DOWNERS GROVE, ILL. — In 2015, Hearthside Food Solutions entered the arena of functional bar production with the acquisition of VSI, Leerdham, The Netherlands. Today, this contract manufacturing juggernaut controls a total of 3.2 million square feet of production space in 24 facilities with about 2.4 billion lbs of capacity annually, producing more than 1.5 billion bars worldwide each year.
From baked to cold-formed, and from granola, breakfast and snack-style to sports, energy and meal-replacement bars, Hearthside has the R.&D. and commercialization capabilities to produce thousands of potential varieties and, in some facilities such as VSI, with no minimum order quantity (MOQ).
But co-manufacturing can be a tricky proposition, along the lines of a “frenemy” relationship: A co-manufacturer’s customers are also its competitors. To remain successful, the concept of value must be handled with care.
“We’re always pressured to reduce our cost, ultimately for the end consumer, but also for our customers,” said Dwayne Hughes, senior vice-president, supply chain. “If we don’t stay competitive, our customers could potentially take the business in-house or even decide to invest in their own facility. We have to keep our quality scores up, consumer complaints down and costs low.”
It’s a similar value proposition across the pond. “VSI has the same type of pressures we have, from food safety, quality and costs, so we are both looking for ways to manage them,” Mr. Hughes said.
VSI brings that unique value with its R.&D. and formula development capabilities, which had not been a primary focus for Hearthside, the expert in large-scale production and commercialization.
“We do the development for our customers,” said Gerard Janssens, president, VSI. “This is what drives our business; we are No. 1 in bar development in Europe.”
As the demand for bars — niche products specialized for specific nutritional needs — exploded throughout the European market, VSI’s expertise followed suit. The company created more than 200 new bars last year, taking its number of stock-keeping units (s.k.u.s) to more than 1,200. In a market that has seen double-digit growth over the past decade, VSI went from producing almost 15 million bars to more than 150 million annually since its first bar line started up in 2003.
Between the explosive market demand and new product development, VSI became a viable acquisition target for Hearthside when it was ready to enter the nutritional bar fray.
“When you look at energy and nutritional bars today, they’re so much better … they’re chewy and great-tasting and have multiple layers with chocolate, caramel and nuts,” said Rich Scalise, chairman and chief executive officer of Hearthside Food Solutions. “VSI was one of those driving factors; they played hard in texture, flavor and aroma. They’ve helped us think about these types of bars in a different way.”
VSI’s R.&D. capabilities allow Hearthside to reinvent product innovation that was practically unheard of for co-manufacturing in the U.S. bar market. But as consumers clamor for need-specific bars, it’s only a matter of time before Hearthside’s customers will help to develop more original, targeted products. VSI carved out a niche for a very specific market.
“The bars we were focusing on — nutritional and sports bars — were only for dedicated groups like dieters, athletes or body-builders,” Mr. Janssens said.
But today, dieting is no longer considered a punishment; it’s a lifestyle. And while consumers weren’t necessarily asking for a healthier snack bar, the fitness and sports communities were seeking functional products that had the texture and flavor of snack bars. Then mainstream consumers jumped on those functional products, and … boom. Market explosion.
“With the complexity of bars and speed to market, bringing innovation is what our customers are asking for now,” Mr. Hughes observed. “In 2010, they’d bring formulas to us. But today, they want us to bring formulas to them. They’re asking, ‘What can you do?’ VSI has enabled us to rethink bar innovation.”
Additionally, VSI has taught Hearthside how to deal with a new type of customer base.
“Historically, we were all size and scale,” Mr. Scalise said. “With VSI, we are learning about a whole new set of customers who aren’t always about that. By bringing this to the U.S., we’re thinking out our business in a new way, in how we can do things with customers who aren’t as big.”
On the flipside, the mind-blowing number of s.k.u.s being made at VSI means lower — if any — MOQs and smaller production lines on a more condensed footprint. In Leerdham, production runs can have as few as six or eight bars in a row, compared with lines that run anywhere from 28 to 36 across in the U.S. facilities. With expertise in scale, Hearthside brings its fast and flexible operations formula to VSI, which is used to short runs and frequent changeovers on three shifts five days a week.
In terms of the value proposition, the Hearthside-VSI partnership was an international marriage made in heaven.