Growth on Principle: The Unconventional Leadership of Stonyfield Farm

Stonyfield Farm, the world’s leading organic yogurt producer, never started with the goal of profitability. “I just thought that this was the only hope for the future,” said Gary Hirshberg, co-Founder and CE-Yo until stepping down two years ago, in 2012.

February 12, 2014

The company’s existence is something of a happy accident. In the seventies and early eighties, Gary worked with an ecological research center called The New Alchemy Institute. The Institute studied, and educated people on, how to grow food and produce power without fossil fuels, hosting about 25,000 visitors per year. While working at the Institute, Gary traveled to Florida’s Epcot Center and saw, in a sponsored exhibit, Kraft Foods’ vision of how to grow food. “It was a little different from mine,” Gary mentioned in a 2008 interview. Then he learned that 25,000 people visited Epcot every day.

This somewhat shocking contrast—the reach of his vision against the reach of Kraft’s—served as inspiration for Stonyfield. “And, lo and behold, it ended up becoming a pretty good business proposition.”

Along with his current position as Stonyfield’s Chairman, Gary serves on several corporate and nonprofit boards including Applegate Farms, Honest Tea, Peak Organic Brewing, Late July, The Full Yield, Glenisk, the Danone Communities Fund, and the Danone Livelihoods Fund. In 2011, President Obama appointed Gary to serve on the Advisory Committee for Trade Policy and Negotiations. He is also Chairman and a founding Partner of “Just Label It, We Have the Right to Know,” the national campaign to label genetically engineered foods. In 2012, Gary received a Lifetime Achievement Award from the U.S. Environmental Protection Agency.

The interview below has been edited for brevity and clarity.

Stonyfield, in league with a few other companies, has an orientation that looks beyond simply profit. How does this create tension?

Let me get brutally pragmatic in answer to that. The biggest tension that we have is that our commitment to purchasing, for example, only organic ingredients fundamentally challenges our gross margins. What that really means is that we’re unable to spend what many of our competitors spend on advertising. That puts us in a disadvantaged position.

On the one hand, the good news is that we build loyalty this way. For people who do care about organic and natural products, we’re obviously able to tap into their devotion. On the other hand, if there are thousands of reasons to eat organic food, there’s one good reason not to, and the majority of people subscribe to that one: the price.

For us, this tension is constant. Whereas another company could sit down and say “let’s just launch this or that item,” we have to be very thoughtful. We have to be absolutely certain that the product is going to sell on its own, and that we’re going to be able to meet the velocity targets that our retailers expect, even without advertising. To be blunt, it’s an unforgiving discipline that we put ourselves through each and every time we consider new products. There’s nothing easy about the formula, and the costs of being kicked out of a retailer are enormous. You go over to the penalty box for a year or more, and there are slim odds of getting back in. So that’s the principal tension.

What this usually means for us is pursuing a lot of guerilla tactics, trying to get media to cover our work, and also doing as much sampling as possible. The company just signed on for three years to be the sponsor of the Boston marathon. This is an opportunity to not just provide samples to the thousands of runners, but the tens of thousands who line the course. It’s a sweat-intensive, labor-intensive approach as opposed to, say, buying a ton of GRPs [gross rating points.]  But it tends to work out in the end.

Consumers are seeing so much news that makes them distrust their supply. I think a company like ours can certainly bring ease of mind.

Are there some instances in which you’ve advertised? Or are there other line items you might compromise on in order to boost your margins?

Well, we’ve always had tight margins and we rarely advertise. There are a few occasions where we’ve attempted, despite our disadvantaged position, to advertise. The problem is that whatever we’re going to spend is kind of a rounding error next to whatever our competitors are going to spend. So, for example, Chobani has a much less expensive product. It’s not organic, it’s not GMO-free, and I’ll bet they’re going to be in the Super Bowl. Does that mean they’re going to sell more? It’s always hard to know these things. But we’re never going to compromise a product just because we can’t be in the Super Bowl. That compromise would be mailing it in. We simply don’t have a reason to be if we let up on the basic thrust of our company. In a lot of cases, frankly, that means we’re not going to be on the shelves.

In Walmart, for instance, we have a very difficult time with our small cups or our quarts of yogurt because, pricewise, we’re just at a different level. But our child and baby yogurts do extremely well. We know that having children is a principal reason for buying organic.

It sounds like consumer trends are really driving this move to organics.

Absolutely. It’s the consumer desire for more transparency, consumer nervousness about clean foods. And it’s also this need to have validity behind a product. When something is certified organic it means there has been rigorous regulation of the processes that went into making that product. Consumers are seeing so much news that makes them distrust their supply. I think a company like ours can certainly bring ease of mind.

I’m curious to hear your perspective, then, on what the federal regulatory structure needs to do to keep pace or catch up with this trend.

This question’s unbelievably timely. It took us 12 years to get the organic standards to become actual law. This work was hard-fought and hard-won. The good news is that the bill had completely bipartisan support and—as you said a moment ago—was consumer driven. That was the happy front-end of it. The bad news was that once we got into the weeds of the law there was a huge battle about what this means and what that means, and so on and so forth. Twelve years of discussion!

It’s an interesting week for organics [late January of 2014] because we had a kind of historical breakthrough moment. To understand what’s going on that’s so interesting, I should mention the “checkout” programs that exist for many commodities. A portion of most consumer dollars are marked to pay for promotions. The most famous of these would be the “Got Milk?” campaign. So dollars taken directly from farms are going into a fund that’s used to support promoting milk overall. But organic has never had its own “checkout.” Whether you’re in beef, or chicken, or corn, or milk, your money has to go into supporting the broad category. In this Farm Bill, to my utter amazement, the House passed legislation that included the ability to have an organic checkout program. [The House passed the Bill on January 29. Passage is likely in the Senate.] What that means—and to say it’s grossly overdue is an understatement—is that we’re now able to have our dollars go into growing this industry, an industry that, by the way, is adding to our balance of trade, is good for the country, is good for the environment, and is good for the economy. But getting the government to support this idea required tireless effort on a lot of folks’ parts.

We believe that more citizen participation, more transparency, will result in better educated choices, and that can only be a good thing.

It’s coming along slowly, particularly as we’re hearing now about the explosion of GMOs [genetically modified organisms] and the rise in herbicide use. We’re also starting to hear from mainstream sectors of the agricultural community. Weed scientists and other experts are saying that we’re putting all of our eggs in the GMO basket, and it’s not necessarily the right place to be putting them. We ought to have a little more variety in our food system. Sustainable agriculture, broadly speaking, is now getting more and more support from the more mainstream science, agriculture, and consumer fronts.

But this is a constant and slow battle. One of the main reasons we see all of this money going into fight GMO labeling is that these companies are terrified that it’s going to shine a bad light on them. You’re seeing enormous amounts of money—tens of millions of dollars—dumped in. But despite this lobbying, despite the exaggerations and lies, we’re winning in the long term. We’re winning because we have science and facts on our side.

On GMO-labeling, what led you into this issue among so many other concerns related to food?

Well, labeling means a lot of different things to a lot of different people. What it means to me is transparency. It means citizen involvement. I was just talking with a major grocery chain that was asking, “Is this labeling going to be like a skull-and-crossbones? Is it saying that these products are bad?” It isn’t. It’s saying, look, it’s a fact that this is where some products came from. We’re going to respect you, the customer, because you have the right to know. It’s about getting more consumers involved as citizens.

It won’t be a well-funded movement. Our companies, those who are advocating for labels, do not have the depth of balance sheets, because, again, we don’t use cheap ingredients. But we believe that more citizen participation, more transparency, will result in better educated choices, and that can only be a good thing. You know, I’ve yet to meet the consumer who says give me the yogurt with more synthetic growth hormone, or give me the fruit with more pesticides, please.

Finally, at companies like Stonyfield, leadership tends to stick around for a long time. I’m curious, on a personal front, what kept you there?

Well, it sort of goes back to the first question. For me, we never set out on this adventure with the idea that we were going to become wealthy or make a lot of money. I just thought that this was the only hope for the future, that it might give more hope for my children. And, lo and behold, it ended up becoming a pretty good business proposition, which was very surprising. It’s continued to be not just challenging, but really satisfying. For me, it’s my life’s work, it’s what I do.

What I’m trying to do now—and what I think Ben [Ben & Jerry’s] and Yvon [Patagonia] are trying to do for that matter—is to find the balance between not running things but still being useful. That’s what I’m trying to learn, to be more of an advisor. It’s hard, because once an entrepreneur, always—you have this tendency to jump in and run it. But the steps back are working, I think. I’m going to be Chairman for as long as Stonyfield will keep me because I can still bring some value and I love the company and everything it stands for. I’m obviously very proud of it.