John B. Sanfilippo & Son Inc.

Totally nuts  In the midst of the worst economic downturn since the Great Depression, a fourth-generation family-run nut supplier recently chalked up its second-best quarterly net income since going public in 1991, as Pam Derringer learns.  Jeffrey T. Sanfilippo, chairman and CEO of John B. Sanfilippo & Son Inc., says the companyÔÇÖs near-record quarterly results for the $554 million company were due, among other factors, to better inventory controls and a whopping $3.4 million in savings from facility consolidations. But the success of the 87-year-old Elgin, Illinois-based company goes far beyond operational savings and is driven by a deeply ingrained culture of customer-centricity, efficiency and nimbleness that its rivals just canÔÇÖt match.  ÔÇ£Customers demand variety and more innovative products in different packaging, and our capital investment allows us to be more customer-centric and provide more value to our customers than most of our competitors,ÔÇØ says Nathan Rucker, SanfilippoÔÇÖs corporate director of continuous improvement. ÔÇ£We can process orders to customer specifications, change our production lines more quickly, and offer more product and manufacturing diversity, allowing us to be more competitive and focused on customer needs.ÔÇØ Belying its relatively modest size, Sanfilippo has grown from a pecan-shelling operation catering to ChicagoÔÇÖs Italian community in the 1920s to one of the largest diversified nut processing companies in the world with over 1,500 employees and peanut, pecan and walnut processing plants across the country. With a dominant presence in every major selling channel (food retail, foodservice, contract manufacturing and industrial), Sanfilippo has unparalleled insight into nut consumption and has unique advantages and opportunities to meet ever-changing customer tastes with innovative new products. A quick review of the companyÔÇÖs history reveals a series of astute moves over the years that enabled the company to diversify its nut product offerings and enter new markets, including expanding to the Southwest and the West Coast. To better control the quality of its products and gain keen insights on commodity conditions and developments, Sanfilippo acquired Sunshine Nut Company in Texas and Crane Walnut in California, which shell pecans and walnuts, respectively. Sanfilippo made a major move to establish a national branded presence in the nut space with its 1995 acquisition of Fisher Nut from Procter & Gamble. ÔÇ£When opportunities to merge or grow occurred, Jasper Sanfilippo Sr. took advantage of them,ÔÇØ Rucker says. ÔÇ£They were financially smart decisions,ÔÇØ such as acquiring companies, upgrading equipment or consolidating the companyÔÇÖs supply chain, he says. These acquisitions were in part supported by capital raised in the equity markets when Sanfilippo became listed on NASDAQ in 1991. Acquisitions have historically been an important tool for growth for the company, and today Sanfilippo is actively exploring expansion opportunities not only in the US but throughout the world to fulfill its mission to be ÔÇ£the global source for nuts.ÔÇØ Today SanfilippoÔÇÖs Fisher branded products, as well as private-label nuts, are sold in grocery stores, drugstores, mass merchandisers and restaurants. In addition, the companyÔÇÖs nut products are sold to a ÔÇ£whoÔÇÖs whoÔÇØ of the worldÔÇÖs largest packaged food companies as key ingredients in such items as granola bars, cereal, ice cream, frozen foods and baked goods, among others. The companyÔÇÖs presence in the market is epitomized by the frequent presence of its products in more than 20 separate locations in a typical supermarket. Fast-forward to the present and the recent remarks of Jeffrey Sanfilippo, great-grandson of the companyÔÇÖs founder, about the near-record net profits for the quarter ending September 30, 2009. Key factors in SanfilippoÔÇÖs banner quarterly earnings were efficiencies resulting from the decision to buy and develop a million-plus-square-foot facility from Panasonic to consolidate all the companyÔÇÖs value-add processing and packaging previously handled by five separate smaller plants in Elk Grove Village, Illinois. This facility, which was completed in 2006 and houses its headquarters operation, is believed to be the single largest structure dedicated to nut processing in the world. Sanfilippo consulted with a number of large global food companies (such as Nestl├® and General Mills) to implement state-of-the-art production design and systems to maximize efficiencies and production flexibility, as well as allow for greater allergen control in separating peanut handling and processing from tree nuts. Coincident with this move was a $14 million investment in company equipment, including new packaging and processing lines and the creation of a CIO post to oversee the new IT networking and software infrastructure. Sanfilippo installed a HighJump warehouse management system that records inventories with 99 percent accuracy, enabling the company to cut physical inventories from quarterly to semi-annually, saving $2 million a year, Rucker says. ÔÇ£This warehouse management system is also the backbone to our robust allergen-control programs.ÔÇØ Sanfilippo also added dashboard analytics software, which pulls data from the ERP system and tracks performance, downtime and line changeover time from one product to another, which helps pinpoint problems that need to be addressed, he says. In addition, Sanfilippo installed its own SCADA (supervisory control and data acquisition) monitoring and control system in Elgin, which enables managers to track and alter machine operations from a desktop computer, Rucker says. The improved IT infrastructure also increases the efficiency of forklifts in the warehouse and verifies the accuracy of bills of materials. In the future, the company expects to apply its sophisticated IT capabilities to continue to improve its customer service, whether that translates into helping create a better product or giving consumers more value for their dollar, Rucker says. Along with its passion for listening to customers is SanfilippoÔÇÖs equal passion for minimizing its impact on the environment. When a major customer suggested that Sanfilippo create a mechanism to be more energy-proactive, Sanfilippo quickly responded by joining the Energy Star consortium and forming an internal Resource Conservation Committee in 2008, which in turn has resulted in significant cost and energy savings, Rucker says. ÔÇ£We have our customers very involved in what we do, and this is just one example.ÔÇØ SanfilippoÔÇÖs ÔÇ£aggressiveÔÇØ energy-saving commitment affects all departments and all employees throughout the company. And sometimes it gets down to personal habits, like encouraging everyone to turn off lights as they leave their offices or work areas. In addition, heating has been lowered in the Elgin headquarters to 68 degrees in winter and air conditioning raised to 73 degrees in the summer, with employees each issued a sweater to help them keep warm in the colder months. Many other steps, big and small, are being taken to reduce energy consumption, including the installation of a more energy-efficient roof at its plant in Selma, Texas, and companywide use of fluorescent lighting and increased use of recyclable packaging for its products. Sanfilippo also is tracking energy usage and trying to hit specific targets for reductions by turning off coolers during peak power periods and trying to reduce use of resources such as nitrogen and compressed air, Rucker says. Another pro-resource move is the elimination of disposable coffee cups and the transition to company-provided coffee mugs, he adds. The pro-environment stance is just one example of SanfilippoÔÇÖs values and how it strives to implement those personal, cultural values in the workplace. Despite its considerable growth and scale, Sanfilippo still operates like a family business. ÔÇ£When Jasper Sr. [the retired CEO] walks the hall, he knows 80 percent of the people and can probably tell you their names,ÔÇØ Rucker says. ÔÇ£This company has a culture about delivering to the customer that it developed over 80 years. Our competitors canÔÇÖt create a culture like that overnight.ÔÇØ Another example of its family-run difference is SanfilippoÔÇÖs lean operations, which even extend to designing and manufacturing some of its own equipment to ÔÇ£get more bang for the buck,ÔÇØ Rucker adds. As for the future, Rucker is optimistic that Sanfilippo, with its ingrained customer-centric culture, integrity, innovative ideas and state-of-the-art equipment and technology, will continue to grow and outpace its competition. ÔÇ£We have great long-term relationships with customers,ÔÇØ Rucker says. ÔÇ£We want to continue to deliver innovative products and demonstrate that we can continue to serve our customers and do it better than our competitors. And we will.ÔÇØ