Any way you slice it, Chuck Bengochea has faced plenty of obstacles since becoming the CEO of The Original HoneyBaked Ham Co. of Georgia in 2006. 

First, the economic downturn decimated the premium food retailer’s B2B gifting and catalogue segment, wiping out 20 percent of its annual revenue overnight. Then, he faced a serious cash crunch as skittish bankers adjusted the covenants on the seasonal company’s line of credit. But through it all, he insists that altering the company’s legendary HoneyBaked recipe was never an option. 

“There’s tension to cut corners on products and processes and maximize short-term profits, especially when times are tough,” Bengochea says. “But if you work hard, I believe that it’s possible to satisfy stakeholders without sacrificing your product or core values.” 

As if those challenges weren’t enough, Bengochea’s expansion and cost-cutting efforts were hampered by the company’s unique structure. The HoneyBaked organization was comprised of four divisions, each with their own corporate-controlled operations and geographic boundaries. HoneyBaked Ham of Georgia, which is the largest of the four, is responsible for company-owned stores in 24 states and franchisees throughout the U.S. 

“There are certain nuances and complexities to our structure that call for radically different strategies,” he says. “It’s certainly not ideal for today’s online, global business environment.” 

Fortunately, the ultra-competitive Bengochea isn’t afraid to tackle a challenge. In fact, he regularly competes in Ironman triathlons that require participants to swim 2.4 miles, bicycle 112 miles and run 26.2 miles — all in one day. 

He credits his Ironman-like stamina and perseverance with helping him power through obstacles as while increasing revenues from $200 million in 2005 to $250 million in 2012.

 

Keep cash flowing

Given that some 60 percent of HoneyBaked ham sales take place between Thanksgiving and Christmas, meeting seasonal cash flow needs is critical to the company’s survival. With banks in crisis-mode, Bengochea’s top priority was finding a way to pay vendors and employees during ramp-up periods when headcount at company-owned stores swells from 1,000 to 6,500 workers. 

To make matters worse, the company had unwittingly exacerbated its cash flow problems by using working capital to fund expansion activities including the acquisition of rival Heavenly Hams in 2002. 

“We didn’t see it coming,” Bengochea says. “We were encouraged to use cash for expansion and we thought we had a reliable banking partner. We looked at other options but when those failed we had no choice but to hunker down.” 

After assessing the political and economic environment, Bengochea instructed his finance team to forecast the firm’s future cash flow needs using a worst-case scenario. 

“We assumed that we were facing a permanent shift in the economy that necessitated a change in the way we operate,” he says. “Plus, I didn’t want to make piecemeal staff cuts because it’s bad for morale.” 

“I believe that if you give people a call to action they will rally to the cause,” Bengochea says. “So I asked our 10-member senior leadership team to come up with a way to reduce headcount by 30 percent.”

Bengochea’s team didn’t disappoint. They hit the goal on the first pass by recommending the closure of several company-owned stores and reductions of staff throughout the division, leaving just 70 employees at the company’s headquarters. 

“We thought we were overbuilt for the current environment, so as leases expire we’re migrating to a community-based store concept that has a much smaller footprint,” he says. “We also closed some six to eight company-owned stores, because given our seasonal nature, it can take two to three years for a new location to become profitable.” 

The company has reduced fixed costs by launching pop stores in malls in advance of the big holidays and they’re attempting to drive year-round sales by installing onsite cafes at select brick and mortar locations. 

Bengochea also requested new terms from the firm’s long-term partners. For instance, they now pay suppliers for hams after the holiday rush. 

“Fortunately, our vendors were willing to give us great pricing and new terms because we don’t try to beat them during negotiations,” he says. “Our philosophy is to treat them like equal partners so they accepted our proposal.” 

Finally, he eliminated annual bonuses and used the funds to improve the company’s balance sheet. 

Although Bengochea acknowledges that many of his decisions were painful and had lingering after-effects, they helped the company survive while executives searched for a new banking partner. 

“We didn’t hit our revenue target in 2009 but we exceeded our income target, and we’ve hit our earnings target ever since,” he says. “After weathering the storm, we were able to find a new banking partner who believes in the power of the HoneyBaked brand.”

 

Protect your brand

Managing HoneyBaked’s premium brand is one of Bengochea’s greatest challenges. Especially when studies show that consumers gravitated away from premium brands to standard or value brands during the recession.

“I’m not concerned about our long-term health because people are emotionally connected to our brand,” he says. “We have convenience going for us and people are willing to spend discretionary dollars to celebrate the holidays with family and friends,” he says. “But there are other factors that work against our brand.”

For instance, families are getting smaller and tend to be more ethnically diverse. The primary shopper is pressed for time, and it’s difficult for cash-strapped consumers to shell-out $100 for a whole HoneyBaked ham when they can pick-up a no-frills spiral-sliced version at their local mega mart for around $30. 

In response to changing demographics and preferences the company is marketing smaller products like a boneless mini ham, and they’re appealing to harried shoppers by offering complete family-sized meals and online ordering. However, the recession was so severe that HoneyBaked’s executive team had to weigh the risks and merits of changing its formula that’s been around since 1957. 

“There’s a lot of tension around the decision to cut corners or discount a premium brand,” he says. “I’m aware of the philosophy espoused by the folks at Harvard Business Review, but we decided to leave our recipe intact and instead offered consumers the greatest discounts in our history.” 

Bengochea is referring to the theory that it’s better to use adaptive pricing than across-the-board price cuts to bolster sales during a downturn, since most experts believe that it’s hard to restore pricing when demand picks back up. For example, a popular adaptive-pricing method is called “versioning” where companies offer “good,” “better,” and “best” varieties of the same product. 

But HoneyBaked executives dismissed the idea of altering the company’s legendary 24-hour smoking process or changing the recipe for its spicy glaze. Instead, Bengochea rolled the dice and pushed value and coupons like never before. 

Bengochea’s gamble paid off. Consumer Reports recently rated HoneyBaked No. 1, calling it the most flavorful and consistently moist and tender ham. As a result, the company not only replenished its coffers, it has grown to 200 franchise stores and nearly 115 company stores since 2009. And thanks to its improved financial position, the firm is currently in the midst of a three-year renovation project which will add cafe areas to many company-owned stores. 

Replenish emotional bank accounts

Despite Bengochea’s best efforts, an engagement survey in 2010 revealed that reductions in staff and bonuses had taken a toll on morale. Store employees saw little upside to a career at HoneyBaked Ham of Georgia. So after building up the company’s coffers, Bengochea set his sights on refilling employees’ emotional bank accounts. 

“The survey revealed that we had made a huge withdrawal from employees’ emotional bank accounts,” he says. “Things were falling through the cracks or not getting done and after all the cuts, they no longer trusted store leadership.” 

Bengochea openly addressed the issues at the company’s annual meeting and launched a series of steps to fix the problems and repair damaged spirits. 

For instance, he hired a new vice president of human resources to focus on employee development. In turn, the HR leader introduced formal training and mentoring programs and a stepping stone position to develop high potential employees. 

“After hiring from the outside for years, we recently promoted two store managers to district management positions,” he says. 

Bengochea started a blog and upped the frequency of his communications on the company’s Intranet in an effort to explain his cost-cutting moves and stop the rumor mill. 

The company conducted a follow-up survey in 2012 and Bengochea reported the improved results to employees at the company’s annual meeting. 

The spate of internal promotions wasn’t the only epic event in 2012. HoneyBaked Hams of Georgia acquired the Northeast division and Bengochea announced plans to open 30 additional stores throughout the new territory. Shortly thereafter, the company entered the global marketplace by partnering with Toranomon Ham Co. Ltd., who will hold the rights to sell HoneyBaked Hams, turkeys, sides and desserts in Japan. 

“It’s the first time the family has made a move of this magnitude to support horizontal growth,” he says. “You know, I’ve always believed that if I just worked hard enough, there wasn’t an obstacle that I couldn’t overcome.” 

How to reach: HoneyBaked Ham (800) 367-7720 or www.honeybakedonline.com

 

Takeaways:
Keep cash flowing.
Protect your brand.
Replenish emotional bank accounts. 

The Bengochea File 

Name: Chuck Bengochea
Title: CEO
Company: The Original HoneyBaked Ham Co. of Georgia, Inc. 

Birthplace: Havana, Cuba

Education: I have a bachelor’s degree in economics from Cornell University where I was an Academic All-American. 

What was your first job?

When I was a boy, I delivered the “Miami Herald” newspaper in Ft. Lauderdale, Fla. When I graduated from Cornell, I was hired by General Electric as a financial management trainee and became an analyst for the company’s television business division. 

Who influenced you?

My mother taught me that I could overcome any obstacle as long as I worked hard enough. She raised two boys and taught us that every day was an opportunity to go out and accomplish something great. In the business world, my first boss at GE was a great role model and mentor who boosted my confidence. He was a former Army Ranger who recognized my potential. I would have walked through fire for him. 

Who do you admire most in business and why?

I admire Apple for creating a fantastic consumer-centric brand and making complicated things simple. If they developed a car, I would expect it to drive itself and entertain me at the same time. By the way, no matter how it works out, you have to admire the seamless transition from Steve Jobs to Tim Cook. 

What’s your definition of business success?

I think you’re successful when you meet stakeholder expectations while operating within your core values.

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