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Boulder Brands: 5-10% of US wheat-based categories are going to be gluten-free in 3-5 years

By Elaine WATSON , 11-Nov-2013
Last updated on 13-Nov-2013 at 16:55 GMT

5-10% of  US wheat-based categories will be gluten-free in 3-5 years

While many grocery brands are struggling to generate any growth right now, top gluten-free brands Udi's and Glutino notched up combined net sales growth of 53% in the latest quarter, bosses at brand owner Boulder Brands have revealed.

CEO Steve Hughes told analysts on the firm's Q3 earnings call: “We are seeing strong, consistent velocity in distribution builds across all channels [for gluten-free products]. Within 3-5 years, 5-10% of all these wheat-based categories are either going to be gluten-free or they're going to go away. There's just tremendous white space.

“Udi’s is one of the hottest brands…We just did a little review of the last four years; Udi’s is the fastest-growing brand in the conventional grocery store channel, and the retailers get that.

“In the third quarter, Udi's net sales grew 74% year-over-year. Glutino net sales grew 29%. Combined, our gluten-free brands increased net sales 53%. Udi's and Glutino now average 19.3 items in retail, up from 15.4 last year.”  

Tremendous white space

The gluten-free pizza business has been performing “extraordinarily well”, he said, noting that many retailers now have three dedicated gluten-free sections:

  • A 4-12ft  section in the ambient grocery aisles
  • Half the full door in the frozen food aisles
  • A frozen or shelf-stable rack in bakery

Gluten-free is also gaining traction in the club store channel, he said: “We are starting to get some testing of bread into the club channel, which could be very meaningful next year.”

Foodservice: Tests with TGI Friday's, Smashburger, Donatos

Udi's gluten-free pizza doing "extraordinarily well", says Boulder Brands

However, foodservice represents one of the most exciting opportunities, he claimed: “We’re starting to get a pretty nice scale to our food service business. It’s on a run rate of over $10m, up from $4m last year. We're in tests with TGI Friday's, Smashburger, those kind of 300-400-unit chains, not the really super large ones.

[But] I think sometime in the next 12 months, we can hit a pretty significant inflection point in the food service platform.”

He added: “The thing that's been very interesting, though, is we’re working with a pizza chain, Donatos, in the Midwest, about 300 units. And they are doing a co-branded pizza, and they are actually incorporating Udi's in their advertising, and they are very pleased with the results.”

Boulder Brands is also supplying some specialty burger chains and sports stadiums with gluten-free buns, pizza shops with gluten-free crusts, coffee and doughnut shops with gluten-free muffins and bagels, he said.

“We are cultivating strategic partnerships with a large food service establishment, but those relationships take time to develop.”

International: UK launch of Udi’s in Tesco off to an 'encouraging start'

19 Udi's products have just launched at Tesco, the UK's largest grocery retailer

Meanwhile, progress is also being made in Canada, and in Europe, with 19 Udi's products launching last month at top UK grocer Tesco, he revealed. “We’re off to an encouraging start and product is quickly hitting the shelves in all stores.

“We believe that Asda and Sainsbury [the second and third biggest food retailers in the UK] will come online in early 2014. We are getting inquiries from [top French retailer] Carrefour and other retailers in mainland Europe, but we want to go very carefully on this and do it right.”

The competitive landscape: 'It baffles us how they're getting to those prices'

Asked on the earnings call about pricing in the gluten-free market as competition increased, he said: “We are seeing some people trying to come in with lower prices, and it baffles us how they're getting to those prices because we know the supply chain implications.”

But he added: “We haven't really seen that as anything that is having a share impact on us.”

Superior economies of scale

Going forward, Boulder Brands - which has just completed a project to consolidate five gluten-free factories into one state of the art 185,000sq ft facility in Florence Street, Aurora, Colorado - is uniquely positioned to meet the needs of large chains, he claimed.

“This category right now is, by and large, early stage or batch production. It’s really almost a pilot plant kind of production. Because we’ve got scale and can start moving to continuous production, we get two real benefits: More consistent quality product, better product, and improved economics and margins.”

In the three months to September 30, Boulder Brands’ adjusted EBITDA rose 26.3% to $20.2m on net sales up 17% to $118.5m, with strong growth for Udi’s (+74%), Glutino (+29%) and Earth Balance (+21%) offset by weaker sales in the Smart Balance spreads and grocery division.

In 2014, the firm expects net sales to be in the range of $515-525m. 

The rise and rise of gluten-free

Grupo Bimbo recently launched a new gluten-free bread line called Goodbye Gluten

In 2011-13, the gluten-free market experienced growth of 44%, says Mintel, which predicts that it will grow at an even faster rate of 48% from 2013-16, with growth propelled by consumers avoiding gluten for perceived health benefits or as a weight management strategy rather than those with celiac disease or gluten sensitivity.

“The view that these foods and beverages are healthier than their gluten-containing counterparts is a major driver for the market, as interest expands across both gluten-sensitive and health-conscious consumers.”

 Click here for more stories on the gluten-free market.

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