Thursday, August 02, 2007

You've Got To Be Nuts To Go Into This Business

For almost two decades, brothers Jonny and Danny Levy clung to the notion that almonds were their bread and butter.

The two brothers built a respectable operation roasting the nuts and flavoring them with vanilla and cinnamon, a treat they had first encountered working at Christmas nut kiosks in their home state of Michigan. Smitten by consumers' reactions, the pair launched their own business in 1988, naming it The Fresh Roasted Almond Co.

"You'd give [people] a sample, and they'd walk five paces, turn right around and buy a package of nuts," says Danny Levy.

The brothers stuck stubbornly by the name -- and identity -- of the company until last year, even as the marketplace whispered that a different focus might be more profitable. When they would pass out samples of flavored almonds, consumers would often turn to their companions and mistakenly say, "Hey, come try some of these peanuts." Convenience-store retailers were unsure where to shelve the Levys' flavored almonds, which were viewed as fancier fare than the basic peanuts that sold so briskly near registers. As the brothers experimented with new flavors and nut combinations, they found one they believed would be a huge hit: a buffalo wing, cayenne pepper aroma. Problem was it tasted best on, yes, peanuts.

"Well, how long do you have to be told you are in the peanut business before you start selling peanuts," says Jonny Levy.

Reality Check

It is a puzzle for many entrepreneurs: when and how to diversify from the brainstorm that put them in business to reach their real money-making potential. Despite clear marketplace signals, businesses sometimes can be paralyzed to act by fear of abandoning what got them so far in the first place. And there are more tangible concerns too, such as the costs associated with overhauling branding, packaging and marketing.

"Clearly what makes someone start something is an innate passion, and that drives them toward the end goal," says Dale K. Cohen, head of DKC Resources, a New York-based marketing strategy and growth-catalyst firm. "When you have to deviate from that vision because the marketplace is telling you something different, it's a huge leap of faith."

The Levys finally got their reality check when the price they paid for raw almonds more than tripled between 2003 and 2005 and they risked sales volume dropping dramatically. So they pushed into peanuts, coating the popular nut with a host of curious flavors, including piña colada, margarita, vanilla rum, coconut, raspberry -- and their biggest seller, the Buffalo Peanut.

Last year, they began doing business under the more generic Nuts Are Good! Inc. name, changed the company's logos, and built a separate Web site to hawk peanuts.

The moves are paying off. This year, the Detroit-area company based in Warren, Mich., expects to bring in $2 million in revenue, double 2006 levels, with peanut sales already surpassing almonds. The firm is adding a host of new retail accounts, from small pubs that want to serve flavored peanuts to big grocers who aim to sell the loose nuts in bulk bins and in packages in produce sections. Mr. Levy says he can typically sell twice as many peanuts as almonds for his average $1 retail cost.

Earlier this month, a major grocery chain contracted with the Levys, whose processing plant is certified organic, to supply 98 different items for a multiple-bin display of natural-food products, including nuts, dried fruits and candies. (The Levys purchased the dried fruit and candies from outside vendors.) Of those items, some 40% included peanuts. Mr. Levy declines to name the grocer but says the single $15,000 order for one store will be expanding to some 25 to 30 stores in the Great Lakes region.

Because the order had to be turned around in less than two weeks, the brothers would never have landed the account without having already pushed into peanuts. "It was very, very handy to have all of those lying around here," Mr. Levy says.

Peanuts dominate the U.S. nut market, with some 66% of consumers saying the nut is used for cooking and snacking in their households, according to Mintel Group, a market-research and trendsetting firm, which conducted a survey of the $4.52 billion U.S. nut and dried-fruit market. Almonds are used in 46% of respondents' households, following cashews and walnuts.

New Life for Almonds

The Levys aren't abandoning their original cash-cow product, however. Almonds are getting a second life as their price comes down and consumers seek out healthier fare. Almonds, like other nuts, are believed to be a good source of protein, potassium and fiber. This year, almonds will account for 20% of all new global nut products, second only to peanuts, according to the Almond Board of California, a trade group.

Mr. Levy concedes that having their rudder knocked out from under them was probably the best thing that every happened to his business. "It took me way too long to realize that what we had was not a mass-marketable type of product," he says.

Ms. Cohen of DKC Resources says entrepreneurs in the start-up phase of a business should take a step back and examine the entire potential supply chain for their product to see what else they might be able to sell through it down the road. That's especially true, she says, when picking a name. "You need to have an all-encompassing vision," she says, "and move toward that bigger vision."

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