Grocers flip over T&N's pizza

Antonio Merulla started in a restaurant basement and built T&N Foods into one of North America's largest private label pizza manufacturers


Like many entrepreneurs' sons, Antonio Merulla grew up in the family business. His father was a restaurateur who at one time operated five pizzerias. But Merulla decided early that he wanted no part of it.

"I saw how competitive it was and the crazy hours he worked," said Merulla, president of T&N Foods, one of North America's largest manufacturers of private label pizzas. "And I knew that I had to find something else."

After graduating from Concordia in the early 1980s, Merulla tried his hand in several start-ups, but it took several years before he made his first break-out success.

Although he did not want to work in the restaurant industry, Merulla's background gave him an unusually close insight into food consumption trends, in particular the increasing growth of private label store brands such as Metro's Merit Selection and Loblaws' President's Choice. Merulla also noticed that many families who could not afford to go to the restaurant regularly, still wanted restaurant-style pizza.

Home-made pizza take a long time to prepare and Merulla figured that if he could make and package the dough, then customers could save time, because they would just have to roll it, put on the toppings and bake. Restaurants would also be natural clients, because they could focus on their customers, and let Merulla take care of the dough.

"I could see the demand right away," Merulla said. "But I only had $4,000 to invest so I had to start small."

In 1989 he made his first batch of pizza dough-balls in the basement of his father's restaurant and then convinced Costco to stock them. The dough-balls caught on and the next year Merulla leased a 3,000 square foot manufacturing facility in Dorval. T&N Foods grew quickly and during the next few years and Merulla expanded his plant several times.

According to his wife Nikki Liberta, a Certified General Accountant, who handles the numbers at T&N Foods, Merulla put in a lot of long hours at the beginning.

"It's a good thing that we worked together," Liberta said. "Otherwise we wouldn't have seen each other very much."

But despite his initial success, Merulla sensed that he could do a lot more. During his scouting trips in supermarkets Merulla noticed that the frozen pizza market was dominated by manufacturers' brands such as Kraft and McCain. The retailers' private label pizza offerings in many categories were either slim or non-existent.

"The quality was poor, and there wasn't much choice," Merulla said.

In 1995 he approached Provigo and presented company officials with a variety of recipes and he quickly inked a deal. During the next few years he signed contracts with a string of retailers across the country including Metro, Couche-Tard, Loeb and with Loblaws, to make the President's Choice Rising Crust Pizza line.

Sales shot through the roof, but Merulla continuously re-invested most of his profits to expand production capacity. In 2000, he invested $12 million to build and equip a state-of-the art 55,000 square foot manufacturing facility on Louis A. Amos in Lachine, where this year, the company's 120 employees will crank out close to $22 million worth of pizzas.

Merulla isn't the only food manufacturer who is growing due to success in the private label market. According to the Canadian Council of Grocery distributors, private label products now comprise almost a quarter of all Canadian grocery store sales. In Quebec, private label brands haven't caught on quite as fast, but they still comprise 18 per cent of sales.

There are several reasons for store brands' success said Dave Bliss, marketing director at the New York based Private Label Manufacturers Association.

"Private label products are more profitable for grocers, because it costs less for them to source," Bliss said. "Private label manufacturers don't have to build branding and marketing costs into their selling prices."

According to Bliss, store brands also increase a chain's customer loyalty.

"If I like President's Choice brands, then I have to go to Loblaws to buy it," Bliss said. "And in that sense President's Choice helps Loblaws sell the other products that they stock."

Because they provide grocer with so many advantages, the quality of private label brands has shot up dramatically in recent years. The first generation of store brand products consisted of generic no-name products that were packaged with black-and-white labels, which were often sold at deep discounts. But today, customer perceptions of store brands' inherent quality often drive demand.

As a result, according to Merulla, T&N Foods' focus on designing and producing superior products will remain a priority for some time to come.

"I didn't invest pizza," Merulla said. "I just try to make it better than anyone else."


Sidebar: The plus's of private label retailer brands

o Private label brands provide retailers better control in terms of pricing, maintaining store image, product range and quality
o Private labeling provides increased visibility for the retailer's name both in-store, and in the customer's home
o Retailer brands have lower marketing costs, because they often don't need to be promoted as extensively
o According to the Private Label Manufacturers Association, private label brands generate higher profitability for grocers


Fact Box:
Company Name: T&N Foods Inc.
Owner: Antonio Merulla
Founded: 1989
Products: Private label pizza
Employees: 120
Sales: $22 million
Phone #: 514-631-9275


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Peter Diekmeyer
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Montreal, Canada, H9S 1T6, 514-631-0025



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