SMEs and Covid: how Doug Hines and his bank kept Loma Linda in business

From where Doug Hines is sitting early one Monday morning in June, he can see the house of Mick Fleetwood, co-founder of rock supergroup Fleetwood Mac. Maui, the second-biggest – or sixth-smallest – of the Hawaiian islands, doesn’t sound like a bad place in which to self-isolate.

“There’s no safer place in the world to be right now,” admits Hines.

But he is more integrated into the fabric of Maui than most who come to visit. He’s an investor in Fleetwood’s on Front Street, a celebrated bar-restaurant that Fleetwood himself set up in 2012.

Exactly how Hines ended up involved is blurry – he blames a long night in Vegas. But he already had a house in Maui and selling food is his passion. Among other business interests, he is the chairman and principal owner of Atlantic Natural Foods (ANF), which makes shelf-stable vegan seafood alternatives. The best-known brand is Loma Linda, a vegetarian food business originally set up in 1890 by Dr John Harvey Kellogg of breakfast cereal fame.

Hines wasn’t always into alternatives – he used to be involved in businesses that fished and sold real tuna. AFT Holdings, the entity through which Hines owns ANF, was until 2018 the biggest shareholder in the US-flagged tuna fleet in the western Pacific. But over time he has embraced the importance of protein sustainability.

In December 2018 ANF launched Tuno, a tuna substitute that is sold under the Loma Linda brand. Given trends towards plant-based eating, Hines’s conversion certainly looks prescient. Shelf-stable products also fit the bill in an age of lockdowns.

Despite everything, performance has been so strong that the company was able to announce on May 21 that it would be producing two new products – the Hawaiian Bowl and the Ultimate Vegetarian Chilli – and increasing production in its North Carolina and Thailand facilities. The revenue run-rate is up 40% year on year, Hines says.

In 2011, Hines bought ANF out of Bumble Bee, where he had been chief operating officer and which had been acquired in 2010 by private equity firm Lion Capital.

For working capital he settled on Bank of America, which was able to give him a line of $500,000. That was fine for a few years, but in 2014 came the opportunity to acquire the Loma Linda and Worthington Foods businesses from Kellogg. ANF had been the sole producer of those brands on behalf of Kellogg since 2008. Up went the credit line, to $3 million.

The business grew. By 2012 it was taking in about $13 million a year. By 2016 it was closer to $18 million. In 2019 it was about $28 million – with a forecast of over $40 million for 2020.

His credit line now sits at about $6.5 million, including an over-advance limit of $500,000. Bank of America, he says, has been more flexible than others in his experience.

“I have big customers that might only buy two or three times a year; and when that happens I might exceed my weighting with one customer,” he says. “But BofA has been very accommodating. There are other banks that would have auditors all over you if you missed one number.”

Business owners hate frequent changes to their point of contact with key lenders. Bank of America’s relationship bankers have changed over the time that Hines has been a client but not often. “And one thing that is really good is that the credit people have stayed fairly consistent,” he adds.

His needs are fairly simple – working capital and an overdraft if necessary. He has a few foreign exchange requirements but not enough to trouble Bank of America with.

“To be efficient with that, I’d need to have about $5 million of needs to tap into their next product up,” he says. For the moment he uses other routes to buy FX contracts himself.

The coronavirus crisis has laid bare the fragility of vast numbers of businesses to a sudden demand shock. What’s less often appreciated outside the world of small business finance is how that shock can work both ways. Financing is often provided against inventory as security. Selling too much too quickly can cause havoc.

Hines had a taste of that in December 2019, with a big order from Costco that put stress on the company and meant sitting down with Bank of America to rework his facilities. Panic-buying in the pandemic would later add a similar pressure.

He was into that crisis earlier than some in the US. His production facility in Thailand – which he was in the process of expanding with Pataya Food Group, his partner in joint venture Healthy Life Foods – was already being disrupted by Covid-19 well before the crisis hit US shores. Huge demand as shoppers cleared shelves meant that his inventory in forward warehouses in North America and the UK sold out in three weeks.

But the Asian presence was a benefit. “We were able to see this coming – we’d seen it before with Sars,” he says. “We have 125 people in our North Carolina factory and we were purchasing PPE [personal protective equipment] for them back in January.”

Hines ordered the facility in Thailand to be closed to all non-employees in mid-February, extending the measure to its North Carolina plant in mid-March. The company also added extra sick leave days for its employees, as well as extra cash payments every two weeks to help with emergency needs.

Hines was confident, however, that a business like his would be more resilient than some during the pandemic.

“When the crisis hit, it was bedlam for about six weeks,” he says. “I told my managers, don’t worry about it – it will level off. There will be a shift from eating out to in-home eating. After all, one third of the population has never made anything before.”

Being prepared mattered to Hines in more ways than one. When Dr Kellogg set up the Loma Linda business back in the nineteenth century, it was chiefly to be a supplier to the Adventist community. That’s a mission that persists to this day.

“Our number one job is to provide the primary source of food for a select group of dedicated consumers, including Seventh-day Adventists,” Hines said in a March 16 statement detailing Covid-19 measures the company was taking. “Without us, this group will have limited to no food options as we are the last producer of certain products they seek, so our responsibility to continue producing safe food is great.”

The planned extra capacity the company has announced in the US is intended to support domestic growth, but Hines says supply chain resilience has been good throughout the pandemic, despite the challenges of running a facility in Thailand.

“You can’t do new products as quickly and it’s harder to make adjustments, but there has not been too much disruption,” he says. There have been shortages, but they are manageable – not least because the raw products are easier to deal with.

“Dried beans have been very short globally, from high demand but are now coming back. Plant-based products don’t have the same issues as live animals in production as there is more spacing to allow distancing.”

Hines was better prepared than some but certainly wasn’t in a position to ignore government help when it was offered. Sure enough, he applied for the Paycheck Protection Programme (PPP), run by the US Small Business Administration (SBA), in the first tranche of applications, which ran from April 3. He was applying through Bank of America, which deals with Hines through its small business unit in Raleigh, the capital of North Carolina.

He got nothing. “I think the first one went badly because the SBA found that granting loans to big companies was easier,” he says.

It wasn’t Bank of America’s fault, but Hines had to write to someone. So he wrote to BofA chairman and chief executive Brian Moynihan. “I told him how disappointed I was and how much we as a small company needed this support.”

Moynihan wrote back. It wasn’t a long note, says Hines, but it thanked him for also appreciating the efforts of the BofA team. And Hines soon had good news. The second tranche of PPP opened up on April 27 and this time ANF was accepted.

“I had our BofA relationship manager on the phone to us at 2am their time ensuring that our loan got processed and then at 5am to let me know it was all taken care of.

“She didn’t have to do that.”