'Culture' Keeper: Stonyfield's Gary Hirshberg discusses the nature of his Danone deal 

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It would be hard to find a more appropriate keynote speaker than Gary Hirshberg for a conference whose theme is “Not Business as Usual.” The CEO of Stonyfield yogurt recently cut a deal that has no precedent in the business world: He sold a minority share — 40 percent — of his company to one of the biggest food multinationals in the world, keeping majority control for himself.

Why is that so special? Because when most small, or even much larger, companies need to pay off investors or otherwise raise large amounts of capital, they generally either go public or sell. And from the socially responsible point of view, that often means selling out — losing control and watching most or all of your social and environmental programs disappear.

Hirshberg had a different vision and stuck to it. The 47-year-old entrepreneur heads the largest organic yogurt company in the U.S. — the fourth-largest in the U.S. overall. Based in Londonderry, New Hampshire, and reporting annual sales of $90 million, Stonyfield Farm has converted dozens of dairy farmers to organic milk production — which improves the economics of their endeavors — and is rapidly converting consumers, too.

That’s why Hirshberg was equally persuasive with Group Danone, who wanted to enter the burgeoning U.S. organic yogurt market. He urged the $12.5 billion French food conglomerate — and owner of competitor Dannon yogurt — to help but not take over. Danone agreed — to the tune of more than $100 million, according to Fortune Small Business magazine.

The arrangement Hirshberg achieved is something Ben Cohen and Jerry Greenberg could only dream of — they lost control of the publicly held Ben & Jerry’s Homemade Inc. two years ago in a controversial $326 million sale to the international giant Unilever.

Despite Danone’s size — 84,000 employees worldwide — Hirshberg believes his much smaller company’s socially responsible mission will translate well into French: Stonyfield gives 10 percent of its profits to environmental causes, provides an optimal workplace and is a relentless champion of organic food. He contends, too, that his minority-share sale is a model for other companies who find themselves in similar financial situations.

While in the midst of his two-year negotiations with Group Danone, Hirshberg managed to hatch another entrepreneurial scheme, backed by an entirely separate group of investors: He opened the first link in what he expects to become a chain of natural fast-food restaurants. Burlington, in fact, is a target market for O’Naturals, which offers such healthy fare as flatbread sandwiches, Asian-style noodles, soups, salads and, of course, Stonyfield fruit and yogurt shakes.

Kids might miss the plastic toys and other gimmicks from the usual burger joints, but they’ve reportedly been eating up the mac and cheese, chicken nuggets and tortilla dogs at O’Naturals’ flagship restaurant in Falmouth, Maine. The place, which opened nearly a year ago, is posting daily revenues of $2000 to $3000, “roughly on par with the typical Burger King,” according to the business magazine Incubator.

That might seem like chump change compared to the $112 billion Americans spend on fast food annually, but it suggests that consumers are ready to eat what comes naturally if given the choice.

Meanwhile, Hirshberg already has a healthy relationship with the Green Mountain State: 65 percent of Stonyfield’s organic milk comes from Vermont. When he talks about “Saving an Active Culture” at the VBSR conference next month, it won’t just be about yogurt. Hirshberg shared his views and values in a phone interview with Seven Days.

Seven Days: The title of your keynote speech for the VBSR conference suggests it is possible to sell without selling out. Can you summarize for us your arrangement with Group Danone, and how you got there?

Gary Hirshberg: The background answer is that by 1998 I had nearly 300 investors — farmers, friends, family… A lot of folks had put in five or 10 thousand bucks and needed their money back. We needed to buy them out. Normally that’s by selling or taking the company public. The bottom line is, we didn’t want to do either, because, although it’s been 19 years, we see ourselves as having a long way to go.

Our mission is to convert farmers and consumers to organic, to educate consumers about that. We didn’t want to become part of a huge corporation. I engaged an investment banker to… [find] a company that would help us. The banker introduced us to all these companies, who all said, ‘We’re going to have to take control.’ Group Danone fairly early on showed a lot of vision, not only to our business in particular but to organic in general. We said, ‘You can never take control of the board.’ They were still willing to have the conversation.

SD: What were the biggest obstacles you faced in dealing with Group Danone?

GH: The biggest obstacle was that I was trying to have my cake and eat it too — I wanted both to help the investors and remain independent. I’m sort of pathologically independent. They’re the seventh-largest food company in the world and also quite bureaucratic. There were a lot of times I kind of freaked out and thought I wasn’t ready. I was really the biggest obstacle.

SD: What did Danone pay for its 40 percent share?

GH: I’m not at liberty to tell you that, but they really did want to do this deal and enter the organic world, so they paid a good amount to the investors. They made a lot of really good people a lot of money. In terms of social responsibility, this is a lot of money being recycled now… I have a friend who had inherited a small amount of money — in the hundred thousand range — and he made a lot more than that here. His mission is to invest in microenterprise and social justice firms. Now the guy’s full-time doing that.

SD: There weren’t any precedents for this type of arrangement in the business world?

GH: That’s an understatement. The woman at the head of the deal said, ‘You’ll never be able to get this approved, we’ve never even heard of anything like this.’ Life at Stonyfield has always been about doing what has never been done. We weren’t in any hurry, so we didn’t feel any pressure. I think there’s a lot of hope I got from this deal. Emerging companies can take hope that there is another way — you don’t have to just sell. You don’t have to exit, or necessarily give up anything. It’s a hopeful story made possible because we never compromised. I don’t think compromise is necessary. If you really believe in your value system and stick with it and are creative about how you bring those values to the marketplace, there are more options.

SD: Danone can acquire a majority share in 2004 and could buy the whole company in 2016. Doesn’t that mean they could ultimately undo what you’ve just achieved?

GH: That’s true. But only in the final stage. Even when they take an ownership position, I will still remain as board chair and have control over three of five members. They will leave me in total control and are legally obliged to do so. Only in 2016, or if I decide to leave sooner… I figure, if we haven’t proven ourselves by 2016, I haven’t done my job. We have always believed that these values are at the root of sound business practices, that they will make your connection to your consumer and your community stronger, will help to retain employees and so on.

Anybody who is serious about social responsibility… the rubber hits the road when you say, ‘Have you improved your balance sheet and market share and made it a stronger business?’ The only way the world’s social and environmental problems are going to be addressed is when business makes them a priority. There’s nothing more important than proving this hypothesis. So it’s fine to put the pressure on me — by 2016 I need to encode these values into the DNA of the company.

Danone will have a heck of a time trying to undo organic — we have about 80 farmers, mostly Vermonters, who have converted or are going to convert to organic and are happy about it. That’s the real thing. Danone would have a difficult time trying to undo that.

SD: Stonyfield has become the fourth-largest yogurt company in the U.S. What are the top three?

GH: First is Yoplait, second is Dannon, third is Breyer’s. We’re number three in the East, but will be number three in the country soon.

SD: Will Group Danone help you reach that goal?

GH: Danone hasn’t done anything other than pay off investors. One of the really cool things about this deal is, I no longer have to worry about investors. I can just focus on running the company… and growing our mission. Danone is quite clear that we can teach them as much as they can teach us.

SD: What will Danone bring to Stonyfield — international distribution?

GH: Other than Canada, which we do on our own, there’s not much emphasis on international. But transportation and manufacturing in the West — we’d like to be part of that.

SD: How has Danone embraced your company’s socially responsible mission — or has it?

GH: Danone was not only checking us out. We really sized them up, too. They have quite an enviable reputation regarding corporate responsibility. Big companies aren’t quite so bold in bragging about that stuff — the media comes after them. But they’re a very cool company. I became satisfied, and even a fan of theirs, over the course of this. Their environmental record is top-notch around world; their employee practices are way ahead of U.S. standards. It’s really a good company. This was a big problem with some other companies we spoke to — we couldn’t even have a conversation.

So yes, I believe there’s a huge interest in organic. When I was closing the deal, we [with Franck Riboud, CEO and chairman of Danone] did an exclusive interview with The Wall Street Journal. Riboud said Group Danone had to adopt their [Stonyfield’s] values in this century. I wouldn’t have expected that of a Fortune 100 CEO. Time will tell, but I feel very encouraged by the degree of respect they show us. I have access at the highest level of the company. I met the founder of Dannon U.S., an incredible guy. They’re all fascinated by Stonyfield.

SD: Let’s move on to O’Naturals…

GH: Our challenge is not with the restaurant concept itself, because we’ve been doing great, great volume. Even post-9/11, we’ve never even had a hiccup. Our challenge is convincing realtors who don’t know us — getting into shopping centers or whatever.

SD: What’s your vision for the chain?

GH: The concept is that I want it to be competing side-by-side with McDonald’s and Wendy’s. As a parent, I don’t like the extortion when my kids see their cool games. [We] want to be in these roadside locations.

SD: Some people might think “health food” and “fast food” are opposing concepts. How do you marry the two?

GH: We’ve borrowed a little bit about Stonyfield’s marketing. The product is the best marketing — customers are the best advertisers. It’s shocking to them to see the range of things you can get quickly in the restaurant. The best example: We figured we had to be in burgers, so we had a hormone-free burger, but it was the first thing to disappear from the menu — including the kids’. They forget it when they have all these other options, such as flatbread sandwiches.

“Fast health food” is not an oxymoron. To be fair and honest, I’m not sure we could have pulled this concept off five or 10 years ago, because the quality of food has improved dramatically. Our organic fries are awesome. Organic used to mean you had to chew extra. We advocate with the tastebuds — you can’t leave taste behind.

SD: Is there a demand for natural fast-food restaurants in this country?

GH: No question. We are not intending to be just an alternative type of place, but mainstream, just as Stonyfield yogurt is mainstream. We’ve done what the world has been seeking. One unit doesn’t prove anything, except if you build it they will come…

SD: How will, or does, O’Naturals compare price-wise with, say, McDonald’s?

GH: It’s definitely a little more. Kids can eat for $4; adults average $6.50-7. But we’re not finding price an impediment at all. Americans pay the lowest for food of any nation on Earth…

SD: How did you come up with the name, O’Naturals?

GH: I originally wanted to call it something else, but ran into a trademark infringement. I was really frustrated… So I just went for a hike with my wife and our dog. At one point I yelled to her, ‘What do you think of O’Naturals?’

SD: Is it a play on the faux Irishness of McDonald’s?

GH: Yes, that and, of course, au naturel. m

Gary Hirshberg will speak at the spring conference of Vermont Businesses for Social Responsibility on May 31 at the Radisson Hotel in Burlington. For more information, call 862-8347.