Grain Craft pursues new opportunities as ingredient supplier

Nine years after the company was established, Grain Craft has new ownership and a heightened sense of excitement as it pursues new opportunities in flour milling and more broadly as an ingredient supplier, said Peter T. Frederick, president and chief executive officer.

Mr. Frederick sat for an interview about Grain Craft earlier this year at the Kansas City offices of Sosland Publishing Co. several months after the company was acquired by Maryland-based Redwood Holdings. He described an approach toward innovation he said sets Grain Craft apart from other ingredient companies and predicted the company would grow in the years ahead both by adhering to business principles that have stood the test of time and, now, as a more active pursuer than in the past of acquisition candidates.

Chattanooga, Tenn.-based Grain Craft is the third largest company in the US flour milling industry. According to the 2023 Grain & Milling Annual published by Sosland Publishing Co., Grain Craft operates 12 mills with combined daily capacity of 147,000 cwts.

Given the company’s long history in flour milling, news that Grain Craft was sold may have been unexpected in the industry, Mr. Frederick said. 

Peter T. Frederick, president and CEO of Grain Craft, visited Sosland Publishing Co. for an interview.

“You probably would have thought the next thing you heard about Grain Craft is that we had bought somebody, not that the company had been sold,” he said.

Mr. Frederick said the transaction should be viewed as “a transition” rather than an event that fundamentally transforms the business.

“When we put Milner and Pendleton together with Cereal Foods (in 2014), that was transformational for us,” he said. “This is more of a transition to new investor partners. We need to evolve under new ownership to realize Grain Craft’s full potential.”

As was the case before the sale, Grain Craft under Redwood is owned by a family holding company, described by Mr. Frederick as a “long hold capital company.”

“They have 18 different businesses, and they’ve never sold a business,” he said. “Their philosophy is to find family-owned businesses that have really strong management teams, great market positions and are leaders in their industry. They found that in Grain Craft. They didn’t own anything in the food space.”

While Redwood does not have a history in milling, Mr. Frederick said, “They learned the business and what was important about the business very quickly.”

Redwood Holdings is an outgrowth of Allegis Global Solutions, the largest staffing company in the world, established in the Baltimore area by cousins Jim Davis and Steve Bisciotti in 1983. Forbes includes both Mr. Davis and Mr. Bisciotti on its list of billionaires. Mr. Bisciotti owns the Baltimore Ravens football team.

“With Redwood’s large and diverse collection of portfolio companies, the owners do not micromanage,” Mr. Frederick said.

“They’re very good at letting us run the business,” he said. “They’re involved at the appropriate levels relative to how the business is doing; capital placement and investments in not only our current core business but any other businesses that we want to look at.”

While proud of what Grain Craft has achieved as a business since the company was formed in 2014 with the combination of Cereal Food Processors, Inc.; Milner Milling Co. and Pendleton Flour Mills, Mr. Frederick said the path to success has not been without speedbumps. To the contrary, when asked what had changed since Grain Craft’s creation, Mr. Frederick paused and shook his head over what had transpired over the course of the last nine years.

“Let’s start with the transaction,” he said of the 2014 acquisition of Cereal Food Processors. “First we had major a acquisition of a much larger competitor (Cereal Foods) that tripled the size of the business. That’s transformational. Then, two years later, we go through a recall.

“So, over eight years, we had a major transaction, a major recall, a once-in-a-century pandemic and a sale of the entire business. And then we had a fire. These are not small events. They are major events and not always in your control.”

Ultimately, Mr. Frederick said the company did more than just weather these episodes. He said someone reviewing the company’s financials over the years would struggle to discern the potentially cataclysmic nature of the various incidents the company experienced.

Looking forward, Mr. Frederick said more merger and acquisitions activity is likely for the milling industry.

“I don’t think the industry is done transforming,” he said. “I think it means other changes of ownership at some point.”

While the company has not made major acquisitions since Grain Craft was established nine years ago, Mr. Frederick said the lack of transactions did not reflect a lack of interest.

“We’ve always been relatively aggressive about looking at various businesses, but for many reasons those just never happened,” he said. “We see ourselves as a food ingredient provider, and we’re looking at businesses that makes sense, that fit that strategic vision. Redwood is fully on board with our vision for the business.”

Even though he declined to share the names of acquisition candidates Grain Craft has considered purchasing, Mr. Frederick said each possible transaction was viewed through a specific filter.

“We are primarily converters of grains into food ingredients,” he said. “One of the things we’ve always said at Grain Craft is we won’t do things that distract us from our vision, and that’s served us well. We’ve just not been distracted about various initiatives that we could have undertaken but decided not to.”

Innovation center in Manhattan, Kan.This determination to avoid distractions, to stay focused, is exemplified by the Grain Craft Innovation and Quality Laboratory in Manhattan, Kan. Many companies view innovation as principally focused on its customers, often in the development of new end products. While the GCIQ facility has a baking laboratory, the space is heavily dedicated to what Mr. Frederick described as “upstream innovation,” referring to up the wheat foods chain toward the breeding and cultivation of wheat.

“By the way, we’ve filed to trademark the name ‘upstream innovation,’ which we see as a platform,” he said. “We thought it was distracting to go downstream in research and development in food products. We just didn’t see that as our strength, but we did feel if you went back upstream, to where the farmer is, that’s the space that we operate in. We’re the conduit for grain being converted into food, so we felt like going upstream was where we wanted to innovate.”

This focus was fueled by talent the company already had on its staff, Mr. Frederick said, particularly singling out Reuben McLean, who helped spearhead the Grain Craft Preferred Varieties Program.

“Reuben was a wheat breeder in his previous life,” Mr. Frederick said. “He worked with farmers in Idaho back in the 1990s and early 2000s to grow hard white wheat, so we have a history of doing this, and we brought that forward. Reuben and Alan Koenig (chief supply officer) were instrumental in the preferred varieties program, a key element of our upstream innovation platform.”

Further upstream investment will pay off, Mr. Frederick said.

“We believe by working upstream, we can drive value for farmers, for us as a miller, and for our customers,” he said.

Already the effort has yielded dividends. About half of the top 10 varieties planted in Kansas are on the Grain Craft PVIP approved list, Mr. Frederick said.

“We also have a partnership with Shepherd’s Grain (based in Washington state),” he said. “They have been doing regenerative ag farming for decades. They really know what they’re doing.”

Mr. Frederick said the substantive steps the company has taken to date have strengthened its belief in Upstream Innovation. Importantly, he expressed a commitment to the platform.

“It’s very important to us that what we do is tangible,” he said. “The farmers are practicing these methods. They are growing these varieties. We are milling it into flour, and it is going to customers. For us, this is the supply chain from seed and soil to the farmer. It’s seeing it in the lab, working through the breeders and the work that they’re doing at the Kansas Wheat Innovation Center (alongside the GCIQ).”

Mr. Frederick has been CEO of Grain Craft since 2020 and president since the business was created in 2014, but he credited his predecessor as CEO, Charles B. Stout, for establishing the principles that made the company successful and remain a bedrock of how Grain Craft operates.

“We operate on the foundation that Charlie operated Milner Milling and Pendleton (before the acquisition of Cereal Food Processors),” Mr. Frederick said. “That’s how we’re operating Grain Craft today.”

Asked to elaborate on those principles, Mr. Frederick called Grain Craft a “very customer-centric business” and explained what that description means from an operating perspective.

“The facilities, our plant managers, have a lot of authority and autonomy,” he said. “They operate their facilities, and that includes owning the customer, too. For example, all the order taking for our facilities is done at the mill, and that’s something we’ll never change because it’s an operating principle that I believe in too, that connection. It’s really important.” 

Peter T. Frederick.

He also credited Mr. Stout for the principle of avoiding distractions and staying focused on the core business.

“Doing things like the upstream innovation is not a distracting platform,” he said. “It’s perfectly aligned with what we do. He was very good about us not getting distracted and being very prudent placers of capital. It’s easy to start chasing bright and shiny things that get a business distracted and all of a sudden you’ve lost the core. We just refused to do that.”

In recent years, major capital projects at Grain Craft have focused on addressing specific needs rather than, say, adding significant additional milling capacity. For example, the construction of a new grain elevator in Idaho over the past year allows the company to better control grain sourcing at its Blackfoot, Idaho, mill, Mr. Frederick said. In the past, the company relied on an adjacent elevator the company never owned.

Earlier, the company concluded its packing facility at McPherson, Kan., needed to be upgraded. The project dramatically increased the company’s capacity to package family flour. Completed in 2019, the packing lines began operating just ahead of the pandemic that triggered an unprecedented surge in family flour demand.

“The timing was fortunate,” Mr. Frederick said. “That was a project that was really born out of safety because it was an older facility. It was a very tight packing facility, and the flow wasn’t right. We like the retail family flour space, so we said, ‘If we’re going to be in this, let’s do it right.’ We put in a bigger footprint, put robotics in the warehouse. We opened it up, so it’s safer. It put us in a position where we could grow that business..”

Not only has Grain Craft resisted adding significant milling capacity, the company has closed three mills over the last 10 years (Cleveland, Honolulu and Salt Lake City). More recently the company lost capacity when its flour mill in Pendleton, Ore., burned to the ground.

The Pendleton mill was the first US flour mill completely destroyed by fire in more than a generation, and Mr. Frederick said the episode was painful for the company, even as he expressed relief no one was injured.

“It was traumatic because we were watching it real time — somebody had a phone out and was live streaming it to us,” he said. “It was a 100-year-old wood mill. Once it started, there was no way to put it out.”

Mr. Frederick said the cause of the fire has not been determined and is unlikely ever to be known.

The fire department response was focused on containing the fire to the mill, which is located in the center of the town of Pendleton.

“It didn’t spread, and we’re thankful for that, too,” Mr. Frederick said.

The Pendleton mill was one of Grain Craft’s oldest but was a real loss, Mr. Frederick said.

“We had spent a lot of capital on it, and it was a nice mill,” he said.

Mr. Frederick was limited in the details about the episode he would share, but he emphasized Grain Craft’s commitment to meeting the needs of the western flour market.

“We haven’t made any decisions about what we’re going to do there,” he said. “The mill is in the process of being demolished. And it’s supposed to be done sometime this quarter. The elevator, and we have some flat storage there, is intact and completely operational (even though it isn’t operating at present).

“The key point is that we have a significant asset footprint in that area of the country, west of the Rockies. We have every intention of investing back in that area. We have a great customer base there, and we have no intention of walking away from our market position.”

When the mill burned, certain customers’ flour needs were met from other Grain Craft mills and others turned to alternative suppliers. Mr. Frederick said the company will replace the lost capacity in the western United States but hasn’t decided where.