Luigino's, Inc. History

Address:

525 Lake Avenue South
Duluth, Minnesota 55802
U.S.A.

Telephone: (218) 723-5555
Fax: (218) 624-7019

Website: www.michelinas.com

Private Company
Incorporated: 1990
Employees: 1,385
Sales: $295.6 million (2002)
NAIC: 311412 Frozen Specialty Food Manufacturing

Company Perspectives:

Jeno F. Paulucci, founder of Luigino's, Inc., and creator of its Michelina's brand is frequently called "The Incomparable Entrepreneur."

Key Dates:

1947:: Jeno Paulucci starts Chun King.
1967:: Paulucci sells Chun King, then starts Jeno's Inc.
1985:: Paulucci sells Jeno's.
1990:: Paulucci launches Luigino's.
2002:: Ronald Bubar replaces Paulucci as CEO.

Company History:

Luigino's, Inc., a privately held company based in Duluth, Minnesota, is one of North America's leading manufacturers of frozen entrees, primarily in the value category. The company offers more than 200 different Italian, Oriental, Mexican, and children's single-serve entrees, and a limited number of family-size entrees. Brands include Authentico, Budget Gourmet, Homestyle Bowls, Lean Gourmet, Michelina's, Oven Baked Pizzas, Signature, Yu Sing, and Zap'ems. Luigino's is owned by the family of its founder and chairman, legendary entrepreneur Luigino "Jeno" F. Paulucci.

Paulucci: A Child of the Depression

Jeno Paulucci was born in 1918 in Aurora, Minnesota, to Ettore and Michelina Paulucci, who had immigrated six years earlier to America. He faced a hard life growing up in Hibbing, Minnesota. Not only was he ostracized by the mostly Scandinavian community, his family was poor even before the onset of the Great Depression. His father, a miner, was able to work only occasionally. His mother tried to make ends meet by running a grocery store out of their home. Young Paulucci began contributing to the family's finances at a young age, using a homemade wagon to gather stray coal along the railroad tracks to heat the house, unloading boxcars for a dollar, and early on showing some flair for retailing by selling ore samples to tourists who came to view the open mine pits of northeast Minnesota's Iron Range. He also helped his mother in her grocery business and sold the wine they made in their basement. By the age of ten, he was hawking fruits and vegetables at a local market. A year later, the stock market crashed, and the country lapsed into a deep economic depression, making it even more difficult for the Paulucci family to scrape by. At one point, Jeno Paulucci was desperate enough to join a relief line, but during the long wait to receive his handout, he came to a turning point in his life, recalling, "I couldn't stomach it so I just stepped out of the line and never returned."

Paulucci became a tireless worker. At the age of 14, he found a job at the market in Hibbing, working before and after school and on Saturday's, toiling from 5 a.m. to midnight. Two years later, he graduated to the position of barker, the youngest on Duluth's produce row. In one legendary incident, the young barker was faced with the challenge of selling 18 crates of brown bananas, which had been accidentally sprayed with ammonia but were otherwise fine. Paulucci's response was to turn the problem to his advantage by creating a clever pitch: "Get your Argentine bananas. You'll never see bananas like this again." As a result, he sold the damaged goods for a profit. Not only was he the youngest, but Paulucci also became the loudest barker in the market, and was so vociferous that the city passed an ordinance banning fruit stand barking. When he was 17 he went to work as a salesman for a groceries wholesaler but was so successful that he made more money than his boss and was fired.

During the depression, Paulucci gained some higher education, attending Hibbing State Junior College, and for a time he worked as a wholesale grocery salesman. When the United States entered World War II, Palucci joined the military and served in the Pacific, where he noticed how much his fellow Americans enjoyed Chinese food. Upon his discharge and return home he was unimpressed by the canned Chinese food that was available at the time. He also discovered that some Minnesota Japanese residents were growing bean spouts, a basic ingredient of Chinese dishes. In 1947, Paulucci, not quite 30 years old, decided to use his mother's guidance for seasonings to enhance taste and entered the canned Chinese food business. After a bank turned him down, resulting in a lifelong enmity towards bankers, he was able to borrow $2,500 from a friend to launch his business, which he called Chun King, his idea of a Chinese-sounding city. It would be the start of his career as an entrepreneur and make his fortune. Over the next 20 years, he worked typically long days that began before dawn and ended after dusk, slowly expanding his business across the country from its Minnesota base. As usual, he made his own breaks. Realizing that celery was a principal ingredient in chow mein, he paid a visit to Florida farms, where he discovered that celery was trimmed evenly to fit into crates for shipping. He was able to contract for the cut-off celery trimmings at a major price break, which made him the low-cost producer of chow mein in the market and gave him the money to advertise his product. With this edge, along with a gift for promotion, he was able by the mid-1960s to build Chun King into the top seller in its category. R.J. Reynolds Tobacco offered him $40 million for the company, but Paulucci turned it down. In 1967, however, R.J. Reynolds met his price, $63 million in cash, and this time Paulucci accepted. He also became the first chairman of R.J. Reynolds Foods, Inc., but did not fit in well at a traditional corporation. One day he came to work at his usual pre-dawn hour only to have a guard turn him away because he arrived two hours before the building was to open.

Jeno's Launched in the 1960s

Paulucci returned to Duluth to run a food business he owned, which he decided to name Jeno's, Inc. During his time at Chun King, he had developed an egg-roll making machine, and now to put these machines to good use he created the pizza roll, which along with frozen pizza would became a staple of the company. As had been the case with Chun King, Paulucci successfully anticipated the mood of American consumers and sensed a business opening. At the time, there were only local and regional brands for frozen pizzas, but he thought he could make Jeno's the top-selling brand and take it national. By 1972 he succeeded, making Jeno's America's market leader in frozen pizza. However, with success came competition, and the frozen pizza operations of major corporations like Pillsbury, Purex, and Quaker Oats carved out major slices of market share. By the early 1980s, Jeno's was losing money, due in large part to the high freight costs of shipping from Minnesota. During its last full year in Duluth, the company lost $16 million on sales of $170 million. In 1981, Paulucci closed down the Duluth plant, one of the city's largest employers, and moved Jeno's operations to Ohio. For this act, at a time when the city's fortunes were already depressed, he was vilified in Minnesota. Paulucci vowed to replace all the lost jobs to Duluth, and over the next several years would make several attempts to keep his pledge.

Paulucci Returns to Duluth in 1990 to Start Luigino's

Paulucci sold Jeno's to Pillsbury for $150 million in 1985, and over the next few years he was involved in launching several restaurant concepts and a pizza delivery chain that failed to take hold, as well as an ambitious Florida real estate development project that became the Central Florida City Heathrow. Then, in 1990, at the age of 72, Paulucci decided to return to the frozen foods business and created Luigino's, Inc. (Jeno Palucci's full first name was Luigino), which he established in Duluth to help keep his word about bringing jobs back to the city. It was an audacious move, given that the frozen entree sector was already crowded with such heavyweight corporate competition as ConAgra's Healthy Choice brand, H.J. Heinz's Weight Watchers, and Nestlé's Stouffer's. Sensing that his larger rivals would also carry higher overhead costs, Paulucci believed he could find a niche in value-priced, single-serve pasta entrees.

After fulfilling the term of his non-competition contract with Pillsbury, Paulucci, rather than using a head hunter, contacted a number of people who had worked for him previously, many of whom came out of retirement. All told, 29 ex-employees signed on, together totaling an estimated 758 years of experience working for Paulucci. To fund the start-up, Paulucci invested $8 million of his own money, which was augmented by $2.2 million in industrial revenue bonds; $1.5 million in loans from the Minnesota Power Economic Development Fund, the Minnesota Small Cities Program, and St. Louis County; and $250,000 from Duluth's 1200 Fund, named after the number of jobs lost when Jeno's closed.

Paulucci reopened the old Jeno's plant with 100 workers and launched his first line of Italian entrees under the Michelina's label, named after his mother. Luigino's also produced frozen sauces for commercial and military use. From the start, the business was nationally oriented, yet Paulucci elected not to advertise, which generally cost manufacturers from 5 percent to 10 percent of revenues. He relied instead on a lower price point to drive sales. He also saved money by accepting only large orders, a minimum of 600 cases, to lower warehouse costs. He also kept staffing lean and even negotiated discounts on utilities. In addition, Paulucci traded on his reputation and connections to avoid slotting fees for supermarket space. What marketing money he did budget went primarily to promotional allowances for retailers, in store displays, and sample giveaways. As a result of keeping a tight rein on costs, Luigino's was able to price its products at 50 to 75 cents less than the competition. In the Midwest, the items retailed at $1.39 and in the New York City market for $1.69. On special, Michelina's entrees were priced as low as 99 cents. Because of a downturn in the economy, the inexpensive price proved even more enticing to consumers, whose acceptance of Michelina's quickly established Luigino's as a force to be reckoned with in the frozen entree business. In its first full year in business, Luigino's recorded sales of $50 million and two years later reached the neighborhood of $200 million.

In addition to going national from the start, Paulucci also talked early on about taking Luigino's public. Although he was devoted to building his businesses, he never became overly attached to them and was always ready to sell when the time was right. However, talk of a stock offering lessened over the years, while at the same time Paulucci vigorously expanded the company's product lines. Not only did the Michelina's label add dozens of Italian dishes and an "Internationals" line with such dishes as Swedish meatballs and beef stroganoff, Luigino's launched a Chinese food line, Yu Sing. The competition answered Luigino's success by imitation, resulting in new budget lines and lower price points. Part of Paulucci's counter-response was to introduce 30-ounce, family-sized entrees that retailed for between $1.99 and $2.99.

Well established in the marketplace in the second half of the 1990s, Luigino's augmented internal growth of product lines with expansion into Canada, the creation of a vending division, and the acquisition of businesses. In 1999, Luigino's bought Minneapolis-based Paradise Kitchen and its six varieties of Howlin' Coyote brand Southwestern-style frozen chili, as well as three types of shelf-stable salsa. In 2001, Luigino's absorbed a major competitor when it acquired The All American Gourment Co., along with the Budget Gourmet and Budget Gourmet Value Classics brands of frozen entrees from Heinz Frozen Food Co. Luigino's completed another major deal in 2002 with the purchase of Arden International Kitchens, an industrial kitchen based in Lakeville, Minnesota. Originally the central kitchen for Minneapolis area restaurants, it was later expanded to make frozen entrees for foodservice and supermarket customers and in 1994 was acquired by Schreiber Foods of Green Bay, Wisconsin, a major packager of private label cheese products. The frozen entree business did not prove to be a good fit for Schreiber, which was operating at just 50 percent capacity, but was an excellent opportunity for Luigino's to increase it production. In addition to packaging frozen private-label lasagna, stromboli, and other items, Arden would now use its excess capacity to make products for the Michelina's and Budget Gourmet labels.

In January 2000, Paulucci, now over 80 years in age, stepped down as Luigino's chief executive officer, turning over the post to the company's president and CEO Ronald O. Bubar, who had worked with Paulucci at Jeno's, where from 1980 to 1985 he served as executive vice-president of operations. He then went to work for Pillsbury in a similar capacity before joining Paulucci at Luigino's, where he initially served as a consultant. He then became executive vice-president of operations and in 1996 was appointed president and chief operating officer. Paulucci stayed on as Luigino's chairman and remained highly active in the business despite his advancing years. As he had done with earlier successful companies, he might very well sell off Luigino's, but it was unlikely, as long as his health held up, that the erstwhile produce barker would ever quit working.

Principal Competitors: Celentano Brothers; ConAgra Foods, Inc.; Nestlé USA, Inc.

Luigino's, Inc. History

Company Perspectives:

Key Dates:

Company History:

Further Reading: