Marketing knead

11.05.2008 00:01 Home - Source: JS Online

Manitowoc - A year after being sold to Alpha Baking Co. in Chicago, nutritious bread is still rising at Natural Ovens, but sales aren't.

Alpha Baking, the new Chicago-based owner, bought Natural Ovens in 2007 for an undisclosed amount from founder Paul Stitt and his wife, Barbara. Under the Stitt's ownership the company had grown from a traditional small-town bakery to an $18 million business focused on nutritious breads and bagels distributed to grocers across the Midwest.

The Stitts were widely known as proponents of healthy eating, with appearances on national TV shows. In 2004, a healthy-eating program the couple helped establish in the Appleton school district was featured in the movie "Super Size Me."

With those personalities no longer tied to the product, the question is: Have sales stalled because customers miss them, or are shoppers faced with escalating prices trading down to lower-priced breads?

"I think we've lost some of our consumer confidence," said Chelle Blaszczyk, director of marketing for Natural Ovens, and also Paul Stitt's daughter. Blaszczyk is on a mission to let customers know that the company remains in Manitowoc, with the same managers and workers, making the same whole grain breads they've sold for years.

The Natural Ovens acquisition was part of Alpha's growth strategy, said Mike Marcucci, co-founder and chief executive officer of Alpha Baking. The plant, just outside of Manitowoc, has plenty of room to expand baking operations. Alpha needed that, Marcucci said, because its Chicago plants are landlocked.

The Natural Ovens business also complemented Alpha's, which had been mainly focused on selling bread and rolls to restaurants. Natural Ovens sells its breads and bagels to supermarkets in Wisconsin, Minnesota, Illinois and Indiana.

"Sales are doing OK," Marcucci said about the Natural Ovens products. "A lot of that is that we're giving it broader marketing."

Unit sales are flat, but dollar volume is up because of price increases that the company was forced to make to account for skyrocketing prices for flour and other ingredients.

And that gives Marcucci mixed feelings about the acquisition.

"Everything we thought would be there has been there: great people, a strong work ethic," he said. "What I didn't anticipate was the tripling of the cost of flour."

Natural Ovens is paying 40 cents a pound now for flour, up from 11 cents a pound a year ago, Blaszczyk said. Organic flour, used in a new line of organic breads and bagels introduced last year, is 70 cents a pound.

"Soon it will hit a dollar," Blaszczyk said. Those increases have pushed the retail price of organic Natural Ovens bread to $4.79; the standard version is $3.89 at Pick 'n Save, up from $3.49.

Natural Ovens bread has historically been priced higher than the average for all bread because it is baked with flaxseed and other expensive ingredients, Blaszczyk said.

Those ingredients are the basis of the appeal of the product, along with the charisma that surrounded Stitt, an outspoken critic of large food companies.

Founder raised on farm

Stitt, 67, who was raised on a farm in Illinois, has a master's degree in biochemistry. After college, he worked for Tenneco, an oil company, then moved on to Quaker Oats, where he was a biochemist in a research facility in Barrington, Ill. Stitt clashed with Quaker over their policies, and by his own description, was fired.

Stitt started Natural Ovens as a way to carry out his mission of promoting health through nutrition.

Barbara Reid Stitt worked for 20 years as a probation officer in Ohio, and she wrote her doctoral thesis on the biochemistry of crime, linking criminal behavior to poor nutrition. The couple met when both were speakers at a conference on nutrition. They married in 1982.

Both Stitts wrote self-published books on nutrition topics, and Barbara Stitt wrote a newsletter that was included in each package of bread.

Sales reached their peak in the early 2000s, Blaszczyk said, during the low-carb diet craze. Natural Ovens introduced a line of low-carb bread that was so successful the company built and opened a baking plant in Valparaiso, Ind., in 2003. But by 2005, the low-carb trend petered out, and the company closed the plant.

The Valparaiso building, which is owned by Paul and Barbara Stitt, is for sale.

Product claims disputed

The company stopped publishing Barbara's newsletters in 2006, a year before the sale, after tangling with the Federal Drug Administration over labeling issues. The FDA won an injunction against Natural Ovens in federal court after filing a suit that the products' health claims were misleading.

Natural Ovens has been in compliance with FDA regulations and has had no further problems with the agency since then, Blaszczyk said.

The newsletters were a big part of the brand's relationship with customers, which has been described as a cultlike following.

"We had a very personal connection with our customers," said Barbara Stitt, in an interview from the couple's home in Charlottesville, Va., where they are retired. "They would write and say, 'Barbara and Paul, I feel like I know you.' "

Both continue to speak about nutrition in their new home state and elsewhere, in person and on the radio.

"That product had a cachet that was connected to the founder," said Robert Mariano, chairman and chief executive officer at Roundy's Supermarkets Inc., the Milwaukee-based operator of Pick 'n Save, Copps and Rainbow stores. The chains have sold Natural Ovens breads for years.

Maintaining connection

Mariano compared Natural Ovens with Lenders Bagels, another brand with a strong connection to its founder. Buyers of such brands often face a challenge in maintaining their connection with customers, he said.

"Alpha purchased us not to change us, to make us better," Blaszczyk said. The staff level at the headquarters is about the same as it was before the sale, with 124 people. More of them work in production now, fewer in the office.

Under the new owners, a few slower-selling items in the product lineup have been eliminated. The core products that continue have been reformulated to improve nutrition with higher levels of fiber and whole grains, Blaszczyk said.

Alpha has improved the baking and packaging process, including a change that will extend the shelf life of the products. Natural Ovens will launch a new line of organic bagels in May. They will be the first organic bagels on the market, Blaszczyk said.

"Natural Ovens is in the next phase of life," she said.

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