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Is Utz Quality Foods seeking next target in 'acquisition mode'?

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Since 2009, Utz Quality Foods Inc. has been on a bold mission to hit $1 billion in sales — more than doubling its business — before the company hits its 100th birthday in 2021, and with three key acquisitions in the last two years, the snack food company could be seeking that next buy to put it over the top.

Hanover-based Utz, which makes potato chips, pretzels and other salty snacks, recently upgraded its communications infrastructure at its factories, warehouses and offices around the U.S. to improve operations.

The company partnered with Philadelphia-based Comcast Corp. and Camp Hill-based Morefield Communications Inc. to upgrade its Internet connections to Comcast's larger- capacity Ethernet solutions using fiber optics.

The upgrades were important to standardize Utz's facilities, especially after the company's acquisitions in recent years, said J. Ed Smith, Utz's chief information officer.

"We just have a lot more technical capabilities at a lower cost," he said.

The changes weren't just an operational upgrade, but also Utz's preparation for the future, given the company's "acquisition mode" in recent years, Smith said. The upgrades open excess capacity on its communications infrastructure so Utz is poised for the next acquisition without technical roadblocks, he said.

"I wouldn't have any concerns," Smith said.

Dylan Lissette, president and chief operating officer, would not say whether Utz has yet closed in on another acquisition, but he did say the company continues to innovate, change and grow.

The snack food industry is changing rapidly, and many companies have been using mergers and acquisitions to compete with larger regional and national competitors such as Frito-Lay, or even Utz's cross-town rival, Snyder's-Lance Inc.

"Consolidation in the industry is going to continue for many of the smaller independent manufacturers and brands out there," Lissette said.

Times have been good for the snack food industry over the years. People's snacking habits became more frequent since 2009, according to an industry study by the research group IRI for the Snack Food Association, a Virginia-based trade group. In 2012, 43 percent of Americans were snacking three to four times daily, up from 24 percent three years earlier.

Heavier snacking saw gains, too, according to the report. Six percent of people snacked five to six times daily, up from 3 percent, and 2 percent said they snacked more than seven times a day, up from none.

Utz, like others providing the fuel for that growing market, are doing quite well. The company had 2012 revenue of $540 million, a 31 percent increase from 2010, according to Business Journal records.

If Utz grew at half that rate annually, it would hit the $1 billion mark in five years, three years ahead of its centennial in 2021. But that illustrates the importance of acquisitions. They can accelerate sales growth with niche products and new markets.

There have been a lot of mergers and acquisitions in the last five years, but the industry is growing other ways, too, said Chris Clark, vice president of the Snack Food Association.

"You have a lot of new products, and a lot of them are more in the better-for-you categories," he said.

There's also more opportunity for sales at places where snack foods have traditionally been a small part of overall sales, such as pharmacies or even hardware stores.

"What you're seeing is stores like Home Depot, where there are now more snack options where food or grocery was never their business," Clark said, "but it's an opportunity to catch someone while they're in line and maybe they need a mid-day snack."

There's also the blurring definition between pharmacies, convenience stores and grocery stores driven by catch-all retailers such as Wal-Mart, he said.

Whether it's new retail outlets, different snacks or new markets, most companies have come to the realization that they need to think about their businesses differently if they want to compete with the big companies, Lissette said.

"You need to be more dynamic than just selling in a geographic scope," he said.

The problem is there are a lot of headwinds for companies even if times are good, Lissette said. They include inbound and outbound transportation costs; rising commodities prices for potatoes, corn, and cooking oil; rising health care costs; and the number of small and large competitors entering the snack category, recognizing its stability and potential, he said.

"Small brands will be forced into making a lot less money," Lissette said, "or an alternative."

Utz continues to innovate with its tech upgrades, new products, and, yes, even the companies it decides to acquire or work with, he said.

The company's Wachusett acquisition got them into New England, Lissette said. The Bachman acquisition got it a larger stake in New York, and the Zapp's acquisition gave it a wide swath of the southern states. In the fall, Utz plans to take over distribution in the Atlanta area from a third party, he said.

Being a private company allows Utz to make those kinds of long-term decisions, he said.

"Even as large as we are," Lissette said, "I think we still act like a small company."

Snack time(line)

For nearly 90 years, Utz adhered to a traditional strategy of direct-to-store sales, which slowly but surely gave it a prominent place on the East Coast from New York to the Carolinas.

In more recent years, the company has placed a premium on acquisitions to speed up that contiguous regional growth. Executives are guarded about the future but hint there could be more shopping to come.

Here's a look at the Utz acquisition timeline:

1970: Pretzel power: Utz buys the Tasty Baking Co. potato chip facility in Hanover, now the Broadway plant, to expand and install pretzel production. Prior to this, and after, the company grew and built its own facilities rather than acquire companies.

2009: The un-merger: Snyder's of Hanover and Utz plan to merge, creating a snack food company worth $1 billion in sales. But Utz walked away after the Federal Trade Commission requested a second round of reviews. CEO Michael Rice says Utz can hit that revenue mark on its own before its 100th birthday.

May 2011: Cajun cohorts: Utz completes acquisition of Louisiana-based Zappe Endeavors, the maker of Zapp's Potato Chips. The deal marks an accelerating Utz buying spree.

October 2011: Wicked deal: Utz acquires Massachusetts-based The Wachusett Potato Chip Co. Inc., giving Utz a solid foothold in the Bay State, New Hampshire and Rhode Island. The deal could open other parts of New England to Utz.

September 2012: Pretzel power II: Utz acquires Reading-based Bachman Co., a 125-year-old pretzel maker. The deal included the intellectual property, distribution and Ephrata factory. Bachman's former managers retain the Reading facility to make private-label products for Utz and other companies.

Tech must be flexible, accommodate growth

Technology isn’t exactly the backbone of companies. It’s more like cartilage. It needs to be flexible, accommodating the twists and turns, impacts and growth of the organism it gives structure to.

Utz recently upgraded its tech for multiple facilities. But telecommunication and information technology executives say manufacturers are not the only ones adjusting to their acquisition-based additions. Transportation, education, finance and other industries are embracing upgrades, too.

“I wouldn’t say it’s restricted to a particular sector. It’s across the board,” said Glen Lytle, Comcast’s regional vice president for business services.

Comcast and Camp Hill-based Morefield Communications worked with Utz to upgrade its technology, moving them from older copper-wired T1 lines to fiber optic Ethernet.

To get a sense of what that means, T1 lines begin transmitting information at about 1.5 megabytes per second, Lytle said. At that speed, it takes about 6 seconds to transmit the governor’s budget proposal, which has more than 1,000 pages.

For comparison, Ethernet would transmit the information faster with speeds beginning at 3 MB per second and going up to 10 gigabytes, exponentially faster than the T1 with far less physical wires, Lytle said.

With only one transport mechanism for Ethernet, you can just ratchet up the bandwidth when it’s needed, he said.

“We’re just opening up the throttle,” he said.

When companies upgrade, the tech has to work seamlessly, said John Morefield, president of Morefield Communications.

The goal is to take a company with multiple facilities spread up and down the East Coast and make it seem like everything is run from headquarters, he said. Customers shouldn’t know the difference.

“We all expect it to just work,” he said.

That becomes crucial as companies grow, Lytle said.

“The ability to scale up is a tremendous advantage,” he said. “With video needs and bandwidth growth, I don’t see this type of work trailing off. With people needing things to be faster, I only see this work continuing grow.”

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