There's No Joy In Snackville

"We challenge employees to get problems, as well as opportunities, out in the open, not swept under the rug." -- Victor Sabatino, in the April 1998 issue of SNACKWorld

On the Ides of March, Victor Sabatino was at federal bankruptcy court in Kansas City, Missouri, explaining why his company, Guy's Snack Foods, had gone broke this year. The meeting tested the guts of the normally confident Sabatino, whose hands trembled from the outset of the proceeding.

Paula Acconcia, the presiding assistant U.S. trustee, noticed his discomfort. She attempted to make a personal connection with Sabatino, to break the ice before placing him under oath.

"'Mr. Sabatino' -- let me write it down," quipped Acconcia, who had just corrected herself after calling him "Sabatini."

"My name also ends in a vowel," she said.

Et tu, Sabatino?

The nervous moments were only beginning for Sabatino, who occasionally stumbled through his statements over the next four hours. Acconcia asked him to detail the effects of his leadership of a company that had radiated stability until it needed bankruptcy protection.

For more than 60 years, Guy's products have been the perfect guilt food -- potato chips, tortilla chips, cheese curls, ready-to-eat popcorn, pretzels, and nuts. A self-proclaimed snack innovator, Sabatino had introduced new twists on old favorites, such as the spicy, honey-roasted peanuts dubbed "Hot Honeys." Last July, Sabatino told one industry trade publication: "The Hot Honeys have a hot flavor, but it's not overpowering. Hot's a viable trend that cuts across all demographics."

No sooner had he said it than things went cold for Guy's.

According to the company's February Chapter 11 filing, Guy's Foods -- with about 1,000 employees and more than 15,000 customers who purchased its products in a 12-state region -- generated gross revenue of approximately $98 million for the fiscal year ending September 24, 1999. But that was not enough -- the company had expected to make $125 million.

"Quite frankly," the company president told Acconcia, "we ran out of cash."

Sabatino pointed to competition from snack giant Frito-Lay. Then there was his company's decision to bolster its own marketing expenditures. Finally, an ongoing inability to maintain payments to creditors caught up to the big Guy.

Sabatino wasn't prepared to end his five-and-a-half-year run this way. A third-generation snack-food maker and distributor from Columbus, Ohio, who had engineered the purchase of Guy's from Borden Foods in 1994, Sabatino said he'd made a long-range commitment to refresh a company that had experienced a dip in chip sales during the early '90s. Borden had owned the Liberty plant since 1979, when company founder Guy L. Caldwell sold it for $15 million cash after establishing his product as one of Missouri's most identifiable brand names.

At the bankruptcy hearing, Sabatino praised his dedicated workforce, which had enabled the company to reduce losses in 1995 and 1996. He said the company had made a profit the next two years.

By 1998, Sabatino was oozing self-confidence in a SNACKWorld cover story -- he was chairman of the board of the national Snack Food Association -- pointing to the demise of Anheuser-Busch's Eagle Snacks as a motivator for Guy's.

"You're never finished turning a business around," Sabatino told the magazine. "The day you quit trying to improve is that day you quit breathing."

For a while, sales picked up after Eagle's exit from the market, but Guy's itself suffered a hard landing in 1999. It was fighting a losing battle for shelf space with Frito-Lay, a PepsiCo company boasting a more than 60 percent share of the U.S. snack-chip market (in 1998, Frito-Lay reported $7.5 billion in North American sales; Guy's total was around $125 million). Sabatino's company was feeling the crunch as sales and assets diminished. In bankruptcy court, Sabatino said Frito-Lay's aggressive spending and promotional discounts caused "severe competitive pressure."

Ironically, Guy's had won a moral victory against Frito-Lay in 1997, when the Doritos maker dropped a lawsuit against Sabatino's company. Frito-Lay had contended that Guy's was guilty of falsely advertising its new Bonus Packs, which claimed to offer "25 percent more free" product than the rival corn chips. At the time, Sabatino issued a salty press statement: "This isn't about tortilla chips. It's about marketplace competition. It's about the fight of the consumer to have choices.... Frito-Lay doesn't like consumers being able to buy Guy's quality products instead of their own brands. They tried to stop consumer choice by bullying us into court."

But now Sabatino found himself in court anyway. He told Acconcia that Family Snacks, his Guy's holding company, had been having trouble finding potential buyers. Bankruptcy, he said, was the next logical step to keep Guy's alive. Judge Frank Koger granted Chapter 11 protection on the condition that the company find an acceptable buyer.

The company's travails did not go unnoticed by its peers. Snack Food & Wholesale Bakery, an industry trade publication, wrote in its annual state of the industry report for the year 2000: "The bankruptcy filing and subsequent auction bid involving Guy's Foods reminds everyone that experience doesn't necessarily guarantee success. Add to this the consolidation occurring among retailers, and one soon discovers that this league does, indeed, require plenty of heart, head, and chutzpah to play in."