Annie's Homegrown, Inc.

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Annie's Homegrown, Inc.

395 Main Street
Wakefield, Massachusetts
U.S.A.
Telephone: (781) 224-9639
Toll Free: (800) 664-7336
Fax: (781) 224 -9728
Web site: http://www.annies.com

Private Company
Incorporated: 1989
Employees: 20
Sales: $17 million (2003 est.)
NAIC: 311422 Specialty Canning

Annie's Homegrown, Inc. is one of the fastest expanding producers of organic and natural foods pasta products. Finding a niche in the convenient foods category of macaroni and cheese dinners and canned pasta meals, Annie's offers a healthy, natural or organic alternative in its product line. It ranks number two nationally in macaroni and cheese sales behind the blue box of food giant Kraft.

Discovering a Market Niche: 1980s

A piece of the Annie's Homegrown story began in 1982 when Annie Withey and Andrew Martin created an entrepreneurial enterprise in their Boston kitchen. Martin had invented a plastic bag with a tear-off top and had enticed Withey to create a healthy snack food that would help bring about the success of Martin's invention. The bag did not gain the public's attention but persistence paid off when the healthier snack food Withey developed became an instant success. Withey had spent hours perfecting an all-natural cheese sauce and popcorn snack that helped launch what they named Smartfoods. Smartfoods cheesy popcorn snack and its signature green and black box skyrocketed as a natural foods alternative to the neon-orange, chemicalenhanced snack foods that were being marketed at the time. Smartfoods gained a solid foothold in the snack foods industry and Martin and Withey managed the company for several years before selling it in 1986 to Pepsico/Frito Lay for $15 million.

Ready to try their luck again, in January 1989 the same cheese sauce that had proven so successful on popcorn was introduced by Withey and Martin as a key ingredient in Annie's Homegrown Shells and Cheddar, a convenience stovetop macaroni and cheese dinner. The macaroni and cheese hit a market niche by being free of the standard chemical additives that were a part of other packaged macaroni and cheese products. Annie's Shells and Cheddar relied on the natural ingredient annatto to color its cheese sauce. Once again the formula for success had paid off. Annie's had banked on the fact that health-conscious consumers were seeking unadulterated versions of familiar favorites and were willing to pay the almost 20 percent markup in cost.

From the beginning, Annie's Homegrown set itself apart as a company with a corporate commitment to giving back to the community. Annie's linked itself with progressive causes and remained aligned to environmental efforts including its role as stated in its mission statement: "To serve as an ethically, socially and environmentally conscious business model," and further "to expand its role as a responsible corporate citizen." The company was focused on remaining all-natural or organic in its products, and on using sound environmental practices in its production and packaging.

Tasteful Marketing and Development: 1990s

The company's marketing approach was consistent with its natural, no fuss corporate image. Annie's used homespun letters from Withey to capture the hearts and minds of customers. Boxes made from post-consumer recycled paper featured Bernie the Rabbit and told of life on the Withey's organic farm in the Connecticut countryside.

In addition to its first product offering in 1989, the company went on to develop and produce a variety of natural "mac & cheese" products averaging roughly one new product each calendar year. The company continued to buy up shelf space at regional supermarkets and natural food specialty stores nationwide. Withey and Martin's experience with Smartfoods had prepared the way for their new enterprise. Regional supermarkets and natural foods stores had found them capable and dependable and were readily willing to stock their new merchandise.

Annie's Homegrown began to develop its product line, and in August 1989 it introduced its alfredo pasta and sauce and its whole wheat shells and cheddar.

Annie's Homegrown had quickly grown beyond the small home operation and into a national brand. Martin set up a regional office in California and he and Withey separated. The two later divorced and Martin kept the California company presence while Withey remarried and remained on the organic farm running the Massachusetts production facility. The company moved much of its operations from a former railroad station near Withey's home to a warehouse in Massachusetts in 1995.

By July 1996 Annie's was thriving but was quickly outgrowing its resources. Company leadership decided that the best way to continue to develop itself was to reach out to its many devoted customers in a direct public offering (DPO). The stock offering was equal to $3.6 million or 600,000 shares of its common stock. The public offering was advertised in several ways, including a flyer in boxes of its mac & cheese products. The stock deal was limited to customers in 11 states, namely California, Oregon, Washington, Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, Connecticut, New York, and New Jersey. The company also promoted the DPO in the politically and socially progressive magazine Mother Jones.

The DPO was conducted by Drew Field Direct Public Offerings in San Francisco, and cost comparatively less than a standard initial public offering, yet still provided the company with the financial reserves it was seeking. Records indicated that the DPO expenses totaled $250,000, with reported investment dollars recorded at $3.35 million.

The company continued to expand its supermarket presence and its product inventory, introducing mild cheddar, a family-size boxed macaroni and cheese, and a bunny-shaped pasta in 1997.

In 1998 the company bought a line of Indian Entrees under the Tamarind Tree label. The food products were sold by Taste of India and included several different varieties of Indian cuisine. Tamarind Tree Entrees were also categorized as convenience natural foods. The entrees were fully prepared and cooked. The Indian food was packaged in heat-and-serve plastic pouches.

In 1998 Annie's Homegrown developed a line of canned pasta products. Canned p'sghetti and p'sghetti with mooless meatballs, a whimsical vegetarian take on a classic kids favorite, proved to meet the demands of discerning health food connoisseurs. As with most organic and natural foods alternatives, the canned pasta meals averaged a 20 percent markup compared with their mainline alternatives.

With every new addition to the company's expanding repertoire of natural foods knock-offs Annie's banked on the fact that consumers were willing to pay more for convenience foods made from natural ingredients. The public wanted convenience but still cared about the content of their food product, and were willing to pay more for healthy alternatives.

Financing Further Expansion: 1999–2000s

In October 1999 company cofounders Withey and Martin signed an agreement with Homegrown Holdings Corporation to sell off a portion of their shares of Annie's common stock. The transaction was completed over a mutually determined length of five years.

Homegrown Holdings Corporation was a private investment group founded by John Foraker and Mike Moone. Both Foraker and Moone had previous high-level experience with food specialties. Foraker served as CEO of Napa Valley Kitchens and as chairman of Calio Groves, and Moone was CEO of food giant Stouffer Foods and the Beringer Wine Estates label.

Homegrown Holdings Corporation purchased one million shares of the company at $2 a share. The deal allowed Annie's to further develop its product assortments and expand its consumer base through increased marketing efforts. Anne Withey commented on the transaction in a company released financial statement saying, "Of all the strategic and financial partners we interviewed, Homegrown Holdings best understood Annie's culture and brand personality. It is comforting to know that our national expansion will be carried out in a manner consistent with our mission statement."

The financial backing from Homegrown Holdings did in fact allow Annie's to expand its product development and become a national brand with solid recognition. Keeping up with food trends in the convenience foods industry, Annie's introduced a microwavable variety of natural macaroni and cheese in 2000. The microwavable mac & cheese could easily be prepared by older children without having to use the stovetop. Kraft had launched a similar product called Easy Mac that had quickly developed a niche in the market.

In December 2001 Annie's introduced a line of organic boxed semolina flour pastas. The company contracted with North Dakota, Montana, and California organic wheat growers to supply the company with good quality organic wheat. Annie's featured organic pasta in several forms, including spaghetti, whole wheat spaghetti, rotini, gemelli, and penne. The products received certification as organic and kosher.

When other food manufacturers began to produce shaped macaroni and cheese characters, Annie's was quick to offer its own versions of popular kid-friendly shapes. Annie's first introduced its bunny-shaped pasta in 1997. The pasta was consistent with the Annie story of Bernie the Rabbit, a company icon. The company followed with its peace sign pasta in 1998. The peace sign pasta appealed to the slightly older child or nostalgic adult consumer. In 2002 Annie's signed a licensing agreement with Marc Brown, the creator of literary and television personality Arthur the Aardvark, to produce Arthur-shaped mac & cheese.

Company Perspectives:

Annie's has become one of the nation's leading natural food companies, dominating natural food sales in the pasta category. The integration of natural and organic foods in mainstream supermarkets has helped Annie's to become the number two macaroni and cheese brand in the nation with only 52% distribution in supermarkets nationwide.

Annie's Homegrown sponsored many programs in keeping with its various commitments to social causes. Through its Cases for Causes program, for example, Annie's donated thousands of cases of its products to organizations benefiting women, children, and environmental protection. Annie's also created a scholarship program for students majoring in environmental studies and provided 25 $1,000 scholarships to deserving university students. Another program introduced in 2001, Growing Naturally, was designed to foster interest in all things organic among school-aged children. The children were given resources and direction for keeping their own organic gardens.

In August 2001, Solera Capital, a women's private investment firm based in New York City, acquired 80 percent of Annie's Homegrown. The capital investment of $20 million was used to promote the company's lines in natural and mainstream supermarkets and to advertise via national media outlets. It was announced that John Foraker, CEO of Homegrown Holdings, would remain as a board director, Paul Nardone would continue as chief executive officer, and a new addition—Tim Fallon, CEO of Vermont Pure Holdings—would be made to the board.

In 2002 Annie's continued to expand its products by introducing an organic cheese ravioli in tomato sauce. The canned pasta meal was vegetarian and made from 95 percent organic ingredients. This addition to the previously released canned pasta brought the company a total of four canned meal types.

According to industry analysts, the organic foods sector of the food industry was expected to grow at a rate of 20–25 percent annually over the next few years. That compared to the regular food products category with a predicted 1–2 percent growth. Natural foods were predicted to expand at 8–10 percent. With Annie's Homegrown's eye on national food trends and its remarkable ability to create organic or natural alternatives to mainstream products, it appeared well poised to capture its piece of the organic pie.

Key Dates:

1982:: Annie Withey develops cheese mix; Withey and husband Andrew Martin start Smartfoods.
1986:: Withey and Martin sell Smartfoods to Pepsico/Frito Lay for $15 million.
1989:: Annie's Homegrown, Inc. is founded.
1995:: A direct public offering is completed.
1998:: Annie's Homegrown buys Taste of India's Tamarind Tree food line; Annie's introduces pasta meals and peace pasta.
1999:: Homegrown Holdings Corporation acquires stake in the company.
2002:: Annie's Homegrown launches national advertising campaign; Solera Capital buys majority share of the company.