Boulder explores next frontier for gluten-free growth

by Eric Schroeder
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BOULDER, COLO. — Even as Boulder Brands, Inc. builds its presence in the wholesale foods market, the company feels food service, club stores and drug stores may be the next frontier for gluten-free products. The move is all part of a larger effort that the company is calling “Project Gluten Freedom.”

In a May 2 conference call with financial analysts, Stephen Hughes, chairman and chief executive officer of Boulder Brands, said the company is on track to generate about $10 million in sales to food service this year. He said food service is “about three years behind” wholesale grocers in latching onto the gluten-free market. That said, food service operators are aware of gluten-free, he noted.

“Everybody’s trying to figure it out,” he said. “But we’re knocking down whether or not it’s bread, it’s pizza. Hamburger, hot dog buns are going in most. I think we’ve got 250 universities. We’ve got 85 sports stadiums. That’s kind of an early-stage thing. I think we’re going to see really strong robust growth at good margins on food service for the foreseeable future.”

Mr. Hughes said once a Boulder Brands facility on Florence Street in Boulder, Colo., is running “there won’t be another person a major food service operator is going to want to partner with when they decide to get serious about gluten-free.”

Meanwhile, gluten-free products’ impact in club stores “is going to be interesting,” Mr. Hughes said. Boulder Brands has not focused on club stores as an outlet for its products, but Mr. Hughes acknowledged there are gluten-free products in club stores that are doing quite well, including a cracker company that is reaching $14 million in sales on one item.

With this in mind, Mr. Hughes said he expects Boulder Brands to become more involved in club stores going forward.

“We have a full range,” he explained. “We have a complete program. We’ve just made a strategic hire of someone who is very wired into Costco. We obviously have a great relationship with Sam’s, and I think we’re going to see some nice progress there. That’s a business that, over the next several years, could be a nicely profitable $50 million business for us. That’s going to be all incremental.”

Another frontier may be drug stores, an outlet Mr. Hughes described as “a bit of a wild card.”

“We got the call from Walgreens, and they want to go test a 3-foot to 6-foot section of gluten-free so they want our recommendation on the plan-o-gram,” he said. “If that works, that would be great.”

Asked whether Boulder Brands’ expansion into the various channels will affect the price point of gluten-free products, Mr. Hughes was emphatic in his belief that quality and availability — not price — are most important right now.

“Quality and availability is the issue,” he said. “I think price point might become a factor three to four years from now but I really don’t — that’s not something we really hear at all. We’re not seeing it in any of the consumer dynamics at all.

“When you ask the consumer about gluten-free – it’s availability, it’s quality (and) it’s trust. It’s always going to be, always was, always is gluten-free. I think that’s going to be tough for new entries into the category. I think there’s a lot of credibility to Udi’s and Glutino because they always have been always will be gluten-free. Price shows up as the No. 5 attribute of focus for consumers. I don’t think we have price sensitivity coming.

“We clearly have an advantage given our scale. Many of our competitors are very much in the batch-production model. I think this move with a continuous bread line is a bit of a game-changer. Strategically, it’s going to give us a more consistent product and the cheapest possible bread made in gluten-free. In fact, I think the Florence Street facility will be the state-of-the-art gluten-free baking facility in the world when it opens up in the fall.”

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