Frontier Natural Brands missed its 2002 sales projections by $40 million, causing the company to slash its Boulder, Colo., staff and reconsider the rapid rollout of its Simply Organic and Aura Cacia brands.
"When you think back 18 months ago, and that's where it began, when the Boulder office became as big as it did, we thought by fourth quarter of 2002, we'd be a company at a run rate of $80 million," Interim CEO Andy Pauley said. "Our reach was too big."
Frontier's unaudited 2002 revenues were "not significantly different from last year, which was $40 million," Pauley said.
Pauley was named to the interim post in July, after CEO Steve Hughes resigned "to pursue personal interests."
Hughes joined Frontier Natural Products Co-op in September 2000 and set about retooling the company to create the Natural Brands unit responsible for manufacturing Simply Organic and Aura Cacia and also to create a sonic milling division, Quantum Waves.
The co-op's organic coffee roasting operation, which did about $3.5 million in sales annually, was sold to Green Mountain Coffee for $2.7 million in cash in June 2001.
Management had grand plans for the Natural Brands unit. Last March, Simply Organic launched with 70 SKUs in six categories but had only a shoestring budget to spend to reach its goal: placement in 15,000 stores within five years. "We definitely won't be doing that," Pauley said. "By next year, we probably will be in the range of 3,000 stores and will be working closely with them for some period of time."
Call it a reality check. "We have no problem with the product itself," Pauley said. "It is looking like it's going to be a significant player, but we need to know the timing is right and that we are not moving too fast. In consumer packaged goods history in America, few product launches—if any—have launched that number of products with as small a capital base as Frontier."
By mid-August, Simply Organic's add-meat dinners, seasoning mixes, side dishes and spices were sold in more than 1,000 stores, including Whole Foods Market, Albertsons and Safeway.
"If they had 15,000 stores they were intending to go into, that says to me they were intending to fully penetrate the oligopoly of the five large dominant grocery chains," USBX Advisory Services Analyst Pat Turpin said. "You're not going to do that without a substantial marketing budget that includes things like slotting fees."
Retailers look at their shelves as very valuable real estate, Turpin said. "The meal kits category has been experiencing explosive growth, and that, surprise, surprise, has attracted the attention of the large, diversified foods companies with massive marketing budgets. It seems like Frontier was hit from a couple of different sides."
Pauley said the Quantum Waves business, which repurposed mining technology to pulverize processed food ingredients, will be discontinued.
More than half the 14 employees in Frontier's Boulder office were let go. "We still will have a presence in Boulder, but the predominant bulk of work will be coming out of Iowa at the main manufacturing facility," Pauley said.
Frontier's main operations are in Norway, Iowa, where the co-op was founded in 1976. There are about 250 Frontier employees in Iowa. "We are reinvigorating and reclaiming our history and tradition of bulk herbs and spices," Pauley said.
The newly repositioned Aura Cacia personal care line will continue to roll out, focusing primarily in the naturals markets. "That's working pretty well," Pauley said. "Where we do cross over with Aura Cacia, we're still studying."
Natural Foods Merchandiser volume XXIII/number 9/p. 1