Smart Balance last week acquired Glutino Food Group for $66.3 million in cash from its parent company, Importations De-Ro-Ma. Glutino, a Canadian gluten-free food maker, is perhaps the first of many acquisitions to occur in a category marked by small, founder-based companies, said Smart Balance Chairman and CEO Steve Hughes.

The sell came at a good time for Smart Balance, which had already begun to put its feelers out for gluten-free opportunities. When equity firm Claridge Natural Foods approached Smart Balance about selling Glutino—which it had invested in for seven years—Hughes saw it as a great opportunity to engage in the category with a respected brand. "We had been looking at the gluten-free space, so we were interested in anything that surfaced," he said.

Alfalfa's gluten-free section. Photo by Glenn Asakawa.But it was Michael Funk, chairman of the board and cofounder of independent, national distributor United Natural Foods, who sparked Hughes to begin thinking seriously about gluten-free about eight months ago. After discussions with other groups in the natural products industry, "we realized that the trend had tremendous momentum in the natural channel," Hughes said. "Now it's appearing more in the mainstream."

As a testament to the rise of gluten-free, Glutino increased its sales about 30 percent annually the past three years and posted annual sales of $53.9 million during its fiscal year, which ended March 31, 2011. Its brands include Glutino and Gluten-Free Pantry.

Glutino told Natural Foods Merchandiser last year that its core consumers are those diagnosed with celiac disease. It's clear that Smart Balance aims to continue that focus, given its brands are focused on healthy lifestyle solutions for a range of health needs: Smart Balance for heart health; Earth Balance for an organic, plant-based lifestyle; Bestlife for weight management with; and now Glutino for celiac and other gluten intolerances. "We really look for brands, not products, that ultimately can solve the consumer issues in a major need state," Hughes said.

Gluten-free business opportunities

In 2009, U.S. consumer sales of gluten-free foods was $3.2 billion, estimates Nutrition Business Journal. The niche has exploded into a mainstream trend, but natural stores were first on the bandwagon. Natural Foods Merchandiser recently reported that natural products stores were the first retailers to cater to gluten-free shoppers and still hold 30 percent of the market.

While naturals stores are leading the way for consumers, the category currently is fragmented in terms of manufacturers. "A lot of smaller, founder-oriented based companies are doing a terrific job of meeting the consumer needs, but the needs are moving more quickly than the manufacturers and retailers can respond," Hughes said.

Because of this and the category's 10 percent compound annual growth rate to date, "I think you're going to see a lot of acquisition activity in the gluten-free space," he said. "I don't think Glutino will be the last brand to partner up."

Photo by Glenn Asakawa.