Organic Consumers Association

Horizon Organic, Now Dean Foods, Downplays Difference Between Organic & Conventional

The Washington Post

July 26, 2003

Growing, Naturally; Organic Foods Get Into the Mainstream

By: Margaret Webb Pressler

Many shoppers already equate organic milk, juice and eggs with the distinctive cartoon cow used by Horizon Organic, one of the nation's largest organic food producers. The company has large stretches of shelf space in natural foods supermarkets such as Whole Foods, and is quickly gaining a foothold in mainstream retailers as well, including Starbucks.

But if you're not familiar with the company -- or Happy the Cow -- you are about to get acquainted.

Colorado-based Horizon was purchased earlier this month for $ 216 million dollars by Dean Foods Co., the nation's largest milk producer, which already has direct links into thousands of the nation's supermarkets and other food outlets.

It's part of a recent effort by many traditional food companies to get into the organic business, either with their own products or by buying already-successful organic companies. Over the last four years, General Mills Inc. has acquired Cascadian Farms, French food giant Groupe Danone bought a stake in Stonyfield Farm, and H.J. Heinz Co. has invested in Hain Celestial Group Inc.

Though organic sales total about $ 13 billion a year -- less than 2 percent of the food market -- they have been growing at more than 20 percent a year. That demand, coupled with the movement by mainstream retailers to offer more organically made alternatives on their shelves, make it likely that organic products will become much more visible. And Horizon is poised to take advantage of the trend.

"Horizon Organic will be able to put its products into the Dean system, and the sales at Horizon will expand dramatically," said Scott Van Winkle, a specialty food and nutrition analyst for Boston-based Adams, Harkness & Hill, which has no investment banking relationships with either company.

Horizon was founded just 12 years ago with one product, organic nonfat yogurt. It then bought an organic farm in Idaho and a dairy farm near Annapolis, where it is holding an acoustic music festival this weekend. The main engine of its growth has been milk, which now accounts for 55 percent of its sales of more than $ 200 million.

There are still some significant barriers to growth for organic products, however, including their higher prices. A half-gallon of regular milk at a local supermarket might cost $ 1.89, compared with more than $ 3 for a half-gallon of Horizon Organic.

Some industry observers also say organic-product companies need to be careful with their marketing, ensuring that their message doesn't scare consumers about the nonorganic choices they make.

"People have way too much to worry about today," said Linda Gilbert, president of HealthFocus, an Atlanta food and nutrition consulting firm. "I wouldn't want my brand associated" with scare tactics.

Horizon's entry into the organic dairy products business has coincided with growing controversy about possible harmful side effects from the common practice of treating dairy cows with antibiotics and synthetic growth hormones, which boost milk production. The scientific community has reached no consensus about the use of these treatments, but some studies suggest there could be a link between the use of growth hormones and certain cancers, and between the use of antibiotics and drug-resistant strains of disease. Though the Department of Agriculture has approved the use of growth hormones and antibiotics in the dairy supply as safe to humans, many organic consumers are not convinced.

Parents tend to be especially attuned to such concerns, making families the backbone of Horizon's business.

"Our franchise skews to families with young kids," said Charles F. Marcy, Horizon's chief executive.

Now, Horizon is moving into some new product lines for kids too. Aiding the company in its efforts is Happy the Cow, which has always been the company's logo but also suits the sensibilities of young consumers. Among the new offerings are puddings, flavored gelatins, yogurt tubes and this fall, the first organically made baby formula.

"There's a big hole" in the infant formula market, Marcy said. "Customers are telling us we really need an organic alternative."

The trick, Health Focus's Gilbert said, is not impugning the quality of beloved traditional brands, which could create a backlash among consumers. People don't like to feel guilty or anxious about what they eat, she said.

Horizon's Marcy agreed that some organic companies hawk the message that "there are things in conventional products that can really hurt you." Horizon has tried to avoid that approach by using Happy the Cow to help create an "upbeat, fun" approach to marketing, he said. "It's made a serious product approachable."

At least, approachable to those who can afford it. Another major issue Horizon and other organic producers have to tackle is the price barrier to its products. Gilbert said her research shows that is a problem for shoppers because "they don't understand why it costs more."

Marcy said retailers tend to put the same markup on more expensive organic products that they do on traditional products, which makes them more profitable. Horizon Organic is trying to convince retailers to keep retail prices lower to spur volume.

That may be a tough sell, but industry experts still predict that prices will start coming down as more retailers stock organic products and industry giants like Dean Foods put Horizon Organic into more outlets. Already, Horizon is in the midst of a major deal to expand its products into Cosco's club stores nationally.

"I do think we're only seeing the beginning of this," Marcy said.

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