He knew things had been bad — daily reports he had been monitoring for six months showed that cookie sales at the company had been dismal. But the financial data he was looking at showed much more robust sales.
“Where on earth had all of these sales come from?” Mr. Roberts recalls thinking to himself.
Tired, but intrigued, he began digging through orders and shipping and inventory records until, well after midnight, he reached the conclusion that Archway, based in Battle Creek, Mich., was booking nonexistent sales.
He reasoned that sham transactions allowed Archway, which was owned by a private-equity firm, Catterton Partners, to maintain access to badly needed money from its lender, Wachovia. Mr. Roberts’s investigation eventually caused Wachovia to pull its financing lines, helping to push Archway into bankruptcy last fall. Two other food companies picked off much of its assets earlier this year for $42 million and are churning out the brands’ cookies
Like many cash cows across the US, Mother's Cookies was a decades-old family owned business that had been plugging away making and selling a good product (Mother's is HUGE in the Bay Area). But, its owners sold out, first to the $$ of an international food conglomoerate and then to the sinister world of "private equity," where cookies necessarily take a backseat to collecting annual bonuses. It takes a special kind of scum to run an accounting fraud at a cookie company. Note that the bank they were trying to fool was Wachovia. Is it any wonder it failed? Frauds like this were probably all over its books.
The barbarians at the gates in the cookie business were also not above ripping off Archway/Mother's local distributors:
BY late 2007, Scott Gallagher, an independent distributor, was drowning in cookies, as Archway force-fed him more than he could possibly sell. It had begun with some mild incentives — payments of $1 a case for ordering additional product — before Archway stopped offering incentives entirely and just allotted more cookies to distributors nationwide.
For Mr. Gallagher, who had been a distributor in the Denver, area since 2000, it all seemed to involve a lot of hocus-pocus.
“Normally I would have $4,000 of product physically sitting in my truck, but they were charging me for $14,000 worth of cookies. Cookies that didn’t exist,” Mr. Gallagher said. “They went from doing this at the end of the quarter to doing it every six weeks.”
They also saw no reason why they couldn't cut costs by using cheaper ingredients. Yeah, who'll notice?
Some also believe that Archway altered its recipes or ingredients. Mr. Gallagher, the distributor, said that as time went on, he ended up having to eat a lot of cookies that he couldn’t sell. “I noticed, over time, they were getting worse and worse.”
Mr. Zinzer is more blunt: “Our cookies turned to crap. They were nowhere near
as good as they used to be.”
As one of the bitter local distributors said, the private equity guys would step over a quarter to save a penny. It just shows that all the MBA's and cash in the world won't help you put together the business alchemy needed to do something seemingly as simple as bake cookies. You don't need much in the way of brains to set up a successful cookie concern. We're talking about industrial baking here. But, you pretty much need a degree from an Ivy League Masters program to ruin decades-old companies like Archway and Mother's Cookies in as short a time as the Masters of the Universe did.
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