Sunday, July 27, 2008

Jelly Belly candy to open Rayong Thailand plant

Jelly Belly prepares to open first overseas plant as demand sweetens

East Bay Business Times - by Jessica Saunders

Opening day can't come soon enough for Jelly Belly Candy Co.'s new plant in Rayong, Thailand, which will supply customers in 43 countries outside the United States.

Officials from the Fairfield company say they can use the extra production to meet growing international demand. But delays related to overseas contractor issues have put the opening off - probably till later this year, they said.

The 50,000-square-foot manufacturing facility will place international production within closer reach of emerging markets in China, India and the Middle East, and in the same country where Jelly Belly buys tapioca syrup for sweetening some of its product lines.

The number of countries where Jelly Belly is distributed has risen 75 percent since 2006, and overall sales have grown 25 percent in the same period, to $160 million. Eighty-five percent of the family-owned company's sales are its signature small, naturally flavored jelly beans, with the rest coming from chocolate-covered candies, gummies, jells, candy corn and other sweets.

The new plant, located on 6.4 acres in a free-trade zone at Rayong on the Gulf of Thailand coast, is designed to provide extra capacity at a lower cost to serve the growing international market, said Herman "Herm" Rowland, Jelly Belly board chairman. That leaves Jelly Belly's domestic plants in Fairfield and Chicago free to supply the United States, still by far the company's largest market.

The extra production capacity, with room for expansion to 200,000 square feet, is coming online as Jelly Belly has targeted $200 million in sales by 2010.

It makes sense for Jelly Belly to choose Thailand for its first overseas location if it is already importing a key ingredient from that country, said Cynthia Kroll, senior regional economist with the Fisher Center for Real Estate and Urban Economics at UC-Berkeley's Haas School of Business. The plant is also closer to China's 1.3 billion potential customers and other growth markets like India, so it will lower transportation costs, and the country has cheaper labor, she said.

But operating overseas also comes with the challenges of unfamiliar government regulations, and language and distance barriers, Kroll said. "That is one reason a number of companies in their early stages don't go overseas."

Companies might be motivated to look to international markets if domestic competition increases and sales begin to level off, Kroll said.

That doesn't appear to be the case for Jelly Belly. Last year was the first since "the Reagan phenomenon" that the company fell behind in production and had to short-ship orders for seven to eight months, said Rowland, referring to the demand boom in the 1980s after word got out that President Reagan was a fan.

To cope, Jelly Belly ran both U.S. plants as many hours a week as it could, even going seven days a week in Chicago for some items, Rowland said. "If we had had the plant running in Thailand like the contractor said it would, we would be OK."

When the new plant will actually begin production is an open question. Asked to explain, Rowland said, "Contractor, contractor, contractor."

Construction was originally scheduled to begin in 2006, according to a press release from that year. But Rowland said it began around March after the typhoon season ended. The plant now is expected to make test production runs in August and open later this year.

"We're 98 percent complete on building facilities and equipment installation, and we are now fixing all the things that didn't get done right," said Rowland, a member of the fourth generation of the Goelitz family to run the company.

The company won't disclose what it spent to build the Thai plant, but Sharon Duncan, vice president for international business, called it a "substantial" amount.

Demand grew in all sales divisions last year, said Duncan, who has overseen expanding distribution, from 24 countries in 2006 to 43 this year. International sales revenue has grown by double digits for the past four years, she said, declining to provide exact figures.

The growth has resulted from greater consumer recognition, deeper penetration of existing markets and expanded channels of distribution, as well as favorable exchange rates, Duncan said.

The No. 1 growth market for Jelly Belly is China, followed by India, the Middle East and Eastern Europe, said Duncan, who was hired 3½ years ago to oversee a then-new international sales division.

"China has a huge population base, it's growing economically, and they have disposable income and a great appetite for Western brands," she said. "That's a perfect market for us."

To address concerns about genetically modified organisms, or GMOs, in the food chain, fears that are stronger internationally than in the United States, all overseas products will be sweetened using tapioca syrup instead of corn syrup. Corn is one of the most genetically altered crops. While all Jelly Belly products test GMO-free, Duncan said, some markets have such strict requirements to prove no GMOs touched a food product, it is easier to substitute another product for corn syrup. There is no such thing as a genetically modified tapioca root, she said.

"The Thai plant is an additional safety net for us to work GMO-free," Duncan said.

The global market also creates new product opportunities, such as jelly beans flavored with exotic fruits like passion fruit, star fruit and lychee nut. Jelly Belly has already taste-tested green tea, a popular flavor in Asia, and it went over "very well," Duncan said.

Overseas customers have a surprisingly strong recognition of the Jelly Belly brand, possibly due to the 4 million tourists who have visited the Fairfield plant, as well as its popularity among American and British expatriates, she said. Then there was that jelly bean-loving U.S. president, of course.

"The reaction Jelly Belly gets internationally is really fun. You get a big smile on people's faces," she said.

The company's chairman will probably start grinning too once he sees his plant start up. Cultural differences and language barriers have contributed to the delays, Rowland said, despite all the key plant employees attending a two-day cross-cultural school in Bangkok. In addition, all the Thai plant managers spent two to three months working in Fairfield to learn the business.

"The Thai people are tremendous people. They have tremendous ways of being, but they are hard for us to understand," said Rowland, whose son Herman Rowland Jr. will be managing director of the Rayong facility.

Jelly Belly Candy Co.

Business: Candy manufacturer
Headquarters: Fairfield
Founded: 1869
Board chairman: Herm Rowland
Employees: 675
Sales revenue: $160 million
Income: Not disclosed
Address: 1 Jelly Belly Lane, Fairfield 94533
Phone: 800-522-3267
Web: | 925-598-1427

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