Look What's Cookin' -- Wholesome & Hearty Foods, Makes Healthy Profits With Gardenburgers

PORTLAND - In the near future, Americans probably will never be weaned from their beloved hamburger.

So you might wonder if a relatively unknown Portland company could make a big splash by selling a meatless, soyless burger substitute called the "gardenburger," a low-fat patty based on whole grains, mushrooms, onions and other vegetables.

In fact, the company, Wholesome & Hearty Foods Inc., has been doubling its sales and profits annually for the past few years, with 95 percent of its business coming from that relatively simple patty.

Investors must think the future holds more of the same. Last year, Wholesome & Hearty shares outperformed every other Nasdaq stock, rising 519 percent to $20.50 at the end of 1993 from $3.31 at the end of 1992. The stock closed at $21.75 Friday, and was up to $22.75 at midday today.

Even at current prices, analysts who follow the company say it's still a good buy. "At any price under $20, we think the stock is very attractive," said Matthew Patsky, an analyst who follows the company for Robertson Stephens in San Francisco.

Robert Toomey, a Seattle analyst at PiperJaffray, also has a "buy" recommendation on the stock, saying its potential value could be $30 to $38.

Gardenburger is a trademarked name showing up on menus of thousands of restaurants and institutional food-service outlets such as colleges, hospitals and corporate cafeterias. The product, which contains half the calories and one-ninth the fat content of a similar size hamburger patty, is also sold in the freezer cases of several thousand supermarkets.

Final figures aren't out for 1993, but analysts expect sales will top $13 million. That's tiny by the standards of the food-service industry, which includes about $50 billion in sales of hamburger alone.

But it's a giant leap forward for Wholesome & Hearty, which had sales of just under $7 million in 1992 and less than $1 million as recently as 1988.

Larry Katz, an analyst at Pacific Crest Securities in Portland, expects sales to surpass $100 million within five years. In a report last month, he noted the company is debt-free and said: "By any measure, Wholesome & Hearty is a financially sound company with excellent growth prospects."

Patsky said gardenburgers and some spinoff products that include meatless sausage and a Mexican-flavored patty are "right at the beginning of a very strong consumer trend" toward healthier eating habits.

But not everybody agrees.

Until last year, more and more health-oriented foods were introduced in supermarkets, "but the trend in the last 12 months is definitely away from healthy foods and toward more indulgent eating like bacon and eggs," said Martin Friedman, editor of New Product News, a food industry magazine.

"Many consumers are confused by the competing statistics and claims about healthy foods . . . and people are going back to their evil ways," he said. "I don't think the gardenburger can ride a health wave."

Paul Wenner, Wholesome & Hearty founder and president who invented the gardenburger in a suburban restaurant he once owned, doesn't see it that way.

"I don't tell people to give up hamburgers," said Wenner, a vegetarian since 1965. "I just tell them this is another eating choice."

That choice is not made of soy, a main ingredient in most hamburger substitutes. Too many recent health-oriented foods "didn't pass the spit-out test," said Patsky. "Once you got it in your mouth, you wanted to spit it out."

He believes that new federal food labels, required on supermarket food products in May, will help gardenburger sales by clearing up much consumer confusion about health claims.

"A percentage of the population will see those labels and start to shift their food consumption away from high-fat foods," Patsky said.

Gardenburger sprouts

The gardenburger was born almost by chance in 1981.

Wenner, 47, had supported himself for more than a decade by remodeling houses and teaching cooking classes at three community colleges when, in 1980, he opened the Garden House, a vegetarian restaurant in suburban Gresham.

He served rice pilaf with all his dinners, and one evening he noticed he had a lot left over. In an experimental mood, he sauteed some rice pilaf with some vegetables, folded in some oats and baked the resulting mixture.

The next day, he put it on the menu as a "garden loaf sandwich," like a slab of meatless meatloaf on whole-grain buns.

The sandwich proved popular, and one evening he thought of turning it into a grilled product. "The next day, I wrote on the chalkboard, `garden burger, $2.95,' and in two or three months it became the most popular item on the menu. Half my lunches were gardenburgers," he said.

Nevertheless, the Garden House was operating at a loss. "Soon I was literally out of money, and I owed every friend $1,000," Wenner said. In 1984, the restaurant met its demise when its natural gas was shut off because of unpaid bills.

By that time, Wenner had started selling gardenburger patties to two other restaurants and a hospital cafeteria. He persuaded a former Garden House patron to invest $60,000 so he could keep making gardenburgers and expand distribution, and Wholesome & Hearty Foods was formed in 1985.

A year later, sales were $100,000 as Wenner sold his patties to food service establishments up and down the West Coast. The company continued expanding rapidly and made an initial public stock offering in June 1992.

The current stock price, about 75 times estimated 1993 earnings, puts plenty of pressure on the company to keep sales and profits growing rapidly. At the end of 1993, Wholesome & Hearty had about 2,400 supermarkets among its customers, and by last week the number had grown to 3,000, Patsky said. The company hopes to have gardenburgers in 7,000 stores by the end of this year.

Business strategy

The company's main strategy for winning new customers has always started with institutions such as restaurants, cafeterias, hospitals, colleges and public school systems.

Gardenburgers are now offered in about 15,000 such establishments in all 50 states and several foreign countries. Toomey said the company will double its institutional sales force this year to keep that number growing rapidly.

In many cases, the gardenburger is a brand-name menu item. "Every time they sell one, it is free advertising for us," said Bruce Seiler, treasurer.

Still, those numbers could be deceptive, and sales volume in each outlet may be relatively low. Wholesome & Hearty "has been able to spread the product across many, many segments of the food industry, with a little bit of depth," said Bill Maris, chief financial officer. "We have opened many doors a little bit."

One way the company hopes to open those doors wider is to get Wenner himself in front of the public as much as possible. "Paul Wenner is every bit as real as Bill Gates. In our case, the person is part of the message, and Paul is a legitimate messenger," Maris said.

Wenner said he will spend about half his time traveling this year to promote the gardenburger and healthy eating.

"There is still a lot of growth in the gardenburger, but they have to bring along some other things in the product lines," said Katz. "You cannot live in this world on just one product."

Company officials said they have numerous ideas for new products in the research-and-development stage, though they won't give specifics.

The fate of the gardenburger - and of Wholesome & Hearty - probably won't be decided by vegetarians such as Wenner.

"Very few of our employees are vegetarians or zealously committed to shopping at health-food stores," said Maris. "They are average, normal people" interested in promoting healthy food choices.

Some analysts believe Wenner and his company can turn millions of people like that into gardenburger eaters.

"This certainly could be a billion-dollar company," said Patsky, citing a long-term trend in eating habits. "People are clearly looking for products that are lower in fat."