Monterey Gourmet Foods

Source: Food and Drink Digital

Date :8/7/2007 2:14:31 PM

Monterey Gourmet Foods finds itself in high demand for its food products that combine convenience and fresh ingredients

Written and produced by Andrea Orr & Michael Magno

Americans are eating out more and more these days, even — it seems — when they are eating in.

Grocery store shelves are increasingly filled with prepared foods such as sandwiches and salads. Starbucks sells high-end sandwiches with ingredients such as pesto and sun dried tomatoes. Even convenience stores offer hot food inside while selling gasoline outside.

Monterey Gourmet Foods of Salinas, Calif., understands that as individuals and families cook less, there’s a lot of money to be made selling food that require no preparation beyond unwrapping, and maybe popping into the microwave.

By successfully marketing an extensive line of pastas and cheeses, frozen entrees, refrigerated soups and grilled wraps to major chains like Wal-Mart, Costco an Albertson’s, the company has enjoyed a steady clip of growth that has taken revenues to $94.3 million last year from $62.5 million in 2004.

Still, as Monterey’s president and chief executive Eric Eddings notes, success is far from guaranteed in this hyper-competitive prepared food market — where everyone from the largest packaged foods makers such as Kraft Foods, to the smallest local organic growers, are all trying to get a piece of this growing business.

“Competition is absolutely fierce,” Eddings says. “We are competing with much larger companies and much smaller ones.”

Monterey has managed to stay ahead of the competition, in part, by constantly introducing new food categories.

Founded as a basic pasta maker that sold its products locally around northern California in 1989, it today offers more than one hundred different food products, including fresh pork and chicken tamales. Along with an extensive U.S. distribution, its products are sold in Canada, Mexico, Japan, Korea and Thailand.

But staying ahead of the competition has also required that Monterey Foods build a reliable manufacturing operation to enable it to be a steady supplier to the nation’s largest food chains; and to aggressively invest in technology to produce large quantities of quality foods economically.

It also keeps a flexible approach to distribution, and constantly explores new distribution channels that are becoming more prominent as consumer eating patterns evolve.

Increasingly, that means selling ingredients such as gourmet sauces to other prepared food makers as well as to food retailers. Remember that Starbucks turkey sandwich with pesto sauce? Monterey Gourmet Foods is one of the companies that made the sauce.

Eddings says the company’s success is also largely a result of it keeping a close watch on competitive changes in the market at large, and snatching up rivals or young upstart businesses when it’s made sense to do so.

Eddings himself came to Monterey Gourmet Foods by way of another food supplier that the company acquired two years ago — one of four companies it has bought in the past three years. He says it is always on the lookout for other acquisitions that will help it expand its food offerings and its distribution network.

Understanding Monterey’s core business essentially requires understanding the distinction between packaged foods — which have been mass distributed for more than half a century — and the so-called prepared foods that are popular today and are something else entirely.

Under the old model, packaged food offered convenience and long shelf life — but often at the expense of health and nutrition. Traditional packaged food is often richer in preservatives than it is in nutrition.

The shift the food industry is seeing today is that — although consumers are more time-strapped than ever — many are better educated about nutrition and unwilling to sacrifice quality for convenience. They want tasty, healthy food but they don’t want to labor all day over a pile of raw ingredients.

Monterey’s basic message is that frozen or otherwise packaged food can also be gourmet food.

“We want to be able to replicate what you would get in a nice restaurant,” explains Eddings, who stresses that the company has long worked with the freshest ingredients such as antibiotic-free chicken, and is now incorporating more organic foods into its line of products.

It has also shown a track record for swiftly responding to sudden changes in consumer dining trends, and successfully promoted whole-wheat pasta a few years ago when the low-carb diet craze made traditional white-flour pastas less popular.

As Monterey targets a brisk 10% to 15% annual growth rate, it is finding it must expand its focus on food beyond taste and ingredients, and look at the technology used to produce in bulk.

Advances in cooking technology have already made it possible extend food shelf life with minimal use of preservatives; indeed these advances are in large part responsible for the explosion in quality, prepared food available today. Eddings says Monterey is eager to see further advances but is sometimes displeased with the pace of progress in cooking technology.

“I think we are always looking for the technology to move faster,” he says. “Historically, it has moved pretty slowly.”

Growth in the business will also — ultimately — require the company to focus beyond its core competency of food and address all the challenges that come with running a large publicly-traded company.

Eddings acknowledges that the acquisitions the company made in the past were not always integrated well, and have resulted in an operation that is inefficient in places — sometimes manufacturing the same ingredient in two different locations, when it might do all the work from a single spot.

“Integration is really hard,” notes Eddings. “A $6 million acquisition can be more distracting than a $30 million one, if it is not integrated properly.”

“We will continue to look at acquisitions, but it’s really critical to make them worth your while.”