Amy’s Kitchen leveraging growth opportunities for its foods amid pandemic

Health-conscious consumers are hard-pressed these days to find many of their favorite Amy’s Kitchen vegan and vegetarian products on area grocery store shelves.

The Petaluma-based global organic food maker hasn’t slashed its product line because it’s struggling to stay afloat. Far from it. The company, which also serves fresh foods at its growing number of regional fast-food eateries, is an example of a business that has benefited by shifting consumer-buying habits during the coronavirus pandemic, although it’s had to adjust operations and deal with the virus infecting some of its workers.

At the onset of the pandemic this spring, sales of items such as Amy’s black bean vegetable soup and frozen cheese enchiladas skyrocketed by as much 100%, as panicked shoppers loaded up pantries and freezers.

“It was to a point where we couldn't supply anymore, and we had to make some very drastic decisions,” said Xavier Unkovic, Amy’s recently promoted chief executive.

To keep up with that surge in demand while maintaining social distancing at its manufacturing plants, the company chose to produce mainly its most popular soups, prepared entrees and other packaged products. Months later, with total sales for some items up as much as 50% above prepandemic levels, Amy’s has for now opted to continue making 109 of its 179 products.

“Customers come in looking for an item and we have to tell them, sorry they’re not producing it right now,” said Lynette Day, manager at Sebastopol Community Market.

While the pandemic has created significant manufacturing challenges for the company, Amy’s Kitchen owners Rachel and Andy Berliner say it’s also presented new opportunities to expand their business. Consumer buying trends have evolved in their favor, and they expect them to remain that way after the virus subsides.

“The habit of discovering these great meals and eating prepared foods more often probably won’t change,” Andy Berliner, now executive chairman after stepping aside in August as CEO, said in a recent interview. “I think it’s a permanent bump.”

Pioneer in organic frozen food

The company he and his wife founded in 1988 is banking on it. Amy’s Kitchen was one of the first companies to make entirely organic frozen food. It’s since grown to become one of Sonoma County’s largest locally owned businesses, employing 1,028 in the area and 2,845 people nationwide. This year, it projects to reach $600 million in revenue. In 2015, the last year privately held Amy’s provided a revenue update, total sales approached $480 million.

The spike in sales comes as the U.S. frozen food market is expected to increase 4% to $36.9 billion in total revenue in 2020, according to a recent report by market research firm IBIS World.

The main driver of that growth has been many people social distancing and working remotely, and as a result are buying more prepared meals to eat at home, according to the report. Also, consumers are increasingly seeking healthier foods at the grocery store, which could slow demand for frozen products in the future. Unkovic, however, sees that trend as an advantage for Amy’s.

“What the pandemic has done is to expose our brand and our product line to new consumers who see the value of organic ingredients,” he said.

In turn, the company aims to continue growing in the U.S. — it’s slated to open a new processing plant in Goshen, New York in 2022 — while also expanding distribution throughout continental Europe and Australia, Unkovic said. Amy’s now sells products in 28 different countries.

Hiring spree during pandemic

That’s prompted the company since the pandemic began in mid-March to hire 753 new employees, including 188 in Sonoma County, at its manufacturing plants, corporate offices and two of its vegetarian fast-food restaurants in Rohnert Park and Corte Madera.

As the business grows, it must contend with a crowded marketplace for prepared meals, said Phil Lempert, a grocery retail analyst in Santa Monica.

“There’s a lot more competition in this space, for either vegan and vegetarian products than ever before,” Lempert said. “In order for it to retain market share, (Amy’s) is going to need to continue to innovate, which is part of its DNA.”

Lempert said the company should continue focusing on producing and updating its core frozen products — ranging from Moroccan to Chinese to Mexican cuisine — to maximize efficiency and compete with rival food producers such as Healthy Choice and Saffron Road.

Scaling back product lines has become a common practice of food manufacturers amid the pandemic, Lempert said. But as Amy’s inventory shrinks, some competitors are poised to steal the company’s spot in supermarket and grocer aisles.

“If (Amy’s products) are not going to come in, we have to find another brand to substitute what’s missing,” said Day, the manager at the Sebastopol market. She’s turned to brands including Canada-based Gardien to find alternative frozen meals to stock.

Amy’s leaders maintain reducing the number of items it makes is the right decision in large part because doing so keeps employees safe. In addition to keeping workers at least 6 feet apart, the company has provided employees with masks, installed protective dividers and set up temperature checks at its manufacturing plants.

Still, the virus found its way into Amy’s three production sites in Santa Rosa; Medford, Oregon; and Pocatello, Idaho. In September, Amy’s tested most of its 2,393 manufacturing employees, including 690 in Santa Rosa, and found 1.2% were positive for COVID-19, Unkovic said. Amy’s officials declined to provide the numbers of employees tested and those that came back positive. The company said it shared that information with the Sonoma County health department, and officials there declined comment on the matter.

Workers contracted the virus outside of the plants and the disease didn’t spread between employees, company executives said.

Restaurant business disrupted

The pandemic also disrupted Amy’s burgeoning organic fast-food restaurant business. In March, when county public health restrictions forced the dining room at its flagship location in Rohnert Park to close, sales plummeted, prompting the company to furlough some restaurant staff.

In response, Amy’s doubled down on its drive-thru window service, introduced curbside pickup and partnered with home delivery apps such as Doordash. Within a few months, total revenue rebounded and has since surpassed levels prior to the pandemic.

On a recent afternoon, around a dozen drivers lined up at the Amy’s Drive Thru in Rohnert Park as masked restaurant employees equipped with touchscreens took their orders for organic items such as veggie burgers, fries and nondairy milkshakes. Other customers picked up meals from the safety of their cars at one of the 10 curbside pickup spots in the restaurant’s parking lot.

Daniel Latorre and his girlfriend, Emely Salmoran, who live together in Santa Rosa, said the restaurant has become one of their go-to spots now that they’re getting more takeout food during the pandemic. Latorre said the drive-thru also led him to discover new items in Amy’s Kitchen grocery products.

“Because of the restaurant, I’ve been eating more and purchasing more of their products,” he said, of Amy’s microwavable meals.

Primed for expansion

Even as the Amy’s restaurant inside the San Francisco International Airport, which opened last year, was temporarily shuttered due to low traffic since fewer people are flying, the company launched its second drive-thru site in Corte Madera in August. Sales there have been strong, Unkovic said, with the site following the same takeout strategy as in Rohnert Park.

“It reinforces that this particular format is somewhat crisis proof,” Unkovic said.

The increased demand at its drive-thrus has prompted the company to seek new locations beyond the Bay Area. Amy’s plans to open 17 fast-food locations in metropolitan areas such as Los Angeles, Portland and Seattle within the next four years, the Berliners said.

Unkovic, who was promoted from president to CEO, succeeding Andy Berliner, said his goal is to maintain the company’s mission as a family-owned business while shepherding its expansion. A former executive at food-processing giant Mars Inc., Unkovic has phased in new business management techniques at Amy’s common at large companies and corporations.

“As the company grows, it needs to be professionalized a little bit more and better than the way it used to be,” he said.

The Berliners hired Unkovic three years ago with the intention of eventually promoting him to head the company, as they move away from overseeing daily operations after more than 30 years.

The couple said they have no plans to sell Amy’s, noting they selected Unkovic because he knows how to grow the business sustainably, while keeping the interests of the company’s employees a top priority.

“He understands the philosophy of a family business that thinks more long-term,” Andy Berliner said. “The time just came for us to take another step, and step back a little further.”

Editor’s note: In an earlier version of this story, the name of Sebastopol Community Market was misstated.

You can reach Staff Writer Ethan Varian at ethan.varian@pressdemocrat.com or 707-521-5412. On Twitter @ethanvarian