With success still sweet, Ben & Jerry's faces scrutiny over 'low-fat' label

September 09, 1992|By New York Times News Service

Ben & Jerry's is, to say the least, an unconventional corporation. It brags of paying its suppliers more than market prices and of paying its executives less. Its annual report includes a "social performance report" dissecting how well it did in serving its community.

But even as the company strives to sell 1.1 million new shares, to raise $30 million for a new plant, it is being bedeviled by federal regulators who dispute its use of the term "low-fat" for its new, and highly successful, line of frozen yogurt.

Already the company has been forced to reformulate some products, at the risk of making them less tasty. More will have to be changed, and in at least one case the company will probably have to drop the "low-fat" label. Just how much, if at all, sales will suffer as the company takes out fat remains to be seen.

That dispute, simmering for nearly three months, was first disclosed by the company in the prospectus for the planned stock offering, which was announced last week.

But the prospectus did not disclose the extent to which the company was being forced to reduce fat.

In a telephone interview yesterday, Mary Kamm, director of quality control, said that in some cases the fat content would have to be cut in half. She expressed confidence that the product would still taste good.

The company's highly advertised policy of restricting top pay to managers has also been relaxed and, it appears, quietly defined to exclude the largest part of one executive's compensation.

Ben & Jerry's Homemade Inc. used to say that no boss got more than five times the compensation, including both pay and benefits, of the lowest-paid worker with at least one year at the company.

Now the multiple is seven, and to stay in compliance, it chose to ignore the issuance of restricted stock last year in calculating the pay of its president, Charles Lacey.

Alone among top officials, he was not present at the founding of the company, and is not sitting on much stock acquired at bargain-basement prices. So last year the company gave him 5,000 shares, now worth about $150,000. His other pay, at the maximum allowed by the company's policy, is about $100,000 a year.

A company spokesman, Alan F. Parker, declined to comment on Mr. Lacey's compensation.

By any standard, Ben & Jerry's has been a success. It went public in 1985, using the highly unusual method of promoting its shares by advertising them on ice-cream cartons, at $4.33 a share, adjusted for two subsequent splits.

Yesterday, the shares closed at $30.75, up $1, in over-the-counter trading.

The company's ice cream costs more than nearly all others, but its bottom line shows no indication that the recession bothered its customers.

Nor does it seem to have been severely damaged by a decision to pay Vermont farmers more than the market price for dairy products, reflecting what the company called its determination to support family farmers.

The company's expansion into "light" ice cream in 1990 did not do well, but it has successfully dropped that product and moved on to "low-fat" frozen yogurt.

On the packages of frozen yogurt, the company proclaims that "we've cut back on the fat and calories, but you won't know it from the taste." Compared with what, the Food and Drug Administration wanted to know, and Ms. Kamm said that claim was now being taken off the packages.

Not, to be sure, that the products are exactly low in fat or in calories. Cherry Garcia frozen yogurt has 700 calories to the pint, and 15 grams of fat. That is low compared with Cherry Garcia ice cream, where the figures are 1,000 and 64, but it is not likely to show up in any weight-loss diets.

To avoid losing the "low-fat" label, Ms. Kamm said the company would have to get all its frozen yogurts down to 11.25 grams of fat a pint. She said some reformulations have been introduced, and others will follow.

It appears that "Coffee Almond Fudge" frozen yogurt will have to lose two-thirds of its name and be remarketed as the less-sinful-sounding "coffee" frozen yogurt.

And Heath Bar Crunch frozen yogurt may simply not be called low-fat anymore.

Thanks in large part to the success of the "low-fat" frozen yogurt, Ben & Jerry's has seen its profits soar. In the first half of 1992, it reported profits of $3.5 million, or 59 cents a share, on revenues of $63.2 million. Profits were up 112 percent and sales 45 percent from a year earlier.

But the prospectus for the new offering warns that the company's growth is sure to slow in the second half of 1992, and it says the company plans to step up hiring of support staff to help cope with the increased sales.

That is likely to depress profit margins, at least for a time.

At yesterday's price, Ben & Jerry's stock is trading at 32 times its 12-month earnings, a multiple that discounts continued profit growth.

As underwriters led by Tucker Anthony and Smith Barney market the proposed new offering, a big hurdle may be in persuading investors that the growth will not be slowed even as the company is forced to change its fastest-growing product in a way that is not likely to improve the taste.

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