The soy milk man's second act

He put Silk on the shelves everywhere from Starbucks to Wal-Mart. Next up: an organic probiotic fruit juice.

By Matthew Boyle, Fortune writer

(Fortune) -- The entrepreneur who brought soy to the masses is back -- and this time he's selling bacteria.

Hoping to ride one of the food industry's hottest trends, Steve Demos, the eccentric founder of White Wave, whose Silk soy milk is now found everywhere from Wal-Mart (Charts, Fortune 500) to Starbucks (Charts, Fortune 500), will debut Goodbelly, his latest product, at the Expo East natural foods show in Baltimore this weekend.

Goodbelly is an organic fruit juice containing a patented probiotic culture.

Probiotics are microorganisms that, studies show, can confer a health benefit on our bodies, counterbalancing the effects of a poor diet or stress. Nutritionists are increasingly recommending probiotics for digestive problems or to aid the immune system.

"There is a logic to the use of probiotics," says nutritionist Ed Blonz. "The positive potential of these foods and the beneficial organisms they contain are a good reason to include them in the diet."

Widely consumed in Asia and Europe, probiotic products are just starting to gain traction in mainstream American retail channels. Worldwide, sales of so-called "functional" yogurt products -- mostly probiotics -- total $15.9 billion dollars. But only about 5% of those sales are in the U.S., according to data tracker Euromonitor.

"Based on success abroad, there seems to be a lot of potential, but the category is very much in the early adopter phase here," says John Craven, publisher of the beverage industry newsletter BevNet.

Among the early adopters was Dannon, the American subsidiary of Groupe Danone of Paris, which made a big bet on probiotics last year with Activia, a yogurt containing a natural probiotic culture that battles constipation. While it certainly presented a marketing challenge -- the concept of "digestive transit" makes most people blanch -- Activia is now a $200 million brand in the U.S. and available in Wal-Mart.

Activia's success has inspired a probiotic procession of sorts. Among others, General Mills' (Charts, Fortune 500) Yoplait has launched YoPlus yogurt, Kraft (Charts) now has a probiotic-laden cheddar cheese, and Kellogg's (Charts, Fortune 500) Kashi last year launched a probiotic cereal.

Dannon, meanwhile, is already on its second probiotic launch, re-branding the Actimel yogurt drink that it already sells around the world as DanActive, and which claims to "strengthen your body's defenses."

"We are on the cusp of a major shift in the market for products with digestive health benefits," says Colleen Zammer, a food scientist formerly with beverage giant Diageo. "Probiotics are definitely for real," adds Scott Van Winkle, managing director at Canaccord Adams, who covers Whole Foods and other "healthy living" companies.

Demos wants to cash in on this emerging market with Goodbelly. The drink contains a probiotic called Lactobacillus plantarum 299V, which he has licensed from Probi, a Swedish biotech company. This particular bacterium has been around for over a decade and is currently found in the ProViva brand of products, made by Swedish dairy giant Skane to calm queasy stomachs and reduce gas in the intestines.

"In the European market, there is a huge amount of square footage dedicated to probiotic products [in stores], but in the U.S., it's almost like there is a vacuum," says Demos, who spoke to Fortune just hours after returning from a trek through the highlands of Papua New Guinea.

"We are convinced that this opportunity exists. There's an untapped market of aging people [in the U.S.] whom the marketers have dismissed. I'm an old geezer. My body is starting to talk to me and I don't like conversation."

Demos plans to pilot test Goodbelly in the natural food mecca of Boulder, and if that goes well, says he will take it national next year. But will probiotics play in Peoria?

"They told me soy wouldn't work in Peoria," counters Demos, who made his first batch of soy in a bathtub in the 1970s. Sales of soy milk were meager in the early years, but skyrocketed in the mid-1990s when Demos had the bright idea to put Silk in shelf-stable cartons.

Dean Foods (Charts, Fortune 500) of Dallas acquired White Wave in 2002 for over $200 million, a far cry from Demos's initial investment of $2,000. At one point Demos, a Buddhist, sued to keep Dean from taking his company over, then agreed to stay on as CEO of a $1.1 billion unit of Dean that included Silk, Horizon organic milk, and Hershey's chocolate milk.

When Demos left Dean in March 2005, he vowed to start another organic food company at some point. After circumnavigating the globe three times with his family, Demos says now is the time.

"To return to capitalism and to influence health once more time, and to get some benefit from it, is exciting," says Demos, who believes his new venture, which he's self-funding, could be a billion-dollar entity over time.

That remains to be seen, but it will be fun watching to see if Demos can catch lightning in a bottle once again. Top of page