When 65-year-old William Spoor returned as chairman and chief executive officer of troubled Pillsbury Co. in March, culture shock set in for those who had missed his first term as chief executive between 1973 and 1985.
Spoor demanded clean desks and only framed art on the walls, inspected offices for compliance and watched for tardy employees at the elevators in Pillsbury`s downtown Minneapolis headquarters.
The company`s multicolored employee publications disappeared and a clean- lean-and-mean mentality emerged. About 200 of 2,700 headquarters and research employees have left or been fired this year. An executive shuffle has elevated senior managers more in tune with Spoor`s run-and-gun style.
”We hear that morale is at an all-time low and that resumes are blanketing the street, but that would be anticipated at a time like this,”
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said Craig Carver, analyst at Dain Bosworth Inc.
Spoor reversed the relaxed era of John Stafford, who left under pressure. Reversing Pillsbury`s fortunes will be tougher. Spoor took over for Stafford, who had succeeded Spoor in 1985, amid festering problems in the restaurant business and some consumer food products.
”They`ve taken a credibility hit, no doubt,” said Stephen Carnes, an industry analyst at Piper Jaffray & Hopwood Inc. ”Is it permanent? I doubt it. Maybe the managers overpromised and underproduced. Some of the credibility problems might already have walked out the door.
”The problems they hope to solve are in pizza and dessert mixes. The Burger King situation has deteriorated and is in bad need of getting fixed.” A food industry conference February in Florida led to Stafford`s departure. Stafford surprised analysts by predicting lower-than-expected earnings. Analysts don`t like to be surprised, and the reaction on Wall Street was sharply negative.
Stafford departed days later, amid criticism that he was too committee-oriented, equivocal and slow to decide.
Pillsbury`s problems-and Stafford`s-began emerging last fall when executives realized that projections for fiscal 1988 (ended in May) were off. Plans were made to cut staff and divest poorly performing assets. Pillsbury`s board of directors reportedly prevailed on Stafford to ask Spoor, still a director, back to work on problem issues.
Five months later, Spoor, stressing that he was interim chief executive, officially took over.
Pillsbury reported net income of $69.3 million, after $141 million in after-tax writeoffs, for the year ended May 31, down from $182 million in fiscal 1987. Sales rose slightly to $6.2 billion.
The company has closed struggling restaurants and consolidated plants.
”Pillsbury is now a less diversified but more focused company . . . moving forward with a portfolio of businesses capable of superior financial performance,” Spoor wrote to shareholders in April. ”Excluding the writeoffs, we will still have a record year on an operating basis. . . .”
Spoor, who declined to be interviewed for this article, is expected to leave the company by fall or as soon as a successor is found. He has tackled key problems head-on, but Pillsbury`s return to industry leadership is a long- term challenge.
”A lot of hard decisions are going to be placed in the lap of a new chief executive,” said John McMillin, analyst at Prudential-Bache Securities Inc. in New York.
Takeover speculation has subsided in recent weeks, and the stock price has settled in the range of $34 to $37 after climbing to $45 a share on staggering volume in March. But analysts don`t dismiss a takeover attempt if business doesn`t pick up markedly this fiscal year. Pillsbury is valued at $50-plus a share, or about $4.4 billion.
Rumored suitors included Nestle Enterprises, Beatrice Co. and Volvo, the Swedish carmaker, which also has food interests. Kraft Inc. is said to covet Pillsbury`s frozen and refrigerated lines and ConAgra reportedly likes its flour mills. But nobody surfaced as everybody watched for a bid.
Pillsbury carries a host of corporate and state antitakeover provisions. Spoor has vowed to keep it independent, but the only sure antidote to a bona fide takeover run is improved performance and a strong stock price.
”They have managed to arrest the decline in a couple areas,” said Nhomi Ghez of Goldman, Sachs & Co. in New York. ”But I would not call (it) a turnaround.”
Achieving record earnings in fiscal 1989 will require better results from the restaurants. Operating profits have declined for two successive years at Burger King and Steak & Ale Corp., which generate about 45 percent of company sales.
Burger King, which has 17.5 percent of the hamburger market, according to the U.S. Commerce Department, peaked in 1985, the year the fast-food industry started slumping from too many stores and staid concepts. The No. 2 burger chain failed to boost per-store sales beyond $1.02 million for the fourth consecutive year as it struggled with competition and uninspiring ads such as ”Herb the Nerd” and ”Best Food for Fast Times.”
Conversely, McDonald`s Corp., which has about 39 percent of the market, has posted healthy per-store sales increases.
Burger King switched its $200 million ad account to N.W. Ayer Inc. last year and launched an aggressive campaign in March. It hasn`t spurred much new business yet, but it`s still young and considered better than recent campaigns.
The punchy ”We do it like you`d do it” pitch accentuates Burger King`s flame-broiled meat over competitors` fried offerings, but so far it hasn`t offset weakened business or satisfied some angry franchisees.
”They lost their focus market-wise,” said Michael Kennedy of IDS Financial Services Inc. ”Cleanliness, service and quality deteriorated. You`ve got to fix that before you bring back the customers.”
Pillsbury has committed millions of dollars to refurbish company-owned restaurants in New Orleans, Chicago and elsewhere and to boost store staffing throughout the system. It has increased operating margins by cutting costs, which should boost profits substantially if sales increase even a bit.
Restaurant group chairman Jeffrey Campbell, the one-time Burger King wunderkind who presided over the go-go years of the early 1980s-as well as the recent sales malaise, resigned in June. Campbell reportedly chafed over Stafford`s hesitation to invest big money in overhauling Burger King stores.
Some analysts still want Pillsbury to sell its Steak & Ale and Bennigan`s restaurants. But Pillsbury apparently plans to keep the sitdown restaurants, some of which were closed during this year`s makeover.
In its big U.S. Foods business, Spoor named John Morrison chairman to replace Thomas McBurney, whom Stafford named chairman in 1986. McBurney took Morrison`s old job in international foods. Morrison, a Spoor protege, is a
”crack-the-whip” executive, in the Spoor mold, insiders said. Kent Larson, appointed by Stafford as president of U.S. Foods, resigned last month after back surgery.
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Much criticism has been focused on restaurants, but Pillsbury has had tough going in its important frozen pizza, fish and cake mix businesses, too. After it bought Jeno`s in 1986, the company upgraded the ingredients and packaging in its Totino`s brand and raised the price about 25 percent last summer, believing that food wholesalers and retailers wouldn`t accept two similar, lower-priced offerings. The upgrading of Totino`s was Pillsbury`s bid to consolidate and expand its 60 percent share of the $838 million frozen pizza business, which has since slumped to below 50 percent.
”It was my strategy and I think one that was on fairly solid ground,”
said Dick Nickel, former vice president and general manager of meals and snacks, now president of Michael Foods. ”The consumer hadn`t seen a price increase for eight years.”
Pillsbury met resistance from supermarkets. It also refused to pay
”slotting allowances” to retailers to stock the new product and started losing market share at the low end to competitors.
In the $971 million frozen fish business, Pillsbury`s Van de Kamps is locked in a war with General Mill`s Gorton and Campbell`s Mrs. Paul`s brands. Profit margins in that business are being squeezed by rising fish prices and discounting.
The competition in dessert mixes is furious, too.
”Pillsbury is going against higher (food) costs, and in some markets it`s difficult to raise prices. . . ,” Ghez of Goldman Sachs said.
Food companies will increase prices where possible, but it`s unclear whether they can offset increases in commodity and packaging costs. Profit margins benefited from commodity price declines in the early 1980s.
Cost-cutting should improve margins in foods. Moreover, the company remains the dominant seller of refrigerated dough, and has Green Giant canned and frozen vegetables. Its smaller commodity trading division and growing international division are enjoying record results.
Pillsbury has transformed Haagen-Dazs, which it bought five years ago, from a family ice cream operation into a growing profit machine.
But for now, those bright performers are overshadowed by the Doughboy`s problems.