Noodling around: DNA Dreamfields believes its low-carb pasta can reach $500M in annual revenue
By Dan Monk
Cincinnati Business Courier
Updated: 8:00 p.m. ET June 27, 2004Jon Hall has learned this much from the new economy: Big ideas can blossom quickly with the right talent and just a little elbow room.


Consider the elbow macaroni Hall brought to market this spring, with a limited liability company that includes a Florida inventor, startup capital from Switzerland, branding and operating expertise from here in Cincinnati, and manufacturing capacity in North Dakota.

The end result is Dreamfields, a new brand of low-carb pasta that Hall thinks could redefine the dry-pasta category and generate $500 million in annual revenue.

Of course, there are skeptics. One expert says Dreamfields will never be more than a niche brand. Another questions whether it's sustainable.

But don't tell that to the partners in DNA Dreamfields LLC. The 8-month-old enterprise, held together by voluminous string of e-mails and a 26-page operating agreement, already has won shelf space in 15,000 stores, including Wal-Mart and Meijer supercenters and various regional chains operated by Cincinnati's Kroger Co. And it recently launched a national ad campaign that could total $10 million, making it one of the biggest ad spenders in the category.

"In less time that it takes a large company to craft a vision statement, we created and launched the brand," said Hall, a partner in the Dreamfields venture and a former director of new ventures for Procter & Gamble Co.'s beauty care division. "What we're doing is going beyond these hard-core, low-carb dieters. We're trying to be a healthful alternative in the course of overall meal planning."

'Four-letter word'
Hall's group has plenty of challenges ahead. The nation's pasta makers are in major slump, thanks to the Atkins craze and a sudden national obsession with all products low in carbohydrates.

"Pasta is really a four-letter word," said analyst Jonathan Braatz with Kansas City Capital. "Regardless whether it's low-carb or not, it just has such a bad reputation."

Braatz estimates the industry lost 7 percent of sales volume in 2003. Producers slashed prices to get rid of inventory.

The nation's largest dry-pasta maker, Harrisburg, Pa.-based New World Pasta, filed for bankruptcy in May. American Italian Pasta Co. saw a 5 percent sales decline in the first quarter of 2004. Third-ranked Dakota Growers Co., a partner in the Dreamfields venture, lost $15.7 million in sales volume in the fiscal year ended last July 31. And it was down another 6 percent through six months of fiscal 2004, before the Dreamfields launch.

The falling sales left pasta makers desperate for a low-carb alternative.

"We'd been exploring it for some time," said Dakota Growers CEO Tim Dodd. "We saw this low-carb trend. We saw the wave coming and wanted to get on it."

Pasta science
But crafting the right formula proved tougher to grasp than a well-sauced noodle. Most pasta makers adopted a "dilution method" in which a starchy substance called semolina was replaced with soy or other fillers. Carbs went down, but so did flavor. Hall said one retail buyer told him that other low-carb pastas "taste like hospital gauze. Yours taste like real pasta."

Hall said that's because Dreamfields took a different approach. Food researcher John Anfinsen left the semolina in but added proteins and fiber that keep most of the starch from being digested. Anfinsen conducted clinical trials, feeding pasta to hundreds of people and measuring their blood glucose levels to see how many carbs actually were absorbed into the body. While other products tout "net carbs," Dreamfields boasts its pasta has only five grams of "digestible carbs." Anfinsen has a patent pending on his process, which he wouldn't describe but insists is not easily duplicated.

"We do not believe anybody is using this technology any place else," he said.

Anfinsen is a former Cincinnati resident who did pharmaceutical research for the Vicks Corp., then helped develop the Slim Fast line of diet products in Blue Ash. After selling his rights to that product, Anfinsen moved to Gainesville, Fla., where he runs TechCom Group LLC, a network of about 250 researchers that act as an outsourced R&D facility for some of the nation's largest companies.

The Dream Team
Anfinsen's early research was funded by Buhler AG, a Swiss firm that makes machines used for chemical and food manufacturing. Once he was convinced the idea would work, Anfinsen said he pitched the concept to food companies that didn't seem to understand it. That's when he started talking to the owners of ANova Ltd. in Oxford, an operations-consulting firm formed by three retired P&G executives. Anfinsen knew ANova from work both had done for the Atkins Nutritionals Inc., the food company formed by the inventor of the Atkins diet.

ANova principals saw huge potential in a low-carb pasta that tasted like pasta.

"We knew we could get it to market faster," said Mike Crowley, an ANova partner who serves as president of the DNA Dreamfields venture.

ANova is one of four partners in the B-New Group. The group also includes Jon Hall's consulting firm, SpencerHall; Acumen, a Houston-based graphic design firm; and H.A. Hong Consulting, a new-product development firm formed by P&G's former director for corporate innovation, Chuck Hong.

The B-New team started work on the brand concept last summer. By fall, ANova had persuaded Dakota Growers to invest up to $4 million in the concept, a figure that included modifying one of its production lines and startup marketing expenses.

"This has been an ideal relationship, building on everybody's strengths," said Dodd. "Not one of us had the expertise or resources to do it ourselves. We have an R & D department designed for traditional pasta. We obviously needed people like TechCom to develop it."

Dodd calls the Dreamfields concept "revolutionary" because it bucks the standard. It's also cheaper to produce than low-carb products made via the dilutionary method. That means Dakota can sell it at double the price of regular pasta but still be priced lower than its low-carb competitors.

Sustainable success?
Early results are positive. The first Dreamfields boxes hit store shelves in February. Dakota Growers posted a 3 percent jump in sales in its third quarter, ended April 30. A day after its sales pitch to Wal-Mart Stores Inc., the retail giant placed an order for all of its supercenters, said Hall, who adds the Kroger Co. waved slotting fees so Dreamfields could spend the money on advertising. Hall claims Dreamfields now has deals with chains representing more than 75 percent of total grocery volume nationwide, and it's looking at Co-branding the product with several major restaurant chains.

Hall wouldn't give details on sales results so far but said the group recently decided to boost its ad spending, based on early results. He expects ad spending to reach $8 million to $10 million this year.

While experts are impressed with the Dreamfields launch -- not to mention how it tastes -- they question the sustainability.

"I think it'll always be a niche product," said Braatz. "If I'm going to feed a family of four, am I gonna buy a box of regular pasta at 75 cents? Or am I gonna pay $1.75 for Dreamfields?"

Gus Valen, CEO of the Valen Group, a strategy-consulting firm in Cincinnati, adds that the prevailing view among scientists following the low-carb trend is that net carbs matter more than digestible carbs. Complicating matters, the U.S. Food and Drug Administration is crafting standards on low-carb products, which could limit Dreamfields' ability to tout "digestible carbs" as a marketing edge.

"They're going against the grain," said Valen. "Unless they can get a lot of independent science around digestible carbs, they're pushing a boulder uphill to market this."

© 2004 Cincinnati Business Courier

http://msnbc.msn.com/id/5297872/

Are these guys a publically held company?