E.D. Smith & Sons Ltd. is one of those companies that's trapped in the middle with nowhere good to go.
With annual sales of about $140-million a year, chairman Llewellyn Smith said his food processing company is too big to be a regional player and too small to be taken seriously by the big multinational buyers.
And that leaves the widely respected -- and profitable -- company just two options. Sell out to a big multinational or buy into the big leagues and compete with the multinationals eye to eye.
There is a third option -- just sit tight and hope for the best. But Mr. Smith dismisses that with a wave of his hand. "If we don't do anything, if we don't expand, we'll become a small regional player. That is not an option. We'll be left behind."
Mr. Smith said he has begun beating the bushes for potential buyers, although he would rather form an alliance of some sort that would meet his goals.
E.D. Smith is just one of dozens of small and medium-sized Canadian companies that are being squeezed out as the North American food industry consolidates into a handful of huge multinationals.
"It's a common problem," said financial analyst William Chisholm of Dundee Securities Corp. "E.D. Smith is too big to be a family business, but it doesn't have the wherewithal to become a national business [in the United States] It's difficult to grow his [Mr. Smith's]business out of the Canadian market."
Mr. Smith is the third-generation Smith to run E.D. Smith, the biggest employer in the town of Winona in Ontario's famous Niagara Peninsula fruit-growing belt.
The company is famous for its jams and pie fillings, high-profile products that have managed to elbow themselves a hefty chunk of shelf space in supermarkets across the country.
But more than half of E.D. Smith's business comes from less well-known, but equally important, products. It makes tomato ketchup, a range of pasta sauces and a host of tomato dressings for the pizza industry. It makes the famous HP and Worcestershire sauces under licence and a wide range of foods for the President's Choice and other supermarket in-store brands.
"It's not a question of sales volume," Mr. Smith insisted in an interview. "It's relationships."
In Canada, Mr. Smith says he has such good relationships with pizza and supermarket chains that they call him first if they want a new product on their shelves. And he often gets the business.
In the bigger market of the United States, his company sits so far back in the supermarket Rolodexes that Mr. Smith rarely gets those all-important telephone calls.
Logistics is another problem that a company of this size finds difficult to solve. The big U.S. chains like to sell identical products in every one of their outlets across the United States. To meet their demands, Mr. Smith would have to ramp up production of cherry jam, ketchup or pizza sauce, set up a network of warehouses across the United States and ship enough product to supply the entire chain at once.
And that is a very expensive proposition.
The competition is particularly fierce with canned or bottled goods because they can be shipped around the world and stored for months. Mr. Smith said he can compete effectively within about 1,000 kilometres of his plant, but farther away he comes up against the big multinationals with their huge volumes, warehouse networks and economies of scale.
"Beyond 1,000 kilometres, we need critical mass," he said.
Mr. Smith's preferred option is to form an alliance with another company. The partner doesn't have to be particularly big. But it has to have the relationships, the one-on-one personal contacts and the warehousing to do the deals that would make E.D. Smith a significant national player in the United States.
Mr. Smith said one possibility is to sell his shares in the family-owned business and hand over control to somebody else. "I could relinquish my equity to get the thing done. I would exit the business," he said.
Instead of selling out, Mr. Smith said he could form an equal partnership with a compatible company. He would offer E.D. Smith's product lines in exchange for the business relationships and warehouses that he needs.
Mr. Smith has one caveat, however. The buyer must want the entire E.D. Smith operation and its 380 staff.
He is not interested in companies that would cherry-pick the best brand names and move production to the United States.
"We are looking for a buyer who would value the entire operation, who would show real interest in the whole operation," he said.
Mr. Smith has given himself until early July to find such a partner. If none turns up, he will move to option two, the riskier and less satisfying route of buying a company with the relationships and warehouses that he needs.
"Our safest route is to link with [or sell to]a company that has the logistics and customer relationships," he said. "If that is not possible, we'll make acquisitions on our own, go down a road that is riskier."
Mr. Smith has tried many other tactics to keep his company alive and growing. They've worked well enough that E.D. Smith claims that it ranks in the top third in a survey of North America's best-managed companies.
"We're profitable," he said. "We're not desperate to sell. But we have to do something or we'll wither away."