Beset respectively with heavy debt and allegations of deceptive management, the reality has been grim for the two startups. Vlasic has filed bankruptcy, agreeing to sell its eponymous pickle brands to H.J. Heinz Co., and is still determining what to do with its ailing Swanson frozen
business. Meanwhile, Aurora is back at square one, with new management and a new strategy that bears remarkable resemblance to one that
was supposed to be implemented five years ago. With a slew of new strays on the horizon, the difficulties provide a cautionary tale for other would-be adopters, such as International Multifoods Corp., a historically foodservice-oriented company that hopes to enter the consumer marketing arena with the purchase of several Pillsbury brands.
When Vlasic was spun off from Campbell Soup Co. in early 1998, it was sent packing with a mandate to build long-ignored brands such as Vlasic and Swanson. It was also saddled with $560 million in debt.
Vlasic spokesman Kevin Lowery declared definitively that, "No ifs, ands or buts, if [Vlasic] had had more money to invest in new products and advertising, we would have grown these brands."
Lehman Bros. food analyst Andrew Lazar agreed that "the debt load didn't provide [Vlasic] with the proper flexibility to build its brands," but he also questioned the ability of small orphan brand companies to compete against their large-scale brethren in the newly consolidated retail environment.
"Some of these companies may have solid brands here or there but not across a whole host of categories, and therefore they're not as important to a retailer's profitability as is a larger food company that can leverage its trade and consumer spending across a huge volume base," he said.
Aurora nonetheless is still trying. Last April, former ConAgra executive Jim Smith stepped up as the company's new president-CEO to set about rectifying the problems created by former executives. Four of the former leaders of the company, formed in 1996 to turn around enduring but under-marketed brands including Duncan Hines, Mrs. Butterworth's, Van de Kamp's and Lender's, had left amid allegations of having "falsified the books and records of Aurora to conceal tens of millions of dollars of trade promotion expenses," in order to inflate earnings, according to an indictment issued in Manhattan Federal Court in late January.
"The problem was that [former management] spent money to drive volume and earnings rather than drive and build businesses at the same time," Mr. Smith said. But, he countered, "it really speaks to the power of the brands that despite all of these funny activities and not spending to build equity, [Aurora brands'] share of business was about flat. We did not succeed in killing these brands no matter how hard we tried."
That fact gives Mr. Smith and his new management team hope of executing the original vision of the company: to grow brands with great consumer awareness by putting greater resources against them. One of the ways they plan to do that is return to advertising. Aurora will spend roughly $25 million on ad campaigns for its Lender's, Mrs. Paul's and Van de Kamp's brands in 2001, an expenditure that marks a fourfold increase over its media spending in 2000. Interpublic Group of Cos.' Momentum, St. Louis, is its agency.
As for Aurora's lack of scale, Mr. Smith counters that it is big brands, not necessarily big companies, that retailers want to partner with. And, he said, "most of Aurora's brands are either category leaders or strong number twos."
Under either scenario, Minneapolis-based International Multifoods is expected to face challenges in its efforts to compete against General Mills' Betty Crocker and Aurora's Duncan Hines if it succeeds in buying Pillsbury's Pillsbury and Martha White brands of baking mixes. Although the $2.4 billion company's Robin Hood flour brand is the top seller to the food service industry, Multifoods got out of the consumer food business in 1986 with the sale of the retail brand to General Mills. And, these days, the price of entry to get back in seems high, to say the least.