasta LaBella accounted for only 5 per cent of AIPC's revenue volume during the brand's first year, the bran d attracted a wealth of new business that promised to be the beginnin g of more to come. The 800-store Kroger chain began stocking LaBella, as did several other large retail chains, such as IGA, Payless, Hy-V ee, and Price Chopper. Several restaurant chains replaced their Itali an pasta brands with LaBella as well, but in Thompson's mind the true measure of success was LaBella's entry into the Italian market. "Eve ryone remembers the first company to do something," Thompson mused, " just like everyone remembers the first person to walk on the moon. Bu t who cares about the second or third?"
AIPC's place in the annals of business history was secured in May 199 0 when Thompson attended a European trade fair for food brokers. At t he trade fair Thompson reached an agreement to sell LaBella through a n Italian grocery store called Casa di Risparmio di Parma, making AIP C the first U.S. company to sell pasta in Italy. AIPC's historic achi evement fanned excitement at company headquarters, inducing Thompson and his management team to develop ambitious plans. As negotiations w ere under way to sell LaBella through a 400-store distributorship in Italy, a LaBella pasta sauce was developed, slated for introduction b y the end of December 1990, while LaBella olive oil and LaBella bread sticks were in earlier stages of development. By the end of 1990 sale s were up 60 percent from the previous year's total, prompting Thomps on to expand production capacity. He increased production capabilitie s at the company's Excelsior Springs plant 200 percent, giving AIPC t he ability to make 150 million pounds of pasta per year.
New Management in 1991
In 1991 a host of changes swept through AIPC that few outside observe rs could have foreseen. According to one report, the investors who ha d financially helped Thompson build his Excelsior Springs plant grew worried by the end of 1990 that AIPC would not meet certain financial objectives and would fall short of reaching the new, expanded produc tion capacity at the company's plant. In the midst of this reported a nxiety, a $76 million buyout of AIPC by Hershey Foods was announc ed in early 1991. Thompson welcomed the deal, but the U.S. Justice De partment intervened and launched an investigation into the proposed b uyout. After a three-month inquiry, the Justice Department ruled agai nst the proposed acquisition in March, stating that the union of AIPC and the second largest pasta producer in the United States would res ult in higher prices for consumers. In the wake of the scuttled buyou t, Thompson stepped aside, vacating his posts of president and chairm an of the board to make room for what industry pundits termed "profes sional managers." Horst Schroeder, formerly the chief operating offic er for Kellogg, was named chairman of the board, and Timothy Webster, formerly AIPC's chief financial officer, was promoted to president, along with a number of other promotions that gave AIPC a revamped man agement team. The change in leadership was a smooth transition, witho ut any finger-pointing at Thompson or much to suggest that Thompson's leadership had led to failure. "This is a step all entrepreneurial c ompanies go through," explained Webster, "where the creator hands the baton to his managers." Thompson, who ranked as AIPC's largest share holder, retained a seat on the company's board. Under the new managem ent, however, a new business plan emerged, one that was substantially different from the philosophy espoused by Thompson. Said Webster, "O ur focus is on the high-volume segments. We need to be a manufacturin g-driven company until the plant [capacity] is utilized."
From 1991 forward AIPC strove to be a low-cost producer of pasta, rat her than a company seeking to make the "finest pasta in the world." T he new strategy sought to utilize the full strength of the company's unique manufacturing capabilities, capitalizing on the vertically int egrated operations that had been established by Thompson. Although ma king quality pasta had not been abandoned as a company goal (AIPC tou ted itself as the only pasta maker to use high-temperature drying, re portedly the best way to process wet pasta), operating as a low-cost producer had moved to the forefront of the company's pursuits. Toward this end Webster and his staff achieved encouraging results. Using a ggressive marketing and citing the advantages of the company's own mi ll operations, Webster convinced a number of large customers to purch ase their pasta from AIPC. Supplier contracts with companies such as Wal-Mart, Publix, Pillsbury, Kraft, and General Mills fostered consis tent, strident financial growth, assuaging any anxiety investors migh t have experienced. Sales rose to $39 million in 1992 and then be gan increasing by at least 20 percent each year as AIPC headed toward the mid-1990s. As the company's customer base of grocery chains, res taurants, and food processing companies increased in number, pushing sales upward and stretching production capacity to its limit, a diffe rent type of AIPC took shape. The AIPC of Thompson's era had sought t o distinguish itself from the established giants in the industry by p roducing a higher-priced, higher-quality product, but during Webster' s era the pursuit of becoming a low-cost producer had developed AIPC into a giant itself. By the mid-1990s AIPC was one of the major produ cers with which it had avoided directly competing during the late 198 0s and was well on its way toward becoming the largest pasta producer in the United States. The prospect of reaching the industry's number one position was not a "goal in and of itself," Webster noted, as th e company steadily increased its market share. "But we do want to con tinue to grow," he added. "If it were to happen, we'd certainly have grins on our faces."
Late 1990s Expansion
By 1995 any fear of not reaching full production capacity at the comp any's Excelsior Springs plant had been thoroughly eliminated. The com pany was ready, in fact, to build a second manufacturing facility. Co nstruction of the new plant began in 1995 in Columbia, South Carolina , with its completion lifting AIPC's production capacity to roughly 3 00 million pounds of pasta per year. By the end of 1996 sales had ecl ipsed the $100 million mark, climbing to $121 million. AIPC, by this point, was the third largest pasta producer in the United Sta tes, trailing only Hershey Foods and Borden, Inc., and it was regarde d widely as the most efficient producer. Its two manufacturing plants , which made more than 80 shapes of pasta, utilized the most advanced production technology in the industry, a distinction used as a persu asive marketing tool to win new customers and one that was making it increasingly difficult for other companies to compete with AIPC on a low-price basis. The fruits of AIPC's decade-long investment in its m anufacturing facilities were realized in 1997, a year that saw the co mpany achieve great strides while its largest competitor began to ret reat.
In early 1997 CPC International, a global food company that marketed 45 varieties of pasta, announced that AIPC would become the exclusive producer of its Mueller's brand of pasta, the leading brand in North America. The contract represented an extraordinary boon to AIPC's bu siness, one that could not have been gained without its state-of-the- art manufacturing facilities. "By joining with AIPC," a CPC Internati onal senior executive remarked, "we make a leap from the oldest produ ction technology in the industry to the newest." The addition of the Mueller's brands led to a $45 million expansion at AIPC's Columbi a plant, where Mueller's was scheduled to begin production in January 1998. News of the Columbia facility expansion was followed by the an nouncement of a $20 million expansion at the company's Excelsior Springs plant, which had been planned for a later date but was accele rated once AIPC executives learned of their biggest rival's future pl ans. In mid-1997 Borden announced that it would start to close its pa sta-producing plants after deciding to stop manufacturing private-lab el brands and pasta for the "ingredients business," which included ma king noodles for products such as Hamburger Helper. AIPC moved in to fill the void created by Borden's retreat, implementing an expansion program designed to increase its production capacity by 60 percent, m aking it the second largest pasta producer in North America.
As work was under way to increase AIPC's production capacity to more than 600 million pounds of pasta per year, the company decided to con vert to public ownership. In October 1997 AIPC's initial public offer ing on the New York Stock Exchange raised $87 million in net proc eeds, giving the company the financial resources to pay for expansion . Following the public offering, Thompson stepped forward to remark, "It's been wonderfully exciting and a dream come true. I'm a proud pa pa." There was good reason for Thompson's elation. "Everything looks to be going very, very well for them," one stock analyst remarked. "T hey continue to gain market share." In November 1997 the likelihood o f further gains in market share appeared assured when AIPC announced preliminary plans for a third pasta production plant in Kenosha, Wisc onsin, to be constructed through a joint venture with Harvest States. Following this exhaustive period of expansion, the company entered i ts tenth year of production, by which time both expansion projects at Columbia and Excelsior Springs were completed. The results were impr essive. In 1998 revenues increased from $129 million to $189 million and net income swelled from $5 million to more than $ 15 million, both record results. On this bright note, AIPC prepared f or its second decade of business, having successfully climbed the run gs of its industry to hold sway as a dominant presence in the North A merican pasta market.
The New Millennium
AIPC experienced marked growth in the early years of the new millenni um. In 2000, the company acquired the Mueller's pasta line from Unile ver PLC's Bestfoods subsidiary. This was followed by a $67.5 mill ion purchase of seven regional pasta brands from Borden Foods Corpora tion in 2001. Two pasta brands from Archer Daniels Midlands were adde d to AIPC's holdings in 2002. As part of its strategy to bolster its European business, AIPC bought the Lensi brand from Pastificio Lensi, a small Italian pasta manufacturer, later that year. AIPC rounded ou t its acquisition spree in 2003 with the purchase of Martha Gooch/La Rosa, Golden Grain, and Mrs. Leepers pasta brands.
By now, AIPC enjoyed a dominant position in the North American pasta market. Its closest competitor was Barilla Holding, an Italian compan y that entered the U.S. market in 1996. From 2000 to 2003, revenues g rew from $248.8 million to $438.8 million. Net income also ro se significantly, from $27.5 million in 2000 to $42.6 million in 2003.
AIPC's success came to a sudden halt the following year. Americans be gan following new dietary trends led by the Atkins and South Beach di et plans. These diets were based on low carbohydrate consumption, whi ch spelled disaster for companies in the pasta industry. Indeed, the company deemed 2004 the most challenging year in its history. As the popularity of the Atkins and South Beach diets skyrocketed, demand fo r pasta products fell sharply. In fact, AIPC claimed that from mid-20 03 to the end of 2004, pasta consumption in North America fell by mor e than 100 million pounds. As a result, AIPC moved to reduce manufact uring capacity and inventory levels, as well as its workforce. During 2004, the company's employee count fell by 14 percent and operations at its Kenosha, Wisconsin manufacturing facility were suspended.
In response to the low-carb consumer craze, AIPC launched a version o f low-carb pasta in February 2004. Demand for the new pasta was weak. Overall, revenue fell by 4.9 percent in 2004 and net income dropped from $42.6 million in 2003 to just $3 million in 2004.
The company faced a second challenge in August 2005 when it failed to report its third-quarter earnings due to an ongoing internal investi gation into its accounting practices. Founder Richard Thompson steppe d down from AIPC's board of directors that month. At the same time, s hareholders filed class action lawsuits against AIPC, claiming that t he company provided misleading financial information in order to infl ate AIPC's share price. In September of that year, the company hired turnaround specialists Alvarez & Marsal in an attempt to revitali ze the company's financial position. Although the low-carb fad appear ed to be slowing down by 2005, AIPC's future remained in question. Ma nagement hoped to overcome its financial challenges and put its accou nting investigation to rest in order to resume its focus on putting p asta on North American dinner plates for years to come.
Principal Subsidiaries: American Italian Pasta Company; AIPC W isconsin, L.P.; AIPC Sales Company; IAPC UK Ltd.; IAPC Holding UK Ltd .; Pasta Lensi, S.R.L. (Italy); IAPC B.V. (Netherlands); IAPC CV (Net herlands); AIPC Finance, Inc.; AIPC South Carolina, Inc.; AIPC Missou ri LLC; AIPC Arizona LLC; IAPC Italia Leasing S.R.L. (Italy).
Principal Competitors: Barilla Holding S.p.A.; Dakota Growers Pasta Company Inc.; New World Pasta Company.
Chronology
- Key Dates:
- 1986: Richard C. Thompson establishes AIPC.
- 1988: A $50 million, state-of-the-art facility in Excelsio r Springs, Missouri begins production.
- 1990: The company's signature brand debuts under the name Past a LaBella; AIPC becomes the first U.S. company to sell pasta in Italy .
- 1991: Thompson resigns as president and chairman; a new manage ment team is elected.
- 1997: AIPC becomes the exclusive producer of the Mueller brand of pasta; the company goes public as the second largest pasta produc er in the United States.
- 2000: The company acquires the Mueller's pasta line.
- 2001: Seven regional pasta brands are purchased from Borden Fo ods Corporation.
- 2004: The low-carb diet trend forces sales and profits to fall dramatically.
- 2005: AIPC launches an internal investigation into its account ing practices; shareholders file class action lawsuits against the co mpany for filing misleading financial information.
Additional Details
- Public Company
- Incorporated: 1986
- Employees: 589
- Sales: $417.4 million (2004)
- Stock Exchanges: New York
- Ticker Symbol: PLB
- NAIC: 311823 Dry Pasta Manufacturing; 422490 Other Grocery and Related Products Wholesalers
Further Reference
- "American Italian Pasta Co.: Seven Regional Pasta Brands to B e Brought from Borden," Wall Street Journal, June 5, 2001.
- Bassing, Tom, "Pasta Maker Restructures After Buyout Bid Squelche d," Kansas City Business Journal, June 14, 1991, p. 2.
- Brockhoff, Anne, "Romance, Intrigue of IPOs Intoxicate Some Execu tives," Kansas City Business Journal, December 12, 1997, p. 22 .
- Clevenger, Brenda, "That's Not Italian," Ingram's, Novembe r 1990, p. 59.
- Collins, Martha, "Using Their Noodles," Ingram's, July 199 2, p. 40.
- Davenport, Carol, "Richard C. Thompson, 38," Fortune, Nove mber 6, 1989, p. 196.
- Everly, Steve, "American Italian Pasta Co. To Expand Excelsior Sp rings, Mo. Plant," Knight-Ridder/Tribune Business News, July 2 , 1997, p. 7.
- Levine, Joshua, "Yankee Noodles Dandy," Forbes, November 1 2, 1990, p. 310.
- "Missouri Pasta Maker To Sell 5.4 Million Shares of Common Stock, " Knight-Ridder/Tribune Business News, April 30, 1998, p. 4.
- "Mueller's Pasta Line Sold," New York Times, October 5, 20 00.
- Otto, Alison, "Where Are They Now?," Prepared Foods, Octob er 1991, p. 47.
- Reeves, Scott, "No Fireworks, Just Pasta: An IPO with Real Growth and Actual Earnings," Barron's, October 6, 1997, p. 39.
- Roth, Stephen, "Public Offering Poises American Italian for No. 1 ," Kansas City Business Journal, November 14, 1997, p. 3.
- Stein, Mark A., "Mamma Mia!," New York Times, October 23, 2005.
- "United States--Pasta & Noodles--Competitive Landscape," D atamonitor Market Research Profiles, November 1, 2004.
- "USA: American Italian Pasta Outlines Strategic Plan for 2005," Just-Food, October 28, 2004.
- Welbs, John, "Pasta Giant Expands in South Carolina To Begin Prod uction for Mueller's," Knight-Ridder/Tribune Business News, Ap ril 15, 1997, p. 41.
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