In bankruptcy, Lancaster Fine Foods looks to redefine brand
Lancaster Fine Foods is churning out the kinds of things that make sandwiches taste good, one label-wrapped glass jar at a time.
There’s chutneys and hot sauces and aquafaba, the base for vegan mayonnaise. There’s jams sold in Starbucks stores and condiments made by a fast-growing brand called Sir Kensington.
This business of turning grandmas’ recipes into small-batch commercialized products has grown Lancaster Fine Foods into a 75-employee company with more than $15 million in projected annual revenue over the course of just five years.
But a lot of people didn’t know much about the company until it declared bankruptcy in May.
Lancaster Fine Foods is much more than its setbacks, company leaders say. Now, they are trying to get the word out about who they say they really are: a caring employer with solid finances and ambitions of growing into a $50 million-a-year business.
“We have something really great here,” said Alex Thompson, a part owner and executive vice president of sales for the company. ”We want to show the specialty food industry who we are and what we can do.”
Jams, mayonnaise, long days
Lancaster Fine Foods emerged from a meeting between the right people at the right time.
Michael Thompson, Alex Thompson’s father, was looking for a food company to help with what he hoped would be a new line of pet food around 2008. In search of help, he approached David Esh, then-president of food manufacturer Beanies of Lancaster, but he discovered Esh was planning to leave the business, Alex Thompson said.
Michael Thompson decided to take over Beanies himself and changed the company’s name to Lancaster Fine Foods. It is now the largest subsidiary of its Lancaster County-based parent company Earth Pride Organics, whose portfolio also includes CO Nolt Bakery Supply, EPX Trucking and American Specialty Foods.
The newly christened company experienced its fair share of growing pains in the early years, Alex Thompson said.
Beanies was bringing in about $2 million in annual sales when the Thompson family took over, primarily from selling dipping cups to Auntie Anne’s Pretzels. It was a good account, but not enough on its own to keep the business afloat.
The new owners set to work building a more diverse base of customers as the economy recovered from the Great Recession. The company found its niche in the kinds of condiments that come in label-wrapped glass jars, with jams, mayonnaise and specialty foods like vegan and organic products making up much of its business now. The company also still does work for Auntie Anne’s.
Not every new product worked. Thompson recalled an ill-fated attempt to make a line of ice pops, and another involving condiment squeeze pouches. But the company soon found what worked and what didn’t, and used those experiences to grow.
Lancaster Fine Foods added more than 50 employees to Beanies’ 20-person workforce and earlier this year moved from the business’s original location in East Lampeter Township to an expanded facility in East Hempfield Township. The company expects to bring in between $15 million and $20 million in revenue this year.
Still, Lancaster Fine Foods struggled to find bank partners as it built up what was a struggling business when the Thompson family purchased it during the recession. The owners have financed much of the company’s growth with shareholder debt and a few high-interest loans, Alex Thompson said.
The company initially resisted bankruptcy, leery of the stigma that would come with filing, even as it fought allegations that it had illegally profited from trade secrets gained during a relationship with a former client, Dalmatia Group, Inc.
The legal battle cost the company a significant amount of money in legal fees, as well as the lost time of sending key employees to court, Thompson said.
Then a jury ruled earlier this year that Dalmatia was entitled to more than $5 million in damages, to be paid by Lancaster Fine Foods and FoodMatch, another food distributor named in the suit. That judgment — combined with the fact that the case will likely drag on in appeals over the coming years — was what ultimately led Lancaster Fine Foods to file for Chapter 11 bankruptcy.
Chapter 11 lets the company reorganize its debts as it prepares to pay for damages in the case, the exact amount of which will not be certain until FoodMatch and Dalmatia fight through the appeals process. More importantly, it places a hold on any legal actions against the company, essentially letting Lancaster Fine Foods bow out of the courtroom, avoid potentially millions more dollars in legal fees and focus on its business.
“While we respect the court’s decision, we don’t think we did anything wrong in that court case,” Thompson said. “The great thing is that the bankruptcy was not based on our underlying business at all. It was based on this lawsuit.”
The owners immediately set to work after the May 31 bankruptcy filing telling employees what was happening, why it happened and, most importantly, that their jobs were safe. It has launched similar conversations with vendors and clients, most of whom have been sympathetic, Thompson said.
The publicity from the lawsuit and subsequent bankruptcy also emphasized a need for Lancaster Fine Foods to define itself, both as a brand and an employer, in the public eye. It plans to ramp up its social media presence and revamp its website, as well as work more with local media and set up booths at national trade shows, Thompson said. The company also hopes to get involved in the downtown Lancaster food scene, as well as work with local charities.
Lancaster Fine Foods’ ultimate goals are to reach $50 million in annual revenue and gain a reputation as a cool, caring place to work, Thompson said. The company already prides itself on hiring people who may struggle to find work elsewhere, helping them move up in the ranks of the business and providing financial support in times of need.
Pursuing these growth goals has meant long hours for the owners, who often work 12-hour days and pitch in wherever needed.
Bankruptcy, Thompson said, is just the first step toward a bright future for Lancaster Fine Foods.
“We’re going to make this thing work,” he said. “Through hard work and dedication, we’ll make it through.”
If Thompson’s hopes come to fruition, Lancaster Fine Foods will join the ranks of other well-known brands that have bounced back from Chapter 11 in recent years, from national names like Delta Airlines and General Motors to York-based Wolfgang Candy.
Lancaster Fine Foods’ situation is in some ways similar to that of Wolfgang’s. The two businesses do have significant differences — Wolfgang is 96 years old and filed for Chapter 11 because of financial struggles — but their stories follow a similar narrative: a family-owned food manufacturer in the midstate making the emotional decision to file for Chapter 11 in the face of insurmountable hardship.
“Looking back at it, I think our crisis plan was very effective,” said Ben McGlaughlin, who served as Wolfgang’s CEO from 2008 until the end of 2016. “Each step of the way we tried to stay ahead of any news that came out.”
The York candy maker filed for Chapter 11 in 2012 under the combined weight of a shareholder buyout and federal legislation that limited candy sales in school fundraising. The company, with the help of a new business partner, has climbed out of its debt since then, even buying a new 56,000-square-foot production facility in 2016.
A landmark court case
A brand of fig jam was at the heart of the lawsuit that preceded Lancaster Fine Foods’ bankruptcy filing — specifically, its Divina fig and orange fig spreads.
The case alleges that Lancaster Fine Foods and a New York-based food distributor called FoodMatch illegally used trade secrets they gained during a relationship with a third company, Dalmatia Import Group Inc., to create the Divina brand.
Dalmatia sued FoodMatch and Lancaster Fine Foods over the “impersonator jams,” saying they violated a number of non-compete and trade secret laws. The suit also accused the companies of illegally selling fig spreads under the Dalmatia name, despite Dalmatia rejecting the batches for sale.
A jury ultimately awarded Dalmatia $5.2 million in damages, although the amount the companies actually pay could change in the appeals process.
The law firm representing Dalmatia claims the verdict was the first in the United States to make use of a 2016 law called the Defend Trade Secrets Act.
“Simply put DTSA provides the right to bring a civil action in federal court for misappropriation of trade secrets,” said McNees Wallace & Nurick attorneys Carol Steinour Young and Thomas Markey in a joint email. “Before DTSA, if litigants were from the same state, or had relatively small claims, state court may have been the only choice. Private companies and individuals now have more options when deciding where to file suit.”
The act only applies to misappropriation of trade secrets involving products or services used in interstate or foreign commerce.
The Lancaster Fine Foods case would have likely played out similarly even without the Defend Trade Secrets Act, Steinour Young and Markey said. Other laws already provide trade secrets protections, and the Fine Foods case was already in federal court when the Defend Trade Secrets Act was enacted because of the other claims involved.
Still, the law’s enactment includes some takeaways for midstate business owners, the attorneys said.
In addition to having the option of seeking redress in federal court for trade secrets violations, business owners also have under the new law the ability to ask the court, without giving notice to the other side, to seize property like computers and mobile devices if they contain secrets that could cause immediate and irreparable harm to the business. The act also provides new protections to whistleblowers.
“DTSA embodies a federal policy of protecting trade secrets,” Markey and Steinour Young said. “And business owners should be thinking about their intellectual property and how they can protect it in the event of theft or threatened theft.”
That was the financial side of the comeback. But as the accountants and attorneys worked out the numbers, the company had a public image to maintain, vendors to assure and a 50- to 100-employee seasonal workforce of people worried about their careers.
McGlaughlin fought those battles with candor and emotion, he said. Company officials garnered sympathy by emphasizing how much they agonized over the decision to declare Chapter 11, and they took time to explain to employees and the public alike what exactly the declaration meant for the future of the company.
The goal was to appear emotional, but not rattled. McGlaughlin, now a partner with business consulting firm Design Quake, would advise companies in similar situations to adopt a similar approach.
“Get out in front of that publicity with a strategy that involves being transparent, that involves drilling down the message that you have in to small, understandable parts or facts,” McGlaughlin said.
Taking ownership of any mistakes can also go a long way in ensuring a company maintains a positive public image in the face of bankruptcy, said David Hagenbuch, a marketing professor with Messiah College. He also recommends businesses equip employees with talking points that let the public know what steps the company has made to correct its problems and how they plan to use the lessons learned to create a stronger business.
Businesses can also increase their chances of a comeback by continuing to put out quality products.
“Organizations and individuals are quick to forgive and forget when they receive a strong return on their investment,” Hagenbuch said.
McGlaughlin said his only regret from his time helping to turn around Wolfgang is that he worked himself too hard, likely leading others at the company to follow his example. His final piece of advice to other executives facing company hardships is that they take care of themselves, and encourage their employees and team members to do the same.