Question: What has Berner Foods done in the way of initiatives to address healthier products?

Answer: We began a series of healthy foods initiatives about four years ago. In league with one of our outside technology providers we began pursuing all-natural and organic formulations of existing product lines wherever sensible or possible. We believe that even within the scope of the store brands environment where we are most heavily involved that the next major evolution of products will be healthy, all-natural and organic products. Unlike many of the premium store brand products that retailers have introduced and that have met with minimal success, we feel healthy, all-natural and especially organic products will succeed. It is difficult to communicate the nuances of difference for the premium, better than the national brand products without major marketing dollars, a luxury that most store brands do not enjoy. On the other hand the sense we get from the marketing information that we have is that a solid 14% - 15% of consumers seek all-natural and organic products and relate easily to their higher price and value.

This is a natural (no pun intended) for both retailers and store brand manufacturers. As a segment all-natural and organic products represent a 14% - 15% category share, not dissimilar to store brands as a general segment. They are not strongly entrenched by national brands so the store brand can more easily compete. The primary draw is the issue of what is in the package (all-natural, organic) and not the confidence in the brand that is on the package. Last and definitely not least there is a great financial incentive for movement in this direction. Retailers will find fatter margins with less competition in these products and store brand manufacturers have the opportunity to as much as double their potential sales within a product category.

We also began an initiative more than ten years ago to produce a healthier class of cheeses. This initiative created a class of cheeses called naturally cultured filled milk cheese. These products are just now finding their way to market in a major way. They are produced through a proprietary technology that removes the cow’s milk butter fat and then replaces it in the milk with vegetable oil. That milk infused with vegetable oil is then converted to cheese in a standard cheese process and cured in much the same way that other natural chesses are cured. Unlike analog or substitute “cheez” this cheese has all the taste, texture and functionality of other similar natural cheeses, yet is cholesterol free, lactose free, is 70% saturated fat reduced and has 0 grams of carbohydrates.

Question: What areas have represented real challenges to your business in 2004?

Answer: In the area of real business challenges for us this year, there were several. The international concerns over “mad cow disease” coupled with a national herd size reduction sent cheese commodity prices soaring to heretofore unseen levels. Those historic high prices sorely tested the value equation among consumers with our products. Also, the FDA has mandated a labeling change regarding trans-fat acids that has stirred much activity in reformultions and label changes to bring our clients into compliance.

Question: What are the primary areas of business for Berner Foods?

Answer: We are heavily involved in cheese sauces. In our process foods division we do about 80% of the Cheez Whiz® emulations for store brand products in North America. We do about 85% of the store brand salsa con queso products and about 95% of the store brand aerosol cans of snack cheese. We also do assorted portion control cups from 1 ounce to 5 ounces in cheese, chocolate, and other products.

Berner also operates a natural cheese division that processes over a million pounds of milk a day into Swiss Cheese, Havarti Cheese and Naturally Cultured Filled Milk Cheese. Berner also operates what is one of the larger food grade soy solids production platforms in the country, capable of over a million pounds of soy solids per week that is sold in 16% concentrates and is later reconstituted into soymilks by other marketers. In a sister division, Illini Protein we process about twenty million pounds of bulk whey into concentrates to be used as ingredients in other products. Illini Protein also produces pure dairy calcium.

Question: What is Berner’s philosophy on growing the business? Is it focused on new products or on existing products?

Answer: We have a philosophy that says that the most effective and profitable new business is expanding sales of existing products. We have grown and average of 20% per year for the last five years. Much of that growth is the maturing and expanding of existing product groups. We have been nimble in identifying new classes of trade as they emerge, such as dollar stores, limited assortment stores and others. We have tended to jump in early as channels to consumers have shifted thus maintaining our volumes wherever the sales may have drifted to. The battle of maintaining and growing sales of existing items is key, but no company can grow and prosper without a robust and strong new products development program. We are constantly scouring the shelves of retailers to identify the next new store brand product candidate that would fall into our manufacturing core competencies. We have had some great successes and some major failures in the area of product development. I believe every management team should have the good humor to maintain a shelf or two of “duds” in the conference room to remind them just how much risk and failure are a large part of ultimate success.

Question: What does Berner Foods do to maintain a competitive edge?

Answer: Berner has striven to stay at the leading edge of technology and facilities. We feel we are at least one and sometimes two evolutions ahead of many of our competitors. This year we added 60,000 square feet of warehousing space and 12,000 square feet of new production space in our process foods plant. We have upgraded our natural cheese operation with a state-of-the-art brining system that expanded our capacity several fold. We seem to be in the constant process of reconfigurations, upgrading and squeezing out greater efficiencies wherever they can be found.

Question: How would you describe the company culture of Berner Foods?

Answer: Our culture is an interesting and sometimes eclectic one. We are a family owned company that has been in the same family for more than sixty years. Our ownership lives, eats and breathes our business. They are intensely involved. That family relationship permeates all the elements of our company. We are all family from the production floor to the executive committee. Because our ownership is so hands on our employees have no compunction about interaction with anyone at any level. We tend to be less hierarchal than most companies and for that reason our adaptation to embrace the Japanese management or lean systems management has fit us well. We are entrepreneurial as a culture. Risk is encouraged. People are not punished when reasonable failures occur attempting to do better. We are honest. We work hard. People tend to stay with us, many for more than forty years. Continuous improvement is the heartbeat of our company. We like each other. Most days are fun.

Question: What marketing tools does Berner employ?

 Answer: As a store brand manufacturer we are extremely limited in our marketing abilities. We serve markets rather than drive markets. Our sales team mission statement says it well, “To be the most effective producer of the products we produce and the best server of the markets we serve”. We have done a plethora of things to support the marketers we serve. We do shipper display programs, we do ready to display quarter pallet program and we do category analysis to give our clients market insights to sell more product. We also do a modicum of trade journal advertising to let the world know we are here.

Question: What were the highlights for Berner Foods in 2004?

Answer: Our sales grew by more than 20%; we expanded our process facility by 72,000 square feet. We upgraded our natural cheese facility. We increased efficiencies significantly in almost every area of our operations. Our lean systems management programs have taken traction and are bearing good results. We are a better company today than we were a year ago. Ultimately, I believe that is the question every management team must ask itself.

Question: What do you look forward to in 2005?

Answer: I am personally excited about the opening of our new beverage division. We have always intended to parlay our soy concentrate production platform into something more than a commodity soymilk concentrate provider. Our entry into beverage can use that asset to supply value added higher profit products to the market. I also am looking forward to the full launch of our healthy foods initiatives both in process products and our naturally cultured filled milk cheese. I am excited on two levels, first these products represent significant growth opportunities for us as a company and secondly they are truly healthy, great products that can enhance people’s lives. Lastly, I am always gratified by the growth of the people around me. I enjoy seeing them grow as professionals and as people.