2011 R&D Team Winner: Herr Foods Inc.

May 25, 2011
For our 2011 R&D Team of the Year winner (medium-sized company category), culture eats strategy for lunch.
When you've got a taste for munchies, Herr Foods Inc. can fulfill your desires -- 340 ways. This medium-sized, family run company, based in Nottingham, Pa., turns out potato chips, pretzels, tortilla chips, cheese curls, corn chips, pita chips, popcorn, crackers, nuts, pork rinds, onion rings and meat sticks in a variety of shapes, sizes and flavors. Plus salsa. Most are sold under the Herr's brand name.

With 1,400 employees and sales in excess of $250 million, Kosher-certified Herr's is one of the top 10 snack food companies in the U.S., and is growing in distribution throughout the States, as well as Canada and Latin America.

Growing into new channels and markets

It may be regional and medium-sized, but Herr Foods has big plans for growth.

Daryl Thomas, senior vice president of sales & marketing, recalls that Herr's founder used to deliver his products door to door. After World War II, the focus turned to grocery stores. "Over the years, the store count has grown with the evolution of many channels of distribution to now include retailers, mass merchandisers, and specialty stores, all competing for share.

"It's now evolved into lots of other channels, such as vending and foodservice, with different package sizes, price points and geographical flavors," Thomas says. "
And it doesn't begin and end with the U.S.: Herr's sells products in Canada, and Latin America and looks to grow more internationally.

"We play to our strength – an American experience – in certain countries, and try to identify opportunities for growth internationally," Thomas says. "We've contemplated getting into other categories, but we don't want to stray too far from what we do best. That said, the market evolves, so we are open to all possibilities."

"Our company culture starts with family," says President Ed Herr. "My dad and mother started this company 65 years ago, and they still have influence. The second generation is at the helm and working to pass it along to the third generation.

"When you have brothers and sisters who grew up together working together with good family relationships, it produces a great work environment. We have a high level of respect for each other and mutual love, creating an atmosphere of family within the company. Ultimately, the fringe benefit is happiness, productivity and teamwork."

Founder James Stauffer Herr grew up on his family's isolated chicken farm. "In 1946, at age 21, he wanted more contact with people, so he looked in the newspaper for opportunities," says Daryl Thomas, senior vice president of sales and marketing. "He saw an ad for a potato chip company in Lancaster, Pa., and bought it, the kettles and a truck for $1,750.

"He faced a litany of challenges over the years – the plant burned down to the ground, it was rebuilt, moved, suffered damage from a hurricane, and he faced other setbacks. But Jim continued on tenaciously believing in what he was doing."

From humble beginnings
"I've seen the R&D department grow from humble beginnings, with one person working part time on projects," says Phil Bernas, vice president of quality assurance and R&D. "If we go back about 15 years, we would typically spend 12 hours a month on R&D projects. Today, it's a complex, well-organized process of people dedicated solely to R&D."

"We have rather diverse backgrounds," he continues. "Some have food science degrees, some have a culinary background, some come to us with manufacturing experience, and one has experience with wet chemistry," he explains. "We have five people on the R&D team, with contributions from two others who are not directly in R&D, but work closely with us. One is in manufacturing and one in quality assurance (QA).

"We also enlist the talents from many people in our processing areas, who have a vast amount of experience, and include them in our R&D experimentation. Because of that diversity and range of talent, we get a lot of feedback and good ideas that allow us to bring it all together in the end."

Bernas emphasizes that it's not only a team effort within the R&D group, but also a team effort among manufacturing, QA and R&D. "Our people are very excited to have the opportunity to contribute to the process of developing a product and seeing it go to market."

How does the R&D process work? "We initiate ideas from two different directions," says Bernas. "One is purely R&D-driven ideas, and the other is marketing-driven ideas. Marketing finds out what consumers are looking for, what niche markets haven't been developed and their potential. R&D looks at our process capabilities, what we can do exceptionally well with our equipment and our people. We have many committees in R&D, marketing and sales to generate those ideas and provide direction for the R&D team. We evaluate which ideas to pursue and which ones to take to market," he says.

"Our group is dedicated to being super innovative, and when work is fun you are more successful at it," adds Thomas. "Those in product development have depth of experience, and each person has specialized talents. For example, our vice president of technical services came to us with a snack food industry background; another is a graduate of the Culinary Institute of America. Everyone has an integral role in idea generation. We try to be consumer-centric, respond to consumer wants, fill needs and, in some cases, unmet needs – yielding new opportunities."

Thomas says when they agree on someone's great idea, the next step is consumer research. "We compare feedback to our flavor benchmarks and then prepare prototypes, set up blind in-store tastings using a variety of metrics -- intention to buy, different product attributes they like and affirmation that they like what we think is a good idea," he says.

"There is some art in the science. Sometimes we are surprised at how good consumers think the product is, or sometimes not. We strive to reduce the risk of going to market, and the consumer voice is in the center of what we do. But research has its limitations; consumers can't always articulate what they want. Historically, only a small percentage of new products (20 percent) are still in the market two years after they are introduced, but 80 percent of our new products remain in the marketplace. That affirms the adage, ‘The harder I work, the luckier I get.' "

Healthier products are the focus of consumers today, so how has Herr's responded? "We try to be relevant to the consumer. We've added more diverse oils to our portfolio, including sunflower, and moved to eliminate trans fats, reduce fat and dabble in natural, organic and the use of sea salt, which consumers perceive as better," says Thomas.

"Household penetration of potato chips is 93 percent, so we try to have something for everybody. Potato chips, eaten in moderation, can be part of a healthy diet. Potatoes are a simple food, and consumers see the merits of our simple labels -- only three ingredients (potatoes, oil and salt).

"We've also made a significant investment to manufacture a line of Baked Potato Crisps for those who want a lighter product. And, over the past five years there has been a resurgence of kettle chips with their unique shapes and crunch. They have rejuvenated and grown the category, so we added them."

At Herr's, ideation is a group effort, and success correlates with how everyone participates. "Going to market with diverse flavors, sometimes you just get lucky," says Thomas. "We are soon launching a line of sweet potato chips. We were sitting around after a round of golf eating sweet potato fries dipped in ranch dressing and thought what a great idea it would be for chips. We come up with ideas all the time and explore the possibilities," he explains.

Simple sustainability

Since 1985, Herr's has also operated the Herr Angus Farm. "We use 150,000 gallons of water every day, and we're fortunate that water comes from our own wells and farm," says Daryl Thomas. "So in thinking about sustainability, it's obvious that after you use the water, you put it back on the ground, don't just send it downstream.

"We figured out a way to spray the water back onto the fields from which it came. We grow a really healthy crop of canary grass, and that becomes one-third of the cattle farm's food ration. Then we take all of our potato peeling sweepings, and that becomes another third of their diet.

"That means two-thirds of the diet of our cattle is from product resulting from our manufacturing process. The other third is corn grown locally. That becomes a very healthy diet for our cattle, so healthy that we've been named one of only two Certified Angus beef farms in the state. Not only is it sustainable with regard to water, one of our greatest resources, but it's also contributing value on the other end."

As consumer tastes become more sophisticated, Herr's responds with creative new offerings. "We have conversations with customers, do consumer research and work with suppliers who recognize that Herr's is open to taking a chance on a new flavor." For example, Thomas says Fireman's BBQ Chicken flavor will soon launch. It will join Heinz Ketchup chips, Old Bay Seasoning chips and Kansas City Prime Steak Potato Chips, among others.

"It usually takes nine months to go from concept to packaging, working out the nutritionals, to market introduction," says Thomas. "Idea generation is distilled though general review. We then move to a more formal process considering whether there is a consumer need or want, whether the product is unique, rather than a me-too.

We proceed to the concept stage with a prototype – tasting, crunching -- then to consumers. If it comes back with good scores, we go with it. Hundreds of ideas are explored for each chip flavor as it gets tweaked."

"What's beautiful is how the manufacturing and marketing teams work together and interact," says Herr. "Sometimes we come up with something really new and sometimes we finesse existing products. Much of our success is due to our supporting partners -- our suppliers who help us with seasonings and raw materials."

Thomas stresses the company's culture of inclusion. "Everyone is approachable and needs to show up – we want the whole person involved and striving to do his best," he says. "As our founder told me, and I never forgot: ‘You can get a lot accomplished if you don't care who gets the credit.' "