Can an Organic Chip Company Survive the Snack Aisle's Street Fight?
I‚Äôve been interviewing Nicole Bernard Dawes in her office all day, and I‚Äôve just realized there‚Äôs not going to be a lunch break.
Fortunately, she owns a chip company. And while it‚Äôs not my usual policy to take anything from the people I‚Äôm writing about (crunch crunch), let‚Äôs just say that the half pound of sweet-potato tortilla chips I‚Äôm scarfing down are all in the name of research.
It‚Äôs January, and Dawes‚Äôs face is plastered on the chip aisle of every Whole Foods in the country, part of a promotional campaign the retailer has initiated as a way of introducing customers to her company, Late July Organic Snacks. Shoppers strolling down the salty-snack aisle at this moment can find Late July‚Äôs tortilla chips next to a two-foot sign featuring Dawes, with her dazzling smile, brown hair, and sun-kissed cheeks, dressed in a bright red tunic and sitting on a beach in Barnstable Harbor. ‚ÄúI am over-the-moon passionate about making organic snacks,‚ÄĚ she says on the advertisement.
And if these shoppers aren‚Äôt getting distracted by toddlers pulling Beanitos or kale chips off the shelves, they can aim their smartphones at a little quick-response grid on the poster and join Dawes on a two-minute video tour of her day, including a rundown of the whole ethos of Late July Organic Snacks. The message is loud and clear: A bag of chips or a box of cookies will make Late July customers feel like they, too, are on a Barnstable beach, enjoying a perfect moment with their families, watching their sons as their dogs romp happily about. Late July tortilla chips, in other words, aren‚Äôt just a snack. They‚Äôre an ideal.
Okay, they‚Äôre just chips and cookies ‚ÄĒ what your mama calls junk food ‚ÄĒ but they‚Äôre USDA-certified-organic junk food, and that makes all the difference in the world. Nicole Bernard Dawes‚Äôs goal is to encourage healthy eating, and if that has to start with the gateway drug of junk food, then that‚Äôs just the way it has to be.
‚ÄúMy little part in this whole thing is to try to educate people about organic through their taste buds,‚ÄĚ Dawes tells me as I scarf down another chip. The way she sees it, our current agricultural practices are totally out of whack. Though Silent Spring, the book often credited with starting the environmental movement, was published exactly 50 years ago, little has changed since then. We‚Äôre still using chemical pesticides for most of our farming, still putting up with E. coli outbreaks in the food supply, still serving antibiotics to our pigs and chickens and cows. Dawes wants to change all that. Call it saving the world, one tortilla chip at a time. The problem is, there are a lot of other tortilla-chip companies out there, many of them better funded. Fortunately, Dawes has some experience in the chip business.
Her father was Stephen Bernard, the founder of Cape Cod Potato Chips and another entrepreneur who set out to change the way we eat. Bernard‚Äôs great revelation was that you could make a better potato chip by following a relatively expensive formula of potatoes, cottonseed oil, and salt instead of Big Food‚Äôs cheaper recipe of hydrogenated oils and glutamate flavor enhancers. Bernard was a progenitor of the idea that the fewer ingredients required to make a food ‚ÄĒ even a junk food ‚ÄĒ the higher its quality.
Dawes hasn‚Äôt strayed too far from her father‚Äôs formula. And that‚Äôs served her well. Late July first started producing organic cookies and crackers in 2003, and has grown steadily since its launch. But it was when the company began making organic tortilla chips in 2010 that it hit the biodiesel afterburners. Revenues shot up 60 percent, to $14 million, and the company is on pace to make $18 million or more in 2012. And as the Whole Foods display makes clear, retailers have bought into the concept.
Still, there are times when it seems like the hardest thing for Dawes isn‚Äôt her attempt to change the world ‚ÄĒ and she‚Äôs convinced she can do that ‚ÄĒ it‚Äôs the thing she can‚Äôt change. Because even if she manages to succeed, if she creates an iconic brand that influences the way food is grown and processed for generations to come, it still won‚Äôt bring back her father, who cofounded Late July with her, and who died ‚ÄĒ quickly and unexpectedly ‚ÄĒ of pancreatic cancer in March 2009.
‚ÄúIt‚Äôs definitely one of those things that just sucks,‚ÄĚ she says, smiling sadly. ‚ÄúI love my dad, and to think we‚Äôre having this kind of success with a salty snack, it‚Äôs devastating that I can‚Äôt share it with him.‚ÄĚ So now she‚Äôs focused on having her company succeed on the only terms that he‚Äôd be proud of: her own.
AT 38, DAWES HAS such healthy, freckled but flawless skin, such a glowing demeanor, that it makes you want to scream at your mother for not raising you, too, on a macrobiotic diet and plopping you down in a half lotus before the world had ever even whispered the name Baron Baptiste.
We‚Äôre sitting upstairs in the 1800s Colonial bank building on Barnstable‚Äôs main drag that serves as the corporate offices for Late July (the company‚Äôs products are made at facilities in Connecticut, Georgia, and California). The small, open atrium just off of Dawes‚Äôs office, which used to serve as a playroom for her sons, Stephen, nine, and Benjamin, five, is now the lair of two aging Briard dogs, Big Easy and Teddy.
Aside from the shambling chaos that is Big Easy (who‚Äôs named for New -Orleans, where Nicole met her husband, Peter, while -attending Tulane), there‚Äôs order and purpose: The walls are neatly adorned with iconoclasts ‚ÄĒ oversize posters of Dylan and Fellini, as well as framed reminders of Dawes‚Äôs iconoclastic father himself. Photos of Stephen Bernard are hung alongside a poem called ‚ÄúSuccess.‚ÄĚ There‚Äôs also the original printer‚Äôs plate for the bags of Cape Cod Potato Chips.
Nicole grew up in Chatham, where she and her father were fed the macrobiotic diet dictated by her mother, Lynn, who opened one of the Cape‚Äôs first natural-food stores in 1978. ‚ÄúMost of my childhood, my grandmother would take me to the bank in town and they would try to give me a lollipop and I would say‚ÄĚ ‚ÄĒ she mock sobs ‚ÄĒ ‚Äú‚ÄėI‚Äôm not allowed to have processed sugar.‚Äô‚Äô‚Äô She laughs at the memory.
In 1980 Bernard, fed up with the ashram-like limits of his wife‚Äôs carob cakes and organic lentils (when she was traveling he would replace all the food in the house), decided to turn his cravings into a business, and sold his auto-parts store to buy a $3,000 potato slicer. Soon, he was thick-cutting spuds and frying them in kettles for an extra-crunchy, real-potato taste.
The chips were a hit with tourists, and lines grew outside the new company‚Äôs factory storefront in Hyannis. Bernard took his place at the center of a new generation of entrepreneurs who were able to introduce flavorful, premium pleasures ‚ÄĒ like another New England company, Ben & Jerry‚Äôs ‚ÄĒ to a public that was becoming more conscious about what it ate. Riding the momentum, Bernard and his investors sold Cape Cod to Anheuser-Busch‚Äôs Eagle Snacks division in 1985 for a reported $7 million. For Bernard, the sale meant success, but it meant something else for Dawes. ‚ÄúI don‚Äôt think I‚Äôve ever fully gotten over the first sale,‚ÄĚ she says. ‚ÄúCape Cod chips was like my sibling. It was something I was extremely proud of.‚ÄĚ
Dawes walks to her desk and pulls out a photo of her sitting atop a stack of boxes at the Cape Cod factory. The picture used to sit on her father‚Äôs desk, and she kept it when he died. ‚ÄúThat was my life, that was my reality,‚ÄĚ she says. ‚ÄúIt was a small business, there was always chaos, we never had any money, and all of a sudden, it was gone, and I never understood why they did it.‚ÄĚ Dawes‚Äôs ‚Äúsibling‚ÄĚ came home a few years later, though, when Anheuser-Busch shuttered its fumbling snack business in 1996. Bernard bought the chip company back, and Dawes, who had started a job as a consultant in Boston, returned to run the marketing effort for Cape Cod ‚ÄĒ and to help Bernard rebuild the brand.
But the family reunion was brief. In the scramble to buy Cape Cod, Bernard had relied on venture capital, and his shareholders had to be paid. So in 1999, having returned Cape Cod to prominence, Bernard and his investors flipped it to Lance Inc. for $30 million. (Lance has since merged with Snyder‚Äôs of Hanover, of pretzel fame.)
That second transaction hardened Dawes‚Äôs feelings toward institutional investment. ‚ÄúI think I just chose not to consider the possibility that it was going to be sold in a few years when we bought it back the second time,‚ÄĚ she says. Which is why, when it comes to her own company, Dawes is being extra cautious. ‚ÄúOur independence is extremely important to us,‚ÄĚ she says. ‚ÄúI‚Äôm not closed to the idea of a sale completely, but I don‚Äôt think I‚Äôve ever truly gotten over Cape Cod.‚ÄĚ
LATE JULY GOT ITS START in 2003, when a pregnant Dawes, living in New York City, was searching in vain for an organic saltine to quell her nausea. Soon after, she was hard at work in her apartment, digging through recipes in old Farmers‚Äô Almanacs.
The idea behind Late July was to mix organic values with well-crafted, indulgent snacks. In the beginning, the brand took familiar products like Oreos, Ritz crackers, and saltines ‚ÄĒ the kind of stuff Dawes wasn‚Äôt allowed to eat as a kid ‚ÄĒ and ‚Äúfixed‚ÄĚ them for an organically conscious generation. That meant no trans fats, no genetically modified organisms (GMOs), no artificial flavors, colors, or ingredients ‚ÄĒ just real stuff like whole grains, sugar, chocolate, peanut butter, corn, even flax, chia, and spelt. Dawes was determined to earn the certified, regulatory-approved, USDA Organic seal, a standard that means a food is made with at least 95 percent organic ingredients. Late July‚Äôs products debuted with that seal prominently displayed, a badge that announced to corporate and consumer buyers alike that these snacks were different.
To help get the fledgling company off the ground, Dawes coaxed her father out of retirement. Together they raised $2 million via the ‚Äúfriends and family‚ÄĚ route ‚ÄĒ a method her father had always shied away from. In exchange for the startup money, the family gave up 40 percent of the business, keeping 60 percent for itself. ‚ÄúIt was a real eye-opening experience,‚ÄĚ Dawes said. ‚ÄúOur friends and my dad‚Äôs friends found out we were looking for money. And checks just started showing up.‚ÄĚ
So did the buyers for the super-markets. The brand‚Äôs cookies and crackers struck a chord with buyers like Perry Abbenante from Whole Foods, who saw the potential in supplying the growing phalanx of organic consumers with ready-to-eat products that extended beyond produce. ‚ÄúLate July was very inventive,‚ÄĚ Abbenante says. ‚ÄúThey were taking those old classics and making them clean.‚ÄĚ
For six years, Dawes and Bernard worked side by side: He took care of the initial sales calls while she developed new products. The brand grew every year. Then, in October 2008, Bernard got sick. What started as back pain on a visit to the Georgia factory was quickly determined to be pancreatic cancer, and it moved like a freight train. Over Christmas he had a stroke, and by March, with the most important natural-foods show in the country, Natural Products Expo West, just around the corner, Dawes knew he was dying. What‚Äôs more, she saw that her business could end up in trouble, too. The economy was faltering, and as family budgets grew tighter, she worried that shoppers‚Äô appetites for organic snacks would wane.
Bernard wanted her to go to the expo despite his illness. It was imperative that she meet with the buyers and distributors who could keep the brand growing. All the players ‚ÄĒ the natural-foods stores and co-ops from Berkeley to Burlington, and the big stores like Whole Foods, Target, and Costco ‚ÄĒ would be trick-or-treating the aisles, hands outstretched for samples of the next big organic hit. To Bernard, the future of the business he and his daughter had built was more important than his condition.
His speech compromised, Bernard got a friend to insist that his daughter go. She bought a ticket, showed it to him, and convinced him that she was getting on the plane. And then she stayed at home with her father, anyway. It‚Äôs a decision she says she‚Äôs never regretted.
A more complicated decision, though, was to begin broadening Late July‚Äôs product line. Dawes understood that there was an opening in the marketplace for an organic tortilla chip, yet she couldn‚Äôt help but feel that moving into chips would encroach on her father‚Äôs legacy. She also knew that chip competition is fierce. ‚ÄúI thought it was completely crazy,‚ÄĚ she says. ‚ÄúThe chip aisle is a monster. But [Late July] had been around for a while. We built a foundation and said, ‚ÄėLet‚Äôs just go for it.‚Äô‚ÄĚ
By the fall of 2010, Late July had come out with three varieties of tortilla chips ‚ÄĒ Sea Salt by the Seashore, Dude Ranch, and Mild Green Mojo. Whole Foods and other stores approved them immediately. The company had been growing steadily, if not spectacularly, even through the recession. But the tortilla-chip sales drove an incredible 60 percent spike in revenues last year. After that, Dawes decided to roll out two more varieties, How Sweet Potato It Is and Summertime Blues.
IN ALL ITS EARNESTNESS, Late July represents the ultimate in Yoga Mom appeal: a wholesome, organic snack that satiates your children‚Äôs cravings, all while saving the pygmy rabbit, cleaning up agriculture, and supporting a sustainable food supply. According to Dawes, there are 95 million potential new Late July adherents out there, millennials ages 15 to 33, the largest generation of parents and parents-to-be since the baby boomers. And they love to snack, doing so twice as much as their parents. They prefer social and environmentally responsible brands. They want healthier choices. And they will pay extra to change the world.
‚ÄúThese chips are the best thing I‚Äôve ever done,‚ÄĚ Dawes tells me over and over. ‚ÄúI want to make a brand that means something about sustainability, about the earth, and being organic. And I want to build a brand that can, on its own merit, stand for several hundred million dollars of organic sales, but still stand for those same values.‚ÄĚ
Fortunately, she‚Äôs in a rapidly growing industry. Sales in the organic-snack-food category totaled $1.2 billion in 2010, quadrupling from $314 million in 2001.
Total organic-food sales are about a $27 billion slice of the overall $673 billion U.S. food market, or about 4 percent ‚ÄĒ up from 1.4 percent in 2001. And while total food sales grew by an anemic 0.6 percent in 2010, organic food grew by a robust 7.7 percent. Advocates expect organic‚Äôs share of overall grocery to eventually double, reaching 10 percent or more by 2015.
Those big organic dollars have primarily been spent in major food categories like fruits and vegetables, milk, and eggs. But because they‚Äôre edible luxuries, not necessities, organic snacks remain a bit of an afterthought despite their growth. Dawes and other entrepreneurs, however, believe they‚Äôve found a sweet spot. They see the growth of organic baby food ‚ÄĒ up a reported ‚Ä®32 percent last year ‚ÄĒ as a sign that millennial parents are willing to fork over money for organic products. ‚ÄúWe know that the biggest trigger to going organic is getting pregnant and having kids,‚ÄĚ explains Honest Tea‚Äôs president and ‚ÄúTeaEO,‚ÄĚ Seth Goldman, who created a line of Honest Kids drink pouches with those very parents in mind.
It‚Äôs Dawes‚Äôs plan to provide families with fuel for the next step, for when the kids graduate from Plum Organics baby food to the endless cycle of snacking known to parents as ‚Äúpre-college.‚ÄĚ But she‚Äôs not the only one lining up to feed those millennial broods, and that‚Äôs where things get complicated ‚ÄĒ particularly in the chip aisle, where she says she wants to focus her energy. Organic ingredients cost much more, eating into margins that could otherwise fund more sales and marketing help. And that help is important. ‚ÄúIf you‚Äôre going into potato or tortilla [chips] in the snack aisle,‚ÄĚ Whole Foods‚Äô Abbenante says, ‚Äúthat‚Äôs a street fight.‚ÄĚ
Late July, in other words, has plenty of tough competition. There‚Äôs Beanitos (better than they sound) and lentil chips (meh). There‚Äôs that ubiquitous all-natural cheese puff, Pirate‚Äôs Booty, and the air-popped Popchips, both of which have been boosted by investments from former executives at Glac√©au (better known as Vitaminwater), which was sold to Coca-Cola in 2007 for $4.1 billion. There‚Äôs regional tortilla stalwart Green Mountain Gringo. And there‚Äôs even the brand Dawes‚Äôs father started, Cape Cod.
Even here in Massachusetts, Dawes has her hands full. The Needham-based Food Should Taste Good tortilla chip company started in 2006, and the next year pulled in VC cash from local fund Sherbrooke Capital. The company possesses just about every do-gooder bona fide that Late July has ‚ÄĒ the GMO-free, seed-embedded multigrain tortilla and sweet potato chips, the baked-then-fried approach ‚ÄĒ everything but the organic certification.
The truth, though, is that it‚Äôs hard for consumers to judge whether a chip is truly organic. While Dawes has the USDA Organic symbol on her side, other brands use language that can leave you wondering. The Garden of Eatin‚Äô brand, for instance, puts ‚ÄúMade With Organic Blue Corn‚ÄĚ on its bag even more prominently than Late July‚Äôs own USDA certification. Sounds good, but what does that really mean?
Even trickier is the issue of ‚Äúall-natural,‚ÄĚ the largely undefined catchall phrase that companies like Frito-Lay have begun using as a way to battle for consumers who may be interested in the environmental and pesticide-free attractions of organic, but who aren‚Äôt necessarily familiar with the precise meaning of the various designations. The proof of the effectiveness of the all-natural label is in the numbers. Sales of chips, pretzels, and snacks labeled ‚Äúall-natural‚ÄĚ grew 14 percent in 2011, more than twice the 6.4 percent growth rate of their organic counterparts. ‚ÄúIt‚Äôs a lot cheaper to be just GMO-free, or just local, or to pick one component of the regulations that works for your business,‚ÄĚ Dawes says. ‚ÄúThat‚Äôs not a commitment to change, that‚Äôs what‚Äôs convenient for you. They have marketers that are very good at what they do, and I‚Äôm concerned they‚Äôre going to undermine the whole organic program.‚ÄĚ
Dawes doesn‚Äôt have the funds to employ an army of marketers to explain why organic is what‚Äôs best for your family. And without that kind of talking power, the ultimate success of Late July ‚ÄĒ and its ability to fulfill its higher mission of spreading organic values ‚ÄĒ rests largely with the consumers. If they don‚Äôt do things like pause in Whole Foods to watch a two-minute video, and then decide to support entrepreneurs such as Dawes, organics will remain a niche instead of a large force for change.
One option, of course, would be for Late July to simply follow the well-worn path to venture capital, which might pay for a lot of that talking power. But Dawes says she isn‚Äôt interested. Despite the fact that VCs have been sniffing around the company since it first put cookies on the shelf, Dawes says she‚Äôs going it alone. Yes, a surge of financing could accelerate growth, but she‚Äôs wary of losing control or having her mission diluted. ‚ÄúThe death of my father changed my views on that topic,‚ÄĚ she says. ‚ÄúEntrepreneurs believe they‚Äôre going to live forever. I want to make sure this brand proves itself and will always be the way I‚Äôve envisioned it.‚ÄĚ
But that determination to remain independent may mean leaving big money on the table. Last year Coca-Cola completed a purchase of Honest Tea worth an estimated $80 million, and in 2006, PepsiCo paid $250 million for Stacy‚Äôs Pita Chips, a natural-snack-food company whose former owner, Stacy Madison, calls herself a huge fan of Late July. And even Food Should Taste Good, Late July‚Äôs local competition that boasts so many of the same do-gooder credentials, was recently sold, getting snapped up in March by food giant General Mills for an undisclosed sum. ‚ÄúI‚Äôm happy for them, if it‚Äôs what they wanted,‚ÄĚ Dawes says of that sale. ‚ÄúIt‚Äôs one of those things that, obviously, I‚Äôve thought a lot about. Sometimes people have trouble ‚Ä®believing that the little guy can‚Äôt make it without the big guy. Maybe we can‚Äôt, but I‚Äôm not going to give up that dream.‚ÄĚ
Gary Hirshberg, the founder of organic-yogurt company Stonyfield Farm, which was purchased by Grupo Danone a decade ago, has used his seat on the Late July board to strongly advise Dawes against taking in institutional capital for as long as possible. That‚Äôs the best way to keep her mission intact, he says, and the ownership stakes undiluted. Then again, Dawes is ‚Äúbrutally pragmatic,‚ÄĚ Hirschberg says. ‚ÄúThere is a whole lot of money being thrown at entrepreneurs now,‚ÄĚ he says. ‚ÄúThey recognize that wellness, and organic in particular, is a growth area.‚ÄĚ
Madison may have sold her pita-chip company, but she believes Dawes and Late July have what it takes to keep the brand growing independently. ‚ÄúShe has the believability,‚ÄĚ Madison says. Big brands are making themselves leaner and greener, ‚Äúbut people in the mass market are still looking for the real deal. There‚Äôs more truth to it when it‚Äôs something they‚Äôve always been doing instead of someone cleaning up their act.‚ÄĚ
The truth for Dawes seems to be that, whatever the money at stake, her business remains very personal. ‚ÄúMy dad died of cancer,‚ÄĚ she says, adding that some experts believe that switching ‚Ä®to an all-organic diet is one of the best ways a person can prevent the disease. ‚ÄúSo knowing that, and knowing what would go into my products if I chose a more mainstream, pervasive way ‚ÄĒ is that something I really want to profit from, to build my business around? No. Especially if I know I can do it this way, even if I know it‚Äôs going to take a little bit longer.‚ÄĚ
Source URL: http://www.bostonmagazine.com/2012/03/crunch-time-late-july/