Schwan's Secret Recipe

Talking Pizza

Roughly $35 billion worth of pizzas are sold in the United States each year, and 87 percent of those sales are through restaurants, delivery, and food service. (Schwan’s is the largest manufacturer of pizzas to schools in the United States.) The remainder of the U.S. pizza market, about $4.2 billion, is the frozen category.

Marvin Schwan began his business in 1952 by delivering his family’s ice cream to rural neighbors in southwestern Minnesota. In 1970, after steadily adding to his list of delivery products, he decided to take a bigger leap in the frozen food market, placing an ad in the Wall Street Journal that read: “Wanted: Frozen Pizza Manufacturer.” Schwan believed he could expand his company’s existing business into supermarket delivery. He ended up buying a 12,000-square-foot plant in Salina, Kansas, which made a pizza brand called Tony’s. The facility—which has grown to 500,000 square feet, making it the largest pizza manufacturing plant in the world—became the basis of the Consumer Brands division.

Since that time, the company has made other acquisitions,  purchasing Pagoda, a line of frozen Asian-style noshes such as egg rolls and pot stickers (it was relaunched as Asian Sensations in 2004) and two frozen dessert brands—Edwards in 2001 and Mrs. Smith’s in 2003. 

But pizza is the hot stuff in the frozen market. It ranks third or maybe second (depending on the data you’re looking at) in U.S. frozen food sales behind entrées ($5.9 billion in 2006) and ice cream ($4.2 billion). Schwan’s Consumer Brands now owns, manufactures, and markets four pizza brands: Tony’s, Red Baron (which Schwan’s launched in 1976), Freschetta (1996), and Wolfgang Puck All Natural (2006).

Schwan’s biggest competitor in the pizza category is Illinois-based Kraft Foods, North America’s largest food and beverage company, whose brands are Tombstone, DiGiornio, Jack’s, and California Pizza Kitchen. According to Chicago-based market-research firm Information Resources, Schwan’s and Kraft hold roughly 60 percent of the U.S. frozen pizza market. The two companies’ products are roughly similar in the market spaces they occupy. Tony’s is Schwan’s “value brand” targeted at kids; Kraft’s comparable brand would be Jack’s. Red Baron is Schwan’s “family brand”; Tombstone is Kraft’s. At the higher end, Freschetta is Schwan’s restaurant-quality brand, while DiGiornio and California Pizza Kitchen occupy the same space for Kraft. (Schwan’s Wolfgang Puck All Natural has its own niche, of which more later.) Red Baron has annual sales of more than $500 million, making it the second-largest brand in the frozen pizza category, behind DiGiorno.

Schwan’s and Kraft “go head to head,” notes Alan Robinson, editor of Frozen Food Age magazine, who believes that the biggest difference between the two is the speed at which they move: Schwan’s has been outpacing Kraft in both market innovation and sales growth. Indeed, Robinson describes Kraft, a publicly held company (NYSE: KFT) that is being spun off from New York City–based tobacco giant Altria Group (formerly Philip Morris Companies), as “a slow-moving dinosaur.”

Healthier Conscious

For Schwan’s, innovation wasn’t an option—it was a necessity. “For 20 years, frozen pizza grew at rate levels in excess of some other food categories, but then about 18 months ago, it appeared sales had reached a plateau,” Jansen says. The reason for the stasis: Companies had basically stopped developing new products. Schwan’s itself was not immune to the pizza doldrums. In the quarter ending April 2006, when Flack took over Consumer Brands, the division’s net sales had slipped to about 10 percent below year-earlier numbers; for the preceding quarter, sales were off about 5 percent.

To heat up consumer interest in its frozen pizza lines, Flack and Jansen invested heavily in market research to understand why people eat pizza at home. They discovered three categories of consumer concern. Two were unsurprising: taste and convenience. The third was unexpected: health and wellness.

Pizza as health food? It may not be as odd as it sounds, at least if the pizza is described as “organic” or “all natural.” A June 2006 report from New York City–based AC Nielsen noted that the “natural frozen pizza” category had grown 11 percent over the past 12 months, becoming a $62 million business.