Case Study: Dessert Holdings

Unparalleled visibility enabled the food manufacturer to eliminate unprofitable volume, onboard new acquisitions and employ rolling forecasts. 

Organization Information

• Private equity-owned food manufacturing company started with the 2015 acquisition of the British Colombia-based company, The Original Cakerie.
• Dessert Holdings was established in 2016 after the acquisition of a second company, Lawler Desserts, centralizing finance and sales operations for the two companies.
• A third company, Atlanta Cheesecake Company, was added in 2018.

Problems Identified:

• Each of the three companies was independently operated, with unique business structures, running on separate ERP systems.
• Private equity acquisition dramatically changed reporting and analysis requirements for each of the three companies.
• The operating companies were producing a high number of SKUs, creating operational complexity that resulted in a drag on margins.
• Efficient procurement and production require reliable forecasting from a single sales team working across all three businesses.

Solutions Implemented:

• Implemented Catalyst by EBM Software, consolidating all three businesses into one view and structure.
• Used Catalyst’s profitability analysis tools to perform SKU and customer rationalizations, eliminating unprofitable volume.
• Utilized Catalyst’s planning and forecasting tools to build a strong connection between sales, finance, procurement and manufacturing; greatly improving efficiency.

Benefits Realized:

• $18MM in unprofitable SKUs eliminated in 2018
• +9% in EBITDA growth in 2019
• 3 BUSINESSES managed from 1 consolidated view

Building the Company

When Gryphon Investors acquired Canadian dessert maker The Original Cakerie in 2015, the operation looked much different than it does today. Since then, they installed a new CFO and finance team, established a holding company, acquired two more businesses and completely changed the approach to analyzing and operating the business.

A key component of the transformation was the implementation of EBM’s Catalyst software solution, which was one of the first orders of business after the acquisition. From the start, Catalyst enabled the Original Cakerie to graduate from the basic accounting practices they had been using for years, to the advanced analytics and reporting required by the private equity firm and lenders.

According to CFO Chris Rogers, who was installed by Gryphon shortly after the acquisition. “One of the problems we wanted to address immediately was the reporting. What they were producing wasn’t timely, it was cumbersome, and it was lacking depth. We had a lot of difficulty seeing issues and opportunities. The question was, how could they get the level of reporting they needed without having to add a bunch of people? That’s when Catalyst was brought in.”

As the company grew, they decided to acquire another business, Lawler Desserts (Houston, TX) and establish a holding company to manage the two businesses. A new challenge arose, as Lawler Desserts had a different ERP system and financial structure, so Catalyst came into play once again. Catalyst was put over the top of Lawler’s ERP, allowing the new management team to seamlessly view and manage both businesses under a single structure.

The holding company, of course, was established with the mindset that they would likely be acquiring more businesses down the road, and opportunity called once again in 2018 when Dessert Holdings decided to acquire Atlanta Cheesecake Company. During the sale, Dessert Holdings used the Catalyst software as a key part of the due diligence on the potential acquisition.

“Catalyst was extremely helpful in the diligence process because we were able to create a hierarchy structure for Atlanta Cheesecake that mapped against ours. We could very easily begin to benchmark things like their plant operations and their cost structure, relative to our existing plants,” says Rogers. “It helped us identify potential synergies and opportunities, as well as things we needed to investigate further from a cost standpoint, to ensure we understood the margin structure of their business.”

Once the acquisition was complete, Dessert Holdings was able to hit the ground running immediately with Atlanta Cheesecake Company. With the data already in place and the hierarchies built, EBM Software only needed to build the final connections to the new company’s ERP and Dessert Holdings was able to get detailed reporting from the system within the first two weeks after the sale.

Rainmaking

As Dessert Holdings grew, sales for the three businesses were also growing, and in 2018, the team saw production capacity could become a potential barrier to further growth. One option, of course, would be to add more capacity. However, the team knew this would likely be a multimillion-dollar investment.

Meanwhile, Desserts had been assembling a small, 3-person FP&A team in St. Paul, MN to serve the increasingly complex financial needs of the business. Facing a difficult decision, the team decided the most prudent move, before spending millions of dollars in capital, would be to make a hard assessment of the current product line and customers. The team used Catalyst to take a deep dive into SKU and customer profitability, in an effort to eliminate unprofitable volume. According to VP of Finance Steve Hentges, “The exercise was about making the most out of our sales capacity. If you have a fixed asset base, you literally can only produce so many cases. So, the question is, how profitable can you make each of those cases?”

Dessert Holdings used the SKU and customer rationalization to eliminate $18MM in unprofitable volume, constituting about 5% of their total sales. Catalyst’s analysis tools allowed the team to spot these zero-to-negative profit items, and by eliminating them, it would free up capacity to replace them with SKUs with margins that were accretive to the business.

“The biggest asset of the Catalyst software, from my point of view, is our ability to understand the results. It gives me an idea of customer and item profitability, which is extremely powerful, and helps us guide our resources to the right places.” says Hentges. “I can do rate-volume mix effects calculations on our results that would not otherwise be available.”

Building upon a strong foundation, the Dessert Holdings team also used Catalyst to democratize data throughout the organization. Using Catalyst’s planning and forecasting tools, they engaged the sales team in a bottom-up forecasting process, using real time projections from the sales team to inform decisions in procurement and manufacturing. 

One potential complication for a sales team who is selling across three businesses is the hurdle of working through forecasting for three different operations. Using Catalyst forecasting tools eliminates this complication completely. According to CFO Chris Rogers,

“We’re working on three different ERP systems right now, but the sales organization would never even know it. They’re forecasting for their customer across three different businesses, but they don’t have to build a separate sales forecast for the teams in Canada, Houston and Atlanta. The data just comes into Catalyst, and from there, we can do whatever we want with it.”

Integrating Catalyst so deeply into the forecasting process has also had another highly impactful benefit for the organization: it has created a feedback loop that gives constant visibility to the growth of the business and allows them to make important changes along the way. According to Rogers, “Catalyst’s feedback loop helps us identify where our growth is, where we’re forecasting it to go, and tells us how good we are at forecasting it. We can see all that at a very granular level. With our sales organization, we’re able to establish sales goals down to which customer they’re selling to and measure their progress throughout. It’s very important for driving accountability.”

For the sales team, Catalyst has become an invaluable resource. From the day-to-day real time information, to the forecasting, to the quick access to reports and historical data, it empowers the team with information faster, making their jobs more efficient. VP of Sales, Mary Aronson, shared an example: “When the month closes, we get the presentation deck and we have to write our channel reviews for our chairman of the board and the board members. Normally, this would take a lot of time. But with Catalyst, you’re so close to the business and you’re watching things progress throughout the month, so there really shouldn’t be any surprises. You’re seeing everything happen in real time,” says Aronson.

Using Catalyst to fuel so many aspects of the organization’s growth, CFO Chris Rogers reflects on the wide-ranging role the software has played.

“It has evolved as our organization has evolved – from one company, to acquiring multiple companies, to evolving our portfolio of businesses to work with a single sales force. Catalyst gives us a single aggregate view of the whole business and a deeper understanding of it, while greatly improving our planning and forecasting process.”