Potatoes, oil and myriad other costs add up to business challenges for the beloved snack food company
By Thomas Gnau, Dayton Daily News
What goes into Dayton’s famous Mikesell’s potato chip? A lot of hard work. And in this era of inflation, creating and selling a storied snack brand are more challenging than ever.
The ingredients are simple enough: In a bag of chips, potatoes make up well over half of the expense, about 60%. All-important cooking oil contributes another 20% to 25%. The remaining costs include processing, cooking and plastic packaging for the food, then transportation costs, maintenance, energy, machines, labor and hiring for the company.
Luke Mapp, president of 110-year-old Dayton born-and-bred Mikesell’s Snack Food Co., says all of those elements are more expensive than they were three years ago. “We have found ourselves in an incredibly interesting time,” Mapp said in an interview at the company’s Leo Street headquarters and plant. “I’ve never seen anything like this in my life or my career, quite frankly.”
Consumers see the results on store shelves. A two-ounce bag of Mikesell’s chips that cost 99 cents in 2018 or 2019 was up to about $1.79 in early December.
A six-ounce bag that a few years ago was $1.29 recently crossed the $2 mark.
Mikesell’s is considered the oldest continuously run family-owned potato chip company in the nation, operating since 1910. Inflation is nothing new and all businesses deal with it, Mapp acknowledges. But this latest bout — fueled by pandemic-strained global supply chain problems, war in Europe and more — has been pronounced. “These are incredibly difficult times,” Mapp said. “Mikesell’s is facing those challenges along with every other business out there.”
The (not-so) humble potato
The cost of potatoes did not rise much early in the COVID-19 pandemic, Mapp said.
But now, after the Ukraine war that started in February 2022 and the resulting rising price of fertilizers, an array of higher costs arrived. The cost of potatoes rose 20% this year. Mapp expects another 20% increase on top of that in 2023.
“So we’ve had two years back-to-back of fairly significant increases on potatoes, which is our No. 1 ingredient,” he said.
Cooking oil is his company’s most expensive ingredient. The cost has tripled in recent years. At one time, Mikesell’s was paying 42 cents a pound. At its peak, the company paid $1.29 a pound. It early December, the cost had settled to about 92 cents.
“We’re still double on cooking oil, compared to pre-COVID,” Mapp said.
There are plenty of expenses beyond that: Packaging for chips, diesel fuel for trucks, plastic for bags. All of it has risen in recent years.
Mikesell’s has outsourced most of its distribution work to independent distributors, but the company still has 10 to 15 company vehicles delivering snack foods — chips of various flavors, pretzels and puff corn — on eight remaining company routes. The company also has three over-the-road long-haul tractor trailers.
‘Every single potato has a home’
Michael Family Farms in Urbana is a fourth-generation family potato business that grows, packs and ships potatoes, as well as corn and soybeans, mostly for customers in the Midwest. The business sells some 30 types of potatoes year-round.
Kathy Michael Sponheim’s family grows potatoes around Urbana and in southern Michigan, packing and shipping them mostly to retail stores and the fresh market, not to processors or chippers such as Mikesell’s, who tend to rely on white potatoes.
In the just-harvested 2022 crop, the overall cost of production went up 20% to 23% from 2021, Sondheim said. She’s sure the war in Ukraine has had some impact. Russia and Ukraine export more than a quarter of fertilizers made from nitrogen and phosphorous.
One of the heavy hitters among her input costs was fertilizer.
“It was up 113% for spring fertilizer,” Sponheim said.
The biggest impact for the potato market now is strong demand and pinched supply, especially in the wake of a smaller-yield potato crop in the Pacific Northwest, she said. “Every single potato has a home right now,” Sponheim said.
That actually encourages her. Potatoes remain nutrient-intensive and relatively affordable, in her view. She’s glad that more homes are catching on. “It’s great to see people love eating vegetables, she said.
How to make a potato chip
Even a simplified guide to potato chip production gets complicated fast. Here’s how 65 Dayton employees for Mikesell’s make their famed snack:
The company buys potatoes nationwide based on location and time of year. Farmers in the south plant and harvest potatoes before those in the North and Midwest thanks to milder climes. So Mikesell’s buys potatoes from the Carolinas and Georgia early in the year before shifting to Indiana and Michigan. The company buys more potatoes from Michigan than any other state.
Potatoes tend to be more expensive in the spring, at the end of the cold-weather “storage season,” Mapp said. The lowest-cost potato “freshly pulled out of the field,” can be as low as $11 or $12 (without freight or other costs, such as fuel surcharges) per hundredweight (about 100 pounds in North America) of fresh potatoes, he said.
In the more expensive storage season, costs approach $20 or $21 (subtracting other expenses) per hundredweight.
Trucks deliver the potatoes to the company’s Leo Street facility, and most of what they’re dropping off is water. “One of the issues we have with potatoes is that three-quarters of the potato is water,” Mapp said. “So we’re buying, in a sense, and shipping in to our facility, water.”
Processing potatoes means stripping water out of the potato and replacing it with increasingly expensive cooking oil. Once potatoes are in Dayton, Mikesell’s contains them in bins — but not for long. The Mikesell’s crew does not want to store potatoes longer than a day or two, especially in warm weather.
Potatoes go from storage into a wash trough to be cleansed of dirt, twigs or foreign objects of any sort.
Next, they are peeled and inspected for quality, cleanliness and size. A too-big potato can jam up the plant’s slicer machine heads. Problematic potatoes are removed from processing.
Then it’s on to slicing, a wash drum, a trip across a blower belt that blows off excess water before the potato is fried. From the fryer, potatoes go to bulk storage, then into a bag and a box. Then it’s on to retail shelves and your kitchen.
“Just about every part of that process has gotten more expensive,” Mapp said.
‘Keep it going another 110 years’
Mikesell’s is a smaller company that is not a market leader among potato chip producers. Mapp faces a trio of broad problems: inflation, retiree pension liabilities and retail product placement trends.
The company’s board of directors named Mapp president in March 2020 at the cusp of the pandemic. COVID-19 had a huge impact on employment, for Mikesell’s and every other company.
And the retail market continues to change. At one time, food producers could deal with grocery store managers directly. Today, groceries are more likely to defer to corporate decision-making, which is often shaped by software that determines which products to put front and center.
“Centralized buying” based on “big data” now determine which brands to showcase and at what price, Mapp said. But those software algorithms — or “planograms” — don’t touch on local service, a national brand’s rebate programs or price advantages, he said. “We had the ability to go into a ... store here and develop a relationship with that store manager,” said Mapp, who started his career as a sales analyst. “That’s how Mikesell’s built its brand.
“The ability to do that has basically been taken away.” Asked about the future of his company, Mapp said all of those challenges resist easy solutions. “I would say we have our challenges, like many businesses out there,” he said. “I’d like nothing more than to keep it going another 110 years.”