Active in baking from its start, Arbor Investment’s profile in the industry grew with its acquisition four years ago of a majority stake in what has become Crown Bakeries, a business headed by Cordia Harrington who currently serves as chairman of the American Bakers Association.
“I have a soft spot for baking; we’ve owned 16 bakeries in the last 25 years,” said Gregory J. Purcell, co-founder and chief executive officer of Arbor. “We believe in taste and value, and again and again have found attractive opportunities in baked foods that have hit the mark for both.”
From tortillas and croissants to waffles and pastries, Arbor repeatedly has invested in specialty flour-based foods businesses that have found success supplying a wide range of channels, most notably foodservice, hospitality and mass market retailers.
While bread and other baked foods have been villainized in fad diets incessantly during Arbor’s history, Mr. Purcell said the centrality and continued popularity of bread in diets in France, Italy, and across much of the world adds to his conviction in the underlying staying power of the baking category in North America. He also noted that what people say they do and what they actually do frequently differs.
“When we owned Great Kitchens, I spoke with a broad spectrum of people around the United States,” he said. “Do you know how many people admitted they ate pizza to me? Zero. Everybody eats pizza, but you might tell me at a cocktail party you don’t eat pizza. It’s the same thing with bread. As people manage their carbohydrate intake, fantastic, but I challenge you to lay off a fantastic looking croissant. It’s the same thing. We don’t recommend eating 100 of them, just like you don’t eat 100 pizzas.”
Improving the quality of the pizza crust played a central role in the success Arbor enjoyed with Great Kitchens, a maker of take and bake pizzas that grew from about $3 million in annual EBIDTA when Arbor bought the company in 2004 to approximately $27 million in EBIDTA when Arbor sold in 2010.
Arbor’s most recent addition to its portfolio of businesses is a pair of waffle businesses — Golden Malted and Heartland Waffles, both acquired earlier this year from Roch Capital.
Between the pizza and waffle investments were several other grain-based companies, including Crown Bakeries, Gold Standard Baking, Mexican Accent, Oven Fresh Baking Co., Pita Bread Factory, and Rise Baking Co.
The ownership structure of many baking businesses adds to their appeal, Mr. Purcell said.
“Why we love baking is because when you look at the number of family-owned bakeries in the United States, they’re getting long in the tooth,” he said. “I think some of them are underspent in CapEx. They need to have higher-speed equipment to keep up with what’s happening. And I think they’re also under-invested in R&D. We’re at the tip of the spear with a lot of potential customers and prospects who come to Arbor and they say, ‘Can you give me a baking product that does X, Y and Z? We need temperature tolerance. We need flavor profile, and we need the following health and wellness characteristic. Can you execute that? And so, a lot of the families, they don’t have the internal staff.”
A “purer” baking experience than Great Kitchens Mr. Purcell offered was Mexican Accent, a baker of premium flour tortillas Arbor owned from 2002 to 2005. Taste and quality again were key to the company’s success, he said.
“We had national distribution,” Mr. Purcell said. “The company was in Milwaukee. The taste profile was fantastic. I wish we had a partner of Alison’s (Miller, Arbor’s chief marketing officer) caliber back when we bought it, because I don’t think we got paid enough for how great the products were. We expanded distribution. We did do some branding work. But it just goes to show you that taste wins out. I mean the functionality of the tortilla is incredible. It takes reheating. It takes a microwave. It takes a conventional oven. It takes toasting. You look at this and say, ‘Oh my God, this is fantastic.’ That was my first foray into baking.”
Getting artisan bread ‘right’
Asked whether genuine artisan bread is scalable, Mr. Purcell said meaningful hurdles remain to be overcome. One of Arbor’s more recent investments was in the New French Bakery in Minneapolis (part of Rise Baking Co.), which fermented its dough for 24 hours.
“That’s exactly what you don’t want,” Mr. Purcell said, citing the difficult economics of such a lengthy production process. At the same time, he said a prominent supplier of bread it calls artisan ferments only 45 minutes, which he said is too short to deliver artisanal taste.
The trick, Mr. Purcell said, is to strike the right balance, perhaps slicing 6 hours from the 24 hours of fermentation and still retaining 94% of the taste.
“There’s an old saying in our business, which is once you give a consumer taste, they can never go back,” he said. “It’s really hard to go back and embrace an inferior, extended shelf-life product and say it tastes great compared to fresh. It doesn’t, but it’s a different price point and different demographic.”
Many bakers of commercial sliced bread and snack cakes are family-owned businesses, but it isn’t a space that Arbor has pursued. While he wouldn’t rule out such an investment in the future, Mr. Purcell said the firm generally has focused on products still trending upward in the marketplace.
“We tend to play in specialty, commercializing specialty items and value for our quick service restaurant customers or retail groceries,” he said. “And these are exciting products that consumers may or may not have been experiencing.”
15-year-old miss in Waffles
Of the recently acquired waffle businesses, Mr. Purcell said Arbor had looked at and passed on the opportunity in the past.
“That history is in the ‘mistake’ category,” he said. “I should have bought them 15 years ago.”
Still, the Arbor team is bullish on the business, in part because of their track record of success in the hospitality and restaurant channels, Ms. Miller said.
“We love the channel that they play in,” she said. “Because of some of our other investments, we have familiarity with this hospitality/restaurant space. We really like the channel and like the products and the value they bring to a restaurateur or to a hotel where you can offer freshly made waffles.”
In addition to providing waffle mix to customers, the businesses supply waffle irons, essentially giving hotels and other customers everything needed to allow consumers to make fresh waffles.
Ms. Miller noted that as successful as it’s been, the waffle businesses have yet to fully saturate the hotel market. Mr. Purcell suggested the cruise industry represents an opportunity for broadening distribution as well.
“And then there are schools, universities, and athletic tables,” Mr. Allegretti added.
“The idea of a freshly made waffle in 2 minutes and 35 seconds is a pretty compelling offering,” Ms. Miller said. “The No. 1 thing hotel guests remember is usually the warm breakfast and the ability for a kid to make their own waffle that morning. So that memory making piece is a powerful selling offer to these hotels. You need this in your breakfast set.”
Waffles also are a cost-effective menu item for hotel operators relative, say, to eggs, Ms. Miller said.
“We’re talking about the cost of wheat,” she said. “Relative to protein — bacon and other breakfast selections, plus it’s turnkey. If you’re a hotel owner, we’re going to bring you the machine. And service it as well.”
Mr. Purcell said the waffle business highlights another point of difference between Arbor and other private equity firms with sizable investments in food businesses.
“The rest of the universe plays in brands consumers know,” he said. “We’re agnostic to the opportunity. We love it in food, whether it’s a private label play, a foodservice play, an institution play. As a result, we’ve played in very unsexy strata of the food world. We’re okay with that.”
Crown as Arbor case study
Crown Bakeries could be a poster child for illustrating the varied elements of the firm’s investment approach — finding a talented entrepreneur/partner, tapping into Arbor’s experienced and tight network of business leaders to broaden management capabilities, and injecting capital to fuel the company’s growth.
“We buy a lot of entrepreneurial-owned businesses, and we view these owners after the purchase as our partners,” Mr. Allegretti said. “Cordia is going to be our partner for years to come in the baking industry.”
Arbor acquired a majority stake in Crown Bakeries in late 2019. At the time, the business was known as The Bakery Cos., a Nashville, Tenn.-based baker of bread, buns and dough products for foodservice, food manufacturing and retail customers. With the acquisition, Ms. Harrington as CEO was joined by Yianny Caparos and George Caparos, as president and chief development officer, respectively. The Caparos brothers earlier had owned Gold Standard Baking, a business acquired by Arbor in 2008 and sold in 2015.
Three months after Arbor acquired The Baker Cos., new vice presidents were named for operations, engineering and national accounts.
“We tend to turbocharge these businesses by infusing them with talent,” Ms. Miller said. “Crown is a good example. I think we’ve put in a baker’s dozen 13 people into Crown leadership to really turbocharge that business with Cordia. Talent is the No. 1 priority.”
Within six months of the acquisition, The Bakery Cos. made its first acquisition, buying North Dakota-based Steck Wholesale Foods, a baker of English muffins and biscuits. Other acquisitions followed, to expand the company’s presence in croissants, sweet baked foods and laminated dough products.
The string of acquisitions Arbor has made with Crown Bakeries was anticipated when the initial deal was inked, Ms. Miller said.
“As we’re modeling, we can say, okay, it’s going to need $70 million in CapEx, which is what we’ve put into Crown so far,” she said. “We know going into the business what the expectations are, what some of the large investments are that we need to make.”
The importance of effective marketing was demonstrated with a rebranding in February 2021, when the company was renamed Crown Bakeries.
“The crown of the bun is the top,” Ms. Harrington said at the time. “It’s the part you see when you look at a burger or a sandwich. When you take that first bite, you know that the quality is there.”
Cooperatively developing an aggressive growth plan with Ms. Harrington is a particular source of pride for Mr. Purcell. Navigating change with successful entrepreneurs is challenging, but a core skill of Arbor, he said.
“If you know Cordia, she’s very smart, very driven,” he said. “And she’s one of the most successful executives in the United States. And we come in and kind of reorganize? It can be a little upsetting. From the early years, our model was to put 10-ish people from Arbor, this kind of turbocharger dropped into every company. We’re rearranging the furniture and getting ready for hyper growth. We’re ‘re-infrastructuring’ a company. We’re making changes saying we’re not going to grow by 2% or 3%. We’re planning on doubling or tripling the company. It can be tough, but because we have such a strong track record of success, the entrepreneurs say, ‘Okay, I see what you’re doing.’ When they figure out you’re in the foxhole together, and we’re stronger together than we are independently, then we really accelerate.”
While many private equity firms continue to operate in the food space, Mr. Purcell said more PE firms are shying away.
He explained, “It used to be, you know, 20 years ago, every generalist private equity firm would say, ‘How hard can food be? People have to eat.’ They would do two food deals. One, in baseball parlance, would be a double and the other would be a zero. And then they’d say we want nothing to do with food. It’s too nuance laden. If you don’t have a Yianny and George Caparos or a Cordia Harrington as your partner and you don’t have 50 years of knowledge, good luck. What ends up happening is a generalist private equity firm assigns a 32-year-old to deal with a 68-year-old, grizzled veteran and right away the 68-year-old says, ‘Do you know anything about food?’ And the answer is ‘No, this is my first deal.’”
Conversely, longtime owners of food business may be put off by how much senior partners like Mr. Allegretti and Ms. Miller know about the food business, Mr. Purcell said.
“They think, ‘They know my customers better than me,’” he said. “The key is to take down the temperature of threat and you either collaborate or you have to move on.”
‘This isn't a passing fancy’
Asked how much longer he will remain active at Arbor, Mr. Purcell made it clear he has no plans to retire any time soon.
“I don’t know whether I should say this, but I have a sick love affair with this business,” he said. “I love it. This isn’t a passing fancy. I like passionate people. I’m a backer of every David against Goliath in the food industry. My job now in year 29 and 30 of investing capital is I need more Cordia Harringtons. You know, I’m in the adoption agency as someone’s giving up their baby, their company, and it’s less tactically executing on a deal. We’ve got an army of people to do that. But I need to spread the gospel of Arbor and help Carl recruit talented young professionals to come in to get passionate, to get excited about this.”
Mr. Allegretti added, “We’ve built an organization around Greg. We’ve opened a new office. We have three offices now — Chicago, New York and now Palm Beach.”
Mr. Purcell noted, “We need to just continue to train and infuse the organization with passionate people, like me 30 years ago. Over 24 years and 80+ deals, we keep getting better at what we do. We have the playbook down.”