History of White Wave, Inc. (Boulder Colorado) (1977-June 1987): Work with Soyfoods

A Special Exhibit - The History of Soy Pioneers Around the World - Unpublished Manuscript

A Chapter from the Unpublished Manuscript, History of Soybeans and Soyfoods: 1100 B.C. to the 1980s

by William Shurtleff and Akiko Aoyagi

ęCopyright 2004 Soyinfo Center, Lafayette, California

Early Days. White Wave was founded in September 1977 by Steve Demos in Boulder, Colorado.

Born on 24 April 1949 in Philadelphia, Pennsylvania, Demos attended Bowling Green University in Ohio, majoring in political science and philosophy and graduating in the fall of 1970. He was introduced to tofu in the summer of 1970, when he was traveling in a van in northern California with a friend, who bought some at an Oriental food store. Demos found it to be a good source of protein, and liked the flavor.

Right after graduation Demos took two trips to India. During the first in 1971, with Pat Calhoun, he became a vegetarian after witnessing the meat bazaar in Afghanistan. In early 1972 he took a 10-day Buddhist meditation course with a teacher from Burma, Goenka, who became his spiritual teacher. Then in 1974 he started a health food store in La Haska, Pennsylvania, where he grew acquainted with many new foods such as miso, sea vegetables, and gomashio (sesame salt). After 9 months he sold the store and returned to India again. He was now actively involved in meditation.

After that trip, Demos started living on the East Coast in New Hampshire. By 1974 he began buying tofu in Boston, then made it a few times in the kitchen and used it in cooking for a yoga studies group, which had purchased a farm. He was in charge of food and he had learned how to make tofu from the Ten Talents cookbook. In 1976, after a trip to India, he was in Santa Barbara, California, at a 76-day mediation retreat with teacher Robert Hover. He made tofu, starting at 4:00 each morning in a commercial kitchen, for 100-150 people, using The Book of Tofu. During this retreat Demos conceived of and developed the idea of starting a tofu company, including the name and logo. Three months later he found himself, a hippy with long hair, in Boulder, Colorado. He had an idea but no capital, and was living on food stamps. By good fortune he met a man named Anton Rogers (a talented architect and builder), who loaned him $2,000 startup capital, after having known him for less than month.

Demos founded White Wave in September 1977 as a sole proprietorship, located in very small (300 square foot) rented quarters at 1738 Pearl Street in Boulder, Colorado. The front one-third of the shop was used for a retail deli and the back two-thirds for food production. The first batch of tofu was used to feed the participants in a ten-day meditation retreat in Boulder.

One direct competitor was the Spinning Kitchen, which had started 9 months earlier, in about January 1977. They had the Boulder market locked up when White Wave started.

White Wave had three products from the opening day: Nigari Tofu, Black Walnut Mushroom Tofu, and Lemon Herb Tofu. The latter two innovative flavored tofus were made by mixing the natural flavorings into the curds at a specific point before pressing. Shortly White Wave expanded into making sandwiches, which led to salads, drinks, pies, cakes, and muffins. Pat Calhoun (formerly Demo's wife), arrived in December from the Pacific Coast Bakery in California, bringing all their recipes. Recipes for baked goods (such as cinnamon rolls and cookies) were adapted.

By early 1978 soymilk (plain, honey-sweetened, or carob-maple) was introduced, sold out of a jet-spray juice cooler or in quarts, and also used to make Coconut Cream Pie and Tofu-Agar Pies filled with various fruits (apples or whole strawberries, peaches, or blueberries). At about the same time the okara from the tofu started to be used to make one of America's earliest brands of Soysage. This spicy Vegetarian Soysage (shaped like a sausage) was distributed with the tofu. Before long White Wave was making a host of delicious and innovative tofu deli products, which were sold only at the Pearl Street deli. These included Macro Pizza with Tofu, Mexican Entrees, Okara Granola, and Tofu Dogs and Sauerkraut (very firm tofu cut into long rectangles and marinated in broth). Soy Sannies (Miso-Tahini Sandwiches) were also sold at nearby health food stores.

To help attract customers, the deli also sold an assortment of then largely unknown food products: 10-15 varieties of Japanese and American miso, many sea vegetables, shoyu, kudzu, umeboshi plums, and the like, many of the same products Demos had sold 4 years earlier at his health food store in Pennsylvania. Most of these were of great interest to macrobiotic devotees, though Steve had little personal interest in that subject.

Tofu was quickly recognized as a tremendously versatile, all-American ingredient. Now new people started coming into the company. Some were cooks and they helped to developed new products. In 1978 White Wave began to distribute a number of its most popular deli-type products to other retailers. These were among America's earliest commercial second generation tofu products: Missing Egg Salad (America's first, named by Trudy Stuart), Tofuna Salad (Vegetarian Tuna Salad), and Tofu Turnovers (with spinach and feta cheese filling). Other innovative second generation products sold or used only at the Pearl Street deli included Tofu Treats or Creamies (in banana-coconut, peanut-carob, or carob mint flavors), Miso Salad Dressings (hearty or mellow), and Tofu Mayo (eggless mayonnaise used in the Missing Egg Salad).

At the same time White Wave started making nut and seed products in the same little shop, starting with gomashio (sesame salt), tamari-coated sunflower seeds and almonds, and nut butters.

Just a year after opening, White Wave was forced to expand out of the tiny Pearl Street shop by the demand for its deli products from outside retailers, such as Arati and other natural food stores in Boulder. Demos recalls:

We acted with very little foresight. It was more like "What do you want to do today? Let's make something new." Finally we couldn't get out the front door. We had to step over the top of buckets of tofu, presses, and boxes used to deliver our little fish cartons of tofu, stacked up so high we couldn't see out the window. It was chaotic. We were making money and business was booming, but we were only paying ourselves $1.42 an hour.

At Walnut Street. In September 1978, the tofu manufacturing business, which had long since outgrown its minuscule "back room" space on Pearl Street, was moved to 3,000 square feet at 3869 Walnut Street, a converted warehouse. It felt like they had moved into a castle, with ten times as much space.

The deli remained at Pearl Street, and was given the new name The Cow of China (a term from The Book of Tofu). The name "White Wave" was reserved for the tofu manufacturing company. But there was only one set of books, under White Wave. The company now changed to a partnership, with seven equal partners, all active. Demos was president and Pat Calhoun did the bookkeeping, and only these two were interested in meditation.

Right after the move, to announce The Cow of China as a retail outlet and its vegetarian deli products, Demos did his first real advertising, using three charming posters. The first read: "White Wave Through the Cow of China Offers Food from The Kingdom of Plants. We make it all here in Boulder. 100% Dairyless." It then listed 14 soyfoods plus some non-soy desserts, almond-, cashew-, and peanut butters, and tahini. A second showed a soybean, with head, tail, and legs like a cow and dotted lines to delineate the choice butcher cuts. But instead of rump roasts and flank steaks were Soysage, Miso Dressings and the like. A third showed Jack, standing under a giant beanstalk, about to trade in his cow for the magical beans at which he is gazing in wonder. The caption: "We've got an alternative. White Wave Soy Dairy." The latter two posters were used as catalog advertisements with a growing number of natural foods distributors.

The tofu plant now consisted of an open kettle, VCM grinder, and hand press for the curds on the end of a swinging levered bar. White Wave started to deliver product to some Denver health food stores and in late 1978 they landed their first supermarket chain, King Soopers supermarket chains, which began to order 100 cases. Packing had to be changed from fish cartons to water packed plastic tubs. The new marketable package led to many new accounts. After King Soopers the company got into the City Markets chain, then about a year later into Safeway, followed by a host of other chains in outlying areas.

White Wave's tofu production was growing nicely. It rose from 120,000 lb. in 1978 (2,308 lb/week), to 179,000 lb. in 1979 (3,442 lb/week, up 49%), to 279,000 lb. in 1980 (5,365 lb/week, up 56% over 1979).

In February 1979 a major new product line was started: tempeh. Chip McIntosh was the first tempeh maker, followed by Chris O'Riley. An old kitchen refrigerator, warmed by light bulbs, was used as the incubator. The first two products were Soy Tempeh and Soya Rice Tempeh, the latter being America's first multi-ingredient, soy-and-grain tempeh.

At about the same time, a third new product was launched: Polar Bean. It was a soymilk based non-dairy frozen dessert, made in a soft serve machine but sold in hard-pack pints. The first flavor was Banana-Carob. Later strawberry, chocolate, carob mint, and orange flavors were added. In about 1984 a soft serve version called Polar Softie was introduced but did not prove successful.

Also in early 1979 Richard Leviton visited White Wave and the Cow of China, and did an in-depth study of their operations and products, published in the summer 1979 issue of Soycraft magazine. Soyfoods sold both at "The Cow" and for wholesale distribution to other retailers included: Organic Nigari Tofu, Soymilk (Honey-Vanilla or Carob-Maple), Soysage, Tempeh, Missing Egg Salad, Tofu Mayo, Baked Savory Tofu Cutlets, Sweet Bean Tofu Pie, Miso Salad Dressings (Mellow or Hearty), and Tofu Treats or Creamies (Banana-Coconut, Peanut Carob, or Carob-Mint; squares of creamy baked tofu blend on a healthful oats-coconut-flour crust).

Other ready-to-eat items sold only at "The Cow" included Soysage Pate, "Macro" Pizza (with Tofu), Tofu Spinach Dill Turnovers, Tofu Cinnamon Rolls, Hot Tofu Meatballs and Meatball Sandwiches, Sloppy Joe Sandwich (made with TVP), Tofu Cream Cheese & Black Olive Sandwich, Tofuna Sandwich (like tunafish), Strawberry Tofu Pie, Soy Sesame Bars, and Tofu Butternut Squash Pie. A mid-1979 bulk recipes for about ten of these products were published, with permission, in Tofu & Soymilk Production by Shurtleff and Aoyagi.

Leviton noted: "The Cow of China is surely one of the nation's most ambitious and energetic soyfoods companies." It was just about breaking even with weekly gross retail sales of $1,000, three-fourths of which came from soyfoods. Concerning the growth of the still totally unmechanized little company Demos, now the self-styled "beneficent dictator," always frank and candid, added:

It was a hell of a struggle, especially for an undercapitalized small business. But I certainly wouldn't discourage anybody because we started with nothing, and we've been going since then, and we've been able to make it all meet. We've jury rigged, we've improvised, we've done everything imaginable, as I'm sure many other people in this industry have. We cut our salaries back, we did without a lot, but its own momentum kicked in. I suppose we consider ourselves alchemists in turning sweat into money. So, let me express my gratitude to everybody and everything, seen and unseen, who have helped us pull this together.

In August 1979 Gary and Chandri Barat arrived in the Boulder and spent several days studying the Cow of China. They had met Demos at the Second Annual Soyfoods Conference in Amherst, Massachusetts (July 26-29, 1979). They were driving around the country, studying tofu and developing a business plan in preparation for starting a soyfoods company, which later became Nature's Inn, then Legume. They studied The Cow of China and Demos invited them for dinner several times. He and his wife, Ginny, served a tofu spinach feta pie and mushroom caps stuffed with tofu. Later Barat told Demos more than once how much this visit has influenced him in starting a company based on tofu entrees. The lineage of Legume's early products (Tofu Cream Pies, Tofu Spinach Pies) can be traced back to The Cow of China.

Barat encouraged White Wave to do a feasibility study on converting The Cow of China into a fast food restaurant named The Family Diner and moving into a vacated A&W root beer stand three blocks from The Cow in a very attractive location. The study was done, a potential menu was developed, but financial backing did not come through.

A White Wave catalog published in December 1979 included several new products: Doufu (extra firm Chinese style tofu), Savory Baked Tofu, and Tamaried Nuts and Seeds (Almonds, Cashews, Spanish Peanuts, Sunflower Seeds, Nut Mix).

The Cow of China deli was doing well. By February 1980 sales were $1,700 to $2,000 a week and there were often lines out the door. By the summer of 1980, according to Soyfoods magazine, the Cow of China had been renamed the Good Belly Deli, with the slogan "Real Food, Real Fast" and White Wave was producing 7,500 pounds of tofu and tofu products a week. The new deli, an expand and Americanized version of "The Cow," continued to serve as an excellent showcase for the White Wave's innovative ready-to-eat soyfoods products. Working with a friend who was an advertising agent, Demos had dropped the line of assorted health foods (misos, sea vegetables, etc.), expanded the deli items, and installed a standup counter bar to eat at and a few tables and chairs. Formerly it had been all takeout. Hot and cold fast food was served. The deli attracted lots of business (there was still usually a line out the door), the products were very innovative, and they were praised by the natural foods community in Boulder. But White Wave was growing by leaps and bounds, as were sales of tempeh and Polar Bean soy ice cream. White Wave was doing all its own delivery in its own trucks to Boulder and Denver. And the business had not been capitalized, except for one new $3,000 loan that brought in a silent partner. A loan of $4-5,000 was outstanding from the IRS, in unpaid taxes.

The Good Belly Deli lasted only 5-6 months. Though it was doing well and was probably making money (though the financial records were poor), it increasingly became a thorn in Demos' side, for it was getting out of control. It was a drain on his time and energy, more than he could handle, and it seemed to be less important than the manufacturing end of things. So one day in the spring of 1981 he walked in and announced that he was closing a business that had lines around the corner. He wanted to focus on his main goal: to become the largest tofu manufacturer in his region. In retrospect it was a good decision, but he adds, "We were operating on a lot of idealism in those days, and not much practical business sense." In October 1980 White Wave changed from a partnership to a corporation, with 5 active and one silent stockholders.

After closing the deli, the first real money came into the company. With a bank loan, they paid off the IRS, then soon paid back that loan. Then in the fall of 1981 Demos landed a $69,900 SBA loan (SBA approved a bank loan) to buy new equipment and $100,000 worth of equipment from Mountain High, a public company which made ice cream and yogurt, and needed to get out of their Boulder ice cream plant at North 57th Court.

At North 57th Court. In September 1981 White Wave moved again, this time into Mountain High's former ice cream plant in an industrial park at 1990 North 57th Court. Soyfoods magazine reported that Demos threw a huge "factory-warming party" for several hundred friends and customers, serving Polar Bean and many favorite tofu and tempeh recipes. This represented a huge, key expansion. The square footage increased six to seven-fold, initially to 6,000 square feet including 22,000 cubic feet of walk-in cold storage space. Big new equipment was purchased with the SBA Loan. The number of stockholders was now reduced to three; Demos, Pat Calhoun, and Chip McIntosh. The business was able to survive because of loans. Demos cut his hair.

The percentage of sales generated by the various product lines was tofu 50% or more, ice cream 10-15%, tempeh 20-25%, and nut butters 10-15%.

For several years Demos had been urging King Soopers to move his product line out of the produce section into the dairy section. In mid-1982, after studying a report on "The Tofu Market: Overview of a High-Potential Industry," published in May 1981, King Soopers made the move, in part due to customer demand. Initially sales were unchanged, since consumers couldn't find the product. But there was a big advantage to King Soopers: no shrinkage from spoilage because of the lower temperature. The margin initially went down to 15%, the same as for dairy products. This brought the price down. Later they got smart and raised the margins for tofu. Now its higher than milk but still less than produce. "I'm glad to see them making lots of money on our products, noted Demos."

In May 1983 White Wave made a major decision: to vacuum package their firm tofu. They bought a used Tiromat vacuum packager from a beef-jerky company in Los Angeles. Thereafter everything went wrong, so much so that that one machine "almost broke the company's back." Demos later called it "the curse of the devil," and his production manager would often ask only half in jest, "Do you think we are sitting in vacuum packaging hell?" They found that tofu is a very difficult product to vacuum pack, though firm tofu is easier than soft. They concluded that 30% of the problems were caused by the machine, 30% by the product, 30% by the operator, "and the rest was absolute karma." The process was very unforgiving, as was the machine's maker, which gave White Wave almost no support. They tried to disown the fact that Demos got stuck with a lemon. So White Wave had to solve all the problems by themselves.

Tempeh was now a doing very well. In about 1982 White Wave began to make its own starter culture in order to get better quality control and save money: Alexander Lyon, who happened to be in town, spent a week teaching them the intricate process for $100. They also began to sell all tempeh frozen, after steaming. The product line was steadily expanded. By 1983 the company had introduced a Tempeh Burger and 5 Grain Tempeh (with soybeans, millet, wheat, oats, and barley). By 1984 the burgers were the company's best-selling tempeh product (48% of tempeh sales), followed by frozen soy tempeh (28%), soy & rice tempeh, then 5-grain tempeh. Accounting for one-fourth of White Wave's sales in 1984, tempeh was now the company's most profitable line of products. Making 5,850 pounds a week, White Wave had become America's second largest tempeh producer (after Quong Hop & Co.) and distribution had reached California. In fact, tempeh had now passed tofu as White Wave's most important product.

Polar Bean was also doing well. In 1984 it won a silver award in the annual Natural Foods Merchandiser contest, and that summer a Polar Pal ice cream sandwich was introduced.

By 1983-84 White Wave broke the 10,000 pounds-of-tofu a week barrier and became a regional company, shipping tofu via many distributors throughout the midwest: Chicago, Detroit, Dallas, Salt Lake City, Phoenix.

Financial Crisis and Recovery. For most of its history, White Wave had been profitable, with plenty of cash and good financial records. Though the move to North 57th Court quadrupled their overhead, the company continued to make money for the first 2 years there, running a very tight ship. Then they started to encounter major equipment problems: a compressor breakdown and major non-stop vacuum packager nightmares. A maintenance team had to be hired. White Wave was growing into a company that needed management, but the sales volume could not support that. Sales were good, profits were small, and overhead was skyrocketing. This led to a slow tailspin, loosing $1,000 a month during 1983-84. These were not considered major losses but the upward trend had been reversed.

By August 1984 White Wave was $40,000 in debt and people were burned out. Decisive action was needed. In September Demos hired Lester Karplus to take charge of daily operations while he started to do a business plan to raise equity. But in the following months losses increased dramatically, to $10-$15,000 a month. White Wave lost a total of $60,000 during the next 6 months. Finally in February 1985, amidst his first real crisis, Demos fired Karplus and McIntosh, and took over whole company himself. His four-part strategy was cut overhead to the bone, to bring in new cash quickly, hold creditors at bay as long as possible, and implement a system of data collection (which Karplus had helped to develop) to generate better production and financial reports.

First, he layed off all managers (who were not producing day-to-day results. Future plans were put on hold.

In October 1984 Jason Bois, who had been around the health foods business for many years, approached White Wave to discuss having White Wave make him a soft serve soy ice cream. Demos advised against soft serve, but when Bois persisted, Demon developed a new soft serve formula for him, containing tofu and spray dried soymilk. Launched in January 1985 and marketed under the name Tofruzen, they failed within 4 months, for lack of a market. Bois quickly returned to Demos and beseeched him to develop Tofruzen in hard pack pints so that Bois could use these products to raise equity capital in a public stock offering. Demos had all the hard-pack formulas for Tofruzen developed in 30 days, using an improved version of his Polar Bean as the base mix but with totally new flavors (chocolate, strawberry, vanilla-almond). After Tofruzen launched the new products in mid-1985, they realized that they didn't really own anything. So Demos, with some unexpected luck and seeing a way to bring in new cash quickly, proposed that Tofruzen buy the title to the formulas for $25,000 cash, plus $25,000 in 6 months, plus interest. And White Wave would have an exclusive supply contract. Tofruzen agreed.

In December 1985 Tofruzen Inc. raised $1.6 million net in a public stock offering, and at that time paid White Wave its first cash. Tofruzen Bars followed in May 1987 and low-calorie Tofruzen Light in August. Once Demos saw that Tofruzen would be a successful product, he downplayed marketing of his Polar Bean. Tofruzen sales rose from $91,000 in fiscal 1986 to $158,000 in 1987.

Shortly after Karplus left, White Wave started selling its tofu in a colorful box. Karplus served as an agent to negotiate with advertisers and designers. The new package helped sales.

In mid-1985, to consolidate its business focus and bring in more cash, Demos sold White Wave's nut butter business to an employee for $35,000. White Wave retained 5% interest in the new company, which is now called Naturally Nuts.

To turn the tide of loosing money and get some badly needed breathing space, Pat Calhoun came up with a plan where she and Demos would call all the creditors and say, "Either we file bankruptcy or you allow us to payment off our debts to you over a one year period." All creditors agreed to this plan.

In July 1985, the moment of truth, the turning point, arrived. The company was $100,000 overextended (60 days behind in payments) and could not borrow money. Everyone was disheartened. Demos and Calhoun started regular sitting meditation again, recommitting himself to spiritual practice as central and profitability as essential. He recalls, "Once I got my priorities straight, things started to go well." Within 90 days White Wave had started to generate a positive cash flow. By mid-1986 the $100,000 debt had been paid off, and White Wave was once again accumulating cash and savings.

Demos decided to try his approach on another company, Soyfoods Unlimited Inc., a major tempeh manufacturer, which he had been offered an opportunity to buy. Having started tempeh production in February 1981 in San Leandro, California, Soyfoods Unlimited had grown to be America's third largest tempeh manufacturer by 1984. White Wave didn't have any extra money, but the offer made sense as a way to get distribution for White Wave products in California and the West Coast, and to increase production volume. So on 1 December 1986 White Wave made its first acquisition. The buyout took place over a period of time, with some cash down. By mid-1987 Soyfoods Unlimited had been turned around and was a profitable, wholly owned subsidiary. White Wave owned all the stock and had signed a supply agreement with Soyfoods Unlimited to supply them with everything. This acquisition, with all tempeh production for both brands done at White Wave in Boulder, helped boost weekly output to 17,000 lbs. a week by the fall of 1987, making White Wave the biggest tempeh manufacturer in the USA. Growth of tempeh was strong and its future looked very promising.

White Wave has long been one of America's most innovative tempeh companies, in part because of its faith in the potential and future of tempeh. Tempeh continued to be the company's most profitable product. During 1985-88 the tempeh line was expanded with a number of original and delicious varieties: Quinoa (6/85), Lemon Broil (10/86), Amaranth and Sea Veggie (both 3/87), Peanut-Sesame (3/88), and Teriyaki Burger (8/88). These also gave his product line more shelf space, a key consideration.

At King Soopers and Safeway, White Wave now had three shelves with tofu and tempeh right in the middle of the dairy section.

Tofu production was also strong, averaging 15,000 lb. a week in mid-1987. A future high priority was the plan to pasteurize their tofu to give longer shelf life. After several years of selling tofu vacuum packed in a box, White Wave introduced a water pack without the box for the Asian-American market and some Caucasians since they are not used to vacuum pack, and they prefer softer tofu, which cannot be vacuum packed.

By mid-1987 White Wave was back into high gear and growing nicely. Their space grew from 6,000 to 20,000 square feet. White Wave was one of the few Caucasian-run soyfoods companies that has been able to grow without selling most of the company. Demos' family has supported him to a large degree. He had borrowed roughly $25,000 from friends and family. The company still owed one-third on its SBA and Mountain High loans, and some to family. Assets were now about $300,000 and liabilities are $200,000. Since May 1987 White Wave had money in the bank and a growth rate above 30%. The 1987 sales projection was $2 million, of which 8-14% was expected to be profit.

In December, projected revenues for 1988 were $3 million. The company was in the midst of a private placement offering for $500,000 and the banks had approved equipment loans for $600,000. They have put in a bid to purchase an old (built in 1978) meat processing house on 2.4 acres in Boulder.

The Future. New products to be launched in 1989 include several meat analogs (tofu hot dogs/franks, due in March, aimed at the mainstream market concerned with cholesterol) and a soy yogurt.

Demos has set a number of goals for White Wave. First, to become the major primary soyfoods ingredient manufacturer in the region, and to maintain a profit margin of least 10%.

Second, to make the concept of an clearly delineated and identified "Soyfoods Section" in the dairy case, succeed at King Soopers and Safeway. Set off with plastic dividers between yogurt and milk products, the section would be filled out with second generation soyfoods products. This new concept would allow him to compete with larger tofu manufacturers (such as Azumaya or Hinode) who are lower priced but sold in the produce section.

Third, after (and only after) the Soyfoods Section concept does succeed, to approach other chains with the same idea and ultimately to get into the whole Kroger chain of 400 stores in the Midwest.

Fourth, to develop new tofu-dairy blends to reach the mainstream. For example, a vacuum packed tofu sold next to cheese, that tastes like cheese (it doesn't have to melt); it could be mixed with cheese or flavored like cheese. Or a tofu cheesecake made of half tofu and half cream cheese, that was virtually identical in flavor and texture to all-dairy cheesecake but was lower in cholesterol, saturated fats, and calories.

Fifth, to give major attention to tempeh product development. Demos thinks that tempeh represents a vast future potential because Americans like it better than tofu (though it is still largely unknown), it offers good profitability, and the competition is not as severe as with tofu.

Source: Interview with Steve Demos. 1987. June 3. Lafayette, CA. _