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July 15 2005 >> Source: Business
Week With a profit margin of just 3%, the organic frozen-foods company decided Medford's lower costs were a key ingredient for its new plant. For Andy Berliner, business trips used to mean day after day of cottage cheese and baked potatoes. As an organic vegetarian in the 1980s, eating out bordered on impossible. That's why, whenever possible, Berliner and his wife, Rachel, cooked at home. It wasn't until 1987, when Rachel was pregnant and time got tight, that they sprang for their first microwavable meal from a local natural-foods store. "It was horrible," Andy Berliner recalls -- so horrible that they tasted opportunity in each unappetizing bite. HEATING UP FAST. Realizing that other people must also be looking for a quick-yet-tasty meal of the nontraditional kind, the Berliners turned their Petaluma (Calif.) kitchen into something of a laboratory in which to experiment with meatless, organic convenience food. A few months after daughter Amy was born, their company -- dubbed, appropriately, Amy's Kitchen -- launched its first product: a frozen veggie potpie. When the pies hit regional markets, Northern Californians gobbled them up and, within months, they landed on health-food-store shelves nationwide. The succession of soups, sauces, pastas, and pizzas that followed all met with similar enthusiasm. Though "organic" was still years away from making itself mainstream, the trend was already under way. And Amy's was "one of the companies on the forefront of that movement," says Holly Givens, communications director at the Organic Trade Assn. in Greenfield, Calif. Today, organics have blossomed into a $10.4 billion industry that accounts for 2% of the overall food-and-beverage market. Nearly 44 % of organic provisions are now sold in regular -- rather than specialized -- grocery stores. While U.S. food sales sputter along at an annual growth rate of 2% to 4%, organic foods have marched ahead to the tune of 20% per year for more than a decade. FEW MAKE IT BIG. Through it all, Amy's has kept perfect pace. Growing at an average of 20% per year since 1987, it now offers more than 130 products and boasts average annual sales topping $125 million a year. The operation recently outgrew it 107,000-square-foot facility and is making plans for an additional 200,000-square-foot building in Medford, Ore., to house the burgeoning business (see BW Online, 7/14/05, "Head North, Young Business"). Once among the smallest of the small, Amy's has grown into the nation's leading producer of frozen natural food. According to a 2004 Organic Trade Assn. market survey, of the more than 700 companies manufacturing organic food and beverages, a mere nine have sales exceeding $100 million. The majority -- 404 -- are small businesses with less than $1 million in sales. Although Heinz (HNZ), Ragu, Campbell's (CPB), and a host of other big-name players are now scrambling to get into the natural-foods game, Givens says few existing food products currently have organic versions, which means both small and big business have more than enough room to peacefully coexist. STAYING PRIVATE. Amy's success has come as a surprise to Andy Berliner, who initially imagined becoming a $3 million business, at best. "I thought it was a really good idea, but I didn't think it was a huge idea," he says. In the end, that lack of vision may be what has kept Amy's in the family so long. Most family-owned businesses peak in the 50- to 200-employee range, says Bill Provett, facilitator at the Raleigh, (N.C.)-based Family Business Institute, a company that specializes in providing problem-solving to family-business problems. When a company gets much larger than that, families tend to take on private investors, go public, or sell -- especially if the business hits a sudden growth spurt and needs a large infusion of capital. The Berliners originally thought they needed a lot of money to launch, but because they didn't have big expectations for rapid growth, nobody was willing to invest. "That was our protection in a way," Andy Berliner says. "We probably wouldn't be a private company today if it hadn't been that way. If we had a business plan that had showed tremendous growth, we probably would have taken in outside investors." WAR TO WOO. Instead, the Berliners grew within their means, working on a self-funded shoestring budget, setting up offices on their old dairy ranch, renting equipment, and -- in lieu of paying for experienced staff -- scrambling for help whenever and wherever they could find it. Putting out that first potpie turned into a collaborative effort, Rachel's mother, Eleanor, focused on the vegetable mix, a family friend tinkered with spices, a local baker advised on the crust, and Andy himself was the official saucemaker. On a whim, they even called the manufacturers of a leading brand and asked about the logistics of engineering a potpie. Today, Amy's employing more than 850 people, its biggest challenge is finding space to contain the burgeoning business. When it recently started looking to expand from its current operation in Santa Rosa, Calif., a high-profile tug-of-war broke out. Oregon Governor Ted Kulongoski jetted in to woo the Berliners northward, and California Governor Arnold Schwarzenegger responded with a personal plea to keep them in the Golden State. SECRET OF INGREDIENTS. In the end, with the lure of up to $1 million a year in cost savings, the Berliners chose Medford, Ore. -- a small city of fewer than 70,000, located just 27 miles north of the California border. Andy Berliner expects to break ground on the Medford facility this August. The plant will start with about 350 employees, and the Santa Rosa operations will continue as usual. It's a big change from the early days when the Berliners' part-time secretary's husband schooled Andy in the secrets of sauces in the family's kitchen. But while Amy's is now an industry giant, it remains very much a family effort -- with Andy overseeing daily affairs, Rachel serving as art director, mom Eleanor writing Web and packaging copy, Amy (now a teenager) helping in the plant during summers, and everyone participating in taste-testing. The Berliners also continue to reject conventional wisdom that says ingredients and manufacturing are the two biggest ways to cut costs. They still use high-quality -- and invariably more expensive -- vegetables and hand-kneaded dough, hand-stirred sauces, and hand-rolled burritos. As a result, their plant has twice the national average of the number of people involved in making a unit of food. LOYALTY HAS A PRICE. "We never analyzed it from the point of view of how much do we need to make, and then how much can we spend on the product, but rather we took it from the point of view of how much does it cost to make a good product, and then how can we still do it and make a little money," Andy Berliner says. That philosophy has kept Amy's profit margins low, hovering at around 3% of revenue -- but Andy Berliner believes it has also made customers loyal, and that's ultimately been the key to Amy's success. "There's nothing like fresh food, taking the time and cooking for yourself," he says. "But when you don't have time, at least we want people to feel good about having to eat convenience foods." Consider it a recipe for success. + Read Full Article
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