MKE - Klement's Sausage Co. Sold to California Private Equity Firm
- Fowler May 5, 2014 06:46 PM
Quite frankly I am more of a Usinger fan than a Klement's fan but I have had some excellent sausages from Klement's over the years and especially the ones they did not sell in grocery stores but only out of their own South Side Milwaukee outlet store.
A sad sign of the times when a brand considered a local, smaller company producer would sell out to a large private equity firm in California. The buyer claims they will not change a thing. In all my years of business experience, I have never come across a scenario where a private equity firm purchases a business and does not change anything. One of the main reasons why they purchase a business is so they can change things to cut costs, make the business more profitable for them and usually the customers suffer with an inferior product.
I haven't been to the outlet since the sale. However, my understanding is that the family never upgraded the factory. Stuck in the 1980's. very inefficient, probably going to be moved. I will miss many of their outlet products, the fact that driving there saved $$$ on scout camp outs, the joke of Allen Brother's $$$ products bought for $.01 in generic packaging, etc. Outside of Usingers, the "Klemets Chicago style hot dogs" are my favorite. But to be honest, the outlet store prices are getting very close to local grocery prices. Not worth the gas. Same as "old Wisconsin" it used to be worth the trip to Sheboygan to their outlet to buy in bulk for scout trips. No longer - they overpriced themselves.
I was at the outlet today. There was a huge lack of product in the main enterance, the normally happy two people there were far more abrupt than I expected. As with everything, the prices are going up. Darn if they disappear I will miss their mild head cheese. On the other hand, the ham sticks that the teenager loves that used to be very rare were there in huge quantities, but an extra $1.50 than I was used to paying.
I'm not a Klement's fan (too greasy for my taste) but I hate to see small and local get hoovered up like trash.
Greatest American Lies:
4) The check's in the mail.
3) I'll respect you in the morning.
2) I only had one cookie, Mom.
and possibly the greatest:
1) The company has been sold but there will be no changes.
C'est vrai, Sunshine842, and I agree. The Klement's sausages they sell in the grocery stores are greasy. I will add that their "chorizo" sausages are unlike any real chorizo I have ever eaten. But some of the small-production specialty sausages they sell in their own store are quite good and I will bet those will be the first items to be eliminated because they seem to have a higher meat to fat ratio (which means they are more expensive to produce) and also contain additional spices and other ingredients that add to the expense.
"Hoovered up like trash" is an excellent description. There are plenty of huge food companies that almost deserve to fail (Kraft for example) but they always seem to gobble up the little companies that are actually passionate about food quality and tradition.
Sorry, Fowler, but one of the main reasons private equity firms purchase a business is not to cut costs. The main reason is to grow revenues and upsetting customers is not the way to do that. Will the new owners change things? Sure, but cutting costs is not necessarily going to be the primary focus.
Klement's is an add-on investment for Tall Tree Foods, which has acquired two other brands previously: Blue Ribbon Bacon and Richard's Cajun Foods. A quick Google search I performed did not turn up any customer complaints about the products of those companies following the transfer of ownership.
I don't have direct knowledge of the situation though I am quite familiar with the industry practices. There are firms that specialize in turnarounds of underperforming businesses. In those cases, you would likely see massive changes made. Altamont Capital, the private equity group behind Tall Tree, is not known as a turnaround firm and they have announced that the management team at Klement's will remain intact.
Time will tell, but if there is customer demand for the products you are discussing, I imagine they will continue to be produced. I would think the primary focus here would be to expand market share for the company's products.
Thanks for chiming in on the subject.
I have a MBA and have worked with private equity firms for most of my entire professional career and stand behind my statements concerning what this private equity firm will do to Klement's.
It is naive to think they will not cut costs or make adjustments to the management team.
it's all in the perspective...I've seen mostly the other side -- private investment firms that come in, slash and burn the payroll, slash and burn the manufacturing processes, and cut costs, raise prices, and because of the gutted employee base, destroy anything resembling customer service and/or good will.
And I've seen it from both sides -- I've been hired after the acquisition to "make changes", and I've been cut loose when the company I worked for was acquired,
I too have an MBA and work in lower middle market private equity (which is very different from the large firms that get all the headlines) and I would tell you that most of the firms in our market (to which this transaction is applicable) look to partner with management teams to build on the strengths of the business, not to look at ways to cut costs.
In my view, if you don't get revenue growth it is very difficult to get a return on your investment unless the situation is a turnaround (and I don't believe that this one is). And revenue growth is very difficult to achieve if you alienate your core customer base. One could argue that Chowhound posters might not be the core customer base but I cannot comment on that as I have no knowledge of the situation.
Having said all if there are costs to be cut or management changes to be made, I don't disagree with your comment. I expect that there are costs to be cut in administrative management as this is an add-on investment, not a platform. But that doesn't mean that the product will be changed. Perhaps it might but that is not an automatic assumption.
My guess is that Altamont's strategy is to broaden the distribution for all of the brands they are acquiring. If the strategy were as sunshine842 describes, I would not think that this acquisition would be a fit as an add-on investment to a portfolio of other brands. A firm such as Altamont would be unlikely to acquire an add-on with "slash and burn" strategy in mind as that does not add any synergy with the brands they have already acquired.
Just my two cents on the situation.
Hi Fowler -
Via your own statement.
" One of the main reasons why they purchase a business is so they can change things to cut costs, make the business more profitable for them and usually the customers suffer with an inferior product. "
Most companies are acquired because they are financially in trouble, or the owners want to sell to retire or move on.
Again, in such cases, what is the alternative ?
If no one steps in with capital to rescue, or acquire the business, eventually the doors close, followed by the " Closed for business " sign.
SWISSAIRE, so you dispute the fact I stated,
"Just for example, their top line (revenue) and bottom line (EBITDA) have increased ever since they received the Miller Park account and also gained wider distribution in the grocery sector."
How did you even find this thread unless you are just scouring the board looking to start arguments?
the alternative is to build on the success that the company has already built.
Okay, manage costs. Manage production. But make sure you understand the market, the products, and the history of the company so that you can build on what works and tweak what doesn't.
Too often, you get some snot-nosed kid with an MBA (on which the ink isn't even dry) from a prestigious university who's never actually worked a day in his life in an actual office, who's been told that hes a "consultant"....he doesn't have any clue about the company (and doesn't care), doesn't have any clue what cutting personnel costs actually means, and all he wants to do is impress some Wall Street hot dog who doesn't understand any more about the company than the "consultant", and doesn't care. He comes in and decides that the people who started the company and those who have spent a significant portion of their career building that company are all creaky stupid old farts who don't understand that times have changed, and that they all ought to just be sent out to pasture.
I'm wondering how much time you've spent in offices in the US in the last dozen years or so. Being bought out is rarely a sign of success.
Sunshine, I hope that MBA comment was not directed toward me after I mentioned I have a MBA. :-)
I agree with much of what you have stated even though you have those crazy, wild, midwest, sensible and logical kind of ideas. Quite frankly, we could use a few more of you on the board.
No -- it was a statement based on real-world experience in more than one company and no reflection on anyone in this conversation at all.
I have an MBA, too...earned well into my 30s after I'd learned a lot of the material the hard way. :)
I don't care for Klement's products, as above...but I also know they're much-loved in Wisconsin, and I hope that this private-equity firm is an exception to the rule (although I don't hold out much hope). I hope the folks who will inevitably be shown the door find a better path going forward.
In my experience (again in the lower middle market), the vast majority of companies that are bought out are successful concerns where the owners are looking for an exit strategy that preserves the company's culture. In most cases, the owners stay on as managers with the private equity partner and work to take the company to the next level.
I don't know what types of situations you have worked in (and I do understand that there are a number of turnaround investment firms that take a different approach and perhaps those are the types of firms with which you have been associated) but that is not my experience at all.
I think you have misjudged my comments.
You post a topic stating a private equity firm recently bought a company, the products of which you are familiar with.
Further, you state:
" A sad sign of the times when a brand considered a local, smaller company producer would sell out to a large private equity firm in California."
" A sad sign of the times ? "
" Sell out to a large private equity firm in California " ?
I don't think it sad, nor that the infusion of cash from a company in California, New York, or Germany perhaps would be a bad thing at all.
Or is Milwaukee alone more acceptable than California ?
No argument is intended, nor " trolled for " as you allege. You posted a topic and I provided you with an alternative reasons to consider to enrich your thread.
Usually one posts a thread topic for feedback, different points of view, and commentary intended to enrich and broaden the topic. Which taking an interest in your thread, I did.
There may have been other reasons, including financial, for the acquisition, which is not sad but perhaps good, considering the continued longevity of the company just acquired.
You then posted a secondary bit of information, that could have been included with your original post. If those are facts by the way, they might be supported by a link to the source.
There are a number of products worldwide that no longer are available or produced, including food and vital pharmaceutical items. Acquisitions of companies have rescued and maintained many other companies and manufacturing concerns. The product focus may then be altered, or changed, but the product remains.
Obviously, I do not see all acquisitions as " sad, " as others might, in fact they may be quite healthy in the long run.
If the topic of your thread is only to be from your point of view, and you consider any alternative input to be argumentative and hostile, then my sincere apologies to you.
I would ask to you to pause, and read the comments again with an open mind. Nothing further will be added.
Meant with the nicest, and helpful of intentions.