Boulder Brands, the US group, is a company buoyed by its recent expansion into gluten free, a booming sector in its home market. However, 40% of its sales remain in Smart Balance, the acquisition of which started the business in 2007, and which Boulder faces a challenge to revitalise. In part two of an interview with just-food, Boulder CEO Stephen Hughes told Dean Best how the company plans to re-boot growth from Smart Balance.
Boulder Brands’ recent moves into gluten free have changed the make-up of the business – not just its name.
The acquisition of Udi’s and Glutino Food Group in the last two years have driven the company’s sales and profit growth. Gluten free now accounts for 60% of Boulder’s business and CEO Stephen Hughes has bold ambitions for that side of the business, telling just-food he wants the company to be “the global leader in gluten free within two to three years”.
However, Boulder faces a challenge reigniting growth from the other side of the company – Smart Balance. The Smart Balance business is what kicked off the company back in 2007 when an investment vehicle set up by Hughes acquired the owner of the Smart Balance brand, GFA Brands. The new entity, named Smart Balance, sold a range of products, including cooking oil, peanut butter and popcorn but its core lines were items marketed as margarine substitutes. The brand enjoyed initial success but Hughes admits it suffered when a key competitor found a way to nullify one of the attributes that differentiated Smart Balance spreads from its rivals.
“The issue we had is we were the first to be trans-fat free. We were naturally trans-fat free. That propelled the brand from zero to 15 share of the category. Unilever couldn’t go naturally trans-fat free because we had a patent but they were able to come up with a way to go trans-fat free in 2010. That’s really when we saw a start of headwind. We’d always been outperforming the category. Since Unilever made the conversion, it took away our primary point of difference,” Hughes explains.
In an attempt to grow the Smart Balance business, Boulder (the company changed its name from Smart Balance a year ago) has taken it into spreadable butter, making inroads into a category Hughes believes has potential.
“Spreadable butter, which is basically butter and oil, a pretty simple ingredient statement, was launched by Land O’Lakes about seven years ago. In the US, it’s now an over $200m segment. Spreads is a $1.1bn segment. We launched last year [and] are around 12-13% of that spreadable butter segment. I think that segment is going to continue to grow. It’s got a more natural, better health perception than straight spreads.”
Hughes also points to the “great success” Boulder has had with another spreads brand, the dairy-free, plant-based Earth Balance. It, Hughes claims, is “small but growing at 35% and is starting to cross over into mainstream grocery”.
He adds: “Between spreadable butter and Earth Balance, we’ve got two really good growth opportunities in that space. What we’d like to do is fix the velocity trends on Smart Balance core spreads and that’s why we’re working on a next-generation innovation.”
However, the Earth Balance business is included in Boulder’s “natural” division, which also comprises its buoyant gluten-free brands. The Smart Balance division, which accounts for 40% of revenue, remains under pressure and will be under investor scrutiny. Spreads is a challenging sector with stiff competitors like Unilever. Taking Smart Balance into spreadable butter has borne fruit but the division is still seeing sales and profits fall due to a challenging core spreads category. What can Boulder do to reverse declining sales and profits?
“We’re converting from round to square tubs. We think we are going to pick up some nice distribution gains when that transition is complete. Like any transition, it’s a little muddy right now, you’ve got retailers running down their inventories. We are also working on next-generation innovation on Smart Balance, in terms of the product inside the package and my hope is that we’ll have something to talk about there by the first quarter of 2014,” Hughes says.
“Hopefully the combination of those two will put that on a solid footing. We also are finding some nice interest in Smart Balance in the club channel, so there’s some things outside of our core retail spreads business that could bring growth to the business. It’s an important business to us though as it’s a great profit generator, it gives tremendous credibility with the retailers. What we want to do is hold our profitability and potentially grow it as a base that helps us fund our capex, fund our organisation.”
Any attempt to get a brand growing again, particularly in a fiercely competitive and under-pressure category, is always something of a gamble. And, listening to Hughes’ comments on how consumers in the US view spreads gives the impression Boulder is still a little unsure of how to get Smart Balance firing again.
“The consumer is all about less processed, clear ingredients statements and the problem is the core spreads category today is kind of viewed as a bit of a chemistry set by most consumers,” he says. “The only reason why Earth Balance, which is a spread, has done so well is it’s organic, all-natural, no preservatives [and] it has a high oil content versus the rest the spreads category so it almost performs like butter. We just have to figure that out.”
Interestingly, however, it seems Hughes is happy to have Smart Balance just back in steady growth, rather than trying to get the business picking up a significant head of steam. Perhaps he feels that would not be possible but he indicates it would be difficult if both sides of Boulder’s business were growing at similar rates.
“Quite honestly, we are approaching $500m in revenue [and] I hate to say this, you wouldn’t want the whole business growing at 40%,” Hughes says. “You’d like to have a business that’s pretty stable, generating profits, so you can focus on managing a line like Udi’s and Glutino, of which we offer 150 items in two languages. Keeping that in stock when you are growing at 40% is a bit of a challenge. We don’t want to take our eye of that ball. I would hope to be able in a year from now to be talking about Smart Balance in the black, holding profitability or growing profitability in the low single digits but we’ll just have to see if these new strategies are well received by the consumer.”
But, given the respective growth trajectories of the two sides of Boulder’s business, could Hughes one day look to offload Smart Balance? The company has already scaled back in one area of the Smart Balance portfolio, with the decision to operate its Smart Balance milk line through a licence deal with co-packer Byrne Dairy.
“Everything is always going to be an option on the table,” Hughes answers. He quickly adds: “We feel there’s a path for us to get that back into a growth mode. And it does fit our health and wellness legacy.”
Nevertheless, he then continues: “We also are very careful about how many resources as an organisation we devote to it. Every minute we spend on Smart Balance is a minute we perhaps don’t spend on Udi’s. We’re very careful we’re putting our resources and capability against what we think are really the growth engines.”
With Boulder’s gluten-free business growing – and with Hughes insistent about the potential that side of the company has, not just in the US, but overseas – the group does feel like a two-speed entity. Hughes admits he sees gluten free accounting for 80% of the business “at some point”.
Boulder’s origins may centre on the Smart Balance brand and business but, looking to the medium term, its future could lay elsewhere.
Click here for the part one of the interview with Stephen Hughes, in which he discusses Boulder’s moves into gluten free and its ambitions for the business.