“Crisis is an invitation for transformation,” says John Sheptor, the CEO of Imperial Sugar Company. He knows from experience. Imperial was hit with a crisis soon after he assumed leadership of the Sugar Land, Texas-based firm. The result is a more diversified company than he started with – one that is becoming a leader in the sweetener industry.
When Imperial Sugar recruited the native of New Hampshire in 2007, it was with the understanding that he would spend a year as COO, then take over as CEO the next year. His job: to figure out a new strategy for the company and position it to compete in a different environment.
Just eight days after Sheptor took over as CEO, a huge industrial accident crippled Imperial’s largest plant, the sugar refinery at Port Wentworth, Georgia. It is believed combustible sugar dust ignited, and the explosion touched off a series of fires, which triggered more explosions. In all, 14 employees died, 40 more were injured, and 60 percent of Imperial’s production capacity had been knocked out.
That came on the heels of the opening of Mexico to free trade in sugar, the result of NAFTA. Imported sugar from Mexico posed a new competitive challenge to Imperial. In Louisiana, “GO Zone” legislation gave $100 million in incentives to build a sugar refinery just seven miles down the Mississippi from Imperial’s other large refinery. Later that same year, Imperial’s largest shareholder – Lehman Brothers – went bankrupt. After Barclay’s Bank acquired Lehman’s assets, it decided Imperial Sugar didn’t fit with its strategy and sold off all its Imperial stock – 29 percent of the company. The stock’s price fell to $5 a share by early 2009.
2008 was “pretty gloomy,” allowed Sheptor. “Those first five weeks, the only focus that I could give was to families of our employees and the community. I went to 14 funerals and spoke at all of them, and went to every home involved. I spent many hours in the hospitals with the families of those in the burn center at Augusta.”
Imperial’s board decided to rebuild Port Wentworth, and Sheptor decided to keep all the employees on the payroll until the plant was operating again. The company found ways to keep its skilled labor force occupied. They built two homes for Habitat for Humanity. They did landscaping and maintenance on the rest of the property, and helped rebuild it. They developed five-week courses in warehousing, maintenance and production practices at the local technical college, and the state of Georgia paid for employees to take them. Sheptor said those moves kept the work force in the Port Wentworth area, and they were ready to go when the plant reopened.
The public perception of Imperial took a hit with the Port Wentworth explosion, and Sheptor, whose operations background included work in safety, took it personally. He decided to make Imperial a model of industrial safety, and take the whole sugar industry along. The investigation of the cause of the explosion revealed that sugar dust is 10 times more combustible than the scientific literature had indicated. Imperial redesigned its sugar handling processes. Instead of covered conveyors, where fire could spread through the head space, the Port Wentworth plant now moves sugar through pipes, in pellets, pushed along by compressed air.
In an industry rife with trade secrets, Imperial threw open its doors to its competitors and their engineers to spend a day at the plant, see the new processes and Imperial’s data about the explosive characteristics of sugar, and take that information back to their companies.“We were on a mission to educate the sugar industry,” Sheptor said, “not just Imperial, and to transform the way sugar risk is managed. No company should ever live through that kind of tragedy again.” Sheptor supports OSHA’s plan to develop a new combustible standard for sugar, something still in the works.
If the company was going to compete in the future, Sheptor saw that its culture had to change. Imperial has been operating in Texas since 1843, and was run as a family business until it went bankrupt in 2001. Sheptor describes the old culture as paternalistic, with a top-down management style that discouraged original thinking. The culture was reactive, rather than proactive.
To change that culture, Sheptor says, the first thing to do is stabilize the organization, standardize work so it’s predictable. Then, start delegating authority to the work teams to make their own decisions – and turning managers from autocrats into coaches. After people are on board, the company must implement new standards for operational procedures and business processes. “It’s not uncommon to see big pieces of paper on the wall with graphics of work flows,” Sheptor said. The third step is empowering employees to make decisions on their own. “We’re probably 18 months away from that,” said Sheptor. “Once we arrive there, we will have caught up on three decades of industrial transformation in four years, maybe five years.”
Communication with employees was a must, too. “Crisis is wonderful from that standpoint,” Sheptor said. “You immediately have the attention of every employee.” He communicated to employees by getting out and meeting them face-to-face, communicating his vision for the future of Imperial. “It’s not through a piece of paper or an email, or some slogan that goes up on the wall. That’s not how you create alignment to transformational strategy,” he said.
Sheptor chuckles when asked if he does his own version of the TV show “Undercover Boss,” where the CEO disguises himself to learn what employees really think about the company. “I could never do that show because my employees know me by name,” he said. “I could never hide my identity because they know who I am because I’m there all the time. They know the company’s direction – they know what I’m doing.”
Sheptor learned where that transformation would go soon after he joined the company. He wanted to find out how far the board of directors was willing to go with change, so he interviewed each one of them, asking questions such as: Do you see Imperial as a food company? Do you see Imperial as a food ingredient company? Do you see us as an industrial ingredient company? Do you see us as an energy company?
“We settled in on sweetener because it made strategic sense to them, but food did not,” Sheptor said. “So they were not ready to see Imperial Cereal on the shelf, but they were willing to entertain a portfolio of products. That gave me some breathing room with regard to strategy.”
It also led to the vision of Imperial as a sweetener company, with a broad line of products, rather than a one-product sugar company. Sheptor envisioned three divisions – sugar, organic sweeteners and natural sweeteners. The board was also willing to consider sugar as an industrial ingredient. “That’s why it went into ethanol,” Sheptor said. “It’s a pure carbon molecule that at some point around $65 a barrel of oil, it’s equal to using petroleum. At $90 a barrel, like it is right now, it’s cheaper to grow that carbon in the cane plant than it is to bring it up as crude oil.”
With the vision in place, it was time to move on to strategy. The management team did a SWOT analysis (strengths, weaknesses, opportunities and threats), and determined that it could turn some of its weaknesses into opportunities. A regional sugar company could go national, with higher margin products, a narrow product line could be expanded, the rebuild of the Georgia plant could allow Imperial to become a technological innovator. The strategy, said Sheptor, could be articulated either simply or broadly, depending upon the audience.
Part of the strategy required managing the brand. “Marketing people talk about the four P’s,” said Sheptor. “I talk about the seven P’s of reputation management: product, price, promotion, place, people, and public perception. If you’re doing company branding, you’re doing reputation management and you have to manage that last one, too.”
After the vision and strategy is the execution, and Sheptor says that’s where Imperial is now. To realize the opportunity presented by free trade with Mexico, Imperial entered into a joint venture with a Mexican sugar company to market sugar in Mexico and to manage cross-border trade. Imperial’s 50 percent equity stake in Wholesome Sweeteners gives the company an organic sweetener line of products, including agave, honey, and organic sugars.
The hot item in sweeteners right now is stevia, a natural sweetener native to South America. Stevia is 300 times sweeter than sugar, with no calories. But stevia has two disadvantages: with such high-intensity sweetness, it’s difficult to bake with, and it has a distinctive aftertaste. Pure Circle, a stevia producer, was looking for a sugar company to partner with, and formed a joint venture with Imperial. The end result is Steviacane, a proprietary, all-natural combination of stevia and sugar.
Steviacane uses sugar to carry the stevia crystal, and, says Sheptor, it works “superbly.” Not only is Steviacane good for baking, but the addition of sugar eliminates the aftertaste. Adding stevia makes sugar sweeter, so less sugar can be mixed into recipes. Sheptor says the challenge was to figure out how much to dilute the stevia, and Imperial’s researchers settled on making it twice as sweet as sugar.
“At twice as sweet, it’s one-third the calories of sugar. It tastes like sugar, cooks like sugar, in beverages it performs like sugar, and it has one-third the calories, and it’s twice as sweet so you can use half as much of it.”
Steviacane is available at HEB stores in Texas, and based on the results there, Imperial is stirring up interest from major retailers like Kroger, Safeway, Costco, Whole Foods, CVS, Walgreen’s and more. A national rollout is planned for later this year, but the product already has its own Facebook page and Twitter feed. Eventually, Imperial hopes to produce other high intensity natural sweeteners from other plants and fruits, which would give it a family of natural sweeteners.
Sheptor’s vision to rebuild Imperial Sugar is being realized at a quicker pace than first expected. “I have the organic sweetener on one side, the high intensity naturals on the other side, and the sugar business in the middle,” he said. Sugar is still the anchor of the company, but is assuming a new role, as the carrier for the high intensity natural sweeteners, not only a sweetener by itself. But he sees great potential in both the natural lines and the organic lines. Wholesome Sweeteners has grown 30 percent a year for the past ten years, and stevia demand has exploded over the past three years, Sheptor said.
In another two or three years, Sheptor says it will be time to reflect on how far Imperial has come, and figure out the next strategy for the company. In the meantime, he’s very happy with Imperial’s prospects as a sweetener company. “I am a huge believer that the consumer wants sweet,” he says. “They want it to taste sweet, they want it to have no calories, they want it to taste good, and they want it to be natural and healthy. If you can solve those attributes, you’re going to be in business for a very long time.”