CHICAGO - Robert Morrison is facing an urgent to-do list as he steps into his new post as chairman and chief executive of Quaker Oats Co.
Item 1: Cut costs even further at the Chicago-based maker of cereals and Gatorade.
Item 2: Make tough strategic decisions about which brands and businesses to shed.
Item 3: Find ways to grow through acquisitions and new products.
If he succeeds, he'll restore credibility with Wall Street that was lost with his predecessor William Smithburg's costly Snapple debacle. If not, the $5.19 billion company - a small player in an industry dominated by giants - will be more vulnerable to a takeover.
"He needs to have a 'Chainsaw Al' attitude about it," said Sanford C. Bernstein & Co. food analyst Steven Galbraith in New York, referring to Sunbeam Corp.'s iron-fisted top executive, Albert Dunlap. "He needs to really stabilize the business and the employment levels. Then, Quaker can get back to blocking and tackling."
Mr. Morrison, former chairman and chief executive of $16.18 billion Kraft Foods Inc., certainly has the credentials. The 55-year-old executive has spent his career in consumer products, including 14 years at Kraft, where he earned a reputation as a focused and decisive manager.
"I have a pragmatic approach to leadership and management," he said in an interview last month. "I've also been able to make some tough decisions when it seems enough is enough."
Still, it will be a tough slog for the former Marine. Quaker, maker of such products as Rice-A-Roni and Cap'n Crunch, already has cut jobs and trimmed operations, taking restructuring charges totaling $58.7 million for the first three quarters, excluding the $1.15 billion charge for the sale of Snapple.
Even so, Quaker still lags the productivity of such larger competitors as Kellogg Co. in Battle Creek, Mich., and Golden Valley, Minn.-based General Mills Inc., which generate an average of $400,000 in sales per employee. At Quaker, the average is $300,000, according to Mr. Galbraith.
A Quaker spokesman said the company does not track sales per employee, but he adds the numbers can be skewed by factors such as higher staffing for Gatorade's aggressive sports marketing programs and for manufacturing overseas, where labor costs are lower.
Mr. Morrison also needs to further clean up Quaker's pantry by cutting divisions and brands that aren't pulling their weight or don't fit with the company's focus on grains and Gatorade.
Review of rice cakes
Among businesses ripe for jettisoning, analysts say, are two based in Brazil, Adria pasta and Coquiero fish products; an international coffee food-service division that includes Continental Coffee and Maryland Club; and a division that supplies Oak Brook, Ill.-based McDonald's Corp.'s breakfast biscuits.
Ardmore Farms, a juice supplier to airlines, is another possibility, as are Petrofsky's and Arnie's Bagelicious bagel lines.
Rice cakes, too, are ripe for review. Although Quaker created the rice cakes category and commands an impressive two-thirds of the market, rice cake sales declined 13% in the third quarter, compared with a year earlier.
(The category was a disappointment in an otherwise strong quarter that exceeded analysts' expectations: Operating earnings for foods, excluding extraordinary items, were up 20% to $114.7 million, compared with the year-earlier quarter. Gatorade operating income, excluding one-time charges, rose 26% to $89.9 million.)
Dumping companies should be no problem for Mr. Morrison. At Kraft, he sold off some long-cherished but less-profitable brands, such as Breyer's Ice Cream, Lender's Bagels and Parkay margarine.
Mr. Morrison "has always been very good at clarity," said longtime friend and former Kraft colleague Joe Durrett, now chief executive of Broderbund Software Inc. in Novato, Calif. "Within a short time he will bring a real sense of definition, purpose and mission to Quaker."
Good thing. Quaker needs to be focused to tackle another pressing problem: how to get bigger to ensure its independence.
It won't be easy for Mr. Morrison to find niche companies to fit Quaker's grains and Gatorade divisions; attractive acquisition targets are limited.
Some possibilities include Minneapolis-based Malt-O-Meal Co., a close competitor to Quaker's bagged and hot cereals; Ralcorp Holdings Inc., the St. Louis-based maker of private-label cereals and Beech-Nut baby products; and Grist Mill, a small cereal and snack-bar company based in Lakeville, Minn. Another good fit for Quaker: Uncle Ben's Rice, a division of McLean, Va.-based Mars Inc.
Leery of beverages
As for beverage acquisitions, it's highly unlikely Quaker would wager such a bet so soon after the Snapple disaster. Mr. Morrison sees Gatorade - Quaker's crown jewel and chief earnings engine -as having the growth potential to stand alone: "There's still big opportunities for Gatorade everywhere."
Mr. Morrison said he will consider acquisitions but believes there is still plenty of room for growth in Quaker's brands.
"The formula is not terribly different from one company to another to another to another," he says. "The theme is to build brands, build brands, build brands."
Crain News Service
