Gluten-free foodservice sales could be ‘pretty spectacular’, says Boulder Brands as top coffee and donut chains bid for a slice of the action
Speaking on the firm’s second quarter 2013 earnings call last week, Boulder Brands CEO Steve Hughes said that the foodservice sector could potentially generate explosive growth in the next couple of years.
‘Hot and cold conversations’ with Burger King and McDonald's
He added: “In North America, we're engaged with one of the largest coffee chains, looking at a muffin, bagel, [and] a brownie. We’ve got one of the largest donut chains engaging us on bagels and muffins.”
As for fast food chains, Boulder Brands is “getting good placement in what I would call the regional specialty burger chains, Smashburger, Red Robin, TGI Friday's”, he said, while it has had “hot and cold conversations with the big ones, Burger King and McDonald's. It could be 24 months for them".
"Ultimately, however, the large multinational food service chains are going to say, ‘I’ve got to get into this because I'm losing customers'," he predicted.
‘Florence Street will be the largest, most sophisticated gluten-free bakery in the world’
Currently, Boulder Brands is on track to generate a modest $10-12m sales of gluten-free products to foodservice channels this year, with momentum growing in specialty burger chains and sport stadiums (buns), pizza shops (pizza crust), and coffee and donut shops (muffins, bagels), he said.
However, in a couple of years, gluten-free foodservice sales “could really be pretty spectacular because any one of these items we're talking about is a $3-4m SKU in the coffee and donut shop spectrum”, he said.
“And we have to start talking about a [gluten-free] hamburger bun for one of the top three burger chains. I mean, that's going to be pretty extraordinary.
“We'll start putting some points on the board, I think, maybe not this year but in early 2014.”
And Boulder Brands - which is completing a project to consolidate five gluten-free factories into one state of the art facility in Florence Street, Aurora, Colorado - is uniquely positioned to meet the needs of large chains, he claimed.
“When they go look at the potential partners out there, once they walk into that Florence Street facility,they're going to stop looking.
“We believe Florence Street will be the largest, most sophisticated gluten-free bakery in the world.”
The facility is expected to be fully operational across all product lines this fall.
Grocery, club and drug channels
Asked by analysts about growth rates in the gluten-free retail market, he said:“It's growing at 20, 25% in Natural, and we're seeing 50% growth in conventional.”
Boulder Brands is seeking listings in the grocery aisles, the frozen food cabinets and the bakery section of stores, he said.
“In alternative channels, club and drug, we are in early stages of engagement, and these channels could potentially open to significant businesses in 2014 and 2015. We’ve got a major drug customer testing a six-foot section in grocery.”
Should gluten-free products have a dedicated section?
Asked whether it was preferable to stock gluten-free products in a dedicated section of the store or alongside regular products, he said: “The gluten-free consumer wants a destination section.
“They don't really trust having a gluten-free product next to a gluten-full product because these packages are not hermetically sealed.
“[And] they just don't want to go on a treasure hunt. Think about the mom who has got one gluten-sensitive child. She wants to be able to go to one place and just buy the 5 or 6 products she needs. So it's very clear the consumer wants a destination section. And I think we've successfully sold that idea to all the retailers.”
He added:“One of the top two retailers in the country has a mandate that everything is integrated. They had to go up to the CEO level to get an exception for gluten-free, and it was based upon our research.”
Asked about competition, he said:“I kind of welcome new competitive entries from the large guys. I just saw an article the other day that Oscar Mayer is going to convert one of their product lines to gluten-free. I think that's fabulous. It validates the trend.”
18 Udi's items to enter the UK market
There are also exciting developments on the international front, said the firm, which has recently purchased a UK-based gluten-free operation that will be used as a launch pad for the Udi's brand in Europe.
Said Hughes:“We expect to launch 18 Udi's items with one of the largest UK retailers in the fourth quarter.”
UK retailers had “basically said ‘Wait a minute. We're dealing with 40 small companies. And you're going to come in here and give us a full range of products?’," said Hughes. “So these 18 items, I think, are the tip of the iceberg.
“We actually have this one retailer who's pushing us hard to develop 15 frozen items that we don't even have.”
In the three months to June 30, adjusted EBITDA rose 58.6% to $17.6m on net sales up 45.7% to $110.7m and the company raised its outlook for 2013 full year sales to $455-460m.
Udi`s and Glutino reported organic net sales growth of 44.6% and 36%, respectively.