NOSHscape: The Latest Food Brand News

Nothing “Ugly” About It: Misfits Market Acquires Imperfect Foods

Grocer Misfits Market is eating up the competition, announcing it will acquire fellow e-commerce retailer Imperfect Foods. The deal will put the combined company on a path to hit $1 billion in sales and achieve profitability by 2024, a press release said.

Wilson Sonsini Goodrich & Rosati served as legal advisor to Misfits Market while Solomon Partners acted as financial advisor and DLA Piper as legal advisor to Imperfect Foods. Terms of the deal were not disclosed.

Since Misfits Market’s inception in 2018, and Imperfect’s in 2015, the companies have raised roughly $526.5 million and $229 million, respectively.

In the near term the two companies will operate as independent businesses, but ultimately Misfits Market founder and CEO Abhi Ramesh will assume the combined entity’s primary leadership role. Executives from Imperfect Foods will join the Misfits Market team, but the fate of Imperfect Foods’ newly-appointed CEO Dan Park, as well as what this combined entity will be called, have not yet been disclosed.

“We have a tremendous opportunity to advance the shared mission of both brands, which is nothing less than a fundamental re-imagining of both the grocery category and the broken U.S. food system,” Abhi Ramesh, CEO and founder of Misfits Market, said
in a release. “The strengths of the Imperfect Foods organization, from its in-house delivery fleet and robust private label program to its sustainability commitments and innovation, add immediate scale and depth to what we’re building at Misfits Market.”

Initially both Imperfect Foods (formerly Imperfect Produce) and Misfits Market began as subscription boxes sending customers “ugly,” or imperfect, produce that would otherwise be discarded by retailers or growers. At first, the novel concept appealed to sustainability seeking shoppers.

The two have since evolved their models to incorporate other categories of goods — including shelf stable items, meat and seafood — in an effort to offer more of a full grocery shopping experience. The subscription model has also evolved to allow customers to make one-off purchases and have more say in the products they receive.

The positive effects of these retailers have, at times, been in dispute with some critics arguing they actually contribute to food insecurity by taking products that otherwise would be donated. Still others believe that the impact of saving “ugly” food has been overstated, with many of these less attractive items typically sold to food service providers who don’t care about appearance.

Alongside these questions, in order to have products across the store, both retailers have had to make compromises when it comes to peddling their “ugly” assortments. While they still offer misshapen produce, the two have expanded their idea of imperfect and misfits to include products that are short coded, seasonal, overstock or simply have a flaw in packaging.

There’s certainly interest in the concept. According to research group Innova Market Insights, 62% of shoppers surveyed said they would be willing to pay extra for food and beverage options that fight food waste and roughly 50% are working to cut their own food waste.

At the same time, for all online retailers, the operating environment in the past two years has been volatile. When the COVID-19 pandemic hit, shoppers turned to online grocers which increased order volume, and, at times, required wait lists. Although that demand has waned, Misfits Market and Imperfect may be able to keep consumers’ interests with their cost savings play.

According to marketing solutions company Vericast, 83% of baby boomers cite price increases as the biggest challenge when purchasing food. Even 57% of affluent shoppers called out pricing as a concern, with 39% switching to online shopping as a means of cost savings.

Consumer interest has in turn led to increased competition in the channel, but together, Misfits and Imperfect may have better luck maintaining their stronghold over newer players such as Martie, which also sells shelf-stable grocery items that are either overstock, seasonal items or short coded.

“Scale matters in grocery, and this combination makes us a truly meaningful disruptor in the space,” said Imperfect Foods CEO Dan Park in a press release. “The combined experience and expertise of this newly merged team will exponentially increase our ability to take on established players in the traditional grocery space.”

While platforms like Good-To-Go have tried to put a spin on Misfits’ model, the company operates with limited quantity “surprise bags” that ring in at a specified price threshold, it does not yet allow shoppers to select what goes into their bag.

Rather than hold its own inventory, tech platform Flashfood partners with existing retailers in more of an Instacart meets click-and-collect model. Shoppers on the Flashfood app can select items from retailers such as Giant Eagle or Stop and Shop, pay, and then head to the store for pick up.

Beyond Meat v. Don Lee: All Claims Dismissed As Settlement Reached

Five years since Don Lee Farms first sued Beyond Meat for breach of contract, four months since it alleged “something is really wrong” at the alt-meat brand through numerous federal false advertising claims, and three days into the trial proceedings in Los Angeles Superior Court, the plant-based meat brand and its former co-manufacturer reached a settlement agreement.

The parties released a joint statement in October stating neither admit liability or wrongdoing and both are satisfied with the outcome. The agreement will dismiss all claims and cross-claims filed in both California state and federal court between the two companies.

According to an SEC filing by Beyond Meat regarding the breach of contract settlement, the terms “did not have a material impact on Beyond Meat’s financial position or results of operations.” The companies reached a separate “confidential written settlement agreement” to dismiss the federal false advertising claims.

The original dispute dates back to 2017 with claims that Beyond had wrongfully terminated its five-year exclusive manufacturing
contract with Don Lee, misappropriated trade secrets by sharing proprietary processes developed by Don Lee for Beyond products with new co-manufacturers, and thus, created unfair marketplace competition. A judge later dismissed the misappropriation of trade secrets and unfair competition accusations; however, the contract dispute was allowed to proceed.

Since the initial filing, the two companies have slotted upwards of four derivative actions against one another, including a countersuit from Beyond claiming it voided the contract due to unsafe conditions and subpar health and safety practices in Don Lee’s production facilities.

In 2020, Beyond Meat stockholders sued its senior management team, including co-founder and CEO Ethan Brown, former executive chairman Seth Goldman and former CFO Mark Nelson, stating the team “breached their fiduciary duties” by not properly disclosing the state of the lawsuit. Beyond Meat settled that case earlier this year.

In June, Don Lee took aim at Beyond again, making a series of accusations in a countersuit that ranged from questioning
capabilities of its co-founder and CEO Ethan Brown, to alleging the company had been misleading consumers with its nutrition and ingredient labels. The latter accusation opened the floodgates for multiple consumer-led class action lawsuits that see Beyond Meat challenged for fraudulent nutritional claims.

The subsequent class actions focus primarily on Don Lee’s accusation that Beyond Meat does not contain “equal or superior protein” to real meat or that the products are free from “synthetic” ingredients, despite assertions within Beyond’s labels and marketing materials. Consumers from California, New York, Illinois and Iowa have signed onto complaints which will likely still stand up despite the two parties settling the motivative dispute.

Beyond filed a motion to dismiss Don Lee’s false advertising derivative ahead of the trial, claiming the co-manufacturer had been aware of Beyond’s recipes for nearly six years and voided the statute of limitations by the time it took aim on the products in court. Additionally, Beyond said Don Lee could not make accusations of false advertising when it participated in the production of the alleged, falsely advertised products. That motion had not been heard ahead of trial.

The news comes on the heels of Beyond’s Q3 earnings report in which Brown announced quarterly and full-year sales were lower than expected and that the company would cut 200 jobs in order to continue pursuing profitability.

PowerPlant Partners Closes Fund III at $330M, Expands into Consumer Tech

Venture capital firm PowerPlant Partners announced in September the close of its Fund III at $330 million. Double the size of its 2019 predecessor, Fund III will focus its investments solely in growth stage companies and consumer-facing brands “that are better for the people and planet,” according to a press release.

“With this additional capital, we’re expanding our team and building an even stronger bench of industry-leading operating advisors and partners,” said PowerPlant Partners co-founder and co-managing partner, Mark Rampolla, in the release.

The firm’s portfolio includes Vive Organic, Your Super, Thistle, Bon Devil (formerly The Coconut Collaborative) and Apeel Sciences. The firm plans to invest $15 to $40 million in target companies and has already made four investments from fund III, including Miyoko’s Creamery, Liquid Death and Partake Brewing. Most recently, PowerPlant announced an investment in and partnership with holding company SYSTM Brands to launch SYSTM Foods, a platform focused on acquiring sustainable and socially conscious food and beverage brands; the company has already added Chameleon Cold Brew and REBBL to the SYSTM portfolio.

In conjunction with the Fund III announcement, PowerPlant Partners revealed plans to expand beyond investing in food and beverage plant-centric products, as it has focused on with fund I and II, to include consumer technology, service and enablement companies focused on improving “human and planetary life.” According to PowerPlant, this shift will enable the firm to grow its platform in the consumer-wellness space and offer a more integrated network portfolio.

“We are thrilled to receive such strong support and commitment from our limited partners, especially during a period of increased market volatility,” said Dan Gluck, co-managing partner of PowerPlant Partners, in a press release. “This new fund will allow us to deepen and grow our efforts to find, fund and scale breakthrough companies that are building a healthier, more sustainable future.”

Secret Sauce: Bachan’s Raises $13M, Will Hit Profitability This Year

Condiment brand Bachan’s announced in September it has raised $13 million in capital, impressing investors with its plans to hit over $30 million in revenue this year.

The round, which closed earlier this summer, was led by investment firm Sonoma Brands Capital, which was founded by KRAVE jerky founder Jon Sebastiani. The round also saw participation from existing investors Prelude Growth Partners and New Fare Partners, along with RVCA founder and president Pat Tenore and filmmaker Destin Daniel Cretton.

“[In 2021] we took the approach of raising less, growing the brand, protecting shareholder value, and then racing down the road when we built more value,” Bachan’s founder and CEO Justin Gill said, “Then 2022, we essentially wanted to raise what we felt could get us to profitability and turn us into a self-sustaining organization.”

Gill plans to use the capital to grow the company’s 16 person team as well as support new accounts. This summer the brand brought on new CFO David Lacy, formerly CFO at KRAVE. Some of the capital will also give early executives liquidity to pay back debt taken to launch the company.

Founded in 2019, Bachan’s produces a line of Japanese barbeque sauces available in Original, Hot & Spicy, Yuzu and Gluten-free varieties.

The three-year-old company first attracted investors with its products’ unique taste profile and potential for revenue growth. Bachan’s previously raised $4 million in summer 2021 in a round that saw participation from former Whole Foods Market co-CEO Walter Robb alongside celebrity investors including Ryan Tedder, Aaron Paul, Whitney Port, Chase Utley and Abe Burns.

The sauces are sold in 11,000 stores including Whole Foods Market, Sprouts Farmers Market, Target Kroger and this fall, will reach Publix and Albertsons. Bachan’s expanded into the club channel in 2021 when it was picked up by Costco. Gill said that while foodservice is on the docket for next year for now, the company plans to focus on driving trial, velocities and ACV in retail. Though the brand has no plans to expand beyond its current set, he said the ultimate goal is to build a portfolio of shelf-stable, clean-label, Japanese-inspired products.

Maintaining a tight portfolio and focusing on sustainable growth have been part of Gill’s secret sauce from the start, he said, and it’s paid off. The company is on track to report over $30 million in revenue this year, 500% growth from 2021, and Gill said it will be profitable by year’s end. One key to success was a focus on growing natural, specialty, conventional grocery sales in tandem with D2C, rather than focusing on D2C before moving into brick and mortar.

Although comparable to a more traditional teriyaki sauce or glaze, the term “barbecue sauce” has allowed Bachan’s to get on shelf in the traditional condiment set alongside brands such as Rufus Teague, New Primal, Primal Kitchen and Kevin’s, rather than in the international aisle. Not only does the barbecue sauce category attract more shoppers, but it also helps position the sauce as a more versatile condiment like ketchup, Sebastiani said, rather than something that should be used only with Japanese dishes.

“We have become part of [our customer’s] household pantry,” Gill said. “[It] comes down to having a really high-quality product that’s versatile and that people want to use in every meal, not just once a year.”

Overall, the condiment category has seen lasting growth as the popularity of at home cooking, spurred by the pandemic, has yet to wane. A survey by marketing firm Hunter last year found that not only were 51% of Americans cooking more than in 2020, 71% intended to continue cooking at home even after the pandemic ended.

While mealtime shortcuts such as sauces have risen, Bachan’s flavor profile has also given it an edge. According to research conducted by Whole Foods Market, “BBQ Goes Global” was the top condiment trend of the summer, and Kroger cited “umami” as its top flavor trend prediction for 2022.

Bachans is the number one selling shelf-stable barbecue sauce in the natural channel, Gill said, bringing in the highest dollars per store, per week, in the category. Online, the brand has found that the average shopper repurchases once every 45 days. That loyalty to the brand, as well as its unique cold fill process and lack of gums, is what’s helped Bachan’s maintain its top position, Gill said, and ward off competitors or private label offerings.

“[Justin] caught lightning in a bottle and now it’s just protecting the momentum,” Sebastiani said. “Bachan’s hits the data points that we think are highly relevant, it’s past a significant point of a proof of concept. It’s got very high margins, and it is wildly profitable already…[Justin is an] emotionally invested founder that we think has a story to tell and only just assists the fact that the product, the secret sauce in the bottle, is driving this virality right now.”

FDA Defines Healthy On-Pack

After six years of discussion and controversy, The U.S. Food and Drug Administration (FDA) is one step closer to finalizing a definition for the word “healthy” for use on food and beverage packaging with the release of a proposed rule in September.

The guideline aims to align the term’s regulatory definition with modern nutritional science, the Nutrition Facts label and the current Dietary Guidelines for Americans.

Nutrient dense foods like fruits, vegetables, low-fat dairy and whole grains are key to healthy dietary patterns, according to the FDA. However, foods including nuts and seeds, higher fat fish like salmon, certain oils and water have now been added to that list. Under the new definition, the FDA also offered parameters for what constitutes “nutrient dense,” defining it as food with little added sugars, saturated fat, and sodium, but containing vitamins, minerals and “other health-promoting components.”

In order to be labeled “healthy,” a food or beverage must contain “a certain meaningful amount” of at least one nutrient
dense food group or subgroup, per the recommendations of the Dietary Guidelines; the parameters around each “meaningful amount” is specific to each food group or subgroup.

Healthy foods are also required to fall below a specified limit for saturated fat, sodium and added sugars. Each threshold is determined by the percent of the Daily Value (DV) recommended for each individual nutrient and the permitted ratio is calculated relative to the product’s serving size.

“For example, a cereal would need to contain 3⁄4 ounces of whole grains and contain no more than 1 gram of saturated fat, 230 milligrams of sodium and 2.5 grams of added sugars,” the rule states.

Under the new regulation, foods must contain the minimum amount of at least one nutrient dense food and be within the nutrient limits regarding fat, sodium and sugar in order to be labeled as “healthy” on front of pack.

Earlier this year, the agency also announced it was looking into creating a symbol to denote healthy food that could be used voluntarily on pack. That symbol is still currently in the works.

The FDA has recognized the word healthy as an “implied nutrient” claim since 1994. At that time, the agency formally recognized the word holds a specific meaning for consumers and indicates a food may help them maintain healthy dietary practices, the agency said in the proposed rule. It also recognized that nutritional science has evolved since the mid-1990’s and stated that its former definition was outdated and excluded many foods that should have been considered healthy.

The agency opened up a public comment period for 90 days allowing stakeholders to comment or raise concerns regarding the new rule. The news also comes as the White House is turning its attention to nutrition. The Biden Administration hosted the Hunger, Nutrition, and Health conference in Washington for the first time in 50 years, which will address hunger, nutrition as well as work on plans to reduce diet-related diseases and close disparity gaps in nutrition standards within the next decade.

“Diet-related chronic diseases, such as cardiovascular disease and Type 2 diabetes, are the leading causes of death and disability in the U.S. and disproportionately impact racial and ethnic minority groups,” said FDA Commissioner Robert M. Califf, in a press release. “Today’s action is an important step toward accomplishing a number of nutrition-related priorities, which include empowering consumers with information to choose healthier diets and establishing healthy eating habits early. It can also result in a healthier food supply.”

Snack maker KIND secured a win earlier in September in a federal class action lawsuit challenging its use of terms like “healthy” and “natural.” According to the new regulation, about 5% of all packaged food current is labeled as healthy. The agency said it hopes that the updated definition will increase that percentage as well as encourage food manufacturers to reformulate in order to meet the new “healthy” requirements.