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Apeel Sciences closes $70M round as produce hits retail shelves

Apeel Sciences avocado-tree-apeel-sciences-promo.jpg

Apeel Sciences has announced $70 million in new financing led by Viking Global Investors with Andreessen Horowitz, Upfront Ventures and S2G Ventures, with participation from others.

Apeel Sciences developed an “extra peel” that’s applied to the surface of fresh produce to give the fruit or vegetable more protection from water loss and oxidation. The process keeps the produce fresh longer, promoting sustainable growing practices, better quality and less food waste.

In June, the company introduced Apeel avocados at Costco and Harps Food Stores in the U.S. Since May, when the avocados became available at Harps, the company has seen a 10 percent increase in avocado sales and a 65 percentage-point increase in margin.

“We were looking for partners who saw the long-term vision for Apeel fruits and vegetables in the U.S., and also abroad in countries that don't necessarily have the cold-chain infrastructure,” said James Rogers, founder and CEO of Apeel Sciences. “We're honored to have Viking Global Investors and Walter Robb as new partners on our journey to help the fresh-food supply chain gain efficiencies that will help put a stop to food waste and enable better quality food to come to market.”

Apeel Sciences’ new funding will be leveraged to accelerate the company's scale-up in response to supplier and retailer demand for programs across avocado, citrus, berry, stone fruit and asparagus categories. The company recently introduced Apeel products for organic and conventional citrus, which will enable suppliers and retailers to improve quality and unlock new revenue opportunities. Additionally, Apeel plans to grow its team, establish satellite facilities to service partners in U.S. growth regions, and continue developing new plant-based solutions across perishable categories.

“A great next generation entrepreneur has come along using food itself to naturally extend the life of food, heralding a new era of possibility and promise,” said Walter Robb, former co-CEO of Whole Foods Market. “James and the team at Apeel Sciences are amazing and I am truly excited to be part of their efforts.”

Robb is joining Apeel Sciences' Board of Directors and will advise the company as it scales to meet demand from U.S. and international fresh-food suppliers and retailers.

 

Source: Apeel Sciences

[email protected]: PepsiCo's CEO Nooyi steps down | Organic's future in the Farm Bill

PepsiCo's Nooyi to exit, thinning the ranks of U.S. female CEOs

The first foreign-born and the first woman to serve as chief executive officer of PepsiCo, Indra Nooyi, has announced she’ll step down from the job in October. She’ll continue to serve as chairman until early next year. She’ll be replaced by the company’s president, Ramon Laguarta, a native of Barcelona, Spain. With Nooyi’s departure, Bloomberg reported, only 23 CEOs of the Standard & Poor’s 500 biggest companies will be women. Read more at Bloomberg

 

How’s organic farming faring in the farm bill?

The demand for organic food is greater than what U.S. farms can supply, so commodities such as corn and soybeans are often imported. How will the 2018 Farm Bill affect organic production? Will small organic farmers continue to receive necessary support? Will organic research still be subsidized? Will the federal government stop at our ports fake organic products that come from foreign countries? The podcast On the Table explores these issues. Listen at The Fern

 

Inside L’Oréal USA’s sustainability strategy

With its $30 billion in sales in 2017, L’Oréal USA’s initiative to increase the sustainability of its ingredients and become carbon-neutral by next year could change the personal beauty industry. Between 2005 and 2017, the company reduced carbon emissions 84 percent—crushing a goal to reach a 60 percent reduction by 2020. Read more at Glossy

 

There's already an emerging market for counterfeit reusable straws

As an increasing number of municipalities ban plastic straws, and businesses opt to stop carrying them, reusable straws are becoming more popular if not a downright necessity. One Kickstarter-funded project, FinalStraw, is finding counterfeits of its collapsible stainless-steel straw on all stripes of e-commerce sites, even though its product has yet to reach the market. Read more at Munchies

 

Survey says Whole Foods customers have liked changes since Amazon’s takeover—but have they been enough?

Whole Foods customers say they have noticed better quality products and lower prices at the brick-and-mortar stores since Amazon bought the company a year ago, a Morgan Stanley survey found. Of those customers who responded to the survey, 70 belonged to Amazon Prime; Prime members receive extra discounts at Whole Foods and have access to free delivery from the stores. Read more at 512tech.com

Justin’s pursues difficult supply questions for 'progress, not perfection'

Justin's Justin's

You’d be hard-pressed to find a new natural food entrepreneur who at some point during brand development—perhaps late at night pondering the day’s entrepreneurial tribulations—perused the “Story” section of Justin’s website and imagined his or her company following a similar path. That’s because Justin’s epitomizes the timeline of a modern, boot-strapped natural food company that rose to nationwide distribution and CPG acquisition—all while staying authentic to its roots and retaining fiercely loyal fans.

In 2004, founder Justin Gold started his company in his Boulder, Colorado, kitchen. Seeking a protein-dense, plant-based option to fuel his active lifestyle, he started whipping up nut butters much to the delight of his roommates, who devoured to his creations. This prompted Gold to mark the jar “Justin’s” on a piece of masking tape. The claim later became his business name.

What followed is a classic natural food start-up success story. He wrote a business plan. He started selling his products at the farmers market and in local independent retailers. He filled jars of nut butter on nights and weekends to help fulfill demand, and waited tables during the day. In 2007, Gold received the first Whole Foods Market’s Local Producer Loan in the Rocky Mountain Region, which helped propel his company to greater sales, greater production and greater market presence. In 2016, Hormel purchased Justin’s, which continues to sell high-quality confections, nut butter and squeeze packs across the United States.

For many brands, Justin’s serves as a beacon—a promise that their “crazy” idea is worth pursuing through start-up strife.

Gold's past receives much applause. But the story he is trying to blaze for his company’s future is even more compelling, as it’s one steeped in radical thinking about Justin’s role in the future of sustainable food and how aspirational ideas can incrementally push the entire industry forward.

“We all want to make the best food products and do the best that we can, with the challenge that it’s hard to do everything all at once,” says Gold. “It’s about progress, not perfection. We never take steps backward.”

Gold is referring to his company’s myriad business-improvement initiatives, which include (deep breath!) sourcing sustainable palm oil, seeking an environmentally friendly squeeze pack, saving pollinators, reducing national hunger, offsetting the brand’s electricity with wind power and more.

Conscious sourcing triumphs are easier to find in some areas of his business than in others. Recently Justin’s transitioned all products to certified non-GMO—a big deal for a company of its size. The brand has also examined secondary ingredients in flagship products such as maple sugar and cinnamon, and is now sourcing them organic and conflict free. All of Justin’s confection items (such as the ridiculously good Dark Chocolate Almond Butter Cups) are USDA Organic.

“It’s important for brands to understand that improving business is a journey,” says Alyssa Harding, Justin’s corporate social responsibility and external relations manager. “What are we trying to do and where are we trying to go? We want to be part of the solution, not the problem.”

For example, Justin’s has spent considerable energy working through a multitiered approach that involves national, state and local action to mitigate pollinator decline because of loss of habitat, misuse of agricultural chemicals and disease. Justin’s retains a close partnership with The Xerces Society, a nonprofit that’s an internationally recognized leader in pollinator protection, in part by sourcing almonds from farms that are Be Better Certified, a seal created by Xerces. In Colorado, Justin’s supports People and Pollinators Action Network. In Boulder, the company provides scholarships for classrooms to visit Growing Gardens, a community garden.

Harding is passionate about integrating these three approaches. “In 2018, I’m focused on a theme of collective impact to build scalable programs,” she says, adding that she recently invited The Xerces Society to Boulder to host an integrated pest management workshop, which was attended by master gardeners from across the state. “When it comes to pollinators, I’m hoping to find a way to work on synchronized projects instead of everyone trying to make a one-off effort,” says Harding.

Chasing supply traceability

Justin’s continues to tackle tough issues that plague the entire food industry, such as traceability. Justin’s new line of nut butters and confections feature cashews, a crop that does not grow in the United States. “I love cashews so much, but they are harder to source ethically and with full traceability,” says Gold, who partners with a cashew supplier out of Africa devoted to sustainable cultivation, upholding fair labor standards and providing opportunities for local community development.

Cashews are notoriously difficult to source with a fully traceable supply chain because most cashews are processed through Vietnam, as the country is home to the largest shelling, roasting and cleaning facility in the world. Compounding the issue, nut butter producers use cashew pieces, which are even more difficult to establish reliable sourcing transparency, rather than whole cashews, which are used for snack nut mixes.

“The pieces supply chain is what’s really hard to trace,” says Harding. “When the supply chain is tough to trace, it’s important to link up with a supplier who is aware of the issue and who is open to repairing these pain points. One of our long-term goals is to increase traceability—the initial step is establishing a relationship with our supplier.” Justin's Africa-based supplier is on-board with such initiatives and is currently building a network of growers and processors dedicated to responsible, traceable cashew cultivation.

Other issues Justin’s continues to improve include working with industry members to find a sustainable squeeze pack solution that can be composted after use. As of yet, a bio-based film that can hold and protect nut butter does not exist.

What’s clear is that the company recognizes it can’t make systemic supply improvements in the world alone. Only through collaboration with similarly minded brands can true, lasting positive change occur. Along with 170 other natural brands, Justin’s has made a commitment to the Climate Collaborative—a natural industry group—to help reverse climate change by initiating programs such as integrating carbon farming, removing commodity-driven deforestation and reducing food waste in the supply chain.

Justin’s is thinking even bigger. The brand was a visible supporter of the newly launched Regenerative Organic Certification, which was launched by Patagonia, Dr. Bronner’s and the Rodale Institute at Natural Products Expo West 2018. And Harding is excited by a future dream to use paper made from discarded peanut shells in packaging, and partnering with clothing manufacturers to rotate organic cotton with organic peanuts on the same plot—a supply chain feat that would be incredibly difficult to achieve.

But Justin’s isn’t stymied by challenges. Both Harding and Gold believe that asking the right questions—the inspirational questions and the difficult questions—is key to building a healthier food system.

Esca Bona Supplier Hero is a recurring feature of suppliers that fuel innovation in the good food supply chain. Esca Bona is an event and brand spearheaded by New Hope Network that champions the good food movement by helping finished product brands improve their supply chain, support the people who create food, and best harness technology and innovation.

Natural Products Expo

How important is it to invest in packaging and where do I start?

Almonds in bags

You’ve come up with a stellar new product that you know consumers will love. Great, but how do you get it into their hands? For many startup brands, packaging is everything. It must be distinct enough, appealing enough and curiosity-sparking enough to convince consumers to grab it off the shelf and drop it into their carts.

Ensuring that your packaging and overall branding are on point takes time, money, research, creativity and even a little daring. But our three Fixers firmly believe that this is a worthwhile long-term investment because, if executed well, it can pay off in dividends. With that in mind, they offer sage advice for investing in and nailing your packaging design.

Creative Director

Branding is important, but first and foremost, you need to get your product right. Make sure it’s delicious and the best it can be and understand why it’s better than the competition. Because even if the packaging looks great and people buy it, if the product isn’t good, the packaging won’t matter after that first purchase.

Then, when you are ready to work on branding and packaging, it is typically worth paying a bit more for help from people who have experience and proven results versus trying to do it by yourself or finding the cheapest person. Branding can be really cheap or really expensive, and you get what you pay for. It’s like how you can buy a white T-shirt for $3 or a white T-shirt for $300. Do you want that cheap shirt that will fall apart in a year or something that is made better and will last longer? Sure, you can find someone at the local college who knows Adobe Illustrator, but you also want expertise. You don’t necessarily have to pay the highest price for that either. There is a good middle ground of experts you can trust.

If you talk to five different branding groups, you might get five drastically different ballpark prices. When I meet with potential clients, I try to break out pricing for them and explain why certain services cost certain amounts so they understand that I’m not just pulling these rates out of thin air. I am basing these prices on experience and what I know it will take to be thorough. This way, I can at least give them some rationale as to why branding costs what it does.

You’ll also likely get conflicting info about the best ways of doing things. Since you don’t know what you don’t know, if you are new to branding, who do you believe? While we all work from a similar tenet, we’ve evolved our own strategies. To figure out the best fit for you, just sit down with different branding experts, have conversations and learn how each person approaches branding. Find someone who you’d want to hang out and have a drink with, someone you can trust, because this will be an intimate relationship—you’re building a brand together.

 —Alicia Potter, founder and creative director of branding and packaging hub Faven Creative

Consultant

There are few things more important than getting your branding right when you are starting out, so make sure to get advice from branding experts, your advisory board or other trusted resources to help you articulate what your brand stands for. They can help you consider the whole amalgam of product features, product benefits, company values and brand personality and help you express it all through images, words, graphics tone and fonts.

This is hugely important because for so many companies, the packaging is their primary medium of communication. It’s what attracts shoppers in the store, so you want to optimize it and get it as good as you can. In the same breath is your website. How most people are going to find you is on-shelf or online, so you want absolutely the best graphics, logos, colors and copy.

Also know that rarely will the branding or packaging design you start with be same as you have a year or two later. Many times, no matter how many people proofread your materials, the first time you print a package, you will find something you missed or want to do over again. It could be an oversight or typo, or maybe you realize something needs to be displayed bigger or smaller. The cautionary tale is don’t print 500,000 packages for one flavor right out of the gates.

There is not a hard-and-fast rule for how much to spend on branding and packaging design—it really is all over the map. If you want to work with a branding company, some do a really good job in the $25,000 to $40,000 range. Others do a fantastic job in the $100,000 to $200,000 range. It depends on what resources these companies have. Usually the pricing includes consumer insight work or other market research to get at the essence of your brand. If you can afford to do that, it’s a great process—you get validation and affirmation.

—Bob Burke, owner and president of Natural Products Consulting, which helps bringing natural, organic and specialty products to market

Consultant

Other than the taste of what is inside, the package is the most important persuasion mechanism an entrepreneur has—assuming you have limited funds to work with. It is your main billboard. That said, resist the temptation to clutter and jam every last factoid onto the package. 

Instead, figure out what are the key attributes that consumers care about. Which differentiate your product and brand? Which bits of information will help retail partners to drive incremental traffic and sales into their store and this aisle? And finally, which attributes will present well digitally? 

Carefully assess the competitive set and look for ways to set your products apart. Think about colors, graphics and package form while keeping in mind your likely optimal assortment that you will have on-shelf. Be sure to survey friends and family, and carefully observe how consumers interact with similar package forms in your or other categories. Sometimes a significant investment in unique package form makes sense if it has major disruption potential. But always test and learn, use mockups, do sampling and sell at farmers’ markets to gather insights.

I love the example of Justin’s utilizing a very familiar and unsexy package form for its nut butters: the single-serve sachet. This is common in personal care but not so much in food. It was a novel insight and became a distinguished form on-shelf that happens to work very nicely with on-the-go snacking, which is so central to meeting consumer need. And this was done without a substantial financial investment.

—John Grubb, founder of Summit Venture Management, which consults and partners with entrepreneurs and equity investors on business and brand growth initiatives

 

Don’t miss your opportunity to collaborate and learn from industry experts and all-star founders in a full day purpose-built for emerging brands deeply rooted in branding and storytelling. Save $100 on Natural Products Business School at Expo East through August 3. Register here.

When: Sept. 12, 2018

Where: Hilton, Key Ballroom 7/8

 

[email protected]: We could have stopped climate change | Bacteria adapting to hand sanitizers

Getty Images Earth from space graphic

Losing Earth: The decade we almost stopped climate change

During the 1980s, humans had a chance to alter the course of the climate change we now suffer. A group of American scientists, activists and politicians saw the looming crisis and came up with a way to avoid it. This epic work of research and writing—along with photographs and other multimedia enhancements—shows how close we all came to reducing carbon emissions and mitigating the problems we face. Read more at The New York Times …

 

Some bacteria are becoming 'more tolerant' of hand sanitizers, study finds

Visit nearly any hospital—and, increasingly, offices, schools, stores and other public buildings—and you likely will find hand-sanitizer dispensers on walls, on desks and in hallways for public use. Although these alcohol-based disinfectants reduced staph infections in patients and the spread of some drug-resistant bacteria, other types of infections began to increase, according to an Australian study. Enterococcal infections, which attack the digestive system, heart and more, actually increased around the world. Read more at NPR

 

Jury tells pork giant to pay $473.5M in nuisance lawsuit

A federal jury on Friday awarded $473.5 million to North Carolina residents who live near three Smithfield Foods farms that housed thousands of hogs. The 16 plaintiffs sued for unreasonable nuisances such as odors, flies and loud truck traffic at all hours of the day and night. The award will be reduced, as the $450 million in punitive damages exceeds the limit set under state law. In reaction to the jury’s decision, two congressmen said they will introduce legislation to limit or eliminate nuisance lawsuits, something North Carolina already adopted. Read more at The Washington Post

 

New York state reaches agreement to keep SNAP benefits working at farmers markets nationwide

New York Gov. Andrew Cuomo has reached an agreement with Novo Dia to continue handling SNAP transactions at farmers markets for six months. The contract means Novo Dia will process SNAP purchases at farmers markets across the country, as well. Novo Dia previous announced it would stop processing the transactions because the U.S. Department of Agriculture had contracted with another company that was not prepared to work with Novo Dia. The USDA will have to come up with a permanent solution to the problem, as SNAP purchases help low-income residents purchase fresh, healthy food while supporting local farmers. Read more at Modern Farmer

 

The newest venture capitalists: Food companies

Packaged food companies aren’t known for their ground-breaking moves, but many of them have entered the more exciting business of venture-capital investing. When they do it correctly, it helps them keep up with what’s new in the food world. The common strategy of purchasing competitors of a particular size doesn’t always work, however: some, such as Campbell Soup and General Mills, haven’t earned the returns they were hoping for after taking on debt. Learn more at The Wall Street Journal

Seeding sustainability: Good Seed Burger grows a category

Amy Deputy Erin Shotwell and Oliver Ponce

Veggie burgers still have a bad rap thanks to those tasteless, highly processed patties of yesterday. But Austin, Texas-based Good Seed Burger is smashing all stereotypes with its line of four flavor-rich vegan burgers. Made from nutrient-dense ingredients like hempseeds, pumpkinseeds, lentils, wild mushrooms, black garlic and cauliflower, these frozen patties took home the NEXTY Award for Best New Meat Alternative at Natural Products Expo East 2016 and the Delicious Living Best Bite Award for Best Veggie Burger the same year.

Good Seed Burger is the brainchild of Oliver Ponce, a macrobiotic chef, and his partner, Erin Shotwell, both of whom are passionate about clean, plant-based eating. They started up a food truck to sling their burgers in Austin in 2009, turned those burgers into a CPG in 2014 and are now well on their way to becoming a national brand. Ponce and Shotwell took time to chat with us recently about their journey so far and what lies ahead.

What was the inspiration behind Good Seed Burger?

Oliver Ponce: It came through my experience as a macrobiotic chef at a macrobiotic community center. Also, personally, I had a desire to eat clean, plant-based foods, and it was a struggle to find good options out there. I wanted to take what I was doing out of the community center, so we started a food truck, and that’s where our All American Hemp Seed Burgers took off. People were buying them and taking them home to freeze for later, so we realized we could take our burgers to a wider audience.

Erin Shotwell: We wanted to get more plant-based options out there because Americans are consuming lots of meat, poor-quality meat and poor-quality oils. This contributes to a food system that is not sustainable for animal welfare or the planet, but also not sustainable for nutrition.

What are some key ingredients in your burgers?

OP: Every ingredient is chosen for taste, texture and nutrient density. It starts off with our superseed blend featuring hempseeds, pumpkinseeds and sunflower seeds. We never use binders or fillers or fluff. Many of our ingredients, like cauliflower, sweet potato and mushrooms, have crossed over and are very popular in the conventional market as well.

ES: And from a taste aspect, black garlic, shallots and mushrooms provide big flavor.

Do you aim to emulate the taste and mouthfeel of beef burgers?

ES: We have some flavors that are kind of beefy, but we are not trying to emulate beef exactly. As consumers and in creating this product, we’ve found that if you try to mimic beef too much, the burger gets too gummy, too unnatural. Many plant-based consumers tell us the same thing. They are not really after the meat taste; rather, they are looking for meal solutions and crave-able items like burgers and tacos. So for us, more than anything, it is about creating really unique flavor profiles.

What was your path to retail?

OP: When we closed our food truck and began learning how to do a CPG company and scale up, we launched at a local farmers market, making breakfast sandwiches and selling patties. Soon we were picked up by some local restaurants, cafés and bars. But to get our product into the retail space, we really had to knock down doors and tell vendors our story—and bring warm burgers to those meetings. That always helped because our products speak for themselves—and because many people have a bad idea about plant-based burgers because they haven’t tasted one in a while.

But now we are growing into a national brand. We are in more than half of the country, in both natural and conventional retailers, and we are definitely expanding.

In 2016, you scored both a NEXTY Award and a Delicious Living Best Bite Award. What did those mean for your brand?

OP: Both awards were really exciting and gave us notoriety. As the creator of these burger patties, it was a really big deal to be recognized for taste—for what Delicious Living called our “ridiculously cool ingredient list.”

Have you had mentors along the way?

ES: Yes, we have several advisers. One of our board members is from Rhythm Superfoods, and we went through an accelerator program in Austin called SKU. Having these advisers along the way was really helpful for understanding strategy out of the gates, knowing how to expand and learning what would be the best use of our resources, funding and time. It also helped us learn how different retailers work.

Do you work with independent natural retailers to market your products?

ES: We do online and in-store promos and marketing events together with retailers to encourage shoppers to try our products. Sometimes retailers will pair us with condiments or other like-minded clean-ingredient products from other categories. Paleo bread has been a very successful pairing.

Any advice for independents on how to sell your products and uplift this category?

ES: What we’ve found to be really successful is incorporating our brand with events. Co-ops and independents like to do paleo events, gluten-free events, grilling events, etc., and when it makes sense to include our products, these are good opportunities.

OP: It is also great to let shoppers know they can get creative and make other dishes with our patties besides just making a burger. Customers tell us they are crumbling them up to make pizza toppings, taco filings and lasagna.

Do you expect plant-based diets to become even more popular?

OP: Definitely. It’s been great riding the wave and seeing younger generations buying into plant-based diets. Thirty-six percent of Americans now consider themselves “meat reducers,” so they are not necessarily vegan or vegetarian, but they are trying to cut back on meat consumption.

ES: We are now seeing a lot of people be really focused on nutrient-dense and real food, and I see a convergence of that and plant-based continuing to grow this market.

GNC adds chairman to Ken Martindale's role as CEO

GNC logo

GNC’s Board of Directors has unanimously approved the appointment of Chief Executive Officer Ken Martindale to the additional role of chairman, effective immediately, the company announced Friday morning.

Martindale succeeds Bob Moran, who will remain on the Board and assume the role of lead independent director.

"Ken has demonstrated exceptional leadership and strategic insight in his role as CEO, and the Board looks forward to continuing to benefit from his insight and expertise as he assumes the role of chairman," Moran said in a released statement. "We are confident that under Ken's continued leadership, we will be even better positioned to effectively implement our strategic plans and drive shareholder value."

Martindale was named CEO in September, succeeding Moran, who was the interim chief executive since July 2016. Moran stayed on as non-executive chairman to help Martindale transition into the new position.

Martindale, in the same statement, said, "I am honored to take on this new role as we accelerate our efforts to reposition GNC to drive growth, improve our financial strength and performance and enhance shareholder value. We continue to expect the transaction with Harbin Pharmaceutical Group to close later this year, and I look forward to working with the rest of the Board as we execute our strategy to build on the strength of the GNC brand, leverage our capabilities in product and service innovation, expand our international presence and deliver a compelling, integrated customer experience."

Before joining GNC last year, Martindale was an executive at Rite-Aid since 2008. He became president and chief operating officer in June 2013 and chief executive officer in August 2015.

He stepped in to lead a company that saw same-store sales free-fall throughout fiscal 2016. After Moran was appointed interim CEO, transactions began to increase in the fourth quarter of fiscal 2016, although net losses continued.

When GNC announced its second-quarter earnings last month, consolidated revenue had declined 9.4 percent to $617.9 million in the second quarter of 2017. The decrease was due to the sale of Lucky Vitamin and the closure of some locations where leases had expired, CFO Tricia Tolivar said.  

It also reported a slight decrease in same-store sales, including GNC.com. E-commerce sales accounted for 8.3 percent of the company’s revenue in the United States and Canada.

Source: GNC Holdings

IdeaXchange

Why retail distribution is broken

Elliot Begoun

I work with a lot of food and beverage founders and next to the difficulty they face raising the needed capital, the most commonly shared frustration centers around their relationships with their broad-line distributors. Deductions, communication issues and the cost to serve are a real challenge for most brands.

I promise this is not going to be another article that lambasts the likes of UNFI or KeHE. They are simply victims of a flawed model that is no longer capable of effectively meeting the needs of today’s brands and retailers.

Why do I say the model is broken? There are many reasons. First, source dependent, since the start of this decade, somewhere between $18-22 billion of market share has transferred from the largest food companies to the emerging food brands. That transfer has had a major impact on distributors as more and more of their inventory is comprised of products from small companies from whom they only buy a little. This limits the ability to aggregate shipments and leverage buying power.

At the same time this market share transfer has taken place, there has been continued and significant consolidation of retailers. These larger entities have used their buying power to negotiate favorable terms from their primary distributor. Most operate under a cost-plus relationship. The challenge is that as those cost-plus percentages have been driven down by industry consolidation, the cost to serve for the distributor has continued to increase.

It is really difficult to serve a retailer with stores all over the country on a cost-plus 8 percent arrangement, and that is not an uncommon structure today. A distributor which has to shoulder the cost of inventory, large physical warehouses, trucks, drivers and more, just can’t deliver enough per stop to make it an attractive model. Add to that a tough regulatory and compliance environment and what you have is a pretty ugly picture.

Distributors have reacted to this reality. They have monetized other services, from freight backhauls to analytics, to creating promotional vehicles and events. Large food companies that have correspondingly large budgets can absorb these new costs, emerging brands can’t.

If the model doesn’t work for emerging brands and they are making up more and more of the total market, then the model must change. I believe it will and that there will be a disintermediation of distribution as it relates to emerging brands. Manufacturers will connect directly to the retailers they serve. Technological platforms will be constructed to facilitate this new transactional relationship. I am seeing attempts to do so already with the likes of Shelfmint and Pod Foods. Although neither has quite solved it yet, when they do or someone else does, it is going to change the way food and beverage companies go to market.

In the meantime, this broken model has opened the door to other channels. Emerging brands should be really asking the question if retail is right for them. Direct-to-consumer and alternative channels such as micro-markets, concessionaire and food service may all be better places to launch.

Today’s retail distribution model is not working. But, with the level of innovation pouring into this space, I am confident that one of those innovations will be a completely new route-to-market model. One that leverages technology and disintermediates the relationship between brand and retailer.

Elliot Begoun is the Founder of The Intertwine Group, a practice focused on helping emerging food and beverage brands grow and become scalable and investable. 

IdeaXchange

4 reasons why outsourcing financial resources is a smart bet

Chris Fenster Propeller Industries

Here are four reasons to consider outsourcing your financials:

Your business is thriving! But, be careful what you wish for.

After 18 months of bootstrapping, you finally got into national distribution at Whole Foods Market. Unfortunately you’re going to have to raise more money to buy more inventory and your friends and family are tapped out. You ask your bookkeeper how much cash it will take to fill 300 more doors and you get a thousand-yard stare. Clearly, you’ve outgrown bookkeeping.

You need a "unicorn hire."

Ten years ago, you didn’t have good options. You’d try to find an “accounting manager” who could clean up past financials, figure out why your margins are inconsistent, set up systems, build a budget and then handle all the day-to-day accounting after you fundraise. Unfortunately, that person doesn’t exist in real life, so you’d hire someone who could do the easier half of that job and hope that would buy you a year or two. That approach gets you more time but the real issue remains: you have more needs than one person can handle, but you can’t afford more than one person.

You need a builder and an operator.

There are two fundamentally different types of people needed to construct and maintain a good financial operation, a Builder and an Operator.

The Builder is a financial MacGyver. Builders like to “get their hands dirty” solving problems and they thrive in the chaotic environments they seek to fix. Here’s what they typically do: 

  • Systems: Setting up integration (e.g. QuickBooks, Amazon, banking, payroll, etc.).
  • Forensic accounting: Cleaning up messy financial history for potential investors.
  • Supply chain: Understanding production, inventory and fulfillment and capturing accurate product costs.
  • Analytics: Whole Foods will collect a treasure trove of velocity and pricing data FOR FREE. Someone needs to analyze that to figure out what’s working and what isn’t.
  • Financial planning: Building a financial model to understand how cash needs and financial results could evolve.
  • Financial review: Growth companies need a process to systematically analyze plan vs. actual performance to assess and adapt to constant change.  

The Operator thrives in the predictability of a controlled environment. The best operators have meticulous attention to detail that helps flag exceptions and refine process over time. And operators loathe the chaos that builders seek out. Here’s where you’ll need an operator:

  • Everyday accounting: The operator is purpose-built for the repetitive tasks in a well-organized accounting department: paying bills, processing sales orders handling payroll, etc.
  • Closing the books: Pressure-testing results and ensuring accurate reporting, every month.
  • Reporting and compliance: An operator should be able to refresh good reporting—whether for management, investors or tax advisors.

The complexity and interdependency of these roles used to leave companies with bad options: either hiring a single person who’s overqualified for routine tasks but underqualified for the most strategically important work; or cobbling together an ad hoc team of contractors and managing the interdependencies yourself. 

Technology has changed the game.

Starting around 2009-10, innovative platforms like bill.com, Gusto and Expensify emerged to improve the functionality of accounting systems like QuickBooks. These developments made it practical for small businesses to migrate virtually all of their accounting functions online. Finally relieved of the need to handle physical bills or print checks, it became possible to set up virtual accounting teams.

Outsourced finance and accounting works by standardizing both “Builder” and “Operator” process and systems and then “fractionalizing” the various roles needed to build and operate multiple companies. This provides a number of benefits:

  • Keeping you focused on product, people and pitching instead of maintaining the finances.
  • Saving money by ensuring that every task is handled by the most cost-effective person and enabling you to run lean during steady-state operations and ramp up for challenges like fundraising or budgeting.
  • Flexibility to draw from a diverse mix of talent at different levels as you scale and the ability to defer full-time hires until your business is more stable and can attract better talent.
  • Better quality work comes from pattern recognition, and a team that is building and operating the finances for multiple companies learns faster than a full-time employee. 

The complex financial needs of early stage companies are impossible to address with a single hire. An outsourced financial team can help you manage costs and navigate the challenges of growth until you can cost-effectively hire individual roles in house.

Chris Fenster is the CEO and founder partner of Propeller Industries, which provides CFO, business strategy and outsourced accounting services for early stage growth companies and has practice areas in technology, business services, health care, food and beverage, consumer products and manufacturing.