As inflation grows, supply chain challenges mount and some consumer interest wanes, how can a company that focuses on the plant-based sector perform well?
SunOpta CEO Joe Ennen believes he has the answer: execution.
Its most recent earnings report shows SunOpta has been winning the execution game. The company, which is focused on plant-based milks and frozen organic fruit, saw its highest profitability ever in the last quarter. Revenues were up 20.4% compared to a year ago, coming in at $243.5 million. The company’s plant-based sector saw 31% growth in a year. And 95% of the company’s cost increases due to inflation were covered.
SunOpta has been operating in the same economic climate as other companies in the food business, many of which have seen bumpier results as of late. Ennen said it has been able to weather it well because of the company’s dedication to its strategic plan. “GSD,” an acronym for “get stuff done” — “Or get a different S word done, if you’re so inclined,” Ennen said — is all over SunOpta’s computer screensavers, meeting agendas and company T-shirts, he said.
“When we’re faced with adversity, we have a group of people who roll up their sleeves and figure out how to fix it,” Ennen said.
SunOpta’s recent success seems to buck industry trends. The company has been able to upgrade its capacity and has more expansions on the way. It opened a new innovation center this spring. And it’s used the recent acquisition of legacy plant-based milk brands Dream and West Soy to diversify its portfolio and help it prepare for whatever economic bumps lay ahead, Ennen said.
“We think it’s part and parcel to being nimble and evolving and changing with the consumer,” Ennen said.
Continued growth in plant-based milk
SunOpta was founded as a sustainability company in 1973, and didn’t get into the food business until 1999. Ennen, who joined as CEO in 2019, said at an Investor Day event in June that SunOpta was previously run much like a holding company, with a wealth of different businesses underneath it.
When Ennen took over, he reorganized the company’s portfolio with a new focus on execution. SunOpta sold its organic soy and corn business and its global ingredients division, and honed in on plant-based beverages, broths, sunflower seeds, frozen organic fruit and fruit snacks. The plant-based category is its biggest business, worth about 60% of revenues.
Today, SunOpta is a manufacturer of oat, soy, rice, coconut, almond and hemp milk, both under its own brands, as a co-manufacturer for CPG companies, and for private label brands.
Part of the reason SunOpta has done well is it’s found a successful niche: plant-based beverages. While recent earnings reports from other companies might give the appearance that the sector is no longer growing, Ennen said SunOpta disproves that. After all, 31% growth in one quarter doesn’t look like a slowdown, he said. To be sure, he said, plant-based milk is a category that has been growing for 40 years — and it’s seen steady double-digit growth since the mid-2000s.
There are fundamental reasons that plant-based milk continues to grow, Ennen said. Consumers consider it a healthier option. More than a third of people in the U.S. are likely lactose intolerant, according to researchers. And, Ennen said, consumers see it as an easy sustainable choice they can make.
“Not everybody can afford to buy a Tesla, but everybody can afford to buy a carton of oat milk,” he said.
Studies show that consumers have their eyes on more plant-based dairy alternatives. Four in 10 U.S. adults said they have decreased their dairy consumption during the last six months, according to a recent survey done by Toluna. About a third of respondents plan to increase their consumption of dairy alternatives in the next three months — nearly the same amount that say they plan to reduce how many dairy products they eat.
SunOpta’s focus on execution — and specifically the people who make it happen, Ennen said — has been key to the company’s success. It has been able to retain employees by building a company that people are motivated to work for, he said. Plant-based milk uses less land and water and creates less air and land pollution than its dairy equivalent, and Ennen said manufacturing facilities display the company’s real time ticker, showing employees how much water they are saving by producing the beverages.
“We’re a company that’s committed to sustainability,” Ennen said. “I think, especially with today’s generation, [people] want to be a part of something and feel like the company they work for is making a difference.”
While other big CPG companies are preparing for the possibility of the current economic downturn continuing, Ennen said there’s not much more that SunOpta needs to do.
“If the consumer shifts from foodservice to retail, we’re poised to win,” Ennen said. “If the consumer shifts from brands to private label, we’re poised to win. If they continue to shift towards oat milk. we’re poised to win. That’s one of the things that we’ve really done, is try to build a portfolio that is pliable and is oriented to us winning, no matter what’s happening in the marketplace.”
In an analyst’s report published after SunOpta’s most recent earnings, Cowen named the company as its top pick in the food sector. The firm said investors should have confidence in the company’s ability to meet its aggressive growth goals.
“SunOpta demonstrated best in class execution and pricing power, both of which have largely gone under the radar with investors,” the report said.
“Not everybody can afford to buy a Tesla, but everybody can afford to buy a carton of oat milk.”
Ennen doesn’t see consumers completely dropping plant-based milk from their shopping lists. Because health benefits are the primary purchase driver, he believes that the products have a more essential value to consumers. People are unlikely to switch to a product they believe to be less healthy just to save a little bit of money, he said.
The company was able to get through inflationary issues so far this year by having frank conversations with everyone from suppliers to retailers to customers as soon as problems popped up on the horizon, Ennen said. SunOpta tends to run at thin margins, he said, and the company doesn’t have much pricing power on its own for co-manufactured products.
“Customers understood the pricing that we were taking,” Ennen said. “We were incredibly transparent, literally down to showing them invoices of ‘Here’s what we paid a year ago for this particular commodity. Here’s what we’re paying now.’ When you have that kind of long-term partnership with your customers, and you’re that transparent, it makes the conversations that much easier.”
Price increases driven by inflation were in the high single to low double digits, Ennen said. They were unique to each product, its ingredients and the pricing from the parent company. But most of SunOpta’s plant-based product volumes grew — especially oat-based products, according to the earnings report.
Ennen said that SunOpta is likely through all of its big price increases for the year, though more surgical increases may be necessary down the road.
As far as the plant-based business goes, Ennen said that SunOpta set a goal in 2020 to double its annual revenue from $400 million then to $800 million in revenue by 2025. So far this year, revenue from plant-based food and beverage is more than $281 million — more than $50 million greater than the first two quarters of 2021.
In order to do make such a dramatic increase in plant-based revenue, Ennen said, the company planned six major capital spending projects to increase manufacturing capacity. Four of them are completed, he said earlier this month. One of them — a line expansion at the Modesto, California, facility — is about a month and a half from being done.
The largest of the projects, a new plant in Midlothian, Texas, is slated to be complete in the next quarter, Ennen said. This facility, which will initially be 285,000 square feet, could be expanded to 400,000 square feet. Ennen said that both the company’s strategic planning and hard work on execution has helped keep the construction on schedule.
The Texas facility, Ennen said, serves two important purposes in terms of SunOpta’s strategic goals. It’s going to be the largest in the company’s network of plant-based beverage plants. But also, he said, it completes the “diamond” of SunOpta’s facilities that cover strategic points in the United States, with other facilities in California, Minnesota and Pennsylvania.
The Texas facility’s location will also give a big boost to SunOpta’s sustainability plans, Ennen said, since it will take 15 million trucking miles out of its supply chain in the South.
Although SunOpta already has the capacity, relationships, execution and plan to continue growth, Ennen said the company is still looking for M&A opportunities to help it get a deeper foothold in what he called “sustainability-oriented products and categories,” as well as value-added products. The more recent acquisitions of Dream and West Soy have paid off. SunOpta has rebranded both, turning Dream’s rice milk into creamier “Whole” and “2% Fat” blends more closely mimicking dairy milk. West Soy, which was recently rebranded as West Life, has become a high-protein smoothie blend. These brands have seen 40% growth margins, Ennen said.
The focus on growing and building a specific business is helping SunOpta grow quickly, Ennen said. The company plans to have $100 million in earnings before interest, taxes, depreciation and amortization by next year, and $150 million in EBITDA by 2025.
“We have a very clear plan that’s going to get us there and we’re going to be focused on executing that plan,” he said.