When Big Businesses Were Small

The Cheese Stands Alone

How Annie’s Homegrown exploded in size without destroying its wholesome, grassroots image.

Macaroni and cheese is the sneakers of food: basic, comfortable, customizable. If market leader Kraft is like Converse, mass-produced and reliable, then rival Annie’s Homegrown would be more like, say, TOMS Shoes: not exactly revolutionary in style, but made—and, as importantly, marketed—with a patina of social responsibility and anti-corporate folksiness. Kraft has a paragraph of chemical additives  on the back of its iconic boxes; Annie’s has faux-handwritten letters from founder Annie Withey herself, the company’s “Inspirational President.” Kraft has flavors like “Extreme Cheddar Explosion”; Annie’s has “Organic Peace Pasta & Parmesan,” in a tie-dye box. 

It’s easy to be cynical about companies like Annie’s. A one-cup serving of its classic “Natural Mac & Cheese” has more or less identical amounts of calories, saturated fat, sodium, and cholesterol as the old blue standby. (And who only eats a cup?) It trumpets its support for American family farms with three-minute movies on annies.com, full of wide-panning shots of dappled Montana fields and bearded farmers musing, “I never got into organics because I thought it would be better money. I got into organics because I thought it was better for the land.” It sends out press releases headlined “With a moo-moo here and moo-moo there, the benefits of small-scale dairy farming.” It has a “Chief Mom Officer.”

So how did Annie’s become such a behemoth, second only to Kraft in the boxed pasta market, with a reported net sales of $39 million in the first quarter of fiscal 2014 (up 14 percent over last year), and hugely successful ventures into the frozen pizza, cracker, salad dressing, and condiment markets? How did Bernie the Bunny, with his “Rabbit of Approval” seal, become the mascot of a $500 million-plus publicly traded empire? How can a brand that embodies “eating green” get away with selling what, when all is said and done, is just salty, sugary junk food?

Annie Withey, former English major and daughter of two schoolteacher parents, formulated her addictive white powder in her Boston kitchen in 1985. Her then-husband, Andrew Martin, and his partner Ken Meyers had invented a new kind of recloseable plastic bag they wanted to market. But what would fill it? Into a pot went some white cheddar cheese, whey, buttermilk, salt, and boom—enter Smartfood, the first upmarket popcorn to hit supermarket shelves. With its lack of additives, freshly popped crunch, and demure ecru hue, it was an instant smash, with just a hint of smugness in the name and a chic black bag. It was stoner food for people who’d likely use carob in the brownies they baked in Williams-Sonoma pans, and a good after-school snack for their kids. Four years later, Frito-Lay gobbled up Smartfood Inc. for a reported $15 million, and Annie took her profits and went back to her kitchen.

If Smartfood caught the tenor of the 1980s by calling itself “premium,” by the ’90s such upwardly mobile marketing seemed decadent. “Socially responsible” consumerism became all the rage. In 1990, Earth Day celebrated its 20th anniversary by collecting 2 tons of trash from the slopes of Mount Everest (and by clogging up landfills with the instantly and properly forgotten “Tomorrow’s World” single). The following year, Lollapalooza filled fields nationwide not just with amazing bands, but stalls selling hemp products and Greenpeace donation booths, acculturating a generation to the idea of voting their ethics with their wallets. In 1992 Whole Foods went public; five years later it launched its own product line. According to the Georgia Institute of Technology, 1993 marked the first year that more paper was recycled than dumped into landfills.

Withey, meanwhile, had discovered that her cheese powder tasted as good on pasta as it did on popcorn, and Annie’s Homegrown was founded in 1989. At first she differentiated her product by what it didn’t have: no additives, no preservatives, coloring made from annatto instead of in a test tube. While a bowl of starch and fat is hardly healthy, Annie’s at least was healthier than other bowls of starch and fat, with vague and largely meaningless words like “natural” used to describe the contents. Customers took an instant liking to comfort food that appeared to comfort their conscience. New flavors like Alfredo and Whole Wheat succeeded, too, even at price points well above Kraft’s.

But how to scale up? So much of Annie’s appeal was its ethical flavor. Buying the bunny meant supporting small farmers, and macaroni and cheese became an act of subversion—sticking a fork into pasta was sticking it to The Man! Keeping this public-minded spirit while still going public and cashing in presented a challenge, but in 1994, Annie’s Homegrown hit upon the answer: make customers into stockholders, too. Annie tucked notices of the direct public offering alongside the sauce packets and shells in all the bunny’s boxes. (The company also took out an ad in liberal bible Mother Jones.) It was a brilliant idea, reframing the idea of “selling out” as “buying in”—melding the gather-round-the-campfire collectivism of a local food co-op with the bottom-line-is-everything mindset of the modern conglomerate. 

The gambit worked: DPO expenses ran about $250,000 and resulted in investment dollars of $3.35 million. The cash infusion meant that Annie’s Homegrown could grow its presence in mainstream supermarkets while still appearing alternative. And the company has continued that balancing act over 20 subsequent years: Its 2012 IPO saw shares priced at $19 rising to $43.29 in a matter of days. From $7 million revenue in 1999, Annie’s sales swelled to $170 million last year. Investments from Solera Capital, a private equity firm notable for its majority of female employees, gave Annie’s the funds to ramp up its distribution, placing new organic pizzas and snacks at strip-mall mainstays like Target. 

As market share increased, so did the scope of Annie’s social commitments, from college scholarships to students studying sustainable agriculture to cradle-to-grave assessments of their products’ environmental impact. Meanwhile, other companies thrived by offering an Annie’s-like patina of healthy-and-sustainable values. Withey’s brand now shares supermarket aisle space with eco-safe beauty balms from Burt’s Bees (which became a subsidiary of Clorox in 2007) and “safe synthetic” cleaners by Mrs. Meyers (part of S.C. Johnson since 2008).

Products from Annie’s, Burt’s Bees, and Mrs. Meyers can only “fall into the category of ‘less bad,’” says Melanie Warner, author of Pandora’s Lunchbox: How Processed Food Took Over the American Meal. “They can’t be considered healthy or wholesome.” Nor could their branding—the bunny logo, the peace-sign-shaped pasta—ever be mistaken for cool. But Annie’s isn’t booming because its options are easier, or healthier, or more affordable, or cooler than staid old Kraft and the rest. Annie’s is booming because it’s selling ethics. The bunny has proved that principles sell, even if they’re cheesy.