Dive Brief:
- Utz Brands plowed ahead with its plan to shrink its manufacturing network in Q2, part of a strategy to cut costs while focusing on distribution and market gains.
- The company sold two plants — in Michigan and Pennsylvania — to chip brand Our Home in April. Utz has shed at least six of its plants over the past several months through a mixture of closures and divestments, leaving it with eight current facilities.
- The salty snack brand is using the funds from those sales to pay down debt and expand into new markets. "We've always talked a little bit about the opportunity for us to expand gross margins and then decide how to deploy them in marketing, distribution gains, as well as in capability building," CEO Howard Friedman said during the company's Q2 earnings call.
Dive Insight:
Utz is one of several food manufacturers trying to balance its bottom line against the need to get ahead in a competitive market.
The company has shuttered or sold facilities in locations such as Hanover, Pennsylvania; Birmingham, Alabama; Lincolnton, North Carolina; and Lititz, Pennsylvania, in recent months as part of a supply chain overhaul launched in December 2023. The plan aims to save $135 million over three years.
The strategy included plans to reduce production costs by $90 million through lean manufacturing, improved sourcing and automation, as well as saving $45 million through network optimization. Automation initiatives, another aspect of the plan, have led to 50% headcount reductions in pretzel rod packaging and small bag packaging operations, according to a company presentation.
At the same time, Utz is getting aggressive about growing its distribution capacity by expanding two logistics centers in Alabama and Arizona and building a third in Pennsylvania. The expansions are part of Utz's bid to step into new retailers and markets across the country.
"If you think back to Investor Day, what we had said was that we would be growing volume share, that it had always been for us a volume-based program," Friedman said on the Q2 call. "And it's really because we're able to bring our core brands and sort of mix them into the geographies that they are less penetrated in as we go forward."
Utz has also outsourced its fleet and on Monday announced it purchased distribution rights for 65 routes in south Florida from third-party direct-store-delivery provider National Food Corp. The purchase is part of Utz's bid to focus more on direct-store-delivery as part of its distribution strategy.
"Our productivity program has been pretty strong throughout the first half. You should see that strength and that delivery continue," Friedman said. "Our supply chain team is doing a great job accelerating the program as well as investing where we need to in our network to get ready for 2025 as well.”
