CEO: We had to change 'paranoid' culture at Contessa
A little more than a year into his tenure as CEO of formerly bankrupt Contessa, Don Binotto has instituted a new company culture, restored manufacturing and has his team developing new products. And the company is now making money.
Don Binotto is a black and white guy. But when he took over as CEO of US-based Contessa Premium Foods in July 2011, all he saw was red ink dripping off its balance sheet.
Contessa was under fresh new ownership at the time. Private equity investors Sun Capital Partnership had just rescued the long-time California shrimp company from bankruptcy after Contessa had amassed between $50 million (€39 million) and $100 million (€78.5 million) in debt.
There is one undeniable truth about buying a bankrupt company, said Binotto: “The day after you buy a bankrupt company, it’s real simple, it’s still bankrupt. We knew it was in bad shape, but we did not have a good grasp on the downward slope that actually sales were on.”
The first 60 to 90 days, Binotto and his team spent determining just what drove Contessa into bankruptcy. “Culture-wise, what did we have to switch; what were the spending habits like?”
Binotto channeled his black-and-white background as an accountant to put Contessa’s finances in order, which meant a significant haircut for a company that had a reputation for extravagance.
The firm’s palatial offices overlooking the San Pedro harbor were closed in early 2012 and the bulk of operations moved about 30 minutes north to the company’s world-renowned manufacturing facility in Commerce, California, in east Los Angeles. “We saved ourselves about $600,000 (€471,000),” Binotto said.
The workforce was trimmed from roughly 90 employees to 53. “We had to make very difficult decisions and we had to let a lot of people go, not of their own doing. It’s sad but that’s what we had to do,” said Binotto.
The cuts went deeper. Everyone flies coach now, which always wasn’t the case. Extravagant booths at trade shows such as the Boston seafood show were eliminated, which alone saved between $400,000 (€314,000) to $500,000 (€393,000).
“It was a culture that, for whatever reason, thought that was the norm of doing business. And you have to change that culture,” he said. The company’s sales teams still attend seafood trade events but now they meet customers privately.
Transparency was injected into the company culture – regular management and employee meetings, etc. “The culture shifted from being perhaps -- I’m trying not to denigrate the [former] culture; it was what it was -- a little more casual to more financially oriented.”
Today, Contessa is on the right path, said Binotto, thanks in large measure to a change from a culture of secrecy to one of transparency.
“From our managers down, we have to have an open-door, open communication policy, otherwise you cannot fix a business. When we walked into this business, everything was top secret by every department. We opened communication broadly. We broke those barriers immediately. It was a silo-oriented organization versus an open-communication organization,” he said.
“That was the biggest cultural change – and it wasn’t because you had bad people, I’ll say it again – it was primarily because the culture itself was paranoid about what other people were doing. And that can’t work.”
This culture of silence contributed to Contessa’s bankruptcy, said Binotto, but it wasn’t the only factor.
“I do believe they did not fiscally have a good understanding of their cash outflow, as well as they should have. I ran blind here for three or four months before we got systems in place to try to understand what we were actually spending money on,” he said.
“You got to remember they had corporate aircraft. They had the most elaborate offices – I worked for Heinz and De Monte and I never saw offices like [Contessa] had. They had an extravagant trade show [presence]. They spent a lot of money, and maybe that was part of building up the mantra of who we are, but the business couldn’t sustain these things.”
Fast forward 16 months and the company “now makes money,” Binotto said. “We are profitable. I do not want to overestimate it. By no means is our business exploding, but the difference between yesterday and today is there is black on the bottom line versus red, and we are managing our cash.” The company remains about a $100 million business, he said.
Foodservice –- frozen bagged shrimp -- represents the largest portion of Contessa’s business, accounting for 50 percent of sales. Co-manufacturing and private-label production each contribute 20 percent, and the company’s branded retail meals account for the final 10 percent.
Not only did Binotto overhaul the company’s spending habits and its culture, he also analyzed his customers and made some decisions about which ones he wanted to keep and which ones he could no longer afford to keep. “There is good business to have and there is bad business to have,” he said.
The customer base was categorized into three groups based on their contribution to Contessa’s profit: positive, marginal and unprofitable. “Those marginal ones and unprofitable ones we pushed prices up on immediately, sometimes double digits, 20 to 30 percent in some cases. If the customer chose to walk away, they chose to walk away, but we’re not in the business to lose money.”
The biggest hit, though, came on the company’s manufacturing side. Forty percent of Contessa’s business is in co-manufacturing and packing private-label product. And those customers, spooked by news of Contessa’s bankruptcy, sought other manufacturers for their product.
“We had customers, which I don’t blame whatsoever, that literally went out and found other manufacturers to make the product in the event we went bankrupt. And we lost some of those customers. That’s the piece that I say, frankly, I missed,” Binotto said.
“It had to do with other companies’ self preservation. They had to go out, they had to find other companies to manufacture this product because they had to have another alternative. Their business was going on.”
In 2007, Contessa unveiled its new $35 million (€24.4 million) plant, dubbed the "Green Cuisine" plant. At the time, the facility was the world's first and largest environmentally responsible, Leadership in Energy and Environmental Design (LEED)-certified frozen food manufacturing plant, the company said.
Today it stands as a testament to the best in modern manufacturing. “We walked into this manufacturing facility, it is second to none. Of all the companies I have ever worked for, there is not a showcase like this manufacturing facility.”
Binotto, like others, believes the building of the plant was the tipping point to Contessa’s financial death spiral.
Today, the plant is operating at between 50 percent and 60 percent capacity on one shift, a significant boost from the 15 percent at which the plant was operating when Binotto and his team took over more than a year ago.
“When we walked into this manufacturing facility, the company was voluntarily withdrawing from the branded (retail meals) business, and I have no idea to this day why they did that. Distribution was being lost every single month,” Binotto said.
“They had one price, one program” for the retailers to whom they sold Contessa brand products. The program was not specific to each retailer’s needs, he said, “and we did fix it.”
Today, the company has “wonderful” distribution of its products in Walmart Supercenters. Add US supermarket chains Price Chopper, Wegmans, Safeway, Harris Teeter, Wakefern, Giant Eagle and HEB to the list of Contessa’s retail customers.
“My people tell me we have about 60 percent distribution nationally; we were as low as 5 percent distribution when we took it over," Binotto said.
The company is using demos and store-specific programs to continue to rebuild the Contessa brand. “What we find with demos is the repeat is off the charts. You got to get it into the hands of the consumers,” said Binotto.
With the company now largely stable, Binotto said future plans are focused on growth through co-manufacturing, new products and offering a high level of service and quality to its foodservice customers.
It’s foodservice division supplies shrimp to some of the most recognized restaurants in the United States – including Morton’s steak house and Las Vegas casinos. “Foodservice is an important leg of this business and always will be.”
With his background in tuna –- he served as CEO of tuna canning giant StarKist from 2008 to 2010 –- Binotto promises he will “take canned tuna into the foodservice business.”
For Binotto personally, there will thankfully be a bit less travel from Pittsburgh, Pennsylvania, where he lives and works from a satellite office that handles accounting, customer service and other back office company functions, to California.
“The first five months, I was here every single week until we made some management changes, and the leadership we have here, frankly, allows me to sleep at night right now. I am very proud of this group we have assembled. It is a very, very solid management team, and they believe in the same culture I believe in.”
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