Untwisting Pretzel Firm's Path He's Putting Bachman Back On Course

Posted: June 10, 1987

READING — There are a few twists in the tale of Bachman pretzels, but the 103-year- old snack baker appears destined for better times now that Joseph F. Welch has gotten things under control.

"We lost money in '80 and '81, broke even in '82, and we made a little bit in '83," says Welch.

Since then, profits have nearly doubled each year, he says, to $4.3 million last year on sales of $66 million, establishing Joe Welch as sort of the Lee Iaccoca of pretzels.

He has been Bachman's only stockholder since buying it for a fire-sale price in 1980, but that could change before long if he can keep the turn- around on track.

"We will probably go public in three to five years," Welch, the chairman and chief executive officer, says. His goal is first to make Bachman a $100 million company, with a 10 percent profit margin.

For this year, he expects a profit of about $8 million on sales of roughly $65 million.

The man shifting the gears at Bachman is a 52-year-old entrepreneur and former race car driver (Daytona and Sebring) for Roger S. Penske's racing team. Welch came to Reading in 1974 when Penske was first getting involved with what is today Hertz Penske Truck Leasing Inc.

Welch, who had worked in marketing for General Electric Co. and been an account executive with New York ad agency Benton & Bowles, was at the time president of the parent entity, Penske Corp.,

But he resigned from Penske in 1977 to strike out on his own. Welch acknowledges that, given his temperment, "it was a little frustrating" for him to work in an environment where he had to share responsibility and authority.

His first big investment, besides real estate ventures, was Windsor Knitting Mills in Hamburg, Pa. Then, in the closing days of 1979, came the chance to rescue Bachman.

Bachman had been a well-established regional brand for nearly a century as well as a part of Reading's civic identity - the key to the city includes a pretzel-shaped handle.

But that was before the disastrous three-year stewardship of Edgar M. Cullman and Culbro Corp.

Cullman was a wealthy investor who, by all accounts, started with a small cigar-manufacturing company and sought to build it into a Fortune 500 conglomerate in emulation of a successful older brother who had steered Philip Morris Inc.

Bachman was one of Cullman's early acquisitions. He transferred administrative offices from Reading to New York and set about trying to capture a slice of the national salted-snack food market dominated by Frito- Lay Inc., a PepsiCo unit that had 1986 sales of $2.8 billion.

"It's a classic story of what not to do," Welch says, and other observers agree. Culbro killed familiar and successful local brands - Valley Maid in Philadelphia, for instance - antagonized retailers by canceling contracts to make private-label potato chips or pretzels for them, took Bachman products away from the wholesalers who had been handling them and set up a costly system of company-employed route salesmen.

"They thought they were going someplace, but they didn't know how to get there. That's how they screwed up," Welch says.

By the end of 1979, chaos reigned at Bachman, the losses were mounting alarmingly while sales dropped and Cullman wanted to dump it or liquidate it, fast.

Within about one week around Christmas 1979, Welch had arranged to pay $4 million, the liquidation value, for most of the Bachman assets that Cullman had paid $26 million for just three years earlier.

Welch immediately brought the headquarters back to Reading, slashed advertising and other costs, dropped unprofitable customers and instituted what came to be called the "Bachman back to basics" plan.

But the worst part, he says, was that the company had virtually no comprehensive internal reporting systems - Welch simply had no idea of costs or expenses.

"It was an absolute nightmare," he says. "It took us a good year to get this thing under control financially."

Eventually, Welch sold his knitting mill and Bachman's soft-pretzel operation to raise cash to keep the company operating and to build a computerized management system from the ground up.

To improve service and cut costs, Bachman began selling its store-delivery routes to the company's former drivers and others. As company employees, the drivers had been Teamster union members and could earn a couple of hundred

dollars a week without selling any of Bachman's products, Welch said.

As route owners, the drivers became independent distributors whose incomes were much more closely tied to how much product they sold and how well they

satisfied their customers. The company says the result was a 15 percent increase in sales as well as higher incomes for most drivers.

This spring the company announced the launching of a new venture, the Bachman Enterprise System, to develop a system of franchised wholesalers to distribute products.

William G. Kay Jr., a former executive vice president of Sun Co. and now head of his own investment- and management-consulting firm, is president of Bachman Enterprise System, and is planning to expand distribution far beyond Bachman's traditional Northeastern and Middle Atlantic stronghold.

In the last seven years, manufacturing and packaging equipment has been replaced or upgraded, and sales and distribution expenses have dropped while gross profit margins have grown.

Total employment has been trimmed from more than 1,300 - which included the route drivers - to the present 600. Bachman has two plants in Reading, one in nearby Phoenixville and one in Lincoln, R.I.

The motif at Bachman's modern offices in downtown Reading runs pretty heavily to pretzels - Welch wears a necktie of his own design that features them prominently - but potato chips and other snacks account for the majority of sales.

About a third of the company's sales are from pretzels, and Bachman contends it is the leading brand in the Northeast.

It is, at any rate, a fairly modest market; the head of a competing pretzel baker estimates total sales nationwide for hard pretzels at $285 million annually.

Potato chips accounted for 30 percent of sales, about $20 million, last year, in a field dominated by Frito-Lay. Bachman's chip strategy, Welch says, is to exploit various market niches; the Valley Maid brand is about to be revived, for instance, to be marketed as a bargain-priced chip competing with other regional brands.

About one-fifth of sales is from Jax cheese twists and 10 percent more is

from popcorn, Welch says. The remaining 5 percent or 10 percent is from miscellaneous snacks.

Growth is likely from expansion of Bachman's marketing areas, increasing market share and possibly acquisition of other snack-food companies.

Welch characterizes himself as an entrepreneur and deal-maker and has assembled a team of professional managers to redirect the company. But he adds, "I like to think I am involved" in all management decisions.

For one thing, he says, all managers are subject to "a pretty crisp quarterly review" of performance.

An avid skier, Welch has decorated his well-appointed office with photos of alpine outings with his five daughters, with golf and racing memorabilia - and with memo pads headed "Get it done today."

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