(FULL EVENT TRANSCRIPT)
On April 26, 2017, 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 reporter, Katie Burke. Below is the full transcript from that event.
PDF of the Food and Beverage Innovators Booklet from the San Francisco Business Times June 2, 2017 issue (COMING SOON)
Panelists: (from right to left)
Matt Barnard, CEO & Co-Founder of Plenty Inc.
Julia Collins, Co-founder and Co-CEO of Zume Pizz
Lynn Stray, Owner of Point Reyes Farmstead Cheeses
Lisa Curtis, Founder of Kuli Kuli
Gun Ruder, CFO & Vice President of Martinelli’s Co.
Palo Hawken, CEO of Rebbl
Karen Burns – Partner, Sensiba San Filippo and President & Co-Founder of East Bay Manufacturing Group
JIM GARDNER: Welcome this morning to our Food and Beverage Innovator’s Forum. I’m Jim Gardner of the San Francisco Business Times. On our behalf and behalf of our sponsor, Sensiba San Filippo, we are delighted to present an up close and personal conversation with six food and beverage leaders, folks who conceive, manufacture, brand and sell stuff that we all love to eat and drink. In fact, I think some of our speakers have brought samples this morning, which are at the table over there. So if you are interested or hungry, that’s the place to go. Thanks to our speakers for bringing those treats along.
The Bay Area is renowned for its creativity in the nation and in the food and beverage industry. Many great products and brands have grown up here and continue to do so. In many cases, we invent the trends. What is driving that innovation? What are some of those trends? What is the role of tech in the food and beverage business and what are some of the common challenges and opportunities these companies grapple with? You will get all of that today. We will also explore what it takes to foster a culture of innovation and how to keep that innovative culture as the company matures. Our speakers represent food and beverage companies ranging from startups and early stage companies to well established businesses. We will also be introducing our newest reporter, Katie Burke, who is covering the food and beverage beat along with a few other things. Now, Katie is not entirely new to us. She’s a Bay Area native and worked for us in the past before spending the last two years at one of our sister publications, the San Antonio Business Journal, where she did an outstanding job. So any barbecue questions I’m going to throw over to Katie. Katie, why don’t you stand up?
She is going to be moderating our main panel discussion with the food and beverage administrators in a little bit, so we will have a chance to get to know her. Before we begin, I want to thank our sponsors. Our title sponsor is Sensiba San Filippo. For nearly 40 years, Sensiba has been a nationwide accounting firm and has served a wide range of clients, providing families and businesses with strategic guidance and technical assistance for meeting their financial goals. Thanks to Sensiba partner Karen Burns, the food and beverage practice leader. Also want to thank our partner sponsor, Nixon Peabody, an international law firm with an established team of professionals who provide advice, services, and support to the food, beverage and agriculture sectors. Representing the firm here today is Tom Gaynor, office managing partner in San Francisco. Thanks also to the City of South San Francisco and the Association for Corporate Growth. The Business Times’ Kevin Trum will be live Tweeting today. If you want to join the conversation, it’s at #SFBTFandB. Also if you are not a subscriber to the Business Times already, we can fix that today. There’s a special offer at our table today for subscribers, and let me just say as one of the people who organizes our news coverage, if you are not subscribing, you are missing out on all of our print content and our growing roster of premium online content. That’s not just food and beverage. That’s everything from real estate to finance to biotech to sports, business. You get the idea. So see our table.
You are actually getting two panels for the price of one this morning. Before we get to our panel of food and bev innovators, I will moderate a brief lightning round discussion with two expert advisors to the food and beverage industry. I have three quick questions for them asking for the insights into trends they are seeing and the advice and tips they offer up companies in the industry. To set the stage for our conversation with our food and beverage leaders, please welcome Karen Burns, a partner at Sensiba San Filippo.
KAREN BURNS: Good morning. Welcome to the annual food and beverage innovator’s forum. As you’ve heard, my name is Karen Burns and I am a partner with the CPA firm Sensiba San Filippo and the food and beverage leader there. Our firm is headquartered here in the Bay Area. We have several offices throughout and we serve companies that are headquartered throughout California, typically privately held, and we serve a variety of industries; however, as you might imagine, food and beverage is my favorite.
I had the honor of speaking to the Specialty Food Association at their business summit in Chicago earlier this month and at that time, I was surrounded by so many amazing food entrepreneurs and really had a chance to learn directly from them about the challenges that they face as well as a lot of the trends that are going on currently in the industry. Specialty food is now outpacing the non-specialty counterparts in almost every single category. Consumers are informed and they genuinely care about what they are putting in their bodies. Protein is leading the pack with meat and cheeses at the top, but bars are trending very well upward. Plant based products are an area of innovation for more than one third of manufacturers, which you can see later on, our panelists are comprised of about one third plant based products as well. While in years past, being organic and non GMO was the hot ticket, sustainability seems to be the new flavor of the year, and it probably will be for many years to come. Sustainable products include social, economic and environmental considerations. Nearly 40 percent of manufacturers produced sustainable products in 2016, which is up from 22 percent in the prior year. Not only is the consumer smarter about what they eat, they are also smarter about how they shop. Food manufacturers have reported sales declines from brick and mortar retailers from — since 2014, while third party E-Commerce and their own direct to consumer sites have enjoyed increased sales. Food manufacturers that plan to continue to sell into retailers should consider the following: local and regional is still very important. Have a mission and tell your story. One third of retailers plan to develop more private labels. If you manufacture, make sure they know what you can do. Even food service is getting into the mix, representing 2 percent of specialty food sales. From fine dining to hotels and universities, menus are being changed and catering to the tastes of the demanding consumers.
So what are the challenges? Cost of ingredients, minimum wage hikes, immigration and the status as it relates to what’s going on in our current political climate. They top the list. Compliance with the Food Safety Modernization Act that finally went into effect last fall is equally exasperating. It’s estimated that 80 percent of food distributors currently verify or are planning to verify that the manufacturers are compliant with this. For small companies, how to manage resources becomes more and more difficult as they try to implement FSMA. As they upgrade infrastructure like ERP systems and they manage our cash, all while, of course, continuing to innovate to stay on the leading edge. So thanks again for being here. Now it’s time to sit back and relax as we take a journey through the eyes of these phenomenal innovators during this morning’s panel. Thanks.
JIM GARDNER: Thank you. I’d also like to welcome to the stage Tom Gaynor of Nixon Peabody. To set the stage for our Food and Bev Innovator’s Panel, I know both of you work at the respective firms with a large number of food and beverage companies. So I want to ask you, what is the number one trend you expect to be seeing in this industry over the next year? Karen, do you want to take first crack?
KAREN BURNS: Sure. Everything that I’ve seen points to what I and many call healthy convenience. So things that are good for our bodies that are very healthy, but at the same time remain very convenient. Everybody wants the home cooked meal, but we generally don’t have time to do it ourselves. So we want to make it really convenient. We want to be able to push buttons on our phone and have it delivered to us, but still have it be healthy and good for us.
TOM GAYNOR: So like the classic lawyer, I’ll take an opportunity to say three things. I think focus on premium, focus on infrastructure and focus on consolidation. And when you think about the comments earlier, about the premium niche products, whether it be gluten free, whether it be organic, whether it be other elements in the niche market, whether it be Halal food, other targeted sophisticated consumer audience opportunities, it’s not just because niche is good. It’s because niche fetches a premium. In the very tight margin business, premium is a key for continued growth and continued market share and continued product development. On infrastructure, I think you’ll see continued investment in the legacy old economy aspects of food and beverage. As technology impacts the infrastructure elements in business, everything from distribution to manufacturing elements, there’s an evolution if not a revolution going on in the food business through technology, which is one of the reasons why the focus in NorCal, I think is so key and critical. Third is consolidation. There are going to be winners and there are going to be losers and I think we’ve seen that in 2016. The variety of opportunities in the space is very crowded and it will continue to have financing constraints on some of them and there will be successful winners that will continue to get a lion’s share of the financing, but I think 2017 is going to be a bit of a shakeout year.
JIM GARDNER: We are seeing almost a dilemma in many areas given the housing costs, operational costs, transportation difficulties, other issues that we are facing here. So does this remain a promising place to build or grow a food and beverage start up? Karen?
KAREN BURNS: So I’m going to say yes. Of course it does. I think it does for a lot of reasons, especially when it comes to start ups. I was talking to a more experienced food entrepreneur this morning who is continuing on to lots of things in the Bay Area and as his business has continued to flourish and grow and become very well established, I think that’s when a lot of those issues become more key, and I think that’s where we are going to see more of the exodus is with some of the more experienced businesses. But from an innovation standpoint, being close to where some of the most amazing chefs are in the world, agricultural is still a huge part of our community here. So we have the locally sourced, the ingredients that are going into the products, I think is huge. Just the way people innovate in the Bay Area. It doesn’t matter what industry you are in. There’s this general innovation in the air. I think that that also stimulates those entrepreneurs in the startups. So technology is going to be huge as you mentioned, because finding ways to combat traffic and housing and other kinds of issues through technology is going to, I think, help to allow businesses to possibly stay a little bit longer than they might have otherwise.
TOM GAYNOR: So again, the classic three answers. Yes, it definitely remains a key opportunity in the United States in the system and it really comes down to three things; talent, money and exits. Those are the key ingredients for a successful ecosystem. San Francisco remains the leader for innovation, remains the leader for talent, remains the magnet for the platform on innovative technologies and innovative talent to come here and thrive and take their status and make a fortune. For financing, you still have the most sophisticated ecosystem and everyone tries to replicate Silicon Valley, but they can’t. Whether it be pressure from New York, Boston, Texas, Northern Italy, whether it be pressure from Israel, we still have a magic sort of circle of financing opportunities and infrastructure here unparalleled. And day-to-day, it’s about exits. Strategic growth, partnerships, you still have the slowest exit infrastructure in Northern California than in the land. But that said, there is an enormous amount of pressure on Northern California and I think that’s also what we are going to see into 2018 is who is articulating a vision for dressing the infrastructure issues for which makes California the Golden State, and when you see the pressure from Chicago and you see the pressure from other areas in the country, Tyson’s Food is putting $150 million into funds of Chicago for a reason. There is a growing food and bev concentration in other places that is going to give us a run for our money and it’s going to particularly put pressure on what makes us more attractive and we need to be aware of that.
JIM GARDNER: Ciabo passed a $50 billion-dollar transportation bond, LA passed a bond that is at least a 100 billion-dollars. So other regions are addressing the problems with a little more urgency than we are here. To close this panel this morning, given the uncertain environment, what would be the one piece of professional advice that would be as a specific or legal advice that you wish they were asking for?
KAREN BURNS: I think from accounting. I was actually thinking just in general about running a business. So when — and we are business consultants as well. So the word that really stands out to me is focus. And I’ve seen so many entrepreneurs running in so many different directions without a focus toward a strategic plan. It’s so easy to get pulled into so many different directions that really are not going to help you accomplish your mission. So understanding what is your product? What is your secret sauce? What is the thing that is going to make you different and successful and stay to the course? Focus on where your cash is coming from and where it’s going. There’s the accounting piece. Cash management, right, the less focus we have, the more easily cash seems to somehow disappear. So focus, focus, focus.
JIM GARDNER: Tom, what’s your three part answer to this one?
TOM GAYNOR: I’ve only got two. The best advice I’ve heard this morning was drink apple juice for longevity for life. The second is hire the best advisors you can afford, and I don’t mean that as a shill for Nixon. There are an unfathomable number of challenges for any start up in the food and bev space, whether it be regulatory, whether it be tax accounting or legal, it is a nightmare and a quagmire to navigate the rules, which you will inevitably break because there’s a rule for everything in California if not the federal government. And so the appropriate level advisor, the appropriate team to get you to goal is absolutely the best advice I think I can give to almost anybody that walks into here.
KAREN BURNS: Do it early.
JIM GARDNER: Okay. Tom. Karen. Thank you very much. Now, I’d like to invite Katie Burke up to the stage and she will invite our next panel.
(MODERATOR) KATIE BURKE: Good morning. I am really happy to be here because it’s a little hard to imagine that two and a half weeks ago, I was still in Texas. And as you can probably imagine as well, Texas runs a little bit differently than San Francisco and innovation has a completely different meaning out there. For example, innovation out in San Antonio, which is where I was reporting, is how to make the puffy taco even crispier and things are different here. Just in that definition is so different here and the city leads in so many different metrics measures and the panel that we have today is not just innovation and what they are doing, but it’s innovation in how they run their business. So with that said, let’s get this going. We have today Julia Collins, the CEO of Zume Pizza. We also have Gun Ruder. He is the CEO of Martinelli’s and Co. and I know we all know exactly what that is. We have Lisa Curtis, the CEO of Kuli Kuli. We have Palo Hawken, the co-founder of Rebbl, Inc. We have Lynn Stray, the CEO of Farmstead Cheese. Matt Barnard is running a little bit late, but let’s get started. So clearly we’ve got some mic issues going on here. So we’ll get started this way. First off, and we’ll make this brief just so that we can all have a chance to respond, but if you guys were able to write your own Wikipedia page, how would you introduce your company and tell us just a small brief synopsis of your story? So we’ll go from down and out.
PALO HAWKEN: So Rebbl is really the merging of a nonprofit and a for profit concept, you know, from inception, and I think what makes us unique is that we built into the DNA of the company the social mission and the idea of, you know, impact through business itself. So you know, many companies will start. They’ll be product focused. They’ll be innovation focused as they should be, and then at some point, they realize, wow, business is kind of rough on the environment. You know, there’s things, there’s externalities and outputs that are challenging and they find some way to outsource their impact, you know, find a nonprofit and find somebody is doing food and they give some money to it and it’s supposed to sort of offset the negative effects of business. And what we said was let’s start the business from scratch with all of those, you know, impact goals and the balance of what business does that’s good in the world and the negative impacts of business and let’s take that and put it on the table, spread it out, take an honest look at it and build the solutions into the business from day one. Much harder project than doing it the other way. And it certainly took us many more years than it probably would have otherwise if we just started traditional CPG business, the traditional model. So I can go into some more detail later on this.
(MODERATOR) KATIE BURKE: What exactly do you sell?
PALO HAWKEN: So Rebbl is a beverage company and I see a lot of bottles on the table. Hopefully you are enjoying. So this is a company based on taking the healthiest ingredients from around the world that sometimes have over a billion people’s worth of household awareness in other cultures and the thesis is simply that in this globalized world that we live in today, if something has that much attention, love, and you know, power in a culture like an ingredient like turmeric, if there’s a billion people using it daily, it will eventually make itself onto the global stage in terms of health, wellness and be a star ingredient in functional foods. So our job has really been a lot of fun just to explore the world, see what is working in the rest of the world in the functional foods and bring those ingredients in a non-cultural format basically not as ethnic food, but as modern solutions to modern functional food need states. So we are still a young company, just going into our fifth year. But that thesis, I think is just starting to prove out that the global appetite for cross cultural curiosity, the mystery intrigue and magnetism of what makes food so compelling to us sensory and functional perspective is all crossing over and it’s all going to be understood and be sort of household words globally at some point in the future.
(MODERATOR) KATIE BURKE: Thank you. And then we are just going to kind of do a little switch down now that Julia’s joined us. So Julia, pizza is something that everybody is familiar with. What are you doing to innovate the product?
JULIA COLLINS: So as I speak, I’m going to show the video. So first and foremost, Zume is a mission driven company. We believe that every single person on the planet has the right to high quality delicious food that’s convenient to Karen’s point earlier and beyond that, we believe that in feeding our customers, we are developing a sacred trust and that’s the reason that as technology, the technology to deliver fresh healthy food to people. We started with pizza because it’s a hundred billion dollar a year industry globally. We are not making diet pizza. What we are making is pizza that has no sugar added, no oxidizers, and no stabilizers. We cure all of our meat with celery salt instead of synthetic nitrates. So this is a very clean, delicious food that’s incredibly ubiquitous, which is lucky for me. I don’t have to convince people to change their behavior in order to give them healthy food. I have to get them to integrate the technology that we are using. The founding piece of technology that we are using at Zume is something called cooking in route. That’s why we have these large food delivery vehicles with 50 kilowatts of power, clean, compressed air and clean water. We’ve chosen to insert 56 mobile pizza cooking ovens into those vehicles. But the fact is you could put other food and that’s some of the long term growth strategy is to expand beyond pizza. Right now I have 86 employees, engineers, drivers, customer service agents, even chefs working at my robot pizza in Mountain View, California, and I’m on track to sell my hundred thousandth pizza this month. So we are a small company with really big dreams, but we are growing very quickly.
(MODERATOR) KATIE BURKE: I’m going down the line. So tell us a little bit, we all know apple juice. Tell us something that people might not understand.
GUN RUDER: Well, first of all, there is a quiz of which one of us isn’t like the others and we are a 150 year old start up. So that is somewhat unique and we really think of ourselves in those terms. Martinelli’s has been around since the late 1800’s and it was founded by the brother of a failed coal miner in 1868 who had gone to Santa Cruz to plant apples. In Navarro valley back in the day, brother came over ten years later and so they got all these apples, let’s make juice. And at that time, it wasn’t juice. It was hard cider, you know, but that, the theme and the thick of the founding of the company remains and we do feel and maintain that entrepreneurial start up culture very much tied to the consumers and customers that drink our product. We weathered a major shift in our industry and in our business from being solely an alcoholic product going solely nonalcoholic, luckily, because we figured out how to pasteurize juice in 1918 so that we could weather the prohibition. And until the 70’s, we did both. We did brandies, hard ciders and nonalcoholic products. And now we are a nonalcoholic fast growing company. What’s unusual about Martinelli’s, we’ve been around for 150 years, but we feel we are entering a very unique world while managing a generational shift, not only the ownership of the company, but the folks on our floor. And we’ve been manufacturing in California for almost 150 years and we employ about 850 people in our plant, and that’s tougher to do for all the reasons previous panelists spoke about; cost of living, transportation and managing a relatively large food and beverage manufacturing in the constant state is difficult. It requires innovation. It requires staying focused on how we can make our company better for our people and make our processing more efficient so that we can use our people more effectively. So we feel the innovation for us is maintaining that focus on our customers, the focus on the product, making the best product we can while we stay in business quite significantly and when we are on the front edge of a lot of change for the industry for our business. So that’s a little bit about us. We can talk about the rest 150 years later on.
(MODERATOR) KATIE BURKE: I just learned that there’s apple mango juice over there. So from a company that’s more than a hundred years old, let’s go down to Lisa. Tell us about Kuli Kuli.
LISA CURTIS: We are about 160 years old. We are three and a half years old. So we are the first company to pioneer this amazing green superfood moringa. Actually I started working with moringa when I was in the Peace Corp. Was in a really old village, no electricity, not a lot of healthy food and I’m a vegetarian and found that my diet of beans, rice and millet was making me feel really tired all the time. So a couple of people in my villages picked these leaves off a tree and handed it to me in this popular West African snack called Kuli Kuli. They said, “Here. Eat this.” And I never thought of eating tree leaves. Moringa sounded more like a dance than an edible food to me, but I started to eat it and it gave me more energy and I did a little bit of research and I realized that this plant is incredibly nutrient dense. It provides a complete protein, a lot of calcium, iron, vitamins, has some really amazing anti-inflammatory properties. So I wanted to find a way to get some of the women I was working with to consume it more locally because they really considered it to be a poor person’s crop. They didn’t place a lot of value on it and there was a terrorist attack. I got evacuated out of Peace Corp rapidly and found myself back in the US still with this idea of working with moringa and supporting women that I had come to love in the Peace Corp. So long story short, ended up changing the business model slightly and sourcing moringa from women’s groups in West Africa and then selling it here in the US. So we are in about 3,000 stores across the country. We sell moringa powder for smoothies, savory dishes, and we also sell it in bars and energy shots and we actually just got everything set up. So be sure to come by before the end and try out some of our products.
(MODERATOR) KATIE BURKE: So back to the company that’s been a little bit more established, Lynn, tell us a little bit about Farmstead.
LYNN STRAY: Point Reyes Farmstead is a third generational dairy family business in Point Reyes, West Marin, and our great grandfather came over from Italy in the early 1900’s and he landed in Petaluma and had a chicken farm. Our grandfather then went to Point Reyes in the late ’30’s and started a dairy and it was a fluid milk dairy and very successful for 40 years. So he pretty much did the same thing. He did a lot of innovation with environmental resource conservation. He was the founder of that and so got really involved with really joining that environmental and agricultural relationship that we’ve seen kind of evolve over the years, has been a real success, particularly out in west Marin. Our father then when he came home from UC Davis in the ’50’s, came home and our grandfather said, “Hey. Your brother is helping me run the dairy here in downtown Point Reyes. Let’s split you boys up and there’s another dairy for sale up the road.” So they went three miles up north right on Tomales Bay and purchased our current dairy in 1959. So our father, our parents moved up there and ran a very successful dairy. They had four girls, exactly what every dairy man has dreamed of, and so we grew up on the farm and my father ran a very successful fluid milk dairy there as well. And it wasn’t until the late ’90’s, mid ’90’s that we all sat down at the family table and talked about sustaining generational family business and in particular an agriculture and all the challenges that were facing us. In conventional dairy, our milk prices are set by the state and federal government. We were seeing over the past two decades our milk prices really stable, but all of our inputs were increasing. So it really forced a lot of family farms to really look at how are we going to pass this onto the next generation and what is going to keep it viable? And so we talked about that and what’s exciting about, I think, the North Bay in particular is this food revolution and new generations coming on and finding a new way to have those businesses survive. So we looked at value added products off the farm. How can we make more money off the farm with a finished product? So cheese was just kind of starting to have its second wave artisan cheese making in Northern California and so we kind of jumped on to that and it came at a great time. This is in 2000. We were inspired by some founders in the cheese industry that had come along about 15 years earlier and really started to create quality products and kind of forged that way and those are the likes of Laura Chenel and Marin French has been around for a very long time and of course Mary King from Cypress Grove and Cindy Callahan from Bellweather. And what’s really unique about our cheese industry is the partnership and the resources and really having that belief that the more of us there are, we can become a destination and we can create a great quality industry in the North Bay in particular really following that wine industry, that parallel path. So my sisters and I had nothing to do with the animals at that time. We had all moved on and had educations and careers and started our families and so we sat around the table and my dad’s vision was, “What do you guys think about cheese? We love to cook and we love cheese.” So it was a really natural path for us to get involved in. But once again, we were brand new, didn’t know anything about cheese or anything about dairy animals because we had chosen other career paths. So when we got together, we really started from scratch. So talk about innovation, I think every five years, my sisters and I are really looking at how do we become better or how do we grow? How do we stay true to Farmstead? Farmstead means that we use only our own source of milk. So we still milk about 400 cows today on our property. We have full quality control over our land stewardship, animal nutrition and husbandry and the way we create quality milk that goes into great quality cheese.
(MODERATOR) KATIE BURKE: Based on the conversation that I heard before I walked up here, we might even find the cheese on Zume pizza, too. And also just in time, too, Matt Barnard is the CEO of Plenty, and based on what I know, you are completely changing how produce is grown. So tell us a little bit about your company and what you’re doing.
MATT BARNARD: So we do lettuce and a lot of other fresh produce products that you all are used to eating, strawberries and other stuff. But you know, we are here because, you know, something that is not out and all of our major customers know we talk to the major meat dealers of the world, they are having problem meeting demands for fresh produce and that’s because we have run out of land in the places where it’s economic to grow produce. So we’ve run out of land and so what we do is we engineer, develop and build farms. So if you run out of air and land, you build a farm. So we can go into a warehouse the size of a Wal-Mart and turn that three acres into hundreds and even over a thousand acres of convention field capacity.
(MODERATOR) KATIE BURKE: And you grow aquaponically. Correct.
MATT BARNARD: We do not use aquaponics, but we do, if you have heard of hydroponics, which is at its base feeding the plants, the nutrients through the water, it’s unlike, you know, hydroponics is through a greenhouse in almost every other way, but if you can get them the nutrients through the water, we can do that. So that’s what we do and that’s all about pushing production out to where the people are. So right now, the production of fresh food, fresh produce, that is very concentrated. It’s concentrated either in tropical climates where you grow things like bananas or in Mediterranean climates, of which there are only five in the world, and which California is one. So they are those places and they ship thousands of miles. So the thing that we are able to do with a very, very short supply chain because we can grow right where the people are, we just grow food that is also ready to eat because we like to say we grow food for people, not for trucks. So we don’t have to optimize for trucks. So we are growing for items that have never been grown commercially because you can’t get the type of commercial yields that you need in the field and because they are not hearty enough for 3,000-mile supply chain. So making the supply chain give people better food.
(MODERATOR) KATIE BURKE: Well, so let’s really start digging here by what’s keeping you up at night and what is really the biggest hurdle to continuing to grow your business and let’s start with you. You are right next to me.
PALO HAWKEN: I mean, I think the obvious one everyone is very familiar with is the upward pressure on salaries and benefits and expectations of new employees I think is such a creative hot bed and that’s why we are here. That’s why we love living here. But there are so many opportunities for smart people in this area. And to be in an analogue business, you know, creating food for people to eat is not virtual and it’s certainly scalable, but it takes time and it takes patience and it takes passion and love and for those kinds of people that have a ton of opportunity in this area to see it and recognize and respect, you know, really, you know, kind of an ancient art, which is the creation of nourishment for human beings is tough. But I think if you do something innovative and it really has a clear impactful way of interfacing with modern culture, people can see that, you know, it’s delivering on the promise of helping humanity, I think that’s sort of an edge we do have in the world of technology where it’s easy to get lost in a big office, you know, with a huge mission and a lot of potential, but may be lacking a little bit of that human element. So I think, you know, it’s the blessing and a curse. This area is, it’s tough to find the right people, but the ones that recognize you from this area and that come and feel that passion, they are your employees for life.
(MODERATOR) KATIE BURKE: And you had mentioned that you are not having many staffing or hiring difficulties, either. I think you are the only one in this panel that isn’t.
PALO HAWKEN: It’s true. But I’d say that’s a recent development. We are, you know, sub to, $20 million-dollar company and up until that $10 million-dollar revenue stage, it was a lot of convincing and cajoling to get the best in the industry to believe in our vision. And I think something that happened in this past year where we hit a tipping point and maybe it’s the visibility of the product and the brand and it seems to be a level of general awareness that the best in the industry have sort of walked up and said, “I’m available. Do you need help?” And that’s just been such a beautiful, validating emotional place to be to see my heroes in the industry walk up and say, “How can I help you?” So it’s true that it’s got a little easier, but it wasn’t always that way.
(MODERATOR) KATIE BURKE: And I know based on one of our past conversations, it’s not the case for you, Gun. Tell us a little bit of your hiring challenges.
GUN RUDER: Sure. Our challenges exist on the manufacturing side. Up until probably five years ago, we were a seasonal business. So we peak at about 350 employees and we work down in the summer time about 250. We would have job fairs and we would get three to 400 people coming out seeking manufacturing jobs. And again, we are in the Santa Cruz County on the border of Monterey County. In the last five years, we get literally ten to 20 people. So hiring people who have the necessary education and skills to operate machinery is getting tougher and tougher to do. So in order for us to stay in this community, broadly speaking the Bay Area, we have to be very innovative on the technology we put into our plant. We can’t count on having the number of people. So we need to invest in the equipment which requires highly skilled people that we are going to pay more money to, but it fundamentally shifts.
(MODERATOR) KATIE BURKE: Could you give us just an example of one of the ways that you’ve done that?
GUN RUDER: Sure. Well, we are embarking right now on the largest investment our company has made. We need to invest between $40 and $60 million into our infrastructure to develop two high speed lines that will increase our efficiency on the bottling side of our business by about 75 percent. So that means for every person, we can produce 75 percent more product, which means we don’t need more people to produce our product, but they need to be very skilled. These are complicated machines that are running at 600 bottles a minute, to fill a bottle, to cap a bottle. On the filtration and pressing side, we are developing filtration units. The old way to filter is you’d move liquid between different tanks to manage what you are doing and when as you process from a fresh squeezed apple to our clarified juice. That will all be automated with hard wire piping. Filtration units. The key for us is to try to get the juice from the apple into the bottles as quickly as possible. With the techniques we have now, it requires about 16 hours of settling time. So we can filter the juice with that technology. With the technology we are investing in, we’ll be able to break that down to about two hours from apple to bottle. The quicker we can do that, the better the quality. And the other aspect of all this, it reduces people, but it also increases the quality of our product.
(MODERATOR) KATIE BURKE: And the quality of the jobs, too. And we are actually going to jump right on down to Julia because I have a point that you brought up too in our conversation in that you are really investing in the work force and the people that you bring in. That’s not necessarily the numbers. It’s the quality.
JULIA COLLINS: This is how we can use automation to create not just a more efficient operation for ourselves, but a more satisfying one for our employees, but higher quality jobs. Jobs that are the highest and best use of their talent. So at Zume, we are the leading edge for using automation. It’s very unusual seeing a robot making pizza. It’s not something that competitors are doing and I’m not doing it because I’m on a mission to just have fun with robots, although I am from the Silicon Valley and like many of us in our room. And I’m not doing it because I wish to have the most profitable pizza company. I’m doing it because the food and beverage industry is the industry going into the world of work, i.e., folks that are new to our country. How many people in this room had your first job at a restaurant? Maybe delivering pizza? Right? So many of us. The food and beverage industry is the entry place into the world of work for many of us, but what I saw as a restaurant operator before I started Zume is that there were two classes of workers. There were the class of workers that had the opportunity to get the ongoing professional development and maybe become managers and owners and there was another class of worker that were relegated to these very repetitive often unsafe, frankly boring jobs and I thought, that’s not right. Although automation has not led to job destruction, it is the case that automation disproportionately affects the folks at the lower end. So at Zume, we offer coding English as a second course, data science classes, all subsidized by the company. So I can take someone who is starting as a pizza prep cook and give her ongoing professional development so that she can be managing the running of robots someday. We offer totally free health, vision and dental insurance for the employee, for their partner, dependents because we want people to come to Zume. So I’m focused on how automation can create better outcomes for humans as opposed to just profits.
(MODERATOR) KATIE BURKE: Before we jump back to Lisa here, who in the room before this morning knew what moringa was? That’s a perfect segue. So Lisa, tell us a little bit about the challenges of educating both the consumer and also in terms of educating the investor to help you grow and scale your business?
LISA CURTIS: Yeah. So I think it’s interesting to us because we find that there’s a decent, a lot of folks who have not heard of moringa and there’s also a lot of people who grew up eating it. So we often have events and we’ll have people from the Filipino background say, “This is the national vegetable for the Philippines. I know this,” or people who grew up in Mexico who used to pick moringa leaves from their grandmother’s garden. So because it’s eaten and grown all over the tropics, you do find that there’s a surprising number of Americans who have heard of it, which we didn’t necessarily know until we launched. But I think in terms of convincing investors, part of it has to do with looking at the data and looking at how quickly we’ve been able to grow and really get out there in the market and actually get some real market traction.
(MODERATOR) KATIE BURKE: And also because you just got that investment from Kellogg, too. So tell us a little bit about that.
LISA CURTIS: So most of people think of Frosted Flakes, which is one of the products they make, and they were very surprised to hear that we just received a four and a quarter million dollar investment led by Kellogg’s new venture capital arm. We went into fundraising not necessarily looking to partner with a big strategic, but found thought Kellogg’s company had an incredible amount of value and other resources to help us grow and that they were also very aligned with the reason behind why we started the company and the vision and the so called purpose. So we actually changed our legal structure to have a full-fledged corporation to really preserve that social mission in our DNA. So it’s been a really great partnership. We closed the round in January. So it’s still new, but has been pretty exciting to see the resources we can access and how quickly you can grow when you are a small company with big company resources.
(MODERATOR) KATIE BURKE: And Lynn, for a third generation business and especially since everybody knows what cheese is, what are some of your biggest challenges?
LYNN STRAY: Well, as I was mentioning, we seem to every five years have a new challenge that forces us to go into some different direction to improve on really our cost of doing business. So in 2005, we kept seeing a lot of our feed and fuel prices increase and we thought, “What can we control?” Energy was something. So we had an audit done on wind, solar and nothing and nothing went out. So we installed a nothing digester which now services a biogas generator. We pulled nothing off. You have our waste water, which is about 60 percent of our water. We have a done a lot with the drought and we have had in the last four to five years, thank God that’s changing, but we put in water reclamation programs, especially manufacturing all the water that you use for sanitation, and taking about milk that you have to cool down and heat up. So there’s a lot of water. So the sustainability practices is something we are constantly looking at. So technology with our nothing digester has been huge. Similar to the pizza and the apple juice was employing was an issue, especially in Marin County where the cost of living so high and really have a larger pool of employees and then training them and when we talk about, you know, where they come from and immigration. That’s a big issue for us and supporting those families that have been with us that come from Mexico, and getting them educated so that they have a new skill set, so that they are marketable, so that they have home ownership, all the things that she was talking about. So our employee base is very important to us, but we also have the challenges of being out getting the product off the farm for all of our distributors. We are currently expanding and building a second creamery thanks to all of you cheese eaters out there in Petaluma so that we can be closer to our customers and eliminate some of the transportation costs of getting it off the farm for all of our customers getting a little bit closer. So technology is a big thing. Another that was mentioned earlier is food safety regulations through FSMA and how important that is and how that really translates to how much food costs on the shelves when you go to the store and how it’s so important that we do have strong food safety programs. But I don’t think everybody understands the extent of what that means and additional food quality assurance programs, and third party auditing and how that just constantly has become more rigorous, which means a lot more money to the companies. And it’s going to be harder entry for small companies to start, especially in the food industry. And then I would say to end with on one of our biggest challenges is also everybody is buying with their phones today. How do we get a perishable, quality perishable product through Amazon, Blue Apron or Fresh Direct? We sell nationally now, and we have East Coast cold storage facility to reach our East Coast customers, but when you are talking about Fed Ex, it’s got to be overnight or two days max and in the summer time overnight. There’s another cost that you have to consider. So that really circles back to, and this is something I think agriculture has all been forced to be sustainable. That’s where we look at what can we do on the farm to keep our costs down?
(MODERATOR) KATIE BURKE: Well, also on the agricultural thread, what is your biggest concern right now? Matt?
MATT BARNARD: Some of the things that we sell for some of the things that we are talking about. The challenges that Martinelli’s has on the processing side with labor, that’s something that also on the production side we talk about is growing food and making food. That’s a nationwide problem and so one of the advantages that we have is that once you come inside and supply in the sun, you can actually design a process that is more efficient and ergonomic for the people that are involved in the process as opposed to being stooped over in a field on a hot summer’s day. So that’s one of the things that we can’t do in arguing in terms of making every person in our company, in our system, more comfortable. That said, I mean, as we grow, one of the beauties of what are doing is we push production out to where people eat food and where people live. What we can do there is kind of free people up to, you know, to not only eat what they want, but to grow the food in places that are, you know, more friendly to business. So if you look at where we are in South San Francisco right now, that’s not where we are going to be doing the lion’s share of production. Over time we are going to be producing near Denver for people in Denver and Chicago for the people in Chicago and New York for the people in New York. So what that does is free us up from what we all know to be the very, very high cost of doing business in and around San Francisco.
(MODERATOR) KATIE BURKE: And also I will just ask you guys can you all hear Matt all right? And then do you have any questions for any of the panelists? Not yet.
AUDIENCE QUESTION: Thanks. Great panel. The home delivery home preparation apps such as Blue Apron, do you see those contributing to enhancing your business, a competitor to your business or where do you see them in your particular world?
(MODERATOR) KATIE BURKE: Let’s start, Lynn, do you want to start by answering that question?
LYNN STRAY: Yeah, I think it’s the way of the future and we have to adapt. And when you are talking about and I think all of us are really trying to find that specialty niche, we listen to the customer. That’s what’s going to help us grow. We have to respond and give them the quality and delivery is the other big thing and this is really where this is going and the generation of getting the home delivery and the convenience that somebody talked about earlier. So I see that that’s something we have to adapt to and it’s going to be a challenge.
(MODERATOR) KATIE BURKE: That’s one of the biggest food trends right now is convenience. But is there anything else that you guys are really responding to in terms of how you grow, how you guys are innovating and how you are really going to be changing in the next two years? Gun? Do you want to speak to that?
GUN RUDER: I think a big shift to us in the last three years as an agricultural company and from the history, as different problems and development overtook apple orchards, we felt that our supply chain was threatened from both the quality standpoint and from just availability standpoint. So over the last three years, we’ve gone from having no orchards under management to nearly a thousand acres of orchards that we control, that we manage, we know what’s going on our fruit, we know what types of varieties are being grown, and having that control and supply train is imperative for us to make sure that we have the access to the right apples that are grown the right way, and then we can maintain the quality of our product. And if we didn’t take those proactive steps, it’s another challenge of being in California that was mentioned before. Apple orchards would likely disappear from our valley if we weren’t preserving those apples. It’s a very sustainable crop. It requires a lot less water than the other crops, but the other are crops are higher revenue for the growers, strawberries and vegetables and raspberries. So we had to step in and maintain that supply chain and that’s going to be an ongoing challenge. We will ultimately probably have to have 2,000 acres in the three counties that surround us to sustain our business.
(MODERATOR) KATIE BURKE: Julia, you are quite literally driving along the convenience track. Tell me a little bit about how you guys are adapting to that.
JULIA COLLINS: So as you know, Zume, we are delivery only so what that means is versus my peers in the pizza space, we aren’t spending 10 percent of revenue in occupancy costs. I can operate at less than 2 percent. So that is a huge driver of profitability for my business and also frees me up to be able to invest in sustainably farmed produce and high quality cheese. I don’t know how to get apples on pizza, and then serve a nice Rebbl juice alongside it. So if the trend is delivery, if we all agree that that’s the case, then to Lynn’s point about listening to the customer, what do they want when their food is delivered? They want it to be fast. Waiting 4 minutes for a pizza these days, that’s not scalable. We deliver in less than 20 minutes. Getting a pizza that’s a little bit cold and soggy, that’s not going to work anymore. So I designed a sugar based totally compostable pizza box that absorbs moisture and I don’t cook your pizza until I’m one minute away from your house. So it’s thinking about what the trends are, but then optimizing every step in your process and you are delivering a better outcome for your customer.
(MODERATOR) KATIE BURKE: What kind of technology have you employed to really cut down on that delivery time and make it faster?
JULIA COLLINS: So the first thing is looking at the inside out food chain. I warehouse with my food producers. I don’t have a big distribution center full of frozen product. I get fresh product from my growers every single day. The second thing I do is I predict what pizza you are going to order before you order it. Pizza eating is an incredibly predictable individual process. Individuals feel unique, but in the aggregate, we eat the same type of pizza on the same day of the week. So I predict what pizza you want to order. I prepare those pizzas and then I delocalize my inventory. This is a big trend right now. Delocalizing inventory. So by the time you try to order a pizza, I already have it waiting in an oven in a vehicle five minutes from your house. Imagine how that unlocks not just speed, but also quality. I don’t have to add sugar stabilizing or oxidizer to the product to allow it to taste kind of good by the time it survives 40 minutes in the back of somebody’s Honda Civic. I don’t do that because I’m using technology to solve the problem, not chemistry.
(MODERATOR) KATIE BURKE: And Lisa, what are you doing really adapt to any specific trend? Are you even paying attention to something like that?
LISA CURTIS: Yeah, I mean, we definitely pay attention to the trends. I think there’s a couple big trends that we see and are playing into, definitely the plan protein trend that I think Karen brought up earlier. It’s something that we see a lot of consumers, particularly in the vegetarian vegan space looking to moringa to solve that for them. We also see transparency being a really big trend. I think consumers, it used to be enough just to see organic or non GMO and now people want to know, okay, it’s organic, but where does it come from? What wages are the people that are growing it paid? How is it grown? And then I think the other one that we see is more of a holistic trend of food as medicine. And I think Rebbl is a great success story as well as where we no longer think that the only, that we can eat unhealthy food and take a couple of pills in the morning and that we’ll be a healthy person. That it really does matter what food we eat and that shapes our overall health.
(MODERATOR) KATIE BURKE: And the idea of a superfood is definitely something that I think we are all familiar with and so in our conversation, you said you are like the third largest specialty beverage company on the shelves right now?
PALO HAWKEN: If you look at the natural, it’s all tracked in the subcategory called spins, and they track the category that we are in. They call fresh juice and functional beverages and we are actually the number one beverage in that category now and we are the number three rapid go sort of single serve beverage in all natural. So I think these trends like Blue Apron are phenomenal. But I think what we are really getting at is that the consumer is really loving the idea of somebody art directing their experience, you know, a trusted advisor. Let’s say the brand or the person behind the brand or the influencer that they are connected to is saying, “I’ve got your back, you know, I’ve thought and researched, you know, more deeply than you have or could and you don’t give us the time. So I’m going to give you something that has the thoughtfulness that you would have had if your grandmother made for you or if you were to sort of spend a week diving into the subject yourself.” So I think anything that presents that to Rebbl is my best reflection of that, anything that presents the consumer with a philosophical frame work that they connect to about what they believe their life is about, what they believe their health is reliant on, and you become sort of a trusted advisor for their life and the way they live, I think those are the brands that are going to succeed in the future and I think Blue Apron and these kind of brands that say, you know, “We are going to take care of you in ways you didn’t even know you needed to be taken care of and make sure you have the tools to live your life the way you want to live it,” and as soon as the trust is galvanized, you’ve got infinite license to grow and build those consumers and I think we are trying to do that the best you can.
(MODERATOR) KATIE BURKE: And you also mentioned that you were surprised that it happened so quickly for your company and so I want to speak to the point of expansion and what you guys are really going to be doing in the next two to five years. What’s the biggest thing that you are doing?
PALO HAWKEN: Well, innovation for me is truly successful innovation about one foot in the known and one foot in the unknown. If you want to reach a lot of people and have a lot of impact and touch a lot of people’s lives quickly, you could jump ten, 20 years out of the future and really, you know, try to put your stake in the sand for something out there. That is one way to go. What we found is that if we are going to introduce totally new ingredients, new names that are unpronounceable and new sets of benefits that really, you know, speaks to this food as medicine idea, we’ve got to have one foot in the known. One foot where people can relate to where they pick up that bottle and they say, “I get this. I’m expecting something positive out of this. Even if I don’t know what that word means, it’s still it could imply a halo or some sort of mystery or some benefit.” But you’ve got to think this is going to taste good or this is going to be an enjoyable experience for me. It would be worth my while.
(MODERATOR) KATIE BURKE: That’s the mushroom chocolate.
PALO HAWKEN: And so we make a very accessible name like a chocolate or Ashwagandha Chai to let people know this isn’t just about health. This is about enjoyment. So I think, you know, going from this sort of niche product idea of, you know, food as medicine and taking that to a hundred million or billion dollar brand is really going to rely on that five year ahead vision of where health is going, you know, fat phobia is dead. There’s these things, these ideas that have been really misunderstood for years and they are getting turned around right now. But where are people and where are they going to be in five years and how do you prepare yourself to meet them when they arrive at your place and how do you do it in a way to not alienate or boggle the mind or confuse people on the way that’s making the products that taste exceptionally good and that you would drink just on taste alone. We have to make healthy products taste as good as or better than the junk food alternatives, and think about what happens when you do that. You take away all of the work you have to put into motivating yourself or other people into, quote, “doing the right thing,” or educating kids. You should eat right. Educating ourselves and pushing ourselves to do the right thing. If the healthiest food in the world tastes as good as or better than the unhealthy food, forget it. You don’t have to educate, teach or push anything. The intrinsic desire to shop by taste and experience and sensory delight will actually lead someone to their good health.
MATT BARNARD: So in the produce industry, what has been in the last 50 years, the production has been consolidated where the people are not and so the thousands and thousands of miles of trucks. So what’s happened is you have, we had to engineer varietals that can withstand 3,000 miles in a truck that includes things like engineering the sugar out and engineering the flavor and experience out of the product. So we’ve taken all of our nutrient rich food, which is what fresh produce is, we’ve taken it and sapped out all of the joy and so what’s super exciting about pushing production back out to where we all live, work and eat is that we can now give people food that tastes amazing and so we are planning on doing thing where you are talking about where we take produce and have it compete not just in the produce section, but as a snack because in this trend of convenience that was brought up earlier, what people are saying is, “Save me time and don’t make me think.” Well, that means a couple of things. That means don’t make me wash it, cut it, and prepare it. Don’t make me wonder if it’s food. It needs to be easy. Eat on the, you know, eat on the go. And so those are the things that we are working on and looking to deliver to people all over the planet. It’s to get a nutrient food back to where it came from, which is something that is super enjoyable. Who would have thought that lettuce could be sweet and crisp and something that you might just eat as a snack? But this stuff that we grow is actually, if you take the tomato industry in California, here in California, we grow more tomatoes than any country on the planet. Since the beefsteak tomatoes, standard industry varietal, beefsteak tomato, which I’m positive none of you have picked up to eat as an apple, that with San Francisco, there are varieties of tomatoes that you would pop and have your mind blown and eaten the whole clamshell before you knew what you did. And so those are the types of things that we are doing and that we are growing and so that we can have just an amazing experience with that food that is amazing for us.
(MODERATOR) KATIE BURKE: Well, you are also on a physical expansion track, too. Correct?
MATT BARNARD: Yes.
(MODERATOR) KATIE BURKE: Where are you going to be growing?
MATT BARNARD: Both here in the United States, anywhere where people are. The 30 largest markets here in the United States when we put farms in all of those 30 markets, we can cover over 85 of the US population within a supply chain that’s just a couple hours long. So you’d go from spending a week in a truck to spending a couple of hours. And right now, we are looking to several international companies and investors to, you know, to also produce across the country.
(MODERATOR) KATIE BURKE: And you are doing a little bit more of a local expansion, Lynn. But tell us a little bit about the new facility in Petaluma.
LYNN STRAY: It’s operational. It’s a manufacturing creamery and aging facility so that we can make all product. We are basically doing all. You have our milk on the farm and we considered growing there again and we decided that there’s a lot of advantages as far as distribution coming back on some of that freight and getting close to our customers. But one of the biggest things, we opened a culinary center in 2010 and we are talking a lot about convenience and a lot about people wanting things right now. Well, as a family business, one thing that’s always been important to us is sitting down at the table. So with our culinary center, before we have a philosophy, education and entertainment and we have a guest chef series. We bring people on the farm so that they can really understand how to grow food, what quality food is, transparency, sustainable practices. We had a bunch of architects and designers last night having a retreat and really talking about opening your mind about creativity and this is how we handle our sustainability issues and some of our practices, what do you do, and talking about the similarities with that. But all of our tours and our dinners, they start with a walking tour of the farm and then they come in and one of our most successful, the farm dinner, come visit us and I encourage you to check it out. But it is a family style dinner and we invite a local farmer in. We just had Tomales Bay oyster and aqua culture and that was part of the menu. But we always have people walking away exchanging phone numbers and hugging and really talking about, “I remember my family dinners,” and so I think that experience is something people crave and that’s something that we are sharing not only on the farm, but with our sales team that is out throughout with our customers whether it’s a Croger’s or Bi-Rite, we are talking to chefs and customers all the time about enhancing that experience whether it’s on a Zume pizza or apples and original blue, what a great combination that is, and partnering with people who have values because people are starving for that, sitting down at the table and I don’t think we should forget about that.
(MODERATOR) KATIE BURKE: Well, so in reaching a customer, what you are doing to not only educate but also keep those customers coming?
LISA CURTIS: So we do a lot of brand ambassador work across the country. But you get a lot of people coming to you saying, “I love what you are doing. I want to be a part of this.” So we have 15 people all across the country who are in stores at events, passing out samples, educating about how we grow the moringa, how it contributes to planting trees, empowering women and how, you know, food in general can be both medicine and a tool for social change. And we found that those are really powerful ways for us to get out there. So we had a pretty big year last year where we launched nationwide with Whole Foods and Safeway and Albertsons and so in our industry, they like to say everybody thinks they’ve made it when they get on the shelves, but the hardest part is getting off-the-shelf. So what we are focusing on is really get that product to fly off-the-shelf and get consumers to come into Safeway saying, “Where is your moringa? I want it.”
(MODERATOR) KATIE BURKE: Julia, with no physical store space, how are you able to really get your message out or get people to understand a robotic pizza delivery?
JULIA COLLINS: So the first thing about pizza is it has to taste good. So a lot of my work personally is just dedicated to recipe development and what I will say is the single biggest driver of growth of Zume is customer satisfaction. So we are data junkies and we obsessively track customer satisfaction. The biggest thing is called net NPS. But the idea is this: if you like our pizza and you feel good after you eat it, it’s very likely you’ll buy it again. But I really just have to drive through that. But you were saying in term of getting your product.
(MODERATOR) KATIE BURKE: For Martinelli’s, how do you bring in new people and keep that name at the forefront of other companies?
GUN RUDER: It’s a challenge for us alarmingly because we’ve never employed anybody in marketing. Martinelli’s has never marketed our product. Company’s philosophy goes back to if you focus on making a great product and you make the best juice, all else will solve itself and to a large extent, the fact that we’ve been around for 140 years has proven that. But the companies that I’m up here with, in terms of innovation and the value of the product that if you are not proactive about communicating that to existing customers, you can easily get lost in the shuffle even as an established company as we are. So we have in the last two years embraced social media. We are revamping our website trying to get much more directly in contact with the people drinking our juice and we are engaging in some testing of gorilla marketing campaigns. So San Antonio, we’ve tested going to marathons and sponsoring a marathon, handing out juice as people cross the finish line, going out to fairs and Christmas and New Year’s events and having juice samples in Chicago or the suburbs of Columbus, Ohio where we are not as well known. We believe once people try our juice, they’ll become hooked and loyal and users forever. Well, what’s in it? It’s an Apple. That’s it. We have to communicate that. We can’t just assume people will understand who we are. Most of the people we met had no idea we were here, had no idea where we were and how long we’d been around. And there is value to communicating that mission and the fact that we are connecting with agriculture that we are magnifying now and the fact that we have been around a long time and making the best quality product. We understand we have to be much more proactive about engaging our consumers and telling that story.
(MODERATOR) KATIE BURKE: I think you have to be proactive just because in all of your spaces there’s so much competition. So do any of you have any concern or anything that you are doing to combat that or fight for that chef space? So Lisa, do you want to start with that?
LISA CURTIS: Yeah. So one of the more interesting things we’ve seen is that this is the first year we’ve really seen competitors in the market. We are the largest distributor out there and we are in the top percent of all the supplements they sell and they just put out a trend report that said the number one trend we are seeing is moringa, which is great for us, but we are starting to see a lot of moringa that has way less quality and is sourced in a very different manner that is coming out on shelves and is half the price. So for us, that makes it even more imperative that we really make the case for why ours is higher quality and what the benefits are so. We just start working with some professors at Rutgers and UC Davis to put together a study on, you know, what are the quality differences? And you know, they are looking at all of the different moringa on the market and we are going to publish it regardless of what the outcome is. But we are pretty sure that when you source in a sustainable way, when you work directly with farmers and you know the quality of the soil and you don’t have any heavy metals or pesticides getting contaminated, you produce a much higher quality product. So I think really proving that is something that we are going to be focusing more and more on.
(MODERATOR) KATIE BURKE: And Matt, you have some of the bigger competitors in the agricultural space. So what are some of the difficulties with that?
MATT BARNARD: Most of the difficulties is getting the right people in place and getting enough in place so that we can expand across the country and around the globe. You know, in terms of competition, what’s true is that most all fresh produce right now statistically is grown in the field or in greenhouses. What’s also true, though, is that the field is out of land in the places economic to perform. So what we are doing is we are filling a gap that is not served right now. We are resolving for a supply. So in that respect, we are okay. So challenges are how do we grow this fruit and demand and how do we make people comfortable in this form of agriculture that they are not familiar right now? People weren’t familiar with the steel plow when it came around in 1837 and they were not familiar with the tractor and they were protesting against it in 1893 when it came around because it wasn’t in people’s romantic notion of what agriculture is. And so one of the things we do is as we build farms across the earth, we just build farms that we help people understand what it is and get them comfortable with it so that everybody makes the right decision, what to do about that.
(MODERATOR) KATIE BURKE: Anything to answer that, Julie?
JULIA COLLINS: So pizza is a $40 billion-dollar year industry. 40 percent is controlled and it’s always 40 percent every year. Domino’s, Pizza Hut, Papa Johns and Little Caesar’s, and I would argue that the pizza they are serving people is not good. It’s filled with sugar. It’s filled with chemicals. So for me, I’m not afraid to poke the bear right in the belly. I’m picking a huge fight with these guys. I won’t tell you which CEO I was speaking to, but when I asked him, “How often do you visit your shop with your family,” he laughed. He said, “Oh, no. My wife is very conscious about what she eats,” and I thought, that’s magnificent. You just flew out here and you are making a lot of wealth for yourself serving food that you wouldn’t serve to your own family.” So I’m completely unafraid to pick this fight. I think everyone on this stage is probably fighting the same fight, which is how do you get better food to folks everywhere?
MATT BARNARD: And I would say that’s all around collapsing the supply chain. So what’s been happening to the United States and all over the world, we right now report 28 percent of the fresh produce that we eat in this country, that percentage is rising quickly year over year because I’ll say it one more time, we are out of land for produce and so what’s happening is that there is — that supply chain keeps growing longer and longer and longer. The food has less flavor and experience to your point and so additives and all of these things need to be brought into the food in order to bring experience and bring it to life and civilize it and what we can do is let the produce speak for itself.
(MODERATOR) KATIE BURKE: Well, and so we’ll turn it back to you guys. Do any of you have any questions right now?
AUDIENCE QUESTION: I actually have a question for Martinelli’s. You guys have been around. Everyone knows you. You are established. You know, I don’t think anyone has any question that you are unethical. You are part of the Watsonville community. So how do you differentiate yourself or are you worried about that when you are competing against, you know, other companies in your category that they are starting with the mission statement to be progressive in the world and the community when you just have a good established product? You know, is that a concern for you in or will you move more towards what they are doing or just stick to your guns?
GUN RUDER: Yeah, I think our problem is not about competing with people. I mean, the biggest challenge is — so we don’t feel threatened by the fact that there are innovative companies that are mission driven. We feel like we’ve been mission driven for 149 years and we have always been focused on producing not a good product, but a great product. And always been focused on doing so in a way that’s interwoven with our local community, local growers, and understanding the needs of our consumers. What we haven’t done real well is communicated that, and our local community is very well known, but broadly it’s not. So you look at us on the shelves, you associate us with New Year’s and Christmas and we’ve been around forever. The realty is it’s been very hard to sustain that business over the course of 149 years and it’s only going to be harder with the competition that we see. So we feel, much like my colleagues here on stage, that the fact that we are so mission driven, the fact that we have always cared about staying close to the apple and what our product really represents, is now an asset and we are not necessarily — we are still fighting against the Cokes and the Pepsis and we are fiercely independent. But the fact that people are caring more about what’s going in their food, caring more about what does this company represent and what are the values of the company, that is right in our wheelhouse and it’s where we compete the strongest and I think we are very analogous to the companies on the stage in that we are not necessarily in competition with or threatened by.
(MODERATOR) KATIE BURKE: Well, you were also exploring whether or not to outsource your apple source. I believe you were looking for Washington?
GUN RUDER: Not outsource. We are looking where we have to double capacity within the next five years and we are looking, for all the reasons we’ve talked about, doubling capacity for California for a manufacturing business is not necessarily intuitive. That being said, we felt a commitment to Santa Cruz County and Monterey County and the growers in our region and we know that the apples in our region add to our flavor profile and add to our distinctive taste advantages. But we need a growing source of supplies and we have to look at what that would mean to grow that capacity closer to a growing source of our apples versus that. So we chose to stay in California because of support in the community and the fact that still the majority of our apples come from that region and we are vertically to protect those orchards.
AUDIENCE QUESTION: Thank you. I’m with a global firm. We do a lot of work at the CBG and food and beverage. One of the challenges that we see frequently is impassioned pioneers and founders of companies trying to build a business and working so hard to do so and at some point in time, it makes sense to bring in more professional management to help take it to the next level. And I know some of you have had to address that question when do we bring in an outsider and what makes it successful? And I know Palo, you’ve brought somebody in and you have had to step back, share the evangelism, so to speak. I mean, what has helped you to be successful in that transition?
PALO HAWKEN: That is a great question.
(MODERATOR) KATIE BURKE: If you want to at that take a minute to explain that transition, please.
PALO HAWKEN: Yes. So I was the founder and CEO of Rebbl and I don’t have a business background. I’m an art school dropout. Pure artist, you know, by nature and by trade. And this business was very opportunistic. It was very, you know, kind of organic the way it bubbled up. And I knew from the day I started it that I would be, there would be nobody better to birth this concept than me. It was so personal. It was so much about my own drive, my own health, my own wellness and my own expressiveness. But literally from day one with my board, I said there’s going to be a day when an operator is going to need to be at my side scaling this thing because I’m an artist and that business person is going to need to be there to make this work. They agreed, you know, luckily it felt like that strategy was the right thing and I do feel like, you know, to answer your question, in some ways I got lucky. I built a wonderful network of friends in the food industry since my first start up in 2003 and the former CEO of Clif Bar and the founder of Plum Organics was a friend. She had retired after selling plums to Campbell’s and I sort of reconnected with her on LinkedIn and I just invited her on my board for some professional board level guidance, just respected her as a person. And when she got to see what the business was like and all the sort of, you know, dark corners and warts and all, the first thing she said was, “If you need a CEO, I’d love to take a shot at it,” and we all were just thrilled that someone with that level of talent would offer themselves up. It’s a great validation of business. Of course she was offering it temporarily as I was. I’m not ready for a big sort of long start up haul. But two months into her interim CEO position, she said, “I’m stopping the search because this is too much fun. You guys are too great. This product is better than anything else I’ve worked on in my career.” So to answer your question, I think a little bit of luck and building that network of trust, you know, early on before this one started, but I do think there’s culture of founder sort, of you know, eco ownership control that is detrimental to scaling businesses a lot of times. And I think for founders, the advice I would give it would be to, you know, really understand yourself clearly, be introspective and be honest about who you are, what you are good at, where your strengths are, where your weaknesses are, and allow that to drive your decision making up who you share responsibility with. This is, it’s not about you. It’s about the business. It’s about the service to the people. It’s about the mission of the company, all the suppliers that feed that company. Step aside and allow the vision and the passion you have to really flourish by allowing you to your best in that company and I think over half of great startups, you know, run into these kinds of personality challenges and sort of control ego challenges that undermine the vision of great ideas. And you know, anybody who wants to talk to me about this, I would talk all day long about the power of really clear self-evaluation and introspection around business practices and knowledge and skill. And let the brand tell you what it needs, you know, you are not the one in control after a certain point. The brand has a life of its own and you are in-service of that and all of the benefits it’s bringing in the world.
(MODERATOR) KATIE BURKE: Recognizing, I want to take a step back in order to continue to grow.
PALO HAWKEN: And leadership is fun. To me, I sleep better at night knowing Cheryl is there and I think she does knowing that I’m there. This is a mutual benefit. It’s not a, you know, competition for control.
(MODERATOR) KATIE BURKE: There was another hand up here. Yes?
AUDIENCE QUESTION: Hi. Really the question I’m really going to direct to Matt, but I think it applies to everybody. I think we are all aware that production of food requires a lot of water and energy associated with it and interesting what you are doing with regard to kind of urban farming, if you want to call it, but in a warehouse. Obviously the source of water and energy must be a big component. I’m curious of how you are managing that and what that looks like and how is that faced as a challenge in your business? And I’m sure everybody else has ways that they have to address the use of water, gas, energy, so and so.
MATT BARNARD: So — and it’s one of the things that brought me into this business. I grew up on a commercial food farm myself, apples and cherries in Wisconsin. So that’s one of the things that pulled me in. But another is my interest in the water system and something that you may all know is that the agriculture industry accounts for 70 to 80 percent of the world’s water consumption. In California, it’s 80 percent. And we use 1 percent of the water that conventional Ag does on the state crops. So it’s, you know, the most efficient place on the planet to grow lettuce, for example, is the Salinas valley where they use roughly 15 gallons water to produce one head of lettuce. We use less than a fifth of a gallon of water to produce that head of lettuce and are still driving that number down. So this is something we really don’t have a choice. As people, this is the place we have to drive towards because it doesn’t make sense to be spending 15 gallons of water on a head of lettuce. So that’s one thing is that is really exciting and it makes it easier for us to bring great talent is when you tell people you are using 99 percent less water. So that’s on the water piece. On the energy piece, there’s exciting news there too, which is that if you look at what we like to call the implied cost of blinding the sun, and getting people food that they can fit in their budgets means it implies this consolidated production model that you have where it’s being produced in California or South Africa or Chile or New Zealand and it spends thousands of miles in a truck or warehouse. So when you look at the final cost of the value of the food at shelf, 30 to 45 percent of shelf is trucks and distribution centers. And so we are shaving 70 to 90 percent of that cost of that supply chain out of that product. That part of the supply chain is some of the dirtiest energy that exists, which is truck fuel and the burning of truck fuel. So we are wiping that energy expenditure off of the table. We do obviously spend energy to replicate the sun and performing LED lights. That’s how we gear light energy to the plants. But when you look at the supply chain from seed to shelf, because we are cutting all of that you dirty energy out of the way, we are still able to deliver a product that’s both better than and a price that is less than anything that’s in the market. So that’s a great way to measure the energy so what’s the cost to shelf.
(MODERATOR) KATIE BURKE: Well, I know that we could all sit around and talk about food for the rest of the day. But as kind of a way to wrap this up, what is really the most exciting part of your business right now and where do you see yourself in two years? And we’ll start with you, Matt, and move our way down.
MATT BARNARD: Two years. Well, two years you are going to see a number of farms across both the United States and you are going to start to see it internationally inside of two years. So that’s going to be exciting. There will be less sleep had across the team. But you are going to see us on more and more shelves. You going to be able to find us, have us delivered to your home. So it’s going to be very exciting. So we want our product in more people’s hands and mouths. So that’s what I’m excited about.
(MODERATOR) KATIE BURKE: Julie, what about Zume?
JULIA COLLINS: Most exciting part of my business right now is the team that I’ve built. To get up every day and go to work and see engineers collaborating with chefs and robots collaborating with humans to make pizzas frankly is thrilling. Over the next two years, we are going to scale this food delivery. So we don’t scale through building brick and mortar restaurants, which is what makes our investors so excited. We scale through the deployment of our special delivery service. So don’t be surprised if you can open your phone and order a Zume pizza here in San Francisco in the next year and then across California the year after that.
(MODERATOR) KATIE BURKE: It will turn into the Google van. And how many employees do you have?
JULIA COLLINS: I signed 86 paychecks last week.
(MODERATOR) KATIE BURKE: And how is that number going to grow in the next two years?
JULIA COLLINS: The largest growth for us will be in the fleet driver program. So by the end of the year, I expect to have 150 employees to service the Bay Area.
(MODERATOR) KATIE BURKE: Lynn, with your physical expansion, what is going to be next for you?
LYNN STRAY: Well, we’ve invested in a lot of technology, like, you know, Martinelli’s so that on the labor side we are going to be able to advance the skills of a lot of our employees and make it easier ergonomically on them as well. So that’s going to drive some of our labor down and technology and all the packaging. And then part of our distribution. So we’ve got a new facility in Petaluma which will come on board. In early 2018, we will be able to double our production and be able to bring out new product and continue to expand some of our fresh products. We have a fresh mozzarella that is strictly in the bay area, but with new packaging material and the opportunity to build our inventory, we will be able to expand that offering as well as some of our library cheeses. So you will be seeing more of our cheeses and continuing to stay as a strong brand out there that really reflects a lifestyle and I think all of us here and I think that’s something that the consumers really want and something that they can count on.
LISA CURTIS: Yeah. I think for us, this feels like the year we make moringa the new kale. So we are really excited about that and we can finally have the resources and trying to start to hire some of the folks to really take our business to the next level. So in the next two years, we are releasing a lot of my products designed to make this nutritious green even easier and more delicious to eat. And to eat and take it on the go. So I think you’ll start to see us popping up at a grocery store near you.
GUN RUDER: The thing I’m most excited about is it sounds like there’s going to be a Martinelli’s apple Farmstead blue cheese moringa pizza. We are approaching our 150th anniversary, so in the next two years, we will be embarking on our next 150 years. And at that time we will likely be the largest grower of fresh apples on the Central Coast. Improving production capacity, training the work force to be more highly skilled, and more efficient machinery so that we are able to maintain production here in California. And as for us, we feel, yeah, we’ve been around for a long time but we are really at the tip of the iceberg as to what we could be and how we are growing this company in the local in California and personally, as we are rehabilitating a truck that we’ve had in the company for almost a hundred years. It’s a model B-truck. I volunteered to drive around the country and serve Martinelli’s. So you might see me in a local company in the Midwest.
(MODERATOR) KATIE BURKE: Well, and along with apple cheese moringa lettuce pizza, we will be drinking it with a superfood drink. So what’s next for you?
PALO HAWKEN: So I’d say two years from now, I’d like to be a hundred million in revenue, have one million regular consumers, 100 employees. That’s sort of the metric side.
(MODERATOR) KATIE BURKE: Tell us the stats now.
PALO HAWKEN: Right now we are 21 employees, just under $20 million in revenue and probably a hundred thousand regular users. So major, major growth in the next two years. And toward the impact side, I’d like to see us engage with and measure the quality of life of the direct and, you know, primary producers of some of the agricultural products we use. We are in the middle of the collaborating with the UN, you, know, international fund for agricultural development using a tool called the EMPAT where we actually go in and survey the small holders of the families about everything from health care, you know, to education to, you know, income, everything. And get those numbers dialed in at that starting place, understand where the holes are, you know, in the quality of life and actually be a proactive partner with the people that are usually kind of the forgotten part of the supply chain. Most big companies are buying from middlemen and brokers and don’t have any idea of where the products come from, who produces them. So we’d like to be the company that bridges that gap, meets those people directly, connects with them and actually takes a direct role in increasing quality of life for those small holders.
(MODERATOR) KATIE BURKE: Well, on behalf of me and the rest of the San Francisco Business Times, thank you so much to you all for joining us.
TOM GAYNOR: Just to wrap up, I want to thank both our panel and thanks to our sponsors. Thanks to Katie Burke, our moderator, and thanks for joining us. Good day.