New World Pasta produces 14 well-known brands of dry pasta in the United States and Canada.

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New World Pasta CEO Peter Smith understands the power of reinvention. Not only has it been the mantra behind its product line, but reinvention has also been the saving grace for the company’s public persona.

Much like the dry pasta it manufactures, Harrisburg, Pa.-based New World Pasta has been a staple in the food industry for many years. The company produces 14 major brands: American Beauty, Creamette, Light ‘n Fluffy, Prince, Ronzoni, San Giorgio, Skinner, Healthy Harvest, Smart Taste, Mrs. Weiss, Catelli, Lancia and Minute. Each brand is marketed to distinct geographical regions except for Ronzoni and Catelli, which are sold nationally.

New World Pasta’s manufacturing plants are located in Fresno, Calif., St. Louis, and Winchester, Va., as well as in Montreal. Today, it holds a 43 percent market share in Canada and an estimated 24 percent share in the United States.

“We have some of the strongest, top-brand franchises and equities within the United States and Canada,” Smith asserts. “We have complemented that by employing a talented and passionate employee base, and we have a crystal-clear vision of where we want to take the company and the strategic pillars that need to be in place to get us there.”

Smith stepped in as CEO in November 2007 with more than 20 years of experience in the food and consumer packaged goods industries. Prior to joining New World Pasta, Smith served as Managing Director of StarKist Seafood Co., as well as in other leadership roles at Procter & Gamble, Jacobs Suchard, H. J. Heinz and Del Monte Foods.

But even brand loyalty wasn’t enough to maintain strong sales when the low-carb diet fad swept through the country in the early 2000s. As a result of a major sales decline during the low-carb diet fad, New World Pasta filled for bankruptcy in 2004. In the two years that followed, the company went into survival mode, hiring a new CEO and seizing new financing to pull it out of the doldrums. In June 2006, it was acquired by Ebro Puleva – a $4 billion leading multinational food group in the rice, pasta, sugar and dairy businesses based in Madrid, Spain.

“They had a very strong presence in the global pasta market and they perceived us as a wonderful opportunity to enter the U.S. and Canada,” Smith recalls. “They saw that the pasta industry was flat; that it had not been in step with key emerging macro consumer trends such as health and wellness, convenience and culinary adventurism, which is the search for more exotic tastes or flavor combinations. Pasta has been virtually unchanged for over a century. I think they viewed it as a significant opportunity to bolster their global business portfolio.

“With the purchase, we became debt-free, and had the benefit of very motivated owners who wanted to invest in the business,” Smith adds.

Having strong leadership in place is one thing, but the company also needed the right strategy and quality of product to maintain its position as the largest dry pasta manufacturer in the United States. “When I arrived, I had a vision to transform the company,” Smith explains. “It had been a sleepy business, with little alignment with key consumer trends and we needed to redefine the business model, and transform it.”

Injecting New Flavor
Armed with the financial support from Ebro Puleva, Smith laid the framework to grow New World Pasta by investing in two strategic areas: innovation and consumer marketing. “You cannot be innovative by simply throwing pasta against the wall and see if it sticks,” Smith says. “You need total consumer emersion and ideation to be on the cutting-edge.”

By implementing a new product innovation pipeline where the company lays out possible products for the next three years, New World Pasta can get its ideas to market faster. New World Pasta’s objective moving forward is to launch one new product per year or have a product line extension – even if it seems aggressive. “I warned the company that we need to be aggressive, and cannot afford inertia,” Smith notes. “I’m not here to keep flipping nickels and dimes and selling a cheaper box of spaghetti.”  

With the help of advertising and marketing agencies, New World Pasta conducts qualitative consumer research panels to understand the target market and develop new products. From there, the company uses a funneling approach to narrow ideas down to only those that strongly resonate with its consumers.

“We employ a stage-gate process where we identify each potential concept, and determine the volume potential and financial feasibility and we then need to hit key metrics and thresholds before we proceed to the next gate,” Smith explains.

The company is injecting new life into many of its brands by developing tomato basil or spinach-flavored varieties. “Consumers are getting very demanding in terms of new flavor combinations – they want things that are exciting,” Smith notes.

New products include Ronzoni’s bistro-inspired brand of ready-to-enjoy pasta meals, which are packaged in microwaveable, single-serve pouches and come in four varieties: spaghetti and meatballs, rotini with tomato and basil, penne with chicken and broccoli and linguine with chicken and mushrooms.

Food consumption trends centering on health and wellness and convenience also serve as the basis for many of New World Pasta’s new products. In 2007, the Ronzoni brand introduced a nutritionally enhanced line of dry pasta called Smart Taste, which provides calcium and six grams of fiber in every two-ounce serving – that’s three times the fiber of traditional white pasta and about 25 percent of the daily requirement. It also rolled out Ronzoni Healthy Harvest, a whole-grain line of dry pasta.

Healthy Harvest line extensions have also included seven-grain varieties, which are a mixture of its unique whole-wheat blend, plus flax, rye, oats, barley, corn, triticale and buckwheat.

Challenges Still Exist
But New World Pasta’s future path will not be free of obstacles. Volatile prices in the wheat market and consumer consumption trends, such as low-carb diets, could impact the company’s bottom line.

“In pasta, the majority of our costs are in durum wheat, and this past year, semolina prices tripled,” Smith says. “We have had inflation of 25 percent in dry pasta in the past year, yet consumption is up 1 to 2 percent. I have never seen that kind of price elasticity, or lack there of before.” Consumers clearly realize that pasta remains one of the great values within the store.

Food manufacturers have been struggling with rising wheat prices in recent years. The North American Millers Association says analysts have determined several major factors contributing to the scarcity of wheat, including:  

• Global wheat stocks are at 60-year lows due to poor weather in major producing countries;
• Brisk wheat exports from the United States due to the lack of exportable supplies from traditional exporting nations, actions by foreign governments to limit exports, and the weaker U.S. dollar;
• U.S. demand for biofuels in response to record high oil prices have converted millions of acres from wheat to competing crops, mainly corn. And new congressional mandates require a near doubling of biofuels production by 2015;
• The technological advantages of growing corn and soybeans, principally biotechnology, are not available in wheat, so the disadvantage of growing wheat relative to other crops is wide and gets wider every year;
• Disproportionately high government payments for competing crops have distorted growers’ decisions, and encouraged the production of those crops at the expense of food grains; and
• About 34.7 million acres currently enrolled in the Conservation Reserve Program include million of acres that could be farmed without sacrificing environmental goals.

Fortunately, despite rising costs, pasta remains a low-cost meal. According to the National Pasta Association, American consumers are experiencing one of the greatest hikes in food prices in 17 years, but there is a silver lining. Pasta remains one of the most economical meals, with the price per pound of pastas increasing only $0.07 since 2003, it explains. When taking additional ingredients into consideration, such as pasta sauce, the cost of a pasta meal hovers around $0.76 per serving.

Elasticity has been good for business, Smith says. “What happened in this inflationary environment is it has caused consumers to rediscover pasta,” he says. “When you have a one-pound box of pasta at $1.49 and there are eight servings in that box, there are really no other options out there that cost less than $0.20 per serving.”

Increasing Efficiencies
To prepare for new products, the company has invested in its manufacturing operations. At each of New World Pasta’s four facilities, the company upgraded equipment and revised the production process to increase efficiency and reduce downtime.

“We are very aggressive in terms of capital investment, and we make sure that we’re investing in capital from a maintenance standpoint and in developing new production capabilities,” Smith notes. “You cannot have a good growth platform if you have lines breaking down and if you’re not keeping pace with advances in manufacturing.”

New World Pasta also keeps costs in check by keeping in close contact with its supplier base. For example, the company works in partnership with three main milling suppliers, whose mills are located adjacent to New World Pasta’s manufacturing plants. When wheat is milled, it is blown through tubes into the plants, tested for quality and sent into production. “We make sure our entire supply chain is integrated, and that we have superior raw materials and product,” Smith notes.

Embedded in the Culture
Smith is also strengthening New World Pasta’s corporate culture. “I am putting in place an extensive human capital management strategy, which is how I intend to hire, develop and train folks in the organization,” he says. “We need to revamp our performance review process with people to identify strengths, areas of improvement and, and then map out a developmental plan for them.”

Smith has implemented what he refers to as an internal CEO roundtable where roughly 12 management representatives from various cross-functional areas meet to discuss challenges and ways to improve corporate morale and culture.

“It allows me to keep in touch with all parts of the company,” Smith says. “It’s important to have my finger on the pulse of the company. I’m trying to foster open communication. Any human capital strategies need to originate from the top, and management has to be serious about it in order to bring a plan to life.”

“The culture that I am trying to build is one where we are going to be entrepreneurial and fast-paced,” Smith says. “I have no time for politics or agendas.”

Sidebar: Pasta’s Growing Demand

In the early to mid-2000s, pasta had a bad rap as a fattening food for its high carbohydrate content – its vilification fueled by once-popular fad diets like Atkins and the Zone.

But the truth is, pasta has an important part in a healthy, balanced diet. In fact, pasta is making a comeback as a healthy and affordable meal, according to Carol Freysinger, executive director of the National Pasta Association.

“In the last two years, the tides have changed and the low-carb diet has receded and people are looking to and more carbs to their diet,” she notes. “The pasta industry has come to enjoy a resurgence. In the last two years, pasta manufacturers and suppliers have banded to rebuild the organization, and have come to enjoy greater sales because of it.”

As part of a new pasta promotion program, which the association intends to roll out in 2009, NPA conducted a survey on the best way to communicate the health benefits of pasta to consumers. The survey was conducted among 25- to 49-year-old mothers, which represents the largest consumer group of pasta. The survey unveiled what messages about pasta resonated with the group and what prevented them from consuming pasta.

Survey respondents said that knowing the health-related benefits of pasta were most helpful.

Pasta is also inexpensive compared to other meals that center around meat, for example. Research shows that during a 12-week period ending Sept. 6, pasta sales in the United States were up 1 percent, despite the fact that the cost of a box of pasta increased by 24 percent in the same time in retail locations. By contrast, grocery prices on average increased 7.5 percent, yet volume was down 5 percent. This opposite trend, Freysinger says, is “unheard of in the food industry.”