Natural Foods Merchandiser

Flying Solo

Stephanie Steiner recalls the day she received a phone call from a customer asking why her co-op, PCC Natural Markets in Seattle, still carried Odwalla juice now that Odwalla was owned by Coca-Cola.

It had been three years since Odwalla was sold.

Steiner, PCC?s grocery merchandiser, says calls like that are common. ?Most of our customers don?t know who owns the brands we carry.?

Rick Simon, owner of Rick?s Health Food in Newport Beach, Calif., says not only do many of his customers not know who makes their tofu or toilet paper, ?I don?t think it matters to most people. As long as they can get what they want, I don?t think they look at the big picture.?

Even the owners of naturals companies that have stayed independent say many of their customers don?t know their brands aren?t corporate-owned. ?How would someone know that Cascadian Farm or Ethnic Gourmet is part of a bigger brand? It?s not like it?s on the label,? says Andy Berliner, co-founder of Amy?s Kitchen of Petaluma, Calif., one of the last big independent natural foods companies.

What does alert them is a change in another one of their favorite brands, he adds. At that point, ?We get a lot of letters from customers thanking us for not selling.?

Steiner says customers need to make their displeasure known before PCC will stop carrying a corporate-owned brand. ?We stock or buy product based on what customers buy.? For instance, she says, ?We carry Odwalla because people buy Odwalla. The product hasn?t changed.?

That busts open the theory that the majority of customers will protest with their wallets solely because their favorite natural products companies sell out to the corporate world. Pioneering natural foods producers like Celestial Seasonings, Cascadian Farm and Boca Burger were criticized heartily when they sold to big, conventional food companies. The argument was that corporate influence would ruin not only the products, but the very values espoused by their founders.

But one-time independents like Jeffrey Light, who in June sold Jason Natural Cosmetics to The Hain Celestial Group, say that?s not what they?ve discovered.

?The benefit of selling out is it provides resources for the company to grow. There?s more money for advertising and promotion to help retailers, more education, sales training and samples,? Light says.

Staying independent: pro
Because of mad cow disease and other food scares, one of the biggest reasons for staying independent is traceability—a company?s ability to track how its product is grown, produced and distributed. Trudy Bialic, public affairs manager at PCC Natural Markets, says that type of tracking is more difficult as the nation?s food supply becomes consolidated. She says traceability is very important to PCC?s customers. ?They want to know where their food?s coming from; they want a certified paper trail. Any time food is more removed from immediate local control, the less traceable it?s going to be.?

Another motivation for companies to stay independent is the ability to remain in charge of their ideals. Ben and Jerry?s Ice Cream co-founder Ben Cohen discovered that the hard way when, despite his protests, his company was sold to conventional food manufacturer Unilever in 2000. Rather than risk a compromise of his vision for Ben and Jerry?s, Cohen resigned as chairman and is now president of Business Leaders for Sensible Priorities.

?You find more than just a business interest in a founding partner or entrepreneur of a [natural foods company]. You find a social and environmental agenda,? says Scott Van Winkle, managing director with the Boston-based investment firm Adams Harkness.

?These brands have a story, and there are those types of customers that support the brand because of the story. With Ben and Jerry?s, is the story still as good now that it?s no longer independent??

Independent manufacturers also like a company culture that can be summed up in two words: no suits. Berliner, who did his time in a suit decades ago as president of Magic Mountain Herb Teas, says it?s ?a lot more fun? running his own company. ?When I worked for a subsidiary of a public company, there was pressure to make financial results. It just seemed there was so much pressure overall.?

Though he has yet to wear a suit as Hain?s new vice president of acquisitions and product development for its Whole Body Division, Light admits, ?It?s not easy to make a sale. I?ve never really had a boss my whole life. It?s more corporate and less of a family atmosphere.?

Many natural foods companies began as family businesses, and that?s another frequent reason cited for staying independent. ?We commute to work together. We can?t wait to go to work. We?re a really close family, and it?s really fun for us to work together,? says Jodi Billet, a member of the Drexler family that owns Country Life supplements and Desert Essence personal care in Hauppauge, N.Y.

Staying independent: con
Berliner says he gets several calls a month from people wanting to buy Amy?s Kitchen. ?But we don?t have any real motivation to sell the business.? He isn?t near retirement age, loves his work and doesn?t need the money. ?Just as many people who are after us to sell, there?s as many after us to give us loans. We?re solicited all the time by banks and lending institutions,? he says.

But Amy?s Kitchen is unique in the natural products world, says Pat Turpin, managing director of USBX Advisory Services in Santa Monica, Calif. Investors prefer businesses with more than $50 million in revenues. In the natural products industry, Amy?s Kitchen, Gardenburger, Clif Bar, Hansen?s Beverage Co. and Spectrum Organics are the highest-profile independents in that revenue range.

Other companies aren?t as attractive to investors and lenders. ?The vast majority of the natural products companies are small—in the $5 million to $10 million revenue range,? Turpin says. The irony is that?s when a company really needs money, says Barney Feinblum, president of the Boulder, Colo.-based independent Organic Vintners and former chief executive of Celestial Seasonings and Horizon Organic Dairy. ?You?re either growing or you?re dying. If you?re a successful business, you created competition.? Those competitors will jockey for shelf space, distributors? attention and customer loyalty. Eventually, Feinblum says, ?If you don?t grow, that lack of scale will force you out of the business.?

Turpin says there?s a pattern as companies grow. ?In the $5 million to $10 million revenue range, they?ve sold into Whole Foods and Wild Oats and most independents. At $25 million to $30 million, they have to go to other distribution channels like mass merchandisers or foodservice. ?They need more capitalization, the next tier of management, money for slotting fees and expanded production.?

Light says before Jason?s sale to Hain, the company budgeted $250,000 a year for new manufacturing equipment. In the first eight weeks Hain owned Jason, it spent $650,000 on new equipment. It also hired two trainers to work with the sales team. That will help retailers, Light believes, because education is key in ?an area as complicated as personal care. That helps a lot of smaller brands too, because we pay for retailers? education for the entire category.? He says Hain can also fund more in-store sampling.

But some retailers are skeptical about promises made after acquisitions. ?With service increases, sometimes I think that?s a story they tell to make the buy worth it if they have to scale back later,? says Simon of Rick?s Health Foods. PCC?s Steiner adds, ?With some companies [that have been] purchased, we saw a lot of ad activity in the beginning, but then it died.?

But, she says, ?I talked to an organic blueberry supplier to Cascadian who was raving [about parent company General Mills]—that there was more research, more money. So it depends on who the parent company is.?

Vicky Uhland is a free-lance writer and editor in Denver. Reach her at [email protected]

Natural Foods Merchandiser volume XXV/number 10/p. 54, 56-57

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