An Interview with Kinnikinnick Foods CEO, Jerry Bigam

Jerry and Lynne Bigam were frequent customers of gluten-free bakery Kinnikinnick Foods, which was founded by Ted Wolff and Gudrun Von Selzam in the early 1990’s. As two of the company’s biggest fans, the Bigams bought into it in 1997 with a fervent desire to make Kinnikinnick’s gluten-free products available to a wider audience. Today, the Bigams are full owners, and the company has expanded from a small storefront, and e-commerce sales, into major distribution across the USA and Canada. Today, you can find their widely sought-after cookies, breads, and treats in grocery stores almost everywhere! But what continually makes Kinnikinnick stand out is their family-owned business philosophy which focuses on providing high-quality foods to people with special dietary needs.

In this interview, owner Jerry Bigam shares his experiences building the company.

When did Kinnikinnick start?

It was started in 1991 by my previous partners, Ted Wolff and Gudrun Von Selzam.   Ted wanted to start one the first gluten-free companies in North America because he was looking for something to do and Dick McLean, the brother of Colin McLean, happened to be celiac and Ted was selling the products at the farmers market as and Dick MacLean said to him, “You should really make some gluten-free food.” And that was kind of the start of the company. So that was in ’91, and Ted and Gudrun set up the first little shop on Whyte Avenue, and we used to buy product there, me and Lynne, my wife, who’s celiac. Ted knew of my background as an entrepreneur and business consultant and kept asking me if we could we set up a deal where we looked after marketing, and he did the production. Ted finally convinced me that I should join him, and in 1998 we became partners.

Were you always in this facility here?

No, It started on Whyte Avenue, in a little store that you could park a bicycle in front, and that was it. That was 82 Ave and 99 street right next to CIBC. And then it moved over to 76 Avenue and 99 street, and that’s when I joined. And that was a 3,000 square foot facility, a store and a little bit of production space. And then we moved across from the Sidetrack which was 8,000 square feet – we shared space there and then we took over the rest and made it 15,000 square feet, and outgrew that before we moved here in 2000. So, it was really a very tiny company when I joined them in ’98. Very small sales. And of course, then we developed the internet food business which was the first in North America which was a unique deal. That all took place in the space of three or four years. It’s been 26 years from 1991 –  from farmer’s market to this is 26 years.

Describe what you mean by the internet food business.

We bought 50% of the company in ’98, and it just happened that my son, Jay, was involved in the internet. He was doing a product for musicians which would have become like Napster but was a way for independent musicians to get their music out there. You know, because they couldn’t get record contracts. He came to me the week that we bought the company we talked about it and he said, “You know about the Internet?” and I said, “No,” and he said, “I think that we could do something with sales on the Internet.” He set up the first website and then, of course, we had to develop logistics in terms of how to get product to people. How do you move it? It’s nice to have products, nice to have an internet, nice to advertise, but how do you get the product to people in Pennsylvania or anywhere else? That became the next step, to blend the logistics with the actual marketing. And I always remember when the crunch came and a whole bunch of companies collapsed, MSNBC had an article saying that the success stories, one was Lands’ End which did a really good job, one was J.C. Penney which did a really good job, and one was Kinnikinnick Foods.

No way! What year was that?

Well, the crash would have been probably 2001.

Okay, so Jay came to you with the idea in 1998?

Yeah, by 1999, we had a website and logistics resolved.

Let me nail down this timeline. So, Ted started the company in ’91 and then you came on board in 98, and then you bought 50% of the company.

And then we grew it until 2005, and then Ted wanted to retire and travel, and he had a young family, so I bought him out in 2005.

But you went on the internet very early on back in ’98. 

Yeah, there was nobody on the internet then, and selling perishable food on the Internet? Give me a break!

What kind of foods did you have at that time?

We had a couple of breads and we had an English muffin, which we still make to this day (it’s still a very popular product) and two or three cookies. That was it. But in those days, you couldn’t buy gluten-free food; it just wasn’t available. Having an internet presence that could deliver anywhere in North America overnight, and we started overnight, and the freight was 15 bucks a shipment, which was unheard of. How do you do that? And everybody complained about $15 shipments, so we cut it. We raised the product price and cut the freight to 10 bucks, and we’ve been running that program since 1998. Anywhere overnight, ten bucks.

And where do you ship now? 

We ship anywhere in North America.

And are there more intense regions of…

A couple times we took an overlay of where do we ship stuff? And put it over the population base, it was surprising how it was just like flat, like parallel. It was quite interesting. But, of course, that internet business it’s not as relevant to us now because it’s a very, very small part of our business. But what happened was people started asking stores where do you get this product, and stores started asking distributors, and distributors started phoning us, and the next thing you know, we’ve got distribution warehouses all over North America. Over time, it didn’t happen that quickly, but that’s effectively the model, which is kind of interesting because we’re trying to reinvent our internet business right now. Everybody in the food business is going web-based, well not everybody, but a lot of companies are. We kind of lost our leadership, if you want to call it that, and we’re trying to go back and see if we can reinvent the web business a bit more and add a little more strength to it and do different things with it – combine social media with a more active website and ordering program.

So the vast majority of your sales are being done through retail now, do you find the website is still helpful for creating buzz and engagement?

Yes, and new products. Lots of people can’t find things they want so they’ve got to buy it online. We use it supplement our current retail distribution. If you want donuts and you can’t buy donuts in your community, well you can always buy them online.

You told me a great story once, years ago, about the first time one lady got her donuts delivered overnight, and the donuts didn’t even make it 15 feet from the door before she had ate them.

I remember that. She phoned us to complain about how these donuts must have been contaminated because she didn’t feel well. Well of course, “How many donuts did you eat?” I asked, and she said, “I ate the whole package!” Nobody eats six donuts in a sitting, so I said, “You’ve got a sugar buzz.”  But anyway, we have lots of stories like that and it’s not uncommon to have that kind of overreaction to something like, “Oh man, these are so good, I haven’t tasted anything like this for 20 years.”

Yeah. Because they haven’t been even able to eat those classics. 

It’s not quite as much fun today as it was way back in those days. And those days, if I brought a new product to the market, it just got snapped up by the distributors and retailers. I always remember I put out a question to some of my key distributor companies, “What do you think about the following products?” and one of the products was perogies. We were looking at doing a gluten-free perogy and one of the buyers came back and said, “Don’t know what a perogy is, but if Kinnikinnick is going to make it, we’ll buy it.” Those were the good old days when it was really difficult to get good gluten-free food. At one time, we were the largest producer in North America. We had the number one brand in North America, and that has been, of course, superseded by all the private equity money that’s gone into the gluten-free industry in the last five or six years.

Where? Into private gluten-free manufacturers or bigger food conglomerates?

What happened was the industry was composed primarily of family-based companies. We are about the last one standing (maybe one or two others), and private equity has basically bought up all of the gluten-free companies in North America and in Europe as well. We’re one exception to that.

Did these gluten-free companies start up after Kinnikinnick or were they around before?

The largest company in North America is a company called Boulder Brands and they first bought Glutino. Glutino and Kinnikinnick were two family-based, Canadian companies that were competing with each other for years, and then private equity bought Glutino and then bought Udi’s, and then they bought three or four others, and the next thing you know, they’re putting huge amounts of money into marketing and doing a super job of growing the brand – they’re doing a flip job. The strategy worked perfectly well; they jammed the sales and kind of screwed up the market by excessive marketing programs and coupon programs and merchandising benefits.

So, the margins had been eroding because of the competition and going to traditional food marketing methods?

That’s right. And the objective of that was to ramp up the sales and flip the company, and they’ve been very successful at it – doing what you’ve got to do to get the sale – they bought shelf space to freeze us out. For example, they had special marketing programs which nobody could touch. They got a million followers on Facebook because they gave coupons to a million people and they gave out a million loaves of bread free, things like that. When you have deep pockets, you can do that.

How do you compete, out of Edmonton, with these multinationals that are now in the gluten-free business?

Well, that’s an interesting question, we do fairly well, we do quite well. Our growth rate’s 10-15%, maybe 20% a year, that’s not too bad.

Has it always been that way? 

Well when we were doing internet, of course, it was like 30, 40, 50% a year. For many years, it was exponential because we were one of the best-known brands in the marketplace. As more and more people entered the market and the numbers got bigger and bigger, of course, there’s a tendency to level off no matter what. But competition has been huge, and we missed the boat… when we were the largest in the industry, we got a little complacent and, in hindsight, one of the companies that became the leader in the industry did some technology improvement which was much better than ours.

Do you mean technology improvement in the recipe?

Yes, in the recipe. On the bread side, they came up with a much better product than we had, and all of a sudden it was, “Oh my goodness, what are we going to do here?”. Now in the cookie side, we’ve always been leaders. And the donuts, we own the market in donuts, but we ended up going through 18 months where we had to set up a new product development center, hire some new people, do all new formulations, and try to regain some of the market that we lost. Some of it we never regained, partly because at the same time they did that, new marketing expenditures came into place and so it was tough. We’ve had to be very, swift-footed, tactile in terms of picking good places to grow.

When you say good places to grow, you’re not talking geographically, you are talking product, right? Give me your thought process on how you would pick a good place to grow.

In terms of markets, in terms of products, we have a product development center, we have a marketing team, we have literally hundreds of consumers, thousands of consumers, who keep giving us feedback. We go to consumer shows, we talked to 40,000 to 50,000 consumers every year through these trade shows, so we get really good feedback about what the next best thing that we don’t have is that they’d like to see. And so that’s really a big focus of our business, new product development. We try to have at least three new products every six months and try to keep the brand fresh and innovative. And that’s how you compete with the big boys. They have a core business and they’re going to sit on that and they’re going to do it well, and it’s going to be tough to challenge that. We work around it. We often have success working within it too, but the bulk is to come up with a unique or better product. Or in some cases, the same product with different packaging. For example, our KinniKritters deal with Jim Davis’ and his comic strip character Garfield the cat. There are individual packages inside the box, so we’re just mounting a new program for the start of the school year where you’ve basically got an allergen-free, individual packaging to take to school and say these are gluten-free, dairy-free, nut-free.

Now the Garfield guys, they approached you, didn’t they? So have you licensed with them?

Yes, we licensed in North America and Europe for our cookies, for that particular product. We have new products coming out that will also be licensed in the same way. But that’s also a big incentive for us is that Jim Davis and the Garfield team is really an interesting bunch to deal with. Looking at healthy foods for kids they’re kind of focused in the same direction we are, it’s good to make money but it’s also good to make good products.

When Kinnikinnick first started there was just Ted and his wife at that time, right? So fast forward from 1991 to today, 2017, how many employees do you currently have? 

160 employees in two locations. And when I joined Ted we had six people. That was it.

How would you describe operating an innovative food business from Edmonton, Alberta? 

The best part? Well, actually, a couple of things. And it’s not just because it’s a food company, but it’s a food company that has some particular value to people. I mean it’s a really good value deal because the people who need our food have health issues, significant health issues, so the best part is all the feedback we get from people who email us and say “For my kid’s birthday, it was the first time she’s ever had this!” or “I have been looking for a product like this for five years, this is the best I’ve ever tasted!” or “Man, I tried your donuts, and I’m in heaven!” Things that you never get in a regular food company, who writes Weston Foods and tells them that they’ve got a good bread?

Do you attribute that to being a smaller company or operating out of Edmonton?

Neither one, it’s the value to the customers. Operating out of Edmonton is really difficult, no matter how you cut it. We have the worst logistics in North America for a company like ours. We supply everywhere in North America and we have 72 distribution centers, which we have to supply to each one of them. So, you can imagine the logistics of that. We’ve got six or seven different routes that go out every week and LTL shipments to all of them. It’s a very, very complicated business. And when you run into trucks into Pennsylvania it ain’t cheap, you know? So pricing, logistics, all this stuff, becomes very complicated.

Your primary competitors, where are they located?

Most of them are in Colorado. In Denver, Chicago, and Denver.

Is that a logistics hub?

To some extent –  it just happens that Denver is where the family company that was bought by the private equity boys were. But for some reason there are also two or three other gluten-free companies in Denver – it turned out to be a node for the gluten-free, and then Chicago is probably the other major center in the gluten-free set.

You have a very solid footprint now, and an established brand in gluten-free, it’s more than that though, isn’t it?

We’re just repositioning right now. As we speak, first drafts have come out and this is a huge change for us. Big, big questions about changing the logo, changing the approach, for moving from gluten-free to free-from – we think that, while gluten-free is the most recognized, there are as many people that are dairy-free as are gluten-free, peanut-free, and tree-nut free. There are many people in those categories and those are serious issues. I mean gluten and dairy make you sick, peanuts and tree nuts can kill you. So the standards in food safety are really critical meaning part of this process is wiping out soy as well.

What does that mean?

No more soy, in any products, because soy is an allergen. The only allergen we have is eggs, and we can’t get rid of eggs because we have eggs in too many products in the plant. Those cookies, for example, those KinniKritters, have no eggs in them, but the packaging still says “may contain eggs” because we use eggs in the plant, so cross-contamination is an issue. Basically, we are allergy-free except for eggs. So of the eight or nine allergens, we just have one remaining. Everything we make is going to be totally free-from except for eggs

Does that quadruple, quintuple your possible market size? 

Clearly, if you’re dairy intolerant and you walk into a store you’ve got the same issues as gluten intolerance, you’ve got to read labels, you’ve got to check into it, is there whey powder? Is there dairy? Is there cross-contamination? And with peanuts, it’s even worse. If the answer is yes, it should add to our market size. Instead of having let’s say one and a half to two percent of the gluten-free, you should have maybe 8, 9, 10 percent, which is a big chunk of the population that we’re targeting. We think it’s a good strategic move, even though the gluten-free is the big sector recognized. But now, in the last year or two years, the gluten-free “fad” has diminished, all the people that jumped on the bandwagon for the wrong reasons are jumping off. But it’s also all of the sports figures in Hollywood, people who jumped on the gluten-free bandwagon and started talking about gluten-free as weight loss, which is absolutely opposite to what it is. You go gluten-free if you’re celiac and you’ll gain weight. It’s a healthy diet, there’s nothing wrong with that, but a lot of people jumped on the bandwagon and growth in the last five years has come from these non-celiacs. It’s people that have found out that they are gluten intolerant which means they don’t have celiac disease, but they feel better if they go on a gluten-free diet. They get the same symptoms, in many cases, as celiac, but they don’t have the damage, the medical damage. So there’s a chunk of people out there that are estimated to be as high as 8 percent of the market that are gluten intolerant. That’s a big chunk when you’re talking 2 percent are celiac and you add the 8 percent for people that are gluten intolerant and some studies being done at the various gluten-free centers at the hospitals in the U.S. particularly, who confirmed that there is this chunk of people that are gluten intolerant and they should eat gluten-free.

I read a great book a few years back called The Discipline of Market Leaders and they actually broke up what makes a company great into three categories and they follow a certain value method and the value method’s themes are either product leadership, customer intimacy, or operational excellence. And it’s not that you can ignore one or the other, it’s the question of where you prioritize. Which one is your top priority?  

I suppose it would be product excellence that we certainly strive for and, combined as part of excellence, is food safety because in our business, food safety is number one. We have to have the highest level of food safety to protect all of our customers, and that, let me tell you, is a huge, huge challenge. It means that we have to monitor every ingredient that comes into our plant. We have to test it. We do literally hundreds of tests every week for all those allergens to make sure that we have protocols for different suppliers that they get more or less testing based on our experience and based on the kind of products. That’s a big deal. We strive to become the safest food source of free-from foods in the industry. Add to that, that you’ve got to innovate, you’ve got to be there, and you’ve got to have a good interaction with your customers.

Where do you see Kinnikinnick being in five years?

That’s a good question because there’s two trends that are out there that are difficult to deal with for smaller companies.  The first is consolidation in the retail industry, which is really a concern because if you lose a Loblaws or a Sobeys you take a major hit. The other issue of course is that all our major competitors are owned by multibillion dollar corporations, and that’s good and bad. The bad part is they get enormous sales and marketing strength, but they don’t necessarily do a great job of product innovation. They also get cumbersome and they also do stupid things, and discontinue things because they look at every product with a bottom line to it. And so that opens up opportunities as well as strict competition.

Private label is also a huge issue. We haven’t done any private label. We try to keep our brand as the first and foremost, but we’re getting more and more and more competition in private label. So the question of “Where are you going to be in five years?” is, to some extent, a function of how much money you can raise to do these kinds of things and that means “What’s your business strategy?” which is something we wrestle with because in the last two years, three years at the most, literally the industry’s been bought by multi billion dollar companies like Mondelez, the Oreo cookie company. And we make Oreo cookies but they are gluten-free, dairy-free, nut free. The company that bought Boulder Brands is Pinnacle Foods, and they own a lot of other Brands.  You know they’re more than ten times the size of us now. But they paid an enormous price for a gluten-free asset, just under a billion dollars.  I don’t know how they’re ever going to make money on it, but they can do that. It comes down to having to make some choices over the coming couple of years. I can produce a hundred million bucks worth of product within our plants in Edmonton, and our challenge is how close can we get to that? What do we have to do to achieve that kind of a deal? It could be a challenge. We won’t be at a 100 million in three years, but in five years we should be.