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Horizon Organic Holding Corp. (HCOW) |
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CEOCFO Current
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This is a printer friendly page! Horizon Organic is poised for growth in
the U.S. and the U.K. with a strong and extendable brand BIO: Previously, Marcy was president of the Golden Grain
Co., a subsidiary of Quaker Oats Co., maker of both the Near East brand of all-natural
products and the well-known Rice-a-Roni brand. In addition, he served as president of the
dairy division at Kraft General Foods. He also held senior marketing and strategic
planning positions with Sara Lee Corp. and General Foods Corp. During Marcy’s tenure at Horizon Organic, he has
led the company to several important milestones, including: ·
Improved results in 2001 & 2002, validating
the company’s ability to rapidly grow sales while generating strong earnings
momentum. ·
$200 million in sales on a trailing 12-month
basis in April 2003. ·
Gaining significant new distribution in U.S.
supermarkets – Grew ACV for Horizon Organic milk products from 33% in 2000 to 60% in
2002. ·
Winning the coveted Colorado Ethics in Business
Award ·
The appointment of Horizon Organic executives
to leading industry committees including, Chuck Marcy to the Organic Trade Association
Board and Kevin O’Rell, Horizon Organic’s vice president of R&D/Quality
Assurance, to the National Organic Standards Board (NOSB) ·
The introduction of numerous groundbreaking
products including single-serve flavored organic milk, organic puddings and fruit jells
and announced the launch of Horizon Organic Infant Formula with Iron for the fall of 2003. Marcy graduated magna cum laude from Washington and
Jefferson College in Washington, Pa., earning an undergraduate degree in mathematics and
economics. He received a Master of Business Administration degree from Harvard Business
School where he focused on marketing and general management. Marcy is married and has three children. His active
interest in the outdoors makes him right at home in Colorado, and the members of the Marcy
family all share a passion for skiing. He is also an avid sports fan, both as participant
and as spectator. CEOCFOinterviews: Mr.
Marcy, when did you join Horizon Organic and what attracted you? Mr. Marcy: “I
joined Horizon Organic in the autumn of 1999. The company had done an excellent job of
generating significant, consistent growth since its startup 1991. It was founded by two
gentlemen that believe passionately in the superiority of organic agriculture and that it
was better for the environment to produce foods that are healthier for human consumption.
It had grown to $85 million dollars in sales in 1999. What attracted me to Horizon Organic
was the growing evidence of increased consumer interest in organic foods and because what
Horizon Organic was doing was so consistent and so responsive to that growing consumer
trend, the business was poised to have significant future growth. CEOCFOinterviews: Is there still work to be done in that area? Mr. Marcy: “I would say that like many things, it is always a work in progress. We have made tremendous progress on improving productivity and reducing cost. As we continue to grow, we will continue to benefit from larger scale and be able to generate improved gross margins and operating margins by driving costs further out of the system. We have several initiatives in place today that we’re executing - particularly in the logistics area - that will help us drive out costs as we continue to grow the top-line.” CEOCFOinterviews: What is the industry like in general? Mr. Marcy: “The
organic food industry has grown to be over eleven billion dollars in sales in the year
2002. It has been growing in this country at a 22% compound annual growth rate since 1996;
that growth rate is projected by Datamonitor to continue at about the same rate through
2007. The industry is growing very rapidly and in a recent study it was found that 63% of
consumers believe organic foods are healthier. As we make the products more broadly
available, consumers are trying them and integrating them into their diets. The industry
is growing very quickly and Horizon Organic is now America’s leading organic food
brand. CEOCFOinterviews: How important is the name Horizon Organic? Mr. Marcy: “It is probably the single most important asset of our company. When the company was formed, the founders created not only a strong brand but an icon in our happy cow logo, that consumers view as fun, upbeat, positive; kids love it and are very responsive to it. Despite the fact that it is a cow, it is viewed by consumers as very appropriate even on products like our line of 100% organic juices, and our line of organic eggs. We can build our distribution and our existing product lines, and also extend into new product lines that may not include dairy as an ingredient.” CEOCFOinterviews: What happens behind the scenes; do you own the farms or have farmers that sell to you? Mr. Marcy: “When
the company was growing in the early stages, there was a real dearth of organic milk, so
the company started up a couple of farming organizations. Today, as the supply of organic
milk is more readily available, we are in the process of selling one of the two farms we
currently own and operate. We work with independent suppliers scattered throughout the
country. Currently there are about 200 suppliers, and we have another 90 or so in
transition. These are independent dairy producers that have converted from conventional
dairy production to organic. One of the terrific things about this is, because we pay a
premium over conventional and the economics of the conventional farm business are not good
today, we have helped many small farmers stay in the dairy production business. CEOCFOinterviews: How do you maintain quality? Mr. Marcy: “Organic quality is preserved by the certification system that is uniform nationally as of the USDA’s implementation of the organic standards last year. At each stage of the process, the dairy producer, and the processor is certified by a USDA government agency and they have to maintain a certain organic protocol. That protocol is spot checked periodically by not just the certifier but by us as well. We are looking at a process that is certified throughout the system, where specific protocols are in place. That is monitored on a regular basis. All that is important because it gives consumers the confidence that when they spend a premium for an organic product, they are getting something that is truly organic and meets these high standards.” CEOCFOinterviews: Will you tell us about the organic infant formula that you came out with? Mr. Marcy: “We will
be introducing the first USDA certified organic infant formula to the western states in
September of this year. This product was developed by an independent infant formula expert
who had been involved in the industry for several years. The formula meets all the FDA
requirements for complete infant nutrition. We have signed an exclusive agreement to
produce the organic version of this formula beginning this year. Interestingly we have the
only USDA certified organic source of lactose that is currently being produced in this
country. None of the lactose produced outside of this country meets USDA current national
organic standards. To the best of our knowledge, there is no other source of supply, so we
have a significant competitive advantage as we build up supply for this product. This is a
terrific new option for mothers who choose to use infant formula. CEOCFOinterviews: What other new products might you be working on and how do you decide on the products of which you would like to work? Mr. Marcy: “Our goal is to provide consumers with a high quality organic option. We look at the options in the dairy case and options outside the dairy case. What we are trying to do is meet an unmet consumer need. Our first priority is to look at categories where there is no organic alternative. Last year we introduced a line of refrigerated puddings and a refrigerated fruit jel product that is like a Jell-O product but without gelatin to make it vegetarian. There are no organic options in that category and it is a sizeable category. Earlier last year, we introduced single-serve flavored milk because there was no organic single serve flavored milk option and that is a growing category in the milk business. We are constantly looking for new areas where we can bring something new and unique to the consumer.” CEOCFOinterviews: Where are you selling your products? Mr. Marcy: “We have been significantly expanding our distribution over the past few years, which is probably one of the big changes since I joined the company. When I joined the company, we were in a third of conventional grocery stores, today we are in over 60% of conventional grocery stores with our milk. Our dairy products are also sold in a variety of grocery stores. We have for the past year-and-a-half, been selling Horizon Organic yogurt, and for a little less time than that, Horizon sold milk at Starbucks. We have distribution in 2,500 Starbucks stores in this country. In the first quarter, we began a new business relationship with COSTCO. We started out in ten stores and at the end of April we were in one hundred COSTCO stores. Also, we now have distribution in over 20% of Wal-Mart stores. We are doing a couple of school ala carte menus, so we are significantly expanding our distribution to a more mass-market availability so consumers can buy our products where they shop everyday.” CEOCFOinterviews: Is it still a fight for shelf space? Mr. Marcy: “There is always a limited amount of shelf space, especially when you are talking about the refrigerator section of conventional grocery stores or natural food stores. What we provide to a retailer is an option that for many of them isn’t even in their stores. They can take the second fastest selling sour cream or the third fastest selling cottage cheese from their conventional line and replace it with an organic product that is going to sell at a 30-50% premium; even on a the same percentage margins, they make 30-50% more dollar profit. Recognizing that organic foods are growing very quickly and recognizing that there is a premium revenue and margin opportunity, we found retailers very receptive to expanding our products. Perhaps one of the best examples of that is the relationship that we have with the Grover Company, in the eastern part of the country where we are in almost a thousand of their stores with over twenty products and our business is growing every quarter since we began distribution.” CEOCFOinterviews: Tell me about your geographical presence. Mr. Marcy: “In the
U.S., organic milk comprises on a national basis about 2% of the milk business. There are
pockets of significant strength where organics started sooner and there is broader
distribution; among those areas is the San Francisco/Oakland market where organic milk is
10% of the milk business. Both the New York and Denver market areas are about 6%, and Los
Angeles is about 4%. The good news is that as we expand our distribution around the
country, our business is growing rapidly. Right now some of our fastest growing
markets are in Texas, where our business has doubled in all the major metropolitan markets
in Texas in the last twelve months. The business is stronger where we have been doing
business longer, but it is growing rapidly in the rest of the country as well. We think
that the level of strength in these other areas gives us an indication of what the future
could be like in the next three to five years, which would be a turn for our current
stock. CEOCFOinterviews: Do you do much advertising? Mr. Marcy: “We do a lot of consumer communication in our customers vehicles. It might be our customers’ direct mail vehicles, our customers’ newspaper vehicles. Last year we did some print advertising, and the middle of last year and early this year we focused on public relations activity around the new USDA organic program and we believe that was very successful in helping to drive our business. We will be looking at print advertising alternatives again in the future.” CEOCFOinterviews: Do you see more acquisitions in the future? Mr. Marcy: “There are definitely opportunities for us to make acquisitions. The Horizon Organic brand name can be effective on many different product lines. We are constantly reviewing opportunities that are brought to us.” CEOCFOinterviews: You are the leader in your industry, but is there much competition and why are people choosing Horizon Organic? Mr. Marcy: “In the organic dairy business, we have two competitors on a broad scale basis; one is Organic Valley, which has a brand of milk and a variety of different dairy products. Another competitor is Stonyfield Farm, which has a line of yogurt. I think the primary reason that consumers choose Horizon Organic is because of the history of the company providing incredibly high quality products and the strength of the brand. The Horizon Organic happy cow brand has a positive upbeat and happy personality." CEOCFOinterviews: You have grown regardless of the downturn in the economy; do macro- economic events have much affect on Horizon Organic? Mr. Marcy: “In the
face of an economic downturn, the growth of our business has accelerated. One could
hypothesize that if the economy had been strong and we had done the national organic
standards implementation at the same time, our growth would have been even higher.
However, in the recent past, the national organic program was so significant that it
dwarfed everything else in terms of gaining consumer interest in maintaining business
growth. Another thing is that in most households consumers are choosing our products
because they believe that there is a health benefit and many believe that their kids
should have the benefit of dairy products made without growth hormones or antibiotics or
dangerous pesticides. CEOCFOinterviews: Why should potential investors be interested, and what should they know that they might not realize at first glance? Mr. Marcy: “We
think the most compelling reason to be interested in Horizon Organic, is because this is a
business which is on-trend. The organic food industry has grown over 20% annually for the
last five years and this growth is projected to continue. Our brand is benefiting from
that consumer momentum at least as much as the market and will probably benefit more
because of the strength of the brand. In addition, our company has demonstrated the
ability to perform on a consistent basis in terms of delivering meaningful earnings
growth. We believe we can grow the top-line 20-25% and grow the bottom-line in the high
teens to low twenties in 2003. That is a strong growth for the future, and we will build
our earnings performance and significant shareholder value. I would like to reiterate that the brand is the real power here, and the people behind the brand, the people in our company, are fervently committed to organic agriculture and frankly, have a lot of fun working here. We have a cow costume that we dress up in and take to events, and people love doing that. We brought the cow into a meeting and she had her picture taken with many of our shareholders. It is a fun place to be and it is a fun business to work in. There have to be some intangible benefits in terms of building value for shareholders, which I think are very meaningful.” disclaimers |
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