Anyone who visits Philadelphia and asks for a mere cupcake will soon learn the error of his ways. The Tastykake brand is truly an icon in this region of the country, and has been since its inception in 1914. Back then, gross sales were $300,000. Today, Tasty Baking Co.'s gross sales exceed $250 million.

Still, as the company approaches its century mark, it stands poised to revitalize and build its brand, expand into new markets and streamline its business thanks to vital long-range planning implemented by Charles Pizzi, president and C.E.O. Many positive changes have been implemented since Pizzi joined the company in late 2002, beginning with new board members, new management and a new strategy for moving the company forward.

“We've been instituting a turn around in the company for a few years, ever since Charlie Pizzi came in and the new management joined the company,” says Autumn Bayles, senior vice president, strategic operations. “There have been a number of foundation items that we've addressed, including our technology and financial platforms, and the way the debt was structured. The last thing on the list was what do we do with our old bakery?”

The answer lay in leasing property for a new plant, focusing on a long-term strategy and watching short-term earnings suffer temporarily as the company reinvests in its future.

Moving out of the 20th century

Aside from the fact that Tastykakes had been manufactured in an antiquated multi-story building since 1922, the company had no new product introductions, a limited marketing and advertising strategy, and literally no technology across its supply chain.

Because of the nature of the old plant, “the company had no new product flexibility, dedicated ovens for dedicated products, and it focused on what it could sell most profitably instead of what the consumer wanted,” says Mitch Pinheiro, equity research analyst, Janney, Montgomery & Scott, Philadelphia, who has covered Tasty Baking Co. since 1991.

Although the old management team knew that it needed a new bakery in order for the company to “survive and thrive,” Pinheiro says, “it was stuck between a rock and a hard place.” Management knew that earnings would suffer in the short term, and thus chose short-term tradeoffs and sacrificed long-term strategy. “Short-term wins a lot when you're a public company,” Pinheiro adds.

When Pizzi was hired, he had a simple vision — bring people on board from great brands who could energize the Tastykake brand and move it forward. The talent Pizzi acquired was significant — each board member is a specialist in his or her own right. Pizzi also brought on a new management team of aggressive people from great brands and meshed them with the existing management.

The new team devised five strategic growth initiatives, including investment of brand building, expanded product innovation, profitable sales growth in core routes, entry into new markets and drive operational excellence.

First and foremost among the team's plan of action was the implementation of an enterprise resource program (ERP). “It was hard for people to believe that we had no technology across our supply chain,” Pizzi says, “so we implemented SAP^®'s ERP application on budget and on time. We basically went from nothing to the Ferrari. We didn't even have training wheels. SAP built quite a technology platform. Every aspect of our business is now run on SAP.”

Last May, Tasty Baking Co. announced it had entered into an agreement with Liberty Property/Synterra Ltd. to relocate its Philadelphia bakery to leased facilities at The Navy Yard — a commercial and industrial development center in Philadelphia.

It wasn't the first time the company had thought about building a new bakery, but the approach of leasing the building freed up capital to pay for equipment. “At one time, if we tried to finance both the building and the equipment, it just became an onerous mess,” Bayles says.

State and city funding as well as low interest loans made it possible for Tasty Baking Co. to remain in Philadelphia, which was key. Pizzi used his vast experience in the public sector to leverage private investment with public funding. “We have $32 million of public dollars in this project, which is significant. We also have the full support of the commonwealth and city of Philadelphia, and we have four banks led by Citizens Bank. We had to get the financials in a position to get a new plant. We leveraged this company twice in value and closed our credit facility, and that was a pretty big thing.”