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Potato Chips To Health Food: Inventure And The Future Of Snacktime

Inventure-FoodsThe world of snack foods is a Manichean struggle for the soul of your stomach. Do you reach for the tasty, high-calorie, additives-rich mozzarella sticks–or less processed, lower-calorie fruits and veggies? Inventure Foods of Phoenix isn’t picking sides. It plays to both our better and worse angels of appetite. “We still believe in the ‘indulgent’ food business–it pays some bills, and we don’t want it to completely go away,” says CEO Terry McDaniel, 57. “But our focus–and most of our growth–has been the ‘healthier natural’ side.”

That side generates 80% of Inventure’s $253 million in sales. So-called healthier natural can mean just about anything: Rader Farms frozen berries sold in Costco and others; the Fresh Frozen Foods label, ubiquitous throughout grocery stores in the Southeast; smoothies mixes for Jamba JMBA +1.44% Juice; and “totally natural” potato chips from Boulder Canyon.

 

While Inventure’s roots are in “indulgent” foods–Poore Brothers kettle chips, as well as snacks for Nathan's Famous, TGI Fridays and Vidalia Brands–that category is growing at 2.8% a year nationwide. Back in 2006 the company decided to branch out into healthier snacks, growing at 12% a year. (Natural and organic foods and beverages are expected to surpass $78 billion next year.)

That decision was key–the second time that Inventure, confronting a critical juncture, made a tough but correct decision. The first occurred 19 years ago when brothers Jay and Don Poore, reaching the limits of their entrepreneurial skills, sold their eponymous potato chip company to a local investor.

Don Poore, 75, officially retired in 1995. But Jay, 67, is still vice president of engineering at Inventure Foods. You can find him walking the floor of the Goodyear, Ariz. plant, 20 miles west of Phoenix, which can turn out 60,000 pounds of potato chips every day. One after another, all day and all night, 130-pound batches of fresh-peeled spuds smack into heavy-duty cylindrical slicers; hundreds of raw chips are flung into automated deep fryers the size of a Fiat 500 Sport. Poore doesn’t flinch from his proximity to the 270-gallon vats of scalding, sizzling oil. “I’ve been around ‘em all my life,” he says.

No exaggeration. Back in 1966 the brothers took jobs at Mira-Pak, a Houston company that built packaging machines for the snack food industry, eventually becoming engineers. After a short stint running their own parts and services firm for “bagger” machines, they partnered with Horace Groff, grandson of the founder of Groff’s Snack Food Co. in Bowmansville, Pa., to produce a kettle-style potato chip. Groff’s of Texas launched in 1983. Relatively rare back then, kettle chips were produced in smallish batches, turning out thicker and crispier, and carrying a more natural potato flavor than their mass-market cousins. “We figured it was a niche–and a vacuum we could fill,” Jay recalls.

In 1986 the brothers sold to a partner, settled in Phoenix, found a decent plant at a good price and launched Poore Brothers Potato Chips. With Don handling engineering and factory oversight, Jay became salesman, going door-to-door pushing products on retailers. By the mid-1990s the brand was generating almost $7 million in annual sales, led by the success of its jalapeño- and salt-and-vinegar-flavored chips.

By then the Poore Brothers had taken a good bite of the local kettle chip market, largely at the expense of Frito-Lay. “To do that is really hard,” says Mark Howells, then president of broker-dealer Arizona Securities Group. It took him a year to persuade the Poores to sell out to him and a group of investors. Jay wasn’t too sure: “We had everything we owned in this world invested into this company.” But as a single-product company, they knew that one potato blight could scorch the business.

The Poores went back and forth. Finally they sold for over $3 million, plus 150,000 shares each. Looking back, Jay concedes they made the right choice, adding, “We were better technicians than we were businesspeople.” Says Howells: “Everybody kind of got it–both they and us–that in order to go to the next step there would need to be some cash infusions and some additional management in the company.”

All that happened rapidly. A year later, in 1996, Howells took the company public, raising $7.8 million under the catchy ticker symbol SNAK. He installed Eric Kufel, then a 30-year-old brand manager who’d done time at Coca-Cola, Dial and Kellogg, as CEO. He bought Keebler’s popular Tato Skins division, acquiring a new snack plant in Bluffton, Ind. In 2000 he cut a licensing deal with TGI Fridays. “Sales from Fridays more than doubled within 24 months,” recalls Kufel. “It was really transformational for us.”

Terry McDaniel, the current chief executive, came over in 2006–the same year the company changed its name to Inventure (as in “innovate” and “venture”). As CEO and president of Wise Foods McDaniel had helped ship chips to Inventure after its Goodyear plant caught fire and was knocked offline. Kufel persuaded him to uproot to Phoenix and come aboard as COO. A couple of small disasters greeted him: Crunch Tunes (snack chips shaped like Looney Tunes characters) and a licensed sweet snack for Cinnabon had both bombed.

And there was a bigger challenge. With the blessing of the board, the departing Kufel had decided that Inventure had to diversify its lines into less artery-clogging fare. McDaniel, who took over as CEO in 2008, had to execute the strategy he had helped to formulate. He turned first to Boulder Canyon, the Denver maker of potato chips, acquired in 2000. Inventure had touted its natural ingredients, but it languished. “It was already a clean but very boring product,” says McDaniel.

Hawking the brand to natural food stores outside of Colorado, Inventure eventually offered compostable bags and added lines like rice-and-bean chips, vegetable crisps, sweet potato chips, multigrain snacks, Protein Crisps made of lentils and pea protein that comes in cheese flavor or–bite your tongue–chocolate.

As of the first half of 2014 Boulder Canyon is on track to generate $40 million for the year. Around the corner is a breakfast cereal featuring whole grain puffs injected with yogurt or chocolate. That will put Inventure squarely in the crosshairs of Kashi and Bear Naked.

The company pushed hard on frozen fruits and vegetables. Rader Farms of Lynden, Wash., grabbed for $22 million or so in 2007, added $27 million to the top line the next year. McDaniel found an additional market for those frozen berries by coming up with a do-it-yourself smoothie kit the company licensed to Jamba Juice, winning instant consumer recognition.

Last year Inventure spent $38 million to buy Fresh Frozen Foods, the $60 million-plus (sales) Jefferson, Ga. processor of veggies. It’s the first push into a $4.4-billion-a-year market and the first run at the likes of Bird’s Eye, Green Giant and dozens of private labels by resorting to simplicity and transparency–literally selling its peas and carrots in clear plastic sacks. “That’s a risky proposition,” McDaniel concedes. “You better have quality because things will change color in the bag.”

What’s next? Inventure filed a shelf registration that allows it to increase the number of shares outstanding, up to $100 million worth. That opens a raft of potential acquisitions in the healthy category, where the best margins are.

McDaniel can buy all the niche companies he wants and let them try to thrive under their own labels. But this category cries out for a single brand with a strong identity, like the one the Poore brothers once built. That’s a crossroad Inventure hasn’t yet reached.

By Karsten Strauss, Forbes

 

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