by Marc Gunther
January 4 2008: 1:46 PM EST
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Stonyfield stirs up the yogurt market

It began with two friends and seven cows, but today Stonyfield's organic is the third largest yogurt company in the United States - and the big food firms are playing catch-up.

By Marc Gunther, senior writer

Stonyfield CEO Gary Hirshberg turned his tiny company into the number 3 yogurt maker in the U.S.
Stonyfield's organic lineup will soon face competition from major supermarket chains.

LONDONDERRY, N.H. -- Twenty-five years ago, on a visit to Disney's Epcot Center with his mother, a young environmental activist named Gary Hirshberg came across an exhibit on farming sponsored by Kraft. He was appalled by the display of chemical fertilizers and pesticides - "chemistry gone mad," he calls it - and vowed to find a way to produce food more sustainably.

Today, Hirshberg is president and "CE-Yo" of Stonyfield Farm, the world's largest manufacturer of organic yogurt. Now majority-owned by the French food giant Group Danone (GDNNY), Stonyfield generated about $300 million in revenues last year. Its yogurt is the No. 3 brand in the United States, behind Yoplait and Stonyfield's sister brand Dannon.

It's quite a growth story for a company that began in 1983 with the families of Hirshberg and his friend, Samuel Kaymen, milking seven cows on a farm in Wilton, New Hampshire. Hirshberg, who is now 53, says that Stonyfield has lots more growth ahead, as does the organic food business, which accounts for about 3 percent of the U.S. food industry sales.

"I think it's clear that organics are going to be 10 percent," Hirshberg says. "I actually think it's going to be 50 percent in my lifetime. Farmers make more money with organics. Retailers do better. Biologists are now linking cancers to agricultural chemicals, and the average schoolchild now knows that we are what we eat. I think we are on the cusp of a revolution." Maybe, although there's lots of debate (which we won't engage in now) about whether eating organic food is actually better for your health.

I went to see Hirshberg at Stonyfield's headquarters, because he has written a new book, called "Stirring It Up: How to Make Money and Save the World" (Hyperion, $24.95). It's a lively story of how this ex-hippie, windmill builder and anti-nuclear protestor became a passionate capitalist and CEO of a company with an ethic and business model that is unabashedly about promoting change.

Stonyfield was a green company before going green was cool. The company has worked for years to reduce its energy consumption and packaging, and it has been buying credits to offset its greenhouse gas emissions since 1997. Its factory roof has the largest array of solar panels in New Hampshire. Stonyfield gives 10 percent of its annual profits to environmental groups, and its yogurt lids promote environmental causes ("In the time it takes to eat this yogurt, ten acres of U.S. farmland will be lost to development") and groups.

Going a step further, Stonyfield and Hirshberg last year started Climate Counts, a nonprofit that rates other companies on their climate change policies and practices.

Making this corporate activism possible is an unorthodox business model. As Hirshberg explains it, Stonyfield pays more for organic ingredients, supports family farmers and helps conventional farmers become organic, an expensive process. It has been buffeted by the rising cost of organic milk, which today sells for about $23 per hundredweight (about 12 gallons), up from about $18 five years ago. "The heart of this business model is that we don't cheapen the product on the supply end," Hirshberg says.

The company remains profitable by spending less on advertising than competitors and charging more for its yogurt. Stonyfield spends only about 3 to 6 percent of its revenues on paid media, less than half of the industry average, according to Hirshberg. And my neighborhood supermarket this week sold a six-ounce container of Stonyfield's fruit-on-the-bottom non-fat blueberry organic yogurt for 89 cents. Yoplait's conventional fat-free blueberry was on a special sale for 60 cents.

Why do Stonyfield customers pay more? Hirshberg argues that they buy into the company's environmental values. "We concentrate on building an emotional relationship with the consumer," he says. "That's where the loyalty comes from."

Their loyalty will be tested as the organic yogurt section of the supermarket gets more crowded. Safeway (SWY, Fortune 500), Kroger (KR, Fortune 500) and Wegman's supermarkets are all rolling out store-brand, private-label organic yogurt. That's the latest sign that big food companies want to ride the organic wave. General Mills (GIS, Fortune 500) has owned the Cascadian Farms organic brand since 2000, and Kellogg now produces organic Rice Krispies and Raisin Bran.

Recently, Hirshberg's sister brought him a package of Kraft Singles Organic American Slices. It isn't technically cheese - the label calls its a "pasteurized, processed cheese product" - and it's just one of the 31 varieties of Kraft (KFT) Singles.

Even so, Hirshberg was thrilled. "I was trying to become Kraft," he says. "Now Kraft is becoming us. You couldn't write it as a move script."  To top of page