White Wave

views updated

White Wave

1990 N. 57^th Ct.
Boulder, Colorado 80301
Telephone: (303) 443-3470
Fax: (303) 443-3952
Web sites:www.whitewave.com; www.silkissoy.com

Private Company
Incorporated: 1977 Employees: 100 +
Sales: $85 million (2001)
NAIC: 311999 All Other Miscellaneous Food Manufacturing

White Wave has made a name for itself recently due to the success of its most popular product, the soy milk known as Silk. The soy foods company produces more than 40 products sold at 24,000 stores, including Silk, Silk yogurt, Silk creamers, tempeh, and tofu. Started by CEO Steve Demos in 1977, the company has grown to include more than 100 employees, seven production facilities, and $85 million in revenue. Silk was rated best-tasting soy milk by the American Taste Institute in June 1999. Today, White Wave commands more than 30 percent of the market share for tofu and has been the fastest-growing soy milk maker at the close of the twentieth century.

White Wave Begins With a Passion for Soy

Born in 1949, Steve Demos is a self-proclaimed hippie. In 1977, he had just returned from spending three years traveling through India and other parts of East Asia. He was in the middle of an eight-week meditation retreat in California, when he decided to start a tofu company for vegetarians and others who didn’t want to consume dairy products. Demos believed in the benefits of soy and was determined to make a quality tofu. He knew he wanted to be an entrepreneur; his penchant for healthy food and enthusiasm for soy foods led him to start White Wave in 1977 with $500 in startup capital. There was no IPO.

Demos made his tofu by hand in a bucket and delivered it to health-food stores in a red wagon. In the beginning, his company struggled, and the market for tofu didn’t grow substantially from one year to the next. “When I used to tell banks, I make tofu,’ they would apologize,” said Demos.

Until recently, soy was regarded as “hippie food.” It suffered from a health-food reputation that mainstream markets wouldn’t touch. The general public wasn’t yet aware of the health benefits of soy, and the quality of available tofu unfortunately lived up to its stereotype: bland, tasteless, and hard to work with. “Tofu is such a foreign product,” said Demos, “Consumers [in the United States] don’t know what to do with it. A block of white stuff floating in a salt water is not American.”

By the mid-1990s however, there was a growing trend toward healthy eating, and Demos was quick to pick up on the slowly increasing popularity of soy milk. In 1996, Demos led the main-streaming of soy milk with a move hailed as ingenious by food marketers: he began offering soy milk in milk-like cartons, and sold it in the refrigerated dairy case, right next to the cow’s milk.

Before Demos’ innovation, soy milk was found almost exclusively in health food stores or in health food sections at supermarkets. While there had been many varieties of non-dairy milks available (such as chocolate, vanilla, rice, and oat milks), all were packaged the same in brick-like aseptic cartons and set off from “regular” food on a warm shelf next to organic snack foods and fat-free salad dressings. White Wave was banking on the idea that it made sense to package soy milk like cow’s milk. White Wave’s goal was to bring soy milk to the mainstream table, and by presenting it next to the other milks, it would be easy for consumers to choose the Silk brand instead of their usual milk.

The move was a success from the start. Silk sales doubled every year since it debuted. In 1999, the Silk line accounted for about half of White Wave’s sales and was the fastest-growing non-dairy beverage in the industry, according to Spence Information Services.

Soy Makes a Big Entrance to Mainstream Cuisines

Demos’ desire to incorporate more soy into the diets of mainstream consumers came at a time when a major shift in food labeling occurred. Thanks to a change in the rules regarding food benefit claims, the soy market was about to really take off.

In 1998 the Food & Drug Administration made a landmark announcement that would provide the catalyst for increased soy consumption. Makers of soy products were allowed for the first time to promote soy as beneficial for one’s diet; they could state on product labels that soy can reduce heart disease. According to the FDA, those foods that contained soy may lower heart disease risk by reducing blood levels of total cholesterol and LDL (”bad”) cholesterol. Their studies concluded that 25 grams of soy a day could beneficially affect cholesterol levels. To be able to claim the soy product as cholesterol-reducing, the food had to contain at least 6.25 grams of soy. That requirement was no problem for White Wave because most its tofu and soy milk comfortably exceeded that number.

This ability to point out health benefits was pivotal to the success of soy products in the United States. The country was paying attention to heart-healthy and diet-improving foods. More Americans were considering themselves vegetarians or at least following a vegetarian diet part of the time. An Archer Daniels Midland survey found meatless entrees on the menus at 97 percent of colleges and universities. Sales of vegetarian foods had increased 37 percent over the past 5 years, according to American Demographics. Now that White Wave could promote its Silk as healthy, it could reach an even greater audience and increase awareness of soy consumption in general. And it did.

Their success was enough to make Dean Foods, Inc. take notice. Dean Foods was the maker of Dean Dip and Marie’s Dressing, among other well-known foods. In August of 1999 they bought a minority share of White Wave. While White Wave didn’t need an investor because of financial trouble, the company wanted some help in packaging and product distribution. The deal gave Dean Foods a 36 percent interest in White Wave with an option to buy the remaining shares in September 2002.

Get Your Soy with Silk

With the distribution and packaging problems solved, White Wave was ready to market its Silk soy milk to the mainstream public. The company had been focusing its advertising on health-food publications up to this point with relative success; with the popularity of soy milk soaring, it was time to aggressively introduce Silk to the rest of the world. Demo’s goal was to expand distribution to 10,000 stores by 2000 and to further “integrate natural soy products into the average American’s diet.”

They hired Carmichael Lynch Spong of Chicago to run their new ad campaign. Carmichael Lynch Spong decided to promote Silk as “fun and approachable,” in an attempt to shed the health-food image of soy milk. The goal was to make Silk a “contemporary” beverage for the public.

With a budget of more than $10 million, the company set to work creating ads that suggested ways to incorporate soy milk into one’s diet and targeted women aged 32-55. One ad featured chocolate cereal, intentionally choosing not to use a healthy cereal in order to create more of the “fun” image. Their tagline was “Get your soy with Silk.” The company placed ads in major magazines such as People, The Oprah Magazine, and Real Simple.

The ads worked; sales were up more than six times from the previous year in the first week the ads were rolled out. Radio ads in select cities soon followed. White Wave soon established itself as the fastest-growing soy foods manufacturer. In 2000 the company Generaled revenues of $80 million, compared to $8 million only 5 years before.

White Wave Files Complaint Against Dean Foods

A wrinkle in the Dean Foods-White Wave relationship occurred in June 2001 when White Wave filed suit against Dean Foods and Suiza Corp. over the two companies’ proposed $15 billion merger. The complaint, filed in the U.S. District Court in Denver, alleged the merger would cause a contract violation and irreparable harm to White Wave. Suiza, based in Dallas, made Sun Soy, a direct competitor to Silk. White Wave wanted to prevent complete control of its operations by Suiza.

According to a prior agreement, Dean Foods was prohibited from transferring their shares or interest to any company without giving White Wave the option to buy them first. White Wave also claims Suiza improperly induced the violation. The proposed merger between Suiza and Dean would transfer the 36 percent of White Wave stock owned by Dean to Suiza.

White Wave sought to stop any process that involved it shares. If Suiza gained them, they could control White Wave’s rights, elect members to the board, and have access to proprietary information. Demos said in a June 14 press release, “Our agreements with Dean Dip were specifically designed to prevent a direct competitor or ours, such as Suiza, from obtaining the control over our business that they will obtain in this merger. While we are not trying to disrupt the Suiza/Dean Foods merger, we will pursue all remedies necessary to make certain that our contractual rights and our shareholders’ interests are protected.”

Suiza vowed to fight the action, claiming the contract was interpreted incorrectly. In May 2001, the Justice department had issued a second request for information about the merger.

Company Perspectives:

“Our interest is in promoting the use of foods we consider the world better off with, rather than without.”

This quote from our president, Steve Demos, really sums up the philosophy of White Wave. As a company, we seek to creatively integrate healthy, natural, vegetarian foods into the American diet. That’s it. We’re not out to take over the world. We just want you to enjoy more soy. So relax.

New Products and Expansion

White Wave’s business wasn’t limited to just soy milk. By 2000 the company was also offering yogurt, tofu, tempeh, flavored baked tofus, and creamers. Besides the vanilla, plain, and chocolate varieties of Silk, two new flavors were added: mocha and chai. Since consumer response to the holiday offering of Silk Nog the year before was so positive, White Wave felt even more flavors of Silk would be welcome. In fact, their chocolate Silk had beaten Hershey’s chocolate milk (dairy milk) in a Good Housekeeping taste test earlier that year, an achievement especially welcome since in July it had to recall its Chocolate Silk because a batch may have contained dairy milk residue, to which some people are allergic.

At the end of the year White Wave introduced yet another product: Silk soy yogurt. White Wave yogurt had been on the market since 1994, but the company thought a whole new product was in order. They reformulated the taste, improved the packaging, and added 11 new flavors. In addition, each six-ounce cup contained half the daily allowance of calcium. The new formula won White Wave a Gold Medal Award of Excellence from the American Tasting Institute.

In the tofu side of business, new flavors of baked tofu were taking off as well; some examples included lemon pepper, tangy barbeque, oriental, Thai, and Mexican. White Wave also offered five varieties of tempeh, and four kinds of regular tofu as well.

Not only did the company expand its product line, but two new production facilities were in the works as well; one in New Jersey and the other in Utah, bringing production to seven different factories in the U.S.

Keeping the public aware and buying soy foods continued to be White Wave’s goal into the later half of 2001. Their web site not only included a bevy of information about soy consumption and benefits, but offered ways to cook tofu, incorporate it into a diet, and where to buy it. It even included a meal planner with suggestions and a shopping list function. The company liked to refer to itself as a “23-year startup,” and this self-identification continued to be the driving force behind its philosophy for success.

Principal Competitors

Hain Celestial; Suiza Foods; Tofutti Brands

Key Dates:

1977:: Steve Demos founds White Wave as a tofu manufacturer.
1996:: Silk brand of soy milk is introduced and marketed in the dairy case.
1999:: Dean Foods buys minority share of White Wave.
2000:: Silk yogurt and new flavors of Silk introduced; sales reach more than $80 million.
2001:: White Wave files complaint against Dean Foods and Suiza proposed merger.