Back in 2008/9, Boulder Brands CEO Steve Hughes had a lot of sleepless nights. The struggling Smart Balance spreads business - which represented 90% of group revenues - was running “in fourth gear” - and the economy was in the doldrums.
Today, two strategic acquisitions later, Smart Balance accounts for less than half of group revenues and Hughes stands at the helm of a health and wellness empire generating growth rates almost unprecedented in the US grocery market.
I’m convinced the gluten-free trend has very long legs
Boulder Brands - which became the company’s official name in January - now has a dominant position in the fast-growing gluten-free market with the Udi’s and Glutino brands and a rapidly growing slice of the natural, plant-based foods pie with the Earth Balance brand. Combined, they now represent 57% of revenues, and are generating double digit top and bottom line growth.
In the first quarter of 2013, Udi’s organic net sales grew 62% while Glutino’s net sales grew 34%.
Meanwhile, profits at the Smart Balance division have been stabilized as bosses exit non-core categories (Bestlife spreads and Smart Balance Butter Blends), rationalize unprofitable milk lines and pump resources into the fast growing spreadable butter category.
What are the need states of tomorrow’s consumer?
But Hughes is not resting on his laurels, and is already looking at new ‘need states’ that Boulder Brands can serve either organically or via acquisitions, from meeting the needs of diabetics or pre-diabetics, to people looking for meat alternatives.
“We like to launch a major new category in the Earth Balance business each year and we’ve got several in the pipeline. But the ultimate is being able to do for meat alternatives what Udi’s has done in gluten free, where there’s no taste trade off.”
Other acquisitions - such as the recent purchase of a UK-based gluten-free operation that will be used as a launch pad for the Udi’s brand in Europe - may be used as a means of expanding existing brands and products, he says.
As for increasing its presence in health and wellness generally, “mission-based companies that are doing something interesting but need a strategic partner to go to the next level” with sales of around $50-75m might be of interest, although nothing is imminent, he stresses.
“We’ve got expertise in the natural space and brands requiring entrepreneurial skills, but thanks to Smart Balance we have a strong CPG skillset.”
I’ve been following food trends for 30 years and I’ve never seen anything like gluten-free
So what’s the ultimate size of the gluten-free prize, and where does Boulder Brands fit in?
The sky is the limit, says Hughes, who told analysts on the firm’s latest earnings call that he reckons Boulder Brands could be the #1 player in gluten free - edging ahead of Dr. Schär - within the next 12 to 18 months.
“I’ve been following food trends for 30 years and I’ve never seen anything like gluten-free. And there is still so much white space in this market.
“I’m convinced this trend has very long legs. I’d say that in five years, 5-10% of every category that’s wheat-based will go away or will become gluten free, whether it’s pizza, pasta, bread, or whatever. The market is underserved.”
There is still so much white space in the gluten-free market
He adds: “Loaf bread sales are down 11% in the past five years, but Udi’s went from zero to market leader in 18 months because consumers are so far out in front of the market, and it was really the first real gluten-free bread you can eat. It was an overnight success.”
Much of the new growth opportunities are in new channels, notably drug, club and foodservice, he says, with drug stores now actively looking at introducing gluten-free sections, club stores increasing their offerings and foodservice players starting to recognize that this is a category they can’t ignore, he says.
“There are so many opportunities in bread, pizza, hamburger and hot dog buns. Currently we’re seeing it’s something that the smaller foodservice chains are doing, but in the next two to three years I think the multinationals are going to have to study this hard.”
Gluten-free consumers don’t want to go on a treasure hunt to find what they are looking for
As for the retail market, mainstream retailers have finally woken up to the gluten-free opportunity in a big way in the past two years, he says, with dedicated gluten-free sections in frozen, bakery and grocery aisles as firms recognize that “consumers don’t want to go on a treasure hunt” to find what they are looking for.
As for production capacity, Boulder Brands is currently engaged in a major project to consolidate five Udis’s factories into one giant, state of the art manufacturing facility opening in Florence, Colorado in the fall, that it claims will be “the largest most sophisticated gluten free bakery in the world”.
Says Hughes: “We clearly have an advantage given our scale. Many of our competitors are very much in the batch production model. I think this move with the continuous bread line is a bit of a game changer and is going to give us... some more consistent product and the cheapest possible bread made in the gluten-free [market].”
GMO labeling: I think it’s the genie that can’t be put back in the box
So what does he think about GMOs and GMO labeling?
“I think it’s the genie that can’t be put back in the box”, observes Hughes, who is working towards getting as many products as possible in the Boulder Brands portfolio verified by the non-GMO project.
“I think consumers have a right to know, even if only 10% care, and I think labeling is probably inevitable, although I don’t know if it will take three years or five years, or whatever. Prop 37 failed, but it was just the beginning, not the end of the battle.
“At the moment, there is no consumer penalty for being GMO now because people don’t know, but once labeling increases, people will value a non-GMO product more.”