Small Planet Foods, Inc.

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Small Planet Foods, Inc.

719 Metcalf Street
Sedro-Woolley, Washington 98284-1420
U.S.A.
Telephone: (360) 855-0100
Fax: (360) 855-0311
Web site: http://www.smallplanetfoods.com

Wholly Owned Subsidiary of General Mills, Inc.
Founded: 1972 as New Cascadian Survival and Reclamation Project
Incorporated: 1997 as Small Planet Foods, L.L.C.
Employees: 70
Sales: $120 million (2006 est.)
NAIC: 311230 Breakfast Cereal Manufacturing; 311330 Confectionery Manufacturing from Purchased Chocolate; 311340 Nonchocolate Confectionery Manufacturing; 311411 Frozen Fruit, Juice, and Vegetable Manufacturing; 311412 Frozen Specialty Food Manufacturing; 311421 Fruit and Vegetable Canning; 311422 Specialty Canning

COUNTERCULTURAL ORIGINS

MOVE INTO PROCESSING

GOING CORPORATE

FORMATION OF SMALL PLANET FOODS AND ACQUISITION OF MUIR GLEN

2000: ACQUISITION BY GENERAL MILLS

PRINCIPAL COMPETITORS

COUNTERCULTURAL ORIGINS

Gene Kahn, the founder of Cascadian Farm, had developed an interest in agriculture from an early age under the influence of his father, who was a grocer, and a grandfather who was a farmer. A native of Chicago, Kahn moved to the Pacific Northwest in 1968 and began pursuing a master’s degree in English literature at the University of Washington. Like many other young adults, however, Kahn was radicalized by the Vietnam War and the reactionary policies of the “Establishment” at that time. He became interested in organic, cooperative farming and eventually abandoned his pursuit of a master’s degree to become a farmer.

In the fall of 1971 Kahn began leasing an abandoned farm in the Upper Skagit Valley at the foot of the Cascade Mountains, near Rockport, Washington, 75 miles northeast of Seattle. At age 24, Kahn officially founded Cascadian Farm in 1972, initially dubbing it, tongue firmly in cheek, the New Cascadian Survival and Reclamation Project. In keeping with the tenor of the times, his ambitious aim was to replace the conventional food distribution system, one that had come to rely on shipping food and food products cross-country and from country to country, with one relying more on food produced locally for local consumption.

With no training or background in farming, Kahn struggled at first, suffering a series of crop failures and losing money for several years. Part of the problem was that he had chosen to farm in an area that was essentially a temperate rain forest, where the 80 inches of annual precipitation provided the perfect environment for all sorts of weeds as well as diseases and voracious mold. Such an environment made farming without synthetic fertilizers, pesticides, or herbicides that much more difficult. To keep the farm going and to support himself, Kahn was forced to take a job at a cedar shake mill in nearby Concrete. In addition, he took in students, who lived on the farm in tepees in exchange for free labor, hacking down the ubiquitous weeds.

Kahn also embarked on an ambitious research project to learn how to become a good farmer, soaking up countless books and articles. By the mid-1970s, he had learned enough to be successfully farming 450 acres of organic produce. Initially, he sold his potatoes, raspberries, strawberries, and carrots out of the back of a Volkswagen truck, but he eventually started selling them to natural food stores and co-ops in the area.

MOVE INTO PROCESSING

Around this same time, Kahn moved up the food chain into processing, producing jams and pickles on his farm. Moldy jams and fermenting pickles, however, persuaded him to take a different approach. He partnered with a food processor in Seattle called Sunny Jim, which began manufacturing Cascadian Farm jam in 1979. Seeing the higher profits that could be made in food processing compared to food growing, Kahn took this evolution of his business one step further. As demand for the firm’s processed foods grew, more produce was needed to keep up with this growth. In the 1980s, therefore, Cascadian Farm began contracting with other organic farmers in the Pacific Northwest for the fruits and vegetables needed for the company’s products.

By the late 1980s the Cascadian Farm line of processed foods had expanded to include a wide array of frozen fruits and vegetables, including raspberries, strawberries, blueberries, blackberries, corn, peas, green beans, diced potatoes, and diced carrots. Revenues reached $5 million by the end of the decade when Cascadian Farm products were being distributed up and down the West Coast. By this time, Kahn was no longer aiming to displace the conventional food distribution system. He believed that he and his company could have a greater impact by pushing to make organic food a niche within the mainstream market. Taking it mainstream would increase the demand for organic food, which in turn would provide increasing incentive for farmers to convert to organic agriculture. Increasing the amount of organic farmland supported Kahn’s ultimate mission: helping to improve the environment.

GOING CORPORATE

In 1989 organic food enjoyed a short-lived boom in the wake of a controversy over Alar, a chemical growth-regulator commonly used by apple growers. When the Environmental Protection Agency declared Alar a carcinogen, the mainstream public began clamoring for organic produce. Kahn borrowed heavily to finance a major expansion, contracting with growers to step up production of organic fruit and vegetables. Before the produce could even be harvested, however, the Alar headlines had faded away, and the widespread interest in the organic niche subsided. In the wake of this bursting of the organic bubble, Cascadian Farm was unable to pay its bills or its growers, and Kahn had to sell out. Late in 1990, the National Grape Cooperative Association, Inc., parent company of jams and juices maker and marketer Welch’s Foods Inc., purchased a controlling 55 percent stake in Cascadian Farm. Kahn nevertheless remained in charge of the company.

By the time of its landing within the Welch’s orbit, Cascadian Farm was contracting with about 50 farmers from the Pacific Northwest to the East Coast to grow crops for the firm’s fresh and processed foods. National distribution had been achieved, and Cascadian Farm products were also being marketed in Canada, Japan, and Europe. During its period as an affiliate of Welch’s, Cascadian Farm had access to much needed capital for growth and was also able to take advantage of Welch’s larger distribution network as well as its manufacturing and marketing expertise. On the distribution side, the company made progress on “mainstreaming” its organic offerings in 1994 when it began distributing its products into conventional grocery stores. By 1996, 10 percent of overall sales were generated via distribution through more than 2,000 conventional supermarkets.

COMPANY PERSPECTIVES

Small Planet Foods: Great tasting organic food that contributes to better health for our consumers and our planet.

The company also expanded its lineup of products during this period. Not surprisingly, given its parent company’s position as a leader in the juice sector, Cascadian Farm in September 1991 introduced a line of shelf-stable organic juices packaged in 32-ounce bottles. The following year, Cascadian Farm launched a line of organic frozen fruit juice concentrates. The company also expanded into the dairy dessert business, offering frozen yogurt, sorbet, and ice cream. In 1995 Cascadian Farm introduced a line of frozen vegetarian meals called Meals for a Small Planet. The meals offered complete proteins through their combination of rices, beans, grains, and vegetables. By 1996 Cascadian Farm was producing more than 150 products in seven main categories: frozen fruit, frozen juices, frozen vegetables, frozen vegetarian meals, frozen desserts, pickles and kraut, and fruit spreads.

FORMATION OF SMALL PLANET FOODS AND ACQUISITION OF MUIR GLEN

In the mid-1990s, Cascadian Farm’s revenues increased at an annual rate of 40 to 50 percent per year, more than double the organic industry average, as sales reached approximately $19 million in fiscal 1996. By this time, however, Welch’s was moving to refocus on its core products, and so it sold most of its stake in Cascadian Farm in the summer of 1996. The new majority owner of Cascadian Farm was Trefoil Natural Foods, Inc., an affiliate of Shamrock Holdings, Inc., the investment vehicle for Roy E. Disney, nephew of Walt Disney. Kahn once again retained leadership of the company he founded despite the shift in ownership.

One major change for Cascadian Farm occurred the following year. Trefoil also owned another major player in the natural foods industry, Fantastic Foods, Inc., of Petaluma, California, which concentrated on vegetarian convenience foods, including soups and cereals in a cup, prepared side dishes, entrees, and meatless burger alternatives. In June 1997 Small Planet Foods, L.L.C., was created to manage the operations of both Cascadian Farm and Fantastic Foods and also to consolidate the sales forces of the two firms. Kahn was named CEO of Small Planet Foods. Also in 1997, Cascadian Farm expanded its product line to include frozen extruded potato products, such as French fries and hash browns.

In March 1998 Small Planet Foods completed its first acquisition, purchasing Sacramento-based Muir Glen, the nation’s leading producer of organic tomato products. Founded in 1991 by a group of entrepreneurs with backgrounds in agriculture and the tomato industry, Muir Glen was named after the legendary naturalist John Muir. The company contracted with farmers in California’s Central Valley to grow organic tomatoes and then processed them into a range of products that included canned tomatoes, tomato sauce and paste, prepared pasta sauces, salsa, ketchup, and barbecue sauces. Following the acquisition, Muir Glen’s headquarters were moved to Fantastic Foods’ facility in Petaluma.

KEY DATES

1972:: Gene Kahn founds Cascadian Farm, an organic farm near Rockport, Washington.
1979:: In partnership with a Seattle food manufacturer, Kahn’s company moves into food processing as Cascadian Farm jams makes their debut.
1990:: Following a too-ambitious expansion, Kahn is forced to sell a controlling stake in Cascadian Farm to the National Grape Cooperative Association, Inc., parent of Welch’s.
1996:: Trefoil Natural Foods, Inc., acquires majority control of Cascadian Farm.
1997:: Small Planet Foods, L.L.C., is created to oversee the operations of both Cascadian Farm and Fantastic Foods, a natural foods producer also controlled by Trefoil.
1998:: Small Planet Foods acquires Muir Glen, the nation’s leading producer of organic tomato products.
2000:: General Mills, Inc., acquires Small Planet Foods, including the Cascadian Farm and Muir Glen brands.
2002:: The Cascadian Farm line of organic cereals debuts.
2005:: Muir Glen introduces a line of ready-to-eat organic soups.

2000: ACQUISITION BY GENERAL MILLS

By 1999 the combined sales of Cascadian Farm and Glen Muir products had reached approximately $60 million. In January 2000 General Mills, Inc., joined the growing list of major food companies moving into the fast-growing organic sector when it acquired Small Planet Foods for an estimated $70 million. The purchase included only Cascadian Farm and Muir Glen. (Fantastic Foods later became part of Annie’s Inc.) Kahn, who had still owned 10 percent of Small Planet when General Mills acquired it, was named a General Mills vice-president and continued to head Small Planet, which by then was based in Sedro-Woolley, Washington.

Leveraging the huge resources of its new parent company enabled Small Planet Foods to take its product further into the mainstream of the U.S. food industry. The distribution of Cascadian Farm and Muir Glen products was expanded, particularly into many more conventional supermarkets. On the new product front, the combination of Small Planet and General Mills, the number two cereal maker in the United States, led to an unsurprising launch: a line of Cascadian Farm organic cereals. Introduced in June 2002, the line included Honey Nut O’s, Wheat Crunch Flakes, Oats & Honey Granola, and Multi Grain Squares and was launched nationally into both grocery stores and natural food stores. Cascadian Farm quickly became the number two brand of organic cereal, trailing only Nature’s Path Foods, Inc. In 2003, three more varieties were added to the Cascadian Farm cereal lineup: Raisin Bran, Hearty Morning, and Purely O’s.

In September 2003 Kahn stepped down as president of Small Planet Foods to take on a newly created position at General Mills: vice-president for sustainable development. Still committed to improving the environment, he pursued a goal of making General Mills a responsible partner with the environment. Taking over as president of Small Planet was Maria Morgan, a General Mills vice-president with more than 14 years of marketing and sales experience.

Small Planet Foods continued to roll out new products under its new leader. In 2003, three new flavors of Muir Glen pasta sauces debuted: Four Cheese, Fire Roasted Tomato, and Spicy Tomato. In the early months of 2004, Muir Glen Organic Whole Peeled Plum Tomatoes were introduced, along with a new line of Cascadian Farm organic chewy granola bars. A year later Cascadian Farm ventured into the children’s cereal sector through the launch of Clifford Crunch Cereal, which Small Planet touted as a good source of calcium, vitamins E and D, and fiber and, as such, “the first organic cereal made specifically for kid nutrition.” The children’s literary character Clifford the Big Red Dog was featured prominently on each box. In the fall of 2005, the Muir Glen brand was expanded to include ready-to-eat organic, tomato-based soups. Debuting with five varieties, Classic Minestrone, Garden Vegetable, Hearty Tomato, Homestyle Split Pea, and Savory Lentil, the line was extended in 2006 to include Creamy Tomato and Southwest Black Bean. Cascadian Farm Vanilla Almond Crunch cereal hit store shelves in August 2006.

This string of introductions coupled with increased marketing and distribution helped propel Small Planet Foods’ revenues to approximately $120 million by fiscal 2006. Under the General Mills umbrella, Small Planet was maintaining its stellar rate of growth. In fiscal 2006 alone, sales of Cascadian Farm and Muir Glen products surged 27 percent. Small Planet Foods was by far the fastest-growing unit within General Mills. Though its revenues comprised only a minuscule portion of General Mills’ sales of more than $12 billion, Small Planet’s growth potential was important at a time when sales of the parent company’s conventional cereals had plateaued.

David E. Salamie

PRINCIPAL COMPETITORS

Kraft Foods Inc.; ConAgra Foods, Inc.; The Hain Celestial Group, Inc.; H.J. Heinz Company; Del Monte Foods Company; Kellogg Company; Nature’s Path Foods, Inc.; Eden Foods, Inc.; The J.M. Smucker Company.