NOSHscape: The Latest Food Brand News

KIND Founder Launches Mexican Food Brand with Former Cholula, KIND Execs

KIND Snacks founder and chairman Daniel Lubetzky is looking beyond the snack aisle for his next bite. The outspoken executive and entrepreneur is aiming to take a fresh approach to Mexican food with the announcement of his next venture, SOMOS, in September.

The company was founded in 2020 by Lubetzky and several longtime colleagues, including Miguel Leal, formerly the CMO at Cholula and EVP at KIND, and Rodrigo Zuloaga, a nine-year veteran from KIND who led marketing for the company’s efforts in Mexico and last served as VP of international new business development. Leal, who is based in New York City, will also serve as CEO.

According to several job postings on Linkedin which have since been filled, the company will be “re-envisioning Mexican cuisine in the U.S. with a focus on authenticity, convenience, and sustainability.” The posting goes on to state that Lubetzky, as well as his “two other KIND alumni” grew up in Mexico eating traditional dishes such as chilaquiles and tacos and missed these dishes when they moved.

“When they came to the United States, [our three founders] enjoyed meeting up with friends at great Mexican restaurants but were disappointed with the options available for creating authentic Mexican meals at home,” the posting notes. “Together, with their Mexican heritage and years of experience in CPG food, they’ll deliver ready-to-eat foods that honor Mexico’s rich culinary traditions and celebrate the cultural vitality of modern Mexico.”

An SEC filing from January indicates that an entity known as Somos Amigos had raised $3.25 million of a total round of $3.75 million. In the filing, Lubetzky is listed as president of the company with Stacy Dick, president and CFO of Lubetzky’s investment firm Equilibra Partners, and Elle Lanning, KIND’s chief of staff and EVP of corporate development, also listed as directors.

Somos Amigos, which has an Austin address, also has several trademarks including: “SOMOS: Food From the Heart of Mexico” and “SOMOS Spirits.” The trademarks encompass the majority of the products sold in a grocery store, including tequila, mezcal, sauces, spreads, soups, snack mixes, seasonings, beans, and a variety of confectionery, savory snacks, and bakery items.

Along with the co-founders, the staff roster (according to LinkedIn) has pulled in some veterans from KIND and Cholula — which was sold by Catterton to McCormick in 2020 for $800 million. Leal’s Linkedin indicates he left the hot sauce brand in March of this year.

According to Linkedin, SOMOS’s current staff have all previously spent time at either KIND or Cholula. Coming from the snack brand is SOMOS VP of Digital and Ecommerce, while the brand’s head of sales, head of finance, head of supply chain and procurement manager all last worked for the hot sauce company.

According to research by Claritas conducted in 2019, the U.S. Hispanic population has surged from 22 million people in 1990 to a projected 72 million by 2024, representing 54% of the nation’s total growth. Furthermore, 2020 research by IRI and Boston Consulting group pointed to “products aimed at the Hispanic Market” as one of the consumer trends it expects businesses of all sizes to invest in over the next several years.

Of course, SOMOS is entering a competitive market, with some established competitors already trying to broaden their offerings to reach a younger audience. Ortega recently launched cauliflower-based taco shells and tortillas, while General Mills has attributed some of its recent North American sales growth to Old El Paso, which has introduced affordably-priced meal kits

There’s also emerging brands in-market. For example, Siete Family Foods produces Latin-American inspired foods — but a difference could be in Siete’s emphasis on fusion and special diets, with products such as almond four-based tortillas and sea salt and vinegar chips sitting alongside Mexican shortbread cookies and enchilada sauces.

However, SOMOS has the potential to fill a gap in the market for affordable, authentic Mexican-inspired products that reach across all channels and appeal to younger consumers.

Still, there’s Lubetzky himself to consider. The KIND founder not only has a wide consumer reach, with a regular presence as a guest “shark” on television show Shark Tank, but also is a darling of the CPG industry with deep ties to retailers. His outspoken nature — which includes the need for businesses to be mission-driven and an emphasis on compassion and understanding for all – also appeals to younger consumers, who are looking at company values when making purchasing decisions.

“When team members are scared to be themselves, an organization’s culture can quickly turn sterile, risk averse, and stagnant. Having grown up in Mexico immersed in Latin culture, I am accustomed to a warm and open approach that includes not taking yourself or others too seriously,” Lubetzky recently wrote online in honor of Hispanic Heritage Month. “I have observed American culture to be more serious and ‘by the book.’ While it is important for teams to operate professionally and with the utmost respect for one another, we could all afford to loosen up a little.

Real Good Foods Announces IPO

In October, frozen food brands Real Good Foods filed with the Securities and Exchange Commission (SEC) to undergo an initial public offering. The company seeks to raise $86.25 million in order to expand its distribution and capacity at a new manufacturing facility.

Founded in 2016, Real Good Food produces frozen entrees, sandwiches, appetizers and desserts that cater to consumers looking for convenient, better-for-you comfort foods. Positioned to serve consumer interest in low-carbohydrate, high-protein options, the company’s offerings are gluten-free and grain-free, swapping traditional ingredients for either a base of chicken and parmesan cheese or plant-based proteins and fibers. As a result, some of its offerings have four times less carbohydrates than the competition with twice as much protein.

There’s a real consumer need, the company said in its prospectus, to develop these better-for-you options, noting that 13% and 42% of the U.S. adult population suffers from diabetes and obesity, respectively.

“The purpose of our company is to fulfill our mission of making craveable, nutritious [health and wellness] foods accessible to consumers while taking an uncompromising approach to the creation of products that are delicious, convenient, and have broad appeal,” the filing states.

According to Real Good Food, the U.S. health and wellness industry is valued at $170 billion. In the frozen aisle, Real Good Foods’ two core strategic growth subcategories are frozen entrée and breakfast — which, according to SPINS data in the prospectus, comprised 48% of the approximately $58 billion U.S. frozen food category (excluding frozen and refrigerated meat) during the year ended December 2020.

During the six months ending June 30, 2020 and 2021, the company had net sales of $18.1 million and $35.5 million, respectively.

Historically, the SEC filing notes, the company has sold the majority of its products under the Realgood Foods Co brand, with a few “select” private label products as well. For the 12 week period ending June 13, the company’s branded products had an average of approximately 170,000 “total distribution points” across the United States — with distribution points defined at the sum of the number of stores selling each SKU. Comparatively, the company noted, other leading health and wellness brands within the frozen food category had over 930,000 total distribution points during the same period.

Real Good Food products are sold primarily in natural and conventional grocery, drug, club, and mass merchandise stores, with an average all-commodity volume (ACV) of approximately 20%, as of June 13. The company’s largest retail clients are Walmart, Kroger and Costco — in 2020 these three retailers accounted for 28%, 17% and 12%, respectively, of net sales for a total of 57% of the company’s net sales (a drop of 9% from 2019).

Still, despite the company’s efforts, the filing notes it has experienced net losses every period since its inception. In 2019 the company had net losses of $14.2 million and in 2020 net losses of $15.6 million.

The COVID-19 pandemic has been part of the reason for these losses. On the product front, while a key driver of sales was previously the company’s line of frozen pizzas, the better-for-you pizza subcategory saw a drop in sales during the pandemic. Sales issues were compounded by financial difficulties by one of the company’s co-packers, “which negatively impacted our ability to produce enough products to meet demand and resulted in lower net sales.”

Additionally, many retailers cancelled or delayed category resets and reviews during the pandemic, resulting in slower sales growth.

In response to these issues, in March 2020 the company “temporarily reduced” its overall headcount in marketing, accounting and operations by ten employees. While these efforts allowed the company to preserve capital, the cuts in operations, the filing notes, also “had a negative impact on our ability to grow our net sales.”

Real Good Foods claims it has the largest social media following of any brand within the frozen food category with roughly 365,000 Instagram followers alone as of the end of June. For comparison, the company notes, that’s more Instagram followers than the top seven selling health and wellness frozen food brands (Amy’s Kitchen, Applegate Farms, California Pizza Kitchen, InnovAsian Cuisine, Aidells, Michael Angelos, and Perdue) combined. But it goes beyond sheer volume: with the filing also noting the company has higher engagement on each post.

A strong social media presence has benefitted the brand by allowing the company to decrease costs associated with traditional media and advertising spend. Instead, the filing notes, the company has “direct, authentic conversations” with its consumers via social media, SMS text, email and through social media influencers.

“Through this approach to community engagement, we are able to build brand trust and, in turn, loyalty, which efficiently draws new consumers to our brand, provides a forum for real-time feedback, and allows us to understand our diverse population of consumers more deeply,” the filing notes. “We also believe our extensive community engagement resonates with our retail customers, leading to additional shelf space and distribution points for our products.”

Real Good Foods develops most of its products in fewer than six months, with product concepts first conceived by the company’s marketing team and then tested via what the company calls its RDF Labs — a select, diverse group of customers that have opted to try new items. This process not only allows the company to iterate quicker than using traditional research methods but also, it states in the filing, gather “more helpful” information and ultimately “introduce new products with higher confidence of market acceptance.” Most products are also first released on the brand’s website, before the company invests in pursuing retail distribution.

“This process provides us another opportunity to marry our products to our consumers’ preferences, as our most avid consumers engage with our products through this channel and provide additional feedback,” the filing notes. “This disciplined approach to product development has resulted in a market acceptance rate higher than industry standard by the time our new products arrive in retail channels.”

In March, the company also acquired the manufacturing facility of its former co packer, shifting more of its production (which the company says requires specialized process and equipment) in-house. As of June, the company was producing more than 70% of its products at its California plant.

The next priority for Real Good Foods is to focus on increasing its total distribution points and its velocities with existing customers as well as continuing to grow brand awareness. In terms of product innovation, the company will seek to expand into “multiple adjacent food categories within and outside of frozen,” via innovation or acquisitions.

The move to more self-manufacturing will also benefit the company long term, it believes, by improving gross margins and quality control. Future investment into the production equipment and automation will only “increase efficiencies and reduce labor costs.”