Perham, Minn.'s, Tuffy's sniffs more success in the dog-food trade

In 2010, Barrel O' Fun Snacks won a three-year, $1 million-a-year contract at the new Target Field.

CEO Kenny Nelson, who founded the Perham, Minn., snack-food company, said he didn't expect to make money on the deal. But the exposure in a Major League Baseball park would be great for his retail business, which was locked in competition with the likes of Old Dutch and Frito-Lay.

In a way, the family-owned food manufacturer has kind of gone to the dogs since then.

KLN Family Brands, the Nelson-owned parent company, sold its Barrel O' Fun business to a competitor in 2015 and invested in its cornerstone Tuffy's pet-food business that has boomed.

"There was no — and this is typical of us — there was no a grand plan," quipped Charlie Nelson, president of KLN, Kenny's son and grandson of founder "Tuffy" Nelson.

"We were profitable but leveraged with bank debt," Charlie Nelson recalled. "Nothing we couldn't handle. But the salty-snacks sale made strategic sense. The capital would allow us to double down on pet food. We saw the trends and pet food was really growing."

Tuffy's pet foods and treats for dogs and cats has done so well that KLN this month broke ground on a $70 million plant in Delano, a half-hour from the Twin Cities.

KLN, which employs about 500, 90% of whom are in Perham, will post revenue of about $350 million this year. That includes about $50 million in sales from its Kenny's Candy & Confections business, including Wiley Wallaby licorice.

Tuffy's pet-food business, including high-end brands such as Premium Tuffy's, Nutri Source and Natural Planet that can range up to $60 for a 30-pound bag, is growing more than 10% annually in recent years. Meanwhile the U.S. pet-food industry, with sales of $33 billion last year, rose about 5% last year.

Charlie Nelson joined the family business in 2005 after playing baseball at the University of Minnesota, chasing the dream for a few years in the minor leagues and working in financial planning for a couple of years in the Twin Cities.

Tuffy's faster-than-market growth is driven by allegiance to stakeholders.

"First, it's always about our people," Charlie Nelson said. "They average about 20 years [on the job]."

"When we make money, we pay profit-sharing to employees and they make money," Nelson said. "Manufacturing is not easy. We want long-term employees. We offer free memberships to the health club. We do what we can in our backyard. We'll bring that to Delano."

Secondly, most of the ingredients for its pet food come from Minnesota farmers who sell directly to the company.

Finally, Charlie Nelson, like his father a personable salesman, said the company depends on direct-sales relationships with the likes of Twin Cities-based Chuck & Don's, Lunds & Byerlys, Lakewinds and dozens of other area co-ops, hardware stores and pet-supply shops.

The patriarch of Tuffy's, Darrell "Tuffy" Nelson, operated a feed mill in Perham after World War II. He added the pet-food operation when Kenny Nelson joined him in the business after college in 1964.

Ironically, they sold what is today their cornerstone business to Doane Pet Supply, then part of Heinz, in 1971. The Nelson family, with city assistance, bought back the Tuffy's plant in Perham when Doan threatened to close it during a contraction in 2001.

Essentially, they have doubled the size of the business since Charlie arrived in 2005.

Charlie Nelson credits his dad and Gary Ebeling, a 50-year employee who recently died and whose son manages the Tuffy's plant, as the inspiration and drivers of the plan to regain ownership of Tuffy's.

"They bought back the family business," Charlie Nelson said. "It has worked out and been a lot of fun.

"Dad is still CEO. His hours have gotten kind of sporadic [at age 77]. He likes to come in late and leave early. But he never stops thinking."

KLN is the biggest employer in Perham, a town of about 3,000 in Otter Tail County's farm and lake country.

Delano is banking on the Nelsons.

The city is providing assistance for the $70 million Tuffy's dog-treat plant that should employ up to 150, with $2.2 million that will be paid back from incremental taxes on the development between 2020 and 2028 to cover the cost of street and utility work.

In 2015, Tuffy's expanded with a $70 million, 130,000-square-foot manufacturing facility in Perham. This year, it is investing $60 million in its hometown on a grinding, mixing, storing and receiving facility.

"We're scaling up," Charlie Nelson said.