Valley Rising!

Mike Buzalka

Valley Services

Major new showcase accounts highlight the emergence of this formerly
regional company onto the national scene.

Valley Rising!

The new Nissan assembly plant near Canton is one of the biggest things to hit Mississippi in recent years. The 3.5-million-sq.ft. facility sits on 1,400 acres and by the end of next year, when it is fully up-and-running, it will employ 5,300 Mississippians to build some 400,000 vehicles annually—including the company's touted new Armada sport utility vehicle.

This past February, the contract to operate foodservices, retail shops and vending at the Canton plant went to another big Mississippi economic success story, the Jackson-based contract management firm Valley Services.

Just four years ago, the idea that Valley would be competing for a major piece of B&I business like the Canton Nissan plant—even in its Mississippi backyard—would have been rather far-fetched. Though it was one of the industry's bigger regional firms, with $80 million in sales in 1999, the company's clientele consisted mostly of senior feeding centers and smaller businesses, healthcare facilities, colleges and correctional facilities in the South. Nothing in the company's portfolio suggested it could take on a major client like Nissan.

That was then. What a difference four years make!

Today, Valley continues to service many of the same accounts it had in 1999, and its primary market for manual foodservice management remains Mississippi and the immediate surrounding states. However, the company is also clearly on the fast-track, securing a series of major contracts with public and private clients that have fueled one of the industry's most robust growth rates.

Since the turn of the millenium, Valley has landed not only the Canton Nissan plant but contracts with Alabama for managing both its statewide senior meal programs and foodservices for its 13 mental health facilities, a contract with the Mississippi Dept. of Corrections to feed some 11,000 inmates three meals a day, a contract with the Health Management Associates (HMA) hospital chain to provide food services to their seven facilities in Mississippi and a contract with Mississippi Veterans Homes to manage foodservices for their four statewide facilities.

Outside of Mississippi and immediate surrounding states, Valley is leveraging a base of core clients to establish a presence in outlying markets and build on that presence to win new customers. In all, Valley now manages foodservice operations in 25 states, and that's not counting the national customer base for its booming business in supplying frozen pre-prepared meals to senior feeding programs.

The catalyst for all this sudden movement was an ownership change effected four years ago that incented a group of long-time managers to take over and grow the company in return for an equity stake in its success. So far, that gambit has paid off handsomely as annual revenues jumped from $120 million in 2000 to $166 million in 2001 and $203 million in 2002, without any acquisitions during that period. Last year's spurt was fueled largely by the Alabama contracts, and another big leap is expected this year as the numbers from the major new accounts—especially Nissan and the Mississippi Dept. of Corrections—kick in.

Roots

Valley's current market position evolved slowly over four decades, most of it under the direction of William Hogg, who founded the company in 1960 as Mississippi Valley Food Services. Hogg, a classic entrepreneur who had already started grocery distribution and food production businesses, concentrated Valley's focus on supplying cafeteria management services to businesses and production plants in the Jackson area.

Mississippi Valley was a B&I specialist until 1972, when it landed a contract with the state of Mississippi to manage a senior dining program under the then-new federally funded Older Americans Act. The contract was small—only about 60 meals a day—but it gave the company an opening in a new market niche, which it exploited quickly. By 1978, its senior feeding operation in Mississippi was turning out some 8,000 meals daily, making the state contract the company's largest piece of business.

Other diversification followed as Mississippi Valley entered the healthcare and education segments. By the mid-80s, it was large enough to justify a split into two divisions: Dining Services, encompassing the manual foodservice and vending operations, and Senior Feeding.

A name change to Valley Innovative Services signaled the company's expanding reach beyond its home state, but through 1999 it remained a primarily a Southern regional management firm. Then, an acquisition of a Georgia-based contract management company, Central Foods, not only expanded the company’s geographic scope but gave it a number of high-profile corporate dining clients like the federal Centers for Disease Control, CheckFree, Inc., and—most prominently—the Coca-Cola World Headquarters in Atlanta, still the company's premier showcase account.

But shortly after the Central Foods deal, Hogg—by now entering his 80s—decided to move on from day-to-day involvement with the firm he started. So he turned to a group of long-time employees of the company and offered a deal.

"He brought us in and basically put it to us, ‘Look, you either make it profitable and make it grow or I'm selling because I'm too old to be worrying about it any more,’"recalls President/CEO Mike Craft.

He also sold the group a 20 percent share of the company with a promise to sell them another 20 percent if they met certain growth targets.

The newly energized management team—Craft was named president around this time and later became CEO—laid out a growth plan based partly on confidence in their formula and partly on ambition to see how far it could take them.

"We know what we do well," Craft says simply. "So we just decided to take that and see if we can also sell it in other parts of the country."

The expansion was deliberate but relentless, often using existing clients as springboards to penetrate new markets and then using those new accounts as showcases to market to still more customers in the area.

For example, the company used CheckFree, which is based in Atlanta but also has operations in Phoenix and Dublin, OH, near Columbus, to enter those markets. The entry into Arizona with CheckFree then allowed Valley to secure one of its showplace healthcare accounts, Tucson Regional Medical Center. Later this year, Valley plans to begin managing CheckFree's Chicago unit, giving it entry into that crucial Midwestern market.

Meanwhile, the senior feeding division also began looking outside the Southeast, picking up contracts in markets as far away as Salt Lake City and San Francisco. Today, the division, called Traditions, is Valley’s most national venture, providing pre-packaged frozen meals to senior feeding programs from coast to coast.

While about a third of Valley’s revenues come from the senior meals production division, the rest is realized from managing foodservices and vending for a diverse mix of B&I, healthcare, college, academy (private school), corrections and senior feeding clients.

Current major Valley hospital accounts include the University of Mississippi Medical Center, Central Mississippi Medical Center, Women's Hospital in Baton Rouge, LA, and the HMA Hospitals of Mississippi network. Valley also manages foodservice in more than two dozen colleges, many of them community colleges in Mississippi but also including Millsaps College in Jackson, Birmingham Southern University and Tyler (TX) Junior College.

In addition to Coke, CheckFree and Nissan, Valley B&I clients include Chase Manhattan Bank and the CenturyTel World Headquarters, both in Monroe, LA.

Packaging convenience for MOW

Traditions’s success in becoming a major supplier of food to Meals on Wheels Healthcare and similar programs nationally is based on the efficiencies it can offer programs by centrally producing complete, pre-portioned frozen meals. Such meals are an increasingly attractive alternative to the traditional labor-intensive hot meals MOW programs have prepared individually in local commissary kitchens and delivered daily to homebound seniors by volunteers.

Valley's prepared meals business began about a dozen years ago when it was asked to produce frozen meals to help Mississippi’s MOW programs handle rising costs. The program proved so successful that three years ago the company built a brand new, self-designed, 64,000-sq.ft. commissary facility in Jackson, recently expanded with a 16,000-sq.ft. addition.

The plant produces some 140,000 flash-frozen meals a day—twice the number originally conceived when it was designed—for MOW operations and some clients in other segments like detention centers (the plant also produces a few shelf-stable meals for emergency feeding applications).

Because senior feeding is a high-volume, cost-constrained segment, efficiency in meal production is crucial, and that's where the new Traditions plant provides significant savings. Designed specifically to streamline operations and reduce wasted motion, it offers a seamless production environment in which raw material comes in at one end, meals are assembled from pre-prepared speed-scratch components (the plant does no from-scratch cooking of any meal or meal component) with machine-like precision in the middle and boxed product by the pallet load gets shipped out at the other end. Delivery to clients is effected through major foodservice distributors like Sysco Corp. and US Foodservice.

Valley's MOW clients include major city programs like Detroit, Houston, Cincinnati, Little Rock, Galveston, TX, as well as the states of Mississippi and Alabama. It is looking to expand into other niche markets, such as healthcare facilities where there is a need for convenient late-tray and night-meal solutions, or as HMR (home meal replacement) meal options for outpatients and staff.

Traditions's MOW meals are all produced to the USDA's Recommended Dietary Allowance standards for nutritional content. The company has 43 different menu choices available in five-week cycles, and these are bundled into two-, five- or 7-meal packs, with each meal complete on dual-ovenable trays with sides like bread and milk.

There’s also a 20-meal foodservice bulk pack containing a single meal selection for congregate feeding applications. The program simply retherms the already-portioned meals onsite and adds its own sides.

Ambitions

Walk through the new Nissan assembly plant in Canton and you'll...well, you'll be very tired, because it's enormous. But beyond that, the plant offers both a good illustration of the variety of services Valley offers to traditional foodservice clients, and its importance to the company.

"Nissan is crucial to us to show that we can successfully service large manufacturing plants," says Senior Vice President of Health & Dining Services Jim Walt, "just as Coke shows we can successfully operate high-end corporate dining."

Valley’s cafe at the plant, which will feed primarily administrative personnel (much of the production areas are too far away to make it practical for many line workers), has options ranging from Valley's own signature brands like Traditions and Deli Depot to manufacturer-branded self-serve stations. Remote-ordering kiosks will be operating by the fall to reduce the crush as the plant gears up from the current 1,500 people onsite to more than 5,000 by year-end.

Out in the production areas, which stretch out in football-field-sized increments, three small onsite c-stores offer hot food options like pizza and hot dogs, along with snacks, beverages and heat-and-serve foods, to production workers. Even now, with only a skeleton crew, the lunchtime lines are long, so the main onsite food and beverage retailing will come from the vending stations scattered across the factory, which Valley also manages.

"Vending is increasingly important to us to augment revenues, especially in B&I," says George Ardelean, senior vice president of sales & marketing for dining & health services. "It’s something we look at closely when we evaluate corporate dining accounts."

With its diversified customer base, its profitable and growing meal production operation, its expanding gallery of showcase accounts, its highly motivated management team and its territorial ambitions, Valley is clearly a company to watch. Craft says it’s poised to hit the growth targets needed to trigger the additional management equity purchase from Hogg "sometime next year."

Can Valley eventually become a major national player? After all, though it has just barely dented the possibilities outside its core Southeast market, it’s already become the largest broad-market contract management firm in the country outside of the "Big Three." The other large independents all specialize in particular segments.

"The growth over the past three years has been evolutionary, not revolutionary," summarizes COO John Covert. "It's taken us a while to evolve into what we've now become."

Where that evolution takes them from here will be interesting to see. FM