The Journey of Sweet Maui Onion Kettle Style Chips From Washington Farms to Japanese Shelves [ By Evelyn Iritani ]
It didn’t take Tim Kennedy long to figure out that he was in trouble. He had been asked by a Seattle businessman to locate some used American fryers and packaging machines and help set up a potato chip factory in China.
But upon arrival, Kennedy, the founder and namesake behind Tim’s Cascade Snacks, discovered that the factory was high in the mountains of Sichuan Province, a long ways from a port and 400 to 500 miles away from the nearest potato field. Their building was sandwiched between a tangerine processing plant and a gunpowder factory. Every night, they had to drive a couple hours just to get to Chengdu, the nearest place with a hotel.
At the urging of the project’s investors, Kennedy says he eventually ended up taking over the business and bringing over his partner, Jeff Leichleiter, to help get the production line going. The chips tasted pretty good, but they couldn’t line up the trucks and distributors to get their chips to market.
“We ended up going over there and getting it going, but it was the wrong place, the wrong partner and the source of the raw materials was wrong,” Kennedy explains in an oral history recorded for Seattle’s Museum of History and Industry.
That China project—along with an earlier effort to sell popcorn and potato chips into the then-Soviet Union and Estonia—was a sobering lesson in global capitalism. But more than a decade later, the team behind Tim’s Cascade Snacks have developed a global following by producing a distinctive Made in America product and getting it distributed through one of the world’s most successful global retailers.
Over the past five years, Tim’s Cascade Snacks has doubled its sales and racked up numerous awards, including the 2011 Hitachi award for workforce development and a 2010 CEO Magazine listing in the top 100 places to work in America.
“Opportunities are going to come up,” says Leichleiter, 53, who assumed the general manager position at the company when Kennedy retired in 2005 to start a winery in eastern Washington state. “But what’s most important is whether you can build a brand with some cultural significance, no matter where you end up in the world. . . . What we’ve done here is develop a unique product. Anybody can make a potato chip.”
It was 1986 when Kennedy and Leichleiter purchased a couple used batch cookers and set up a chip-making operation in a small town south of Seattle. After cooking and packaging the chips, they would drop off samples at nearby convenience stores. Word spread, and they were soon getting orders from some of the region’s biggest grocers, including Safeway.
“It was really a bootstrap operation with guerilla marketing,” says Leichleiter, who honed his logistical skills while working with the Army Corps of Engineers.
Tim’s Cascade Snacks built up a loyal following for its kettle-cooked chips, stealing market share from industry giants like Frito-Lay. The company started with its original flavor and a jalapeno-spiced chip, which remains its most popular flavor. It added other flavors along the way, including Vlasic Dill Pickle and Sea Salt and Vinegar. Part of Tim’s addictive secret: a patented cooking process that gives its kettle-cooked chips a fortune cookie shape and distinctive “Cascade Crunch.”
As former military men, Kennedy and Leichleiter knew what it was like to want a taste of home and made sure their sales team stopped at the military commissaries near their factory. Today, packages of Tim’s Cascade Style Potato Chips find their way by helicopter and ship to soldiers in Iraq and Afghanistan. In addition to providing a small boost to the bottom line, those military sales introduce Tim’s chips to audiences far from the company’s domestic market, which is concentrated on the West Coast, Alaska and Hawaii.
In 1996, Tim’s purchased the Hawaiian Kettle Style brand, producer of Sweet Maui Onion Kettle Style Potato Chips from struggling Granny Goose Foods. Prior to falling on hard times, Granny Goose had produced its Hawaiian chips on Maui, but Tim’s management figured out how to duplicate the recipe at their factory in Algona, Washington, where they could keep a closer eye on costs and quality.
In addition to being a favorite with the locals, the Hawaiian Kettle Style brand—with its distinctive island packaging design—was a popular gift item for tourists. This was particularly true for Japanese visitors, who are expected to bring gifts home to their families and friends. The tradition of gift-giving, or omiyage, has a long history in Japanese culture. A package of Tim’s snack bags fits nicely in the overhead bin of a Boeing jet.
“Japan is a big market for our Hawaiian Sweet Maui Onion chips,” says Leichleiter. “There’s a lot of brand loyalty taken out of the Polynesian community in Hawaii back to Japan.”
It was the Aloha connection that caught the attention of the buyers at Costco, which was looking to stock its expanding global empire. “We had a request from them. Can we get those Maui Onion Hawaiian chips in Japan?” recalls Leichleiter. “We met with Costco and said, ‘Certainly, we can make that happen.’”
Making that happen turned out to be tougher than anyone at Tim’s imagined.
Washington’s potato growers and processors are big beneficiaries of Japan’s post-war love affair with American fast food. Japan is by far the leading purchaser of Washington potato products, buying $215 million worth of frozen potato products—largely French fries—in 2011, according to the Washington State Potato Commission. Last year, McDonald’s alone used nearly half of Japan’s imported fries, according to the U.S. Department of Agriculture’s Foreign Agriculture Service.
But cracking the highly competitive Japanese food market isn’t easy, particularly for small companies without international legal and regulatory expertise. The Japanese retail market is dominated by a handful of powerful domestic firms that control the distribution and sales networks. Japanese consumers are quality conscious and concerns about food safety have increased in the aftermath of the 2011 Tohoku earthquake and tsunami.
Over the past few decades, U.S. and Japanese officials have tussled over a variety of trade issues, including high tariffs and phytosanitary issues related to food safety. Japan has complex labeling requirements and strictly regulates any food products containing genetically modified organisms (GMO). Tim’s potato growers must submit documentation that their seeds are non-GMO and their seed suppliers do not raise any GMO potatoes on their farms, which could lead to cross-pollination.
Though it still operates independently, Tim’s Cascade Snacks has been acquired and sold several times and is now part of the Pinnacle Foods Group, which is based in Mountain Lakes, New Jersey, Leichleiter says he relies on the legal and international experts at Pinnacle and Costco for help navigating overseas. “There have been some times in the past in Japan where we were required to do some secondary labels in the Japanese language and there were some miscommunications over how they were going to handle our products,” Leichleiter says. “But today, things are pretty good.”
Even with that global savvy, mistakes were made. When Costco expanded to Mexico, they thought Tim’s jalapeno chips, the store’s best-selling variety, were a natural fit for the market. Wrong. Costco’s Mexican customers—many of whom were European expats—found the chips too spicy.
“You can have all the right stuff somewhere, but you’ve got to have the right audience at the other end,” Leichleiter says. “We didn’t know everything we needed to know.”
The Hawaiian brand and Tim’s jalapeno flavor turned out to be a good match for Costco’s Asian customers. By riding the Costco wave, Tim’s has expanded its sales beyond Japan to South Korea, Fiji, Guam and Canada. The Hawaiian family of products—which is also popular in California, where there is a large Polynesian community—now accounts for half of the company’s $75 million in annual retail sales. Exports account for about 5 percent of total sales.
“Costco is a marketing machine unto itself,” says Don Brunell, president of the Association of Washington Business, the state’s leading business organization. “If you can consistently provide them with a good product, you’re going to do pretty darn well.”
To deliver on that promise, Tim’s Cascade Snacks depends on a tight-knit community of employees and suppliers, many of whom have been with the company since its early days. By building its supply-chain using mostly local suppliers, the company has created a just-in-time production system that is flexible and fast, critical factors in the company’s export success. Tim’s also has a strong environmental focus, recycling used oil into biofuels, using recyclable materials in packaging and sending unused potatoes and chips to ranches for livestock feed.
Logistics of a Potato Chip
To guarantee the freshest product possible, no chips are produced until an order is placed. Once an order is in the system, it goes to the production team which maps out the week’s work, orders the potatoes and checks the stock of corn oil, spices and packaging materials. The company’s in-house logistics team makes sure the warehouse is notified and Costco’s shipping company is scheduled for pick-up.
David Fazio is one of five potato growers who supply Tim’s with about 40 million pounds of potatoes a year. If Fazio gets the call, he either digs the chipping potatoes out of his fields or pulls them out of his climate-controlled storage facility and loads up a truck which can reach the plant in just a few hours.
“At Tim’s, I feel like I’m part of the family,” says Fazio, a third-generation farmer who lives on Saubie Island at the convergence of the Willamette and Columbia rivers. “If I don’t sell them a good potato, they can’t make a good potato chip.”
Once those potatoes reach the factory, they are peeled, washed, sliced and sent through the company’s high-speed cooking, flavoring and packaging process. Optical sorters and metal detectors are used to weed out malformed chips and make sure no foreign material gets into the bags. Some of Tim’s customers are on a 24-hour turn-around, but Costco gives the company 10 days because of its super-sized orders.
“The one element that goes with selling to Costco is the economies of scale,” Leichleiter explains. “When they buy, they will buy in multiple truckloads, sometimes 10 truckloads at a time. That allows them to be efficient and keep their prices low for the rest of the world.”
Tim’s benefits from its proximity to the deep-water ports of Tacoma and Seattle, which combined represent the third-largest container complex in North America after Los Angeles/Long Beach. A truck can pick up an order at the factory and have it to the port of Tacoma or Seattle within a few hours. A ship leaving from either of those ports can deliver its cargo to the Port of Kobe, Japan, in less than two weeks, at least a day quicker than cargo coming from the East Coast.
Though the vast majority of its exports are handled by Costco, Tim’s has sold some product directly into Guam and Tahiti. For those orders, the company uses C.H. Robinson, a third-party logistics company, and Matson, one of the main carriers serving the Pacific Islands.
The logistics of exporting a perishable product are challenging. Tim’s chips, which are made without preservatives, have a 15-week shelf life. Under Japanese law, products must have at least 50 percent of their shelf life remaining when they reach the store shelf, which doesn’t leave much room for unexpected delays, explains Peter Guyer, president of Athena Marketing International, a global food marketer based in Seattle.
“I’ve got to credit the management at Tim’s with being persistent,” he says. “They stuck with it, even in the early years. They continued to listen to the market and made incremental changes as they’ve learned. Most importantly, they have consistently produced a high-quality product.”
Leichleiter has explored alternatives to extend the shelf life of his potato chips. They include using higher-barrier packaging to keep out the oxygen that turns the oil rancid, using a nitrogen flush to displace the oxygen in the bag, or refrigerating the chips in transit. However, he is reluctant to take steps that he fears will sacrifice quality for an extended shelf life.
One way to solve the shelf life problem would be to build a plant overseas, closer to Tim’s foreign customers. Leichleiter, who is entertaining inquiries from companies in India and the Philippines, hasn’t ruled out that possibility. But this time around, he says he will do a lot more homework and call on his more experienced colleagues at Pinnacle for advice before jumping on a plane.
“Back in those days, we were rogue cowboys,” he says of the company’s early forays into the former Soviet Union and China. “It was our dime and we were willing to risk a little more. We were not focused on, ‘Geez, you could really lose at this game.’”