How Does A Virginia Herb Company Grow? By Moving Nature Indoors
Tim Heydon, chief executive of Shenandoah Growers, at an indoor grow room with trays of microgreens. The Harrisonburg, Va., company is one of the largest producers of organic herbs in the United States. (Norm Shafer/For The Washington Post)
By Thomas Heath
Part of the genius of investing is recognizing a great business that others miss. Warren Buffett has the knack. He invested in newspapers such as The Washington Post and the Buffalo News in the 1970s, when he saw the potential for local monopolies that can raise advertising prices. Buffett saw the brand dominance of Coca-Cola and invested in the beverage giant when it stumbled in the late 1980s.
Tim Heydon is no Warren Buffett. But he had his one golden insight when he and his business school team from James Madison University tackled a project called Shenandoah Growers in the 1990s.
Heydon saw a $1 million Virginia farm growing herbs — as demand for fresh organic produce was exploding. He saw a location that was a 10-minute drive from Interstate 81, allowing access to markets up and down the East Coast.
Heydon and his team didn’t miss the one-acre greenhouse on the property, either. They grasped a chance to control the growing cycle. That would enable them to increase crop yields and profits by bringing everything indoors.
Two decades on, Shenandoah Growers of Harrisonburg, Va., has blossomed into a business with an expected $120 million in revenue this year. It serves 23,000 stores across the country, including 16 of the 20 largest food retailers. I see its “That’s Tasty” brand in my neighborhood Whole Foods. (I recently kept a bag of its basil alive for weeks in glass of water in my kitchen.)
Heydon and his 1,200 employees have captured 35 percent of the retail fresh organic herb market. And they want more.
The company, which lies two hours west of Washington, is disrupting agriculture from the bottom up, just as Amazon/Whole Foods, Instacart, FreshDirect and others are changing the way people buy groceries from the top down. (Amazon’s founder and chief executive, Jeffrey P. Bezos, owns The Washington Post.)
“This is the future,” Heydon says, standing in a football-field-size greenhouse amid thousands of trays of young basil, mint, cilantro and dill. “We are not changing nature — just bringing the growing indoors and optimizing the conditions. We are increasing the metabolism so we can grow more organic produce at a faster rate.”
The Harrisonburg campus is one of its 11 indoor growing facilities across the United States, including Hawaii. Ninety-five company trucks delivered 13 million pounds of Shenandoah’s herbs to stores in 2018. Labor and delivery to stores are the company’s largest expenses.
A big test is coming. The company is spending tens of millions to double the amount of produce it grows indoors, from 40 percent of its production currently to 80 percent by 2021. The move should allow Shenandoah to place growing facilities closer to customer distribution centers, cutting the delivery costs.
The payoff could be worth it. Taking agriculture indoors raises the yield from 60 percent on crops planted to 90 percent. Profit margins, which the company was reluctant to detail, rise by 25 percent when crops are grown indoors, compared with in the field.
Demand for fresh produce is soaring, as Americans pay more attention to diet. Heydon said the company expects its investment in expanding his indoor production to pay for itself within three years.
The food grown in the Shenandoah Valley will be in the produce section in less than a month’s time.
Shenandoah investors have put $62 million in the company in the past several years, including food and agriculture technology investors such as S2G Ventures, XPV Water Partners, Advantage Capital Partners and D.C.-based Middleland Capital and Arborview Capital.
This is no Civil War-era farming community, which was decimated by Union Gen. Philip Sheridan. Some of the heated, LED-lighted rooms at the Harrisonburg facility, which measures six acres, are right out of a science fiction film. Heydon pointed to one pile of “bricks” made of coconut cores from Sri Lanka. The bricks are a key ingredient in the company’s proprietary soil blend.
The company’s secret sauce that gives it a competitive advantage includes its patented overhead lighting, its hub-and-spoke next-day delivery system and packaging that keeps products fresher longer.
Heydon took me to one room and mysteriously asked me not to take photos or ask too many questions. It involved two large tanks whose mixture helps water and soil accelerate the growing cycle. (I could almost hear Rod Serling’s “Twilight Zone” voice in the background.)
“We have a bigger mission,” Heydon says, “to keep optimizing commercial amounts of product on a small footprint. We are removing the variability of rain from the equation, which makes the cycle far more efficient. Otherwise, we let nature do its thing.”
Heydon, 50, grew up in New Jersey and graduated from West Virginia University. He received an MBA from James Madison in 1998. He tasted business early, while working at his father’s concrete company.
“I didn’t want to just have a job,” he says, describing his desire to attend a business school with an entrepreneurship track. “I love creating.”
Like many business schools, James Madison was pairing its students with local companies to get out of the classroom and into real-life business situations.
Heydon and his student group chose Shenandoah, a sleepy agriculture company that began in 1990. One of the founders had passed away, and the company needed direction.
“The co-founder’s death had taken a lot out of their sales, and they wanted help,” Heydon says. “I didn’t know anything about the business, but I had a passion to develop a company and teams.”
Heydon came along at the right time. It was the late 1990s, and he was mindful of the growing market for nutritious food: “Supermarkets were starting to put full, fresh herbs on the shelves. Healthy eating was going mainstream. Whole Foods was blossoming,” he says.
He became a sweat equity partner, which means he was given a share of the business in return for his work on the job. He said the company had a strong employee base, with a good work ethic, but lacked a strategy.
Heydon would supply the vision. He saw the potential for the Route 81 corridor, which had access to supermarket warehouses from North Carolina to Baltimore.
He attributes the growth to a strong management team and to key angel investors who shared his vision that there was traction in fresh produce. The angels connected Shenandoah to Ulf Jonsson, a European horticultural entrepreneur who played a key role in the company’s success as an indoor grower.
“We really took off after we launched our first certified organic indoor facility in 2008,” Heydon says. Another key move was buying a West Coast competitor in 2016, which opened California and put That’s Tasty in all 50 states.
Heydon said his smartest move has been hiring good people and putting them around him. The management team was so strong that when Heydon took time off to care for his terminally ill younger sister, the company didn’t miss a beat.
The investors, including the original two owners or their survivors, eventually cashed out when the company was recapitalized.
Heydon said he still owns a stake in the company but he would not tell me how much. I asked him whether he had become rich from his success, and he said no, “not yet, anyway. Maybe someday.”
Like Warren Buffett, he’s a long-term investor.