San Francisco Business Times
Food and Beverage Innovators (Full Transcript)
On June 17, 2015, the San Francisco Business Times held a forum to discuss the sustaining strength and continuing innovation in food and beverage manufacturing in the Bay Area with a group of executives from local F&B businesses. The conversation was hosted by the accounting firm Sensiba San Filippo LLP and moderated by San Francisco Business Times publisher Mary Huss.
Panelists (in order above)
Helen Russell – CEO, Equator Coffees & Teas
Jon Sebastiani – Founder & CEO, Krave Jerky
Todd Masonis – Co-Founder & CEO, Dandelion Chocolates
Nicolas Bernadi – Vice President of Food, Munchery
Chris Cuvelier – CEO, Zola Fruits Of The World
Matthew Jacobs – Senior Director, AlgaVia Solazyme
Mary Huss – Publisher, San Francisco Business Times
Karen Burns – Partner, Sensiba San Filippo and President & Co-Founder of East Bay Manufacturing Group
MARY HUSS (SFBT—Moderator): I’m Mary Huss and I’m publisher of the San Francisco Business Times, and on behalf of our title sponsor and partner Sensiba San Filippo, we are very delighted. We are going to present what I would call an up close and personal conversation with six fascinating leaders and innovators who can see manufacture brand and sell stuff with all love to eat and drink. Actually, many speakers as you have seen brought us some fun stuff to eat and drink. I’m now addicted to Krave jerky. I ate a bag of it this weekend. So try that. There’s chocolate and coffee and coconut water. I’m not sure I recommend the algae, but I understand we have some in the house. I want to thank all of the bay area is renowned for creating its mark in the food and beverage industry and there are so many great products and brands that have grown up here and continue to do so. This morning we have news. A couple of years ago, we saw the Starbucks and La Boulange merger, and then there’s the evolution of this story. Today they announced that they are going to actually shut down the stores of La Boulange, and continue, of course, with the great food from La Boulange and Starbucks. So we invent trends here. The rest of the country follows.
So today we are really going to take a look, as I say, inside of minds of our really inventive food producers and we are going to take a look at what’s driving that innovation and what some of the trends are, the role of tech in the food and beverage business as well as some of the common challenges and opportunities these companies grapple with. We are going to look through that lens of innovation and we are going to take — what does it take to foster that culture of innovation? Even when a company becomes 25 years old, you know, as these companies are at various stages. So I really — I had an opportunity to chat with all of the panelists before this and really fascinating. So I know you are going to enjoy this. There are actually a few instances of six degrees of separation. They have many valuable stories of best practices to share.
So before we begin, I do want to thank our sponsors for making the event possible. And again, Sensiba San Filippo for being our sponsor and you are going to hear from our Karen Burns, who is a partner at Sensiba and very trusted advisor for the food and beverage industry in the Bay Area and a leader in food and manufacturing as well. So I’m going to let her speak on behalf of the firm, which has offices in Pleasanton, San Mateo, San Jose and Morgan Hill. And I want to thank our partner sponsors Nixon Peabody and also Rabobank, each with great expertise and many clients in the food and beverage industry, and you are going to hear just a brief minute from the experts at the bank, Rabobank and Nixon Peabody, which is an international law firm with over 600 attorneys worldwide and three California offices, San Francisco, Silicon Valley and Los Angeles. I want to thank David Kaufman, who is director of regional sales and national marketing and business development at Nixon Peabody. I screwed up your title, David, but he does big things, big things. And Rabobank is a global leader in ag financing and sustainability oriented business. And you are going to meet the leader of the San Francisco office, Manuel Gonzalez Guzman, and you will see little notes about their Food Bites program, which is a program I think it’s on the 25th next week. Maybe you can snag an invitation to that. So we’ll meet them until just a moment.
I also want to thank Carr McClellan, our supporting sponsor, and covering the food and beverage industry is very important at the San Francisco Business Times. So I want our reporter Andy Shatka to stand up. So get to know Andy if you don’t already and definitely follow her both online and in print. She really gets inside and discovers a really lot of amazing entrepreneurs. So the great Andy. And today we will be Tweeting, so you want to join the conversation. And let’s see. That’s going to pop up. Is it SFBTF? And is that right? So join the conversation. We will be recording the conversation and will transcribe, edit, and there will be out takes in a future edition of the Business Times. So if you subscribe, you get all of this. So you might want to leave your business card and we have a drawing at the Business Times table and you can hear about your subscription for being our guest this morning.
So now, since we have such expertise in our room, I thought I’d give you a chance to briefly hear from our partner sponsors before we get to Karen Burns from Sensiba. So I’m going to ask that they get 30 seconds. So we are going to time them, and they are really going to talk about what is the unique service that they offer to the food and beverage clients in the Bay Area. And we will hear from them. So from Nixon Peabody, please welcome Bruce Copeland who is partner and chair, who is our favorite west coast beverage and alcohol practice. So Bruce Copeland.
BRUCE COPELAND (Nixon Peabody): Thank you very much. Welcome, everybody. Thank you very much for the opportunity to sponsor. Nixon Peabody, again, nationwide firm. It’s going to be tough for me, because I am a lawyer, to talk for 30 seconds, but I’ll do my best. I have one thing to say first. Go Warriors.
No pun intended, we try to be soup to nuts to the food and beverage industry. I spent a lot of my time as a litigator, but I think in the last five years, I’ve spent more of my time trying not to be a litigator because that’s in the best interest of the clients and we have a small regulatory group, employment group, transactional, so on and so forth. I’m finding myself working a lot more with those people, some of whom are here at this table, to try to prevent the bad stuff from happening, a little bit like the old Ben Franklin, an ounce of prevention is worth a pound of cure. So we love working the food and beverage industry. We’ve spanned the arena here on the west coast and on the east coast. It’s an ever expanding arena that is a huge tech investment in food and ag now. So we are very much enjoying it and looking forward to meeting everybody in the room and continuing to sponsor this event. Thank you.
MARY HUSS (SFBT—Moderator): Thank you. You did well. Not quite 30. And I forgot to say go Warriors, for Heaven’s Sake. So thank you for doing that for us. Now, from Rabobank, please welcome Manuel Gonzalez Guzman, who is managing director at western region at Rabobank.
MANUEL GUZMAN (Rabobank): Thank you, Mary. This is very impressive. I had no idea. Very nerve racking. Jesus. Well, Rabobank was founded in the 1890’s by Dutch farmers. So all we do is food. So food is in our core, and because of our focus, we can work with clients all through the value chain and we are very happy to be here, again, very, very impressed and for Food Bites now we are taking the first step in food innovation. And thank you for having us.
MARY HUSS (SFBT—Moderator): Thank you. All right. Appreciate that. Now, on with our program. And to open the program and really set the context and the stage for our conversation with our food and beverage leaders, please welcome the very knowledgeable, I always learn something from her, Karen Burns, who is the assurance partner at Sensiba San Filippo. She’s provided financial and business consulting services for over 20 years, has a particular passion for the food and beverage and manufacturing industries. And she was instrumental in the founding and the leadership of the East Bay Manufacturing Association. So please welcome Karen Burns.
KAREN BURNS (Sensiba San Filippo): Good morning, everybody. So Bruce kind of stole my intro. I was going to ask if we had any Warrior fans in the house. I’m assuming yeah. I wore my Warriors blue this morning.
Today’s program is all about innovation. And is Steve Kerr not the master of innovation? I mean, who puts a guy in who has started zero regular season games and goes on to win the final MVP. Right? You’ve got to take risks if you are going to innovate, and certainly we saw that demonstrated over and over again by our Warriors. There’s been so much discussion around sports lately that really it kind of brought to my mind a favorite quote that I have, and it’s, “You always miss 100 percent of the shots that you don’t take.” Anybody know who said that? The great Wayne Gretzky. That’s correct.
It may seem kind of obvious, well, if I don’t take a shot, then obviously I’m going to miss it. But really in business, innovation is hard. It’s scary, but it’s necessary to survive and to thrive. This morning, I have a challenge for all of you as you listen to our panelists. I’d like you to assess your own teams, determine whether you have the right players and the right products to win. If you do, you will set yourself apart from the competition. We certainly saw that. Here in the greater Silicon Valley, technology is everywhere and essentially oozes innovation. Right?
Technology really impacts the way we think about food and our food habits as well. Just look at all the kids on the PS 4’s and the mobile devices and the increase in obesity, lack of exercise, unhealthy snacks. Think about the social evolution that we’ve been through, from stay-at-home moms making dinners to families working to survive to make a living to needing things to be instant; a lot of dining out, a lot of immediate need to have things. And what happened, technology influenced that. Right? It enhanced our foods. Now we have a new generation that says, “Maybe some of those enhancements weren’t exactly healthy for us.” So now we have a shift to sort of a healthy convenience because it still needs to be quick. Right? So now we see things like Blue Apron, E 24, and today we are going to hear from Munchery.
Specialty food is also on the rise. The Specialty Food Association recently published their report and they indicated that since 2012, specialty food has increased 22 percent and is now a $109 billion dollar industry. Compare that to all food categories which have just risen a mere 2 percent. Retailers have had to evolve. What once was a shelf dedicated to specialty food became an aisle. Aisles have now become entire stores. In fact, now, over 80 percent of specialty food is actually sold through the mainstream stores. Manufacturers have also had to evolve. 94 percent now offer some kind of all natural food product. 57 percent offer non GMO alternatives. And 55 percent say that they are planning for gluten free products in 2015.
Quick and fresh is the highest rising category in the food sector of specialty foods. Energy bars are up 20 percent, refrigerated dips 19, and refrigerated pasta, 17 percent.
Lots of statistics, but just wanted to show you and demonstrate the significance of specialty food and really the significance of those companies and the way they had to innovate.
Many of you in the room are food and beverage companies, but many of you are also service providers. And you may be asking yourself, what does this have to do with me? I’d like to give you a really quick example. Sensiba San Filippo, CPA firm, advisor to food and beverage companies, we had a model that was very similar to most service providers and that was an eat what you kill compensation model. Go out there, find the business, get it done, make some money. And what we found was that if we wanted to do something new, we had to stop doing something old. You may have heard Peter Drucker say that. So essentially what we decided to do is get really good at our technical discipline and to focus by industry sector and get really, really good at that as well. I lead our manufacturing distribution practice with a subsector specialty around food and beverage, and the leaders in our firm took it to another level. We said, “Customers want to work with people who make their lives better. What else can you do besides offer what everybody else offers?” So Mary mentioned we started the East Bay Manufacturing Group. It’s an organization that’s dedicated to food and beverage executives to come together and learn and share their best practices. So essentially, innovation is hard and it’s scary, but it is necessary if you want to survive and thrive. Determine what your competitive advantage is, continually work to refine it and redesign it, and if you do, you will have better customers and better margins. Take it from a CPA. And you might even be the NBA champion of your chosen niche. Thank you.
MARY HUSS (SFBT—Moderator): Thank you, Karen, and thanks again to Sensiba. All right. So now I’d like to welcome our panel to the stage. And just to let you know how this is going to go, we are going to let them all kind of self introduce. I’ve got a lot of questions for them. Intermittently, I’ll turn to you and ask if you’d like to ask a couple of questions, and then I’ll turn back to mine. So let’s see. I’m going to call you in the order, I hope, if I do this right, that you will be coming up here. So let’s have Jon Sebastiani, who is founder and CEO of Krave jerky. Got a nice display of that.
I’m not good. And then we’ve got Helen Russell, who is co-founder and CEO of Equator Coffees and Teas. And then we have Chris Cuvelier, who is CEO of Zola Fruits of the World, and we have Todd Masonis, co-founder and CEO of Dandelion Chocolates.
We have Matthew Jacobs, senior director AlgaVia Whole Foods Solazyme Incorporate, and we have in Nicolas Bernadi, who is Vice President of food at Munchery. And Nicolas actually has to leave us a little bit early, so we put him on the end, and we’ve given him permission to just exit at about 9:20. So if you see him stand up, hopefully it’s not that he’s ticked off, that he actually just has a board meeting, I think.
So anyway, thank you. And as I make my way over there, I’m going to sort of give you our question. Each person gets three to five minutes to just really give us some context about who they are, about their company, the products they manufacture, and so you are going — they are going to paint the picture for you with this opening question. So let me ask that, and it’s really tell us the story of your company, a little bit about how it started and how it’s grown. Make sure we understand your product or products and maybe a little bit, where do you manufacture? This is a lot. They are not going to remember all of this. And a little bit about size and scope, number of employees, if you want to share revenues, we always like to hear that, and then once we’ve gotten that, if you will just give us something about a current greatest challenge or maybe something new that you are really excited about and I will just frame it as what keeps you up at night?
So anyway, we’d like to — we are going to start here with Jon Sebastiani.
JON SEBASTIANI (Krave): Thank you very much for having me. It’s an honor to be here. We have our Krave jerky bar in the back. Everybody wave to our guy in the back corner.
I’m from Sonoma. I come from the wine industry. So you’d think how in the world do you go from wine and Sonoma to jerky? It was the earlier speech, talked about innovation and talked about risk taking and talked about, you are not going to get the goal from the shot you didn’t take. My story began with my family selling our winery in the 2005 to 2009 range. And at that point in my life, I had to look in the mirror and figure out what I was going to do next. I had gone through college, gone through my 20’s and 30’s in the wine business and at 35 sort of had to reinvent myself and figure out what was going to be next. And during that process, I looked at a lot of different ideas. Certainly the wine industry was what I knew being a fourth generation member of the Sebastiani family. But what struck me as I was preparing for the New York Marathon was as I was training I was eating jerky. I was eating it for a functional purpose. I was looking for protein, I was looking for a low calorie, low fat snack. I was looking to get lean. And it just hit me like a ton of bricks that here was this category in the United States that was completely misunderstood. This category was viewed by most consumers as a junk food full of nitrates. It was most commonly thought of as a gas station snack food. No health person would ever think about eating this. Moms wouldn’t give it to their kids. Females wouldn’t even be seen with it in their possession. So it was a classic disruption. Could I change this category? Could I bring a health awareness to it? Because made properly with no nitrates and no artificial ingredients, this was a healthier snack than Chobani Greek Yogurt or a Kind Bar or Pop Chips; more protein, less sugar, less fat.
I had a great early team in Sonoma growing up in the food and wine business but really sought out to make a product that would disrupt every element of what people typically thought. It had to be moist. It had to be all natural. It had to have creative flavors like basil citrus and sweet chipotle. And we set out in 2010, we started our company. Our first year we did $300,000, and what was amazing is immediately in the NorCal marketplace, we saw the consumer beginning. When they bought it once, they’d come back. They’d tell three people and we would begin to see this mushroom effect in the stores that we were in. So we went from $1 to $5 million the first year, from 17 to 35, and this year we’ll do close to $75 million. And many of you know — thank you — that as an entrepreneur, as an innovator, our brains never stop thinking about other opportunities, and one of the goals of ours was to create a material company that may ultimately merge with a larger company.
So in early — of this year, we announced that we were acquired by the Hershey Corporation, which was a tremendous sort of sense of accomplishment from what our Krave team set out of do, but also how much we changed that category was that we were noticed by the Hershey company that also realized they needed to change their business model because America is not eating sugar and chocolate like it once did. So for the Hershey company to pick Krave and jerky as their first step into the snack space is just incredible. So we are in the middle right now of an integration with Hershey, Pennsylvania, which is amazing to go from small start up to multi-billion dollar company. They intend to keep Krave in Sonoma. They intend to maintain that entrepreneurial spirit in Northern California. It’s a great area that we live in and it’s going to be exciting to see how this rolls out. Thank you again.
MARY HUSS (SFBT—Moderator): So I do have to ask, are we going to see chocolate covered jerky?
JON SEBASTIANI (Krave): I mean, definitely when we have entertaining, whether it be a show or a meeting, we dip the meat in chocolate. In fact, there are a few chocolate bars out there that use a meet snack in their product. So I think definitely it’s a good snack. I don’t know if Hershey will ever wrap it up that way.
MARY HUSS (SFBT—Moderator): Anyway, but thank you very much. So next we have Helen Russell, who is co-founder and CEO of Equator Coffees and Teas.
HELEN RUSSELL (Equator): Thank you, Mary. My name is Helen Russell. I am co-founder and CEO of Equator Coffees and Tea. I want to thank Mary for inviting me today. I want to give Mary some credit because Mary, San Francisco Business Times had their first awards for LBGT and we were number six last Thursday evening. So thank you, Mary. I’d also like to call out attention to two of my team members, two of the 93 employees that we have is Naya back there and Ian Holiday, my millennials that I went into the company with.
So Brook and I started Equator Coffee as all great companies start at a garage in Corte Madera, California 20 years ago. So we are celebrating our 20th anniversary right now. And back in the day, we were flipping real estate houses up in Portland and Seattle and saw the whole coffee thing happening. And we were looking for jobs, because I was selling voice and data networks for MCI in Boston. Can you imagine selling voice and data networks and now being in the food industry? You can’t see it. You can’t taste it. You can’t do anything with it. So it was quite boring. Economically it was great, but it was like, I want to do something more. So we were sitting outside of Starbucks. Starbucks comes up again. Talk about why I stay up at night. So I woke up this morning and now Starbucks is closing all the La Boulange’s. So $300,000 just fell out of the checkbook again, and we’ll talk about that in a second, because we were distributing them tea and chocolate. And I was wondering when Starbucks were going to realize they already own a tea company and they were buying tea from Equator. But that’s another story.
We started writing a business plan. We said, you love chocolate. You love coffee. You love wine. We love business. We need jobs. We are in our early 30’s. Let’s write a business plan and let’s open up a coffee shop. So we wrote a business plan. We drove back to the Bay Area. We opened up two coffee bars called Europa Espresso Bars. One was at 60 Spear Street and the other one was in the East Bay. So believe it or not, I was a barista. You can’t see my tattoos because they are underneath this blouse, but they are there. You need to have tattoos to be a very good barista. So we started. Brook put together the products, started buying green coffee from all over the world and was tasting it on an espresso machine. She has a really good palate, and I started talking to anybody that would listen. 20 years later, we’ve grown this business by attracting people like Thomas Keller from the French Laundry, growing with him and Bouchon and putting all of these blends together. Joie de Vivre Hospitality, here in the City, we worked with them for 17 years. Tracy De Jardin was an amazing partner and continues to be a great partner.
But what happened along the way was that all the competition came into the space with all the great coffee roasting companies that we have here in the Bay Area. So as we were growing and borrowing from the brands Thomas Keller and Pascal and Chip Conley, we needed to do retail because you can be the first coffee roaster in Northern California to sell fair trade coffee. You can be roaster of the year in your industry. You can win the good food awards. You can do all these wonderful things. You can provide health insurance for all your employees. You can be a benefit corporation, B corporation, be the first roaster in the United States to be a B corporation, but unless you have a retail space and coffee to experience the brand, you can’t continue to grow wholesale.
What we did was we decided three years ago, and about five years ago is when I should have done it, but I turned 50 and decided we are moving along, 21 we are doing well, and all of a sudden pops up and there’s 300 coffee roasters on the west coast. There’s 30 coffee roasters on the east coast. So some of things that we had to do to innovate was we had to talk more about our sustainability initiatives and stop keeping it so quiet. So we were the first company to have a sustainable coffee roasting system called warring. We are saving 80 percent of natural gas. We were one of the first roasters in the US to own our own farm in Panama, which we will have our first harvest this year.
Having retail really drives wholesale, and what we are doing now in terms of innovation is we are layering the company with the next generation. We’ve gone from 400 pounds a week to 17,000 pounds a week. We’ve gone from $7 million when we woke up one day and Pascal called me and said, “I’m going to be wearing green shorts this afternoon. You’re going to hear it.” I said, “What do you mean?” He said, “Starbucks is buying La Boulange.” Boom. One point million dollars worth of revenue fell out of the checking account. So we had to be — thankfully we were financed well, and you know, we were really boot strapped and tight in terms of what we did and we were able to recover, and we grew that by doing 22 retail.
Now in terms of numbers, we are $12 million-dollar business. We have 93 employees. We are layering it with the next generation. And the innovation for us, if you go into our retail stores, 70 percent of the Americans drink coffee. Single serve. Everybody is buying these Keurig machines and you are going into people’s houses and people that I know, they are friends, I always check their freezers and see what’s in there. If I don’t see Equator, I’ve got to go. And then they have this Keurig and they try to tell me it’s, you know, “I don’t have time in the morning,” and they are throwing it into, you know, it’s going into the waste pile and it’s terrible for the environment, the Keurig machine. So if you go into our stores, you will see coffee brewing equipment, you will see single serve, you’ll see the Equator flag, you will see that 20 percent of the differential that we pay for the Sumatra that goes into that particular coffee goes to the Tiger Trust. We hire a ranger in Sumatra. He wears a little black outfit. He’s out there decoupling these chains that will take the tigers.
So we are doing all these things. We are doing 23 micro credit loans. We are doing food security projects. We are doing all these things that will allow us to innovate and to attract. We are all trying to attract great employees because they have a choice here in the bay area. There’s so many great companies here they can work for. So how do we attract them? It’s all about our stories. There’s a lot of commodities up here. Coffee is a commodity. You think about a fortune cookie. When you take out the story, now you have a brand and it’s something that you talk about and be proud of. And people come and that’s how you grow. So we’ve been very fortunate to be sitting here for 20 years growing this business. I hope I’m here for another 20 years and I hope that Naya and Ian Holiday can take over this business so I can take a step back and enjoy the farm in Panama. Thank you.
MARY HUSS (SFBT—Moderator): Thank you so much. So let’s now move to Chris Cuvelier who is CEO of Zola LA fruits of the world.
CHRIS CUVELIER (Zola Fruits): Good morning, everyone. We need to start that over. She just spoke so fast and has had a lot of coffee this morning. So you guys we need to bring some energy from this side of the room.
Good morning everyone. Now we’re talking. Okay. My name is Chris Cuvelier. I’m the founder and CEO of Zola Fruits of the World. I’m located here in San Francisco. If you want to share products, we are back there in the corner. We’ve got Alli and Devin back there. Give them a quick wave. We will be happy to sample you some of our stuff.
I’m going to tell you a story about how we got started and I’ll weave some innovation into that story. I was in the juice and smoothie industry back in the ’90’s, and in 2000 I got a call from a guy in Brazil talking about this new fruit called acai’, and he had a very thick Portuguese accent. He talked about this fruit that had “Vitaminas” and “Energia” and said it was becoming a cult like fruit down in Brazil. So over the next year, I had heard about it a couple more times and decided to go down there and check it out. We went to the beaches. We saw people eating acai’ bowls. How many people are eating acai’ bowls now? It’s very interesting. Acai’ had this big wave and now there’s a resurgence with acai’ bowls. There’s even some of those food trucks out here that are selling acai’ smoothies and acai’ bowls, which is great to see.
I went down to Brazil, found the culture and saw that the Brazilians had this culture of energy, living life the fullest, and we decided we wanted to get into the business as the world’s first packaged acai’ juice. So we raised $650,000 from friends and family, developed a one sku line, sold it into Lunardi’s markets locally, sold it into Whole Foods and started sampling like crazy. The problem was no one really knew what this fruit was, and there wasn’t any — there wasn’t a lot of other brands really talking about the product. And then in 2005, Doctor Oz started talking about acai’ on Oprah talking about it being a super fruit, and that really got the awareness going. A couple other brands got in the market. We started expanding our distribution. And in 2006, we got our first equity infusion from Bloomberg Capital out of New York. They gave us our first $1 million. And at that point, we were running the company out of a 949 square foot condo that we owned over in Cow Hollow. And we had a second bedroom, was literally an eight by ten bedroom, and we had a woman named Adrianna who had a front door key. So she showed up. She was our office manager, and I was out doing sales. My wife and I were doing demos ourselves at Whole Foods and Real Foods and Lunardi’s markets, anywhere we could to really start to get some traction. Once we started getting traction through some investment, we were able to hire some more people. We launched a couple more sku’s. We got organic certification. And sales really started growing. So we weren’t quite on the growth track that Jon was on, which is pretty amazing, but we were more of a steady 30 percent year over year growth. In 2010, the acai’ category really started flattening out. There was some pill companies that took the romance story of acai’ and the energetic side of Brazil and started selling pills that supposedly made you lose weight. They were taking credit cards. They would send product to you. You couldn’t cancel. You couldn’t get a hold of anybody. And I think the message around acai’ got very convoluted. People were saying weight loss, energy omegas, antioxidants, beautiful hair and skin, and it got extremely fragmented. We decided we needed to pivot. We could not continue to grow the brand at 30 percent a year unless we brought in a new product. So we looked at the coconut water space, and at that point it was about four, maybe five years in. Through my travels in Brazil, I had tasted coconut water. I was a consumer. I loved that it was focused around one functional benefit, which was hydration. But the problem was it tasted terrible. How many people drank coconut water? Yeah. So we would go see a buyer and people would say, “Coconut water tastes like dirty socks.” You would see that in articles in the Wall Street Journal when they were talking about it. That dirty sock reference just kept coming up.
We went all over the world. We could have gotten coconut water from Brazil, Mexico, India. It’s grown in a lot of tropical places, and we realized the best tasting coconuts came out of Thailand. So what we did, our innovation really was taking a product that tasted great. We had packaging innovation that none of the companies had seen at this point, and a lot of the companies in the space at this point had investments or had been acquired by either Coke, Pepsi or Doctor Pepper. So we were coming into the category very, very late. When we launched in 2011, it was already a $300, $400 million dollar category. It was still growing at 40, 50 percent a year, and people thought we were nuts. But what we had is a route to market build through our acai’ business in the produce department. So instead of going head to head with coke and Pepsi where they had more resources, whether it was people or dollars or data and all the resources a big company has, we said we are going to put our product right in the middle of the produce department where we don’t have to pay slotting fees, where we can build huge displays, make people trip over the product, and instead of investing in big ad campaigns that are untargeted, we are going to invest to build displays, drive promotion, get trial because our product tasted better.
Within two years, we were the number four in the mainstream coconut water brand in the grocery channel. We were driving more dollars than Naked juice coconut water, which was the same number of sku’s. They had three times more distribution and they were owned by Pepsi. So in the office we were chanting, “We are number four,” which is pretty big for a company like ours that spends $400,000 in marketing. So at the end of the day, what we wound up doing is creating a brand platform called Zola Fruits of the World. When we were acai’, we were about pursuing super fruit, and because we were getting coconut water from Thailand, we couldn’t really be about Brazilian super fruit. So we are now Zola Fruits of the World. We do exotic fruits that are better for you. And now we have a platform where we can add in new products. So our next fruit launch is a organic dark chocolate covered fruit. It’s not really getting into the candy business. It’s still in the fruit business. Selling into that same produce department, and we are using a very high quality 60 percent Cacao organic certified fair trade certified dark chocolate and leveraging our strengths and investment and having distribution in the produce department in the channels that we play in.
Today, we are north of $20 million-dollars in sales. We have 32 employees, and we have 16 of our own brand reps that do a great job led by Devin back there in the corner. He’s our first brand rep that came from our shipping department about four years ago, and those are the folks that are out there building our big displays that you might see in Whole Foods and Safeway and Lunardi’s and Molly Stone here locally. So thank you.
MARY HUSS (SFBT—Moderator): And Chris, I seated you next to Todd on purpose because I thought the chocolate covered, maybe there’s something that you can work out because — so our next speaker is Todd Masonis who is co-founder and CEO of the very big fan favorite of the Business Times, I have to say, Dandelion Chocolates. So tell us your story.
TODD MASONIS (Dandelion Chocolates): Thank you. Yeah. So my name is Todd Masonis. I’m one of the co-founders of Dandelion. We are a small batch bean to bar chocolate baker, and I’ll explain what that means in a second.
But just about me personally, so I graduated from Stanford in 2001. I was a symbolic systems major. I studied computational logistics, so I was part of the whole tech industry and computers. And going to Stanford in 2001 was sort of the height of the first Internet bubble and everyone was wrapped up in tech and what was going on, and so after we graduated, my friends and I, we started a tech company. It was kind of bad timing because the bubble had ended, but it was something we were passionate about, we wanted to do. We started a company called Plaxo. Now it’s pretty obvious what we were trying to do, you don’t hear about it much anymore, but this was a precursor to social networking. This was pre Facebook, Linked-In, Friendsters. It was basically no one that was doing anything in the space at the time. So we started it up, we worked on it for many, many years, had lots of ups and downs. We sold it in 2008 to Comcast. That was definitely a learning experience. We went from basically a company of a hundred people to a company of a hundred thousand people. So we got an education in how that all works. And so we stayed on for about a year and then was left with a little bit of free time and a little bit of extra money and the ability to pursue our passions. I was always interested in chocolate, mostly as a chocolate eater. I loved eating chocolate. I always loved eating and desserts and sweets. And I hadn’t really tasted a lot of good chocolate until Scharffenberger had caught on a few years before that. And so my friend and I, we took over our friend’s garage and we were helping them start a new company in the tech space and so we were just hanging out and we bought some cocoa beans and we bought a little toaster oven and a little mini melanger, a machine you can use in Indian cooking and we got some duct tape and PVC pipe and bought, made a machine to take off the shell. And basically for two years, we did nothing but make chocolate because we were interested in it. We wanted to see if we could make good chocolate, if it was possible. Lots of people said nobody makes chocolate small scale. So we just started to make chocolate and we were having fun with it. And you know, after a while our, friends and family was like, “This is really amazing. You should do something with this.” We thought, okay, well, it’s great that friends and family are supportive. They’ll always say those nice things. So we decided to go to the underground market. That’s something that doesn’t exist anymore, but San Francisco used to have this underground market. It was a farmer’s market you could go even if you didn’t have health permits. Totally, I won’t say illegal, but it was, basically it was a private club where everyone had to sign a waiver saying they understood the risks involved. And when you start a food business, you have to get permits, business license, inspections, and SF certified. There’s no such thing as SF certified chocolate. Our stuff was held together with duct tape. And we were going to see if it would work, and it was one thing to have friends and family say they thought we were on to something. It was another thing to have strangers open their wallets and say, “Wow, I’ve never tasted anything like this.” And it was it at that point we realized we were actually part of a much bigger movement. We were sort of having fun with it, but actually there’s kind of this new American chocolate movement that’s happening right now, and seems very closely mirrored maybe to what happened to coffee 20 years ago, what happened with microbrew. And so everyone says, “Wow. I’ve been to chocolate shops. There are chocolate shops everywhere.” So there are lots of chocolatiers in the world. And a chocolatier is somebody who buys chocolate and makes chocolates. A chocolate maker is somebody who buys beans and makes chocolate. And about 15 years ago, there was only one small batch chocolate maker, and that was Scharffenberger. And they started this amazing company and they went to France and learned how to make great chocolate. And then they got bought by Hershey’s and then and Hershey’s maybe changed some things about them and maybe it’s not the same as it was, and sort of in the void that was left by Scharffenberger, in the last couple years, there’s been a new explosion of American makers. Maybe six, seven years ago, there was about five. Now there’s a hundred. In every garage and street corner, there’s a new chocolate roaster starting up. So we realized we are part of this new trend that’s happening. We are just having fun, and we said, you know, let’s — we built out a factory. We want to put everything on display. So we made the entire chocolate making process something that most people don’t represent, don’t actually do or hide it. We put it all on display. Right after this you are probably going to see us making chocolate from the factory. We put a little cafe in the front so people can hang out and get a hot chocolate or a pastry. We actually hired the pastry chef from Gary Danko and she takes our chocolate and makes amazing little treats and hot chocolates with it. And we were was doing this for fun, and before we knew it, people were trying to buy our chocolate wholesale. And as of right now, we have a waiting list of 450 wholesale accounts. So these are people who’ve said, “We want to buy your chocolate,” and we said, “We’d love to sell you chocolate, but just we don’t have chocolate.” And so we are trying hard to fix that problem. We actually got a giant new building at 16th and Harrison. We are trying to build that into a much bigger chocolate factory. One of our big concerns is this company was never started for the sole purpose of profit. There are much easier ways to make money, especially right now. It’s the third Internet bubble. It’s a very interesting time in the tech world. And we started this because we wanted to do something special. We are really passionate about it. We really love our chocolate and we want to share it with people. If you just go and you do something for money that would compromise what it is we are trying to do, we wouldn’t accomplish anything. So we are trying to be very, very careful with the new factory and figure out how do we make more chocolate? How do we make that that more efficiently? But also how do we make that chocolate taste better? So we did a series of experiments, we send teams of people to Italy to do experiments on hundred year old machines. We sent a team of people to try some modern machines. We did blind taste tests; we’ve done laser particle analysis on our shape particle size distribution to try to figure out what makes the best chocolate empirically. And so now we are going step by step and trying to make the best chocolate at every point along the way. So it’s going to take us a little while to get there. We are trying really, really hard and we are really excited to actually figure it out. So that’s kind of our story.
MARY HUSS (SFBT—Moderator): This is sort of what happens when you put a tech geek in the chocolate world because you are really scientifically analyzing. Thank you. All right. This is just a whole twist on food. How many of you have eaten algae? You may without having known it. So our next speaker is Matthew Jacobs, Senior AlgaVia Whole Food Ingredients, which is part of Solazyme. So Matthew, welcome.
MATTHEW JACOBS (AlgaVia/Solazyme): Thank you so much. I just want to start by saying my fifth grade teacher said you can solve all the world’s problems with duct tape and WD 40. So he would be delighted.
Good morning. My name is Matthew Jacobs. I’m director at Solazyme and we are really glad to be able to be here this morning. We are a company located down the street in South San Francisco who is pioneering the use of micro algae to produce healthy and sustainable food ingredients and oils. I joined the company a little bit less than a year ago and after a slighted pause of thinking, algae, that’s kind of interesting, I really quickly became very taken by the opportunity that that presented. It’s an opportunity that, of course it’s a business opportunities. I think a lot of the introductory remarks on the demand for new ingredients and new tools can help fix what is in some ways is a broken diet. That is evident, but also taken with the opportunity to align with the mission and vision of the company which is to create solutions from micro algae to create healthier and more sustainable products. And so I was really quite convinced by that.
The irony is not lost on me that we are here talking about food innovation and our ingredient is actually the oldest food ingredient on earth.
So micro algae is the precursor to all plant life. It is naturally a fantastic source of a whole bunch of micronutrients that we need in our diets, whether it’s healthy lipid or protein or fiber or carbohydrates. So the opportunity that we have to actually just unpack what is already there really is very exciting to us at Solazyme. AlgaVia is the name. It’s the brand of our portfolio of three ingredients that we are bringing to market right now.
The first is a protein which is a vegan. Actually I do have, afterwards you can take a look at what our powders look like. The first is a protein which is a vegan, gluten free and allergen free source of protein that can be incorporated into a lot of different, a wide range of foods products whether that is beverages, even salad dressings, and it goes beyond kind of what you typically think of as shakes and bars for the protein space.
The second is a whole algal flour, which is a lipid powder that is actually derived from the same strain of algae as the protein, but it is fed slightly differently and it delivers a higher lipid content. So if you think about a whole cell, about half of that cell for this lipid powder is a very healthy fat. And the balance of that cell is then comprised of protein, carbohydrate and other micronutrients and fiber.
And the way this lipid powder is used is that you can reduce or in some cases entirely remove egg or dairy fat or oil. But the magic of that ingredient, it’s not just about reducing the number of the things you want to get out of the food. It’s also about being able to maintain the indulgent texture, the creaminess in the mouth that people associate with full fat foods. And that’s really the magic of this whole algal flour.
So just to give you an example of that, if you picture the loveliest, creamiest, fattiest Alfredo sauce that you might enjoy in a pasta, you know that that’s very heavily laden with calories and fat. By adding a little bit of the algal flour to an Alfredo sauce, you can remove the egg yolk, oil and the butter from the recipe and you’ll reduce the fat about 40 percent, cholesterol by 50 percent. But you will not sacrifice on that indulgent creaminess that you expect and that you want, and I think that’s very important for us. If it doesn’t taste good, people will not want to taste it. So that’s very important.
Third product is an oil, and it’s much like a vegetable or plant oil with the exception that it actually has the healthiest, the heart healthiest profile of any oil that’s on the market today, excluding olive oil. So it’s very high in monounsaturated fats, which are the good fats. It’s very low in saturated fats, bad fats, and it has zero trans fat. And there’s a practical benefit in working with this oil as well in that it has a very high smoke point. So cooking with oil in the kitchen and you have ever created that cloud of smoke, that’s because other oils have a lower smoke point. So that’s one of the peripheral benefits of our oil. And to the question of the challenge of our challenge that we face, I would really boil it down to be one of speed. Micro algae was not a subject that was taught in food science school, and so a lot of food technologists in working in large multi national as well as some of the smaller start up food companies, particularly in this area, they do not have experience working with these kinds of ingredients. And so the faster that we can have our applications team sitting along side those food scientists to accelerate the speed to market, but also importantly to optimize the way that those products taste and to completely maximize the nutritional value of those ingredients is more important for us. Thankfully we never have the challenge of getting that first call from the customer or getting the first meeting. That’s very different from the experiences I’ve had with other companies. But the challenge for us, then, is to maintain the pace and be able to get in the door and stay in the door and drive those projects through to completion so that we can get more product out in more aisles on the shelves in the supermarkets so that we can have the cumulative effect and benefit for all of us.
MARY HUSS (SFBT—Moderator): And we are probably not going to necessarily know your products because it’s going to be an ingredient in someone else’s. Is that correct?
MATTHEW JACOBS (AlgaVia/Solazyme): That’s a good point. So we are kind of the funky outlier here. We are not bringing our product directly to the retail space. We are a commercial ingredient. We sell our ingredient to food and beverage manufacturers and they use it in that way.
MARY HUSS (SFBT—Moderator): All right. Well, how many of you are, have been customers of Munchery? Very popular among the Business Times staff. So thank you, Nicolas, for being with us. Let’s hear your story. Nicolas Bernadi who is vice president of food at Munchery.
NICOLAS BERNADI (Munchery): Good morning, everyone. So Nicolas Bernadi. I have what many of you, a job in the food industry right now. So it’s very exciting to be at the intersection of food and technology and be part of a very big revolution.
So Munchery, as many of you know, is a food company that has chefs located in central kitchens making fresh daily meals with seasonal ingredients with its drivers and staff. So what’s very interesting is the approach that we have to getting food, and I will give you a little bit of background how I came to Munchery and how this applies to what we are doing.
So I moved to the states about 11 years ago. I came to business school at Stanford and realized that at that time, that there was a disconnect in the food of what great big retailers were able to offer in terms of quality food and how big companies were able to scale high quality food versus what was available in Europe. And most of that is driven by the fact that a lot of food companies in the states have the food scientist approach to food and instead of having your culinary approach to food, they basically took their recipes and make sure that their recipes fit the high speed tools to produce as fast as possible, while in Europe, a lot of companies had the opposite approach, which was how do we change the way we scale food by treating equipment, bringing culinary talent in the everyday food process to where actually what we produce is before. So I started in 2006 the subsidiary of food companies that was high end private frozen meals. And we grew very fast in the states, a lot of food retailers, Trader Joes, Whole Foods, hundreds of products, because we had the culinary approach, we had done amazing work bringing the best quality ingredients and scaling recipes. And I learned that by only focusing on the quality products, you could create big markets. So I was fortunate to join La Boulange in 2011, and La Boulange had that amazing model that Helen described where you had stalls that were enabling us to have the front market and also we had wholesale business in several bakeries. And these strengths of the business was the ability to scale artisan quality big foods, and so we had a lot of the wholesale business at that time, was Whole Foods, et cetera. And we were able to deliver retail food to create a brand.
So when we sold to Starbucks, the promise was how can we help a big company like Starbucks scale quality food? It was a lot to learn by food science, very consensually to a magnitude of suppliers and our approach was the, let’s start with the beginning. Why do we need to add preservative? There are a lot of ingredients that were unnecessary. So we split the country, looked at a bunch of suppliers across the country and basically, long story short, in 18 months, we were able to roll out an entire new bakery program in the 12,000 stalls in the states with key focus on quality. So the entire portfolio of products became extremely clean and customers, even though we had very limited marketing trajectory to promote what we had done, customers started really relating to it. And last quarter was announced 17 percent of growth of food. The food attached from 30 to 40 percent overall. So people relate to a high quality product. And I basically connected with the Munchery founders about two years ago because at that time, we were wondering how can we leverage our food to bring even fresher food and high quality to our customers? Because as you know, many of the big retailers have a limited supply chain and not high quality fresh food to start with at scale, but also, the very pieces of a big challenge because you have to go through a warehousing system. So the freshest items are going to be to the stores 24 hours after being produced at best. So Munchery is really revolutionizing the way that we, they make and deliver food. The company has three different businesses. We have food production, and really how do we bring culinary talent? How do we scale that? How do we make high quality meals, a hundred thousand quality meals every single day in every city where we are without the compromising of great food? So that’s the first business challenge. The second one is the technology challenge because we have a big technology platform that you bought to the food business and the food delivery business. We have 800 employees right now in the states. We operate in four cities; San Francisco, Seattle, Los Angeles, and New York. In every single city, we have our own quality kitchen, our own chef, culinary talent consisting of everything on the ingredients or working with local farmers innovating on the local recipes to make them connect with customers and innovating and scaling. How do we not compromise and yet be very affordable to people? Because we believe that affordability is key. So that creates a lot of challenges. And from the delivery side, we have our own drivers who are employees, not contractors. Because if you think about traditional for businesses and restaurants in particular, you have an easy connection to customers. They are going to be able to explain what their dishes are all about, explain why we as a chef decided to choose X, Y, Z as ingredients. Our choices as a food company are limited to cell phone, computer and delivery drivers. So for us, it’s very critical for folks like Starbucks to treat our delivery drivers extremely well. They eat our food, they have access to benefits, and so a lot of challenges and exciting changes. Thank you.
MARY HUSS (SFBT—Moderator): Thank you. I’m just — how many connections to Starbucks and La Boulange and even Hershey’s and all of the different things. So I think with that, with the news of this morning, I actually want to jump to a question that is really sort of what is the pressure, and some of you have been, but to be acquired by the big national companies versus fighting it out for share of market and shelf space and — and so how do you make those choices? Is it something, a goal, you know, to be acquired? Is it a pressure? So what kind of shapes those decisions? And maybe tell us a little bit about the outcomes, also. So did you go seeking, Jon, to be acquired? Is that one of your goals?
JON SEBASTIANI (Krave): Well, I think when I started the company in 2010, I can honestly say that my vision was not to hand the company down to my children. So I came out of a family business, a four generation family business and saw and experienced the challenges that family business has. And that’s a whole different discussion. But I learned my lesson. So as I looked at Krave and looked at the opportunity that the jerky space had, it was a $4 billion dollar US business category, I knew that the objective was to build a material business, and I think the goal at some point was to sell the company. I definitely didn’t put a timeline on it. But I constantly evaluated the, really the value of the asset that we had relative to the risks that we continue to experience. So capital in all of our businesses becomes a pretty important element and growing, we were growing triple digit year over year over year and definitely spending forward. So we were raising capital at a point to support the business. And every time I raised capital via private equity, there were strings attached to that capital and that capital diluted our own interest. So to answer your question, we did not hire a banker. We did not go through an auction process. I think that the phone calls began coming into our company about a year ago to 18 months ago when the category itself was absolutely on fire. So if you look inside the snacking category at large, America is simply snacking more. We are no longer sitting down and eating lunch and full meals like we once did. We are now snacking throughout the day. We have nutritionists and dietitians promoting that type of food consumption, and protein becomes one of the most important elements. So all of a sudden, Krave had the tail wind of protein and snacking combined and we became a target. And so when Hershey approached us in October of last year, you know, I was, number one, amazed that this iconic company would be interested in Krave. And as the founder, you really want the brand to survive and succeed for the rest of my life time. I wanted it to be a proud jewel in their portfolio. So it wasn’t a meat company, nothing against meat company, but it was a great iconic company. The foundation behind the Hershey company is very meaningful, and they gave me, they asked me what my number was. It boils down to something that easy. “What’s your number?” I gave it to them, and my colleague David Lacy is in the room here and he and I sat down and we over dinner put the deal together. And it happened very quickly. They did their research. They knew they wanted it and there you go.
MARY HUSS (SFBT—Moderator): It’s always that easy, isn’t it? So Chris, you must have the pressure, being number four, you know, and you have got the big beverage players in the coconut water. So are they approaching you? Do they just want to knock you out or do they want to buy you?
CHRIS CUVELIER (Zola Fruits): Probably a little of both. You know, I think it’s interesting, because as an entrepreneur, you’ve got to be out in front. You’ve got to be doing things differently. You’ve got to be innovating. And I think that a lot of the big companies out there today realized they don’t innovate well. They have a big scale distribution. They can lower cost or things like that. So I think they look at younger companies to get out there and innovate and to prove that. So as Jon mentioned, the food business is extremely capital intensive. We have raised well north of $10 million. And we have lines of credit in place. So I think the speed of which innovation is happening out there in the market place, that takes capital to really fuel the business. We are funded and majority owned out of a capital out of New York, and what we think about every day is making great tasting products, building out a solid team and creating an amazing brand. And I think as you get to a certain size, there’s a choice you need to make because you are operating the business differently of saying, “We are going to hang on to this for a long term cash flow play as the company is generating cash flow,” or you are investing in growth, and I’m sure as Jon experienced, you are buying shelf space. You are investing knowing that you might not be seeing a return on that investment dollar week one, month one, maybe even year one, but what you are doing is you are building that net revenue story, that brand story, that growth story, which is going to contribute to valuation. So I think every business is different just based on what the goal of the investors are and what the goal of the management team is. In our case, in our size, you are almost always raising capital for the right deal to some degree. We learned early on, if there’s capital available, go get it, because what you don’t want to be is in a situation of needing capital and having to go back and get it. We learned that the hard way at times, but our investor has been very supportive of us and we are aligned on continuing to grow the business and continuing to create a great brand.
MARY HUSS (SFBT—Moderator): Any — Helen, I’ll ask you because it’s so funny here. You started kind of Starbucks sort of inspired you to start in a way. Right? And then you’ve had sort of as Starbucks has made its decisions, it’s impacted you.
HELEN RUSSELL (Equator): It’s been interesting. I mean, Starbucks has been out there in the forefront with things they did with farmers, but having the whole La Boulange/Starbucks connection and everybody that is up here are all very, very different because we, 20 years ago, boot strapped the company. We have done nothing but dead financing. You see a lot of money being floated around. Blue Bottle just got $70 million bucks. A lot of people have approached us to give us money. When you think about it, Starbucks bought La Boulange because they are a publicly traded company, and prior to purchasing La Boulange, every Starbucks store that you went to, you looked at the baked goods and they were all beige. And that’s it. Why were they beige? Because all of the people in that company kept taking all of the ingredients out of the products and all of a sudden Howard started reading the cards and saying, “Hey. We don’t like your baked goods any more.” We used to sell espresso to them for their zebra bars. So they had a great product and then they started taking it back, and then they buy a great company like La Boulange and we started with Pascal when he had the first store on Pine Street and we grew with him to 21 stores. So we grew $1.1 million dollars worth of revenue for him. And now, three years later, Pascal gets to see the brand that he built now being taken away, even though it’s been in 13,000 stores, but to make that move, we saw our coffee business go away. And I was at a specialty coffee show in Seattle and I met with the Starbucks executive and he said, “When we took your coffee out of the stores, we brought it up to Seattle and we tried to duplicate it and we had a blind tasting and everybody in the room including Howard chose your coffee and now we have to go back to the drawing board again, so many people were so upset, all our customers at La Boulange.”
So it’s interesting because you have got a publicly traded company that bought La Boulange, which was privately held, but had also taken money. Right? So at some point when you take money, you have to pay it back. We hadn’t been in that situation yet because that’s the decision that we’ve made. You’ve taken money. You took money. You had a very good offer. I want Hershey’s number. And you made money. So you were able to, you know, sit back and say, “I want to do it a certain way,” because you already had some money in your back pocket, so you were going to be able to eat anyway. You are taking a ton of money to get Munchery off the ground because you’ve got drivers that you are paying. So that’s a whole different model.
We all have different models. We all have different synergies, but the bottom line is that we all have to innovate and do things in a different way because we all have an amazing amount of competition. So you have got to have gluten free; you have to have fair trade; you have to have organic; you have to have a story; you have to have a reason to be because we all have a very, very high expectation, especially in the bay area. So I love hearing all these stories because there’s very different business pillars here, and there’s very different business pillars out there. And people keep asking us, people want to give us money, and it’s a big responsibility to take money unless you really do have an exit plan. Right? And when you are a control freak like I am, I don’t want to save, like poor Pascal is wondering where his baby went. It’s gone. They just decided, it just went away. So everybody comes to different decisions at different times. But when I think about Starbucks, I think about publicly traded beige scones buying an incredible brand that everybody loved and now dumbing down that brand again and now giving it up. So we’ve all decided not to go that route. Hopefully Hershey’s takes Krave and you will be seeing that on shelves when you go to Maui and you are like in your flip flops 10 years from now buying Krave. And hopefully you’ll be bringing me white chocolate and someone in Munchery is bringing me a margarita and putting some Coppertone that’s got algae on it on my legs. That’s all going to happen. That would be my response.
MARY HUSS (SFBT—Moderator): Fabulous. I’m so glad they timed that Starbucks La Boulange for this morning. Nick, is there any comment that you would add to that based on the perspective you have?
NICOLAS BERNADI (Munchery): Well, the reason why we — and the only exciting feat was to have a much larger impact. And you have, sometimes you are fortunate to do it. And Pascal’s dream had always been to be able to provide great affordable food to as many people as possible. And so at some point, you reach, as fast as you can, but you need more capital to grow faster and you have a lot of responsibility or potential. And when Starbucks comes and you have dinner with them and you cook dinner, by the way, but that’s another story, and there’s a strong connection about what you can do together and serving great food to millions of people and not only doing that, but the food industries, the way the producers work, was that the draw. And for us, I mean, Starbucks is paying close to a half a million in food. So the impact that it has on the entire food chain is tremendous. We were able to offer organic products like nobody else had done before. We were able to teach some bakeries to do high quality croissant, 200,000 chocolate croissants in one day. And the criteria of La Boulange in 20 stores, that’s extremely challenging. So being able to elevate the food industry and educate customers about good food was really a driver. So yes, you know, it’s, you know, it’s sad that a decision like that is made, but I think the broad impact is what happens.
MARY HUSS (SFBT—Moderator): And I’m going to ask you one more question because I know you have to go and I want to get back to Munchery. How do you, how do you establish yourself as Munchery in a field where there’s clones, I guess you can say, how do you establish yourself as the go to and what are the challenges of scaling what you have got all across the country and really being the competitive winner?
NICOLAS BERNADI (Munchery): That’s a great question. It’s challenging, because again, we have limited points as a customer. That being said, it starts with the product. So our food has to be amazing and has to be affordable. When we have scale, if you look at any food businesses, there are three major cost drivers; ingredients, labor, real estate, especially in the retail world. In terms of ingredients, we have such a scale now that we have very strong purchasing power. In terms of labor, we are able to use a lot of different technology from cooking, like amazing ovens that are super small that can measure the cooking of every single piece of salmon and cook 500 pieces at one time. So we leverage the sort of technology to be very efficient and be as labor efficient as possible. And we don’t have prime real estate, so we don’t need to be able to be on Pine Street or Polk Street. We are operating still in every single market in kitchens that are designed to be efficient with low rent. So this enables us to be from a venue proposition extremely competing. But you are right. There’s a lot of competitions that’s coming into market, and for us it’s going to convince our customers as much possible. We have a lot of ideas in the pipeline to be a little bit more than just way more than just an app. People have to believe and understand that we are a food company driven by a genuine care for ingredients and the farmers we are working with, driven by culinary and bringing that food to scale and so we are interested in that as much possible.
MARY HUSS (SFBT—Moderator): Thank you. Anyone else want to talk about that sort of competitive edge? What it takes to, and I will even combine the question thinking that it may relate. So have any of you talked about the importance of really connecting to that customer, that consumer, you know, knowing how exactly how you engage with them? How does that help you keep your competitive edge? And describe how you are able to stay that connected and the importance of it.
CHRIS CUVELIER (Zola Fruits): Yeah, so I think, we don’t have a retail store. We sell to retailers that are selling to other people. So we really connect to our consumer in, I would say three ways. One is through social media. The second would be in store. So we do a lot of in store demos and things like that where we are sampling products. And the third would be out of store marketing. So we go to events where we feel like those better for you consumers are hanging out, whether that’s a music festival and we are sampling products and taking that feedback. So a lot of our product innovation and we are investing very heavily in that right now are ideas that have come very internally or has been through a friend or a member or a consumer said, “Have you thought about this,” or, “Could you change this about your product?” And I think that the speed of innovation today is happening so quickly that you have to be on top of that; for example, 10 years ago, 12 years ago when we got into the business, the play book was go get started in natural foods at Whole Foods. Build everything out. Take that into convention grocery. Build that out. Go get into other channels of distribution and then wind up in Wal-Mart and Costco. Today there are brands that might even start in Costco and work their way back into other places and work their way back. So I think you have to be on top of different things, and we are seeing that in the outside category in the original category where the category has flattened out. And so our strategy is what can we add into acai’ that is new and innovative? So one of the products we are working with now is we are combining acai’ and chia. Chia is a growing category for obvious health reasons. So we are merging different things together to stay relevant as we continue to build our distribution and keeping those categories fresh. But a lot of that really starts with interacting with consumers on how they are receiving and consuming your products and feedback and how they respond to that.
MARY HUSS (SFBT—Moderator): Todd, I want to ask you. If you want to respond to that, I have a second question for you.
TODD MASONIS (Dandelion Chocolates): So we haven’t spent any money on marketing, but we have spent money on trying to educate people because we are trying to be part of a broader movement. It’s very hard to differentiate yourself just having a product on a store shelf. But if people come in and experience what we are trying to do, for instance, we will offer a chocolate 101, introduction to chocolate; chocolate 201, where we teach people how to make chocolate at home; chocolate 301, we take customers to Belize for a week. We are trying to get customers to understand what’s happening. We also do things like if no one gets a chance to try our chocolate, they are never going to buy it. So in our store, we have samples everywhere. But if we do sell wholesale, every case comes with a sample bar that’s unwrapped and if all that happens is the person at the store that is going to sell it eats it, the thing is, people go to the store and ask what are their favorite chocolate, and most of the people selling the chocolate, have a lot of different chocolate bars and they are like $10 chocolate bars, but ours is the one they tried and they liked it, and we just feel like the more chocolate that people get to try and the more we can educate them, the more people will like our product and that’s kind of been our strategy.
MARY HUSS (SFBT—Moderator): So I want to talk a little bit about manufacturing. So Todd, you are expanding your manufacturing here in the city of San Francisco. And Matthew, your manufacturing does happen here in the East Bay. Correct?
MATTHEW JACOBS (AlgaVia/Solazyme): We have a pilot facility here in South San Francisco, but most of our manufacturing actually is in Peoria, Illinois where we’ve actually repurposed an old Pabst Blue Ribbon brewery. So it might be the best thing that ever happened to PBR. So we are growing that in large stainless steel vats. That’s actually how micro. algae is grown. We basically feed it sugars and those little guys plump up and we grow that for a few days and then we stop feeding them. We dry them and we mill them into that powder. That’s essentially our process. Our oils are actually manufactured. They are produced in Brazil where we have a built for purpose large scale facility that is co-located by sugar cane. So we can actually use the by product of sugar cane manufacturing and use that as energy source to power our facility.
MARY HUSS (SFBT—Moderator): So a lot of you have the connection to somewhere in South America or Central America. So on the manufacturing, and you are doing it both here in the bay area and you are doing it in the bay area. How difficult is it to manufacture here in the bay area and in San Francisco, particularly what are some of the challenges. Why are you choosing or do you kind of have to?
TODD MASONIS (Dandelion Chocolates): I think it’s difficult. It’s very expensive, and I think for our first category it’s definitely necessary to have the factory. But for the new factory, I think we could have put it somewhere else, but we live here. We want to be close to the factory. We want to be part of San Francisco. San Francisco has a really interesting chocolate history. There’s been a series of great companies like Ghirardelli and Tcho and Guittard and been a history of chocolate companies and we want to be a part of that. I think for us, though, what it means being in San Francisco, it’s not enough just to have a building. So we are going to have a factory. So we are going to do even more classes and more education and more tours and we will have another retail and haven’t announced it, but we hope to do a chocolate salon maybe even a dessert bar and some really cool stuff that should exist to have in San Francisco to be really in a chocolate factory and so find uses and revenue streams for the space instead of pure manufacturing.
MARY HUSS (SFBT—Moderator): All right. I think I’m going to open up and allow the audience, if you’d like, to ask a few questions and then I’ll jump back. But you can stand up. We’ll bring a mic to you. If you stand up, tell us who you are and address your question to one or all of the speakers.
AUDIENCE QUESTION: I have a question for you, Helen, and for you, Todd. Particularly I’m interested because your products depend a lot on the ingredients and yours in particular have some environmental threats to them. You have coffee production and chocolate, I hesitant to say endangered, but it’s threatened. So how do you insulate your companies from supply risks like that?
MARY HUSS (SFBT—Moderator): Did everyone hear the question? How do you insulate your suppliers risks that come?
TODD MASONIS (Dandelion Chocolates): For us, that’s very much true. Our chocolate is made from two ingredients; cocoa beans and sugar. We don’t add anything else. We don’t add cocoa butter, vanilla, lecithin. And so basically what’s in the bean is what you taste. And so if we don’t get good beans, we are not going to have good chocolate. And so we’ve tried really hard to work with the farmers to get premium beans. There’s been a lot of news lately about the so called “chocopocalypse,” this idea that we are going to run out of chocolate. We take a view that it’s not really true or it’s a little more nuanced than that. Clearly if there’s climate change and less people farming that could be a challenge to chocolate, the bigger threat that we see is that most of the world’s beans are being used for bulk of cacao. So that’s being the mass industrial chocolate bar where the goal is really consistency and low cost. So it’s how do you go the lowest possible price and not the best beans that are palatable and then sort of the miracle industrialization so the companies have been able to make that chocolate bar actually taste pretty good. The type of beans that we buy have actually really interesting genetics. In fact, chocolate can have more flavor complexity than wine or coffee, but no one ever thinks about that because for so long, everyone’s trying to get rid of anything interesting about chocolate. And so we have to buy beans that have really great genetics. The challenge is that farmer right now don’t get paid a lot of money and there are strains of cacao that are more productive but don’t basically, like if I plant this, I’m going to get three times my yield and make three times as much money. But the problem is if they are replacing heirloom genetics with CCM 51, then those genetics are going away and everything that’s interesting is gone. We have a challenge that we are paying three or four times the bulk cacao price for the beans. But the farmer trade off is I’m going to do these specialty beans. We are going to ferment it right. It’s guaranteed and very robust and produces a lot. It’s very easy to see why the farmer chooses the more robust lower flavor bean. Everyone is optimizing for a yield. No one is optimizing for flavor. So we and others are finding to pay farmers for a good price for really good beans and getting them excited about bringing bars of chocolate to the farms and showing them what their beans taste like. But I think it is a big problem and I think if we don’t spend a lot of time on it, those genes could be gone.
HELEN RUSSELL (Equator): And what we’ve done, we’ve been fortunate enough, the last 20 years, especially, it’s about relationships for us. So we actually have been traveling to the farmer’s gate, whether it be in Guatemala, Kenya, Rowanda, Nicaragua, meeting with our farmers, negotiating with our prices. We do a lot of initiatives. We do micro credit loans to one of our farms the last seven years in Ecuador. We buy a hundred percent of their production. We do micro loans with one of our farms in Nicaragua. I can’t tell Thomas color that the per se blend now doesn’t have Nicaragua in it because I lost that relationship. So we are incentivized to secure those relationships by traveling to origin and meeting with those farmers and paying a fair price. We pay a lot for our coffee and a lot of people say coffee is expensive. Coffee is not expensive because it really doesn’t get back to the farmer unless you are buying fair trade, organic and buying direct and actually negotiating the price so their kids can go to school and their children don’t leave the farm and go to the cities and get jobs and sell it to a developer and the next thing you’ve got condos all over Panama. So we are incentivized to really go direct and go to farms and build those relationships and food security projects. So that’s how we are able to innovate and that’s part of the story as well. And climate change in the coffee lands is very, very real. Because we buy coffee so high up the mountain, we buy the top 2 percent that’s available, we are insulated just a little bit. But I just did a talk down at Google and we talked about, they asked me what can we do, because we have these drones and we have all technology and cars going around with nobody in it, what can we do to help you, Helen? And I said, you know what, this roya, it’s real, which is coffee rust, it’s affecting a lot of the farms that we are dealing with, but because it’s in the farm, they can’t see that it’s in the northwest corner. So we are working with them to do an initiative where they can actually send drones over there to tell them to go where they can go start fertilizing to work with those plants. So that’s the kind of innovation, that’s the kind of technology that we have in the bay area. But it is about relationships, relationships, relationships to secure that product and all the initiatives that you can do to help us do that. And on our farm, I mean, we have probably, we bought this farm down in Panama. It’s one of the highest farms in Central America. But the people that work at the farm, we had to build them this incredible worker housing with, you know, clean cook stoves and water and putting their children in school so people would pick our coffee that’s coming up right now because the farm is so high up in elevation. So you have to think out of the box. You can make an impact. Everybody is up here for a reason. I know I’m in business personally now because I’ve cleared a lot of the hurdles economically and have done well, thankfully. But I’m here now to make an impact and layer this company for the next generation so they can do well. We have got a lot of baristas that have Master’s and PHD’s and have chosen to invest in the coffee industry. So the more that you can do is buy specialty coffee. Spend that little bit more. It helps everybody up and down the supply tables. We are all stakeholders. Everybody in this room. So thank you.
MARY HUSS (SFBT—Moderator): Is there another question from the audience? Stand up if you have one. Here’s one. Do you have a microphone?
AUDIENCE QUESTION: So my name is Jason Lassen, Bank of America Merrill Lynch. I work in bio pharma. A lot of clients in the food manufacturing industry. I also went out and, something we’ve run across more and more is really when we talk about doing business, so often the company is located here, but like we talk about Latin America, some of the risk exposure from a foreign exchange standpoint. So I was curious, what are some of the strategies that you have employed if you’ve run into it? Is there something that you have to hedge against that? How do you control those costs, especially if you are starting up, because those can impact. So I’m kind of curious to hear your thoughts on that.
CHRIS CUVELIER (Zola Fruits): That’s a really interesting question. When we got started buying acai’ in Brazil, the exchange rate was 3.75 AI’s to a dollar. Over the last ten years, that has gone as low as 1.5 and now has gone back up and it’s bouncing between two to 2.5. With us, it’s, we have been very fortunate in the fact that I think as Tom was mentioning that it’s about relationships, it’s about price, and I think having those two things and managing those two things carefully is very important. So in Brazil, we went really deep in the supply chain when we first got there. When we got into acai’, no one was even pasteurizing the product. So Zola, I actually brought someone down from Jamba Juice. She was the QA director. She knew everything about writing plans and was very technical, and she literally helped me write the HSA plan for the first facility to pasteurize acai’ in Brazil. We wound up buying eight containers of product, which we of course were a little optimistic on our revenue at least the first year or two. That product lasted us for three years. Our partner down there that we built this plant with and wrote the HSA plan with financed us for the first three years on the supply side. We were literally paying him $1,000 a week. Next week it might be $5,000. So we created a very solid relationship with those people, and our suppliers, when they would come up here to the United States, they would stay at our house and vice versa. So what we really do in our supply chain is we have those relationships that are deeper than the supply contract and we work together so they understand what their pain points are. We understand what their pain points are. We have helped them become more efficient as we’ve grown from buying a couple containers a year to now 50 40 foot containers of pulp year after year. So we’ve gotten scale in a year where the exchange rate is not in our favor. We’ve explained to them we can’t really go above this price point in retail and how do we work together. So there’s been a lot of gives and takes within our volume and exchange rate and our supplies where some years they make more money with us. Some years it’s been very thin and vice versa. We’ve had some margin fluctuations with it. Our coconut water come out of Thailand. That’s much more stable. We buy everything today by the dollar. And right now what we are considering doing is setting up a separate company to buy in Thai Baht. As the dollar fluctuates like that, if we are buying in Thai Baht. It will be much more stable than buying by the dollar. So that’s one thing we are considering hedging in Thailand, although that has not been an issue for us over the past four years.
MARY HUSS (SFBT—Moderator): Where do you get your product for, I guess it’s a beef. Right? Pork? Jon? Is it local?
JON SEBASTIANI (Krave): So we approach our main line which is 90 percent of our business, we are buying turkey, pork and beef and most of it is all raised in the US. We do buy some Australian beef. But the lion’s share of our business is all commodity based pricing. We are affected by external shocks to the supply chain. So right now we are in the middle of an Avian bird flu, which is affecting the cost of turkey dramatically. We are talking two X price per pound in the matter of less than a year. And so for a brand that is trying to support consumer adoption and a pricing strategy that has line pricing, meaning the price of a bag of beef is equivalent to pork is equivalent to turkey, it’s really how we structure our business. We use our own margin as a buffer to shield. So from that standpoint, our main line is driven by US commodity placing. But interestingly, we also have a line that we work with Whole Foods which is a GAP rated farm rated whole animal program which is more in line with really reaching down to the original farmer and practicing fair animal trades and practices and really establishing this movement. We support it heavily. it’s the first GAP rated, which is global animal program rated. Each farm is rated by this program and it’s the first jerky. So while that’s a small part of our business, it’s an important mission to the company.
MARY HUSS (SFBT—Moderator): So Matt, I want to ask you, do you foresee that we are going to see a growing demand for food substitutes that are made in old Pabst Blue Ribbon or in the lab? So can you talk about do you think, tell us a little more about the demand, but do you think the multinational food companies will be looking for such ingredients? Is this more going to go to the artisan? How do you see that going?
MATTHEW JACOBS (AlgaVia/Solazyme): Actually we don’t think it’s a future stake question for us. We have more than 60 projects in our pipeline for us with the multinationals down to the smaller players who move much faster. So that interest is very much there. A lot of the reasons that have been said before, whether it’s because people are trying get more protein into their diets or because people are trying to clean up their labels. So our ingredients allow for being able to remove some of the nasty things that might be found on the bottom in the back of packaging, but also just a natural push to help the health and nutrition, help their portfolios and this is a whole new array of, and a couple of weeks ago I was meeting with multinational and talking about our protein and our lipid powder. And typically you have an ingredient as a commercial ingredient, kind of a one trick pony. You might go in and you are talking to a product or brand manager or a R and D group doing projects within this space, or maybe just an adjacent space. But with this particular company, there are five or six different projects going on that are spanning from frozen desserts to ready to mix beverages to savory snacks to even soups. And so the fact that this is so versatile, I think, underscores the legitimate business that is there. And then lastly to pick up on Jon’s point, too, with the Avian flu and the fact that that’s created such an egg shortage, which is a terrible situation. People’s egg input prices have jumped by more than 200 percent within a two and a half month window. So it’s been a dramatic impact. Our lipid powder actually works to extend the use of eggs in certain applications. So we’ve had a lot of demand quite recently for bakery applications or for any type of application where you would be using an egg. So there’s all kinds of drivers that are really culminating here at the same time that is very real demand that we are trying to service right now.
MARY HUSS (SFBT—Moderator): Have you had to overcome a reaction to, you know, what people think of algae? And I would ask that from both someone that might be a consumer or purchaser of the product, but also from funders?
MATTHEW JACOBS (AlgaVia/Solazyme): That’s has great question. So me personally when I first heard about algae, I thought it wasn’t something I thought was gross. It was something I had no idea that it really had a role in the diet. But if you think about people’s interest, we want to try to get as many Omega 3’s into our diet as possible. So I’ll eat salmon. I’ll eat fatty fishes. Well, the reason that the fish have the Omega 3 is because they are eating the algae. So it boils down to the source, but your question is around consumer perception and consumer awareness. We have done, even though we are a beginning company, we’ve done extensive research to really understand what is that starting point that consumers have and investors for that matter. And what we find is not a surprise. Awareness is quite low as it was for me and probably many of you. But when we explain just a very little bit about what algae is, what we do find is that people develop quite an affinity for it. We’ve actually done concept testing where we put that on the packages and read it and we present that to them and they actually see, there’s a halo effect that occurs because people see the inherent benefits associated with algae, and in fact, purchasing intent actually increases. So very good starting point for us and it’s not something that we are having to work against.
MARY HUSS (SFBT—Moderator): What about, tell us about some innovations in branding, you know, like how you established your brands. And Jon, I believe you’ve used some celebrities to do that, but how did you get, but your brand took off like a rocket. So maybe everybody can learn a little something from how you got that thing established so quickly.
JON SEBASTIANI (Krave): Well, the first element that was important to create success is when you think about the size of the category, and most people are completely blown away when I inform them that the size of the US meats in that category is between $3 and a half and $4 billion dollars. This is a big pie to begin with. And then you dig a little bit deeper and you find that there are three companies; Jack Links, Con Ag Foods and their Slim Jim brand, and Oberto, that those three brands have approximately 80 percent market share. And they were doing the same thing. Same sort of cowboys and Indians approach, very 18 to 24 year old male targeted audience. And the same brands were in Chevron and 7/11 that were in Safeway and Raley’s and Target and so forth. So they had complete channel wide distribution. And along comes Krave, which is a totally different value proposition. And in fact, for the first few years, we didn’t even want our brand to be in the same sentence as their brands. We wanted to put or band in the same sentence with Pop Chips and Chobani and Kind Bar and Cliff Bar. We were targeting a whole new consumer. We understand this is the category, but we want to educate the consumer on why eating an all natural protein snack made from meat is a healthy option. And so yes, changing consumers’ minds and reeducating them was a challenge. And while we participated in lots of athletic events and fitness events and wine tasting, anywhere we could put the brand with a positive association was very helpful. But we also realized that we needed an ambassador that had name brand recognition that would help us with that message. And so Jillian Michaels is probably our most well known household name on a national basis, and she signed on with Krave as a partner. There were no dollars exchanged. She basically took her endorsement fees and rolled them in as an investment. And she took on the brand and most importantly, the product itself and helped us communicate why eating protein and getting that as a regular part of the diet is so important and sort of demystified this illusion that jerky is this junk food. We also work with Meb Keflezighi, who most recently won the Boston marathon, US Olympic runner. We also work with Vernon Davis, a San Francisco 49er. We work with the University of Southern California, the University of Texas, the athletic departments and their nutritionists that talk about Krave and why snacking is a healthy option. So the brand is important to establish health first, product second.
MARY HUSS (SFBT—Moderator): Anybody else want to talk about how, some branding strategies, and do you hire help to help you get your brand established?
HELEN RUSSELL (Equator): I think for us initially for us when we came up with the name of Equator Coffee, coffee is grown along the equator, we chose the Bengal tiger as our icon because of the power and grace and the 20 cents differential that we were committed to paying from the very beginning to save that tiger, and then we borrowed from the brand so when people were selling wholesale, it’s a lot harder when you are doing wholesale and you don’t have retail stores. So you are borrowing from Whole Foods and Williams Sonoma and Thomas Keller and talking about that. But what we’ve had to do and we love to do, and who knew I would love retail so much, is having that platform and having people come in and be ambassadors of the brand if they have a great experience. So in Mill Valley, we have two stores, one at each end of the street, and we have a huge cycling community. Cyclists love coffee. They just love it. And we work with team Mikes Bikes. We sponsor the women’s team and we take our coffee to all their events. And it’s amazing because all these folks, either general managers, hotels or restaurants, and that’s going to drive our wholesale business. So by being in the retail space has driven our wholesale. And I’ll tell one quick story about how important it was, because we were reading about all the other roasters in our area who are friends of ours, Blue Bottle and Four Barrel or Ritual or all these talented people are all buying great coffee. So what’s the difference? It’s not why you do it. It’s not what you do. It’s why do you it. So when we built our retail store at a surf shop in Mill Valley, the head of global food services for Linked-In stopped in, which is exactly why we wanted to do it. Brought his family in, brought his family, he’s on his way to Muir Beach, he’s buying coffee. He call the VP and says, “I know about these other roasting companies. What about Equator?” He says “Oh, yeah. I know Helen and Brook,” and the next thing you know we are down there and we are tasting coffee. And it’s not about the coffee. You put the coffee on the table and it’s great. What’s the story that surrounds it? We can talk about her farm, we can talk about how we buy. We can talk about, you know what? We are going to do latte art classes for the employees of Linked-In because it’s their own Disney universe down there. So 20 people sign up for latte art classes and 20 people come to the farm. You know what I mean? So it’s about sort of expanding on that brand and giving those food service companies something to differentiate because they are also very competitive. And we are going to do more with food service because that’s how we are going to grow our business. Also Bon Appetit. We are in Google, we are in Google, we are in Twitter, we are in Linked-In. If we didn’t have the retail stores, if we didn’t decide to do that three years ago, I’d be calling you for sure because we would need some money to figure out how to do this thing. So you’ve got to stay on your feet and you’ve got to be indefatigable. You only get better surrounding yourself with people that are better than you. So you have got to surround yourself with people that are going to help you think about the future so you can keep going. If you don’t, you are going to be in trouble.
MATTHEW JACOBS (AlgaVia/Solazyme): So we didn’t have to talk about branding. We could have just put a product code out there, AG 475 or something. But that doesn’t have a lot of appeal to it. And we realized with algaes being a new to the world ingredient, it’s important that our customers and the manufacturers really understand it. I think the word story is used a lot and it’s important to have a brand that helps facilitate having that story and that’s what AlgaVia is for us. And we also understand the need to leap frog over or rather work in collaboration with our customers to meet the consumers. They are increasingly savvy. They want to know where our ingredients are coming. So we give them a destination that will help them explain how are ingredients made? Where do they come from? What are the health advantages? And so I encourage you to go out and visit AlgaVia dot com. In fact, Katie back here is really the architect of that site. We are telling that story both to a B to B audience as well as a consumer audience because we recognize the value of having to present that wonderful story in a very beautiful way and at that fast tracks that understanding.
CHRIS CUVELIER (Zola Fruits): So it’s interesting because we’ve talked a lot about education and having a retail store to leverage that story. You mentioned food service, and I think that’s a really cheap channel. We recently hired someone to really go after that channel in a big way, and what we are doing is we are leveraging their retail stores to help amplify our story at a low cost. So for example, you put a product into Whole Foods and Safeway and they might have 50,000 sku’s, but in a small coffee shop or a small juice and smoothie store, they might have 50 sku’s with four or five people walking in. So we are doing the program right now where we are doing co-branding with acai’ bowls. So we are going to a category that at retail is flattened and we are telling this quality story about processing the pulp, freezing it quickly, bringing it up from Brazil. The elements that our brand are intertwined in very strongly through a chain that has a hundred stores or 200 stores that has a website that has ripple where they have TV videos that are involved. We have a lot of assets and footage there. we will make videos and things like that together and help amplify the story for us. We can get one in a very low cost way and we can get that in front of that consumer quickly. The other thing that allows us to do is we are looking at some new fruits. It’s an entry point for a new fruit. So we are evaluating a couple of new fruits now and we will test in that channel without any risk in the bigger retail chain. So it’s a way to get really good consumer feedback to say is this something that can go from food service where something might start and jump out into the bigger retail room?
MARY HUSS (SFBT—Moderator): Okay. Anything you want to add to that, Todd, about the brand and storytelling?
TODD MASONIS (Dandelion Chocolates): I mean, I think the only thing I’d say about the brand is we always wondered how this is going to evolve and how do we have sort of a clarity of brand as we get bigger, and I think with a company that likes to involve all of our employees and everything. But I feel like if we don’t edit it or have focus, it spirals out of control. Because lots of people create ideas, but if they aren’t focused, it won’t stand for anything. So I think one of the things is from day one, we had a huge exercise, decided what our brand identity will be, who we are, what we are and why we do it. Are we artisan? Are we transparent? Are we worn? We really came up into three words and every single person that works in Dandelion is educated in those words, and when we went to build our space, we gave those three words to our architect and he went and designed this beautiful space exactly as we wanted. We didn’t know, but he knew what we were trying to get to. The same thing was on the packaging. And we sent him those words and we said, “This is what we are trying to do,” and he’s much better than we are. But they were sort of focused in what they are going for. And I think that’s really helped us in developing sort of a design language that was scalable.
MARY HUSS (SFBT—Moderator): What are the three words? We have to know.
TODD MASONIS (Dandelion Chocolates): Craftsman, exquisite and intimate. So crafts man is a touch of the hand. Exquisite is we are trying to do something special. Intimate, not in the romantic sense, but in the sense of like your grandfather telling you what things were like, you know, 50 years ago. And I think those words are good because they have a lot of fair intention and they are always indicating this is very intimate but not exquisite or this very craftsman but it’s not exquisite. And I think exquisite is one of the aspirational words. I think craftsman is a little more attainable for our natural personalities and certainly intimate is very easy because we just put everything out there. It’s that inherent intention that allows us to come up with something very focused.
MARY HUSS (SFBT—Moderator): I have a final lightning, this is the lightning round. What is the most exciting product, innovation or development that we should expect from your company in the next two to three years?
If you don’t want to answer that, you can just give us a final summary. We are going to go lightning round on this and I’m going to go this direction.
MATTHEW JACOBS (AlgaVia/Solazyme): So in the world of algae, we are, actually algae is the hero of the story here and we will continue to do new product introductions. But it’s really just about making our ingredients work in more and more spaces. So it’s not about manipulating and it’s not about, you know, the ingredients we have work so well. What I’m actually most excited about is seeing the way that our current products can get out into more store shelves and really have the benefit for people to experience, enjoy and actually arrive at that nutrition benefit.
MARY HUSS (SFBT—Moderator): Great.
TODD MASONIS (Dandelion Chocolates): I think for us it’s really the new factory. And as I said before, that’s not just a matter of making more chocolate. We want our chocolate to be better. We want to serve more people, but also at the new factory, we will have more factory tours, more education, more events, some other cool concepts. Come hang out at the chocolate factory. So we are very excited about that, working very, very hard on that. I’d say that’s going to take a long time to get right. In the meantime, if you haven’t already, come to our shop on Valencia. It’s on Valencia and 18th. You can come in. We are open today until 9:00. Come in and get a hot chocolate, a pastry, a brownie bite flight. Watch the production process. So definitely come in and check us out.
MARY HUSS (SFBT—Moderator): And the factory will open when or is it evolving?
TODD MASONIS (Dandelion Chocolates): That’s as great question. We are hoping some basic production might be open by the end of the year. But realistically, the tours and the classes, that’s going to come later. So maybe that part is going to come next year. I’ve known that all of my construction predictions have been off by usually years.
CHRIS CUVELIER (Zola Fruits): So we are innovating in four different places right now. The first is the HAS extension. The second is a couple different coconut water flavors, and those are flavors we are going to send down into our existing distribution channel to drive growth and leverage the investments we’ve already paid. The third is chocolate covered fruit. That is coming out right now. We literally have our first few coming out and it’s on shelf today. Devin was telling me here this morning when I got here. We have some more flavors coming in on that and there’s in the near window in the next two months. And the fourth is we are trying to figure out, do we develop products where the brand will extend to other categories or to develop other ends of the store or do we stay focused in produce? We have some consumer testing and financial analysis. So that’s a big question for us that we are heavily debating right now. But those decisions will be made probably in the next three months or so and you will see the results of that in key one or key two.
MARY HUSS (SFBT—Moderator): Helen?
HELEN RUSSELL (Equator): Well, after seven years, we bought a coffee farm in Panama named Sophia. And we named it Sophia because you need a lot of wisdom to grow coffee, to grow anything such as plants. It’s a 15 hector coffee farm, 40 acres. It’s the highest coffee farm in central America. We bought that farm. We planned the geisha varietal and we hope to have the distinction in the next six months to have the best coffee in the world.
MARY HUSS (SFBT—Moderator): Jon?
JON SEBASTIANI (Krave): So, Krave is going to leave the meat snacks category in the grocery store and stretch the brand into the $10 billion dollar bar space. So we will launch a meat bar in early 2016 incorporating fruits and vegetable and grains and basically the proposition is going to be twice the protein with a third of the sugar of a Cliff Bar and half the carbohydrates. So it’s a pretty exciting move.
MARY HUSS (SFBT—Moderator): Interesting. Anyway, you all have been absolutely wonderful. Let’s have a huge round of applause. Thank you. And we look forward to seeing all of the future stories that you have to tell, but really, really fascinating group. I want to also thank again Sensiba for partnering with us on this and Nixon Peabody and Rabobank. Thank you to all of you. And thanks for bringing all your great food products.