Boulder, Colo., is the place where natural foods companies want to be. That’s what Steve Hughes, chairman and CEO of the company formerly known as Smart Balance, told the Denver Post on Oct. 3 while announcing the name and structure change for his organization.
Along with officially moving its headquarters to Boulder, the publicly traded Smart Balance is changing its name to Boulder Brands Inc. and splitting into two units.
One unit will comprise the legacy Smart Balance brand and its portfolio of heart-health spreads and other products. The other will be made up of the company’s fast-growing natural products brands: Earth Balance, Glutino and Udi’s. Starting in the near future, all of these brands will be run out of the company's new Boulder headquarters.
“Natural is clearly where all the business growth is,” Hughes told the Denver Post. “Overall, between the two segments, we think the average internal growth will be at 15 percent, and through acquisitions we can add to that.”
To learn more about these changes and why Boulder Brands is so hot on natural, newhope360 caught up with TJ McIntyre, the company’s executive vice president who now heads up the newly formed Natural Brands unit.
newhope360: Smart Balance has been a legacy brand in the grocery channel. Why the new company name?
TJ McIntyre: Boulder Brands represents more of who we are and what we are doing. We have had a lot of success with the Smart Balance brand. That business remains very profitable and we continue to make significant investments in it. Smart Balance is one of the leading heart-health brands in the U.S., but the categories it is in face a ton of headwinds. The spreads category, in particular, is in a short-term and possible long-term decline.
The natural foods industry, on the other hand, has been sheltered from the recession. The profit we gained from the Smart Balance business enabled us to acquire two additional natural brands—Glutino [in August 2011] and Udi’s [in June 2012]—and build upon the success of Earth Balance.
The name change gives us a renewed purpose for the overall company. We are reinvigorating our company culture, focusing on future acquisitions in the natural foods industry and relocating a number of key people to Boulder. As we present ourselves to the trade and to Wall Street, it is now with a name, mission and positioning that speaks to not only who we are today but also to where we are headed in the near future.
newhope360: Boulder, which your company refers to as the “Silicon Valley of natural foods,” seems to be an increasingly important part of your organization’s story.
TM: Boulder is the historical birth place of the natural products industry, but it also continues to thrive as the industry’s home base and source of thought leadership. We benefit from the fact that many of the industry’s founders still reside here and that the actual leadership of the industry is also based here. By being in Boulder, we are focused on leaning into the natural channel and helping to champion the causes of the industry in a very big way.
newhope360: How so?
TM: Just last month we wrote a large check to support Prop 37 [the California ballot initiative to require the labeling of genetically modified food]. When I called Steve Hughes five weeks ago to suggest that we take a position on Prop 37, my recommendation was that we make a $40,000 donation. Steve approved the donation, but then called me the next day and said we needed to take that up to $100,000 to really demonstrate our commitment and leadership on this issue. We want to lead other companies and also the consumer to this cause as part of our contribution to the natural foods industry.
We are not big in the CPG sense, but we are big in the natural world and we want to be the model for how a "big company" can acquire and grow natural foods brands in a way that doesn’t compromise the ideals that the founders of this industry created in the 1980s.
Focused on natural partnerships
newhope360: You hit on one of the greatest tensions in the natural products industry. Brands need to grow but often that can come at the perceived and even real expense of the values and quality that were the foundation of their original growth. How are you addressing this tension?
TM: A lot of companies that are similar in size to Boulder Brands buy natural foods companies, cross them over to mainstream and strip out a lot of the resources, particularly those in the natural foods channel. We are doing the exact opposite.
For example, one of the first things we did when we bought Glutino and integrated it at the end of last year was to figure out how we could resurrect the brand and business in the natural foods channel. As a result, we are reformulating all of the products to more closely meet the needs and wishes of the natural foods retailer and consumer.
According to SPINS and Whole Foods data, we have taken that business from negative growth to strong double digit growth in a six to nine month period. We’ve done that by cleaning up the ingredient list to be more wholesome, converting products to non-GMO and participating in palm oil projects.
We are certainly in the business of maximizing our opportunities in all channels, but we are very focused on our partnerships in the natural foods channel—from Whole Foods Market and Sprouts to Vitamin Cottage to all of the coops in the country.
newhope360: You mentioned that Boulder Brands will be looking to acquire other natural brands. What categories are most attractive to you right now?
TM: We are still very attracted to the plant-based diet and gluten-free categories. We believe those trends to be very much on track with the wind in their sails. From a product and brand perspective, consumers are also still very much underserved from an overall quality and product-selection basis in these categories.
Raw and sprouted foods are also both interesting. Healthy snacks are interesting to everybody. That is another driving trend. In addition, we look at need states—traditionally that is how the company has been focused [with the heart-health targeting of Smart Balance].
Why gluten free is not a fad
newhope360: With the Glutino and Udi’s acquisitions, Boulder Brands is now entrenched in the gluten-free category. Why do you think some people still believe gluten free is a fad?
TM: They are crazy. They need to meet some families that are afflicted with celiac, Crohn’s disease, ADD and ADHD, and arthritis, as well as the millions of Americans who are gluten intolerant. As the awareness around symptoms increases, so does the population joining the gluten-free movement—either on an absolute basis or a trial basis.
We just conducted an extensive shopper study that interviewed consumers of gluten-free foods. Only 4 percent of our substantial sample said that they believed that they will purchase fewer gluten-free products in the next 12 months than they purchased in the previous 12.
The retail community is almost across the board recognizing that there is a great shopper need here. A gluten-free shopper spends about three times more per store visit. The gluten free shopper spends almost $100 and the average American shopper spends about $30. However, if the selection isn’t there, they are going to leave.
What is needed is that for those who adhere to a gluten-free diet to be able to go into their store and not have a very weakly merchandised 4-foot set of product. If you think about shopping a grocery store and have only 4 feet of products that meet your needs, you’re not going to spend as much money. We are trying to expand the gluten-free set to 8 or 12 feet of product space and maybe include a couple freezer doors of product.
But it’s not just the selection. You also need to have an educated staff. Gluten free is going back to where organic was 20 years ago.
newhope360: Gluten free is a category where natural products retailers have been leaders from product-selection and education perspectives. Do you see this continuing?
TM: I do. All of our research has shown that the natural foods stores are the leading source for gluten-free products. The natural foods retailer is twice as likely to serve as a resource for consumers who have questions about gluten free and their websites are almost twice as likely to be a resource as well.
What will continue to drive growth for the natural channel are new products. The natural foods retailers are typically first to market with all of the great stuff that is introduced at the [Natural Products] Expos. This is why, in the natural foods channel, we are leading with our innovation. We are going to introduce a plethora of Udi’s products in 2013 that compete in the dry grocery section of the store. We will launch those products in the natural foods channel first.
But you also have a lot of people in the country who don’t have a natural foods store within a 10-mile radius or, for other reasons, do not conduct their primary shop in a natural store. That is why we are working to educate conventional retailers on gluten free and on the fact that there are consumers going into their stores and not buying as many products as they would otherwise or leaving altogether.
newhope360: What is your advice for these retailers?
TM: Education is key and really getting to understand issues, such as oats are gluten free but they need to be certified gluten free to verify that there has not been cross contamination. There are a lot of details like that that are important.
We also strongly advocate that gluten free not be integrated with gluten-full offerings. There are concerns with cross contamination that are very real, particularly in categories like baking mixes. Also, the gluten-free shopper doesn’t want to conduct a treasure hunt throughout the store. They want to find all the gluten-free product in a dedicated section so that if someone like us or another great company like Pamela’s introduces a new gluten-free cookie they will find it because it is with all of the other gluten-free products.
newhope360: Is there a retailer that you think does a spectacular job with gluten free?
TM: Whole Foods has been a real leader, and it has a lot to do with the fact that their teams are very well trained. They have fantastic signage in the store and they have very large gluten-free dedicated sets.
If you are a shopper who would normally go to a conventional store and walk into a store like Whole Foods or a Sprouts, which has done a great job as well, the gluten-free product selection is going to be received as a massive cornucopia. The Whole Foods and Sprouts retail employees are also going to be able to provide so much information that the shopper may never have received at a conventional store just based on the training level of conventional store employees.