Business

GETTING OUT OF THE JAM

A fourth-generation family enterprise goes on the block

D’ARCY JENISH June 11 2001
Business

GETTING OUT OF THE JAM

A fourth-generation family enterprise goes on the block

D’ARCY JENISH June 11 2001

GETTING OUT OF THE JAM

Business

A fourth-generation family enterprise goes on the block

D’ARCY JENISH

Each weekday morning, on his way to the office, Llewellyn Smith comes face-to-face with the past, The 48-year-old chairman and chief executive of E. D. Smith & Sons Ltd. is a member of the fourth generation of his family to run the Winona, Ont.-based food manufacturer, best known for its jams. He is reminded of this daily by the large, imposing portraits that hang in the reception area of the company’s headquarters. On one wall, there is a dark, som-

bre image of his great-grandfather Ernest Disraeli Smith, a Niagara Peninsula fruit grower who founded the company in 1882. Hanging opposite are warmer, softer paintings of his grandfather Armand and his late father, also named Llewellyn. Smith, groomed from boyhood to take over, became president in 1982 after an eight-year apprenticeship. “On a couple of occasions early in my life, I approached

my father about working for other companies, just to get experience,” Smith recalls. “He wasn’t too enthused.” For more than a century, the Smith patriarchs looked no further than family for their successors. But those days are over. E. D. Smith & Sons is for sale, and by the end of the summer, the firm should have a new owner, possibly Canadian, but more likely European or American. The tall, trim, athleticlooking Smith says he thought long and hard about selling, but in the end had no choice. For one thing, his children, aged 12,15 and 22, have shown no interest in the business. Equally important, giant multinationals, created by a wave of mergers over the past decade, now dominate the food-processing industry, We may be a big player in this community,” says Smith. “But when you look at our competitors, we really are a very small tadpole in a major ocean.”

In all likelihood, E. D. Smith & Sons will be swallowed by one of the giants. But its products—and there are more than 500 of them, including pie fillings, ketchup, salsa and many barbecue sauces—should remain a fixture on supermarket shelves across the country: any purchaser, notes Smith, will be paying a premium for the family name. Moreover, Smith has launched a new venture that will maintain his family’s profile in the Niagara Peninsula for years to come. He has assembled 100 hectares of prime real estate near the E. D. Smith plant, less than two kilometres from a major expressway and within sight of the creeping suburban development that is devouring the peninsula’s rich farmland. Smith is converting the entire property into a pick-your-own farm specializing in apples, cherries, strawberries and pumpkins. “My legacy is to put it into fruit production,” says Smith. “Anybody could have sold it for housing. I see a beautiful orchard standing amid urban sprawl.”

That part of Smith’s vision would surely meet with the approval of the men in the portraits. After all, his great-grandfather Ernest D’Israeli was a fruit grower who sold his produce to retailers across the country. He also operated a nursery that supplied trees to growers in the peninsula and elsewhere. By the early 1900s, he and his fellow Niagara farmers couldn’t sell all their fruit and had to leave tons of it rotting in the fields. Troubled by the waste, not to mention falling prices caused by the glut, Ernest D’Israeli decided to start making jam. He brought an experienced British jam maker, A. M. Cocks, to Canada and in 1905 opened a small plant specifically for the new business.

From that modest start, E. D. Smith & Sons has become a leading Canadian food manufacturer with 380 employees and yearly sales of $140 million. Each generation has put its own stamp on the company, and faced its own challenges. Smith’s father was president for 25 years, from 1957 until 1982, and increased sales to $80 million annually from $8 million. He also expanded the company’s market from Ontario to the entire country. The younger Smith and his management team have broken into the U.S. market, which now accounts for 10 per cent of yearly sales, versus zero prior to 1988 and the advent of free trade. But they paid a heavy price for that expansion.

In 1992, the company leased a plant in Byhalia, Miss., largely to make President’s Choice products for one of its major Canadian customers, Loblaws supermarkets, which in turn hoped to sell the output under a Wal-Mart private label—Sam’s American Choice. Sales to the American retailing giant fell far below expectations, and to make matters worse, the Byhalia plant was plagued with operating problems. Smith says the workforce was less skilled and committed than its Canadian counterpart. Absenteeism and drug use were common problems, and equipment failures led to long stretches of downtime. “We lost onehalf the net worth of the company in the four years we were in the States,” he says. “We had some concerned bankers. You could definitely feel the pressure.”

By 1995, Smith had decided to close the Mississippi plant and cut his losses. But the company was able to retain some of the

Demand has declined for longtime staples such as jam and pie fillings

U.S. business, and began supplying American customers from its Canadian base—largely due to a fundamental restructuring that took place after free trade came into effect. Traditionally, E. D. Smith had produced much of its jams and tomato-based goods from fresh fruit purchased locally. Manufacturing of those products took place between July and October, and the inventory was shipped during the rest of the year. After 1988, the company began using processed fruit purchased globally at the best possible price. The result was a more efficient use of the labour force, increased productivity and lower costs. “We were able to defend ourselves against American competitors, and go on the offence as well,” Smith says. “Today, the U.S. is the fastest-growing segment of our market.”

The company recouped the losses incurred in Byhalia, but still faced an uncertain future due to rapid change in the food industry. In order to keep pace with consumers, manufacturers must continually develop new products. E. D. Smith & Sons has seen demand decline for longtime staples such as jam and pie fillings because two-income families rarely have time for breakfast at home, while fewer and fewer moms—let alone dads—are baking. But developing products for consumers, who are pressed for time and demand convenience, is very risky. “If a small or medium-sized company fails with a new product launch, it’s a huge setback,” says Smith. “For a multinational, it may be one small writeoff on page 49 of the annual report.”

Among the employees, some of whom have family connections to the company that are as deep as the Smiths’, news of the impending sale came as a shock. Lynn Hardyman, 53, has spent 35 years in the purchasing department, and her husband, Brian, drives a truck for the company. His father, grandfather and greatgrandfather were all longtime employees, and the couple’s two daughters have held summer jobs—making five generations who have worked for E. D. Smith. Some staff, like Maynard Gilbey, 59, a maintenance buyer, even grew up in company-owned homes, which were rented to workers. “This place was my playground,” says Gilbey, whose father and grandfather both had careers at E. D. Smith. “I hate to see it sold, but I’d feel a lot worse if it went the other way—out of business.”