Watkins extracts and spices make headway into grocery stores

With over 100 years in the spice business, it's about time J.R. Watkins Co. made a splash on the nation's grocery shelves.

The Winona-based consumer products company, long known for direct sales, has been shifting its focus to retail outlets, from Wal-Mart to Cub Foods. The company's extracts — vanilla, lemon, almond, etc. — are now the No. 2 U.S. brand. And it's making a major push into a broad array of spices and seasoned dry dinner mixes.

Still, privately held Watkins, which also makes personal care and home care products, faces a major battle in broadening its food business. The retail spice and extract market is ruled by Maryland-based McCormick & Co. — other brands are almost afterthoughts.

"Consumers really haven't been given a choice in this category because there's been such a ­dominant brand," said J.R. Rigley, Watkins' president and chief marketing officer. "We're a challenger brand."

Fortunately, spices are one of the faster-growing sectors of the packaged food business. "It's a pretty good market," said Brian Yarbrough, an analyst who follows McCormick at Edward Jones.

Generally, the packaged food industry is growing sales in the low single digits, while spices are growing at 4 to 6 percent. "Most people wish they had that kind of growth," Yarbrough said.

Watkins is experiencing double-digit growth in both spice and extract sales as it widens its distribution. The company is one of Minnesota's oldest, founded in 1868 when J.R. Watkins mixed evergreen and red pepper extracts to create Watkins Original Liniment Oil. The product is still sold today.

But those days are long gone. While Watkins still has a contract sales force and sells products online, supermarkets and other retail channels make up the majority of its $120 million in annual sales.

The company has 250 employees in Winona, where it has a factory and offices, and another 10 employees at its marketing outpost in Wayzata. Watkins has been owned since 1978 by prominent Minnesota businessman Irwin Jacobs, whose son Mark has run it since 1996.

The company has been transformed under Mark Jacobs, particularly as Watkins has pushed further into retail channels in recent years. Its venerable vanilla extract — previously sold primarily in 11-ounce bottles — was launched in supermarkets in a small bottle more typical for that setting.

Now, grocers carry 26 Watkins extracts, and the company had a 5.4 percent share of the U.S. extract market during the year ended Nov. 3, according to IRI, a Chicago-based research firm. Watkins was the second-leading branded player in extracts, with McCormick nabbing first with 52 percent. Private-label brands had a 23.6 percent share.

"That's our goal, to be the No. 2 brand in these categories," Rigley said. "We feel what we did in extracts we can do in spices and dry seasonings."

But spices are a much bigger market than extracts — $2.1 billion for the former, not including pepper and salt, compared with $327 million for the ­latter, according to IRI. So even small-share gains can lead to a nice sales boost. And U.S. cooking trends favor the spice business, as the foodie revolution has taken hold.

"Spices and seasonings have been a strong category because consumers have been cooking more at home," said Erin Lash, an analyst at Morningstar who follows McCormick.

Seasoning mixes — a base for meals — also have become more popular, and again McCormick leads the market. Plus, dry seasoning mixes compete to a certain extent with an array of newer sauce-based dinner starters from such heavyweights as Golden Valley-based General Mills and Kraft Foods.

But Watkins is giving it a go, too, releasing its own dry seasoning mixes this fall: chili, taco, turkey gravy and brown gravy. The company has rolled out the product at Menards, and it's been pleased with the response.

"It's one of our top-selling products at Menards," Rigley said. "That's a good indication for its future."