Tootsie Roll Industries – A David Among Goliaths

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Can you guess who is the oldest CEO in a publicly traded American company? Here’s a hint, some of the company’s brands have been Halloween staples for multiple decades. It’s none other than 92-year-old Melvin Gordon of Tootsie Roll Industries, who runs the company together with his 80-year-old wife, Ellen Gordon, the President. And no, their ages are not typos.

Beginnings

Launched in 1896 after its chewy, oblong-shaped candy proved popular, Tootsie Roll Industries has grown into one of America's largest candy companies. Founder Leo Hirshfield wanted to create a candy that wouldn’t melt in the heat and could be a viable alternative to chocolate. He named the candy after his daughter’s nickname. It was the first penny candy to be individually wrapped.

The majority of the company’s products are sold under registered trademarks and feature some of the country’s most popular brands, including Tootsie Roll, Tootsie Pop (which followed its namesake in 1931), Blow Pop, Charleston Chew, Dubble Bubble, Razzles and Junior Mints. They are distributed through nearly 100 candy and grocery brokers and by the company itself to more than 15,000 customers. These customers include wholesale distributors of candy and groceries, supermarkets, variety stores, dollar stores, drug chains and more.

Current Infrastructure

The Gordons took over the day-to-day business of Tootsie Roll Industries more than 50 years ago, and they are notoriously secretive. They haven’t given an interview regarding their company for years, they are reluctant to permit tours through the factories, and although a succession plan is said to be in place, no one is privy to the specific details.

The company is equally cryptic about its financial success—it refuses to hold quarterly earnings calls, deflects journalist’s requests for interviews and, as of last year, the sole remaining security analyst surprisingly quit covering Tootsie Roll because it was too hard to obtain information from them. With investors salivating over this gem of a company, what does the future hold for Tootsie Roll and how has it remained successful alongside candy giants like Mars, Inc., Kraft Foods and Hershey’s?

Tootsie Roll has long been hailed for one of the most memorable ads in pop culture history. Perhaps you remember Mr. Owl being asked in 1970, “How many licks does it take to get to the Tootsie Roll center of a Tootsie Pop?” According to Tootsie Roll, the answer is, “It depends on a variety of factors such as the size of your mouth, the amount of saliva, etc.…Basically, the world may never know.”

However, it’s difficult to remember an ad campaign since then. Yet, the Tootsie Roll brand remains relevant today among candy buyers. Never needing to advertise is a surefire way to save on your bottom line.

Sustained Success

What is not a secret is the company’s sustained success. The 116-year-old company has acquired several companies in the last few decades, nearly doubling sales in the last two decades alone, despite its modest advertising budget. None of the acquisitions strayed far from the company’s unique candy-making mold.

The company is controlled by the Gordons through their majority ownership of class B stock, each share being worth 10 votes of common stock. They cap their own salaries at $999,000 per year, but received $7.6 million in bonuses for 2011. They also enjoy company perks such use of the company plane ($1.2 million) and the lush $10,000-per-month apartment in Chicago, near the company headquarters. None of the Gordons’ children seem positioned to take over the company should their parents step down, but stepping down does not seem like it’s in the couple’s plans.

What is the secret to their success? Analysts say they did not purchase any companies that did not fit their profile, bought commodities cheaply and spent money inside the company. It seems Tootsie Roll cherry-picked acquisitions that worked for them. Enough so that the company maintains a dividend yield of more than 1% and has $67 million in cash, despite an operating profit margin that fell by roughly half in the last decade to 11%.

There may be one or two free lessons from Tootsie Roll Industries that would apply to most businesses. Perhaps the company’s financial philosophy is aligned with its note to consumers regarding a healthy lifestyle: “When consumed in moderation, you can enjoy delicious Tootsie candies without compromising the benefits of a nutritious, well-balanced diet.” It seems Tootsie Roll Industries is well practiced in confident and selective decision-making—how sweet is that?