Herman Goelitz, Inc. Business Information, Profile, and History

History of Herman Goelitz, Inc.

Herman Goelitz, Inc. is a privately held candy company known primarily for its phenomenally successful "Jelly Belly" jelly beans. The gourmet beans rocketed to fame during the first presidential campaign of Ronald Reagan, and Reagan's passion for the sweet treats encouraged sales of Jelly Bellies around the world. The company makes a full range of candy products, but Jelly Bellies account for about 70 percent of sales. Herman Goelitz also manufactures candy corn, licorice candies, assorted gummy candies such as bears and worms, and chocolates such as chocolate mints and chocolate-covered nuts. The company operates out of headquarters in Fairfield, California, plus manufacturing facilities in Fairfield and in North Chicago, Illinois. Goelitz also runs one freestanding retail store to sell its candies, as well as stores attached to its manufacturing plants. A new plant is in development near Kenosha, Wisconsin, that will feature a store and restaurant as well as expanded production facilities. Herman Goelitz candies are sold across the United States and in 35 countries worldwide.

Early Years

The company that became Herman Goelitz, Inc. was begun by two immigrant brothers from the Harz Mountain region of Germany. Gustav and Albert Goelitz came to the United States shortly after the Civil War, and settled in Illinois with an uncle who had emigrated earlier. The brothers went into business in 1869 in Belleville, Illinois, making and selling candy. Elder brother Gustav, who was 24 at the time, made the candy in the back room of their store, and handled retail sales up front. Albert, who was 21, sold their candy in neighboring towns, traveling tirelessly in a horsedrawn wagon.

The business prospered, and the two brothers married and raised families. Gustav's sons eventually joined the business. By about 1890, the business had moved into a handsome brick building on Main Street in St. Louis. But the candy company was hard hit by the depression that gripped the country a few years later, the infamous Panic of 1893. Economic turmoil, combined with labor unrest, unmoored the previously successful confectionary, and the brothers were forced to sell the business in order to satisfy debts. Gustav Goelitz was apparently shattered by the loss, and he died in 1901, when he was only 55 years old. Albert, on the other hand, lived to be 80, and worked until his death as a traveling candy salesman, selling another company's products.

By 1898, with the Panic behind them, Gustav's sons decided to restart the family business. Adolph Goelitz moved to Cincinnati and opened the Goelitz Confectionary Company there. He was joined by a friend and neighbor, William Kelley, and eventually by Kelley's cousin Edward and by the younger Goelitz brothers Gus, Jr., and Herman. These families became more closely tied when Edward Kelley married one of the Goelitz sisters, Joanna. This second start for the Goelitz candy empire was a good one. The candy industry in the United States was growing overall, and by 1912 Goelitz Confectionary had so much business it had to turn down new orders. In order to expand production, the company moved to North Chicago, Illinois, a factory town with low land costs and easy access to railroads. Goelitz built a new plant in North Chicago, and specialized in the types of candy known as butter creams or mellocremes. Goelitz's bestseller was candy corn, a soft, three-color candy that was made by a painstaking pouring process.

Through the World Wars

The years of World War I were apparently difficult for Goelitz Confectionary. Anti-German sentiment was strong in the United States, and this may have led to problems at the company. At this time, no one could decide who should lead the company, and each of the family members took a turn. Soon Gus, Jr., left the company, and brother Herman departed for California to found his own business. He set up Herman Goelitz Candy Company in Oakland in 1922, and carried on with his family's famous recipe for candy corn. Because of the difficulty of shipping candy long distances, the industry of that era was strictly regional, so Herman's new company was not in competition with the North Chicago Goelitz Confectionary.

Both Goelitz companies did well throughout the 1920s, a time of great growth and prosperity in American industry. Then, just as the whole country suffered through the Great Depression of the 1930s, so, too, did the candy companies. But unlike many other candy companies, the Goelitz companies remained in business. Candy corn, the staple of both companies, had sold for 16 cents a pound in the 1920s, and during the Depression the price was almost half that, at 8 cents. But the Goelitz companies kept going, and eventually a third generation of the family joined the business. Aloyse Goelitz, Herman's daughter, married Ernest Rowland, and Rowland too became part of the confectionary company. In Illinois, descendants of the Goelitz and Kelley families joined the business.

Hard times for the candy industry ended with the advent of World War II. Candy consumption rose nationwide. Although sugar was rationed and the war caused labor shortages, the Goelitz companies worked at top capacity. Because chocolate was also rationed, and most of it was consigned to soldiers fighting overseas, non-chocolate candy such as the Goelitz companies specialized in saw something of a resurgence. After the war, growth in candy consumption jumped up an astonishing 60 percent, and the companies did quite well.

A New Direction in the 1970s

The high tide that had lifted the Goelitz companies through World War II and after subsided by the 1970s. Other manufacturers began producing candy corn, long the Goelitz specialty, cutting into market share and competing on price. Both Goelitz companies relied almost exclusively on mellocremes, soft candies made by the candy corn method. This restricted product line hurt the companies. Aloyse and Ernest Rowland, who were running the California Herman Goelitz Candy Co., came up with an idea for a new candy while driving across the desert after a trade show in Las Vegas in 1972. This was a chocolate-covered mint, called the Dutch Mint, the first chocolate the company had ever manufactured. The Dutch Mint became one of the bestselling Goelitz products, but it alone was not enough to get the company out of financial trouble. It was clear to both William Kelley, who ran the Illinois Goelitz Confectionary, and to the Rowlands in California, that the companies would have to diversify their product lines in order to continue to compete with bigger national confectioners. But expansion was particularly difficult in the mid-1970s because of escalating sugar prices. By 1975, the sugar market was in a crisis, as unusually high prices forced many sugar-dependent companies out of business. William Kelley shut down the North Chicago Goelitz plant for some months, hoping to reopen when the sugar market settled down. Rowland in California borrowed heavily to stay in business, and energetically branched into more non-mellocreme candies.

The most significant year for the Goelitz companies came in 1976, when the Jelly Belly was born. Herman Goelitz Candy Co. had been making traditional jelly beans since 1965. These candies were made with a clear center of pectin, and covered with a hard sugar casing of different fruit flavors. There was nothing particularly novel about the Goelitz jelly beans, though the governor of California, Ronald Reagan, did fancy them. He had turned to jelly beans as an oral fix after he quit smoking. In 1976 David Klein, a Los Angeles candy distributor, approached Goelitz's president Herman Rowland with an idea for a "Rolls Royce" of jelly beans, a pungently fruit-flavored bean made with natural ingredients. Rowland's company took on Klein's idea, and developed eight varieties of a small, intensely flavored jelly bean.

Whereas traditional jelly beans had flavoring only in the sugar coating, these new beans had a strong flavor in the center as well. They were gourmet jelly beans, much more exciting to the palate than the old Easter standby. The first eight flavors debuted in the summer of 1976, and immediately attracted attention. The company sold its Jelly Bellies in bags of a single flavor, a marked departure from the traditional assorted mix. Each flavor was so intense that it needed to be savored individually. The taste caused a sensation, and production had to be stepped up at Herman Goelitz. Within a year, 25 flavors of Jelly Bellies had been developed, and demand was growing. Herman Rowland proposed that his California company formally join the other branch of the family, and buy into Goelitz Confectionary in Illinois. The two companies reunited in 1978, becoming Herman Goelitz, Inc.

Jelly Bellies had many celebrity fans, including such stars as Barbra Streisand, Jerry Lewis, Jack Lemmon, and Glenn Ford. But the Jelly Belly aficionado who really put the candy on the map was Ronald Reagan. He had been eating regular jelly beans for years, and when Goelitz sent him the new Jelly Bellies, he was hooked. While Reagan was governor of California, Goelitz supplied his administration with two dozen one-pound bags of jelly beans every month. During his campaign for president in 1980, the press commented on Reagan's jelly bean habit, and Jelly Bellies suddenly got enormous exposure. Goelitz came up with a new flavor, blueberry, in order to provide red, white, and blue Jelly Bellies for Reagan's inauguration, and Herman Rowland donated three-and-a-half tons of beans for the festivities. Jelly Bellies became an integral part of the Reagan administration, as the president had a jar of them on the table for all his meetings. Herman Goelitz, Inc. supplied a standing order for up to 60 cases of Jelly Bellies every month, which were distributed throughout the White House, Capitol Hill, and numerous government agencies. By 1981, the company was netting about $6 million from Jelly Bellies, and sales had started to go international. The Goelitz plants in both Illinois and California were running round-the-clock shifts, and they still could not keep up with orders.

Continued Growth in the 1980s and 1990s

Goelitz executives worried that Jelly Bellies was just a fad, but the bottom did not fall out. The company opened a new plant and corporate headquarters in Fairfield, California, in 1986. By 1992, the company had to double the size of the plant. Though Jelly Bellies sold for three to four times the price of traditional jelly beans, devoted customers were willing to pay the price, and the brand found new adherents every year. Jelly Bellies occupied a niche market, and Goelitz thought it might be able to expand sales by placing the candy in supermarkets and other mass market outlets. The company set up a mass market division in 1991. However, this effort proved unsuccessful, apparently because Goelitz did not want to pay the so-called slotting fees that supermarkets required for new products.

Despite the failure of this initial push, by 1997 approximately 15 percent of Jelly Bellies sales came from mass outlets. Other big candy makers had begun to encroach on Jelly Belly territory, as both Hershey and Mars came out with new jelly bean recipes. Sales at Herman Goelitz had grown by about 15 percent annually since 1985, and the candy maker searched for new ways to continue its expansion. In 1996, the company opened its first retail store. The store, in a factory outlet mall not far from the company's headquarters in Fairfield, California, sold the whole Goelitz line of candies in addition to all the 40 official Jelly Belly flavors and "Belly Flops"--beans the factory had rejected because of imperfect shape. The retail store was an outgrowth of the stores the company ran attached to its factories. Goelitz factory tours were increasingly popular, drawing 175,000 people to the Fairfield factory in 1996. In 1997, the company tried again to reach mass markets, hoping to expand its sales in that category from 15 percent to 25 percent. Because Jelly Bellies were perceived as a gourmet item, the company had to be careful to keep up this effect even while reaching into supermarkets and chain stores. Goelitz chose its mass outlets carefully, venturing into ones that were well-respected in their regions. These included Dominick's Freer Foods in Illinois, Albertson's on the West Coast, the Alabama-based Bruno's, and Wegman's in upstate New York. Goelitz hired brokers and distributors to keep up its Jelly Belly displays and bulk bins in these chains, so there would be no sloppy or poorly maintained displays that could bring down the fine image of the brand.

The company marketed Jelly Bellies in innovative ways, spending little on conventional advertising but relying on word of mouth from lots of giveaways. Goelitz provided 350,000 free sample bags of Jelly Bellies a month to Southwest Airlines in the late 1990s, and gave away numerous samples through sports events such as golf tournaments and boat races. When the company came up with a new flavor, it relied on lots of sampling and feedback to determine if it had a good one. For 1997, the company projected it would give away more than 10 million bags of samples.

The company also tried to expand its export sales in the late 1990s. Because of Jelly Bellies' popularity with Ronald Reagan, the candy had been introduced around the world during his years in office. International orders comprised about seven percent of sales by 1998, with sales concentrated in six countries. The company used the same advertising techniques abroad as at home, that is, principally sampling, to try to reach more customers abroad. Goelitz president Herman Rowland aimed to grow the company's international sales to at least ten percent over the next few years.

To keep up with its enormous growth, the company invested $40 million in a new factory in Wisconsin that was set to open in the year 2000. The new plant was to have a 375,000-square-foot ground floor production area, with a second story devoted to a visitors center. The company also started construction on a new visitors center at its Fairfield plant, to handle the burgeoning crowds that took Goelitz's Candyland tours. In addition, the company attempted to bolster its non-Jelly Belly brands in the late 1990s. To spread the gourmet cachet to its other products, Goelitz repackaged some of its other candies, such as Jordan Almonds, Licorice Pastels, and Dutch Mints, in gift boxes imprinted with the line "from the makers of Jelly Belly." Though Jelly Bellies made up about 70 percent of the company's $100 million sales in 1998, Goelitz wanted to emphasize that it had many other products, all made with the same care that went into its flagship brand.

Principal Subsidiaries: Goelitz Confectionary Co.; Herman Goelitz Candy Co.