The Little Company That Could

Nature's PathFew independent organic brands have been around as long or seen such sustained growth as the family-owned, family-run cereal maker, Nature’s Path. The business, based in British Columbia, Canada, has been churning out breakfast fare with organic grains, berries and other ingredients since 1985. Its founders, Ratana and Arran Stephens, sold their first cereals from the Vancouver health food restaurant they operated long before the word “organic” entered the mainstream—let alone became a legally binding certification process. Today, boxes of cornflakes, granola and toaster pastries bearing the Nature’s Path Logo (a picturesque country road wending through cultivated fields) are staples at natural foods stores and mainstream supermarkets alike.

The Stephens, who continue to run the business along with two of their children, have turned down so many corporate buyout offers over the years that they’ve taken the unusual step of posting the answer to future offers right on their website: “Oh, and if you’re contacting us about buying the company, sorry! We’re not for sale.”

That puts Nature’s Path in a pretty exclusive group. Where once organic food companies numbered more than 100, just 18 appear to remain independent today, according to University of Michigan professor Phil Howard who studies the industry. Besides Nature’s Path, other big-name organic brands that have resisted the siren call of the corporate buyer include Eden Foods, Amy’s Kitchen, Applegate Farms and Clif Bar & Company. Much more common is the story of the little trusted brand swallowed up by the likes of Coke, Kraft or Unilever.

The New Organic Reality

As the pioneers disappear, so does the independent ethos that once characterized the organics industry, says Howard, who notes that increasingly “companies start with the goal of being acquired.”

He attributes the trend to the fierce competition for mainstream consumers—a playing field vastly different from the early days of organics, when a small number of health- and eco-conscious shoppers proved loyal allies to upstart companies like Nature’s Path looking not just to turn a profit, but rather to bootstrap a whole new way of eating. They succeeded in creating a new market segment, in part because the big consumer brands ignored them.

“You could make mistakes back then,” Howard says. “It was such a small market. You weren’t competing with Kraft or Nestlé.”

While organics still represent less than 4% of total U.S. food sales, the segment has seen enormous growth and even continued to expand during the economic recession. Total sales reached $27 billion in 2011, compared to just $1 billion in sales of organic foods and beverages in 1990.

Today, most of those profits are tallied on corporate balance sheets as the big consumer brands have acquired the independents and introduced their own organic offerings.

Growing Solo

But companies like Nature’s Path and Eden Foods challenge the prevailing wisdom that corporate buyout is the only way a startup company can reach a wider market, says Mark Kastel of the organics watchdog group, The Cornucopia Institute. “They are proving that you can be big and you can be profitable and you don’t have to sell out to do it,” Kastel says.

Even without the marketing and distribution muscle of a brand-name corporation, Nature’s Path’s certified organic cereals, granola bars and toaster pastries are found in Wal-Mart, Costco and grocery store aisles in many parts of the country, as well as in virtually every natural foods co-op, retailer and Whole Foods Market in North America.

How have they managed to thrive against competitors like Kashi, Cascadian Farms and other once-small trusted brands that are now subsidiaries of big corporations? Arjan Stephens, the company’s executive vice president of sales and marketing and son of its founders, credits his parents’ complimentary talents.

“My dad’s very much a visionary. He sees new items, new products. He sees where the industry’s going,” Stephens says. “And my mom is a very shrewd operator. So it’s a matter of having those visions and values as well as controlling your costs, making sure that you get the return on your investments. Without both of them combined, Nature’s Path wouldn’t be where it is today.”

Keeping Promises

Also key, Stephens says, is a commitment to organics. The company has never considered the option of switching to cheaper, lower quality ingredients, he says, not even in the early days when production problems nearly sent them into bankruptcy. They also stuck with organics during the recent economic recession when sales growth at Nature’s Path’s pulled back into the single digits.

The sales decline “was a shock for us because we had always been seeing such great growth, but there was never a temptation to sacrifice quality, cut corners, or deviate from our organic values,” Stephens says, crediting the company’s loyalty to organics and the socially responsible business concept of “triple bottom line” (people, planet, profits) for helping it “weather that storm” and return to double-digit growth during the past year.

Having already won over seriously eco-minded shoppers, Nature’s Path is now wooing more mainstream green consumers, who make up about one in five shoppers, he says.

“The biggest opportunity for any organic company,” Stephens says,” is creating an environment where the lighter green consumers can join in and not feel threatened but can really engage in the organic story and enjoy all the benefits to their families, their own health and the environment. That really is the largest opportunity for Nature’s Path and our industry as a whole.”

He says the company’s market research shows many consumers discover their brand after coming to “a health crossroad”—after they or a loved one is diagnosed with cancer, or after the birth of a child.

“A health crossroad prompts them to try our cereal and they say, ‘Wow. This really tastes good.’ That’s what keeps them with organics,” Stephens says. “It’s not just about the health, it’s about the taste. And as they get into all the layers of that complex story, they learn how it’s better for the environment, themselves and the planet.”