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Sunday, 29 March 2015 22:00

Growth venture: Calif. mushroom producer charts new future for idled Michigan facility

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Growth venture: Calif. mushroom producer charts new future for idled Michigan facility COURTESY PHOTO

A California-based food processor sees its acquisition of a Northwest Michigan growing operation as providing the capacity it needs to serve a mushrooming market for specialty fungi.

In closing this month on the deal for Diversified Natural Products Inc. in Scottville, the Sebastopol, Calif.-based Gourmet Mushrooms Inc. expects to breathe new life into a local facility that largely had been idled since the economic downturn in 2008.

A producer of a variety of exotic mushrooms for the health food and natural healing market, Gourmet Mushrooms hopes the Scottville plant will produce crops at a rate of 1 million pounds annually by October 2015 with plenty of room to grow, said owner David Law.

Law’s company invested approximately $3.3 million to acquire DNP, effectively doubling the size of Gourmet Mushrooms’ growing operations in the short-term and providing it the flexibility to add additional capacity in the future.

“Depending on market demand, we can scale the facility up two- or three-fold,” Law told MiBiz.

The new facility should double Gourmet Mushroom’s operations by the end of the year, if all goes as planned, Law said. Currently, the company’s California facility offers approximately 60,000 square feet of growing space between two farms that collectively produce about 1 million pounds of mushrooms per year. The Michigan facility offers up to a total of 200,000 square feet of space for future additions, Law said.

The company currently employs 45 workers at its Michigan facility and has plans to hire 35 more employees by the end of the year to support the increased production, Law said. The leadership and staff at DNP retained their positions at the company.

Gourmet Mushrooms financed the acquisition through a combination of debt via a U.S. Small Business Administration-backed loan and personal financing. It also purchased an additional $1 million in new production and growing equipment over the last year.

The Michigan facility, located on U.S. 10 about 10 miles east of Ludington, will also move Gourmet Mushrooms closer to sources of material that mushrooms need to grow — namely, soybean hulls and sawdust, which can be bulky and expensive to ship.

The deal for DNP and the hiring of workers was welcome news for the Mason County community, said Kathy Maclean, president and CEO of the Ludington and Scottville Area Chamber of Commerce.

“It’s really exciting to have a local producer here and know that they are selling products to grocery stores like Whole Foods,” Maclean said. “It’s also great to have another large employer like that in Scottville that it’s been lacking.”

SPECIALTY GROWTH

While the majority of consumers are aware of the common button mushrooms, fresh specialty breeds such as maitake, shiitake and morel have been slow to catch on in the U.S. compared to other parts of the globe.

As a result, the majority of both U.S. mushroom consumption and production is skewed more toward common button mushrooms than specialty varieties. That compares to the Asian markets where the consumption of specialty mushrooms is much higher, Law said.

The same goes for mushroom consumption in general — which has risen from roughly 4 kilograms yearly per capita in Asia 30 years ago to 10 kilograms yearly per capita today, Law said. By comparison, annual per capita consumption of fresh mushrooms in the U.S. has hovered between 1.5 and 1.8 kilograms per year over the last three decades, according to data from the U.S. Department of Agriculture (USDA).

Law sees those consumption trends in Asia taking hold in the U.S. as healthy foods become more popular.

“When I look at the Asian model, there’s a lot of potential in the U.S.,” Law said. “One is (because of) the variety of mushroom, the other is that people are consuming more mushrooms.”

Despite the lower consumption of specialty mushrooms in the U.S., their sales have been increasing since the downturn, according to USDA data. Sales of specialty mushrooms reached $65.7 million in 2014, a 66 percent increase from $39.5 million in 2010, the USDA reported.

Mushrooms could also prove to be attractive as a meat alternative for consumers, Law said, noting that fungi are closer to animals than grains, fruits and vegetables.

“The whole commercial mushroom industry is new as far as human development goes, so the percentage of mushrooms in our diet is very small,” Law said. “In terms of food and medicine, the fungal kingdom has a lot to offer.”

Gourmet Mushrooms also markets a nutraceutical line of mushrooms used in supplements. The global nutraceutical market — which includes foods with purported medicinal benefits — is expected to reach $204.8 billion by 2017, up from $142.1 billion a decade earlier, according to a market research report by New York-based Transparency Market Research.

LONG-TERM RELATIONSHIP

The acquisition of DNP by Gourmet Mushrooms was the culmination of what’s been a long process. The two companies began a relationship around mid-2007 when DNP started courting possible buyers for its mushroom business, said Gary Mills, the general manager of the Scottville operation.

DNP had previously been owned by a group of private investors who had spun off several business units from the company, including the now-public BioAmber Inc. (NYSE: BIOA) and Thorne Research Inc. That left the mushroom unit largely on its own with little interest from the previous owners, Mills said.

“Basically, the mushrooms were sitting as a lonely appendix waiting for something to happen,” he said. “There weren’t many people interested in specialty mushroom growth.”

Executives at DNP were introduced to Gourmet Mushrooms in 2007 and began initial discussions for a possible acquisition. However, shortly after the initial meeting, the economic downturn hit and progress on the deal slumped as access to capital diminished, Mills said.

“In 2008, getting money for mushrooms was challenging,” Mills said. “While we think mushrooms are the most exciting things in the world, bankers often don’t.”

As the market improved, Gourmet Mushrooms became more involved in the company and funded a handful of research and development projects to prove out DNP’s growing method, Mills said. Gourmet Mushrooms helped finance DNP’s utility costs and provided for a skeleton crew to work at the facility during that time.

Eventually, the two companies put together a deal and closed on the transaction earlier this month. Gourmet Mushrooms paid off all of DNP’s back taxes and recently visited the site to kick off the next stage of the company’s production.

“David is a perfect partner,” Mills said. “Persistence prevailed, and we came through.”

 

Read 6699 times Last modified on Monday, 30 March 2015 15:49

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