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.”

In the months leading up to and following bankruptcy, Guy’s Foods became the subject of numerous rumors, court filings, and investigations alleging impropriety on a number of fronts. Employees expressed concern about their insurance and workers’ compensation plans, the company’s marketing and administrative expenditures, and the code of conduct — or lack thereof — set by Sabatino and other key executives in recent years.

“I have nothing to hide,” said Sabatino, who was ordered to return his wife’s leased sport-utility vehicle to the dealer as part of the bankruptcy settlement. “You’ve got these people saying we are immoral and embezzling. They were saying, ‘Quit spending money and give us a raise.’ What do they think makes this business run? When you’ve got a thousand employees, all you can do is run the business the best you can. If everybody would have (felt the same way), things would have worked out.”

Things had begun unraveling publicly for Guy’s Foods when Daniel K. Harper, Sabatino’s right-hand man, was indicted in April of 1999 on charges of having oral sex with and fondling a 14-year-old girl who helped clean offices at the plant.

The next month, Liberty residents complained to the city council about the plant’s sewage lagoon, the source of offensive smells that officials deemed a public nuisance.

Harper, the company’s executive vice president, who remained a company employee throughout most of his own legal problems, defended Guy’s handling of the of sewage with comments in The Kansas City Star: “Our goal, as it has been, is to eliminate the odor issue.”

In September, the Guy’s Foods plant in Robersonville, North Carolina, filed for Chapter 11 bankruptcy protection, signaling trouble ahead for the parent company.

Harper pleaded guilty to sodomy charges in December; a month later, the mother of Harper’s victim filed a lawsuit suit seeking more than $20 million in damages from Family Snacks Inc. The civil suit, claiming personal injury, named Harper, Sabatino, and Guy’s investor Michael T. Kramer, owner of Kansas City’s Kramer Material and Handling Equipment Co., as defendants. The case is pending.

On Valentine’s Day, three days after the start of a two-week plant shutdown, Guy’s Foods filed for Chapter 11 bankruptcy protection, seeking relief from losses of $5.75 million over the previous 16 months and a projected $1 million in losses over the next 30 days. There were no sweetheart deals for Sabatino, who had been pressed to find a buyer after La Salle Bank of Chicago refused to continue financing the operation because of unpaid obligations.

By month’s end, General Products and Services Inc., of Fort Wayne, Indiana — known for its Seyfert’s brand — purchased Guy’s by assuming about $14 million of the company’s debt. General Products chairman and chief executive officer Ron Hirasawa told The Star, “Our objective over the next 30 days is to put the company back on its feet in every respect.”

But this spring, Guy’s Foods became a link in a multiple-murder case involving one of its former employees, John E. Robinson Sr., who was convicted of embezzling money from the company in 1980 (see story, page 22). On June 2, Robinson was arrested as a suspect in the deaths of two women whose bodies were found in barrels on his property.

Two weeks after Robinson’s arrest, Harper was released from prison on probation after serving 120 days of a 10-year sentence.

Some current and former employees have said they think the company’s wholesome image, one established by the Christian, hard-work ethic of founder Guy Caldwell, has been tainted in the years since “Mr. Guy” sold out to Borden.

Guy and his wife, Frances, started Guy’s Nut and Potato Chip Company in 1938 with a tiny storeroom operation at 3505 Woodland Avenue in Kansas City. Guy Caldwell died in 1985.

“He liked people and he could sell anything,” says 87-year-old Frances, who remarried three years after her Guy’s death and now lives on 94 acres of farmland in rural Liberty. “And he was a Christian too. Guy became president of the (National) Potato Chip Institute and met people from all over the world. We knew potato chips. We grew up with them.”

The company sold roasted peanuts and snacks to mom-and-pop stores, and Guy’s Depression-era vision was to make the world’s best-tasting potato chip. In 1970, Caldwell built the Liberty plant; at one point, Guy’s held a dominating 50 percent share of the local snack market.

“A lot of people did well at the time,” Frances said. “You don’t have to be as big as Frito-Lay. There’s plenty of business to be had.”

Mary Colwell, a retired cut-out worker (she carved out the bad spots in raw potatoes), says the working atmosphere and the taste of the company’s products changed in the ’80s.

“Borden bought it and changed the oil, but (the quality) didn’t go down,” Colwell says. “And they changed the machines. They had them going so fast, and it was hard to keep up with them. It was like working in a turmoil place with a lot of tension.”

And the tension only increased. Court records indicate that financial troubles at Guy’s Foods were widespread by the end of Sabatino’s ownership, even though the company held a respectable 30 percent of the Kansas City market share.

Although Sabatino said in February that his company’s previous insurance problems had been cleared up, unpaid medical claims of more than $1 million have yet to be settled. Officials of the United Food & Commercial Workers Local 211, two teamsters unions, and individual employees of Guy’s have filed claims seeking payment of medical bills.

“The nearest we understand it, Vic Sabatino hasn’t paid his share,” UFCW local president Larry Lang says of the company’s insurance plan, which was supposed to split premiums between the owner and the employees. Lang, 45, who had a heart attack in November, says he has filed a claim for $28,000 in medical benefits. “It’s not very fair at all. I’ve paid on my insurance for 23 years, and when I need it, it’s not there.”

On June 15, the U.S. Department of Labor also filed a claim on behalf of Guy’s employees.

Other indicators of Guy’s financial troubles under Sabatino include 22 pending lawsuits and court actions — among them the Harper sodomy case’s personal injury action — and the company’s “top 20” list of unsecured creditors, which includes claims filed by the Kansas City Royals (seeking $207,812 in trade-out) and the St. Louis Rams ($188,223). Under Sabatino, Guy’s Foods actively promoted itself as a major player among advertisers at pro sports events and venues, such as Kemper Arena. The company also sponsored regional pro softball teams and had started doing tie-ins with the auto racing industry.

On Royals opening day in 1999, Sabatino marveled at what a few dollars more could do for someone at the ballpark. Guy’s had bought a set of prized Crown Club seats behind home plate.

Sabatino told The Star his accommodations were “terrific. They are so close to everything. You can see the players, hear the ball pop. It’s like being on the field.”

Then Sabatino pointed toward the large Guy’s banner behind the outfield wall.

“And there’s our ad!”

The ad hangs no more.

“Guy’s was a partner with us as a major sponsor, and we had built it to substantial levels of mutual benefit,” says Art Chaudry, Royals vice president of administration and business operations. “(But) once you file Chapter 11, you have to take down the banners.”