Nature’s Path to Cereal Success

By Sarah Fister Gale


Nature’s Path isn’t worried about big name non-organic companies pushing their way into the marketplace. Even as Kellogg’s and General Mills buy up organic brands, such as Kashi and Cascadian Farm, and the demand for raw materials steadily increases, this Vancouver, Canada-based organic cereal maker stands strong, confident that it has the infrastructure and loyalty from customers and farmers to compete against mainstream giants.

“When the water rises, all the boats rise with it,” says Arran Stephens, president and founder of Nature’s Path. In other words, the big companies will raise awareness of organic products across the industry by marketing their own products and Nature’s Path will benefit from that exposure because it will draw conventional consumers to the organic grocery aisles.

Stephens long ago predicted that the organic industry would be inundated with new players. “Once organic was accepted as an everyday reality,” he says, “the companies would come like an avalanche.” And the avalanche has begun. The organic cereal market is increasing 20% per year, while the mainstream cereal market is flat, forcing traditional cereal monoliths to look at organic as the only expansion opportunity.

The growth of the industry and the introduction of so many big rivals just spurs Stephens to work even harder at establishing his brands. “There’s nothing like a little competition from someone who wants to wipe you off the map to sharpen your attention,” he says.

Big Fish in a Small Pond
No one doubts Stephens is right, given his deep roots in an industry that is still somewhat of a mystery to non-organic players. In the mainstream cereal market, Nature’s Path may be small, but in the organic industry it’s a well-known name and a solid company with a long and impressive history.

Stephens, who was raised on an organic farm, opened Nature’s Path in 1985. By 1990, at a time when organic production was still a novelty and most organic processors used co-packers and washed down non-organic lines to produce and package their products, Nature’s Path had the first 100-percent-certified organic plant in Vancouver. The company jumped to the forefront of the industry early on. For the last five years it has had the number-one-selling brand of organic cereal, and in its 18-year history, the company has averaged 30% growth per year, which means it doubles in size every three years.

“The plant in Vancouver was supposed to last seven years, but it was at capacity in three,” says David Neuman, Nature’s Path sales manager. “No one could have predicted that we’d grow so quickly.”

To accommodate that growth, in May 2003 Nature’s Path opened another plant in Blaine, WA, that more than doubles production capacity, from 62,000 square feet to 135,000 square feet, and features added extrusion lines to accommodate the growth in popularity of the company’s blended cereals and a new line of children’s cereal and cereal bars called EnviroKidz.

So, for the moment at least, the Nature’s Path team has room to breathe, but if orders continue to mount it may hit capacity in a few years and are prepared to expand further if demand warrants it. Stephens is negotiating to buy a small organic flakes company in British Columbia, Canada, and he continues to plow profits back into equipment, training and increased space to maintain a competitive edge and guarantee the company’s future security.

Know Your Audience
Nature’s Path also has a natural edge over the big non-organic companies because they know so much more about how the industry works and can react more quickly. “If Nature’s Path sees a need in the market we can develop a new product in six months, while it takes the big companies years of market research and testing to introduce something new,” Neuman says.

And despite the millions of dollars these companies have spent in the past on trying to break the organic market, their success rate in the past is an estimated 20%, versus 99% for Nature’s Path, Neuman adds. “They just don’t understand the consumer the way we do.”

They also don’t have the relationships that Nature’s Path has with suppliers and consumers. “We pay our bills on time and farmers know they can count on us to buy their crops,” says Stephens. Customer loyalty gives Stephens further confidence that Nature’s Path will remain a leader in the organic cereal market.

“Consumers trust us. We’ve been in the industry a long time and we are committed to an organic vision.” All of the company’s products are 100% organic, whereas products from many newcomers have only enough organic materials to win the certification label, he notes. “Who will customers trust? A company that only does organic for profit or one that’s in it because they believe in the vision?”

Increasing Supply, One Farmer at a Time
Building plants and winning the hearts of consumers, however, is only half the battle Nature’s Path faces as it grapples with its own growth and increased competition. Estimates suggest that only 2% of North America’s farm land is certified organic, and there are few organizing systems to link buyers with organic farmers, establish industry prices, or to encourage traditional farmers to transition land to organic. As the demand for raw materials increases, unless more acreage is dedicated to organic farming, high quality commodities will be harder to come by, Neuman says.

Nature’s Path experienced the impact of a raw material shortage last year when increased consumer demand coupled with drought condition forced the company to buy commodities from Europe and Asia to meet their needs, which bit heavily into their profit margins. “It was expensive, but we couldn’t afford to stop production,” Stephens says.

With big-name companies ramping up production of organic lines, Nature’s Path is brainstorming ways to increase access to raw materials so that doesn’t happen again. “If we had to buy raw materials on the open market it would seriously impact profitability,” Neuman says. For the moment they are stable thanks to longstanding relationships with millers and farmers who have given them contracts that extend into the future, but they won’t last forever. Unless the number of organic acres in North America increases, there won’t be enough output to meet demands.

To secure the company’s future access to raw material, Stephens launched a revolutionary new program that will give Nature’s Path a competitive advantage and increase the overall amount of organic produce grown in North America. The “Organic Program” is a grassroots effort to work side-by-side with organic farmers, brokers and millers to create a stronger existing organic farming community and to build mentor relationships between organic and non-organic farmers interested in making the transition, says organic program manager Dag Falck, an agronomist with 16 years’ experience as an inspector in the organic industry. “We are trying to influence our corner of the world.”

One of Falck’s primary goals is to educate existing farmers about the types of crops the industry wants, how to secure the best prices and how to best market their products. Unlike the non-organic market, where the price of grain is monitored minute by minute through the commodities exchange, there are no set prices for organic materials and there is little information about the number of acres farmed or their projected yields. As a result, only the savviest farmers who understand marketing get the best deals, Falck says. “It’s amazing how information doesn’t get passed on. One farmer will get a tremendous price for his crops and the next has been sitting on his commodity for a year because he can’t find a market.”

Initially, Falck will meet with farming associations and organic certifying agencies to build relationships with their members and create lines of communication within the organic community. He also hopes to help traditional farmers make the transition to organic. “Generational farmers need more support than the first wave of growers who switched to organic,” he says. The early adopters were committed to the vision of a healthier world and took the plunge, whereas the next phase of farmers are more hesitant. They are strongly motivated by financial gain, as well as a freedom from chemicals. “A lot of them hate spraying and see that their neighbors are making money growing organic, but the idea of transitioning is overwhelming,” he says. “They have to change their whole way of thinking about farming.”

Most of them have used chemicals all of their lives, and have no idea how to approach pest control in an organic manner or even where to buy organic seeds, he adds. And the transformation process is not easy. It takes three years to be certified organic, during which time they can’t sell crops as organic, nor can they use chemicals to manage infestations. There are no government subsidies for organic farmers, and the mountain of paperwork and confusing certification standards often are too complicated to tackle on their own.

Falck wants to link these new farmers with organic growers who’ve been in the industry for a while and can counsel them through the difficult early years. “We want to build a network of existing farmers who can support each other and become resources for new farmers,” he says.

While Falck’s general intent is to build a stronger, larger organic farming community, the goals of the program are not entirely altruistic. His focus is to secure an abundance of raw material to meet the specific needs of Nature’s Path. “We have our hand on the pulse of the organic growing community, and that puts us in a better position,” he says. “We can let farmers know about the commodities we need so they know if they plant it, we will buy it.”

These goodwill efforts also will solidify relationships with organic farmers, creating a stronger sense of loyalty to Nature’s Path in an industry that can be suspicious of the motives of new players. “For us, organic is not a trend or a money-making opportunity,” Falck says. “We are committed to leaving this world better than we found it.”

It’s too early to make predictions about the number of acres that will be converted through the program, but Stephens would like to see 10% to 20% of North American farmland outputting organic materials, which is comparable to many European nations. “That’s our big, hairy, audacious goal,” he says.

The other, not-so-audacious goal is for Nature’s Path to be heavily represented in mainstream stores. “Some organic stores don’t want to sell to the big retailers, but we want to get organic out to as many people as possible,” Neuman says. “The core consumers are already converted. We need to reach the rest of the population.”

With Stephens’ dedication to his company and his vision, it is likely that Nature’s Path will soon be as popular as its non-organic counterparts. “Even if there were no organic industry,” Stephens says, “we would continue to do this as long as we have breath.”

Sarah Fister Gale is Contributing Editor to Organic Processing Magazine. She can be reached at sfister@mn.rr.com.