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Investor Profile: Santatera Sticks To U.S. CPG Thesis Despite Trade War

Early-stage packaged food and beverage businesses often bring narrow margins and a high degree of operational complexity to the table. Add in the current, on-and-off trade war, along with the associated supply chain challenges, and any international investment firm would likely press pause on new ventures.

But Mexico-based asset manager Santatera Capital, which allocates an $80 million fund to early-stage food and beverage brands, is continuing to dole out cash, most recently investing $1 million into better-for-you confections company Refresh Gum. The firm has always counted its strategic support as a key differentiator, explained Santatera associate Ignacio Reséndiz, but these businesses will need it now more than ever.

“Both [the U.S. and Mexico] have had an extraordinary relationship, and in some ways, we depend on each other, so we hope this ends soon,” Reséndiz said.

As tariffs put additional pressure on margins, the venture firm is navigating an added layer of complexity while assessing potential investments. Reséndiz said that while Santatera won’t change its thesis – which is focused on CPG food and beverage companies doing business in, or looking to expand to, the U.S – the firm will likely put a greater emphasis on emerging categories and product types with high margins.

“We’re going to continue supporting our companies… [but] we [will be] looking for companies with strong margins, so that if these tariffs are going to hit again, the margin impact is not going to be so hard,” said Reséndiz. “The advantage that we have is our investors have presence in both countries, and we can help negotiate some terms, or we can move some parts of the supplier value chain to either one of the two countries.”

Santatera has honed a unique capacity for helping companies grow and reduce costs by realigning or scaling up sourcing through its vast network of limited partners, which includes major food producers and processors throughout Latin America. Within its advisory board alone sit Chosen Foods chairman Gabriel Pérez Krieb, SOMOS Foods CEO Miguel Leal and Electrolit CEO Christian Patiño Webb.

In the case of New York-based Refresh, its hero chicle ingredient is sourced from trees that grow in Mexico, giving Santatera both supply chain synergies and the entry into the U.S. confections category it had been seeking. Reséndiz said the firm was attracted to Refresh’s strong velocities, business management and capital efficiency, as well as founder and CEO Ryan Stafford’s “innovative and disruptive” approach to the category.

“When brands are raising money, there’s a lot of challenges and complexities. You’ve got to find the right partner. There’s a lot of no’s [then] you get some yes’s, and it’s about finding which opportunity makes the most sense,” Stafford said. “We found a really good partner [in Santatera] that believed in our mission, believed in what we’re doing here, and believes in our industry more so than others.”

The natural, plant-based gum business is currently gaining traction in the Midwest market as well as in conventional retail, Stafford told Nosh. Currently the company’s only employee, Stafford intends to use the new cash to build out the team as well as support and promote the brand at retail in addition to expanding into new channels such as travel and foodservice. The company also has a new larger pack size launching exclusively in the value channel.

In order to keep Refresh’s supply chain flowing, strategic support will be integral. Santatera’s portfolio already includes many CPG success stories such as wildwonder, Tia Luptia, Mezcla, Onda and more. Soon, the company will add Mexico-based BirdMan to its ranks as the organic, vegan protein powder producer works to increase its presence in the U.S. market.

But sourcing isn’t Santatera’s only strategic advantage. The firm is also backing a new $7 million venture fund and accelerator program known as Ignite20, which was launched late last month by investor and entrepreneur Gabriela Morales. Ignite20 aims to invest in 20 CPG startups per year spanning health, beauty, food, beverage, and pet care categories with a goal of notching 60 investments over a three-year period.

While a typical check from Santatera’s fund ranges from $1 million to $2.5 million, with room for reinvestments in the $4.5 million to $5 million range, this new program will give the firm inroads with smaller, attractive businesses in need of strategic support but are not yet ready for Santatera’s investment.

“We receive a lot of deal flow, and these are companies that may seem smaller for us or that maybe do not need funds but more of a strategic approach,” Reséndiz explained. “That’s where I make introductions with Gabriela – I like to say that we are like siblings. We take a look at the larger companies, and she takes a look at smaller ones.”

The Ignite20 program will include $50,000 in capital investment in addition to strategic guidance including a 12-week hybrid course culminating in a demo in Bentonville, Ark., 70 hours of specialized training, one-on-one founder-to-founder coaching and direct access to retail buyers, distributors and follow-on investors. Redwood Ventures and RPM Food are also backing the program.

“Ignite20 Ventures’ mission is to provide emerging CPG brands with the resources they need to break through to the next level in an increasingly competitive and complex industry,” Morales said in a statement. “As a CPG founder myself, I understand firsthand the challenges these entrepreneurs face and the impact the right strategic investment and guidance can have on their success.”

DTC Meal Kit Brands Find Second Act in Retail Expansion

A decade ago, direct-to-consumer meal kit subscription services like Blue Apron and HelloFresh had blanketed the market with a strong pitch to consumers centering on convenience, wellness and quality ready-to-cook food they could have shipped to their doorsteps. During the pandemic, many of these brands saw big lifts and even bigger valuations as consumers stuck at home decided to try their hand at home cooking.

But today, many in the meal kit category have learned the limits of the DTC model. Momentum has been stalled for several years, and shakeout has led some companies to early departures. Others that found their exits did so at underwhelming numbers: Blue Apron, which touted a valuation as high as $1.9 billion when it went public in 2017, reverted to private and sold in 2023 to Wonder for only $103 million.

Increasingly, meal kit brands are seeking fresh revenue streams, from alternate product formats to retail partnerships, building new homes in the deli and frozen aisles of grocery stores across the U.S. where consumers have long been accustomed to seeking out convenient meal solutions.

While meal kits packages are still selling to loyal consumers, diversified business models appear to be the new normal for many of these companies.

According to Brittain Ladd, an industry consultant who has long been bearish on the meal kit space, some of the problems with category were inherent in the business model from the beginning: consumers were often frustrated by long cooking times and heaps of trash they created, while quality could also vary depending on the brand or specific meal they selected.

“A lot of these meal kit companies really misjudged the consumer,” Ladd said, pointing to past messaging from brands like Blue Apron that pitched the product as a fun and easy way to cook dinner. “The problem is that’s not what the customer wanted. The customer really didn’t want to cook.”

That issue is perhaps now reflected in how many meal kit brands have shifted to provide more heat-and-eat meals or embraced alternative models. As a part of Wonder, the restaurant concept and food delivery company that also bought GrubHub last year, Blue Apron earlier this month was integrated into its app delivery service to allow consumers to purchase meal kits direct and on-demand, without a subscription.

Brands that have continued to fare well in the market, Ladd suggested, have been companies like HelloFresh – which is well capitalized and acquired prepared meal brand Factor75 (now Factor) in 2020, while also entering retail via Ahold Delhaize in 2018 – or brands such as Home Chef, which was bought by Kroger in 2018 and is now a featured set in the grocer’s stores.

“This is just a category that never took off anywhere near what many people thought for the direct-to-customer [market],” he said. “Lots of them tried. Very few succeeded.”

“And, as we see, some were bought by grocery retailers – Albertsons bought Plated, Kroger buys Home Chef, but these companies are not direct to the home anymore,” he added.

Betsy McGinn, an ecommerce expert and founder of McGinn Ecomm, echoed many of Ladd’s criticisms of the category’s issues with consumers, noting that high input costs have also made it extraordinarily difficult for brands to be profitable while relying solely on shipping meal kits via the mail.

“The least expensive part of their business is their ingredient cost,” McGinn said. “It’s all the last mile costs, the acquisition costs, etc. I’m not sure the math ever really made sense.”

But some brands do still see the sun rising at the horizon. Plant-based DTC meal brand Daily Harvest has diversified its portfolio through the introduction of snacks and smoothies as alternative meal solutions, most recently introducing a protein smoothie line available for online order.

Those innovations are in addition to the company’s DTC meal products and a growing retail business with frozen meals available in chains such as Kroger.

According to Daily Harvest CEO Ricky Silver, ecommerce remains the bulk of Daily Harvest’s business and likely will stay that way for some time as he said the retail expansion is still early-stage. Silver suggested the goal for the business is to “stay focused on expanding each channel as the channel dynamics allow us to.”

“Relying on business fundamentals to make sure we’re being healthy in our growth patterns is key,” Silver said. “Over the next three years, I’m certain, retail will become a larger percentage of our revenue. But we’re not too anchored to one particular objective. Because we see how quickly the consumer shopping behavior changes.”

A big part of the move to get into retail, however, is that DTC growth has a ceiling, Silver said, stating that some of the brand’s data suggests that 85% of consumers prefer to do grocery shopping in person, meaning there’s large swathes of potential customers that Daily Harvest can’t reach without heading into brick-and-mortar.

“It’s a different consumer,” he said. “It’s a different shopping experience and it’s very incremental to our strategy long term.”

Dress It Up Expands, Backed By New Funding

A slow and steady growth strategy is Dress It Up Dressing’s secret sauce as it works to capture the “sleepy” salad dressing category, said founder and CEO Sophia Maroon.

While the 15-year-old brand has incrementally grown its business over the past five years, expanding into new formats, securing a bit of funding and, most recently, retooling its distribution and business structure to protect margins, Maroon said now felt like the right time to put a touch of fuel on the fire.

At Natural Products Expo West, Dress It Up debuted its first new products in over seven years: Green Goddess and Peach Vinaigrette. Although flavor innovation has been a low priority, the business hasn’t been stagnant with Maroon focused on getting “the house in order” and testing new formats – like single-serve packets – for alternative channels.

The Green Goddess marks the brand’s first diversion from a fully-olive oil base, with the addition of aquafaba to create a shelf-stable, yet creamy and plant-based offering, Maroon explained. The brand is now working to secure an upcycled supply of the chickpea byproduct.

Maroon worked to refine the new flavors alongside the brand’s Whole Foods buyer after sending in two initial samples for an off-cycle review. The buyer suggested swapping the original fig dressing sample for a peach flavor, and Maroon thought, if anything, the natural retailer would take on one of the new SKUs. After a few tweaks, both SKUs secured placement nationwide.

“The best thing that [retail partners] can do is give us a reason to innovate and help an emerging brand understand the market in a way that only they can offer,” she said. “It helps strengthen both [sides]. But I still feel like Whole Foods is the only customer that we have those kinds of conversations with.”

The products will be available on a three-month exclusive at Whole Foods, where Dress It Up now sells a total of eight SKUs nationwide. Rather than “chasing trends” Maroon believes her products – which are gluten-free, sugar-free, vegan, paleo, keto and Whole30 friendly – have been built to withstand the changing winds of consumer demands. But as it has kept up on trends, keeping the business funded has been a more complex challenge.

The slow and steady approach hasn’t always been an attractive asset to investors, Maroon said. The company, which recently closed a $2 million equity round, spent over a year raising the first tranche of cash; once it had proven itself as a national brand, it quickly closed on the second million ahead of schedule.

“I felt like every investor kept on moving the goal post,” she said. “We were doing well in Whole Foods Mid-Atlantic, and they’re like, ‘Yeah, but you’re not national.’ And then we got national, they’re like, ‘Yeah, but show me a little bit more sales data.’ We were in the top 10 at Whole Foods and then they say ‘Yeah, but the top 10 is not the top five.’ We got in the top five and then finally they said, ‘Okay, now I’m listening.’”

She said there has been a recognizable shift in recent years from the “growth at all costs mentality” to those “just building good solid businesses.” As Dress It Up was executing its first full year as a national brand at Whole Foods, it was also undergoing a strategic sourcing initiative to renegotiate contracts and bring down its supplier costs. She also attributes the brand’s ability to secure capital to this effort.

Dress It Up worked with a representative from its home state in Maryland who took a high-level view of the company’s supply chain and outlined where and how it could simplify and tighten up the business, Maroon explained. The initiative resulted in “dramatic” cost-savings on olive oil, the base to virtually all of its products. It also opened the brand up to an alternative distribution plan that brought down freight costs and solved issues with inconsistent pricing.

Dress it Up previously distributed free on board (FOB) to UNFI and KeHE from its East Coast warehouse. That arrangement generated different freight prices, which were then tacked on to the product’s price tag, depending on the DC it landed in. On the East Coast, a 22-serving, 10 oz. bottle cost about $8.99; by the time that same item reached the West Coast, the price tag was upwards of $11.99.

During its strategic sourcing initiative, Dress It Up was also working toward a foodservice expansion and partnered with DOT Foods. As it was opening up those accounts, it began using DOT to stabilize its retail business as well. DOT now distributes all of Dress It Up’s products to UNFI and KeHE’s DCs, as well as its own partners, for a flat freight fee, which has enabled the brand to now maintain an even $9.99 price point at retail nationwide.

2025 will be its year of foodservice, Maroon said, highlighting the lack of a leading clean label, premium, customizable salad dressing option available in the channel. The brand has the ability to package the product in a wide range of formats as well including bag-in-a-box, gallon jugs or even squeeze bottles.

“It’s a chicken and egg situation,” she said. “If we can find a customer, we can put a wide variety of packaging options into production. Packets were an easy one, so that was where we took the plunge, even without the customer.”

Currently, the single-serve products are available at Whole Foods stores and were used on Alaska Airlines flights. That format is first priority for production, she said, noting that the brand had to say no to a large order for the packets last year as it was also preparing to go national with Whole Foods due to a lack of funding and resources.

“I used to work in television, and a [common] expression was ‘cheap, fast, or good,’ you could have two out of three, but you couldn’t have all three,” she said. “We could have put the packets into production really quickly, but it wasn’t going to be cheap. Now we did it, and it’s cheap and it’s good, but it wasn’t fast.”

Maroon is hoping to re-up packet production, including adding a few additional flavors and expanding with additional formats for foodservice use, depending on the need. With its piggy bank primed and retail relationships ready to keep growing, Dress It Up is eyeing profitability in the near term.

“If we had more money, I would have done everything exactly the same,” she said. “I just would have done it more quickly. That’s really what it buys you – time to grow. But growing quickly also builds a story, that’s a very different story from growing steadily. That [fast growth] story is a story that a lot of the VCs respond to.”

“But salad dressing is not a [more intense] category like beverage,” she continued, noting that if it was, the business would have gone under by now. “That’s also the beauty of being in what has to be one of the sleepiest sections of the store.”