Private Equity Firm Takes Control of Organic Avenue, Interview with New Owner

Written by Max Goldberg on January 9, 2013. Follow Max on Twitter: @livingmaxwell.

Organic Avenue, one of the hottest organic concepts in the industry today, just announced that it has sold a controlling interest in the company to minority investor Weld North, a private equity fund founded by former Kaplan, Inc. CEO Jonathan Grayer in partnership with Kohlberg Kravis Roberts & Co. (KKR).  Financial terms were not disclosed.

With the deal increasing Weld North’s stake to around 70%, management changes have come as well.

Organic Avenue Founder Denise Mari and current CEO Doug Evans will transition to the company’s Board of Directors.  Current Chief Operating Officer Arthur Pergament will now serve as interim CEO while the company conducts a national search for its next CEO.  Doug Evans will also begin working on wellness investment opportunities at Weld North.

I had a chance to speak with Weld North Chairman and CEO Jonathan Grayer yesterday to talk about the deal and his future plans for Organic Avenue.  Here are the highlights from our conversation.

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You were already a minority investor in Organic Avenue, so what prompted you to increase your stake and take control of the company?

We really liked the business, and to go from a few stores to 16 or more requires capital, which we have, and a certain skill set to do this.  Additionally, it is obvious that the brand resonates with consumers.  When you walk around New York City, you see so many people carrying around their orange Organic Avenue bags.

People want to eat healthy foods, and Organic Avenue presents a real opportunity to capitalize on this.

It has been said that Miami and Los Angeles are markets where you’ll be going to next. What are your plans for expansion?

We believe that there is a real following for both juicing and the vegan lifestyle in Miami and Los Angeles.

For 2013, however, our focus is on the New York metropolitan area.  We’ll soon be opening in Roslyn (Long Island, NY) and Greenwich, Connecticut, where the offices of Weld North are located.  2014 is when we’ll expand outside of New York, but we want to know much more about the potential market before we do this.

Up until now, Organic Avenue has only sold its products at company stores.  Part of our strategy going forward is to have Organic Avenue branded food in 3rd party distribution.

Let’s talk about the product mix. How will this change going forward?

We want to be the kind of place where someone who doesn’t only eat vegan food will buy what we have because it tastes good.

Organic Avenue will soon be adding cooked vegan food, and we’re going to have fewer SKUs, not more.

Will you be switching to High Pressure Pasteurization (HPP) technology with your pressed juices?

Yes. This is essential to extend the shelf life if you are going to be distributing in 3rd party locations.

MY TAKE

I have a few key takeaways regarding the deal and my conversation with Jonathan Grayer.

1) This is a very, very smart move for Organic Avenue.  The deal gives the company access to a deep pool of capital in order to grow, and expanding into 3rd party distribution is essential if you want to scale quickly on a national level.

2) On the product side, I love the changes that will be coming.

Too many products: I have always thought there were far too many SKUs at Organic Avenue, and reducing the number is exactly what the company should be doing.

The first thing on the chopping block should be a majority of the drinks that contain palm sugar.

Going to cooked food: Offering cooked vegan food is a great move.  It will draw many more people into the stores who have otherwise avoided Organic Avenue and and will give consumers more varied choices.

HPP for the juices: With its juices moving over to high pressure pasteurization technology (one of my top 5 organic food trends for 2012), this will allow Organic Avenue to build its brand across the U.S., similar to what BluePrint has done.  It also protects the company in case there is a crackdown on unpasteurized, pressed organic juice.

Given that former Monsanto executive Michael Taylor is the FDA’s food safety czar, this is absolutely not out of the question.  Go watch the movie Farmageddon and see how our government has terrorized raw milk producers.

3) I was very impressed with Jonathan Grayer and have little doubt that he is going to take Organic Avenue to the next level.

Not only did I agree 100% with the impending changes to the product line, but this is a guy who knows how to scale a business.  He grew revenues of Kaplan, Inc., a global education company, from $80 million when he took over as CEO in 1994 to $2.3 billion fourteen years later.

Furthermore, his firm has a partnership with KKR, arguably the most prestigious leveraged buyout shop in modern finance. Having KKR as a partner is a serious endorsement.

—-

Denise Mari and Doug Evans have worked incredibly hard over the past decade building Organic Avenue into an amazing brand, and I believe that the company is just scratching the surface in terms of its potential.  It will be fascinating to see what Organic Avenue looks like 10 years down the road.

This deal is not just a winner for the company but for consumers as well because the availability of healthy, organic food is sure to increase.  And for that, I am very grateful.

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15 Comments

  1. “This is a very, very smart move for Organic Avenue.” I agree with that statement fully. I disagree that this move will do much positive for their customers though.

    We were going to try OA on the upper west side once. My wife went in to their empty store and was ignored by the 3 employees, too busy with their own conversation. She saw small portioned overpriced foods and walked out. Generally, places like this only get worse for consumers when the money boys take hold.

    The bigger organics get and the subsequent demand, the better for us all. But I’m betting on independents, mom and pops, and small regional stores, not investment properties that exist to make VC’s and buyout shops more money.

    Written by Ken Lonyai on January 10, 2013 @ 11:56 am
  2. Hey Goldberg, why are you endorsing another f***ing Wall Street firm taking over a great organic store and concept? We need less private equity firms coming in and ruining and “corporatizing” great companies and their ideas. Who says they should scale all around the country or the world? Your bootlicking of KKR is disgusting and your endorsement of Grayer is pathetic! You should be writing articles about how there should be more Organic Avenues started and less “buyouts” from PE firms and Hain Celestial. Your just another corporate sellout!

    Written by John Stevens on January 10, 2013 @ 12:02 pm
  3. Hi Ken,

    I can’t speak to your experience on the UWS. If Organic Avenue can grow and give more people in different areas the opportunity to buy organic juices and salads, I am all for it. Growing this type of operation requires serious amounts of capital, however. Getting people in the VC/PE community involved in organic means that they will also become more involved politically in the organic movement. And we need all the help that we can get in this area.

    Live well,
    Max

    Written by Max Goldberg on January 10, 2013 @ 12:12 pm
  4. Hey Stevens,

    I am for growing the organic industry and its businesses. If the money comes from Wall Street, I don’t really care. These are smart, proven guys who know how to build and scale companies. Furthermore, having these individuals invested in the industry means that more influential and successful people will be on our side in the fight against GMOs. Maybe you forgot that we were outspent 5 to 1 in Prop 37.

    I believe in capitalism and make absolutely no apologies for this. Business is the most effective way to make the change that we want to see in the world. It is a “you problem” if you’re against capitalism.

    Live well,
    Max

    Written by Max Goldberg on January 10, 2013 @ 12:21 pm
  5. Great for them financially but I’m disappointed that freshly squeezed RAW juices will not be available anymore. I don’t want high pressure pasteurization juices. I know it’s necessary when a business expands but I thought the whole focus of Organic Avenue was RAW and keeping the enzymes in food. And thank you for telling me that BluePrint uses HPP also. I did not know that.

    Written by Nancy Sullivan on January 11, 2013 @ 3:53 pm
  6. Hi Nancy,

    I understand completely what you are saying. In some instances, HPP may in fact be safer.

    Live well,
    Max

    Written by Max Goldberg on January 11, 2013 @ 6:49 pm
  7. I’m very disappointed that Organic Avenue — which has been such a wonderful place to find really raw vegan products — is taking a nosedive into pasteurized and cooked foods. What a huge shame. I will no longer look forward to visiting New York City in order to eat food from Organic Avenue. I’m very sorry that Denise Mari has sold out!

    Written by Judy Pokras on January 11, 2013 @ 10:57 pm
  8. Hi Judy,

    Organic Avenue is not abandoning raw foods. They are simply adding cooked vegan foods to the menu.

    You might be upset about this but you could also look at it this way. If a new customer comes in for cooked vegan food, that gets this person in the door. Maybe the individual then becomes educated about raw food, gets curious, and starts eating raw food for the first time. It could an important way to get people educated about raw, by introducing them first to cooked vegan food.

    For many people, it is a transition into raw. I first started eating cooked organic food in 2001 and then got introduced into raw several years later. I don’t think it is realistic to think that most people are going to go from the SAD right into the raw food diet. That may be the case for some but certainly not everyone.

    Live well,
    Max

    Written by Max Goldberg on January 12, 2013 @ 10:59 am
  9. Hi Max:
    I was doing a little research on HPP and it appears that HPP does not destroy enzymes. Is that your understanding also?
    Thanks for the information.

    Written by Nancy Sullivan on January 13, 2013 @ 3:13 pm
  10. Hi Nancy,

    In the research that I have done, the sentiment is mixed. Some people say it is fine while others don’t agree. My guess is that it has to have some negative impact but exactly how much is hard to determine.

    Live well,
    Max

    Written by Max Goldberg on January 14, 2013 @ 3:32 pm
  11. Max,
    Can you share some more science behind HPP and the claims that it is ‘safer’? I can’t see how millions of tons of pressure on raw juice molecules could possibly leave juice in a ‘raw’ state. Seems too good to be true?

    Written by Holly2 on January 24, 2013 @ 12:05 pm
  12. Hi Holly2,

    Here is a piece about it from Ohio State University. http://ohioline.osu.edu/fse-fact/0001.html

    I believe the minerals and vitamins stay intact but some people question whether the enzymes do as well. This is an issue that I am just not 100% sure about.

    Live well,
    Max

    Written by Max Goldberg on January 25, 2013 @ 9:47 am
  13. This might be good for the organic food industry but you need to look at this deal in its entirety. If Organic Ave opens stores in LA, Miami and NY they will start producing the products in one location and shipping them across the country. So first you have organic produce being shipped to the processing plant and then shipped to the store locations. Sounds like a lot of fossil fuels. Also now they will be using HPP to process the juices, a process that uses a lot of energy. Currently the company is small, produces the products locally without HPP. Overall, I think this is a a negative for the local, organic, sustainable food industry.

    Written by MSG on April 12, 2013 @ 4:36 pm
  14. My guess is that once they open in California, they will probably have manufacturing on the West Coast. Without question, however, when a company grows, the energy consumption grows as well. I don’t know how you get around that.

    That being said, I believe the job creation and increased consumption, availability, and awareness of organic make this a more favorable outcome.

    Live well,
    Max

    Written by Max Goldberg on April 14, 2013 @ 2:46 pm
  15. i am SO disappointed, if one is a raw foodist, there are only so many options. and, as someone who uses raw juice to keep my cancer under control, i feel a real difference in hpp juice versus raw, cold-pressed. there are plenty of places that sell cooked vegan foods, there are very few that sell raw.

    Written by Ameena Meer on November 11, 2013 @ 1:20 pm

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