Forbes India 15th Anniversary Special

Daniel Lubetzky: Social spin doctor

The founder of Kind Healthy Snacks has spun chocolate, nuts and do-gooder rhetoric into a snack company worth billions. Maybe someday he'll get back to his true passion: Changing the world for the better

Published: Apr 2, 2019 03:56:55 PM IST
Updated: Apr 2, 2019 04:04:33 PM IST

Daniel Lubetzky: Social spin doctorDaniel Lubetzky, the founder of Kind Healthy Snacks, at the company’s midtown Manhattan offices. He has plans to expand to western Europe
Image: Jamel Toppin for Forbes

If anybody had said to me I would end up in the food business, I would have said, ‘What are you smoking?’” says Daniel Lubetzky, 50, founder of Kind Healthy Snacks. “I never thought in a thousand years I would be selling food.”

Maybe that’s because Lubetzky isn’t really selling food. Rather he is peddling health and altruism, at least the cheap sort you can buy in a 1.4-ounce fruit-and-nut snack bar drizzled with chocolate. Clues to Lubetzky’s deeper ambitions abound in his office decor: On one wall hang framed photos of him with Pope Francis, Barack Obama and Shimon Peres, the late president of Israel. Books about the Middle East line another. Motivational quotes from the likes of Mahatma Gandhi, Mother Teresa and the Dalai Lama are painted in the hallways.

The overt display of social consciousness is core to Kind’s business strategy. The company has sold 2 billion snack bars since its founding in 2004 and has done so by wrapping itself in a mantle of nutrition and social good. It’s almost all spin. Kind bars aren’t particularly good for you, and the very-much-for-profit company, which is partly owned by candy giant Mars, has given just a pittance to charity: About $2 million at last count. The company says it has been “generously supporting like-minded non-profits”. Lubetzky personally has given an additional $10 million toward Kind’s philanthropic efforts.

Still, the Kind spin works: The company has an estimated $800 million in sales and has made Lubetzky very rich. Using comparable publicly traded companies and recent merger and acquisition transactions in the snack industry, Forbes estimates that Kind is conservatively worth $2.9 billion. As majority owner, Lubetzky has a stake worth nearly $1.5 billion.

Lubetzky declined to comment on his net worth. He’d rather talk about the company’s mission—he calls it “the Kind Movement”—which is to “make the world a little kinder”. To that end, the company encourages both employees and consumers to “do the kind thing” by engaging in random acts of kindness. In practice this means hiring hundreds of full- and part-time workers to distribute #kindawesome cards (vouchers for a free snack bar) and samples of its fruit-and-nut bars to random passersby.

By the company’s count—based on the number of #kindawesome cards doled out, employee volunteer activity and donations of snack bars to non-profits—it has facilitated 11 million acts of kindness since 2004. That’s essentially 11 million marketing campaigns.

Its social mission is largely marketing, too. Between 2013 and 2015, Kind gave less than half a million dollars to non-profits—peanuts for a company its size. It wasn’t until 2016 that it established the Kind Foundation, to foster “kinder and more empathetic communities”. According to its most recent filings, the foundation has $11 million in assets—$10 million of which was donated by Lubetzky—but has given away only $1.5 million in grants. In 2017, the foundation pledged $20 million over at least three years to try to connect students around the globe.

Kind would like you to think that eating its bars means you are being kind to yourself. Its 24 varieties of nut bars, made with chocolate or honey, come encased in a transparent wrapper, all the better to keep its promise to include only “ingredients you can see and pronounce”. Nutritionists, however, aren’t biting.

“On a scale of one to ten, one being Coca-Cola and ten being whole foods, Kind bars are likely a six,” says Dr Robert Lustig, a paediatric endocrinology professor at the University of California, San Francisco. “It’s less unhealthy than others. That doesn’t necessarily make something healthy.”

In response, Kind says it is “giving millions of people healthful options with our nutritionally dense snacks.”

“Daniel Lubetzky is a brilliant marketer,” says Marion

Nestle, a professor of nutrition, food studies and public health at New York University (NYU). “[He] has positioned Kind bars as healthier and has managed to get them everywhere.”

Kind’s products are in mom-and-pop shops, Whole Foods, Target, REI and Starbucks as well as on Delta flights. According to the research firm Euromonitor, Kind ranks among the top five bestselling snack bars in the US, up there with Clif Bars and offerings from juggernauts like General Mills (Nature Valley granola bars), PepsiCo (Quaker Chewy Granola Bars) and Kellogg’s (Nutri-Grain Bars).

That success attracted the attention of Mars, the maker of M&M’s, Snickers and more, which bought an estimated 40 percent stake in Kind for an undisclosed amount in 2017. The influx of capital came at what appears to be just the right time. Kind’s growth had been slowing as new competition caught on and nutritionists questioned how healthy the bars really were. None of that has deterred Lubetzky.

“One of the things Daniel told me when I met him was that he was going to be a billionaire,” a former executive says. “And that he had a vision for the business and a vision for world peace, and he wasn’t going to rest until he made his mark.”

Born in Mexico City in 1968, Lubetzky is the second of four siblings and the son of a Holocaust survivor. By the time he turned nine, his dad was telling him stories about the three years he had spent in the Dachau concentration camp in Germany. “My mom heard him talking to me about it, and she said, ‘Why are you doing this? He’s nine’,” Lubetzky recalls. “And my dad said, ‘He’s nine years old and he’s hearing it. I was nine years old when I needed to live through it’.”

In 1984, his father moved the family to San Antonio, Texas, to manage duty-free stores near the US-Mexico border. He introduced his son to one of his suppliers, who agreed, as a favour, to sell watches to the younger Lubetzky at wholesale prices. On weekends, the entrepreneurial high school student would drive to a nearby flea market to resell the watches at a markup. By the time Lubetzky started college at Trinity University in San Antonio, he had upgraded to renting kiosks in shopping malls for his fledgling watch business, skipping classes sometimes to keep the business open.

It was his time at Trinity, where he majored in economics and international relations, that convinced him business could be used for social good. In his 268-page senior thesis, Lubetzky postulated that if Arabs and Israelis went into business together, it could create enough vested interest between the two groups for real, meaningful relationships to take hold. “Economics can help connect human beings,” he says. Upon graduating in 1990 he went on to get a law degree from Stanford.

After law school he moved to Israel on a fellowship to develop his cross-cultural business ideas but was stymied. “Nobody wanted this confused Mexican-Jewish attorney teaching them how to do business between Arabs and Israelis,” Lubetzky recalls. “So that went nowhere.”

But his time in Israel gave him a new idea. At a grocery store in Tel Aviv, he came across a sun-dried-tomato spread made by a local company that had just gone out of business. He learnt that the owner, Yoel Benesh, was buying sun-dried tomatoes and olive oil from Italy and glass jars from Portugal and then importing it all to Israel. 

Lubetzky reached out to Benesh and told him he could find distributors closer to home, which would lower his costs. He realised this would also test his theory about achieving peace through business: Sourcing glass jars from Egyptians, sun-dried tomatoes from Turks and olive oil from Palestinian farmers. “This is an area where Arabs and Israelis could cooperate,” Lubetzky recalls thinking.

So in 1994, at the age of 25, Lubetzky invested $10,000 in savings from his summer-associate jobs at law firms like Sullivan & Cromwell to start PeaceWorks, a marketing, consulting and distribution outfit. He would consult for producers like Benesh to find a supply chain that was more cost-efficient and required collaboration among conflicting groups to create a product. Then PeaceWorks would brand the food items, highlight the social mission and sell them in the US.

He started off with the sun-dried-tomato paste, which he brought back to New York and sold out of his briefcase. “People thought I was insane because the jars were all wrong, the olive oil was leaking, the pricing wasn’t right,” Lubetzky recalls. “But I would ask them for advice for what I needed to fix, and I would come back a few months later with a better product for them.”

Chocolates from Arabs and Israelis; Indonesian sauces made by Muslims, Christians and Buddhists; Sri Lankan coconut milk from the Sinhalese and the Tamils. These were just a few products that PeaceWorks sold in the US. Within its first four years, he tapped his father for a $100,000 loan and raised a $100,000 investment from friends to help keep the business afloat. In the late 1990s, PeaceWorks hit $1 million in revenue with a 10 percent profit margin. Lubetzky still owns PeaceWorks, he says, but has others manage it for him. “It’s a very small business, but it’s still my baby,” he says.

Daniel Lubetzky: Social spin doctor
It was while constantly travelling to sell PeaceWorks products that Lubetzky got inspired again, this time to start Kind. “I was crisscrossing the world, and everything tasted horrible,” he says. “I couldn’t find anything that was wholesome, convenient, tasty and healthy. I just wanted to make something that I would want to eat.” In the late 1990s he landed in Australia and found a bar with whole nuts and fruit that he liked. A few years later he tried to replicate it in the US.

Using the modest profits from PeaceWorks and thrifty negotiations with suppliers, Lubetzky founded Kind with $100,000. He started off focusing on small, high-end stores where he already had relationships from his PeaceWorks days, like Draeger’s and Andronico’s in the Bay Area, Treasure Island Foods in Chicago and PCC in Seattle.

“It wasn’t like going to headquarters and presenting it to the buyers. It was all store by store,” Lubetzky says. “It was a community, and the team leaders at these stores had many jobs to juggle, so the people you see breaking down the boxes are also checking inventory and placing orders.”

Lubetzky remembers going to the Whole Foods in Denver and Los Angeles, helping managers stock shelves, following them to the warehouses in the back, inviting himself on their lunch break—all the while pitching his product and insisting they try samples of his snack bar until they eventually put in an order.

But Lubetzky is careful not to romanticise Kind’s early years. “Even if I got orders, all it would take was one parking ticket and the costs would become higher than my revenues,” he says. “It was fragile in the beginning.”

In 2007, Kind managed to gain and then lose a prized account within one year: Walmart. The retailer put Kind bars in 1,000 stores. But shipments of bars went missing because Kind hadn’t yet built a sufficient tracking and monitoring system. So Walmart dropped the products in 2008. That same year, the financial meltdown hit. While Kind was on track to reach record sales, it had a cash flow problem. “Profitable companies can go out of business if they don’t manage their cash properly,” Lubetzky writes in his 2015 autobiography, Do the Kind Thing. It was terrible timing: His wife was pregnant with their first child. So in December 2008, three days after the birth of his son, Lubetzky sold a third of the company to the founders of Vitaminwater and the private equity firm VMG Partners for $15 million.

From 2009 onward, Kind took off. Lubetzky credits the expansion of the company’s free-sampling programme as the reason for growth at the time. In 2008, Kind spent just $800 giving away samples of its bars. In 2009, with urging from his new investors, Kind expanded its sampling and field-marketing budget to $800,000. Today the company has a $20 million sampling budget, which pays the field workers and covers the cost of free bars. “It sounds like common sense in retrospect, but what we needed, really, was just for more people to try it,” Lubetzky says.

Kind entered Starbucks in 2009, got back onto Walmart’s shelves in 2012 and then into Target in 2013. “We had months when we were growing 100 percent a month,” one former executive says. “We blasted through $100 million, we blasted through $150 million, then $200 million in revenue.”

In 2014, Lubetzky orchestrated a deal for Kind to buy the minority stake back from VMG for a reported $220 million, issuing some debt to fund the purchase.

Then out of the blue came a nightmare. In March 2015, the FDA sent a warning letter to Kind stating that it had mislabelled its products and misled consumers and could no

longer brand its products as healthy. “It was devastating,” Lubetzky says. The FDA’s ruling was based on the bars’ fat content. Since the bars included whole almonds, the fat content ended up being higher than allowed; an FDA rule said a food product could be labelled “healthy” only if it had no more than one gram of saturated fat per 40 grams of weight and no more than 15 percent of its calories derived from fat. Kind immediately ceased printing “healthy” on its bars and website.

“We consulted with doctors, scientists, nutritionists, and together we realised this made no sense,” he says. Under FDA regulations, his team discovered, half an avocado could not be considered “healthy” either, because of high fat content. 

So in April 2015 he and his team took the train to FDA headquarters outside Washington, DC, to make their case. Kind filed a so-called Citizen Petition asking the FDA to change its definition of healthy. Months later, in May 2016, the FDA reversed its ruling and said Kind could use the term “healthy” to describe its products once more.

More challenges lay ahead. In 2004, when Kind was founded, the snack bar industry was a $6 billion market. Today snack bars are a $13.6 billion segment of consumer packaged goods. Rivals, including RXBar (which Kellogg’s bought for $600 million in 2017), started making inroads, and the whole category of protein bars took off. Kind’s sales growth slowed from an estimated 11.6 percent in 2016 to 5.4 percent in 2017, according to market research firm Mintel.

Unlike the FDA, the main gripe health experts have with Kind bars is added sugar content. Kind uses a form of sweet edible adhesive to maintain the bars’ rectangular form, with its highest added sugar content at 9 grams. “People would be better off eating a handful of nuts or a piece of fruit,” says Nestle of NYU.

Kind has responded by releasing new products without added sugar. It has also created some fresh marketing stunts. In August 2017, Kind put up a temporary art installation in Times Square: Statues of kids made out of mock sugar, to illustrate that the average child in the US consumes 19 teaspoons of added sugar a day in food and drinks. And, of course, Kind stationed people near the statues to hand out a new product, Kind Fruit Bites, which are made without added sugar.

Based on recent transactions in the snack bar business, it wouldn’t be surprising if Mars bought all of Kind, says Janica Lane, a managing director at Piper Jaffray: “It’s a way to get a foot in the door with these high-growth brands.”

If Mars did acquire all of Kind, that might give ­Lubetzky time to focus on what seems to be his true ­humanitarian passion. Ask him what he’s most concerned about, and it’s not an impending attack from anti-sugar zealots or RXBars—it’s the state of the world. “As an immigrant and son of a Holocaust survivor, I don’t take for granted the rule of law,” he says. “Seeing the rise of totalitarian regimes across the world, the return of Nazism, fascism, hatred, discrimination—I’m very worried about it.”

“I’ve been given an incredible gift with Kind’s growth and success,” Lubetzky says. “Now I just want to incubate great ideas, great people and have maximum impact on the world.”

(This story appears in the 12 April, 2019 issue of Forbes India. To visit our Archives, click here.)