Marvin M. Schwan

Introduction

Marvin Maynard Schwan (born January 11, 1929 in Marshall, Minnesota; died May 9, 1993 in San Diego, California), was the founder and first president of Schwan’s Sales Enterprises, Inc., one America’s largest privately held companies and one of the biggest producers and distributors of frozen and prepared food. [1] Schwan’s father, Paul Schwan, a German immigrant, and his mother, Alma, the daughter of German immigrant farmers, started the business in 1941 as a small dairy processor in the regional trade center of Marshall, Minnesota. Marvin Schwan became a partner in his parents’ business and began directly marketing ice cream to local farmers using small delivery trucks. As it expanded from its Midwestern roots, the company began offering additional food products to its customers. In the 1970s, Schwan’s entered the frozen pizza business with Tony’s Pizza and later Red Baron, rapidly becoming the nation’s largest producer of frozen pizzas. At the time of his death in 1993, Schwan’s personal worth was $1.3 billion (roughly $2.1 billion in 2014 USD).[2] By 1997, the company recorded annual sales of $2.9 billion (roughly $4.7 billion in 2014) and controlled a quarter of the frozen pizza business in the U.S. At present, the company also operates the largest private vehicle fleet in the world.[3]

The company Schwan created reflected its founder’s beliefs in the importance of private entrepreneurship and Christian values. An intense, private, and introverted man, Schwan ran his company like the family business from which it grew, promoting from within, providing good benefits, and in turn demanding and getting deep and abiding loyalty from his employees. Until the mid-2000s, the company released very little information about itself to the public and developed a corporate culture that Forbes magazine once characterized as “fanatically” secretive. Even today, Schwan’s is virtually unknown to the American public despite being several times larger than the more visible International Dairy Queen, Inc. During his lifetime, Schwan created the Marvin M. Schwan Foundation, which is a major supporter of the Wisconsin Evangelical Lutheran Synod.

Family Background

According to those who knew him and by his own accounts as well, Marvin Schwan’s life and values were deeply shaped by his parents and by the region of rural southwest Minnesota in which he was born and raised. Schwan’s father Paul Schwan (1899–1969) left Germany for America in 1922. Immigration documents list his birth place as Jaktorowo, a small village in Chodzież county in present day northwest Poland. His later obituary listed the town of Lindenwerder (present day Lipia Góra), located next to Jakorowo. Prior to immigrating Paul lived in Berlin.[4] Thus, Paul Schwan’s family originated in West Prussia, the area known prior to World War II as the “Polish Corridor,” in the county of Wyrzysk (then Wirsitz) near the city of Bydgoszcz (then Bromberg). Although immigration documents listed Paul Schwan’s occupation as a farmer, his father was a cabinet maker whose main business was making coffins. His mother sewed the linings of the coffins. The family belonged to the Lutheran church and Paul may have attended a religious school. The family was devout in its beliefs and prayer was an important part of daily life. In 1908, Paul Schwan’s father died of typhoid and the family had to rely on the work of Paul Schwan, his older brother, and a sister to make ends meet. From later accounts that he gave family and friends in America, we know that Schwan was inducted into the German Army in 1916 at the age of seventeen. Schwan served as a machine gunner in combat on both the eastern and western fronts. He spoke very little of his military service in the Kaiser’s army, though this was not uncommon for veterans in that era, especially German Army veterans living in the United States. After the war, Schwan and/or his entire family may have relocated from West Prussia to Berlin, like many families from eastern Germany, to escape rule by the hated Poles after the region was granted to Poland by the Versailles Treaty.[5]

Paul Schwan (sometimes spelled “Schwahn” in immigration documents) was twenty-two years old when he left for America. Given how little contact Schwan seems to have maintained with his homeland, the move to America represented a clear break with a difficult past—the poverty of his upbringing, the trauma of his military service, his hometown now in a foreign country, and the economic and political turmoil of postwar Germany. Schwan’s destination in America was Marshall, the county seat of Lyon County, Minnesota.[6]

Although Paul Schwan was leaving his homeland behind, he would remain within the circle of an extended family. Ties of blood, language, and faith would firmly bind Paul Schwan and his sons to the New World. An uncle living in Marshall—also named Paul—was Schwan’s host on arrival in Minnesota. Southwestern Minnesota’s main ethnic groups were Scandinavians, Yankees, Dutch, Belgians, and French Canadians, but the region was also home to a significant number of people with roots in the eastern marches of the German Empire, both German Lutherans and Polish Catholics. A nearby township settled largely by German immigrants was named “Posen” after the region whence many residents had come. In addition to Paul Schwan’s uncle, several other families with same last name—possibly related—lived in Lyon County or the adjacent areas of Minnesota and eastern South Dakota. Within two years of settling in Marshall, Paul Schwan met and married Alma Stelter.[7]

Paul and Alma did not meet by chance. Alma’s father, Julius Stelter, was born in Friedrickshoven near Bydgoszcz in 1865 and came to America as a young man. In 1890, he married one Martha Schwan. Both the Schwan and Stelter families appear to have roots in the same area of present-day northwest Poland, among a group of small German Lutheran settlements. It is likely that the Schwan and Stelter families knew each other in Europe prior to coming to Minnesota and that Paul and Alma were somehow related. Marriages between distant relatives were not uncommon in large rural families. The two families had come through a process of chain migration linking rural West Prussia to rural Minnesota. Paul and Alma’s children would be born and raised within a network of kin that shared a common faith, language, and region of origin.[8]

Alma Schwan (1901–1998) was raised on her parents’ farm west of Marshall in Island Lake Township as the fifth of fifteen children. Extant tax records show that the Stelter family was among Island Lake’s most successful farmers if measured in terms of the value of the family land and livestock. In addition to the family homestead in the south section of the township, Julius and his brothers bought, improved, and apparently sold plots of land in other areas. Hard work was the price for the family’s success and tax records show that one of the family’s few luxuries was an organ. In the large Stelter family, children were expected to pull their weight around the farm. Even in such a hard-working family, Alma stood out as especially diligent and was often known to outwork all her sisters as well as her brothers. Her father once boasted that “By the time her younger brothers would turn around three times, Alma has all the work done.”[9]

Julius and Martha Stelter were among the founding members of the nearby Zion Evangelical Lutheran Church—originally known as Zion’s Church of the Evangelical Lutheran Congregation of the Unaltered Augsburg Confession at Island Lake. The congregation was affiliated first with the Minnesota Synod which later was incorporated into the Wisconsin Synod. The Wisconsin Synod was made up of German Lutheran congregations, primarily in the Midwest and Great Plains region, founded by German mission societies in the mid to late nineteenth century. The Synod rejected the liberalizing tendencies of other Lutheran Synods, primarily Scandinavian, and has remained doctrinally close though separate from the larger Missouri Synod. At the time Paul and Martha Schwan got engaged, the Wisconsin Synod numbered about 130,000 communicants nationwide.[10]

By the time Paul and Alma got married, Paul had a steady job working for the Marshall Creamery Company, making butter and driving a delivery wagon. His salary of $75 a month (roughly $1,000 in 2013 USD) was enough to support his family and purchase a modest house. In 1925, Paul and Alma welcomed their first child, Alfred. Marvin Schwan was born in 1929 and a third son Robert in 1930.[11]

The Marshall Creamery Company that gave the Schwans a start in the dairy business was typical of the many small processing companies that emerged in the Upper Midwest during the early twentieth century. Following the Panic of 1893 and the collapse of wheat prices, farmers sought to diversify and find new sources of income. Selling milk and eggs was one way to do that. Danish and other Scandinavian immigrants pioneered the development of local creameries, often cooperatively owned, which processed milk into butter and other products which they then sold in nearby small towns.[12] German-Americans and others soon followed their Scandinavian neighbors into the business. The Marshall Creamery Company, founded by two local German-Americans, Matt Neisen and Matt Langenfeld, initially made butter, but by 1919 had started making ice cream as well. Ice cream proved so popular that the owners sold their butter-making operation in 1924 and the company became the Marshall Ice Cream Company. It bought a few trucks equipped with ice-filled coolers and began selling ice cream to stores and cafes in neighboring towns.

Paul Schwan became the foreman of the company’s ice cream plant in 1926. His work days in the summer began at 3 a.m. and finished around 6 p.m. Marvin and Alfred’s introduction to ice cream making began when the boys were tasked with bringing their father breakfast and lunch at the plant. The parents stressed entrepreneurial values and frugality to their children along with hard work. The oldest two boys received ten cents a week in allowance but lost a penny for every chore left undone. Marvin frequently ended the week with his allowance intact and picked up much of Alfred’s as well by doing the chores assigned to his older brother. When Alfred entered the eighth grade, he started working with his father at the ice cream plant.[13]

Before World War II, Neisen and Langenfeld expanded into milk bottling and delivery. In 1940, Paul Schwan bought into the business as a partner of what became known as Neisen and Schwan’s Dairy. Alfred delivered milk and was soon joined by Marvin Schwan. When Alfred enlisted in the U.S. Navy in 1943, Marvin took over his brother’s milk route while also working in the ice cream plant, especially during the summer. Marvin grew up a quiet, shy young man who excelled in school and at football. The war years were not easy for many German-American families. The boys’ father spoke English with a heavy accent and was never completely comfortable in English. Alfred later recalled that other kids often taunted the Schwan boys, calling them “Nazis” and other even less savory terms. Marvin did not respond in kind. Instead, he entered a patriotic essay contest sponsored by the Marshall American Legion. Marvin won the contest and was invited to read his essay at a large public rally sponsored by the Legion. After that, Alfred noted, the taunting stopped.[14] The incident was an indication of the man Schwan was growing up to be. When confronted with problems throughout his life, his response would be to stop, think things through slowly and carefully, and then arrive at a comprehensive solution. Although Schwan never developed a “business philosophy,” later in life he once told a subordinate that his most productive periods were the hours spent thinking quietly by himself.

Marvin graduated as the valedictorian of his high school class. By then, he had been working steadily at the ice cream plant for a number of years and had even begun making improvements in process. Because he was paid a piece by the number of ice cream novelties he bagged, Marvin increased his rate of production by using his own money to buy a machine that blew air into the bags to open them faster. The new method quickly paid off the initial investment and Schwan put the extra earning toward his college fund. In 1947, after high school, Schwan headed off to Bethany College in Mankato, Minnesota, a Wisconsin Synod-sponsored college largely dedicated to training young men for the ministry. At a time when college education was a rarity in rural communities like Marshall, and out of the reach of most working families, bright young men like Schwan were often channeled toward the ministry. It appears that Schwan considered becoming a minister at some point during this period, but after graduation in 1949 returned to Marshall to work in the family business.[15]

From Family Dairy to Ice Cream King

In 1946, Paul and Alma Schwan bought out Paul’s partner Matt Neisen and opened Schwan’s Dairy and Lunch in a building on South Second Street in Marshall. On Marvin’s return from college, he bought into the business as a full partner with his parents. The business featured a milk bottling and ice cream plant in the back and a lunch counter in front. Several apartments upstairs provided some rental income and housing for Paul, Alma, Marvin, and Robert Schwan. Paul and Marvin ran the dairy and ice cream business while Alma handled the lunch counter in front, cooking and baking for lunch and breakfast in the family kitchen upstairs.[16]

Marshall was a good location for a small food processing company to put down roots and grow. The surrounding area was made up of family farms of various sizes with smaller towns scattering along the region’s rail lines. Marshall had an early advantage over neighboring towns by virtue of being served by two competing rail lines. This allowed easier transportation in and out and cut the cost of shipping. (Communities served only by a single line were at the mercy of that railroad company.) The rail links were soon supplemented by road links and the town became a center for trucking and a stopping point for traveling salesmen.[17]

By the time Paul Schwan and his partners started the Marshall Ice Cream company, the town was home to a variety of milling and food production plants and a hub for regional food distribution. Marshall Produce, founded by a family of Russian Jewish immigrants, became the world’s largest egg producer by the late 1940s. It had subsidiary businesses in packing and distributing fruit and vegetables and other products to grocery stores around the Midwest. Marshall was also home to one of the region’s largest flax mills as well as a flour mill, and beef and poultry slaughtering operations. The Schwan family dairy and ice cream plant was, then, in the right place to grow and surrounded by examples of successful food distribution companies.[18] The employees of those companies were neighbors and customers of the Schwans’.

The first years of the family business were not easy ones, however, thanks in large part to post-war agricultural policies. In 1951, the federal government issued a price freeze in a misguided attempt to restrain inflation. This combined with a range of Federal agricultural policies left over from the New Deal and the war years to hit small agricultural producers hard. Government regulators restricted prices producers could charge for retail dairy products but not what farmers could charge for their milk and eggs. Although larger companies could absorb the losses due to economies of scale, many of the small, local dairies that dotted the Midwest began to go out of business. The Schwan family business was threatened and its credit rating fell. Its main products had to be sold at a loss and it appears that it was Alma’s lunch counter that helped keep the operation afloat during this period. To compound the problem, the State of Minnesota passed a law that small businesses with poor credit ratings had to obtain a business bond. The Schwans were unable to find a bank that would provide money for the bond and soon state regulators threatened to close the business down.[19]

The Schwans found an unlikely savior in a local lawyer. Charles DeReu was one of the few prominent Belgian Catholic business or professional men in Marshall at that time. While the surrounding area had a large concentration of Belgian farmers, relatively few could be found in Marshall itself during the late 1940s and early 1950s. Marshall’s business and professional class had long been made up of Yankee families along with some Scandinavians and Germans. De Reu provided the Schwan family with a bond that allowed it to stay in business.[20] Now the Schwans just had to find a way to make money selling their dairy products under the price restrictions imposed from Washington.

Faced with a seemingly impossible problem, Marvin Schwan sat down to think through a plan that would save the family business. While the company’s costs were fixed at the price of the raw materials they bought from local farmers, it needed to get a better price for its products and it needed to find more customers to which it could sell its product. From the outset, Marvin appears to have focused most of his attention on the family’s ice cream rather than milk. In rural Minnesota, outside of small town residents, many farm families in that day still had dairy cattle and drank their own milk. Ice cream on the other hand was harder to come by, and was a prized luxury. In addition, deliveries of milk and butter—which Marvin knew well since his high school days—were perishable and had to be delivered in a short time frame. With the increasing mobility of rural families and growth of grocery stores, home deliveries of milk appeared to be on the way out. Ice cream, however, could be frozen for longer periods of time provided both the customer and the distributors had freezers.[21]

By the early 1950s, most farmers had purchased freezers. The Roosevelt Administration’s Rural Electrification Administration had brought electricity to most Midwestern farms in the 1930s and 1940s. Farmers formed their own electrical co-operatives to provide low-cost power that helped automate farm operations and made rural life more comfortable. Electric lights and refrigerators became a part of most farm houses. If ice cream could be provided to farmers—without the hassle of going to town to buy it and having half of it melt on the way home—it might prove popular.

Finally, Marvin discovered that the federal price restrictions on dairy products were highly inconsistent. In some of the counties north of Marshall, dairy products could be sold for higher price than in Marshall itself. He could gain an advantage if he could get his ice cream to those areas and sell it directly to farmers.

In March of 1952, the twenty-three-year-old Schwan loaded up an old Dodge truck with dry ice and fourteen gallons of ice cream and drove an hour north of Marshall to the Montevideo area. By the end of the day, he had sold all of his ice cream to farm families. Schwan repeated the process and began to build a customer base.[22]

Given that Schwan was an introvert, making his first sales to family farms as a complete stranger represented a tremendous struggle to overcome his innate shyness. He was never the stereotypical fast-talking traveling salesman and preferred to let the ice cream sell itself. The sister of one farmer from the Montevideo area recalled that her brother was out in the field on his tractor one hot, muggy summer afternoon. An old panel truck drove down the gravel road and the driver slowed to a stop when he spotted the farmer in the field. A neatly dressed young man got out of the truck, rummaged in the back for a moment, and then emerged bearing an ice cream cone. The young man marched out across the field carrying the ice cream and with only a brief greeting handed the cone to the bemused farmer as he sat on the idling tractor. “If you like it,” Schwan said, “I’ll be back next week.” With that, Schwan turned around, walked back to his truck, and drove away. The shy young man’s simple sales approach, the good quality ice cream he stocked, and the prospect of being able to get ice cream delivered right to the front door proved an immediate success. Schwan was soon selling every bit of ice cream he could load into his truck. He developed a number of routes and was soon selling one hundred and twenty gallons of ice cream a day and was able to buy himself a refrigerated truck. The family business was saved.

As he began his first routes, Schwan also paused 1952 to get married to Mavis Burg of Montevideo.[23] Mavis helped Marvin stock the truck, getting up at 3 a.m. Marvin and Mavis worked long hours but the payoff was clear. Marvin’s routes continued to grow and appreciative farmers provided Schwan’s with word of mouth advertising, often recommending he visit the homes of nearby friends and relatives.

By 1953, it became clear that a delivery system based on Marvin Schwan alone could not fill the growing demand for the company’s ice cream. But the company lacked money to pay drivers a salary. Schwan devised a system of compensation based on drivers’ sales. The more the drivers sold, the more they got paid. Schwan paid drivers 50 cents a gallon for ice cream sales to new customers and 20 cents for repeat sales. (At the time, ice cream sold for about $1.50 a gallon.) The company provided the truck and paid all associated expenses. Because the company had such a hard time getting bank loans, it withheld two percent from each driver’s commission which the company paid back later with interest. The money went into a fund that helped provide the company’s operating cash. Drivers were pushed to work 10–12 hour days as truck expenses were about the same for twelve hours as for eight hours and many worked six days a week. A good driver/salesman could earn $50 or more a day, which was a considerable salary in the rural Midwest of the late 1950s and early 1960s (roughly equivalent to $400 in 2014).[24]

As new drivers were hired and routes expanded, the time and expense of driving from Marshall each day grew. In response, Marvin developed the first “out depots”—essentially refrigerated storage sites that could serve as local distribution hubs for drivers. Now drivers could live and work close to the areas they served, loading their trucks from the local depots which were in turn re-stocked by refrigerated trucks from Marshall. In addition to setting up routes directly, by the late 1950s Schwan began to buy up struggling local dairies, for their additional production capacity, but more importantly for their distribution routes. As other dairies phased out home delivery, Schwan converted their routes to distribute his company’s products.[25]

In 1963, the company celebrated its fifteenth year of business. The network of driver routes extended throughout Minnesota, Wisconsin, Illinois, Iowa, and the Dakotas. Sales exceeded $5 million ($38.7 million in 2014 USD) and the ice cream plant operated around the clock in the summer time. The company added new product lines in addition to its milk and ice cream. The first of these was Vita Sun, a fruit punch concentrate added in 1961, followed by lines of sandwiches, frozen pies, meat products, frozen seafood, and corndogs. Product lines and businesses that did not work out were quickly dropped or sold. Marvin Schwan was always open to try new ideas or take suggestions from drivers, employees, and family, but was never sentimental about getting rid of things that did not work out. His brother Alfred, who joined the company in 1964 after working for John Deere Company, wanted the company to buy into small convenience stores. Two stores were operated briefly in Wisconsin, but Marvin was not satisfied with their performance, sold one of them and did not open any more, in spite of Alfred’s objections.[26]

The core of the company during its early decades was the driver-salesman whose routes helped build Schwan’s customer base. Drivers interacted weekly with customers and through this network the company developed a very close understanding of what its customers wanted. Most routes served farms and small towns in the Midwest and Great Plains, though these routes would expand across the U.S. and Canada by the 1980s. The cream-colored Schwan’s truck and its driver became a regular fixture of rural and small town life. Drivers serving farm customers were often treated as part of the family. Drivers were invited in for dinner and were given gifts of fresh corn and garden produce or fresh meat. When families were away from home, they often left their doors open so the drivers could stock the freezer, leaving notes with instructions such as “please remember to turn off the kitchen light” or “make sure the dog is inside.”[27]

In some small communities that had their own struggling ice cream plants or dairy processors, the appearance of the Schwan’s driver was not always welcome. Owners of these small producers viewed Schwan’s as an existential threat and tried to get local authorities to ban or restrict Schwan’s routes in their counties, often going to war with their own customer base to do so, as customers frequently preferred the convenience of Schwan’s deliveries. As the company grew it could offer a much wider range of products than most small competitors. One retired driver recalled how in one North Dakota town, the county attorney ordered the local sheriff to arrest the Schwan’s man for some minor infraction. The sheriff did so rather reluctantly as he was himself a Schwan’s customer. After spending a night in jail, the driver was let go without charges after the attorney received a flood of phone calls from irate customers who missed their ice cream.[28]

Frozen Food Empire

Throughout the 1960s and 1970s, American society was convulsed by a series of demographic, cultural and social changes that also affected the food choices made by consumers. Although the frozen food business began before the Second World War, pre-packaged frozen foods increasingly appealed to families that were more mobile, where sometimes both parents worked, and consumers were confronted with an ever-expanding menu of entertainments, amenities, and distractions.[29] Frozen food changed from more than just an occasional dish of ice cream in the summer into a feature of daily eating in more and more households. Thanks to the close contact Schwan’s had with customers, Marvin Schwan was often able to anticipate potential new products to offer to customers. Schwan was also quite flexible and opportunistic in his willingness to try out new ideas he got from employees or customers or that he thought up himself.

Initially, Schwan’s most profitable foray into the area of non-dairy, frozen, ready-to-eat foods had been frozen fish, seafood being hard to come by in the land-locked Midwest. Sandwiches also proved a steady seller, both to individual families and to convenience stores and bars. The increasing growth of chains of convenience stores/gas stations and small bars and cafes in rural towns proved to be an important market beyond the individual farm families that were the initial base of the company’s sales. The start of the interstate highway system, the growth of over-the-road trucking in the wake of the decline of railroad branch lines, and the growing mobility of American society fueled the growth of stores, gas stations, and truck stops along America’s highways. Supplying these stores with ready-to-eat food was becoming a big business.

In 1966, the company entered into what would become its signature product: pizza. A local route manager in north-central Wisconsin, Ted Versluys, found he was having a hard time keeping drivers. Some of his drivers were being lured away to take delivery routes run by a local pizza company, Roma, distributing its products to bars and stores. Versluys was certain that pizza would sell well and convinced Marvin Schwan to let him go ahead. With $3,500 (roughly $25,500 in 2014 USD) from the company to buy a hundred pizza ovens, Versluys contracted with Roma to supply pizzas. The ovens were given to stores, bars, bowling alleys, and VFW and Legion halls that would serve the pizza delivered by Schwan’s drivers. The product proved extremely popular and was soon featured on all of Schwan’s routes.[30]

By 1970, pizza was one of Schwan’s best-selling products, but demand frequently outstripped supply and the Roma pizza plant in Wisconsin was often unable to keep up with Schwan’s orders. The situation became critical in 1970 when a botulism scare at Roma resulted in a recall of the company’s mushroom pizzas and bad publicity for the product. Marvin and Alfred decided that the company needed to control its own pizza production. Schwan’s placed a small want ad in the Wall Street Journal: “Wanted: Frozen Pizza Manufacturer.” They received a response from Tony’s Pizza in Salina, Kansas. The owner was primarily interested in selling more pizzas to Schwan’s since his plant was heavily leveraged, but Marvin inserted a clause in the agreement that allowed Schwan’s the option of buying the facility outright. Within a few months, Schwan’s did just that, taking control of the Salina facility by the end of 1970.

While the new plant had a greater production capacity than any other Schwan’s had relied on in the past for its pizzas, demand exploded so fast that before the ink was dry on the purchase agreement the plant needed to be enlarged. The plant continued to expand over the next two decades as Schwan’s sold pizzas as a fast as they were being made.[31]

Schwan’s and Its Culture

The culture of the emerging company was shaped by Marvin, his values, and the people he hired. Throughout most of the first thirty years of Schwan’s Marvin himself did a great deal of the company’s hiring, assisted by a few trusted associates. Until the early 1980s, there was little in the way of a formal human resources staff. Word of mouth and personal introductions from friends or family were the quickest ways to get hired. The company often referred to itself as a “family” and with reason. Many employees were related or had grown up together. Lack of formal education was no barrier to advancement if a new hire was keen for the job and could work hard. Schwan preferred to hire employees from a rural Midwestern background similar to his own. These areas had a surplus of young people in the baby boom years following World War II who were used to working long hours on farms. Marvin often began the conversation with prospective drivers by asking “How much sleep do you need?” For his drivers, Marvin preferred married family men. Promoting strong family values was always important to Marvin and his company, but he also realized that his best drivers were often those whose wives helped out with the business. Wives usually helped keep their husbands’ trucks stocked and did the accounting for the routes, freeing their husbands up to expand their sales.

In addition to hiring from within a network of family and friends, the company promoted from within. The company developed a system of job bidding in which employees could apply for open positions within the company, with hiring based on previous performance. According to an employee handbook:

When a job vacancy occurs within a department, the department can promote from within the department. If the department elects not to promote from within, nonexempt job will be “posted” on designated bulletin boards for three (3) days.

Employees with at least six (6) months of seniority in their present job have the opportunity to bid for jobs. . . . Job bid forms are available from your Supervisor.[32]

Another key feature of Schwan’s culture was also emerging during this period. Marvin was always reticent about trumpeting his company’s growing success, not to mention his own role in that success. Even residents of the company’s hometown of Marshall were often unaware of how rapidly Schwan’s was growing during its first decades. This reticence and the close-knit cadre of Schwan’s employees dovetailed with the increasingly competitive nature of the food industry to create a culture of unparalleled corporate secrecy. Employees would eventually be required to sign formal confidentiality agreements but even before these were instituted, the enclosed nature of the company and the close personal bonds shared by its employees meant that little significant information about the company’s products or strategies went beyond the Schwan’s “family.” Even well-disposed outsiders and business journalists were met with a wall of polite refusal to share even the most mundane information about the company. This was reinforced by the fact that the company remained privately held and even appears to have limited its involvement with large public banks and financial institutions.

Additionally, Schwan’s corporate culture emphasized a free-market philosophy that was hostile to government intervention and firmly opposed to unions. Marvin’s experience with government farm policies and the State of Minnesota’s demands that small businesses hold large bonds in order to remain in business surely played a major role in creating this mindset. Government regulations had nearly destroyed Paul Schwan’s long-cherished dream of owning his own business and almost wiped out the fruit of decades of dawn-to-dusk work days. The young company’s struggles with getting lines from credit from banks and more a general distrust of large institutions based in distant cities also factored into this attitude.

The company’s leaders saw themselves as open to employee needs and ideas and as such made opposition to unions and unionization a key plank of Schwan’s internal policy. Employees that sought to organize unions or initiate work place protests were fired. The 1992 employee handbook noted:

It is the Company’s desire that all employees have a clear understanding of the Company’s viewpoint towards labor unions.

“We are opposed to the unionization of Schwan’s Sales Enterprises, Inc., because we believe that unions have nothing worthwhile or constructive to offer to our employees.” (Marvin Schwan)

The Company feels that by remaining union-free, the atmosphere between fellow employees and management will remain open and honest. . . . Schwan’s will comply with the law in all respects and will resist, with all legal means available, any attempt by a union to gain control of our employees’ jobs or to force our employees to join a union.[33]

Finally, the company was highly paternalistic. Employees were given Christmas bonuses as well as free hams or turkeys. There were lavish Christmas parties and picnics every year, as well as health insurance, profit sharing, paid vacations, a credit union, retirement plan, and funeral and education benefits. Merit pay was available to high-performing employees. Schwan took a personal interest in his employees and worked hard to memorize people’s names. Even as the company grew larger and larger, he made every effort to appear at nearly all Christmas parties held by various divisions of his company.

As a businessman, Marvin Schwan was extremely cautious in his new ventures. A great deal of thinking and research went into every new product or change. The company’s expansion was often slow, particularly in developing its production capacity. He usually preferred to add on to existing facilities instead of build new ones. This proved a significant weakness in the early years of the company. The Marshall ice cream plant was repeatedly remodeled and expanded in a somewhat haphazard fashion to minimize costs. In one case a trailer house was placed on the roof of the plant to provide additional office space. This approach made the 1974 fire at the Marshall plant particularly devastating since it wiped out not only ice cream production but damaged many of the company’s other operations which had been housed in the cobbled-together facility. On the other hand, Marvin Schwan’s approach also meant that the company never got into debt. Although the company’s financial records remain private, it does not appear that the company borrowed any significant sum of money from banks during Marvin’s lifetime, but funded all expansion out of its own retained earnings. Schwan’s thus avoided the problem of excessive debt and interest payments.

By the 1980s and 1990s most large companies in America and Europe were becoming more bureaucratic and hierarchical, as managers became more and more specialized and distant from the employees they managed, and marketing and handling public relations became increasingly important. Schwan’s could not completely avoid this changing business environment, but it resisted these changes to a much greater degree than most other companies of its size. Most of its top executives and managers had worked their way up from entry level positions and it did not develop a large corporate staff. The company released little public information and while it sought to ensure the reputation of its products and marketed individual products like Red Baron aggressively and professionally, it did not tout the “Schwan’s” name per se. This appears to have been a deliberate effort on Marvin Schwan’s part. His early experience with government regulators and large banks helped shape his outlook. Schwan’s appears to have avoided contact with outside institutions of any sort to the greatest extent possible, preferring to rely on external suppliers as little as possible and keeping operations “in-house” as much as possible. It also appears that Schwan was never comfortable with the idea of himself as the president of a “large corporation.” Even for some years after Marvin’s death in 1993, the company retained the feel of an extended family or small town community as its founder had sought.

The Great Fire

On February 23, 1974, an ammonia leak in a refrigeration unit in the company’s Marshall ice cream plant ignited an explosion and a fire. Luckily, the employees who had been near the refrigeration unit minutes before had just walked outside when the explosion occurred. When firemen arrived the fire was intense but appeared localized. However, as fire crews worked to contain the blaze, it continued to spread and grow. The frequent remodelings of the original Schwan’s building had created numerous false ceilings and spaces that allowed the fire to spread through the facility, making it nearly impossible to contain in one area of the plant.

As word spread, employees began grabbing company files and office equipment and dragging them outside into the subzero temperatures and loading them onto a truck. Other employees assisted the hard-pressed firemen. As the flames grew, fire companies from five neighboring towns were called in. After hours of battling the flames, the exhausted fire fighters finally had to pull back and let the fire burn. By evening, the entire plant was a charred ruin.

Marvin Schwan arrived back in Marshall by 9 p.m. from a sales meeting in New York. He drove to the plant and after talking quietly with a few employees, he reportedly sat in his car alone outside the smoldering plant, tears running down his cheeks. The plant had not only represented the dreams of Marvin and his family, but had housed nearly all the company’s major production capacity outside of the Salina facility which made only pizzas. Marvin Schwan’s mother and younger brother and his family had lived on the premises and had lost nearly everything they owned.

Despite the seriousness of the fire, there had been no major injuries and no deaths. Thanks to employees’ quick actions, many of the company records, including all its computer tapes, had been saved. Other records were found largely intact in fireproof cabinets in the ruins of the plant. By the next day, temporary office space had been located nearby. Employees divided into work groups and began working twelve-to-fourteen-hour days, often working extra time without pay to get operations running again. As a result, not a single paycheck or payment to a supplier was issued late. Several other Midwest ice cream makers—Schwan’s competitors—agreed to make Schwan’s ice cream at their plants, including Wells Blue Bunny, Marigold, and Northland-Foremost. Schwan’s employees traveled to those locations with Schwan’s mix and when the plants were shut down for their normal day’s production, Schwan’s employees went to work to ensure the supply chain remained stocked.[34]

The fire confronted Marvin Schwan with a crucial decision: should the company remain in Marshall? Minnesota’s tax structure and regulatory environment were viewed by entrepreneurs like Schwan with increasing disfavor. South Dakota, a mere fifty miles from Marshall, had lower taxes, a state government friendly to business, and was a right to work state. Marvin already lived in Sioux Falls. Other states and other communities were intensely interested in getting Schwan’s to relocate to their community. Schwan and other company leaders were wooed with slick presentations and offers of land and infrastructure improvements if they would move out of Marshall. Marshall’s business and civic viewed the possibility of Schwan’s moving with extreme alarm and mobilized considerable resources to counter proposals from rival towns. Marshall’s leaders were well versed in this game, having won the location of a new state college a decade earlier over the efforts of several nearby communities.

In the end, Schwan decided to remain in Marshall. At times in later years, he did express regret that he had made the wrong decision as Minnesota’s tax burdens and regulations grew in the decades that followed. Schwan was no sentimentalist and could easily have pulled the plug on operations in his own hometown. However, such a decision would have been out of character. Schwan had spent considerable amount of time and effort hiring, training and cultivating his employees. Selecting the right people for the right jobs had always been a priority for him. That had been repaid by the loyalty and dedication of his Marshall employees who had gone above and beyond to help the company rebound from the fire and many of those employees would have been lost had the company moved elsewhere. If Schwan’s employees were loyal to him, that loyalty was reciprocal.

Diversification and Growth

The great fire of 1974 proved only a minor check on the company’s growth. The Salina facility continued to grow and new plants were built in Marshall, though this time separate buildings were erected for the various production lines to ensure that any future fire would not destroy operations so completely. By the end of decade, Schwan’s sales routes stretched from coast to coast and began to include parts of Canada as well.

Although intensely conservative in personal beliefs, Marvin Schwan was always willing to adopt new ideas and technologies if they would help his company grow. Following the oil price shocks of the 1970s, Schwan’s converted its entire fleet of trucks to cheaper, cleaner propane gas. Although initially costly, it yielded millions of dollars in savings as gas prices rose.[35] Schwan’s was also among the first companies to adopt hand-held computers in the early 1990s that allowed drivers to upload sales paperwork much faster.

By the mid to late 1970s, the frozen food business, and specifically pizza making, was growing and maturing. Pizza was no longer simply an “ethnic” food, and companies began to sell pizza without explicit references to its Italian-American origins. These changes also moved beyond frozen pizza parlors, bars, and convenience stores as grocery store sales became an increasingly important market. So, too, were schools and universities who added pizza to their menus.

In 1975, Schwan’s created a food service division that began selling frozen pizzas to public and private schools for their hot lunch programs. Within a few years, Schwan’s pizzas were on the menu in school cafeterias throughout the Midwest, southeast, and Pacific coast states. A few years later, Schwan’s took advantage of federally subsidized food commodities such as cheese and tomato sauce to make their school lunch pizzas, cutting costs and raising profits. When competitor Heinz got out of the school lunch pizza business, Schwan’s took over most of their customers as well. In the mid-1980s, the company also purchased two smaller competitors, Sabatasso Foods and Better Baked Pizza. The acquisition of Sabatasso came with an extensive base of sales to buying clubs, like Costco and Sam’s Club. The company also branched out into leasing business equipment through a subsidiary company, Business Credit Leasing (later renamed Lyon Financial Services).[36] Yet another subsidiary was Orion Food Systems, Inc., which developed a large line of frozen foods for convenience and grocery stores, and later expanded into fast food franchises on university campuses, shopping malls, and hotels in North America, the United Kingdom, and the Middle East, with brands such as Moose Bros., Hot Stuff Pizzeria, Joey Pagoda’s Oriental Express, and Mean Gene’s Burgers. The company is one of the largest franchisors of branded food concepts in the U.S. and remains a subsidiary of Schwan’s.[37]

The need to develop new brands in the changing frozen pizza business led to the creation of Schwan’s most visible brand. As pizza moved beyond being merely an Italian-American food, the company struggled to come up with a brand and marketing concept that would appeal to more consumers. One company executive hit on the name Red Baron. Marvin Schwan, always conscious of his German heritage, immediately liked the idea. In a way, the history of the company that traced its origin to Schwan’s father Paul, who came to America as a German veteran of World War I and had sought to be an American and leave Germany behind, had symbolically come full circle with the brand’s celebration of Imperial Germany’s best known wartime hero, Manfred von Richthofen. The Red Baron image the company promoted, however, was not that of the steely Prussian aristocrat, but a romantic, mysterious dark-haired figure. The company successfully promoted the brand through clever marketing, including a squadron of precision acrobatic biplanes that flew at airshows and promotional events around the country. The brand allowed Schwan’s to head off challenges to its pizza dominance by new companies like Tombstone.

The late 1980s and early 1990s were a time of tremendous expansion for the company as it continually sought new brands and marketing venues, penetrating new areas both in North America and beyond. In 1989, the company began operations in the United Kingdom. (Company officials decided against using the “Red Baron” name in England due to its historic connotations and instead settled on “Chicago Town Pizza.”) In 1993, Schwan summed up his strategy in the company newsletter: “We must penetrate our markets further. We must develop new products and enter them into existing markets through existing channels of distribution. We must start new business units that reach new markets.” Although always careful in his decisions, Schwan was willing to take risks and encouraged his managers to try new ideas, even if they did not always pan out. “Just succeed more often than you fail,” he once advised his employees.[38]

On May 9, 1993, Schwan was in San Diego attending the christening of one of his grandchildren. That evening, he suffered a massive heart attack and died at a nearby hospital at the age of sixty-four. In the span of just over forty years, he had turned a small family dairy operation on the brink of shutting its door into one of the largest food producers and distributors in the world. He had done so with minimal start-up capital at a time when many small dairy producers were going bankrupt. His company’s success was based on direct sales to customers and constant, regular service to those customers. It generated most of the capital for its early expansion from its own resources. Only later did modern marketing and mass sales become an important part of Schwan’s bottom line and even then its identity as a company was based on those day-to-day interactions between the company’s driver-salesmen and its customers, often on farms or in small towns. Schwan built his company thanks to the hard work of the employees that he himself often picked and trained. Care in hiring the right people was a hallmark of his success. Most improbably, a quiet, shy, deeply religious introvert built a giant company based on door-to-door sales and mass marketing in an age of business celebrity, publicity, and ego-driven marketing without succumbing to any of those trends. Despite his success, Marvin Schwan had often struggled to master the public aspects of being a CEO that most modern executives take for granted. Even speeches at company meetings and parties were stilted and halting. Nevertheless, those who worked for him describe him as “speaking from the heart” and remain fiercely loyal to his memory.

From Schwan’s to Schwans: The Company after 1993

Marvin Schwan’s death was unexpected and left many of the company’s employees personally devastated. Schwan himself had not neglected planning for the future of the company after he passed away. His older brother, Alfred, who had long managed the pizza operations in Kansas now took the reins of leadership as president, CEO, and chairman of the board, and pledged to continue his brother’s legacy.

If the immediate transition within the company seemed fairly smooth, a much different situation emerged over Schwan’s personal fortune, two thirds of which he left to the Marvin M. Schwan Foundation in form of company stock under the trusteeship of his brother Alfred and life-long friend Larry Burgdorf. The terms of the will stipulated that the company would buy back the stock—totaling $1.8 billion—from the foundation over a fifteen-year period with a final balloon payment in 2009 of $600 million. It also restricted the ability of Schwan’s four children to cash in their stock until after that fifteen-year period was over.[39] It appears that while Schwan provided generously for his children (creating a separate foundation for them and his grandchildren and great-grandchildren), he did not consider them for positions of leadership within the company or to manage the bulk of his personal fortune. Schwan’s children went to court to contest the stock repurchase plan in their father’s will, claiming that it would harm the company and the value of their own stock. Although the suit was settled out of court in 1997 (with terms undisclosed), the publicity over the suit was a shock to many Schwan’s employees who had grown used to the quiet way Schwan had conducted his business.

Schwan’s charitable giving had been directed toward the Wisconsin Evangelical Lutheran Synod (WELS) and its activities, with his first major gift to the church coming in 1972. Shortly before his death, he had given the Synod $5 million (equivalent to nearly $8.2 million in 2014 USD). He had given large sums to his alma mater, Bethany Lutheran College ($6.5 million in 1992, about $11 million in 2014 USD), as well as Wisconsin Lutheran College in Milwaukee. Since his death, the foundation has continued supporting WELS causes, providing a significant amount of the Synod’s yearly funding. Nevertheless, the foundation has also been criticized both inside and outside the Synod for some of its giving decisions, its outside investments (including a failed Caribbean hotel venture), and the salaries of its trustees. Yet, as of this writing it remains the largest single funder of Lutheran causes outside of money from Lutheran synods themselves.[40]

An even greater challenge arose when Schwan’s was faced with cases of Salmonella poisoning in the company’s ice cream supply that made 224,000 people sick nationwide, the largest case of food poisoning traced to a single source in U.S. history. Schwan’s was forced to recall its ice cream. The source of the contamination was traced to tanker trucks used to haul both ice cream mix (from a non-Schwan’s plant) and raw eggs without having been properly cleaned. The company received relatively high marks for its handling of the crisis. Schwan’s offered settlements to the victims, most of whom accepted. Minnesota State officials were publicly critical of the company’s effort to trace the source of the contamination, a charge the company rejected. Employees and Marshall residents rallied around the company, and outside newspaper reporters who arrived in town were unable to find a single resident who would criticize Schwan’s.[41]

Despite the problems and the negative publicity, the company’s growth remained strong. By 1997, the company’s sales were estimated at $2.9 billion (roughly $4.2 billion in 2014 USD) with its sales appearing to be fairly evenly divided between pizza sales and direct sales to customers via its fleet of trucks. Under Alfred Schwan’s leadership, Schwan’s expanded in Europe, producing pizzas for the European market, purchasing a small food company in France, and opening a production facility in Germany. In 2002, the company celebrated its fiftieth anniversary. Alfred Schwan retired from the company in 2009 and passed away in 2011 at the age of eighty-five.[42] The company changed its name to “Schwan Food Company,” reflecting the fact that for the first time, a member of the Schwan family was not directing the company. Schwan remains one of the largest privately held companies in the United States, with seventeen thousand employees and annual sales estimated at $3.67 billion.[43]

Notes