By Jeff Keeling
As Kingsport aims to radically improve its community health status, it is set to become home to a leading healthy snack producer.
Vancouver, B.C.-based Pure Foods announced in March it would locate production, along with research and development, at a new plant in Kingsport’s Gateway Commerce Park. Likely before year’s end, employees will begin making the likes of cheese puffs with 50 percent more fiber and protein and 50 percent less fat, or kale chips that maintain the green’s nutritive benefits using cost-effective processes that will give Pure Foods a market edge. “Nutrient-dense healthy snacks,” says the company’s literature.
Pure Foods President John Frostad summed it up this way: “We don’t use any artificial ingredients, no artificial colors, no trans fats. Our ingredient deck, if you see our products, is completely clean, but taking that one step further, when you look at functional benefit we are doing an immense amount of R&D in terms of more healthful integration of things that provide protein and lower fat.”
Frostad and the other principals behind the company are old hands in the snack business who believe they can operate a successful company while toning down the unhealthy elements of their products and increasing the healthy ones. Call it a bit of absolution if you wish.
“The management of the company is older, and a more healthy bent on the products we produce is a legacy we want to leave,” Frostad told The Business Journal.
“We’re looking at the things that snack food have perhaps brought to the North American culture as an issue, things like childhood obesity, and what we’re trying to do is dial that back. You’ll never prevent people from snacking, but if you’re going to snack, snack on something that’s good for you.”
A 10-year lease agreement with the Kingsport Economic Development Board (KEDB) includes a “payment in lieu of tax” (PILOT) agreement with the KEDB on the land and building value, estimated at a total of around $7 million. This means Pure Foods will pay increasing percentages of what the property tax bill would be until ownership transitions to the company. The company will pay full taxes on its equipment immediately.
Frostad and his partners wound up leasing the new, 88,000-square-foot building largely because their first foray into the Tri-Cities has been a success. The group had been producing private label, traditional snacks in the Western U.S. and Canada since the mid-1990s when, in 2004, Wise announced it would shutter its Bristol facility and consolidate in Spartanburg, S.C. Frostad and company made an unsolicited offer to buy the Bristol building, and the group – now called Interstate Snacks – kept the operations in Bristol.
“Our leadership team there was very quick to redesign the plant and make it much more manufacturing efficient,” Frostad recalled. “We lowered cost and improved quality within 90 days of taking over the facility.”
The Bristol operations stuck with the original niche of standard private label snacks for large retailers such as Walmart. “We made their Great Value snacks and built our business in partnership with them and other retailers on their own brands.”
A key player in that success was Mike Wells, who has become Pure Foods General Manager. Meanwhile, as Wells helped build Interstate Snacks to employment of 200-plus, Frostad and his partners made their first foray into healthy snacks, launching “Riceworks” in 2006. The company produced gluten-free products, among other offerings, when that was still cutting edge. Riceworks, “became quite a large brand very quickly, and that generated interest in the company,” Frostad said.
So in 2010 they sold to a large private label snack maker, Ohio-based Shearer’s Foods. Frostad served as vice chairman for a couple of years, then found himself contemplating his next move. It has come in the form of Pure Foods. Rather than traditional private-label manufacturing, Frostad said, Pure Foods will do what he called contract manufacturing, as well as some of its own branded manufacturing. That’s a far cry from changing out a few specs for slightly different tortilla chips depending on whether the maker is, say, a Kroger or a Walmart, and it means the company’s own R&D, plant and equipment investment is much more important.
“We’ll be partnering with people who want to produce using our assets as opposed to tendering offers to do somebody’s tortilla chip, for instance,” Frostad said. “Most businesses in our industry wouldn’t spend a significant amount on R&D. We have several patents under license. One is for the integration of protein into snack foods, which again is a very helpful trend.”
Another patent under license is for an accelerated dehydrating method for transforming raw fruits and vegetables into an ingredient for snack foods, or to process further as standalone snacks.
“An example might be a kale chip where we’re able to take kale, dehydrate it down, maintain 95 percent of the nutritive benefit of that kale and also do it much quicker than conventional ways of dehydration or freeze drying.”
Frostad said research and development in the snacking world is accelerating rapidly. The company has worked with university-based research centers prototyping products, and also worked in Europe, where non-GMO products are required in many cases. But, whereas many traditional food companies are scrambling – he said Kraft deciding to remove all artificial colors and ingredients from its macaroni and cheese as, “testimony to the fact that the food industry is changing, and quite rapidly” – Pure Foods is ahead of the game.
While the company will continue keeping up with the latest research and trends in the industry, Frostad said Kingsport will be the nerve center for both production and research.
“There’s a very skilled workforce there. Not just Eastman, but a lot of the industry there has brought some very talented folks, and now that second generation is also there.”
Pure Foods’ lease-purchase agreement with the KEDB came after KEDB borrowed $6.5 million to purchase and finish out the shell building that NETWORKS-Sullivan County built “on spec” at the commerce park. A $440,000 company investment in the land, and a $1.2 million state grant, are in escrow with KEDB for two years, after which Pure Foods will begin up to 15 years of lease payments on the building. The state grant is contingent on the company reaching prescribed employment levels.
Pure Foods is taking a “very frugal” approach to startup, Frostad said. Employment levels will begin in the 50-75 range, but with the building on 35 acres and expandable, Pure Foods could double its building footprint within five years depending on its success in the market.
“It would be our hope that within five years we could certainly grow employment to the 250 to 300 person level,” Frostad said.
At the targeted employment level, the company would expect to have an annual payroll in the neighborhood of $8 million, NETWORKS CEO Clay Walker said. Walker added that Frostad and company have been helpful as economic developers investigate the possibility of bringing additional food processing jobs and investment to the area.