It’s long been said that “timing is everything” in business, but in natural foods timing is merely a good start. Getting in early on a fad can make the quarterly report look good. Getting in early on a trend can establish a company for decades.
Knowing the difference between fad and trend may often look like luck, but it rarely looks easy. Boulder Brands found their golden ticket in gluten-free and they did it with smart, basic moves, no luck required. Now they’re trying to take a model they call “need based” and build a fundamental force in natural foods that won’t just be picking trends. They’ll be launching them. Their success with recent acquisitions like Glutino and Udi’s Gluten Free highlight that trajectory. If it looks like luck, you’re not looking closely enough.
The trick to becoming a fundamental force is knowing the fundamentals. That’s what makes Boulder Brand’s “need based” strategy work, says TJ McIntyre, the company’s senior VP and general manager for the natural portfolio. Boulder Brands looks for a natural food product that presents a solution to a corresponding medical need, McIntyre explains. In the case of gluten-free the need was celiac disease and gluten intolerance. For their Smart Balance spreads, it all started with cholesterol and heart health. Diets and weight loss strategies can flicker through the aisles. Superfoods explode and fade away like dandelions. Needs don’t go away. Food is medicine now. “The natural foods industry is changing the way the country eats,” McIntyre says. “It’s improving need states through nutrition.” The needs-based strategy has impressed analysts like Scott Van Winkle, managing director at Canaccord Genuity. Van Winkle says Boulder Brands chose a solid trend – “Gluten free is always going to be there” – and they moved in with solid acquisitions, purchasing Glutino in 2011 ($66 million) and Udi’s in 2012 ($125 million). “Glutino has more of the first-mover advantage,” says Van Winkle. “Udi’s is the product that takes gluten-free a little more mainstream."
Still, Boulder Brands could never have made those solid choices without a solid financial engine to support growth, Van Winkle says. Smart Balance isn’t the bullet train that Udi’s looks to be, but it gives the company money to find and buy tickets on other bullet trains. “The company has a very profitable, no-growth business and that’s the Smart Balance spread. The margarine category is slipping but Smart Balance still churns out profit,” Van Winkle says. “You sell the Smart Balance side of the business and you wouldn’t have the source of profits to deploy into the fast-growing side of the business.”
McIntyre jokes that, “We probably would have looked smarter if our original acquisition had been Greek yogurt instead of a heart healthy brand,” but he is quick to point to the expertise and experience that Boulder Brands can bring to growing categories. Hot categories require cool minds. If a company can’t keep up with demand, somebody else is going to step in to satisfy that demand. That could have been the case with Udi’s, McIntyre says. “It was quickly growing beyond their skill set.” McIntyre describes Boulder Brands as more than acquisition focused. “We believe a lot of natural food companies need friendly capital that can assist them in growing in a way that’s not exclusively private equity.”
With Glutino, Boulder Brands employed a strategy of “reinvesting in the business, reformulating, rebranding and plugging into an organization that can handle wider distribution,” he says. Though McIntyre calls Udi’s “the company that cracked the code” in gluten-free bread, Boulder Brands has the connections to not only expand the retail base but build new markets on top of that. “We can offer products to colleges and universities, to quick-serve restaurants,” says McIntyre.
Capacity becomes key in a high-growth category. Boulder Brands completed a 180,000-square-foot processing facility for gluten-free in Denver. They have 54,000 square feet in Montreal. The acquisition of Davies Bakery ($4 million, May 2013) gives them 20,000 square feet of production capability in the United Kingdom that could be the toehold that takes Udi’s into the European market.
That capacity is part of the fundamentals. An obscure baker with a miracle whisk might have a recipe for the perfect gluten-free croissant, but without the facilities and the supply chain, catching up with Udi’s is unlikely. They might see the need in needs-based but they don’t have the connections, distribution and marketing expertise. Need and product is no simple formula. “If somebody wants to compete with us, it’s not just installing that equation. It’s understanding all the intricacies of how the strategies interact,” McIntyre says, “and catching up with the one brand that’s really cracked the code.”
What looks like a head start is really good timing matched with smarts and strategy. “Gluten-free is growing really fast and they’ve got two of the leading brands,” says Andrew Wolf, an analyst with BB&T Capital Markets. “That segment is growing at least 20%. Their businesses within that segment are growing at 40%. They are doing quite well in a very strong category.”
Wolf likes the fact that gluten-free is an elastic category–gluten-free products can be found in almost every grocery aisle. He likes that the consumer segments appear to be expanding far past the core market of celiac disease. It may be a trend and not a fad, but mainstream media reports on the general health benefits of gluten-free and people like tennis champion Novak Djokovic espousing the gluten-free lifestyle put the products in front of people who might never have considered them otherwise. Not everybody will stick with it. But some will. “There are people who just do it as a lifestyle change and they feel better,” says Wolf, who also likes the UK move. Udi’s taste and texture could easily vault it into a lead position in an expanding market. “I was in London and I’m having a cabbie, your classic Cockney cabbie, take me to Whole Foods in Picadilly Circus,” says Wolf. “I asked him if he shopped there and he said ‘Yeah, Whole Foods has gluten-free.’”
Getting bigger, thinking smaller
The ability and the acuity that brought Boulder Brands to the front of the gluten-free movement gives Wolf confidence in the company but not absolute faith. He has not been impressed with the attempt to expand the Smart Balance brand across the dairy section. “Frankly, it did not go well,” Wolf says. In July, the company licensed the SmartBalance milk line to Byrne Dairy. Wolf is waiting to see what they can do with future acquisitions. In July, the company bought 80% of Colorado-based GlucoBrands, a startup producing gels, bars and shakes for the diabetes market under the Level Life label. Diabetes is an epidemic, but making a product that meets a medical need without tasting like medicine is tricky enough. Convincing consumers that it doesn’t taste like medicine is a steep next step, especially if Boulder Brands wants to expand the market past diabetes into customers concerned about glycemic index. “They want to take it from one application, which is more medicinal, and broaden it out,” Wolf says. “Now they’ve got to execute and you never know where that goes.” McIntyre is confident. “All the lessons we learned on the Udi’s brand we’re applying to Glutino and Smart Balance and Earth Balance and Level,” he says, but he gets far more circumspect about where Boulder Brands might strike next. The company has partnered with Presence Marketing, a firm representing natural foods companies, to form the Boulder Brands Investment Group targeting natural food startups. The Boulder Brands strategy can’t be an in-all-cases fit. “We are not on the verge of our next acquisition because we haven’t identified the need and the product that presents a solution to that need,” McIntyre says. “We see far more small companies that we can actually review.”
That’s where the “Boulder” in Boulder Brands becomes a piece in the strategy. Smart Balance rebranded itself as Boulder Brands last year and is moving the headquarters from New Jersey to downtown Boulder. McIntyre calls Boulder and Colorado’s front range “the Silicon Valley of natural foods” and says the location not only gives the company a front-row seat to the parade of innovation, it also gives them credibility in the industry. Social media makes reputation management a challenge for every company but in the natural foods industry, the standards and expectations are even higher. Transparency is the first step but commitment to ideals is close behind. Operating out of Boulder looks like waving a Greenpeace flag. The company was an underwriter on the film “GMO OMG” and is a sponsor for Naturally Boulder, a nonprofit incubator fostering natural food companies.
“Natural” on the label is next to meaningless with the more educated consumer of the 20teens. This is a walk-the-walk moment for the industry. “We have witnessed the footfalls of bigger CPG companies that come in and step on all the rakes in the yard,” McIntyre says. “Being based in Boulder helps us see straight in terms of maintaining the mission of Boulder Brands.”
That may turn into a piece of an acquisitions strategy—“Our investment in the natural foods industry is going to keep us true to our mission and is going to make us a more attractive suitor to a founder in a natural food company who wants to see his or her legacy perpetuated.”
That’s not good timing. That’s good business. It’s certainly not a fad.