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Minnesota is a sweet spot for candy makers

The birthplace of the Milky Way has a rich history in the candy business. Now even some old favorites are getting a fresh look.

Pearson's CEO Michael Keller
Photo by Travis AndersonPearson’s CEO Michael Keller

The Pearson Candy Company on West Seventh Street in St. Paul might not be an exact replica of the whimsical workshop made famous in the movie Willy Wonka and the Chocolate Factory. But the scene inside is not far off.

Michael Keller, the company’s president and CEO, arrives not in a top hat and purple velvet frock coat like Wonka, but just as eager to show off his workshop. Keller, a Gen Xer in well-worn charcoal-colored jeans (“It’s casual Friday,” he explains) dons a white hairnet, and the doors of Minnesota’s largest and one of its oldest candy companies swing open.

Inside, a huge stainless steel drum churns the soft, cool-tasting centers for Mint Patties, while liquid caramel is drizzled onto a giant, stainless steel cooling roller. “It’s like a caramel waterfall — all you want to do is stick your head in it,” says Keller.

A one-ton bag hanging from the ceiling feeds the finest Virginia roasted peanuts into a filter that spills them onto a conveyor belt as a worker busily pulls out those with even a hint of overroasting. Machines lightly spray the peanuts with oil, sprinkle them with salt, and send them tumbling down a large, round tube to the lower-level production floor of the two-story candy factory.

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The production floor includes the starch room, which is like entering heaven. Everything is white: the workers’ uniforms, the molds, the candy centers, and the fine, white cornstarch dust that settles over everything.

Just outside, workers “enrobe” Mint Patties, Nut Goodies, and Bun Bars in chocolate, creating little swirls of chocolate on top of the Buns. Nougat centers for the company’s flagship product, Salted Nut Rolls, are fed one after another onto a bronzed sheet of caramel resting on a layer of peanuts. Another shiny sheet of caramel is laid on top, and the sweet-smelling pieces are rolled together, then cut into bars.

With 150 total employees (110 in the plant), Pearson’s is the largest candy company based in Minnesota. Proximity to raw ingredients, to some of the nation’s top retailers, and to the Twin Cities transportation hub make Minnesota a sweet spot for candy making.

Twin Cities BusinessPearson’s has had several owners since its founding by P. Edward Pearson and his brothers John and Oscar in 1909. In August 2011 Brynwood Partners VI, a private equity fund based in Greenwich, Connecticut, acquired the company. Brynwood Partners plans to make Pearson’s a platform for additional candy company or brand acquisitions, and the company’s 120,000-square-foot facility offers plenty of room to grow.

“The idea is to invest in the company and see it grow, both organically and through targeted acquisitions,” says Keller, who was chief marketing officer at Edina-based International Dairy Queen before coming to Pearson’s in 2011.

A rich history

There are at least 35 candy companies in Minnesota making everything from handmade caramels to licorice to gourmet specialty chocolates. Combined, Minnesota candy plants employ an estimated 1,110 people and generate roughly $138 million in annual plant sales, according to the National Confectioners Association, a trade group based in Washington, D.C.

That’s a small bite of total U.S. candy sales, estimated at $22.3 billion in 2012, according to IBIS World, an independent research information service. “Four companies — Hershey’s, Mars, Nestlé, and Kraft — have more than half of the percentage market share of the U.S. chocolate and candy industry,” says Olivia Tang, an analyst at IBIS World.

A little-known fact: Mars, the maker of Milky Way and Snickers candy bars and M&Ms, actually got its start in Minnesota before moving to Chicago decades ago. Now it’s the largest candy maker in the United States.

Top 5 Candy-Making StatesWhile no other Minnesota candy company has come close to Mars’ success, we make enough of the sweet stuff here to rank ninth nationally in sales from candy manufacturing. The state has a rich history in the candy business, with several companies that have survived for a century or more.

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In 1909, the same year Pearson’s opened its doors, Albert Abdallah, an immigrant from Lebanon, opened a candy shop at Hennepin and Lake in Minneapolis with his Swedish wife, Helen. The Abdallahs worked out of several retail locations in the Uptown area before moving the company to Burnsville in the 1960s. Abdallah now employs 120 people there.

Today Abdallah Candies Inc. is the state’s third-largest candy maker and is known for its fine chocolates. Now owned by Albert and Helen’s great-grandson, Steve Hegedus, and his wife, Karen, Abdallah sells chocolates through the company’s on-site retail store, as well as in hospital gift shops, Hallmark stores, and specialty shops. About two-thirds of the 20,000 pounds of candy the company makes daily is sold under the Abdallah name, the rest under private labels.

Steve Hegedus says Minnesota is a great place to make chocolate. “Minnesota has a good business climate … and the Upper Midwest is perfect for candy making. We are not pummeled by heat 365 days of the year.” Even more important, he adds, is the company’s loyal local customer base. “We make exquisite toffees,” says Hegedus. And the locals have noticed. Besides the firm’s butter almond toffee, Abdallah customers are rabid about the company’s “alligators” — pecan-caramel clusters covered in milk chocolate—and its mouth-watering truffles.

Also known for its rich, handmade chocolates, Regina’s is another family operation that has prospered over the decades. Cindy Racine manages one of Regina’s two retail outlets. Her grandfather, Frank Elliott, an immigrant from Greece, opened the shop in 1926 in downtown St. Paul. Today Regina’s makes and sells a wide assortment of handmade specialty candy — everything from nut brittles to fudge to assorted chocolates—at its location at St. Clair and Cleveland in St. Paul. It also has a retail shop on Robert Street in West St. Paul.

At Abdallah, pouring butter caramel to cool.

Cindy’s brother Mark Elliott owns the company, which employs 15 full- and part-time employees during the busy season, many of whom are family — or could be soon. “Mom met Dad here when he was in high school. She was working in the store,” says Racine. “My brother Mark also met his wife while they were both working in the store. I always joke and tell people if they want to find a husband or a wife, they should come and work for us.”

Regina’s makes most of its candies, offering seasonal specialties like candy canes and hard ribbon candy. “We also offer heart-shaped boxes, both prefilled or empty so you can fill your own,” Racine notes.

Even older than Pearson’s or Abdallah, Canelake’s Old Fashioned Hand Made Candies was started in Virginia, Minnesota, in 1905 by Gust Canelake, who later handed the business to his sons John and Leo. In 1983, the Canelake brothers sold the shop to native Iron Ranger Jim Cina, then an apprentice in the store.

“I borrowed money from my relatives to buy the business,” says Cina. The shop employs eight to 13 people year-round and 20 to 30 during the holiday season. Canelake’s specializes in chocolates, peanut brittle, almond bark, turtles, toffee, cashew clusters, and fudge.

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Cina’s main competition on the range is the Great! Lakes Candy Kitchen, in Knife River, which was started a few years ago by Gust Canelake’s granddaughters (John Canelake’s daughters) Pamela and Patricia.

A love of licorice

“I love licorice and have eaten it ever since I can remember,” serial entrepreneur Ken Nelson. As a boy growing up in the small town of Perham, Minnesota, in the 1940s, he says licorice was a special treat. “When my mom and dad went to Minneapolis,” he recalls, “I requested they bring back licorice allsorts,” colorful candies made of black licorice and other flavors. It was an unusual request for a 5-year-old, but the beginning of a lifelong love affair.

It took a while for Nelson to see candy as a business, however. In 1964, after graduating from Notre Dame, he and his father, Tuffy, founded Tuffy’s Pet Foods in Perham. Seven years later, the father-son team sold Tuffy’s to ketchup maker H. J. Heinz Company.

Nelson next launched Barrel O’ Fun, a snack food company, in 1973 and eight years later sold it to Wisconsin-based G. Heileman Brewing Company. Finally, in 1987, after completing his five-year employment contract with the brewer, it was time to get serious about licorice.

While Nelson had some prior candy manufacturing experience through Barrel O’ Fun, which used to package and sell candy, he did plenty of homework before launching Kenny’s Candy Company. “Europe is big in licorice, so I went to England, hired a consultant and bought equipment,” he notes. “I brought the equipment and the consultant back, and he helped us get started.”

Initially a supplier of red, black, and chocolate-flavored twists and bites to bulk, rebag and private-label customers across the United States, Kenny’s created the Juicy Twist brand, a premium product made with real fruit juice, in 1996.

Nelson hasn’t forgotten about allsorts, either. Kenny’s imports allsorts from Spain to rebag and sell under the company’s Wiley Wallaby brand, created in 2007. Kenny’s also manufactures watermelon, blueberry, green apple, black, and strawberry licorice as well as two types of Outback Beans (chewy licorice centers coated in candy).

Today in its 150,000-square-foot factory, Kenny’s employs 125 people who come from a 40-mile radius around Perham. They produce $25 million worth of dozens of different varieties of licorice each year, making Kenny’s the state’s second-largest candy company. It is also the official licorice supplier of the Minnesota Twins.

Nelson bought Barrel O’ Fun back in 1988. He repurchased Tuffy’s in 2001, when the previous owners were about to close the plants. In 2011 he started a fourth business, called Nutheads, which manufactures chocolate-covered snacks and Kookamunga Crunch, a caramel corn with nuts. All four businesses are currently rolled into KLN Family Brands, a company with projected combined annual revenue of $500 million in 2013.

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One that got away

Minnesota’s candy industry was dealt a blow last year when the acquirer of one of its largest candy makers declared it would move Minnesota jobs to Chicago.

In May 2012, Farley’s & Sathers Candy Company, which was headquartered in Round Lake, Minnesota, merged with Chicago-based Ferrara Pan Candy Company, becoming Ferrara Candy Company. IBIS World estimates that before the merger, Farley’s and Sathers had annual sales of $600 million, making it by far the largest candy company headquartered in Minnesota. Although the company had roots in Minnesota going back to the Depression era, most of the candy was made outside the state.

Big Candy Big DollarsFounded in 1936 in Round Lake by John Sather, the innovator behind pegboard candy (hanging bagged candy), Sathers was primarily a rebagger that purchased bulk candy to bag and sell commercially. Sathers grew through several acquisitions but never manufactured candy in Round Lake. Sathers linked up with Chicago-based Farley’s in 1996, when Favorite Brands International acquired them both.

After a blizzard of ownership changes in the candy industry, Farley’s & Sathers reemerged in 2002 as a private equity firm’s vehicle for repurchasing a collection of orphaned candy brands. Over the next decade, Greenwich, Connecticut-based Catterton Partners gobbled up such well-known names as Brach’s, Chuckles, Jujyfruit, Now and Later, and Rain-Blo gumballs and put them under the Farley’s & Sathers umbrella.

Prior to the merger, Ferrara and Farley’s & Sathers had combined revenue of $900 million, representing 13.4 percent of estimated U.S. candy sales in 2012, IBIS World estimates.

Ferrara began closing the Farley’s & Sathers Round Lake headquarters in 2012, with plans to shutter it early this year, letting go all its remaining employees. The company has not said it will close its operation in Winona, which employs 125 workers, but others expect the plant will be shut down unless it can compete on costs with newer plants in Mexico. Ferrara Candy Company declined to comment for this story.

Sweetening the strategy

Sometimes a new owner can give an established company a fresh start. Maud Borup began making fine chocolates in her St. Paul kitchen in 1907, but the company has changed hands four times since then. In late 2005, Christine Lantinen, a former product manager for Target who had also worked in the gift food business, saw a chance to take the company in a new direction.

“There was an opportunity to buy the brand,” says Lantinen. “I wanted to take the company wholesale rather than retail, which had been the focus.” Today, Lantinen contracts with candy manufacturers from across the country to sell both private-label and branded candy at retailers like Target, Wal-Mart, Kmart, and Safeway, as well as at specialty stores. With only eight employees and a shift in strategy, Lantinen has grown the Minneapolis company’s annual sales from $100,000 to $15 million.

“I love the category. It’s fun,” Lantinen says. “I never thought when I was a little girl that this is what I’d be doing.”

New candy companies continue to surface, in part because of the relatively low cost of entry and a local culture that appreciates great confectioneries.

Hope Klocker and her sister Jule Vranian started Sweet Jules, based in St. Joseph, Minnesota, with $10,000 in 2009.

While the company’s handling and shipping is done out of St. Joseph, its caramels are manufactured in North Minneapolis, where Sweet Jules rents space from Kindred Kitchens, an incubator for food-based businesses. “It’s a great resource for start-up businesses,” says Klocker.

Klocker and Vranian grew up working in their family’s restaurants in St. Joseph, Kay’s Kitchen and LaPlayette, but caramels were their favorite. “Every Christmas an aunt would send us caramels,” says Klocker. “My sister and I always said someday we are going to make these caramels and sell them.” Vranian, who worked as a pastry chef instructor at Le Cordon Bleu in Mendota Heights, refined the recipe, and now their caramels are offered in nine flavors including bananas Foster, Sicilian orange, café Italiano, and salted.

The sisters have two part-time employees year-round, and their staff increases to about four employees during the high season. They sell mostly online and to stores in Minneapolis, Klocker says: Sugar Sugar, Salty Tart in the Midtown Global Market, Surdyk’s, and France 44 Cheese Shop are among their customers. “We are growing fast,” she notes with pride. “Our product is a high-end artisan candy made in a small factory with the highest-quality ingredients. We use only cane sugar. We use the best butter and cream. We don’t use any stabilizers or additives.”

Artisan versus big candy

Artisan candy makers do appear to be making a comeback, says analyst Tang. “Small-batch candy is very nostalgic. More care and effort is put into these candy products. Artisan candy is handmade, many are high quality, even organic.” Such artisans are to the candy industry what craft beer makers are to brewers, she notes.

The challenge for Sweet Jules and other startups is distribution. “You have to talk to store managers and get them to try your product. There are a lot of candies out there,” says Klocker.

Minnesota's big 3 candymakersBrian McElrath, owner of Minneapolis-based B. T. McElrath Chocolatier, Inc., agrees. “Artisan candy makers are popping up all over the place,” he says. “Barriers to entry to make a chocolate truffle are very low.”

He started B. T. McElrath in 1997 with an investment of more than $100,000 and now has eight full-time employees, leasing 4,000 square feet of manufacturing space in Northeast Minneapolis that once housed the Betty Crocker test kitchen and General Mills research labs.

An artisan chocolate maker, McElrath is a distribution whiz. “We have national distribution for the most part. We are in at least 35 states, and I have a terrific network of brokers and a distributor in California,” he says. In the Twin Cities, he sells his fine chocolates at the Wedge co-op, Whole Foods, Kowalski’s, Mississippi Market co-op, Bibelot, Patina, and similar outlets.

McElrath has engaged Minneapolis-based Van Liermann & Associates, as well as eight sales reps, to represent his company. “I take advantage of the relationships they already have,” he says.

Sugar Sugar candy shop on Grand Avenue in Minneapolis sells B. T. McElrath, Sweet Jules, and other boutique candies such as Craftmade Toffee and Mademoiselle Miel, which makes honey bonbons made with fresh honey collected from rooftop apiaries, including one on the Foshay Tower.

“I love to sell local, but I specialize in licorice so I have a lot of Dutch, Finnish, and other European licorices,” says Joni Wheeler, who opened Sugar Sugar in 2009. “I also specialize in chocolate bars from boutique and bean-to-bar makers who import their own cacao beans.” She notes that one boutique product, B. T. McElrath’s buttered toast bar, is made with Rustica Bakery bread crumbs and Hope Creamery butter, thus supporting three local businesses.

22 pounds a year

Local or otherwise, not everyone is a fan of candy. “There are people who are health conscious and against anything with sugar and high fat,” says McElrath. “That’s the business we are in, and we understand that.”

Then there’s the rest of us. On average, Americans eat 22 pounds of candy a year, or 1.8 pounds a month, according to IBIS World. That’s a lot of bonbons and allsorts.

Artisan candy may be on the rise, but the state’s largest candy companies continue to compete for their share of our collective sweet tooth.

With the addition of gummies to Kenny’s product mix this year, Nelson expects annual revenues to grow by $10 million to $35 million in 2013.

Pearson’s plans to grow, in part, by expanding its product line—“One thing that struck me when I came here is that we had no Halloween, Valentine’s, or Easter candy,” says Keller. In 2012, the company introduced bite-size Salted Nut Rolls, a Sea Salt Caramel Nut Goodie, and snowman-shaped Mint Patties, and will be offering heart- and bunny-shaped Mint Patties this year.

The company also is improving distribution, while repositioning some of its current products to appeal to today’s active consumers. Keller points out that the 2.2-ounce Salted Nut Roll, for example, offers athletes 8 grams of protein, 2 grams of fiber, and salt. It isn’t chocolate, so it doesn’t melt, and it can be stuffed into a golf or gym bag without crumbling.

There is something about candy, though, that defies a completely rational approach. “Part of the magic of the candy industry is that the love of a candy bar stays in the family just like loyalties for sports teams,” says Keller. The Upper Midwest fell in love with Pearson’s candy bars eight decades ago. And today’s Minnesota candy makers are making sure we have plenty of local confections to pass on to the next generation.

This article is reprinted in partnership with Twin Cities Business.