Harry & David Gets Hungrier

“Once we divested ourselves of Jackson & Perkins, we turned our attention to finding businesses that would leverage our infrastructure and expertise.” That’s how Bill Williams, president/CEO of Harry & David, neatly sums up the Medford, Ore.-based food marketer’s array of sale and acquisition activity over the past 18 months. “And that naturally took us to food and gift food businesses.”

Indeed, it’s been a rapid transformation for this marketer and grower of fruit, cakes and other food gifts.

• April 2007: Sold its interest in the horticulture multichannel business, Jackson & Perkins.

• January 2008: Acquired Wolferman’s, a cataloger known for its English muffins and its other breakfast foods.

• August 2008: Acquired Cushman’s, a grower and cataloger of citrus fruit.

Uprooting a Fixture
The decision to divest itself of Jackson & Perkins proved difficult for Harry & David. The brand had been a fixture in the Harry & David family since its acquisition in 1966. Jackson & Perkins played a major role in counterbalancing the seasonality of the Harry & David business, where the Christmas holiday season accounts for about 80 percent of sales. February, March and April, typically slower months for Harry & David, were strong for Jackson & Perkins.

“The only drawback is we aggravated our seasonality a little bit,” Williams says upon evaluating his company’s recent acquisitions.

While Wolferman’s and Cushman’s likely will do little to ease the seasonality of the Harry & David operation, they do expand the customer base to which the company can market — in particular, consumers who’ve shown an inclination to purchase food through catalogs.

“These acquisitions give Harry & David the opportunity to leverage its platform among additional brands and market segments,” says Donn Rappaport, chairman/CEO of American List Counsel, whose firm has handled customer acquisition and data management on behalf of Harry & David for more than 25 years. “It gives the company the opportunity to speak to a larger database, model against a larger database and expand its offerings on a real knowledge-based platform to a wider market.”

In addition to the customer acquisition benefits Harry & David gained from the two acquisitions, it also stands to prosper from the expanded product assortment. The Wolferman’s purchase lets Harry & David leverage its existing bakery production facilities with the breakfast breads and pastries offered in the Wolferman’s catalog. With Cushman’s, Harry & David broadens its fruit selection, becoming a stronger player in the citrus fruit market.

It’s no secret that many catalog/multichannel companies have suffered from rising costs and the down economy. Harry & David is no exception. But the company positioned itself through shrewd planning and budgeting to capitalize when the Wolferman’s and Cushman’s purchase opportunities presented themselves by using funds from the Jackson & Perkins divestiture and a cash surplus built up over the years. Then Harry & David reinvested that money in acquisitions “to stem the tide of sales erosion,” Williams says.

“We’re not immune to the sales trends in the industry,” he points out. In fact, outside the gift season, Harry & David faces greater pressures during its slow periods than other catalog/multichannel merchants have to deal with, particularly apparel marketers.

12-Month Forecast
With more than 80 percent of the products offered in the direct (catalog/Internet) arm of its business grown (i.e., pears in the orchards) or baked in-house, Harry & David naturally has a keen interest in the weather. This manifests itself on two fronts: at its headquarters in Medford, Ore., where the fruit orchards are located, and nationally, for the distribution of its products. On-time delivery is particularly vital to Harry & David because the majority of its products are perishable food items.

As a result, Harry & David needs to factor unpredictable weather trends into catalog plans. For its fruit crops, Harry & David maintains a surplus to account for normal variations in the weather. It can then dispose of the surplus without an additional cost impact. But for extreme weather that wipes out an entire crop — such as the oranges in Florida or the cherries in Washington — and effectively drains the company’s backup supply, Harry & David is forced to substitute a fruit of equal or greater value, or source the fruit from the domestic fruit market at an added cost since Harry & David is buying on the spot without a contract.

“Weather’s always a factor, if it’s on the fruit side and it affects a crop, or if it’s on the delivery side and affects our ability to get the product to its recipient on schedule,” Williams says. “Every year we budget for some kind of weather impact, and sometimes the actual event exceeds our budget.”

Even when the fruit is harvested, packaged and ready to be shipped, Harry & David isn’t quite in the clear. Weather across the nation can affect the distribution of its perishable products. The worst time of the year generally is the winter months and Christmas, when snowstorms and blizzards across the Midwest and East Coast can wreak havoc on deliveries. Harry & David’s 100 percent customer satisfaction guarantee only adds more pressure to the mix. It costs money if that fruit is sitting on a truck getting riper, Williams notes.

From the Top
When it comes to Harry & David, many in the catalog/multichannel industry think of two things: the consistently high quality of the creative and other elements in the company’s catalog, and Williams, the company leader for the past 20 years. Williams is quick to share accolades for both with people throughout the company.

“There’s a very dedicated and talented team that’s assigned to making sure our presentation is as consistent with the quality of the product as possible,” he says regarding the creative.

Among the creative challenges Harry & David faces is creating a catalog that makes people want to order food through the mail. To help accommodate the specialized skills and needs of food stylists and food photographers, Harry & David built its own photography studio at its headquarters. The company occasionally contracts with freelance art directors and copywriters to provide fresh ideas or to work on special projects.

Keeping Current
To help keep the catalog current, Harry & David staff members review food and wine magazines for creative ideas, as well as attend food shows to get a feel for the latest trends in the industry.

As for his own prosperity, Williams downplays it. “It’s hard to talk about my achievements,” he says, “because they’re all dependent on other people.”

However, Williams cites several things he’s proud of in his career at Harry & David:

• The opening of a stores division, which has helped with the seasonality of the business and introduced the company to millions of potential direct marketing customers, he says.

• The growth of Harry & David’s e-commerce Web site, with more than 50 percent of company sales now coming via the Web.

• The building of the company’s infrastructure, from its facilities to equipment to IT capabilities.

“You go through all those steps and you ask, ‘What happened financially?’” Williams says. “On average, our profit rate has more than doubled, and our sales have grown five- or sixfold without acquisition.”

Williams isn’t alone in his belief that Harry & David has carved out a thorough niche for itself in the food catalog/multichannel market industry, particularly after its recent acquisitions. “Harry & David in some ways is a very traditional direct marketer,” says Rappaport of American List Counsel. “The [people running the company] have done a very good job of keeping their focus on the core principles and strategies that work in direct marketing. It’s not a company that jumps from new concept to new concept, but it’s aggressive in pursuing new ideas and developing new strategies. Regardless of the medium, the basic principles of merchandising seem to hold true from generation to generation. And Harry & David is very much committed to that. That’s a testament to the quality of their management.”