J&J Snack Foods – Strategic Update & Mid-term Outlook
– 25 February 2021
Disclaimer
The information, material and content contained in this transcript (“Content”) is for information purposes only and
does not constitute advice of any type or a trade recommendation and should not form the basis of any investment
decision. This transcript has been edited by Third Bridge and may differ from the audio recording of the Interview.
Third Bridge Group Limited and its affiliates (together “Third Bridge”) make no representation and accept no liability
for the Content or for any errors, omissions or inaccuracies in respect of it. The views of the specialist expressed in the
Content are those of the specialist and they are not endorsed by, nor do they represent the opinion of, Third Bridge.
Third Bridge reserves all copyright, intellectual and other property rights in the Content. Any modification,
reformatting, copying, displaying, distributing, transmitting, publishing, licensing, creating derivative works from,
transferring or selling any Content is strictly prohibited.
Specialist: Mike Wallat (MW)
Title:
Moderator: Nyree Hinton (NH), Third Bridge Sector Analyst
Former Regional Business Manager at J&J Snack Foods Corp
Agenda:
1. Foodservice channel disruption from current environment and potential recovery scenarios
2. J&J Snack Foods' (NASDAQ: JJSF) growth and innovation strategy
3. Handhelds market opportunity
4. Mid-term growth and profitability outlook
Contents
Q: Could you give an overview of 2-3 trends you were noticing pre-coronavirus, relevant to J&J’s core
categories across foodservice, retail and frozen beverages?
Q: What would you say were some longer-lasting structural impacts due to coronavirus on J&J’s categories
within snacking and beverages?
Q: J&J’s foodservice channel in particular has suffered significantly. What are your thoughts on this
performance compared to the wider industry?
3
4
4
Q: What do you think will be the key drivers in the foodservice channel in quality, convenience and more? 5
Q: J&J said it’s the only natural producer of soft pretzels. Do you know what that really entails, and how big
of a competitive advantage is this?
5
Q: J&J experienced a surge in its handheld sales. Could you describe some of the dynamics that played a role
5
in this outperformance, especially when every other category dropped significantly?
Q: What is the market opportunity within handhelds, and how could J&J further build on this opportunity,
such as landing new customers or wholesale clubs?
6
Q: AMC just recently obtained new funding to keep operations afloat. How much of an impact will AMC’s
recovery or insolvency have on J&J’s sales? How big of a customer is AMC to J&J?
Q: Could you touch on the competitive landscape for J&J’s foodservice channel, for soft pretzels and
handhelds? I know you mentioned Nestlé.
Q: How strong is brand loyalty to J&J’s products vs competitors?
Q: I think you touched on the C store distribution, but are there any other distribution opportunities within
this channel that you think J&J lacks significant penetration in?
Q: Before the pandemic, J&J struggled to grow consistently within retail supermarkets. What do you think
were some of the reasons for the lack of growth or the mixed performance?
7
7
8
8
9
Q: J&J has benefited tremendously across its retail segment as at-home consumption increased. Would you
attribute its outperformance solely on elevated at-home consumption, or do you think there are other factors
10
at play, such as marketing, promotions and new products?
Q: What would you describe as the demographic profile for J&J’s retail channel? Who are the top
consumers?
10
Q: How does J&J think about a consumer preference shift to fresh, unprocessed food? Are the retail product
offerings a good fit? What steps must J&J take to build a meaningful presence in this category, if
management even thinks this is a priority?
11
Q: Do you think there are any operational inefficiencies due to J&J’s sudden shift in sales from foodservice
to its retail channel, if half of the business, just overnight, flips to another channel?
11
Q: How would you rate J&J’s performance in taking advantage of the opportunity within its retail
supermarket business?
12
Q: It seems the number of redemptions within retail has doubled QoQ. How does affordability play into the
strategic thinking of marketing these products to J&J’s consumers?
12
Q: What is your outlook for J&J Snacks with a best- and worst-case scenario over the next six months?
13
J&J Snack Foods – Strategic Update & Mid-term
Outlook
Transcription begins at 00:00:26 of the recorded material
NH: Welcome to Third Bridge’s Interview entitled J&J Snack Foods, Strategic Update and Mid-term Outlook.
I am Nyree Hinton and I will be facilitating today’s Interview with Mr Mike Wallat, former Regional Business
Manager at J&J Snack Foods Corp.
Mike, before we start today’s Interview, please state I agree or I disagree to the following statement: You
understand the definition of material non-public information and agree not to disclose any such information,
or any other information which is confidential, during this Interview.
MW: I agree.
NH: Could you begin with a brief introduction of your background?
MW: Mike Wallat, out in Seattle, Washington. Been in the industry my entire life. My parents grew up in
owning bakeries and delis. From there, I went to working in restaurants, working front of the house, back of
the house, in retail grocery, retail grocery management, retail grocery sales, then into foodservice for different
brands, a couple of Fortune 500 companies in multiple capacities, multi-units, broker management, about six-
and-a-half years, almost six years with J&J Snack Foods from 2012 to 2019-ish, and then the last year-and-a-
half into ingredients sales into manufacturers like J&J Snack Foods.
[00:01:55]
Q: Could you give an overview of 2-3 trends you were noticing pre-coronavirus, relevant to J&J’s core
categories across foodservice, retail and frozen beverages?
MW: Myself being a Regional Manager covering the Pacific Northwest and Western Canada, I had about 33%
of my business was based on K-12, and what I saw was really strong results in K-12 business, so they really had
a great grasp on the K-12 products that fit into the ever-changing school regulations. Pre-COVID, they had an
excellent product mix, very innovative. They put a lot of resources to it. Their marketing materials were easy to
read, super fun, intellectual, intelligent, good for them, good for the distributors to read, understanding all the
requirements, where they fit in. They had a strong knowledgeable team, they had three dedicated sales reps,
specialists that were just K-12 specialists, and then the entire team pre-COVID, the entire sales team knew the
K-12 business. Myself, we would call on the school district itself, along with the specialists, along with the
strong leadership at J&J, and then the broker also, the broker network had a K-12 specialist. Those were the
people that we aligned with, so it was really from a vertical strong point on K-12 pre-COVID.
Another one was on their supply chain, and what they were really trying to do was produce multiple
voluminous products at multiple plants, just in case something would happen. We had some weather here
recently where it shut down one of their plants down in Texas. Pre-COVID, those were difficult challenges, so
now, the last year with their CAPEX, they brought in some of the more volume products and they could make
those on the East Coast and the West Coast, and it would be virtually the same product, and then buy in the
bakery in Chicago, moving a lot of products there, so they were a little more adept, a little more fluent and
efficient in what they were doing prior to this. If something happened in one of those plants, they were in
trouble and the whole supply chain shut down, so they were very adept at, pre-COVID, really stressing out
some of the volume products in multiple manufacturing plants.
Private and confidential 3
Then, the last one, the trend if you would, was some new people coming into new positions pre-COVID. That
has all changed with some of the reorg that’s going on. Really, getting their arms around cost, what it costs to
manufacture the product, what it costs to distribute that product, what it costs all the trade spend they were
spending on that product, the marketing programmes, how inexpensive they were selling some of this product
into the managed business of the GPO, the stadiums, the event centres and things like that, and then paying
full brokerage on it and then sometimes going through a redistributor. They had some really good people that
were breaking down that business, and they started to identify some leaks in the system, and they were trying
to plug those leaks. Those are some of things, especially on the marketing spend and the trade spend, once you
identify it, it’s super hard, in my opinion, to peel back without losing market share, peel back some of that
trade spend, but they were successful in doing it with some of the large redistributors in there without losing
market share. I think they were some of the trends that they were working on and would have been much
more successful, and probably give them more time during COVID here a little bit to sharpen their pencil a
little bit, but those are some of the three trends that I’ve noticed, pre-COVID, when I was thinking about the
situation.
[00:06:05]
Q: What would you say were some longer-lasting structural impacts due to coronavirus on J&J’s categories
within snacking and beverages?
MW: As we know, the consumer experience has changed significantly. J&J’s core business, pretzels, funnel
cakes, churros were going into theme parks, stadiums, into that K-12 which was dominating their growth
category pre-COVID as well, so there’s a definitely change in consumer behaviour. More people staying at
home, more people not congregating, the communal aspect of business is gone at this time, so those are some
of the impacts of COVID on J&J’s strategy. Moving forward, there’s going to be a reduction in menu options,
and are they going to have the capacity to be that fluent in what they do? The structural impacts of J&J are on
the business itself, into the retail and the foodservice, were innovation and line extensions and fusion in
different types of clean ingredients, and those are going to be some of the things that we’re going to talk about
in a little bit, but those are some of the long-lasting structural impacts that I think are going to impact them.
[00:07:37]
Q: J&J’s foodservice channel in particular has suffered significantly. What are your thoughts on this
performance compared to the wider industry?
MW: From what I understand and talking to some people that are still in industry, they took a larger hit than
most manufacturers in this category, and the reason I say that is some of the other manufacturers had the
right items in place as people were trying to grab for any item that would fit, so (audio cuts out 08.16) grab-
and-go, convenience and especially some of the K-12 items and some of the other businesses. Other companies
had more products in the supply chain than J&J, so J&J was a little bit behind the eight-ball, plus their core
business itself, which is the most profitable business, the pretzels, the churros again, the funnel cakes, the
beverage side of it, the frozen bev, the most profitable items took the biggest hits because all the stadiums were
closed, no baseball last year and all that, and we dominated the arenas in almost every arena. No minor league
baseball, and then you roll that into football, then into basketball, pro arenas, all that, just on the sports side of
it.
Movie theatres took a hit and those were some higher-margin products, just on the Icee side and the beverage
side, and along with the pretzel and churro side in the movie theatres. The theme parks were shut down for an
entire summer, so the core business itself just took an amazing hit, so they were tough to adapt. They took a
bigger portion, because a lot of it, some of these stadiums, it was 100 cases of product per game per stadium,
just one item, so the whole supply chain stopped abruptly, and those are the items that kept everything else in
stock too. Those were some of the ones, the reason why it suffered significantly, but like I said, the Icees and
Private and confidential 4
the churros and the pretzels were some of the higher-margin products, on the street side, not on the managed
business or contracted business, and then the restaurant shutdown itself and the multi-units and the chain
just going to delivery only, limiting menus. They were just on the wrong side of the aisle on this pandemic.
[00:10:21]
Q: What do you think will be the key drivers in the foodservice channel in quality, convenience and
more?
MW: What does it look like going forward? I think the industry is going to be looking for new innovative
ideas. With the demographics changing, ethnic products will be large, going forward. Clean ingredients, easy
eat-on-the-run products, cuisine, variance in cuisine types, labour-saving items, which J&J will have the
labour-saving items. The other ones are going to struggle with it a little bit. Going forward, I think prior to and
pre-COVID, bold, spicy flavours. Customers are going to pay more for that experience as well, too, so you’re
going to have to have the right product in the right situation to move forward. There are going to be more
vegan and veg options, so like I said, cleaner eating, make those products, these people are going to still be
eating, a lot of people are still reluctant to get out to the restaurant experience. Stadiums are going to be
reluctant to go forward, so delivery is going to be still as important as it ever was. You’re going to need
something that stands up to that test as well, so those are some of the channels I think, those are some of the
items. The channel itself, C store, what does that C store look like, in the foodservice industry, what does that
look like and things like that? Those are quality and convenience. It’s going to be grab and go, it’s going to be
higher cleaner ingredients, etc, going forward.
[00:12:12]
Q: J&J said it’s the only natural producer of soft pretzels. Do you know what that really entails, and how big of
a competitive advantage is this?
MW: In my nearly six years at J&J, I had never heard that phrase used on J&J. To me, that means that we
have clean products, that we use no trans fats, no additives, no preservatives. We’re made in peanut or tree nut
facilities, clean, dairy-free facilities, so to me, that’s not an advantage, because those products, they do have a
line of products, they’re secondary and tertiary products, they’re not their primary products, that are natural.
That one was a surprise to me a little bit, just because, one, like I said, I never heard that phrase in the six
years, and I thought I was pretty astute to have my business in trying to figure out all the angles, so I really
never heard that, but in the long run, we did have those products. We had some Kim & Scott’s and we had
some other gluten-free and keto-friendly products, and they were hard to sell because, in reality, when people
want a pretzel, a churro at the game, at the stadium, at the theme park, healthy is not always an option. I think
that’s going to be beneficial to them going forward, so as a competitive advantage, I don’t think, because I
never heard of it, we really never used it and I assume if I didn’t hear about it, all the other reps didn’t hear
about it and we didn’t pass that onto our extended sales force, the broker network, either.
[00:14:05]
Q: J&J experienced a surge in its handheld sales. Could you describe some of the dynamics that played a role
in this outperformance, especially when every other category dropped significantly?
MW: They were beneficial of landing a large wholesale club store prior to COVID, and luckily, not luckily, but
there were benefits of that process. It’s a really long process from initial meetings, the R&D, back to the
customer for approval, back to J&J for the tweaks, the testing and the eventual rollout, the packaging and
everything that goes through getting that product through supply chain, so timing was very crucial on this.
They extended their handheld line a little bit on the foodservice side, three SKUs. They were doing a really nice
job with some of the diet delivery products in handheld, so that saw a significant uptick, but most of the
Private and confidential 5
increase was on that club store that they timed perfect.
[00:15:17]
Q: What is the market opportunity within handhelds, and how could J&J further build on this opportunity,
such as landing new customers or wholesale clubs?
MW: Good question. When I was at J&J, on just the foodservice handhelds, just in the northwest, so it’s a
very regional product on the foodservice side, I was doing about 40%, and then there was another rep in the
Texas-Oklahoma area that was probably doing another 20% of it outside of that, so it was really regional
product. They had SKU, they reduced SKUs significantly when they bought the plant from ConAgra Lamb
Weston back in 2020. They were doing a lot of products going into the K-12, and then when the regulations
came with the Obama administration, regulations changed. With that, you lost all that street business of the
pizza sticks that were going into the school lunches, you lost the pizza sandwiches that were going into the
school lunches, so that plant went quickly down to 30-35% capacity, and they hired an amazing plant
manager, and that place is up in northeast Oregon. As the habits changed, they hired this guy and he tweaked
the whole system, made the product better without increasing pricing, and they actually decreased on some of
the pricing. They have recently increased some of the SKUs on the foodservice and retail side, one of them
being that club item. I see more of their products into club and Walmart and Costco is what I see. They are
getting to strategically disadvantages of distribution, because that plant, it’s the only plant doing the
handhelds. It is in northeast Oregon, so transportation, logistics get frustrating out of that area, because
there’s really not a heck of a lot of stuff close, so they have to transport that to either plant in New Jersey or
California or their ED comes and picks it up. That’s one of the challenges, going forward.
Some of the opportunities that I see are continuing to work with national truckload customers like
redistributors on the pizza stick. Nestlé has a pizza stick that’s very similar, and if they can knock that out, they
can continue the varied growth. We had some great opportunities with some of the club stores in some of the C
store chains that are still using it. Every, not every, but many foodservice grocery delis use that 48 three-ounce
pizza stick, so if you could get some of that grocery business in the deli, that would be a significant increase.
They did a wonderful job working with, like I said, some of the health-conscious customers. Think of top diet,
without saying, I’m not sure if I’m supposed to say those, diet meal delivery producers, that space. That was a
huge opportunity. Beautiful product, 2-3 SKUs, the customer would pick it up from Pennsylvania and it was
truckable products. They need to increase that, and with that increase in delivery space with the increase of
made at meal homes, I think that would be a great opportunity.
I think there also is, again depending on the school regulations and what moves forward, I think K-12, the
education segment is still a large opportunity for them in the handheld, because some of the other competitors
have pivoted and they made that 48 three-ounce pizza stick where they made it 2.4 ounces to meet regulations,
and they’re selling that into the school business. That’s something that if they can get the cost right, because
cost was, pre-COVID, more of a factor than it is now because they’re getting subsidised, but I think the school
business and the pizza stick and the pizza sandwiches would be very beneficial. The C store, what does the C
store look like? People are still, are they eating on the run as much? I think that’s an opportunity. They have a
strong C store team with great connections. They have to go after that Nestlé product and get that. Then, in
addition to that, what I always thought, because I was in there at a time when they were reducing SKUs, like I
said, they brought out a taco product, and they need to increase SKUs on that. They need to develop the line.
They need to add two or three or four more flavours, and this is, how do I say this politely? This is brown food
piled high in the convenience stores. It’s deli filler kind of food, so they need to keep it cheap and inexpensive,
and come out with more items, because these items have been in circulation with J&J for 10 years and
ConAgra for 15 years prior to that, so it’s the same brand, same product for 20-25 years, so you get a little
brand product fatigue out there as well too. Again, reformulisation, additional SKUs, additional segments, I
think, are very important.
Private and confidential 6
[00:21:02]
Q: AMC just recently obtained new funding to keep operations afloat. How much of an impact will AMC’s
recovery or insolvency have on J&J’s sales? How big of a customer is AMC to J&J?
MW: Specifically didn’t deal with them, but I know a little bit about some of their, pre-COVID, they were
going into more of a dine-in experience where they had a bar on the side of the product, and then you could
eat the dinner there, so they wanted you to stay longer obviously, have some drinks, have some appetisers,
have a meal or take those appetisers and those drinks into some of their new concepts. With some of the
AMCs, the Landmarks of the world, the other ones, they were struggling because a lot of the products were
going to a grab-and-go product. There’s a competitor that had a grab-and-go product. I think obviously with
AMC, I don’t think that they had a great relationship with AMC at the time, and then that person resigned
during COVID that I know of, and they moved into somebody else with new relationships, but just one small
piece of that whole segment that is going to be shrinking, because that experience is going to be long coming
back, and then when that experience does come back, those are shareable communal popcorn and pretzels and
products like that, that people are going to be a little bit hesitant outside your family to go out and share. I
think that whole category, unless they redevelop it significantly into IW, grab-and-go shelf-stable products,
not pre-baked products that you finish off or you finish off into the units and the machines themselves, that’s
going to be a challenging road, going forward.
[00:23:21]
Q: Could you touch on the competitive landscape for J&J’s foodservice channel, for soft pretzels and
handhelds? I know you mentioned Nestlé.
MW: Being the brand for, what now, 47-48 years, amazing story from Gerry Schreiber how he bought this out
of a bankruptcy in the mid ’70s and built it into this USD 1.2bn-1.25bn brand, and then absorbing all the
companies around it as well too, for many years, J&J relied on that Superpretzel brand to haul the mail, if you
will. When you have the business and you have the ability to scale the business, you have to snuff out
competitors really quick when they come out with like products, so a lot of the competitors, Prop & Peller got
purchased, a local Las Vegas, Miami guy that we let into business when we were there, they got purchased by a
big private equity group out of Toronto or Winnipeg, I do believe, (inaudible 24.34). You have Miller products,
Highland Baking, there are a lot of private label baking companies that are competitive as well too. This is
mostly in the soft pretzel category itself, and I will touch on some of the other ones, but then you have J&M
that got a little more transparent and a little quicker to move into the whole-grain nuggets on the school side,
and had quicker distribution. When you are the 900-pound gorilla out there, it’s harder to maintain the
business, so you play a lot more defence that you do offence. Good news is J&J was always innovative, so
bringing out new items and trying to extend some of those lines that they did have.
In the churros, there were really not a lot of competitors out there, and again, that was very regional. It was
southeast and mostly the west and the southwest where a majority of the churros were sold. Handhelds, we
talked about it. There are a lot of handheld companies out there, and a lot of them are getting into it as well, so
Nestlé being the big one. There are some smaller players out there that are into the freezer shelves, into the
retail segment of the business as well too, Hot Pockets of course, by Chef America, by Nestlé as the brand, and
then people would call our products, our Stuffers Hot Pockets, just because that was the brand recognition.
There are some other baking companies out there that are into Costco, there are some other baking companies
that got their products into Walmart and some of the other club stores and in retail stores as well too, so there
are a lot of competitors. It’s hard to continue to grow when you’re that big with the limited sales force that they
do have. In bakery, it was always one where I always thought if we jumped into the bakery business, which we
were, I think we’ve got to jump in with both feet, so I think in the bakery side, they need to absorb one of those
competitors to be fluent. The bakery, it wasn’t a bakery. They didn’t have ovens. It was a bakery in the
foodservice retail side in Atlanta, Georgia, and from my opinion, it was hard to get product competitively
priced, amazing product, just limited SKUs, limited SKUs in the bake, limited SKUs on the cookie and the
dessert side, to get that competitively priced up into the northwest where I was selling product, so that was a
challenge for me.
Private and confidential 7
I think if you’re outside, they did really well wrapping a circle round their bakery products over in the
southeast, but outside of that, it was hard to grow, so that let the competitor in. The competitors are Aryzta,
which is failing miserably as well too, Sara Lee, some big brands out there, but I also see some opportunity to
license with some of these brands like they did with Pillsbury, to make a biscuit and put that into some of the
club and the retail. They’ve shifted, and that was a pre-COVID trend as well too, they shifted very well with
what they do really well, with license some of the larger brands out there and pull there, through the J&J
fantastic distribution network. On the competitive side as well, on the pretzels and the handhelds, being the
player in that area for so many years, pricing kept continually going up and up and up, and that let some
opportunity for some national chain and multi-unit business slip away a little bit to the Prop & Pellers of the
world, to the (? 28.25) of the world, to the J&M, to the Highland Baking and Chicago Baking and things like
that. Those are some of the other customers. You had the challenge where somebody could be a little bit more
flexible to do something for the small regional chains and when you’re managing this big book of business, so
the competitive landscape is challenging when you’re that big, to keep your eyes on that many balls that are up
in the air.
[00:28:56]
Q: How strong is brand loyalty to J&J’s products vs competitors?
MW: That’s a good question, because I think in the demographics that they sell well to, when you go to a
stadium, when you go to a theme park, you want that pretzel, but the Superpretzel brand is still significant, but
as the stadiums, as the theme parks, as the movie theatres, they want to go to a more artisanal product, a more
artisan product, more hand-rolled, more authentic, so then you got into different brands. We were calling
them Bavarian Bakery or Labriola were some of the products going out there, with the beautiful German
product, so you got away from the brand itself. You’re still trying to push your Superpretzel brand, which was
good because you had a good, better, best product, but the brand itself was starting to get a little tired, a little
weak, because like I said, it’s a 47-year-old brand that is still the same marketing materials that it was that
many years ago.
When you go into the Krogers and the Safeways, you’re private labelling, you’re co-packing for them and their
brand, so I think everybody understands Superpretzel and they might attribute to that when they buy a pretzel
that it might be a Superpretzel, but the brand itself, I think the loyalty is slowing down a little bit, because
people want new items, they want new innovation, etc, in that kind of space. I don’t know if brand loyalty is as
important as it was, even before COVID as well too, because like I said, the brand, we were moving on from,
and we were doing more co-packing and private labelling and things like that, trying to get away from, because
of the competitive advantage like the last question, people were coming out with authentic hand-rolled
products or customers were doing it themselves, so you wanted that inconsistent consistent product is what
you wanted, and that was in the breads as well, so you didn’t want everything to be a cookie cutter. That was
very important, so when other people did that, we had to do that as well, which dilutes the brand a little bit.
[00:31:40]
Q: I think you touched on the C store distribution, but are there any other distribution opportunities within
this channel that you think J&J lacks significant penetration in?
MW: Yes, that’s a good question. If you could tell me what the six to next nine months look like, I could give
you an answer. Yes, like I said, more competitors are digging into their supply chain a little bit. I think their
strategy is going to be more contract manufacturing. I think that’s been successful in the past, and I think
they’re going to be doing more with that. They are losing the battle with private label at the foodservice
distribution level, because of pricing, because of authenticity and things like that, again, too consistent of a
product, and sometimes that is a drawback. Their opportunities would be to, in the distribution world where
there’s a lot of consolidation, you have to be on the right side, and right now when there are only a couple of
Private and confidential 8
major players who have food, Sysco, some of these categories, they want something new, they want something
fresh, so they’re looking outside into some of their competitive landscape to see what else other people are
offering. That is due to, for years, nobody really called on those customers, and so that left the door open for
some other people to kind of walk in. Re-establishing those relationships at the distributor, they’ve got some
very, very talented people that have been doing that pre-COVID, that have been doing that the last couple of
years, and they have re-established those relationships at those corporate offices. I think that’s going to be
significant.
In the C store, like I said before, they have a strong C store manager and a strong C store team. They have a lot
of resources behind it as well. Again, what does that look like? They’re going to have to pivot a little bit, maybe
make it a little bit of a healthier product into the C store. Is that C store, when people are trying to eat on the
run or trying to get that product into a 7-Eleven commissary or something like that, where they distribute and
they add products to it or add it into a salad or a deli or something like that, that’s where they’re going to have
their opportunity, but they’re going to have to pivot a little bit, because going with an on-the-shelf stocked
product is probably not going to make it to move some of the volumes real quick.
I think opportunity distribution-wise, also where they’re really good at is M&A, so I think they have to absorb
or purchase somebody that’s outside, maybe in some of these cleaner sustainable categories that are going to
open them up to a whole new Trader Joe’s, Whole Foods kind of product. Maybe it’s a clean pretzel of some
sort or something like that, where it gets a whole new brand recognition. Maybe that’s under a Superpretzel
clean look that has the key words, is keto-friendly, it’s vegan, it’s whatever, it’s not made with any dairy, etc.
Then, as things shake out here a little bit, things are going to open up when sports and entertainment open up.
When school is back in session and people are eating consistent school lunches and they have their dedicated
sales team calling on those people, it’s going to eventually get better and better, so they’re going to grow just
organically, just from their products themselves that are already in the supply chain. They’re just going to be
growing more of them.
[00:35:47]
Q: Before the pandemic, J&J struggled to grow consistently within retail supermarkets. What do you think
were some of the reasons for the lack of growth or the mixed performance?
MW: I think we touched on it a little bit. It was limited SKUs, it was going to market with a 45-year-old brand.
They were really pushing Superpretzel. They had some fillers that they really put a lot of effort and resources
behind, that were kind of duds as well, too. The retail team is super small, there’s only a couple of them calling
on all those retail customers across the scope of the country, so like I said, the brand needed a refresh a little
bit and needed those keywords. They started getting some uptick when they started taking that Superpretzel
and putting it into the Safeway, the Albertsons, the essential labels, those kinds of products. That’s when they
started the uptick a little bit. The people that are there are very talented, but they have a large workload, they
have a large customer base, and touching every one of those, because like I said, these are not off-the-shelf
products, everything has to be customised and made, so when you have that many projects up there, it’s hard
to pull all of them through.
I think though, consistently, that was, being very close with the retail guy in the west because we had a lot of
similar business and we worked together a lot, I saw that’s what his struggles were, where he had this huge
customer base and just the long cycle that it took, and myself, in my opinion, being on the ingredients side,
trying to get some retail products in there, there are a lot of portals you’ve got to go through right now. There’s
a lot of paperwork you’ve got to go through, and that is pushed onto the regional, if you will, or the market
manager, if you will, and those are time consuming as well. Just trying to pull that through the retail market is
challenging. They’ve done a nice job, as I’ve seen. As I’ve popped into some stores here in the last few months,
I’ve seen some line extensions, I’ve seen other products out there, I’ve seen some of their pigs in blanket kind
of products, but they are still going to bat with the same pretzel products and churro products and things like
that. Outside of that, I think innovation is key, going forward with them, and again, probably acquiring
somebody within that, like they did with Aunt Annie’s [sic], and some of that other growth is how they grow
their business.
Private and confidential 9
[00:38:47]
Q: J&J has benefited tremendously across its retail segment as at-home consumption increased. Would you
attribute its outperformance solely on elevated at-home consumption, or do you think there are other factors
at play, such as marketing, promotions and new products?
MW: I think all three of them. I think it’s a benefit of the consumer had really nowhere else to go. If you
remember some of the freezers, freezer doors in the beginning of the pandemic, they were whitewashed and
they were buying everything that they could get their hands on. Foodservice distributors were backing into
grocery stores to put bags of soup into the deli, just because delis and the freezer doors would buy anything
from anybody at the time, so yes, they did, but that’s a good thing as well too, because that re-establishes the
brand and it re-establishes exactly a comfort food, which people need at this time as well. Then, like we said
with the acquisition of some other brands like Aunt Annie’s [sic] and getting that at the right time through the
distribution network in the retail segment, that was very beneficial on the time. Some line extensions, like we
said, the pretzel-wrapped hot dogs and co-packing with some other ones, co-branding, they were very
successful going forward with that, for those reasons. Then, I think, like you said, the last thing was just the at-
home experience as well too, and people wanted something a little bit different, different menu mix on a
weekly basis, and sometimes those did what they did, and then when eventually some of the games and things,
we couldn’t be at the games, so then all of a sudden, some people were buying some more of the freezer items,
the appetisers of the world, and taking them home and serving your small group around those people.
I think those three factors helped, and then marketing and promotion, they were always really good at
marketing and promotion of their products. Couponing has been very strong with them. They like to send out
a lot of coupons, they like to send out and get their name recognition out there, and I think that’s been
beneficial to them. I don’t know how they’re distributing them now, if they’re doing it the same way as before,
but there were some clips on the shelf and things like that, and they did subscribe to do some advertising with
some magazines as well, and some retail and some foodservice magazines, so they were good at marketing and
promoting their product as well, which I believe they need to continue as well, to keep that brand first and
foremost.
[00:41:31]
Q: What would you describe as the demographic profile for J&J’s retail channel? Who are the top consumers?
MW: I think an older clientele, somebody that’s had that brand in their mind for the last 40-plus years, that
enjoyed that pretzel at a ball game, that now can find that pretzel in a freezer door or attribute that pretzel to a
pretzel stick or a soft pretzel on a menu, or a churro at a ball park or a theme park. I think it’s a little bit the
demographic, to me, would be older white males of some sort. In the churros, it’s going to be a little bit more
ethnic, and regionally and geographically, so that’s going to change a little bit. Funnel cake is a regional thing
as well too, as we call it funnel cake in one area, it’s the same product, we call it a Dutch waffle up in the north,
northeast, so branding is very important, but the demographics themselves I think are a little bit older group
of people that have been around and recognise that brand from when they were kids, and their kids, bringing
their kids to ball games and things like that, and seeing that Superpretzel logo everywhere. Just the different
millennial group that have a little bit more discretionary income, that want a little bit more of an experience,
are they going to chase those products when they go? I think when you do get back to the experience, when
you do get back to an event, a concert, a stadium, a game, theme park, you’re going to go after that product, or
you’re going to go after it if there’s something significantly different and delightful, like some sort of hybrid
churro doughnut or something like that, so they’re going to have to be innovative to go forward, to hit those
new demographics of the younger generation, to keep that brand first and foremost.
Private and confidential 10
[00:43:53]
Q: How does J&J think about a consumer preference shift to fresh, unprocessed food? Are the retail product
offerings a good fit? What steps must J&J take to build a meaningful presence in this category, if management
even thinks this is a priority?
MW: That’s where I was going to go. If they think it’s a priority, they’re going to have to develop a strategic
plan and they’re going to have to focus on or draw up a plan, identify some products, some segments and then
go to market. What they’re good at doing is working cross-functionally within different segments, so taking
that healthy product and bringing it into the healthcare foodservice or bringing it into the K-12 and tweaking a
little bit, and taking that retail product, if it’s clean, and bringing that into the Trader Joe’s, the Whole Foods
aspect of the world. That’s what they were good at prior, so I think that’s important. If they identify this as,
which I think they should in my opinion, this is not a trend, this thing is not going away, people are looking at
fresh unprocessed, and we’ve talked about it a couple of times in a lot of the other answers, they’re looking at
clean ingredients, they’re looking at ready grab-and-go, keywords. This is brand-new, this is authentic, it’s
hand-rolled, etc. I think, going forward, if they don’t do this, it’s going to be a tough sled. They had the Hill &
Valley acquisition, which they were supposed to probably bring some of those products into the healthcare,
but a lot of the competitors at the time, Sara Lee and some of the other big pie manufacturers and dessert
manufacturers crushed them before we could even get this thing out there, so they’d better have a strategic
plan. They’d better be able to promote and market and coupon these things, because yes, I think if you’re going
to get a pretzel, why not get a healthy one as well too? That’s maybe more on the retail side than the
foodservice experience side as well, too.
They have had good-for-you products for years, and like I alluded to earlier, without any anchor distribution
or customers pulling these through, it’s going to be a challenge for them. Where J&J plays in the foodservice
side outside of retail, people don’t want that clean product as much as they think they do, so they’ll always do
that, but on the retail side, I think it’s going to be much more important. If they think it is important, they
need to, like I said, drop a plan and put some products and some resources behind that, and what does that
look like from outside, I’m not sure at this time, but that’s where I’d think, and I think it’s important for them
to strategically shift to some line extensions of some cleaner products, and get into the natural space. Those
are the people right now that are winning, if you can have your clean product that still has that really nice,
crusty exterior and soft interior, and organic, sustainable sea salt or some kind of pretzel salt that’s on the
outside, just really tap into those keywords that I think are important.
[00:47:22]
Q: Do you think there are any operational inefficiencies due to J&J’s sudden shift in sales from foodservice to
its retail channel, if half of the business, just overnight, flips to another channel?
MW: From my understanding, from my opinion, from what I understood, help at the plants was a challenge.
Labour at the plants was a challenge for a long time, still has continued to be a problem, always was, always
will be, third-party distribution of everybody touching these boxes. The labour that goes into packing six soft
pretzels vs packing 50 or 100 in a box is significant. As you can tell, it slows down line time. Retail export was,
at the time, not as much, so I think the uptick in trying to procure all those products, and this was always
something that frustrated me a little bit, was they were buying these things spot market. They weren’t hedging
on ingredients, they weren’t hedging. They were just buying from whomever, so I think a quick shift like that
was very detrimental. I think luckily, like we said earlier, people were just asking for product. If they were
asking for product-specific, I think they would have had more challenges, because they could run that
Superpretzel at high efficiency, pack it into the boxes that needed to be, and from what I saw and what I heard
and what I remembered, they were sending a lot of brown boxes out to co-packer, to private label companies.
They just wanted product, so the flexibility was a challenge, if you will, but I think at the time, people were just
looking for product. That’s what I see.
Private and confidential 11
[00:49:51]
Q: How would you rate J&J’s performance in taking advantage of the opportunity within its retail
supermarket business?
MW: Like I said, the team, though small, has amazing relationships. Even though the process is long, they are
pretty flexible. When they see an opportunity, they kind of move forward with it a little bit, maybe before all
the checks and balances are signed off, and then they do tweaks at the end, which I think is a competitive
advantage for them, because they can get the product quicker into distribution and through that supply chain.
Amazing supply chain logistics. We talked about multiple plants doing the same products or multiple
products, so East Coast vs West Coast, you could have that same product for, let’s just throw out a brand,
Walmart or Costco, and it’s the same consistency across the board. That’s important, and that was important
to a customer as well too. The brand is important too, when you’re talking to some of these big companies and
you have a track record of success with some of the other ones, and they’re going to be a little bit more willing
to say, “Yes, I’ll bring on another SKU for you, or I’ll bring on two SKUs or three new SKUs for you, because
hey, we’ve had a track record of success.”
You’re a good partner, you pay marketing, you pay down the line, you coupon to the operator, you pay us
marketing, you work swiftly with everybody else, so the supply chain itself, I think that’s why they’re successful
as well too, where now, you saw some of the smaller start-ups struggle because they didn’t have those
relationships built, they didn’t have a track record of success of trying to pull these products through. When
you’re in dire times, you go with somebody you know that’s been around for close to 45-50 years, and you can
trust them and you know they’re going to do what they’re going to say you do, because of those relationships
that the retail team has built. That’s going to pay dividends going forward as well too, because if they leverage
it correctly, “Hey, we took care of you during this time. I have some new SKUs coming out. People are looking
for new items. Let’s get away from the basics and start spreading out to some of these cleaner ingredients ones,
or an extension on the Aunt Annie’s [sic] products, or we’re taking more Aunt Annie’s [sic] products out.” Yes,
I think that’s going to be a growing category for them, and I see that being successful, going forward, and
continuing.
[00:52:25]
Q: It seems the number of redemptions within retail has doubled QoQ. How does affordability play into the
strategic thinking of marketing these products to J&J’s consumers?
MW: Is that retail as a whole, or is that J&J’s coupon redemption has doubled QoQ?
NH: I think it’s just the whole category.
MW: The whole category, yes?
NH: Yes.
MW: The redemption anyway is a small number, correct? Right now, as I read, people are looking for and
clipping more coupons, and it’s been a tough year and people, they still have to feed their families, so if you’re
going to pay USD 5 for something, why not find a coupon for USD 1 or USD 2 and knock off that price? The
retail grocery is making it so much more easy with apps and that, so the whole streamlining of the digital
coupon is much more effective than it was before. That’s why it’s redemption, I can go on and take about two
minutes, when I go and do my local weekly shop, and click on everything I need, and if it’s a manufacturer
coupon, if it’s out there, it’s automatically thrown onto my club card and I get the USD 0.50 or USD 1 off. I
think it’s just a streamline of efficiencies with computer and everything else, and you know what? On these
products, these are still very inexpensive products to J&J, so taking a little bit more off the top and getting
more volume for it, I think, is the smart move. I would say continue couponing. They’re very good at it, and
Private and confidential 12
like I said, in getting into that digital stream, you can even pull that going forward into other aspects, and
taking that success and moving into doing it with Costco, doing it with some of the other Walmarts of the
world as well too, and some of the club stores where the restaurants shop as well too.
I think that is why coupon has doubled, is it’s so much easier than it was years ago, and people are fighting for
that dollar, because that’s where the dollar is going. The competitors in the retail grocery need to have a little
bit better deal on Pepsi or Coke, because that’s where I’m going to go buy it. I’m going to go buy it there,
because I can save USD 2 vs the other one. I think that’s why it was. It’s inherently worked as well, too. Pre-
COVID and post-COVID, it’s inherently worked. I think they have a track record of going forward with that
and things work out, and they don’t like to stray away from what has worked in the past. It’s a company that
likes to do business the way they’ve always done business, and like we said, they need to drive that brand
presence, whatever that brand presence is, and pull it through as well too, so I think what they’re doing is
doing well, and wrapped up with the other things that we just talked about on the other retail side, I think
moving forward, it’s going to be successful for them and keep their momentum going.
[00:55:51]
Q: What is your outlook for J&J Snacks with a best- and worst-case scenario over the next six months?
MW: My opinion here, as we continue to open up, consumers are going to go back to restaurants, and this is
good news for J&J. They’re going to go back to events. You see basketball, Final Four, you see football,
baseball stadiums are at half capacity, 25% capacity. That’s nothing but good for J&J and other foodservice
manufacturers. As you stated, movie theatres are starting to pop up again. Every day, it’s a little bit better, so
the whole outlook itself, I think it’s going to be better than it was. They’re a cash-heavy company, so they’ve
always been looking for acquisitions. I’ve touched on it a few times. They’re very good at identifying broken-
down companies and pulling them through, and pulling them through the supply chain. They’re really good at
growing by reduction, if you will, and we talked about a little time of streamlining their manufacturing
facilities, being really strategic with their CAPEX as well too, I think, and putting the right product or plant
modifications and extensions in the right spots to do what’s right. On the restaurant and foodservice side,
where I think they’re a little bit limited, I think they’re going to have to be innovative with LTOs, because I
think those are going to trend. People are going to want to try something, they want to try it real quick and
then they want to move onto something else, and I think J&J is good at that and they can move on that
quickly.
Not so good, probably like we talked about, competitors are biting at their ankles on many categories, and a lot
of these categories are profitable items. What else? We talked about losing private label business with major
foodservice distributors, because somebody else has been calling on them, building that relationship, where
maybe the J&J one was severed a little bit or we didn’t have somebody calling them at the right time. They
need to rein in their trade spend. That’s a long, long road. It got really, really out of hand. They had some
people there that were just giving away business, and that business is hard to (1) let go because of the volume,
but (2) hard to increase pricing, and then when you pay on that throughout the whole broker network, supply
network, distributor network, and you pay full bore on that, their trade spend, I think, is a big issue, going
forward. They really have to address that. Best would be they hired a broker network as well, so you have one
broker across the whole country. I think that’s important to them. What does that customer experience look
like, going forward? I think we talked about probably a little bit more cons than pros. They’re going to have to
shift a little bit, because people are going to be looking for a different experience. They’re going to be looking at
cleaner ingredients, and what does K-12 look like, going forward? Are they going to keep the same regulations,
where it’s kind of a free-for-all and you can pretty much put anything in a school lunch right now? That was
why they were successful and why that business was growing so significantly, because they had the right
answers.
Moving forward, they made some good strategic moves with some new management and CEO, that are
bringing in new ideas and that have a better grasp on foodservice and retail than the previous people. I think
they struggle a little bit with the vertical integration, and getting that message communicated throughout the
company, one strategic message that everybody knew about. It seemed like everybody was on different playing
Private and confidential 13
fields. Markets, people are going to get back to the restaurants eventually. They’re going to have to fill those
needs. They have the supply chain and they have the broker network. Well-trained, knowledgeable broker
network. I think they’re light on the sales force. I think they need more sales force. They have always prided
themselves lean and mean, they’ve stayed whole this whole time, but moving forward, when these things
reopen up, they’ve got to have their sales force out there and calling on these customers, and get in front of
these LTOs and getting back on the customer menus, getting in front of these C store distributors with
solutions and ideations and recipes, because that’s going to win, going forwards. The event experience is going
to change. They’re going to have to keep customers engaged, yes.
[01:00:58]
NH: All important points that you mentioned throughout the Interview. At this time, we will now end the
Interview. Let me close by saying thank you so much, Mike, for your time and your input, and thank you,
clients, for joining Third Bridge Forum’s Interview today. Clients, if you wish to speak with our specialist,
Mike, in a private call or meeting then please let your relationship manager know. Thanks all. Goodbye.
Transcription ends at 01:01:16 of the recorded material
Private and confidential 14