If you are a North American with celiac disease, you’ve heard of and likely depend on Kinnikinnick Foods, North America s largest producer of gluten-free foods. Kinnikinnick supplies products to 10,000 stores and hundreds of restaurants across North America, and is currently expanding into multiple overseas markets.
It s hard to believe that Kinnikinnick started in the late 1980s as a bakery kiosk at the Edmonton Farmers Market, and that their product line featured, as they themselves admit, some of the worst gluten-free products ever made (which is saying something).
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Then fast-forward through a decade and a half of perfecting recipes and multiple moves to bigger and better production spaces, and Kinnikinnick s success looks more predictable. By 2005, it was clear that its growing popularity meant they needed to expand their production capacity in a big way. Even operating on a double shift, their 30,000-square-foot facility couldn t keep up with increasing consumer demand.
When one of the largest cookie factories in North America closed down, Kinnikinnick snapped up the 120,000-square-foot facility.
You can imagine going from 30,000 to 150,000 square feet overnight, says Kinnikinnick president, Jerry Bigam. The acquisition made us the most sophisticated gluten-free manufacturer in North America.
The question, how did Kinnikinnick make the transition from a small company with the odds stacked against it to a sizable company with clear leadership in their sector? It s a transition that most small businesses can’t negotiate.
Here s what Kinnikinnick needed along the way:
1. The right product
It isn’t enough for your product to be good. There are lots of good products out there competing for the same consumer dollars. And, given that production costs are generally fairly high in Canada due to transportation and labour costs as well as high oil prices, getting the product right is even more essential.
If you re going to build a generic widget, you might as well build it somewhere like Chicago where production costs are lower, says Bigam. If you want to create your product here, you need to make a non-generic widget so it can survive in the marketplace.
There are many good Edmonton firms that make really good generic products, but every time oil prices go up and the Canadian dollar goes up, they get killed, he says. Having unique, differentiated products is absolutely essential to success.
Bigam recommends looking at market trends to determine what products are most likely to survive in today’s competitive marketplace. Big, commodity-based businesses are for the most part finished. We re not going to put another beef plant in this province. We re not going to build another malt plant, he says. The growth is really only coming from companies like ours. That s where industry has to go.
If you re looking to develop a business, you need to look at where to put your energy. You need to develop some leadership that hopefully buys you a position in the marketplace. And, you have to hope you build a market position before your competition jumps in and tries to knock you out.
The second essential element to ensure you have the right product for the market is research and development. Back in 1999, Kinnikinnick received $250,000 in R&D investment funding from an investment company called AVAC (see related story).
Of the four products developed out of this R&D, Bigam says, One product was a raving success, one was pretty good, the third was so-so, and the fourth didn t work too well.
Bigam believes that taking the time to develop new products that aligned well with market demand put Kinnikinnick into the leadership position that it still holds in the gluten-free market.
2. The right timing
For Bigam, timing is everything. Between 2000 and 2005, Kinnikinnick grew at a rate of about 30 to 60 per cent per year because no one else knew about the market, Bigam says. The phenomenal growth was based on the fact that the celiac market was expanding rapidly as doctors became increasingly knowledgeable about the disease and its diagnosis. (Today, a blood test can determine celiac disease with 95 per cent accuracy).
When we first got into this business, conventional wisdom was that one in 5,000 people had celiac disease. Today, they re saying that one in less than 150 people have it, says Bigam.
About five years ago, other food manufacturers began picking up on and creating products to suit the burgeoning celiac market. However, even with increased marketplace competition, Kinnikinnick remains well positioned for growth. Given that only about 15 per cent of celiacs are currently diagnosed, Bigam expects the market to grow at a rate of about 15 per cent per year for many years.
3. Innovative marketing
In 1998, Kinnikinnick became North America s very first company to provide perishable food over the Internet. This online ordering system, made possible by one of the earliest corporate websites, meant that customers from across North America could enjoy Kinnikinnick goods before their local stores carried the products.
All of a sudden, there were hundreds of people across North America who became our best sales people, Bigam says. They went into stores and told the managers how good the products were. Or they popped up on the web with their comments about new products or just how pleased they were to get decent gluten-free food.
Today, online ordering from corporate websites is commonplace. What is the next big trend in marketing? Companies designed for success, like Kinnikinnick, will certainly lead the rest of us into the next marketing trends.
4. A willingness to take risk
Every business book repeats it: if you build it, they will come. Still, growing from farmers market kiosk to North America s largest producer of gluten-free food took a very big vision, and a willingness to take on fairly large-scale risk.
We knew we were going to grow the business. Whether we thought it would grow as fast or as large as it is, I don t know, says Bigam.
It s like the mouse swallowing the elephant, Bigam says of Kinnikinnick s acquisition of the 120,000-square-foot cookie factory. It was a massive shift from small-scale conventional bakery to large-scale, automated production.
The new facility s 450-foot ovens are a far cry from the mid-scale (think grocery store bakery sized) ovens they d used in their existing plant. All of their products had to be re-engineered to accommodate the enormous machines of the new plant.
The willingness to adapt paid dividends. Up until the acquisition of the cookie factory, Kinnikinnick had to ration its markets. They didn t have enough production capacity to meet the market, so they also had to be cautious about building new customers. The acquisition of the new plant meant that, all of a sudden, they had all sorts of capacity and could aggressively go after new markets.
In addition to market growth, the sophisticated production equipment in the new plant allowed Kinnikinnick to expand their offerings into more complex products such as Oreo-style sandwich cookies. Because few competitors possess as sophisticated equipment, it remains very difficult for them to compete.
Many products we make are really difficult for competitors to produce, which certainly strengthens our leadership position in the market, says Bigam.
5. The grit to get through the tough times
In retrospect, the growth decisions Bigam made for Kinnikinnick appear rock solid. However, Bigam admits the period following the acquisition of the large-scale facility was a very difficult time.
The decontamination of the new facilities took eight months, during which time the clock kept ticking, says Bigam. And, while all indicators pointed towards high market demand and low competition, the purchase was a major investment that left Bigam with no choice but to produce large-scale returns.
Kinnikinnick was lucky. Most companies attempting significant growth suffer much more significant pain en route. As Ross Bricker, CEO of AVAC (the investment company that has helped finance Kinnikinnick s success), says, One thing we find with our companies, and with just about every success story, is that (the companies) have a near-death experience. It s almost a right of passage. It refines their focus.
