The next phase of gluten-free
March 2, 2015
by Eric Schroeder
Boulder Brands expects to grow its Glutino business in grocery.
BOULDER, COLO. — Boulder Brands, Inc. considers itself a leader in the gluten-free category. The company acquired gluten-free brands Glutino for $66.3 million in 2011 and Udi’s for $125 million in 2012.
When Boulder made the acquisitions, the gluten-free category was white hot. Several years later, overall category growth rates have slowed. But Steve Hughes, chairman and chief executive officer of Boulder, believes it’s all part of the evolution of the category.
“I think you are kind of ending phase one of the category,” Mr. Hughes said during a Feb. 26 conference call with analysts. “You had first-generation products come out — great success, a lot of me-too competition came out. … (Now) we are looking more like a 10% growth across all channels.”
He said Boulder hasn’t spent much time innovating its bakeries since acquiring Glutino and Udi’s, and instead has focused on getting the Florence Street facility in Denver up and running. More recently, the company has wrestled with escalating egg-white prices. But with both those issues in the rearview mirror, he said Boulder is ready to regain its leadership role in gluten-free.
“The second phase is the gluten-free sets in grocery,” he said. “They are pretty much getting established. Almost all retailers, only a couple exceptions of retailers haven’t set those up. For the most part we have about 40% of the share in those sections. We think that the large caps will come into those sections; they will be going into their core section. So we think that that’s a business that can grow 5% to 10%, as we set about Glutino.”
Boulder has been busy innovating the Udi's brand with products in a variety of categories.
Mr. Hughes said a major initiative for future growth involves the company’s frozen strategy. He said the company is one of the first to take the approach, and it’s rolling out right now.
“Our initial reaction from the customers that have really leaned in hard to that strategy, like a Target, is very encouraging,” he said. “We are seeing other channels engage, whether it’s club, or supercenters, or food service. So again, I think you are going to see this category — will it go back to grow 15% to 20% again? Not sure. It will depend on the level of innovation and the quality of innovation coming to the marketplace. But I think we’ve got a pretty good view of what's happening in each of the components of it, and I think right now we’re implementing and executing strategies to address those.”
With availability of gluten-free products increasing, Mr. Hughes was asked by an analyst what attribute Boulder is going after with the most innovation.
“The key here is generation one was a gluten-free product I could actually eat,” he said. “Generation two is a gluten-free product that is equal to or better than the gluten-full product. And I think that’s where our focus is on the innovation front.
“The good thing is, relative to gluten-free, in the current competitive set, we are the only ones that really have the scale not only to push the envelope in terms of product innovation but then be able to operate and commercialize it. So again we are — like anything, the category will get stale if the product offerings get stale. We think it’s incumbent upon us to keep the renovation and innovation energy pretty high on both Udi’s and Glutino.”
Mr. Hughes also was asked about whether Boulder is concerned about large consumer packaged goods companies and whether a more competitive environment for gluten-free products may be looming. He said most large companies have incorporated gluten-free into existing products, such as Betty Crocker baking mixes, as opposed to going after the devoted gluten-free section. Their efforts, he said, have validated the gluten-free trend.
That said, he indicated Boulder will need to “be on our toes,” relative to innovation and how to market it.
“I think the move that Pizza Hut has made is, again, a good reflection,” he said of the company’s partnership with the quick-service restaurant chain to offer gluten-free pizzas. “If you’ve ordered that pizza, the box is an Udi’s box with the Pizza Hut logo. They are seeing us as being the gold standard in the brand that consumers want.
In January, Pizza Hut rolled out Udi's gluten-free crusts.
“So again, complacency would not be a good thing to have here. We don’t have that. But we think that the mainstream folks will do it as one-offs within their core strategies and it will be merchandised probably in their current departments. We never really saw a big impact when that happened relative to the baking mixes. But again, we need to continue to build this brand and bring great new products to the marketplace.
“We’re hopeful that there will be other announcements like Pizza Hut in the next 12 months. We have other large food service operators engaged. But again, like everything else, they take time and there’s no way to predict exactly when they’re going to happen. But I think a lot of people are noticing what Pizza Hut is doing.”