Balance Bar Company

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Balance Bar Company

1015 Mark Avenue
Carpinteria, California 93013
U.S.A.
Telephone: (805) 566-0234
Fax: (805) 566-0235
Web site: http://www.balance.com

Public Company
Incorporated: 1992 as Bio Foods Inc.
Employees: 80
Sales: $81.7 million (1998)
Stock Exchanges: NASDAQ
Ticker Symbol: BBAR
NAIC: 422480 Health Foods Wholesaling; 42249 Other Grocery and Related Product Wholesaling

Balance Bar Company is a leader in the nutritional foods and natural products industry. Natural products contain no artificial colors, flavors, chemicals, or preservatives. The firm develops and distributes popular lines of nutritional bars and drinks manufactured by another company. All Balance Bar products have 40 percent calories from carbohydrates, 30 percent from protein, and 30 percent from dietary fats. Competing firms also make products based on this controversial 40-30-30 Zone Diet, popularized by a 1995 best-selling book that recommended it as a way to lose weight. The firm distributes its products mainly through health food stores but also sells them in grocery stores, health clubs, drugstores, and mass merchandisers. Like many other firms, Balance Bar Company appeals to busy professionals who may not have time for a balanced meal or may need a nutritious snack. In the late 1990s the company added more products and fortified them with vitamins and herbs. A number of celebrity trainers and athletes use or endorse the firm’s products. For example, the Los Angeles Lakers chose Balance Bar as the teams official bar.

Origins

The Balance Bar story begins with a California native named Barry Sears, who majored in chemistry at Occidental College in Los Angeles and then completed his Ph.D. in biochemistry at Indiana University. He continued his study of nutrition at Boston University and Massachusetts Institute of Technology. After his 53-year-old father died in 1972 and Sears himself was hospitalized with a heart problem in 1984, he focused on the role of fats in heart disease.

By the late 1980s Sears adopted what was known as the Zone Diet that called for 40 percent of daily caloric intake from carbohydrates and 30 percent each from fats and proteins. Most doctors considered this controversial diet to have far more fat and protein than needed. It also was similar to earlier diets promoted in the 1960s and 1970s by Dr. Robert Atkins and others.

In any case, Barry Sears began teaching others his nutritional concepts. For example, Garret Giemont, the Los Angeles Rams’ former strength coach, in 1989 began encouraging team members to adopt Sears’s diet. The Los Angeles Raiders, the Stanford University’s men and women’s swimming teams, and other athletes and trainers also embraced the Zone Diet.

Meanwhile, Sears and various family members and associates became entangled in what could be called “bar wars” that resulted in the formation of different companies, including the predecessor of the Balance Bar Company. In 1989 Barry Sears’s sister Sheri fell in love with Bill Logue, a 55-year-old used car salesman who wanted to invest in her brother’s Biosyn bars made under his direction by a Canadian firm. In 1990 she moved to San Diego, where she and Logue ran a firm distributing Biosyn bars. Logue invested his life savings in his company and asked Barry Sears to guarantee an ongoing supply of the Biosyn bars, but Sears had other plans.

In the early 1990s Barry Sears began a business relationship with Dick Lamb, a Biosyn bars consumer who had been a windsurfing champion, an Olympic judge, and the founder of a Santa Barbara sporting-goods manufacturer. Their lawyers were drawing up a contract to start a new company when the deal fell apart, due in part to Sears’s past debt problems.

“In backing out of his deal with Lamb, Sears appears to have made a grievous business error,” wrote Jessica Seigel in the February 1997 Los Angeles Magazine. Lamb said that Sears had told him a patent was pending on the nutrition bars, but the lack of a patent allowed Lamb and his investors to contract directly with the Canadian manufacturer that controlled the formulas. Thus in 1992 Lamb, Tom Davidson, and two others founded Bio Foods Inc. in Santa Barbara, California, to distribute Balance Bars made by Bariatrix of Canada. Chairman Tom Davidson owned 45 percent of the firm, while Executive Vice-President Dick Lamb owned 11 percent.

Meanwhile, Sheri Sears and Bill Logue started their own company to sell a competing line of 40-30-30 nutrition bars. Based in San Diego, PR* Nutrition, Inc. employed 50 workers by early 1997 and in 1998 was acquired by Twinlab Corporation.

Barry Sears then worked out a deal to start another Balance Bar competitor. He teamed up in 1993 with New Hampshire businessman Matt Freese to form a company selling BioZone bars and other products using multilevel marketing.

Sears in June 1995 published his book The Zone about his controversial nutritional concepts. By the following June Sears’s book had sold over 400,000 hardcover copies, gone through 32 printings, and enjoyed 12 weeks on the New York Times bestseller list. About the same time, other authors published books advocating high levels of protein, including Protein Power by physicians Michael R. Eades and Mary Dan Eades and also a revised edition of Dr. Atkins Diet Revolution.

Expansion and New Challenges in the 1990s

In 1995 Bio Foods, marketer of Balance Bar products, named James Wolfe as its new chief executive officer, and two years later he became president. A Buffalo native, Wolfe graduated from the University of Buffalo with a B.S. in business administration and did graduate studies at New York University. He served as a senior manager at 7-Up Foods, Coca-Cola USA, and Welch’s, and from 1986 to 1995 was president of Wolfe Marketing, a consulting firm in Santa Barbara.

With many years in the food and beverage industry, Wolfe led Bio Foods as it introduced new products and expanded its distribution and marketing methods. In 1995 the firm’s Chocolate Balance Bar won the National Nutritional Foods Association’s “People’s Choice” Award, and the following year the company introduced Mocha, Cranberry, Banana Coconut, and Almond Brownie Balance Bar flavors. It also changed packaging of its Balance Bars.

In addition, in 1995 Bio Foods signed its first national natural foods distributor and by the following year had in place a number of nationwide natural foods brokers and distributors. In 1997 and 1998 the firm diversified its distribution by selling its products in grocery, convenience, drug, sports, club, and mass merchandising outlets. In 1997 the company increased its Balance Bar flavors from seven to ten and also introduced a new 40-30-30 product called Balance Drink Mix in five flavors in canister and single-serving options.

In 1998 Bio Foods changed its name to the Balance Bar Company as it became a public corporation with its shares under the BBAR ticker traded on the NASDAQ exchange. When the last episode of the popular TV sitcom Seinfeld aired, the company was prepared to capitalize on the marketing opportunity, reportedly spending almost ten percent of its ad budget at the time for a commercial designed to gain national prominence for its namesake brand.

The company in September 1998 added another product for consumers, again based on the 40-30-30 formula. The three flavors of the new Balance + Bars featured additional nutrients compared to the regular Balance Bars. Honey Peanut had ginseng; Yogurt Berry had Ginkgo biloba\ and the Chocolate Covered Banana Bars had rose hips and antioxidants.

Balance Bar Company in March 1999 introduced four flavors of a new nutritional beverage called Total Balance. With this product, the firm “entered the estimated $1 billion ready-to-drink nutritional category,” stated the firm’s summer 1999 newsletter. Fortified with 22 vitamins and minerals, Total Balance was available in 9.5 ounce cans in chocolate, mocha, strawberry, and vanilla flavors.

About the same time, Balance Bar launched a $15 million advertising campaign run by the Suissa Miller ad agency. The campaign, featuring TV, radio, and print ads, was started “soon after the company’s most popular bar, Balance Bar Honey Peanut, outsold the nearest competitor’s bar by $1 million, becoming the number 1 selling energy/nutrition bar in the country,” according to the summer 1999 newsletter.

In June 1999 the firm introduced its trademarked Balance Outdoor line of nutritional bars available in four flavors. A press release stated the Balance Outdoor Crunchy Peanut Bar had “50 percent more protein and 40 percent less sugar than the leading competitor,” the PowerBar Performance Peanut Butter flavored bar. CEO/President Jim Wolfe stated that “because the bars are uncoated, whether you are rock climbing in the desert sun or hiking through the forest, we have a product that will stand up to the elements and deliver great-tasting nutrition to keep you going.”

Key Dates:

1992:: Four entrepreneurs found Bio Foods Inc. in April.
1995:: First major wholesale customer is obtained; Barry Sears publishes The Zone.
1997:: Firm introduces Balance Drink Mix and begins expanding into grocery and other outlets.
1997:: TV advertising is started.
1998:: Inc. magazine ranks the firm as the nation’s 14th fastest growing private company; IPO is completed and company changes name to Balance Bar Company in June.
1999:: Health Supplement Retailer names Balance Bar as the “Best Selling Energy Bar” for the second year in a row.

As part of the firm’s introduction of Balance Outdoor Bars, it also announced a partnership with American Forests in which sales of the new bar would help support the Global ReLeaf campaign to plant trees in the USA. “Our consumers are environmentally conscious on both the local and national level,” said Jim Wolfe in his firm’s summer 1999 newsletter. “The efforts of the Global ReLeaf campaign extend to every part of the country … providing the ideal partner for Balance Bar Company to help preserve the great outdoors.”

In October 1999 the Balance Bar Company announced a new strategic alliance with Jenny Craig, Inc. to formulate and market five flavors of Jenny Craig diet bars intended mainly for women. In the fall/winter 1999 In Balance newsletter, the firm stated, “This is the first time a Jenny Craig product will be seen on retail shelves.”

In 1999 the three athletes of Team Balance Bar represented the company in a ten-event competition called the Hi-Tec Adventure Racing Series. The athletes won more races than any other team. This contest, which included kayaking, trail runs, and mountain biking, was good publicity for the firm, for it was shown on Fit TV, The Outdoor Life Network, and Fox Sports Net.

With the introduction of several new products and expanded distribution outlets, Balance Bar’s sales increased rapidly. From $1.3 million sales in 1995, the firm’s sales grew to $10.5 million in 1996, $39.6 million in 1997, and $81.7 million in 1998. Balance Bar in 1998 recorded net income of $5.2 million, a 213 percent increase from 1997. The firm gained about 40 percent of its 1998 sales from natural foods distributors and retailers, and customers in the United States accounted for about 98 percent of its sales.

The growing popularity of Balance Bar products was documented by ACNielsen ScanTrack and SPINS NaturalTrack. For example, they found that in 1997 Honey Peanut Balance Bar was the best-selling bar in grocery stores, and in 1998 the firm’s products gained the number one market share in mass merchandising outlets.

The firm’s growth was accompanied by various legal challenges. For example, in 1997 Barbara and Joseph Flanagan sued both the manufacturer and distributor of Balance Bars for not listing peanuts on the wrapper. The Flanagans believed peanuts in a Balance Bar caused their son to die from an allergic reaction. Because of this case, the U.S. Food and Drug Administration started a thorough investigation of Balance Bars. However, the FDA’s compliance officer in Irvine, California, said her agency found no evidence of any nuts in the various Balance Bar flavors.

Rival firm PowerBar asked the National Advertising Division (NAD) of the Council of Better Business Bureaus to investigate the accuracy of ads promoting Balance Bars. After examining Balance Bar endorsements, American Heart Association statements, FDA regulations, the company’s consumer surveys, and medical studies, the NAD in February 1998 concluded that the Balance Bar ads generally were “substantiated, but the NAD suggested it lacked ‘sufficient testing, scientific/medical support and research to support’ certain performance claims, weight-loss claims, and taste claims,” according to the April 1998 Consumers’ Research Magazine. Balance Bar disagreed with the NAD report but voluntarily modified the challenged advertising.

As the century ended, Balance Bar Company enjoyed considerable consumer demand for its nutritional bars and drinks. However, in 1999 its stock price slumped, in part from stiff competition from many companies. Its main competitor was PowerBar Inc. based in Berkeley, California. The 1990s saw the entry of numerous firms into the energy bar and drink industry, so hungry consumers enjoyed numerous choices at grocery stores or health food stores or other outlets. Some shoppers spent the time to compare ingredients, but others selected items on just flavor and price. Some bought similar items through multilevel marketing and thus avoided stores altogether. In any case, this intense competition indicated that the Balance Bar Company needed to be quite innovative to remain successful in the 21st century.

Principal Competitors

PowerBar Inc.; PR* Nutrition, Inc.; Clif Bar Inc.; The ProZone Company; BioZone; Weider Nutrition International; Abbott Labs; Mannatech; Met-Rx Engineered Nutrition; NSA International; Rexall Sundown; Slim-Fast; Worldwide Sport Nutritional Supplements; Odwalla.