MERGER OF DELUCA INC. WITH PERDUE A GOOD FIT

ROSEANNE HARPER

Perdue Farms' acquisition of DeLuca Inc. could have far-ranging positive ramifications on the entire meals category, according to retailers.

As reported in SN on June 22, Perdue Farms, Salisbury, Md., agreed to purchase DeLuca Inc., Middlebury, Conn., manufacturer of the Ed & Joan DeLuca branded fresh meal components, which have a strong presence in supermarkets in New England and other selected markets.

Supermarket executives said the marriage between the fresh poultry processor and the manufacturer of fresh prepared foods could bolster sales across the board in the HMR arena by adding a larger variety of top-quality products in a wider area of distribution.

The retailers said an injection of new products with adequate shelf life, possibly co-branded, would increase sales initially. But even more important for the future, they argued, is that it would expand consumer awareness of fresh meal components.

"It will give validity to the home-meal replacement category because you've got two great companies working together now," said Jim MacDonald, vice president, perishable merchandising, Star Market, Cambridge, Mass. "Between the expertise of both companies, we should get valuable products our customers will love."

Also, the merger is a promising one because of Perdue's marketing muscle, which could be brought to bear on the category -- at unprecedented levels. Retailers said they anticipate national television ads featuring fresh meal items for the first time.

One retail executive suggested that Perdue could afford to promote the Ed & Joan DeLuca products, or co-branded items, at a reduced price to introduce them to consumers who aren't familiar with the type of product.

"There's so much growth potential in the HMR field. If they wanted to, Perdue could really drive the business by putting a high-quality HMR product on the shelf at a good price," said a perishables executive of a Northeast supermarket chain who chose to remain anonymous.

Some retailers who now carry the Ed & Joan DeLuca brand meal components also expressed concern that the merger could affect the brand in negative ways, which they said often happens when a large company acquires a smaller one.

"It should work as long as they don't change any of the operating procedures Ed and Joan DeLuca have in place. If they don't [change the DeLuca operation], this will be good for us and our customers," said Bob Damato, director of deli and bakery for Food Emporium, the Bronx, N.Y.-based division of A&P, Montvale, N.Y.

"I've been dealing with Ed for a long time now, and we do a good job with his products. DeLuca's is a quality product, and it has become a brand our customers look for."

Top executives at Perdue told SN that the Ed & Joan DeLuca brand will be maintained, and the management team at DeLuca will remain in place. Ed DeLuca, founder of DeLuca Inc., will serve as a consultant to Perdue and to DeLuca Inc.

It's an element of stability that supermarket executives who are currently DeLuca's customers should welcome, DeLuca suggested. "In that capacity [as a consultant], I'll still be in contact with our accounts, some of which I opened as long as 10 years ago," DeLuca said.

For the most part, the supermarket executives SN interviewed agreed that the combination of DeLuca's technology and Perdue's marketing prowess, as well as a marriage of both company's quality product portfolios, will probably reap benefits for all concerned.

George Pauley, senior vice president, perishables for Stop & Shop Cos., Quincy, Mass., put it this way: "DeLuca Inc. has always been a quality operation, and the DeLuca family are quality people. Perdue has a similar reputation. I'm sure this is a positive move for both parties."

"With Perdue's magnitude, they can build on the items they [and DeLuca] have and take it national," said the executive at a Northeast chain. "They'll be leaning on the technology that DeLuca has put together, which is some of the best in the industry."

Others also focused on the state-of-the-art technology that DeLuca employs, and the reputation the company has for being a leader in food safety.

"With its money behind it, Perdue can take some of the learning DeLuca has accomplished and translate it into other protein-line products. There are some very good synergies there," said Dennis Hedegard, president, Food Solutions, an East Bridgewater, Mass., consultancy and master brokerage firm, and formerly a top prepared-foods executive at Shaw's, also in East Bridgewater.

Said Dan Lescoe, senior vice president at Big Y Foods, Springfield, Mass., a chain that has carried Ed & Joan DeLuca products for years: "DeLuca has a very high-quality product. I think it's a good marriage. It gives Perdue a way to expand their horizons."

The deal for Perdue to purchase DeLuca has been in the works for nearly a year. DeLuca had approached Perdue to create some type of alliance, in the course of searching out quality chicken products as ingredients in his products.

DeLuca said he's particularly happy about the partnership because Perdue has the kind of top-quality product he was looking for, and also offers effective distribution and marketing systems.

"All of us in the supermarket industry have come to realize that the two most important words in home-meal solutions -- if we're to become a viable option for consumers in meeting their meals needs -- are convenience and freshness," Deluca said. "And what we also know is that we must communicate these strengths to the consumer."

"I know of no other company that fulfills these criteria more effectively than Perdue -- from the freshest, highest-quality products to their extremely effective marketing. In fact, their advertising is legendary," he added.

From Perdue's perspective, the acquisition of DeLuca Inc. offers it a jump start in the meals business, said Jim Perdue, Perdue Farms' chairman.

"We've been working toward this fresh-meals concept for a couple of years," Perdue said, "and I think this will help us move forward that much faster in providing what supermarkets are looking for.

"We looked at several other companies, but didn't consider them. DeLuca brings a lot of technology, a lot of R&D, great experience with shelf life and quality, and a great name."

Perdue also said the food-safety technology that DeLuca Inc. has in place was a prime consideration in Perdue's decision to pursue the purchase.

"Food safety is something they've spent a tremendous amount of time working on, and with that comes shelf life, which is important," Perdue said. Ed & Joan DeLuca products have a 30-day shelf life.

Bob Turley, Perdue's president, also praised his company's newest addition. "The more we learned about DeLuca, we saw that the talent and skills of their people were the No. 1 attraction," he noted. "You can't have a good partnership without that, and we felt Jeff [Swickly, DeLuca Inc.'s president] and his management team are the best in the industry. Food safety is of the highest priority for Perdue Farms, and it also is at DeLuca."

DeLuca's technology will help get new chicken-meal components onto the market quickly, Perdue said.

"We'll add to the mix," Perdue said. "Right now, DeLuca isn't producing a chicken item. That will happen pretty quickly."

So will co-branding, he added. In the meantime, Perdue emphasized that the company will utilize the Ed & Joan DeLuca brand.

Supermarket executives said the question of how the chicken company leverages the brands will be important. "It takes a tremendous leap of faith for a customer to buy a refrigerated product without a known brand," said the executive at a Northeast chain.

Beyond the name, the quality of the two companies' products will determine how much influence the merger has on the supermarket meals business, said MacDonald at Star Market.

"It's the quality that speaks," Perdue said. "For instance, we carry Ed & Joan DeLuca because we know it to be the best, and we sell a lot of it because our customers agree with us.

"Sometimes when people take a great recipe from a restaurant and try to make it world famous, mass production can ruin the recipe. That's not the case with Ed & Joan DeLuca," Star Market's MacDonald said, making reference to the fact that prior to going into the manufacturing business, the DeLucas owned and operated an upscale Italian restaurant in Connecticut.

Neither the sum nor the terms of the sale of DeLuca Inc. to Perdue were disclosed. Both DeLuca Inc. and Perdue Farms are privately held companies.