Lancaster and Chick-fil-A lock up a winning formula
WESTERVILLE, OH — For Lancaster Colony Corp., sauce and dressing licensing initiatives have proven to be a successful formula in recent years. The company’s current alliance with Chick-fil-A has the potential to advance Lancaster.
Chick-fil-AIn Lancaster’s Retail division, sauces alone contributed around 8 percentage points to growth in the third quarter.
David A. Ciesinski, president and chief executive officer, stated during a May 4 conference call with analysts, “Our regional rollout of Chick-fil-A sauces into the retail channel continued as planned during the quarter as we further expanded distribution into the Southeastern and South Central United States, adding 11 more states from Texas to the Mid-Atlantic.”
When asked what additional revenue increase the Chick-fil-A sauces’ transition from regional to nationwide distribution may entail for the forthcoming fourth quarter, Mr. Ciesinski replied that a lot would depend on when the product is put on the shelf.
He clarified, “so it’s a little bit hard to estimate.” What we can tell you is that, according to IRI data, Chick-fil-A sauce likely generated $15 million in net sales during the most recent quarter. Upon closer examination, that equates to ten states and a quarter, and it will continue to spread over the other states. Thus, estimating the time it will take for it to appear on those shelves is the most difficult component of this undertaking. Thus, we find it a little challenging to accomplish that.
However, Mr. Ciesinski did state that Lancaster anticipates “continuous growth and robust growth” for the Chick-fil-A sauce line.
“It’s challenging to try to call it closer than that,” he remarked. “At this point, we anticipate that stores with a national presence, such as Walmart and Kroger, will become extremely proficient at cutting it into the shelf. It simply takes a little bit longer with some of the smaller businesses, according to what we’ve discovered in the markets where we’ve tested it thus far. Let’s just say that it will have an impact during the quarter and that we are pretty happy with how it is working.
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The net income of Lancaster Colony for the three months ending March 31 was $28.9 million, or $1.05 per share on the common stock. This represents a 29% increase from the $22.43 million, or 82¢ per share, in the same period the previous year. Sales netincreased 11% from $321.36 million to $357.25 million.
Net income increased 3.8% to $110.61 million, or $4.02 per share, for the nine months ended March 31 from $106.6 million, or $3.88 per share, during the same period the previous year. From $1.01 billion to $1.08 billion, net sales increased 6.7%.
The company’s Retail division saw a 21% increase in operating income to $41.18 million in the third quarter, while sales grew 17% to $198.36 million.
“We made progress in our efforts to draw in and keep new consumers for our core brands, and our licensing program is still expanding,” Mr. Ciesinski stated. Buffalo Wild Wings sauces, Olive Garden dressings, and Chick-fil-A sauces drove the growth. During the third quarter of our fiscal year, the retail division experienced growth of over 13 percentage points thanks to these products, which we sell under exclusive license agreements.
According to data from Chicago-based market research firm Information Resources, Inc., Lancaster was able to expand market share and boost sales for its own brands in a number of important retail categories during the quarter.
According to Mr. Ciesinski, “Marzetti refrigerated salad dressings saw 9% growth in sales and gained 40 basis points of market share.” “The market share of New York Bakery’s frozen garlic bread increased by 10.7% and 290 basis points.” The market share of Sister Schubert’s frozen dinner rolls grew by 10 basis points and climbed by 7.6%. These outcomes show how well our digital marketing initiatives, which we implemented to draw in and keep new people, are working.
In the meantime, operational income increased by 65% to $21.09 million from $12.77 million in the company’s foodservice business. Sales reached $158.89 million, up 4.6%.
“National account QSR and pizza chain sales continued to be a source of strength in our Foodservice segment, accounting for over 60% of our total Foodservice sales in the third quarter,” Mr. Ciesinski stated. “Our personal observations and the NPD CREST data indicate that the economic stimulus measures and the rising immunization rate are fueling a significantly increased demand for restaurants. Positively, several of the casual eating concepts in our mix of national account customers have experienced excellent growth as a result.
According to Thomas K. Pigott, vice president, assistant secretary, and chief financial officer, Lancaster anticipates spending around $110 million on capital projects in the fiscal year that ends on June 30. The budget includes expenditures for the company’s Horse Cave, Kentucky, plant expansion project, which, according to Mr. Pigott, will enable Lancaster Colony to satisfy the increased demand for dressing and sauce products. According to him, the Horse Cave project will likely cost a total of $130 million, of which $30 million is expected to be spent this fiscal year.
According to Mr. Ciesinski, Lancaster also started work on a second expansion project for one of its Columbus, Ohio, sites. The extension, which is expected to be completed by the middle of fiscal 2022, would give Lancaster three additional packaging lines to meet the company’s Foodservice segment’s increasing demand for dressings and sauces.