How the natural products industry is navigating a morphing market

BOULDER — More than a year since Amazon acquired Whole Foods, Boulder’s natural food industry is still navigating its way through a chaotic and morphed retail market.

The consensus among natural products leaders — who gathered at BizWest’s CEO Roundtable on Natural Products — is that the old playbook no longer applies, as groceries, entrepreneurs and consumers all are deciding how to handle e-commerce.

“For the natural food industry, it used to be that to establish credibility you first had to be at Whole Foods and the natural channel, and then you had the potential to get into one division of a traditional supermarket chain,” said Doug Brent, CEO of Made in Nature LLC. “Then maybe you get hosted at Target or Walmart and then maybe after that you got a shot at a club channel. In terms of go-to-market strategy, it used to be fundamentally different between a traditional market and a natural channel.”

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But Brent said that is all changing, as clubs start behaving more like supermarkets and prices become the most important factor, over relationships and product differentiation.

“We’re all trying to figure out who will be the winners and losers of marketing food five to 10 years from now, and people are guessing,” he said. “No one thought people would buy food online.”

Amazon’s purchase of Whole Foods has led to chaos and disarray, said Catherine Huntziker, chair of WishGarden Herbal Remedies. Local buyers are no longer making decisions as to what gets shelf space.

“They’re putting us in their distribution centers, but they’re not doing it in a smart, successful, purposeful way,” Huntziker said. “It’s like bean counters are just picking here and there what to place.”

Lately, Whole Foods has had a process where it needs products to perform well in multiple of its regions to continue stocking products.

“Personally, we were up 700 percent in this region but we were discontinued because we didn’t have a five-region spread prior to the Amazon acquisition,” said Loree Mulay Weisman, founder of Mulay’s Sausage Corp. “I think it may have been because they wanted to give the appearance of having a national strategy.”

But even being successful in multiple regions may not be enough.

“We can be performing exceptionally well in eight or nine regions but some places can’t allow us in without corporate approval,” said Blake Waltrip, CEO of a2 Milk Co. in the U.S.

The result can be a pay-to-play atmosphere, said B.J. Howard, chief operations officer of Made in Nature LLC. While it used to be that you couldn’t be in Whole Foods and be a natural foods company, Howard said she has found her company looking at the numbers — 3 percent fee here, 8 percent fee there — and evaluating if it’s worth it, given the tight margins natural products companies already operate on.

Huntziker has had a similar experience.

“You have to sit through their Powerpoint now of all the ways you can give them money,” she said.

The result in the changes to the traditional model has meant brands need to change their strategy of getting to customers. Arron Mansika, executive director of Naturally Boulder, said one of its two biggest events was an information session on how to work with Amazon.

“It had double our typical attendance,” he said. “There has been a seismic shift.”

Other issues

Labor

Competition and a tight labor market was another major issue for natural products companies. Alex Cioth, CEO of Claremont Foods, said he’s been able to find manufacturing employees by paying a higher salary, but for a while he was worried he wouldn’t find employees no matter how much he paid.

“It costs money for us to run short on a shift and not get our full yield; that costs more than being fully-staffed and hitting our numbers,” Cioth said. “We’ve also found when we pay more we tend to get better quality, more mature people.”

Of course, all of that could be knocked out of balance when major players like Smuckers start hiring for their new facilities.

“Our approach is to hit an average of $17 per hour, but Smuckers is going to make that a thing of the past,” said Greg Powers, CEO of Boulder Organic Foods.

Finding hourly workers is difficult, but it’s also a challenge finding senior-level and executives.

A common problem, said Vincent Love, partner and chief operating officer of Sunrise Strategic Partners, is finding people who look right on paper but aren’t actually a right fit for the industry and working in a startup. A solution he has found is bringing in people for short-term consultancies to ensure that they’re actually right for the company.

Telling your story

Another significant thing to think about in the natural foods space is how to get the story of the company and product across to the consumer in just a glance. Social media is helping with that, but the space to tell a company’s story is a competitive one.

“There’s a lot more competition for brands,” Love said. “But that can be great for the consumers.”

Companies like Eco Vessel — sustainable reusable drink containers — are looking to appeal not just to the natural products market, but to outdoors enthusiasts as well.

“We focus on our innovation and our mission, and we see a big crossover in consumers,” said Jonathan Fox, president of Eco Vessel LLC.

Funding

As with most startups, funding is also an issue in the natural products industry.

T.J. McIntyre, CEO of Bobo’s Oat Bars, said that as there is an increasing number of small natural products companies, there’s limited amount of funding and strategic partnership available. Which means when he’s speaking to private equity investors, he said he wants to know who they’re talking to as well.

“I want to know who they play golf with, who they’re taking to dinner, fly fishing,” he said. “I want to know you’re close with these strategic [companies.]”

Tom Spier, founder and managing partner of investment firm Boulder Food Group, said that if companies are interested in capital, now is a good time to be raising it.

“There are a lot of options, great investors and great opportunities,” he said.

The BizWest CEO Natural Products Roundtable participants were Doug Brent, CEO of Made in Nature LLC; B.J. Howard, chief operations officer of Made in Nature LLC; Alex Cioth, CEO of Claremont Foods; Jonathan Fox, president of Eco Vessel LLC; Catherine Hunziker, chair of WshGarden Herbal Remedies; Vincent Love, partner and chief operating officer of Sunrise Strategic Partners; Arron Mansika, executive director of Naturally Boulder; T.J. McIntyre, CEO of Bobo’s Oat Bars; Greg Powers, CEO of Boulder Organic Foods; Tom Spier, founder and managing partner of Boulder Food Group; Blake Waltrip, CEO of a2 Milk Co. U.S.; Loree Mulay Weisman, founder of Mulay’s Sausage Corp. It was moderated by Chris Wood, editor and publisher of BizWest and sponsored by Berg Hill Greenleaf Ruscitti, represented by Mark Changaris; and EKS&H, now part of Plante Moran, represented by Bob Bond.