KANSAS CITY — Brad Hover, chief executive officer of Healthy Food Ingredients, Kansas City, identified white space in the food ingredients market and has spent the past five years filling it. A portfolio of businesses that include SK Food International, Hesco/Dakota Organic Products, Suntava and Heartland Flax is meeting a need in the burgeoning market for non-G.M.O. and organic ingredients.
“We brought these companies together primarily because of the growth opportunities,” Mr. Hover said in an interview with Food Business News at the company’s innovation center in Minneapolis. “We looked at statistics of the food marketplace, and it was clear healthy food products were growing much faster than the food industry in general.
“There were players at the different levels for retail, processing, distribution, etc., but not at the ingredient supplier level in the healthy food arena. We saw that opportunity where we could fill that void. Our idea was to bring these companies together, bring efficiencies and bring a platform for future growth.”
As evidenced by data from the Organic Trade Association (O.T.A.), the market growth is readily apparent. In 2015, organic food sales hit $39.7 billion, according to the O.T.A., an 11% increase from the previous year. Fresh produce and dairy are the leading categories, but the market for processed products manufactured with organic ingredients is surging as well. Organic snacks, for example, reached $2.3 billion in sales in 2015, a 14% increase over the previous year.
It is in this space for products manufactured with organic and non-G.M.O. ingredients where Healthy Food Ingredients is focused on taking the consumer’s perception of healthy to the next level.
“The ingredients are categorically on trend, whether it’s organic, non-G.M.O., gluten-free, clean label or plant-based proteins,” said Jennifer Tesch, chief marketing officer. “It’s also a matter of ingredient customization and the unique elements of applications. Suntava purple corn is a good example. It’s a natural color, high in antioxidants and anthocyanins.”
The company’s first acquisition was SK Food International in 2013 followed by Hesco/Dakota Organic (2014), Suntava (2015) and Heartland Flax (2016).
“First of all they had to be non-G.M.O.,” Mr. Hover said of the acquisitions. “If the companies have a commodity aspect to it, we are not interested in it. They had to be non-G.M.O. and had to offer unique products.
“Suntava, for example, they have a unique product and had a brand that resonated in the marketplace. SK Food has a significant brand that is recognized with regard to exports to Asia primarily.”
This past September, the company launched a rebranding effort and put all of its individual brands under the Healthy Food Ingredients banner.
“With our launch of H.F.I. and the logo, it’s really an external launch to industry,” Ms. Tesch said. “Being able to share that story and what it means to them. It has been very well received.”
Getting supply to meet demand
A challenge facing all companies in the organic and non-G.M.O. space is sourcing raw materials. As the prices for conventional corn and soy have fallen in recent years, Mr. Hover said it has become easier to work with farmers about making the investment to switch from conventional to specialty production.
“It’s a fascinating thing,” he said. “When I got into this, I assumed the younger generation would take over and be more apt to consider something like organic or transitional. But a lot of farmers go to school, and they are taught to plant corn and soybean on rotation to make money. When corn and soybean prices were higher, there wasn’t much interest in switching. Now with the softening of commodity prices, we’ve had a lot more success having people look at other options.”
Ms. Tesch said the company focuses a lot of time and effort on supply assurance.
“To have that supply we need (to) work with them so they (the farmers) have a healthy harvest,” she said. “In the conventional world the grain goes in a pile, and you buy from the pile. It’s a different mentality. We are a bridge between the farmers and our customers. We can guide them to their goals and work to create mutual success across our supply chain.”
Healthy Food Ingredients has been at the forefront in the development of a Certified Transitional Program to aid farmers making the transition from conventional to organic. Farmers that participate in the program may generate some additional income during the transition process.
“We need more organic acreage, and producers need a little help getting into it,” said Brad Hennrich, president of the company. “It is giving them some ability to do that. (It) helps them be better financially as they make the transition to organic.
“We are partnering with Kashi (a Kellogg Co. brand) and other companies as well as growers in the supply chain who are developing the transitional program. Without the leadership of companies like Kashi, the transitional program would not have a market, making it more challenging for growers to complete the move to organic.”
Ms. Tesch said Healthy Food Ingredients is taking a solutions-based approach to helping manufacturers ideate new products.
“Manufacturers want to be on trend, but it’s not just about organic or non-G.M.O. or plant-based protein,” she said. “By working with them we can help based on their application. Do they want a certain nutritional profile? Does it need to be gluten-free? We can help those manufactures achieve their ultimate goals.”
Jay Johnson, senior vice-president of sales, said the solutions approach also involves educating customers about the state of the market.
“We have had to coach the customers to ensure a launch took place that could be supported by available supply on specialty and unique ingredients,” he said. “Sometimes this slowed down a launch to ensure the customer was not set up for failure by a lack of supply.”
Consumer research published by the Grocery Manufacturers Association and the Food Marketing Institute in early 2016 showed that the drivers of consumer food and beverage purchases have expanded. Where consumer purchasing decisions were once predominantly made based on price, taste and convenience, today such additional factors as health, safety, sustainability and social impact are playing a greater role. Through its business model Healthy Food Ingredients is capitalizing on the shifting purchasing drivers.
“When it comes to health and wellness today consumers are educated, and that ties well into our portfolio,” Mr. Johnson said. “Healthier eating is also changing. We are seeing people making trends. They may have apps on their phone and very focused with what they are putting into their bodies. People are more focused on protein and other inputs vs. things like an Atkins diet. Better-for-you snacking and ready-to-eat both come into play as we are seeing consumers who are on the move and looking for convenience, but with that added functionality aspect of also being healthy.”
At the innovation center in Minneapolis, Bill Petrich, president of Suntava for Healthy Food Ingredients, is taking a deeper dive looking into the health and wellness benefits of specific ingredients.
“We are taking a particular variety of a particular grain and seeing what may be done with it,” he said. “It may be a particular variety with a higher level of omega-3s.
“It’s about furthering our partnership with customers. We go through a discovery process with them to understand what they need to develop healthier, better tasting products.”
During the Institute of Food Technologists’ annual meeting this past July, the company introduced its line of AncientGrisps extruded ingredients, which are a blend of such ancient grains as amaranth, quinoa, sorghum, teff and millet. The ingredients offer whole grains and are gluten-free.
“The genesis was it started with a quinoa crisp,” Mr. Petrich said. “(We) had the notion of how can we develop a whole line of extruded products with healthy grains. We worked through the second or third iteration of Grisps and then we started showing them to customers. (There was) more and more interest and now we have four applications and we are looking at how do you build out the platform.”
Mr. Johnson said going forward he sees consumer trends focusing on simplicity, health and the environment.
“People want to know it’s good for the environment,” he said. “The main thing is people are more aware, more educated, and they are looking for those products that are both healthy and convenient. We see that continuing.”
Taking the next steps
Mr. Hover said his goals for Healthy Food Ingredients are to continue to expand and grow.
“We want to be the go-to solution provider to the industry,” he said. “To do that we will need to have the capabilities and processes to meet the needs of customers. Geographically, you really need to be close to be effective.”
The company’s primary base of operations today is in the Northern Plains where the company sources much of its flax and edible beans supply.
“As we look at markets, one is the West coast,” Mr. Hover said. “It’s hard for us to overcome that freight differential. As we look at where the market is going we want to deliver in a cost-effective manner.”