Schwan's offers its distribution network to food startup firms

The rise of home grocery delivery has given way to a horde of specialty food startups, but many of those companies are small and lack the ability to transport and keep foods frozen over long distances.

That's where Schwan's, whose trucks have been delivering food to homes for nearly 70 years, comes in.

Schwan's Home Service this week opened up its network to help e-commerce companies fulfill their own customer orders by offering shipping, storing and packaging services.

Schwan's, dual headquartered in Marshall and Bloomington, sees an opportunity with direct-to-consumer businesses that sell specialty products such as craft ice cream, frozen meal kits or frozen smoothies.

Many of these companies are small and lack the bandwidth to manage complex national distribution at negative temperatures. Few third-party logistics companies specialize in helping small, internet-centric companies. Meanwhile, Schwan's operates the nation's largest frozen-food fulfillment network.

"It is difficult to ship frozen food. We feel we do direct-to-consumer frozen-food delivery better than, or as good as, anyone," Dan Gilland, Schwan's marketing manager for the new program, said. "This is a way to offer that to other food companies and also find a new revenue stream for Schwan's as well."

He said online grocery shopping is projected to quadruple from 2018 to 2023 and thinks the frozen category has even more room to grow. Frozen deliveries are more complicated than other types of food, in that the temperature control is imperative to keeping food from melting and spoiling. As a result, consumers have more readily adopted home food delivery services for shelf-stable items. About 32% of e-commerce grocery shoppers buy frozen foods online compared to 33 to 35% for refrigerated foods, 42% for produce and 78% for packaged foods, according to the Retail Feedback Group's 2018 survey.

Schwan's could help bring some improvement to the so-called "cold chain" if the direct-to-consumer companies can clearly explain to its customers how the delivery system assures consistent food quality and safety, said Brian Numainville, principal at Retail Feedback Group.

Schwan's has 10 distribution centers and more than 300 depots around the U.S., as well as experience shipping tens of thousands of boxes of frozen foods to consumers through UPS each year.

This initiative is within Schwan's Home Service — the business unit of Schwan's that remained owned by the founding family after South Korea-based CJ CheilJedang bought 80% of Schwan's Co. last year. The buyer, often called CJCJ, paid $1.8 billion for that stake in Schwan's Co., gaining control of businesses that serve restaurants, groceries and other retailers.

The Schwan family, descendants of founder Marvin Schwan who started the company in Marshall in 1952, own the other 20% and maintained full control of the home-delivery business.

And while Schwan's has gained a strong reputation within the frozen-food industry, most people still associate it with the yellow delivery trucks, Gilland said. That's one reason the company has given the third-party logistics program a new name. Schwan's Home Service officially renamed itself Cygnus Home Service LLC in February as a legal step to fully separate from the parent organization, Schwan's Co.

Its home delivery will still operate under the Schwan's name but it plans to manage outside contracts using the name Cygnus Frozen 3PL. 3PL is industry shorthand for "third-party logistics," and Cygnus is the Latin word for swan, which Schwan's has long used in its signage and imaging.

"We built a lot of equity in the Schwan's brand name and people think of that for a very particular thing, which is the yellow truck coming to my door. We felt that could be potentially confusing to clients," Gilland said.

Schwan's says it can guarantee one- and two-day delivery to anywhere in the Lower 48 states. Customers, such as an artisan frozen pizza company or premium frozen meat brand, ship a bulk of inventory to Schwan's distribution center in Marshall, and then Schwan's sends out that inventory to the other centers and depots around the country.

It can package assorted items using branded, customized boxes, include paper inserts or send the frozen foods in standard UPS boxes, depending on the customer's preference.

Kristen Leigh Painter • 612-673-4767