"We got new carpets finally because the price of duct tape got too expensive," he said, laughing.
It has taken more than penny-pinching to bring about an uncommonly good turnaround at Keebler. Sales hit $2.06 billion last year, an impressive 18.2% gain over 1996. Gross profit jumped 35% to $1.17 billion.
A big chunk of the '97 sales gains followed Keebler's June 1996 acquisition of Cheez-It maker Sunshine Biscuits. But even excluding the gains from Sunshine, sales rose 4.5%. That compares to a 4% sales decline, to $3.54 billion, for Keebler's much larger rival, Nabisco Biscuit Co.
Keebler's journey outside the hollow tree began in January 1996, when Inflo Holdings, a joint venture of Flowers Industries and Artal Luxembourg, bought Keebler from British-owned United Biscuits. Less than five months later, Inflo bought Sunshine; six months after that, Keebler went public.
"As part of the IPO, we went out and made 88 different presentations to portfolio managers," said Mr. Vermylen, president-Keebler Brands and a veteran of three leveraged buyouts. "We had this slide presentation, with a flip chart showing Ernie and the hollow tree, that said, `Welcome to the world of Ernie Keebler.' When we'd show that, every one of them would smile."
FATTENING BOTTOM LINE
The reaction to Keebler's brand icon reinforced the marketer's belief that the elves are its major financial asset. A savvy new-products program, clever management of a relatively small $30 million ad budget and lavish attention to its 1,500-strong store delivery sales force have also combined to fatten Keebler's bottom line while taking share away from Nabisco.
"Their recent record speaks for itself," said DLJ Securities analyst William Leach. "They have stolen Nabisco's thunder and share."
"I'd rather have a stable share in a growing market than a growing share in a declining one," Mr. Vermylen has said. So far, Keebler has had both.
According to Information Resources Inc., the $3.68 billion cookie category was up 2.2% in supermarkets for the 53 weeks ended March 29. Nabisco's cookie sales of $1.28 billion were up only 0.2% during that period while Keebler's much-smaller total, $450.1 million, loped ahead 8.7%.
In crackers, the $2.81 billion category advanced 4.1% while Nabisco's $1.32 billion in sales eked up 0.4%. Keebler, meanwhile, saw sales of its brands grow 4% to $435.8 million; its Sunshine crackers, measured separately, came in with another $250.7 million, up 17.2%.
"The market's been flat in the past because the industry has been focused on beating each other up on price and not enough on innovation, new products or advertising," Mr. Vermylen said.
SNACKWELL'S WOES OVERPLAYED
Nabisco's recent problems have been pinned on cutbacks and part-time management of its sales force as well as the ceiling that its SnackWell's brand has hit.
But Mr. Vermylen, who admitted Keebler was too slow to jump into better-for-you cookies and crackers, said too much is being made of Nabisco's problems with SnackWell's:
"SnackWell's is still a good size and profitable business, even though it's not what it once was. It's hard to criticize. . . . I wouldn't mind having that business because of its size."
The secret for Keebler has been small successes.
"Our strategy is to grow in segments where we have strong shares as well as to find new niches rather than create the next Oreo," he said.
"We've hit a lot of singles and doubles," agreed Roger Kalinowski VP-marketing at Keebler and a 25-year veteran of the company and the cookie wars. He cites as an example Keebler Club crackers.
"We did a fairly simple redesign and simply supported Club, which had gone to sleep," Mr. Kalinowski said. "We look for those smaller opportunities."
Among them, Iced Animals, which received new graphics and line extensions such as sprinkles.
"We elfinized them," said Mr. Vermylen.
Within the past two years, Keebler also freshened its largest cookie franchise, Chips Deluxe, with three extensions -- Peanut Butter Cups, Chocolate Chewy and Coconut Chips Deluxe -- resulting in a 32% sales gain last year, said Mr. Kalinowski.
To make the brand more relevant to teens, Keebler introduced into TV spots from Leo Burnett USA, Chicago, the "Dude," an animated character, and launched an integrated promotion asking youngsters to design their own cookie.
Another small hit was the introduction of Keebler Cookie Stix, an easy-to-hold cookie for small children, and this year's follow-up Rainbow Cookie Stix, which so far have combined to contribute $20 million in incremental sales.
On tap for this year are Rainbow USA Chips Deluxe in patriotic red, white and blue for the Fourth of July -- swiftly followed by Nabisco's announced Star Spangled Chips Ahoy! -- as well as a lemon cream version of Sunshine's Vienna Fingers.
Later this summer, Sunshine is launching Cheez-It Heads 'N Tails, mix-and-match cracker pieces that encourage kids ages 2 to 5 -- a previously underdeveloped market at Keebler -- to play with their food. It will be supported by a TV campaign in late August.
To maximize its comparatively small ad budget vs. Nabisco, Keebler is hitting hard on integrated promotions that combine TV, point-of-purchase and consumer promotion.
Currently, it's running one called "Toys of Summer," a "cracker-focused effort brought to life with an innovative display" that includes an inflatable raft, said Mr. Kalinowski. For the back-to-school season, the company will be the exclusive tie-in partner with Nintendo of America for its launch of a new game called "Banjo & Kazooie."
Keebler executives hold up Dude as an example of how it's attempting to update imagery and add relevance in new campaigns. Another new spot they cite is for Munch'ems crackers, "Party in Aisle Five," which shows a real man partying with animated elves.
"It can't just be some guys walking up to a hollow tree," said Mr. Vermylen of Keebler's advertising. "The elves are becoming more dimensional in tonality."
"We're trying to infuse the work with not just baking cookies and crackers, but insights into how people eat and live," said T.S. Elliott, VP-associate creative director at Burnett, who has worked on Keebler for 10 years.
Keebler remains utterly convinced of elfin magic, viewing it as a major competitive advantage against Nabisco.
"The way we see it, we have two brands, Keebler and Cheez-It," said Mr. Vermylen. "The elves stand for Keebler. We can't separate them from our products.
"It's hard to envision an Oreo cracker," he continued. "But you can have a Keebler cracker."
"[Keebler] has exploited the fact that they have a common brand that supersedes" the others individually, said DLJ's Mr. Leach. "That is more efficient" than chasing several brands as Nabisco does.
"We can still be outspent by Nabisco 3-1 and have a bigger presence on the air," said Burnett's Mr. Elliott.
Nabisco, for example, has an equity management director who aims to leverage its brands, such as Oreo, into categories like cereal. Keebler has hired a VP-new business development to move its elves, rather than individual brands, into new licensing venues.
"That's different than the old Keebler," said Mr. Vermylen, noting that the elves -- who turned 30 this year -- were often "just forced" on the packaging.
Mr. Kalinowski recalls that Keebler spent $7 million in 1994 to sponsor a Clint Black country music tour, on behalf of Wheatables, rather than Keebler. Now the emphasis is on "how these businesses add up to the essence of the [Keebler] brand."
Mr. Vermylen said the company actually had drifted so far away from the elves that it took Burnett to defend their heritage.
BURNETT'S A BELIEVER
Burnett "believed in them more than [previous] Keebler management," he said.
"There's a new sense of confidence at Keebler," said Mr. Elliott. "That's going to make all the difference."
Ernie aside, winning the cookie war, rather than just that battle, will take more than elfin magic.
In fact, PaineWebber analyst Emmanuel Goldman estimates Nabisco will spend an additional $50 million on marketing in the second half of '98 -- more than Keebler's ad budget for the entire year. McCann-Erickson Worldwide, New York, handles cracker advertising for Nabisco; Foote, Cone & Belding handles cookies.
"Nabisco is reacting [to Keebler]," said Mr. Leach, who noted the company has vowed to straighten up its sales force and restore ad spending levels that had fallen in recent years.
"When the industry leader gets mad, it tends to affect the whole category. And the industry leader is definitely mad," he said.