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Blue Bell is Taking the Slow Road
January 11, 2016

Paul Kruse’s father had warned him about the perils of family-run businesses, but he couldn’t escape his place as the obvious heir of a dawning ice cream empire.

After ascending to the corner office in 2004, Kruse delivered Blue Bell Creameries to its greatest height, becoming the No. 1 U.S. brand.

This year, it took barely two months to undo everything.

Ironically, Blue Bell’s food-poisoning crisis could give it a one-up on competitors, because it already has been forced to make expensive changes to equipment and safety protocols that other ice cream makers soon will have to emulate under new federal regulations. It took most of the year to upgrade while other brands gobbled up market share.

Blue Bell, for most of its history, moved at a measured pace.

That strategy won ardent followers as Blue Bell went into rural markets where competitors wouldn’t or couldn’t reach. With Kruse still in the driver’s seat, the company’s future may hinge on his ability to return to a course charted by his forebears.

Listeria was unknown to science when his grandfather took over the business 96 years ago.

In those days, E.F. Kruse and his employees churned out a few gallons of ice cream a day in wooden tubs, blissfully unaware of the microscopic, pill-shaped bacteria, its affinity for cold, wet places, its penchant for ravaging susceptible immune systems. Foregoing a school superintendent’s job to save the struggling Brenham creamery, he didn’t pay himself for those first six months, according to family lore.

Mindful of his own financial struggle and the misfortunes of others, he routinely warned his sons, Ed and Howard, about the tendency for family outfits to start poor, grow steadily and plunge fast in successive generations.

“Shirt sleeves to shirt sleeves,” it’s called in America. “Stars to stables,” in Italy.

Ed Kruse passed on his own version of the mantra, repeatedly telling his sons and daughters to “get your own business.” They listened.

After he earned a law degree at Baylor University and opened his own firm in Brenham, Paul Kruse three times rejected his father’s entreaties to come on as general counsel.

But his father and uncle had, consciously or not, groomed him to take over. There was a standing expectation to pitch in when you could, Paul Kruse recounted in a 2004 column for the Baylor Business Review. At age 8, he had to go door to door asking neighbors for old newspapers to help fulfill the packing requirements for a military contract with Fort Hood.

At 18, he had a paying job putting sticks into frozen novelties and packing half gallons into cardboard sleeves.

Kruse worked in sales, made store deliveries, hauled ice cream cabinets and garnered two sets of stitches before setting off for Texas A&M University and an accounting degree.

When he capitulated to his father in 1986, Jack in the Box hadn’t killed any kids with undercooked hamburgers. A national database for tracking food poisoning outbreaks by DNA was still 10 years away. Listeria had only recently been confirmed as a foodborne pathogen, in a batch of Canadian coleslaw tainted by sheep manure in 1981. It was something you might get from raw food. No one was thinking about listeria in a frozen product made with pasteurized milk.

Those were halcyon days, the beginning of Blue Bell’s modern era, when Ed and Howard Kruse charted the course for what, in hindsight, seems like a kind of corporate manifest destiny. The American South was theirs to be had.

Other brands headed straight for the big markets, Steven Young, former director of research and development for Dreyer’s Grand Ice Cream, told the Houston Chronicle (http://bit.ly/1Z4sHaQ). That company expanded from the West Coast in the 1980s by acquiring other producers in the Midwest and East, ignoring much of rural America.

Blue Bell grew into contiguous markets and didn’t even venture beyond Texas until 1989.

“They go through the hinterland, they pick up this wonderful loyalty, and people get married to it,” Young said. “They’ve got to have it.”

Not buying its way across America had a second advantage: Blue Bell could closely guard production and distribution, using its own factories, trucks, procedures and personnel. It could keep sourcing most of its milk from the freshest supplies, farms within a few hundred miles of Brenham. Then, when the product entered a new market, it still had the creamy, homespun quality conveyed by the groundbreaking ad campaigns that depicted a little country churn — even as the original plant mechanized and expanded, sugar yielded to high fructose corn syrup, and artificial flavors joined the mix.

Being purposefully slow was thus a matter of pride.

“If I wanted to go into California tomorrow,” Ed Kruse told the Chronicle in 1994, “I could go into California. But that’s not the plan.” His father used to say, “No one ever got lost on a straight road.”

As general counsel, Paul Kruse continued assuming new roles, including a stint reading and responding to customer letters. Before he moved to the top job, a steady eastward creep had turned into rocket growth. It still looked slow on paper — opening just a few distribution centers a year — but Blue Bell was now at the forefront of the U.S. ice cream industry, topping several major brands in sales and closing in on labels made by Nestle and Unilever, both multinational conglomerates with sales in 50 states.

It sped up even more under Paul Kruse. From 2006 to 2014, Blue Bell’s annual sales grew by 70 percent, versus just 8 percent for the entire U.S. industry, according to figures from the market intelligence firm Euromonitor. It rose from fifth to third in U.S. market share. Relative to its own past, it abandoned any notion that slow was better, roughly doubling the geographical reach it had attained in the previous century. In 2014, for the first time, Blue Bell stole the No. 1 spot in brand sales from Dreyer’s, the longtime U.S. favorite.

Before the listeria crisis struck in March, it sold more than $333 million, according to Euromonitor figures updated in August. As a privately held company, Blue Bell doesn’t publicly disclose sales. But by that reckoning, it had, in one quarter, sold more than half of what it did in all of 2010 — and peak summer sales hadn’t even set in yet.

All that production came with a price. Brenham plant workers said sanitation was hurried. Hot water ran low. And federal records showed that problems reached to plants in Oklahoma and Alabama, negating the possibility that the listeria outbreak was a failure of one supplier, one machine or one employee. Somewhere amid all that growth, reality couldn’t keep up with the clean country image. Worse, it hadn’t been keeping up for years. Epidemiologists this year determined that illnesses from as early as 2010 were caused by Blue Bell — retroactive medical sleuthing made possible by the DNA database.

Production workers said they didn’t see Paul Kruse as often as they had his uncle Howard, who was known to stop and help clean up messes, chat with lower-rung employees and keep tabs on fine details. Howard retired in 2004, Ed in 1993.

Through a spokesman, Paul Kruse and other top Blue Bell officials declined interview requests. But if he missed the failures happening under his watch, it wasn’t because Kruse was indifferent to them, associates said.

Jerry Strawser, former dean of A&M’s Mays Business School, who watched Kruse mentor his students, said the way the company responded after its April shutdown illustrates that point.

“It would have been easy to try to race back into business,” he said. “He knew he could take a shortcut, save a month or two here or there. But his goal and thought process was that as painful as this was; they can’t get back into stores until they make sure nothing like this would ever happen again.”

Some of Kruse’s most difficult moments this year came in a somber meeting in May with Brenham employees. Some of them were hopeful they might be returning to work. Instead, they were given paper slips of one of three colors. They filed into three corresponding rooms to learn their fates from Kruse. Companywide, 1,450 of 3,900 employees lost jobs.

Years earlier, after he took charge, Kruse had written about his responsibility to them.

“The only time I really think about being the ‘big boss’ is when it occurs to me that (thousands) of employees and their families are dependent on how the company performs,” he wrote for the Baylor publication. “That knowledge can be a bit sobering. And really, they are why I come to work each morning. Employees are the key to what we do at Blue Bell and the primary reason for our success.”

Had Blue Bell folded, it would have joined the majority of third-generation businesses, only a small percentage of which survive into the fourth, according to various consulting firms.

Unlike public companies, which send CEOs packing after six years on average, family bosses are entrenched, raising a host of challenges, said Andrew Hier, senior partner of the Cambridge Family Enterprise Group. They may have more difficulty coping with shifts in technology over time. Decision-making becomes more complicated in the so-called “cousin generation,” with more personalities at the table. Though privately held, Blue Bell now has hundreds of shareholders. Kruse’s cousin, Greg Bridges, is the vice president of operations.

“Was there a demand to take profit out instead of reinvesting it for good systems?” Hier asks. “We don’t know, but it tends to be one of the issues that arises in the cousin generation.”

Former executive vice president John Barnhill, who led the enormously risky push into the Houston market in 1960, told the Chronicle in 1996 that the company was constantly facing the challenge of indoctrinating new personnel with the Blue Bell story.

“There are some that would just as soon we be the most modern ice cream company and perhaps forego our past,” he said. “Our view is that we were not always where we are today, and truly we started as a little creamery and we kind of cherish our heritage, and we also don’t take it for granted.”

After 10 illnesses and three deaths linked to Blue Bell, it now has been forced to modernize. It faces a task like Odwalla, the homegrown juice brand roiled by E.coli poisonings in 1996, and, more recently, Chipotle, the fast-food burrito chain plunged into crisis from at least four separate disease outbreaks in a span of months. Odwalla had to abandon its raw-is-better philosophy and start pasteurizing its juices as it revolutionized its industry. Similarly, Chipotle is instituting pathogen testing standards unlike any others in fast food.

And so the question now for Paul Kruse and Blue Bell — for its shareholders and Sid Bass, the Fort Worth billionaire who this summer bailed out the South’s favorite ice cream to the tune of $125 million — is whether its bucolic values will remain part of its future as it now produces ice cream under the most sophisticated hazard controls in the industry. There is no obvious successor for Kruse, 61. Odwalla ultimately sold out to Coca-Cola.

Blue Bell recently announced an unexpected additional phase of its gradual return to market, which has reached most of Texas, Louisiana, Oklahoma, Arkansas and parts beyond. But the ramp-up in production says nothing about sales.

The company is muscling to recover precious, finite freezer space that had been subsumed by store brands. That battle will continue into the spring, when Blue Bell may fall to a disadvantage as brands engage in seasonal jockeying by releasing new flavors, said Young, the former Dreyer’s official. The Blue Bell freezer case used to be a rainbow; now, only a few varieties line the shelves.

But the industry is talking about Blue Bell with a newfound respect, said Young, who puts on technical workshops for ice cream makers across the country. Quality assurance reps from other companies look at Blue Bell, imagine the same crisis happening to them, and question whether they would have survived, Young said.

The pressure is mounting for all under newly tightened food safety laws. Indeed, Blue Bell and Chipotle may have motivated Congress, which has nearly matched the Obama administration’s funding request for the Food Safety Modernization Act, the first wholesale reform of U.S. food policy in decades. Other ice cream manufacturers “know they’ve got to do something,” Young said. “Some of them don’t have the foggiest idea what to do.”

Blue Bell already has made the investments that its competitors may have to make in the next year. With that in place, it can turn its attention to scrabbling back, like the first-generation Kruse who saved it from bankruptcy a century gone.

There’s a reward for the kind of patience and persistence the company showed for so many decades before it went headlong into crisis, Young said.

“Historically, they’ve gone little town, to little town, to little town,” he said, “and there’s a lot of America left to be had.”

Source – Dairy Today



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