John B. Sanfilippo & Son, Inc. History

Company History:

John B. Sanfilippo & Son, Inc. is the nation's second largest distributor of full-line nut products, after the Planters Lifesavers division of RJR Nabisco. Sanfilippo processes, packages, markets, and distributes over 2,000 different products under the brand names Evon's, Sunshine Country, Flavor Tree, and Texas Pride, as well as for private-label distributors. It is the country's largest vertically integrated shelled and in-shell nut company.

Sanfilippo started as a small pecan shelling operation in Chicago, early in the 20th century. At the time, pecan shelling was a cottage industry, with hundreds of small shellers supplying larger processors, distributors, and retail channels. Chicago, the center of the pecan shelling industry, had as many as seventy pecan shelling businesses by the time of the Depression. The manual shelling work was typically performed by the large immigrant population, such as Gaspare Sanfilippo, of Sicily. By the time Sanfilippo's Sicilian-born son, John B., was ten, he too worked as a pecan sheller.

At the time, an individual pecan sheller processed about 45 pounds of shelled pecans daily, for which he or she earned around $6 a day. By 1922, the Sanfilippos were able to open their own pecan shelling business in a storefront on Chicago's Division Street. The company's output climbed to 40,000 pounds per month. For the next forty years Sanfilippo supplied a limited customer base of retail nut shops, distributors, and a number of large candy and other confectionery manufacturers. Pecan shelling remained their sole source of revenue.

John B.'s son Jasper entered the family business at the age of nine. In the early 1950s, when John B. fell ill, Jasper took a one-year leave of absence from college in order to manage the family business. After college, Jasper rejoined his father and, in 1959, they changed the name of the storefront business to John B. Sanfilippo & Son. Operations moved to a new building located on Montrose Avenue on the northwest side of Chicago.

The company began to diversify its product line as the pecan shelling industry itself began to change. The introduction of new machinery was making it possible to shell greater quantities of pecans; the growth of national distribution channels in the years following World War II made it possible for a single sheller to serve a wider area. The increased competition that resulted enabled processors and consumers to demand a higher degree of product consistency and quality. Many of the smaller shelling operations began to disappear as the industry consolidated into fewer, larger nut processors.

Jasper took over leadership of the company after John B.'s death in 1963. He was soon joined by his brother-in-law, Mathias Valentine. The company's sales in 1963 were $300,000. Sanfilippo stepped up its diversification, entering distribution deals with almond, walnut, and peanut shellers. The company organized a network of brokers to sell its products to the industrial channel, marketing to bakeries, candy manufacturers, and other confectioners. Sanfilippo also moved into retail sales, packaging its products under the "Prairie State" brand name.

The company enjoyed modest success through the 1960s. That changed in 1974 when H.H. Evon Co. of Chicago, which distributed nutmeats throughout the Midwest under the Evon's brand name, went bankrupt. Evon defaulted on its $90,000 debt to Sanfilippo. Rather than demanding a cash payment, Sanfilippo agreed to acquire the Evon's brand name, as well as the company's small fleet of Evon's delivery trucks and its Midwest distribution business. Sanfilippo dropped its Prairie State brand and began to market the bulk of its products under the Evon's name. The fleet of trucks allowed Sanfilippo to initiate the store-to-door distribution of its products beyond Chicago.

With the acquisition of the assets of Evon's, Sanfilippo entered a new era of sustained growth. At the same time, quality and consistency became even more vital for the company in view of increasing consumer sophistication and the growth of national brands such as Planters and Fisher Nuts. Differences in growing and storage conditions and variable shelling, roasting, and packaging processes among its many suppliers affected not only the taste and appearance of their product, but also the size grading. Thus, Sanfilippo sought greater control of the handling and quality of its raw products. By the end of the 1970s, Sanfilippo's growth allowed it to make its first move toward the vertical integration of its production process.

In 1980 Sanfilippo constructed a modern pecan processing facility, designed by Jasper Sanfilippo, in Elk Grove Village in Illinois. The company also moved its corporate headquarters to its processing complex. The 135,000-square-foot facility took two years and $9 million to build, and incorporated the latest technological advances, including a high degree of automation. The new facility allowed Sanfilippo to control the full range of manufacturing processes, from processing to packaging to distribution. It also allowed management to cut the cost and raise the profit margins in its processing operations. By 1984 its sales had reached $56 million.

The company's growth continued throughout the 1980s. In 1984 Sanfilippo entered the bulk foods market with its acquisition of Midwest Nut & Seed Co. The Elk Grove facility was expanded twice--in 1985 and 1989&mdashø 300,000 square feet. Between 1985 and 1990, Sanfilippo's revenues doubled from $78.8 million to $152 million. In 1987 the company moved toward vertical integration in the "Runner-type" peanut market by constructing a 200,000-square-foot production and warehouse facility in Bainbridge, Georgia. This new plant featured complete continuous-line shelling, blanching, processing, and packaging capabilities, with a production capacity of 120 million pounds per year. It became the first and only peanut plant in the world capable of performing the entire production process.

By 1991 Sanfilippo's sales had topped $161 million. Production in that year reached 103 million pounds of peanuts, 37 million pounds of walnuts, pecans, and other nut products, and an additional 38 million pounds of other snack items. Those goods were shipped to more than 6,000 retail, wholesale, foodservice, industrial, and government customers across the country. Sanfilippo's 1980s expansion, however, had left it with some $58 million in debt and a high debt-to-equity ratio. Meanwhile, as the industry continued to consolidate, Sanfilippo eyed still more aggressive expansion plans for the 1990s.

Sanfilippo went public in 1991. Its initial public offering of $12 per share of restricted voting stock raised $22 million, much of which went to pay down its debt. A secondary offering made less than two years later, for $14.25 per share, added $31.5 million. With its debt-to-equity ratio lowered and newly available credit worth nearly $60 million, the company launched on a new period of expansion and acquisition.

Less than six months after its IPO, Sanfilippo paid $4.2 million for Sunshine Nut Co. of San Antonio, Texas, and that company's two retail brands, "Sunshine Country" and "Texas Pride," which generated $32 million in annual sales. In December of 1992 Sanfilippo moved Sunshine's operations to a newly constructed 50-acre, $11.2 million facility in Selma, Texas. Sanfilippo was then vertically integrated in Runner-type peanuts, pecans, and almonds; three of the five major nut types.

Next, Sanfilippo spent $9.5 million building a full-scale, in-shell processing facility in Garysburg, North Carolina, in order to expand into a fourth nut type, Virginia-type peanuts. The company followed this move in April 1993 with the $3.2 million cash purchase of California-based Crane Walnut Orchards, making it fully vertically integrated in each of the five major nut types and the country's largest vertically integrated supplier.

As it expanded through acquisitions, Sanfilippo invested heavily in upgrading its existing plants. The Elk Grove facility was expanded to increase its warehouse space and shipping/receiving capacity, with plans past 1995 for a total of 475,000 square feet. The company also built a $5.3 million plant in Arlington Heights, Illinois, and spent $12 million moving its pecan shelling operations closer to the main pecan growing region in Texas. In addition, Sanfilippo spent $9.7 million redesigning its recently acquired Gustine, California, walnut facility, while each of the company's existing facilities were retrofitted with updated technology.

Much of Sanfilippo's production technology was designed, invented, and even patented in-house by Sanfilippo's team of industrial engineers. For the walnut plant, the engineering team adapted its pecan-shelling technology to enable it to crack each walnut, as opposed to the common industry practice of sending them through rollers that yielded significantly lower proportions of whole, and more valuable, walnut halves.

Sanfilippo also built the country's largest refrigerated walnut storage house, allowing it to slow the deterioration of the nutmeat, maintain consistency in flavor and color, and reduce the need for costly fumigation. In its Arlington Heights plant, Sanfilippo designed a fully automated production system, including a computer-controlled roasting system capable of processing up to 4,000 pounds per hour. The computer controls contained each of the different recipes stored in memory, allowing the automatic adjustment of such recipe variables as roasting time, temperature, and oil dressing. Sanfilippo also designed an oil filtration system, allowing it to recycle virtually all of the oil not absorbed by the product.

By the end of its three-year expansion effort, Sanfilippo had spent more than $55 million on its new and upgraded facilities. Between 1991 and 1993 the company's annual sales jumped to top $200 million. In the ten-year period 1985-1994, the company saw a compound annual growth rate of nearly 16 percent. In February 1994, Sanfilippo signed an agreement with Procter & Gamble to handle part of its Fisher nut line, then the number-two nut brand in the country. The Arlington Heights facility was built in response to that agreement.

Sanfilippo's expansion effort, coupled with a sluggish economy and declining retail sales, resulted in a sharp drop in earnings, down to $49,000 in 1994 compared to more than $6 million in 1992. And its revenues grew only slightly in that year. A bumper peanut crop, moreover, forced the company to take a $1 million writedown on its peanut inventory. However, the company's difficulties proved temporary and by the following year its financial position had significantly turned around.

In 1995, Sanfilippo closed two major deals to solidify its number-two industry position. In May of that year the company announced it had reached a ten-year agreement with SuperValu Inc.'s subsidiary, Preferred Products Inc., to supply all of its private-label SuperValu nuts, peanut butter, and coconut products. By then, Sanfilippo processed and/or packaged for 100 private labels, a market that had grown increasingly important as consumer demand for name brand products slowed. Nevertheless, Sanfilippo's Evon's brand continued to provide the majority of its revenues, and the company made plans to push deeper into name-brand retail sales.

A further boost to the company came with its September 1995 acquisition of nearly all of the assets of Procter & Gamble's Fisher Nut business. Fisher, with 1994 sales of $62 million, represented nearly five percent of the market, compared with Sanfilippo's 1.7 percent and Planters' leading 37 percent position in the $1.3 billion market.

Aside from nuts, Sanfilippo's product line included peanut butter, desiccated coconut, dried fruit, seeds, snack mixes, sesame snacks, chocolate and other candies, as well as branded items such as Tootsie Rolls and Jelly Belly jelly beans. Approximately 55 percent of the company's nearly $209 million in 1994 sales, in fact, were generated through its consumer products--another 31 percent came from its industrial sales, and the remainder from contract manufacturing, government, and foodservice channels, with exports making up the smallest percentage of its business.

Sanfillipo's customers included the U.S. Department of Agriculture's Agricultural Stabilization and Conservation Service, the U.S. Department of Defense's Personnel Support Center, national franchises such as McDonald's, as well as airlines, hospitals, universities, schools, and retail restaurants. The company's products were distributed nationwide. However, the bulk of Sanfilippo's sales were concentrated in the eleven-state Midwest region, and distributed by its own 60-truck fleet. Sanfilippo operated ten state-of-the-art processing and packaging facilities in Illinois, Georgia, Texas, North Carolina, and California, and a distribution facility in Nevada. Sales were made through its own sales staff and a national network of close to 250 independent food brokers and distributors.

As Sanfilippo moved toward the late 1990s, it remained an independent, single-line company competing with highly diversified, global corporations. Its position as the technological leader in the industry, coupled with its integration of the entire production process, enabled it to achieve low costs, higher margins, and prices as much as 25 percent lower than its competitors, while maintaining strict control of quality. The Sanfilippo family continued to provide the company's leadership and hold 65 percent of its stock, with Jasper Sanfilippo serving as president and chief executive officer and Mathias Valentine as executive vice-president.

Principal Subsidiaries: Sunshine Nut Company, Inc.

Further Reading:

• Paul Rogers, "Shell Game," Snack Food, September 1995.
• ------, "Peanut Better," Snack Food, June 1995.
• Gary Samuels, "Nuts to Planters!" Forbes, January 17, 1994.

Source: International Directory of Company Histories, Vol. 14. St. James Press, 1996.

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