Welcome to Season 9 of the Troubleshooting Innovation podcast. Joanie Spencer, editor-in-chief for Commercial Baking, is spending this season with Darlene Nicosia, CEO of Hearthside Food Solutions. They’re talking about operations, culture and innovation … behind the curtain of co-manufacturing. Sponsored by Reading Bakery Systems.

In the first episode, Spencer and Nicosia walk through Hearthside’s history and explore the career timeline that led Nicosia to the food industry’s largest contract manufacturer.

Learn more about this season here, and listen to Troubleshooting Innovation on Apple, Spotify and Google.

Joanie Spencer: Hi, Darlene. Thanks so much for joining me.

Darlene Nicosia: Joanie, it’s great to be here with you.

Spencer: I am so excited to spend these next five weeks with you and take a deep dive into not only Hearthside, but, more importantly, your role. You play an interesting role in the industry — and with Hearthside —due to your history and philosophies on manufacturing, and contract manufacturing. I am excited to walk this journey and get your take on what innovation looks like through your eyes.

Can you share a brief timeline with me of Hearthside Food Solutions? How did Hearthside go from being the first Wind Point company to being a part of Goldman Sachs?

Nicosia: Well, Joanie, as I said, it’s great to be with you and I look forward to spending the next five weeks together.

As you think about Hearthside and our history, the business was really formed 13 to 14 years ago, in 2009. We started as four bakery plants that the company acquired from Roskam back then. If you think about the growth of the business, while its heart has always been in the baking side of the industry, the company has been through 10 acquisitions in the last 13 years. And it’s been amazing because over these different time periods, the business has bolted on adjacencies to that baking business.

So back in 2013, the company added a packaging capability that’s been significant, especially if you think about where we are today with consumer choice. Everything from single-serve to club packs are so important across many of our customers’ portfolios. But in 2015, we started getting into all types of bars, baked bars, high protein bars, cereal bars, etc. And so, we really bolted on some more acquisitions in 2015, to get into the bar side of the business.

In 2018, an important milestone came together, both Partners Group and Charles Bank came together to acquire Hearthside and create the businesses between Hearthside at the time and Greencore. That really gave us new capabilities in the fresh, refrigerated and frozen side of consumer packaged goods. If you think about that journey that we’ve been on to build the 39 plants in our infrastructure, it’s really been through thoughtful acquisitions and really looking at what categories our customers play in, and how we can best support them to be North America’s largest contract manufacturer of food.

Spencer: I liked that you said, “thoughtful acquisition” because I was thinking of a similar word as you were explaining this. It’s been really cool to watch how Hearthside has matured and entered all these different markets but has done so very intentionally. It wasn’t this Frankenstein operation; you have really splintered out into different markets very thoughtfully.

Nicosia: It is interesting because if you look across our customer spectrum, many of our customers operate in two or more of the categories that we manufacture out of those five key pillars, but you see some customers in three or four of those pillars. So, it’s nice to see that we can offer them both a platform across their businesses, but also as they’re thinking through their own growth and how they want to get into new adjacencies. They already have an existing relationship with us, and we can start to do R&D and innovation for them to get them into those new categories.

Spencer: Okay, so I’m starting my next question with “meanwhile” because as Hearthside was growing and maturing, you were on a path of your own, which is also very interesting. So, while all that was happening, what was happening in your own timeline? How did you get into manufacturing and what was your journey that led you to Hearthside?

Nicosia: I very distinctly remember, when I was in college — I went to Ohio State, Go Buckeyes — I went to hear a speaker from Kimberly Clark talk. She was talking about her career in operations, and the way that she described her work was, “I’m constantly solving problems, but it feels more like I’m really engaged in strategic puzzles.” She described this really interesting side of operations that I now would say is continuous improvement. But this opportunity to constantly look at things and to evolve them intrigued me. In a lot of roles early in your career, you’re solving problems, and I just loved the opportunity that I had from a supply chain standpoint.

I started my first job in the field in a manufacturing environment. I always felt like it was an opportunity to best the prior day and see how many more cases we could get out the door every single day. I love the competitive spirit of it and the opportunity to constantly get better. It was a place for me that I just felt really touched on things that were important to me — This idea of being able to use my mind in a way to be creative and problem-solving, but to also be analytical. The ability to engage with people, so much of what you do in operations is working together in a team-like environment. I have played sports all my life and really love that aspect of coming together with other people to give your best and get a great outcome. For me, it was easy to go through my career, because I was always enjoying what I did. It never really felt like I was working. It felt like I was doing things I was passionate about. I could see improvement and relationships building, and I was able to enjoy it the whole way through it.

Spencer: It is funny because you talk about solving puzzles and being strategic like that. I’m thinking as a journalist, I use a completely different side of my brain. It’s funny to hear you say solving those problems and continuous improvement was so enjoyable for you, because for me, that sounds like a lot of work.

Nicosia: Well, it can be work, but when you find this opportunity to make something better, you start to see things improving and then you have a new idea that can make it even better. There’s no better feeling. Obviously, the opportunity to use that in a business context …  you start delighting the people that you’re working with, the customers you’re serving and then you deliver business results. The opportunity to hit on all those things brings us a huge intrinsic reward. I certainly know that’s what’s fueled me in my past.

Spencer: I like that idea of when done correctly operations can delight your team and delight your customers. That’s a really great way to put it. So then, how did your journey lead you to Hearthside? How did Hearthside get on your radar, because you’ve got big experience with some big brands in food and beverage?

Nicosia: I think there’s this interesting part of my career journey. I spent most of my career in operations in some way, shape or form. I was on account teams for major customers, but when I would work on customer account teams and things like that, although I was interacting with customers, there was always an operational bend to it. Even in my times as a business unit president in really driving the business for Coca-Cola, there was always some element of operations, such as trying to get product to market, how you’re working with retailers, can you find ways to do direct-store delivery differently, or merchandising differently to really help and bring some value to your customers.

As I started going through my own career journey of understanding what I wanted to do next, Hearthside had been on this massive growth path, and they had an opportunity for me to come and lead this great business and really take it from coming right out of the pandemic and into its new phase of growth. I just felt like it was a great opportunity for me to take some of the deep operational experience that I have and help the company grow in new ways with a number of CPG customers. I felt like I had a lot of parallel stories within my past. I was the chief procurement officer for Coca-Cola at one point in time I ran our global supply chain, and there were just a huge number of parallels with how we operated. I just felt like Hearthside was a business that I could bring not only strategic leadership to, but a real operational understanding of the business.

Spencer: Let’s talk about some of those parallels for a second. What was it like going from operations in this huge brand like Coca-Cola to contract manufacturing? Because you essentially went from being the customer to being the vendor, right?

Nicosia: Well, first, maybe I will take a step back. There’s no doubt that after a 30-year career with a company and brand like Coca-Cola, it shaped my leadership style due to the values it stands for and what it was a part of culturally. For me, my career has only been about a number of things. It has been about personal connections, openness and transparency, and quality and trust.

Maybe the most important thing that I took away from my time at Coke, in really reflecting on the brand, was this idea of optimism. You can even think of Coke slogans, “Open happiness.” or “Have a Coke and a smile.” The brand breeds optimism, and I had the benefit of being in that environment for 30 years. Belief is such a powerful thing. I think you can always make a moment better.

As I made a transition to Hearthside, I think the parallels that I carry or the things that I feel lead over into my leadership now, I carry this optimism with me. It’s this continued sense of belief in our teams and our opportunities to continuously improve our business. The opportunity to build even stronger, open, honest and trusting relationships, not only with our employees internally with the company but also from a customer lens and a customer perspective.

To answer the second part of your question, about moving from the customer to the vendor side, I probably sat on both sides of relationships. I was a chief procurement officer, and obviously, I dealt a lot with global suppliers. I was the customer in those circumstances, a lot like I am now with many of our large CPG customers. I worked with the largest suppliers in the world, as well as the smallest ones. I think the most important thing for me that I always tried to impart is those relationships. Coca-Cola had a lot of buying power. You could certainly say that there was an opportunity to squeeze suppliers to a point where maybe they weren’t even profitable. But that will only get you a short period of time of supply or services that you need.

You really need your partners and suppliers to be successful with you. If they’re successful with you, and you’re both able to grow, it frees up money and things to invest in R&D, to invest in the best people to really bring innovation and creative ideas. I carry that with me all the time. I even talk about it in some of the tough conversations with customers and with my own team. I say “Look, we must find ways to build the relationship to build the success together. If this is you take all and we take none, there are other relationships that we can go and invest our time in.” I spend a lot of time thinking about how we win together, and how do I make sure my customers get the absolute best for my team. It allows them to win, and hopefully, we’ll win at the same time.

Spencer: I feel so inspired right now, Darlene. It is one thing to leverage your buying power — and in business that is important — but that was deep to say that only gets you a better price on something. It doesn’t leverage the relationship in the long term. I think that is a key lesson that some learned the hard way, not only during the pandemic but also during supply chain disruption.

Nicosia: That is a good point. I think the relationship between any customer and supplier has evolved since the pandemic. Part of it is because there was scarcity, right? Everybody needed incremental capacity and only a few places had it available at that time. So certainly, the strongest of relationships probably won, big and small. I think people relied on and went back to their best of customers and serviced them well. I think companies did it in their own small ways. They looked at their SKU portfolio, and they said, “These are my most reliable brands or items, and I’m going to keep them on the shelf every single day.”

The things that only a small consumer base really trials or buys infrequently probably got pushed to the end of the queue and didn’t get any shelf space or production time. There are a lot of ways to think about relationships and partnerships. But in the contract manufacturing world, we absolutely value the relationships that we have today. When we’re innovating and looking at the capital we must deploy, we want to do it with our partners.

Spencer: You talked about the optimism that comes with working with the Coca-Cola brand. I’m going to date myself, but hearing you talk about that and then these relationships, all I can see is a bunch of people on top of a mountain, singing I’d like to buy the world a Coke. I think that sentiment from that old ’80s ad really sums up what you’re talking about and the importance of relationships, applying it to your vendor relationships, your team, your operation and how important that is.

Nicosia: You know, Joanie, it’s a great point. It goes a long way to talk about the culture inside of an organization. When you’re winning and feeling like you have great relationships, both internally and externally, it feeds upon itself. There’s a bit of opportunity for it to flow over into everything that you do. I do think that optimism is an important part of leadership, culture and how you deal with your stakeholders. It does allow you to get the best out of all those environments.

Spencer: I agree. I want to go back a little bit and talk about your transition from Coca-Cola to Hearthside. What was it about this opportunity that made you want to engage in it? That is a big jump, to go from one of the world’s biggest brands to North America’s biggest contract manufacturer. At the heart, the operational part is very similar and there are parallels. But when you look at the big picture, it was a leap. What attracted you to come into the world of co-manufacturing?

Nicosia: I think I saw parallels in my own business. As I mentioned, I saw not only Coca-Cola but a lot of other consumer products companies at this point of growth in their own companies, where they were looking to invest more and more in up-and-coming innovative new brands, or they were looking to get closer to consumers with the whole digital movement. A lot of investment was required for CPGs to continue to grow. They had to make choices where they were investing their dollars. I think most CPGs would say that they would prefer to invest their money in either acquiring new brands, building out adjacencies, or creating stronger relationships with their consumers, rather than investing in physical infrastructure. And that’s exactly what Hearthside does. We build physical infrastructure. Infrastructure is a service, if you want to say that, just in the food industry and not the technology industry.

I saw more and more companies making this decision to have strong and reliable outsourced manufacturing partners. It gave us this opportunity to have a strong viable business, where we were able to provide high quality and reliability with innovative flexibility to those opportunities so that our CPGs could go in and invest in their consumer base.

I just saw a significant amount of growth opportunity in this industry. This industry is already very well penetrated in contract manufacturing. If you look across the categories that we operate in, they have been utilizing contract manufacturing for a very long time, the trends just pointed in the right direction for the industry. Then I had the opportunity to look at Hearthside specifically and again, most companies are very narrowly focused on a single category, the fact that we are into pretty much anything snacking made me feel like because of my understanding of CPG, it is a great place for me to lead.

Spencer: We’re going to dive deeper into this as we go along over these five weeks, but I just want to get a flavor for your entry into co-manufacturing and where you are, really, after this first year. What would you say are your biggest learnings over the past year from your transition from Coca-Cola into Hearthside?

Nicosia: I think as a contract manufacturer, you have significantly less control over what you produce and when you produce it. I think the difference in how we plan our production volumes and execute against them is very different. At Coca-Cola, when volumes were soft, we could work with our customers to offer consumer promotions, invest in marketing, etc. There were all kinds of mechanisms that we could control or use to drive consumer demand. We could work with retailers in a different way. And obviously, we could build inventory to smooth out our demand.

I think as a contract manufacturer, some of those levers that you could pull are not necessarily available to you. Your customers more deeply control that, so therefore they’re carrying that flexibility in those decision rights. They can cut back orders or cancel orders with limited notice, but we may have employees and a production line lined up and ready to go.

Once you lose that window of opportunity, you lose it forever. You pay the employees for their time and for showing up. You have that equipment and all the costs associated with it. There’s this very huge dynamic of thinking about how you continually balance the needs of your various customers across all the capital and infrastructure that you have.

When I talked earlier about this idea of problem-solving, putting puzzles together, and the complexity of what we do with so many plants and production lines, that comes even more into play. The ability to understand how to drive in an efficient manner becomes so much more important than in a contract manufacturing environment.

I will tell you that we’re spending a lot of time right now talking with our customers about demand and demand smoothing, and how can we work and be better partners to each other so that we can anticipate what demand is looking like in the future. This way, it helps when scheduling line time and labor and makes sure that it’s efficient for both us and our customers. Because we do want to give them great service, but also take care of our people with consistent work.

Spencer: Yes, and that’s like the ultimate puzzle.

Nicosia: I would tell you data and information also has been helpful. So much more technology is coming forward, that allows you to do S&OP processes in a much more technical way with all kinds of scenario planning and allows us to optimize what we do. But there still is this human element of it, where there’s a lot of scheduling that still happens in a manual way to try and get the most out of our teams.

Spencer: All right, Darlene, that was my last question for this episode. I think we had a really good conversation that lays an awesome foundation for diving into a lot of topics on innovation behind the curtain of co-manufacturing. Thanks so much for this first visit. This was wonderful.

Nicosia: This has been awesome. Thank you. I look forward to being with you next week.

Spencer: Next week, we are going to uncover some of the most critical factors in creating a cohesive operating culture and why that is so important for contract manufacturing. So, I am looking forward to that conversation next week.

Nicosia: Great. Can’t wait to see you then, Joanie.