KEYNOTE SPEAKER: IMPERIAL SUGAR
Sweet Success After Bitter Trials
BY PRAMOD KULKARNI
JANUARY 22, 2010

HOUSTON: It’s hard enough to make your company grow during good times. What if your company is hit with the perfect storm of business calamities? Imperial Sugar was the victim of just such a perfect storm and how the catastrophic situation was used as a launching pad for a profitable rebound was the subject of a highly inspirational keynote speech by Imperial President & CEO John Sheptor at the first 2010 Keynote Dinner Series presented by TiE Houston on Tuesday night at the downtown Petroleum Club.

In his introduction to Sheptor’s speech, TiE Houston President Ashok Rao described the organization as the world’s largest networking organization with over 25,000 members in over 16 countries. “The goal of TiE is to foster entrepreneurship, mentor young entrepreneurs and provide networking opportunities.”

Sheptor described Imperial Sugar as a 140-year-old company with $1 billion in sales and plants in small factory towns of Sugar Land, Texas, Louisiana and Georgia. “The employees consist of 800 families. Many of the current workers are fifth or sixth generation employees who think of the company management as the patriarch and expect the ‘family head’ to take care of the family members in times of crisis.”

According to Sheptor, the company emerged out of its first bankruptcy in 2002 and enjoyed its best year 2007 when Hurricane Katrina damaged the sugar crops in southern U.S. and there was a supply shortage. The company made high profits and the company stock, traded on NASDAQ, jumped from $5 to $37.

The perfect storm began in 2008 when the sugar farmers replanted their fields and achieved a bumper crop. There was an oversupply in the market and prices fell below the cost of production.

The next calamity was loss of the company’s two leading customers, Walmart and Kroger, due to poor service support. At the same time, the sugar growers formed a joint venture with Cargill and received funding of $100 million from the Louisiana state. This was another threat to Imperial Sugar’s supply chain and market share.

In January 2008, the North American Free Trade Agreement (NAFTA) went into effect and sugar producers in Mexico were able to sell their production in the southern U.S. regions. Subsequently, the peso dropped in value by 50% and this reduced transportation costs of the Mexican producers such that they were able to extend their sugar sales into every corner of the U.S.

In February, the Imperial Sugar factory in Wentworth, Georgia suffered a series of explosions that caused the death of 14 employees and shut down the factory for 22 months.
As a result of all these disasters, Imperial’s market cap dropped 46% and the investor profile changed from investors who were looking for growth to bottom feeders looking for a quick profit.

Faced with problems galore, the Imperial board was ready to cash in the insurance money for the loss of the factory and liquidate the rest of the assets. “I went to the board three times, each time they refused to rebuild. The fourth time, I was able to changed their minds,” Sheptor revealed.

At the time, Imperial did not have a crisis management plan. “If there’s one thing I want you to take back from this speech is that you should go home and immediately develop a crisis management plan and a communications strategy. You never know when a disaster will strike,” Sheptor advised the TiE audience.

Flying by the seat of his pants, Sheptor decided to act with humanity, honesty and with open access to himself as the leader. He first prioritized his responsibilities by placing employees and their families first and investors last. He retained all the employees at the Georgia plant at a cost of $3 million per month.

The employees were put to work on a property beautification project to give them confidence that the plant will be back. The skilled technicians were put to use by building houses for Habitat for Humanity.

Sheptor rebuilt the Georgia plant, originally constructed in 1917, with a modern, highly efficient facility at a cost of $225 million.

To regain his supply chain, Sheptor formed a joint venture that included the growers as well as the potential competitor, Cargill. In similar fashion, to change his relationship with the Mexican sugar companies from competition to cooperation by forming another joint venture.

To regain market share, Imperial introduced four new products and acquired a wholesome sweetner company. As a result of these strategic moves, Imperial Sugar is expected to regain its profitability in the first quarter of 2010. The stock price has risen from $5 to $18.
“A crisis is an opportunity to transform your future,” Sheptor told a mesmerized audience.

In his vote of thank, Ashok Rao said, “I am pleased that we have in our midst a CEO who applied the qualities of humanity and honesty to restore profitability, unlike Sunbeam CEO Al “Chainsaw” Dunlap, who closed factories and laid off employees, and Bernie Madoff, whose dishonesty, has caused enormous suffering to thousands of investors.

The next keynote speaker for TiE is IIT alumnus Kanwal Rekhi, an angel investor, who transformed India’s cellphone industry to the best in the world.