Home food delivery is hot, but Minnesota's Schwan's has done it for 65 years

MARSHALL – Home meal delivery services are hot right now, but it isn't often that Schwan's Co. is mentioned as one of the innovators in this growing space.

That's because the Minnesota-based food company has been doing it for 65 years and hardly catches the eye of trendwatchers. From consumers' distrust of processed foods to shoppers flocking to on-demand food services, the company is fighting battles on multiple fronts. Schwan's leadership sees these challenges and is seeking to address them all. With increasing competition from online meal-kit and grocery delivery start-ups, Schwan's is looking to capture convenience-minded customers who are increasingly turning to digital sites to find their next meal.

"We were doing home delivery of food before home delivery of food was cool," said Pat Anderson, senior vice president of product innovation. "When we get asked, 'What are you going to do about all the new meal kits on the market?' we say, 'Celebrate them.' They are talking about getting food delivered to your home that is easy to prepare, and that makes it easier for us to sell our story."

Schwan's home delivery got its start in 1953 when Marvin Schwan bought a refrigerated truck and decided to take the family business — a creamery — on the road. Unlike many of today's new home-delivery food companies, Schwan's originally catered to a rural crowd, offering its customers products they couldn't get anywhere nearby.

And while Schwan's elicits images of gold trucks for many Midwesterners, the company is more than home delivery, which still has 1.35 million active customers. The Marshall- and Bloomington-based company with $3 billion in annual sales owns a small cadre of retail brands, like Red Baron, Freschetta and Tony's pizzas, Mrs. Smith's pies and Edwards desserts.

Starting with frozen pizza in 1966, the company has added many brands through a series of acquisitions over the decades. Red Baron was created by Schwan's in 1976. That brand developed a fan base through its flashy Red Baron Squadron — a small fleet of World War II-era Stearman planes that performed at air shows around the U.S. It was the nation's longest-running civilian aeronautics team when Schwan's disbanded the group in 2007.

The company also operates a food service business that sells to schools, hospitals and other institutions.

Dimitrios Smyrnios, a food industry veteran who spent the previous 20 years at Nestlé, came to the company 3 ½ years ago during a challenging time. Schwan's expenses were outpacing sales, communication across the operation was patchy, and employee morale was low. Smyrnios spent the first 100 days on the road, touring facilities and talking to employees to get a pulse on the company.

Based on that feedback, he reintroduced profit-sharing and established a three-year operational turnaround plan focused on speed and simplification.

"I'm ecstatic about the turnaround results, but I want to keep improving," Smyrnios said. "The next three years is going to be focused on strengthening our credibility."

During Smyrnios' tenure, the executives and about 350 employees moved from Marshall to Bloomington to have access to the airport and a wider talent pool. A company jet still flies twice a day between the two cities. There are 1,300 workers in Marshall, including its R&D team and facility, and Schwan's is a major philanthropic donor in the community.

But simplification also means reorganization, which resulted in job cuts. The company, which is privately held, would not provide an exact number, but Smyrnios said they had to trim in certain areas to become more streamlined. Many of the affected workers were offered jobs in other areas, he said, but the process cost a net loss of jobs companywide.

Apart from corporate changes, Smyrnios is charged with the difficult task of positioning Schwan's for the future. He said his team is opportunistic about potential acquisitions in the ethnic foods segment and the health and wellness category. To grow through its existing stable of products, the company must overcome the stigma many younger consumers may have toward frozen foods, which they perceive to be more processed.

"Many consumers think frozen food is less nutritious than fresh, but that's just not true," said Rick Shea of Shea Food Consultants in Chanhassen. "The foods are frozen at the peak of their nutrition, but consumers don't see it that way. They just see a frozen product."

Frozen fruits and vegetables, for instance, maintain all of their minerals, which don't degrade, said Daniel Gallaher, professor of food science and nutrition at the University of Minnesota. "We do it all the time at home with foods so that they don't break down."

"We just have to tell our story better. We are unapologetically frozen because we are proud of it," Smyrnios said.

If home delivery is to compete for younger consumers more focused on immediacy, the company has to change its route methods. Schwan's old model relied on individual drivers selling to its customers at the door.

"The problem is, people aren't always home anymore, and not everyone is willing or able to wait for a salesperson," Anderson said, "which is why we are trying to shift to a more digital business." There is a nearly 6 ½-day lag time between when a customer places an order and when they receive their food, "which is not a modern experience," he said.

Shea, who is now a consultant after working for more than 20 years in marketing at various food companies like Kraft Foods and Malt-O-Meal, sees e-commerce as both the biggest opportunity and challenge for Schwan's future.

"They are part of the convenience impulse, but consumers do have more choices," Shea said. "They have to evolve from an e-commerce standpoint and that can be very difficult to compete in."

In two major southern U.S. markets, Schwan's has rolled out a pilot program that allows customers to place an order online and are then given four time slots within 48 hours that they can select for drop-off. For some of its core customers — many of whom are baby boomers who may want more personal service — they can still opt-in for a salesperson to come to their door.

Just three years ago, Schwan's had an abysmal turnover rate of 70 percent for its route delivery drivers. By making significant investments in holiday time off, better compensation and a standardized shift, the company has reduced its turnover rate to 38 percent, approaching the industry standard of 30 to 35 percent.

Smyrnios said some of its products are growing while others need to be fixed. The company has invested $10 million to remove artificial colors and flavors and high-fructose corn syrup from its products.

It also simplified ingredients. The company replaced the green coloring in its beloved mint chocolate chip ice cream with algae to keep the same hue. And it switched back to using real cheese rather than a blend on its Tony's pizza, a move that has produced double-digit sales growth.

"In our evolution, we've taken steps to ensure we have earned our customers' trust," said Stacey Fowler, senior vice president of product innovation. "Preservative-free is the most powerful health claim you can make."

Kristen Leigh Painter • 612-673-4767