Setting up shop in the United States provided better control of costs, currency fluctuations and customer confidence.
Skjodt-Barrett Foods, the Ontario-based company that recently brought pouched baby foods to North America, has experienced triple-digit growth over the last few years. If their newborn baby “consumers” grew at the same rate, they would be four metres tall by their third birthday.
Interestingly, Skjodt-Barrett is no young startup. For nearly three decades, the thriving company has co-manufactured food and packaged products with some of North America’s most famous brand names in the food and bakery industries.
Skjodt-Barrett provides new development and manufacturing expertise in jams, fruit fillings, sauces and marinades, and icings and glazes. If you’ve ever had a danish with a packet of icing to squeeze, then you’ve probably enjoyed a Skjodt-Barrett product yourself.
“We can’t tell you who our customers are for reasons of confidentiality, but you would recognize their names,” says Dan Skjodt (pronounced “Scott”), president and CEO of Skjodt-Barrett. “As part of their global supply chains, customers rely on us to help them control costs, improve efficiencies and launch new products more rapidly.”
New idea catapults growth
Innovation is a cornerstone of his company, so when an employee came to Skjodt with a fresh idea – to package baby food in pouches that could be squeezed directly into the mouth – he paid attention.
While the product format was already popular in Europe, it was still in its infancy in North America. Seizing the opportunity, Skjodt purchased the necessary equipment.
Although pouch packaging sells at a premium price, it solves a number of hassles for today’s busy families. With no spoon or bowl required, food in the no-fuss, no-muss pouch can be eaten on the go. Pouches offer toddlers the autonomy of feeding themselves, while older children and their parents will appreciate a recent line extension that makes pouches of fruit and yogurt – for snacks and lunchboxes.
The pouch idea quickly caught on. In three short years, Skjodt-Barrett grew from 60 employees to more than 500, and is the largest producer of products in spouted pouches in North America. Production capacity now surpasses 400 million units annually.
As more and more of Skjodt-Barrett’s customers began requesting their own lines of pouches, Skjodt quickly realized that the company needed to expand its facilities to meet skyrocketing demand.
“Location was key – simply enlarging our Mississauga headquarters wouldn’t satisfy our customers’ needs,” Skjodt explains. “We needed a facility where the majority of our customers are located, and that meant the United States.”
Making a direct investment in the U.S. provided three more major benefits. First was price: Skjodt estimates that with the U.S. real estate slump, the facilities they purchased in Lebanon, Indiana cost about one-third of a similar operation in Canada.
Second, the new location gave customers more trust in the company. “The first year we offered pouched baby food, it was new and customers were willing to deal with border issues,” says Skjodt.
“But ideally, large brand owners want their suppliers to be in the same jurisdiction. You can never predict when your shipment will get delayed at customs. If we wanted to continue to grow, we needed to be south of the border so our customers could feel more confident their deliveries would arrive without unexpected delays.”
As well, if something happens at one facility, there is another to draw on.
Third, says Skjodt, being located in the same country as their customers gives it more control over fluctuating currency costs, tariffs and taxes. “When you’re buying supplies and selling product in the same country, your costs become more predictable.”
The U.S. investment also reaped benefits for Skjodt-Barrett’s Canadian facility. “The growth gave our 28-year-old company a renewed entrepreneurial spirit,” Skjodt notes.
“We’ve not only had to beef up our staff in Canada to support our Indiana plant, but we’re expanding our Mississauga facility as well, to house our growing corporate, research and development, and finance teams. These new Canadian jobs and facility would not have happened without the U.S. investment.”
Solving the financing squeeze
Once Skjodt-Barrett settled on the Indiana plant, however, it had to find the financing to make it happen. As the company already had a longstanding relationship with RBC, it started there.
“RBC wasn’t comfortable taking on the $25 million in financing we required, especially with assets that consisted of a future facility in a foreign country,” says Skjodt, “so they recommended we approach EDC.”
Robert Sanders, senior account manager for EDC, worked with EDC’s finance team to help Skjodt-Barrett’s foreign facility become a reality. “We worked out a deal in which we would lend Skjodt-Barrett $8 million to buy the equipment to get the new facility up and running, and this risk-sharing gave RBC the assurance it needed to provide the rest.”
Later, as growth jumped from $22 million to over $100 million in three years, EDC also helped Skjodt-Barrett double its RBC line of credit by guaranteeing 50 per cent of the new line.
Towards new markets
While Skjodt-Barrett is currently enjoying excellent growth by reaching for the “low-hanging fruit” of the U.S., it is also slowly venturing into other markets, such as South America and Mexico, and estimates these will account for four per cent of sales by the end of 2014.
“By helping to finance our foreign investment, EDC was the piece of the puzzle we needed to grow,” says Skjodt. “It isn’t just about getting us started, but being there for the long term. We look forward to their continued participation and support.”
Making a Successful U.S. Investment
- Exporting is a great way to grow your business, but once volumes justify it, a foreign facility can lead to even more growth at your Canadian headquarters.
- Many U.S. locations are vying for the jobs and economic boost your foreign facility can bring to their communities. Once you have a short list, contact the local chambers of commerce or state officials and ask to see presentations on why your company should settle there.
- View your investment as a long-term commitment and your new employees as a part of your global team. Your facility will require regular visits from your key staff in Canada.