Bumble Bee Foods faced a “myriad of unexpected challenges” that put the company “on the precipice of a free-fall bankruptcy” in 2019, according to president and CEO Jan Tharp.
The details of those challenges, and the company’s response, are outlined in a statement provided by Tharp in support of two employees incentive programs targeted for elimination or reduction by the company’s creditors in its chapter 11 bankruptcy filing.
In 2019, as it ran further into the red and eventually considered filing for bankruptcy, Bumble Bee faced “the highest raw material price inflation the company ever had,” according to Tharp.
“The cost of albacore has been at a record high of approximately USD 3,450 [EUR 3,100] per metric ton for the entire calendar year of 2019,” Tharp wrote. “It is unprecedented for albacore costs to remain at this level for an entire year.”
The difference in actual versus expected price resulted in a significant variance between what the company had budgeted for and its actual expenses. Tharp said the company engaged in a broad campaign of “managing expectations” of its clients and educating them on “the nomadic nature of tuna” and the fact that wild-catch fisheries may experience fluctuations in cost and resulting difficulties for inventory management.
“[We] were successful in [our] efforts because [our] deeply experienced and loyal … team members understand the business and supply chain that are unique to this industry,” she wrote.
Additionally, the 2018 salmon canning season ”was one of the worst canning seasons in industry history,” with average raw material prices for pink and red salmon increasing 38 percent, according to Tharp.
“Supply scarcity resulted in reduced volume of product to sell in the company’s Canadian and U.S. business units,” she wrote.
Bumble Bee was forced to address the higher price of salmon through innovation, Tharp said.
“To mitigate these economic forces, the company developed a new salmon product (different size, different format) in Thailand to offset some of the volume erosion and to address costs,” she wrote.
Further impacting Bumble Bee was a decision by Canada’s Department of Fisheries and Oceans to reduce the total allowable catch for sardine in the Bay of Fundy, which is the company’s main sardine supply.
“In addition to the TAC reduction, all fishing in the Bay of Fundy was down significantly due to environmental factors,” Tharp wrote. “This reduction in the number of sardines that [we] could catch in the Bay of Fundy reduced the company’s sardine supply by 55 percent, significantly impacting its Canadian and international business units.
Even though Bumble Bee was unable to offset the full impact of this loss, Tharp wrote, it “successfully used other business categories to increase sales and minimize the impact of this loss on the business overall.”
Bumble Bee was also busy settling a “torrent” of civil litigation cases stemming from its guilty plea in a criminal price-fixing case that threatened the firm’s viability, according to Tharp.
“In this process, a significant percentage of management time was spent marketing the business to financial entities in hopes of raising capital to fund large potential settlements. This included addressing due diligence requests, setting up and populating data rooms, and leading several in-person and telephonic meetings,” Tharp wrote. “Parallel to these efforts, [we] began the process of marketing the business pre-bankruptcy, which entailed additional diligence and management time while still managing the day-to-day activities of the company.”
Lastly, the U.S-China trade war and a ramp-up of tariffs imposed by both countries also took a toll on Bumble Bee’s bottom line.
“The U.S. government-imposed tariffs on Chinese imports created a significant challenge for our business. Many of [our] finished goods specialty items and frozen tuna loins are on the lists of affected imports,” Tharp wrote.”
Nevertheless, Bumble Bee “successfully managed to mitigate significant additional costs” of the tariffs, Tharp wrote.
“To mitigate the effect of the new tariffs, the company needed to find and qualify new, non-Chinese vendors in Asia. Several of [our] key managers … successfully expedited and completed this process in three months, rather than the six to nine months typically needed for replacing foreign vendors,” she wrote. “To successfully reduce the lead time and to onboard the new suppliers, these key employees made significant personal sacrifices by spending months in Asia. Their industry-specific experience, knowledge, and devotion to the business were critical in completing this project without significant financial impact to the business.”
Separate U.S. tariffs on steel and aluminum imports also harmed Bumble Bee, due to the origin of the metal used in Bumble Bee’s canning operations.
In response, Bumble Bee switched over to a new can supplier in Mexico – “a significant endeavor for [us] because of food safety and specification compliance,” Tharp wrote. In the end, the switch saved Bumble Bee around USD 11 million (EUR 9.9 million) in 2019.
Throughout 2019, Bumble Bee navigated a delicate path between these multiple crises, Tharp said.
“Through this entire process, [we] have not lost a customer, have not lost significant numbers of employees, and have not lost [our] vendor base,” Tharp wrote. “These facts brought FCF to the table and directly contributed to maximizing the value of the company and the chapter 11 estates. FCF saw a business that was well-managed, strong, and stable in the face of significant industry-wide headwinds.”
Taiwan-based Fong Chun Formosa (FCF) Fishery Company has entered into an asset purchase agreement with Bumble Bee Foods, effectively creating a stalking-horse bid for Bumble Bee that is set to be resolved in coming months.
Bumble Bee was able to pull off this feat even after a restructuring initiative in February 2019 eliminated 25 positions from its corporate offices and outside sales force. Additionally, in August 2019, Bumble Bee’s sales broker of 25 years Advantage Sales canceled its contract, “likely because of concerns about the company’s future,” according to Tharp. As a result, Bumble Bee was forced to scramble to find a new sales “within 60 days so as to prevent any negative impact on sales,” according to Tharp.
“The company successfully completed a request for proposal process, and interviews of potential new brokers (including convincing potential new brokers of the company’s continued viability in the midst of bankruptcy rumors) on a national basis, that resulted in its awarding contracts to five regional brokers and onboarding the brokers within the 60-day period,” she wrote.
Starting in mid-October 2019, Bumble Bee began partnering with Beacon United, HWY Partners, Impact Group, and On Shelf Marketing Group (OSMG).
Bumble Bee also had to deal with the dark cloud of bankruptcy hovering over the firm for much of the year, according to Tharp, as media reports began in August that a bankruptcy might be imminent.
“The potential bankruptcy, followed several months later by the actual filing, was a significant morale deflator to the entire management team,” she wrote.
Since the actual filing, the company’s competition has been using Bumble Bee’s chapter 11 filing “to sow doubt in the minds of [our] major customers about [our] ability to service their accounts and maintain supply,” Tharp wrote. “Industry trade journals read by [our] customers and buyers have also published numerous articles about [our] filings, further impacting [our] business. Simply put, [we] have been in crisis management for over a year because of these outside influencers.”
That situation came to a head after Bumble Bee’s potential bankruptcy filing was publicly disclosed, which created “significant concern” on behalf of the company’s vendors, Tharp wrote.
“This resulted in a sudden and significant increase in trade contraction from several of [our] major vendors which, in turn, caused a liquidity crisis at the end of August. This put [us] on the precipice of a free-fall bankruptcy,” she said. “The management team was able to negotiate extended trade terms from FCF which provided sufficient liquidity for [us] to execute a more orderly bankruptcy. The FCF accommodation was possible only because of the long-term relationships between this management team and FCF and the trust [we] developed over the years. In addition, due to the devotion and extraordinary efforts of [our] experienced employee team … who have substantial credibility with [our] customers and vendors, we have, to date, successfully retained all current customers and vendors.”
Many of the challenges that faced Bumble Bee in 2019 remain problems as the company enters 2020, Tharp warned.
“In order to have adequate inventory on hand, we must pay our vendors on time. Due to the bankruptcy process and the vendors’ concern about getting paid, many have shortened terms or required payment on delivery in exchange for continuing to supply products,” she wrote. “As a result, management is challenged to buy enough inventory with the funds we have in the [debtor-in-possession] budget to meet our customer requirements. Thus far, we have been able to do so, but only through a daily balancing act across our supply chain, sales, trade marketing, and finance and accounting organizations to manage this process within the limits of the debtor-in-posession] budget.”
Photo courtesy of Bumble Bee Foods
