Building a Brand from Scratch: Lessons in Growth and Innovation

0:03Adam Deremo:Welcome to the Brand Alchemist podcast, where we uncover the magic and mystery of how some of the world's most sought after and newest brands were started and continue to evolve. I'm your host, Taja Dockendorf, founder and creative director of Pulp & Wire, a CPG branding, marketing and launch agency. I'm also an investor in emerging brands and own a few of my own as well. Over the last 18 years, I have worked with, created for, and grown hundreds of companies in the CPG space, like Ryan's Snacks, Allagash Brewing, Ocean Spray, Petco, and many more. Now, here's today's episode.

0:43Adam Deremo:Hello, and welcome to the Brand Alchemist podcast. Today, I am welcoming Adam Deramo, co-founder and CEO of Awake. At Awake, Adam is focused on team leadership, growth strategy, and new product development. Before founding Awake, Adam spent 11 years at the Kraft Heinz Company in PepsiCo, where he held increasingly senior roles in finance and strategy functions. Adam graduated from the Wilfrid Laurier University with a BBA degree and holds an MBA from Schulich School of Business in York University. He's passionate about growth and new product development and believes that entrepreneurs play a critical role in the

1:18unknown host:process.

1:20Adam Deremo:Adam, welcome to the Brand Alchemist podcast. Really excited to have you on today talking about Awake Chocolate, your entrepreneurial journey, CPG, what you've learned to date, what you brought forward to this brand. And yeah, I'm really excited. I mean, I think the idea of I love chocolate and I love caffeine, bringing these two together just really excites me. So welcome to the podcast.

1:45unknown host:Well, thank you for having me on.

1:46Adam Deremo:Yeah, my pleasure. So let's jump right into it. You have such a great background. I want you to kind of unpack that start to finish and to get to where you are today. But yeah, give me a little backstory of where it all started and both personally and where you're at now with a white chocolate. Okay.

2:03unknown host:Well, for me personally, I studied business in college. And by the time I graduated, I was really only sure of two things. One was that I wanted to work in CPG, consumer products, mostly because I just liked the idea of working with brands and products that people use every day. Something about that appealed to me. So I knew that's what I wanted to do. Second thing was I was sure at some point I wanted to start a business of my own. There was no version of my own career story that didn't involve building something from scratch. And I think I came by that pretty honestly. one of the things I learned about myself as a college student in one of our courses, we had to do a bunch of like personality inventories and things like that.

2:56unknown host:I discovered I have, we did something called the Myers-Briggs personality inventory. I have something called an innovator's personality. And people with that profile are attracted to new and novel ways of doing things and solving problems. And so that all tracked because like, that's pretty much what entrepreneurs do. They just solve problems in real time and hopefully make money at it. So I had the good fortune to connect with Kraft Foods during the recruiting process in university. And I just really liked all the people I met there. So I joined right out of school. And it was a terrific experience.

3:38unknown host:It was a great place to learn about CPG in general and about the food business specifically. And the first role I had was on the Costco and Walmart customer team. And so that was amazing because it was a training ground to understand what big customers expect from suppliers. And it was just a great learning opportunity. And I moved on to the beverage business there, which was great because I got to learn about the role that developing new products plays in growing a business. And after a few years at Kraft, I moved on to Pepsi where I did other similar things, progressing to more senior levels of responsibility.

4:23unknown host:Terrific experience. It was at Pepsi that my two co-founders and I connected over a burrito lunch one day and decided that, you know, we were ready to go out on our own and start our own thing. And that was after about 10 years of being an industry. I had just gotten to a point in my own career path where I felt like if I don't take a chance now, I'm probably never going to leave corporate. it. And then I'll just live with regret. So I was out with Matt and Dan, my co-founders. And I said, you know, I'm really getting the itch to leave. I want to start something of my own. And within about 10 seconds, they both said the same thing.

5:08unknown host:We made an agreement that we were going to do it together and we never looked back. So it all came together super quickly. You know, as to why we launched Awake, I wish we had a really sexy and memorable inception story. But that is not true. It was all insight driven. So all three of us had worked on or around in different brands launching new products, very comfortable with consumer insight data. and it so happened that I had been in a strategy role at Pepsi where a couple of projects hit my desk in sequence that made me aware we could solve a beverage problem with a food technology. And the problem was, if you do what they call it in the industry, need states analysis, essentially asking consumers about their lifestyle and what needs they have, One that really jumps out is the need for more energy.

6:08unknown host:So if you ask general population, hey, would you like more energy in your day to day routine? About 80 % of people will say yes. And that on its own is remarkable. There are very few need states that have that level of positive response. Then you ask those people, okay, what products are you buying to meet that need? Well, about 30 % of them will say, I'm not buying anything. So that's really strange, right? Because you have about 25 % of the general population saying, I have a need for which I am not buying any product. And then you ask, okay, why aren't you buying anything to meet that need?

6:45unknown host:And overwhelmingly, the answer is, no matter how you phrase the question, taste. I cannot find anything I like the taste of. simply unwilling to drink a coffee or an energy drink just to get a little bit invigorated. And we happened to know that there was a food technology that had been around for a long time called microencapsulation. And essentially what that is, is coating ingredients in vegetable oil. I'm simplifying the science a little bit, but, and what that does is it can eliminate or minimize bad taste without altering the function of an ingredient. So our contribution to this consumer problem really was to look at it and say, why don't we just make a snack?

7:30unknown host:We know there's a technology out there that we could use to deliver the benefit people are looking for, but not require them to drink a beverage they don't like the taste of. And as soon as we stumbled onto that insight, we got really focused on chocolate because we were at first just solving for taste. And I don't know about you, but I don't think anything tastes better than chocolate.

7:54Adam Deremo:That's true.

7:55unknown host:Yeah. So we got super focused on chocolate. And the more we got to understand the chocolate category, the more we felt like we were onto something. And the reason why is the chocolate category is very big. It has something like 96 % household penetration. So most people are eating chocolate. But all of the brands that are leading that category are going to be nice and call them mature because it sounds better than old, but most of them are a hundred years old or older. And there hasn't been much in the last half century in the way of meaningful innovation in the chocolate category. Like, you know, if launching the 800th flavor of Reese peanut butter cups or Snickers passes for innovation, sure, it's an innovative category.

8:38unknown host:But if you look around the supermarket, all the big categories at this point have benefited from the entrance of functional brands that create new consumption occasions that grow categories. And that was not happening in chocolate. So we thought to ourselves, great, we can meet this need that people tell us that they have. And at the same time, there's a really compelling reason for us to enter the chocolate category because we can do something that nobody else is doing. and that's add a valuable functional benefit to the chocolate experience. So that's, that's where it came from. It's a bit long winded and it's certainly not as memorable as some of the other fantastic inception stories that you hear, but it came from an honest place.

9:28Adam Deremo:No, I love that. And I have like three different follow-up questions from all of it. But my, my first one is, you know, you're, you're upsetting kind of a dated space, right? But you're also you're going up against energy drinks, which are in a very different shelf section of the grocery store. So different aisle, different space, bringing in caffeinated chocolate into basically the candy section for the most part. How are you cutting through that noise, competing, but then also differentiating and getting in front of your consumer the way that you want, knowing that you're trying to convert them from an energy drink?

9:58unknown host:That's a really good question. You know, a lot of it just boils down to the experience that we had collectively gained. So my two co-founders and I, the experience we had gained working for Pepsi and Kraft, selling big brands to big customers. It really helped to understand how our customers think about their categories, to understand category management principles so that we can speak their language. So we were able to, as an example, explain how if you sold an Awake chocolate instead of whatever legacy brand, you could make more penny profit because you were selling for a higher price. And we were also able to explain how functional brands in other categories had been incremental.

10:50unknown host:They had created new occasions and how it would be beneficial to create new occasions in the chocolate category. So really, in terms of getting the shelf space, the story was all about incrementality and growth. And in a large and extremely mature category, true incrementality is hard to come by. So that resonated right away. And we were just able to tell the story in a way that made it super clear to our buyers how they were going to make more money by carrying our product. It's a powerful motivator.

11:23Adam Deremo:Oh, yeah. Selling product and making them more money is a huge motivator. You touched on this a little bit. This was my second question is that you came from big CPG, which is awesome. Having that experience with Kraft and Pepsi, but then going into, you know, starting your own business. And I think a lot of entrepreneurs go through this is that we take the best of what we've learned and we choose to not do the worst of what we learned also in some of those big companies. What are some of the things that you and your co-founders took with you when starting this company? And what were some of the things that you saw from big corporate that you were like, this is just not who we're going to be?

11:56unknown host:Yeah. So that is a great question. I think the things that we took with us were really, they have to do with management discipline around one, having strong gross margins. So in a big food environment, gross margin management is it's a real science and it's impressive, right? There's a relationship between the price that you charge for the product, how much you invest in promotional rebates and managing your costs. And so between the three of us, we had really deep experience in all three of those areas. And we were able to apply that to Awake from day one. And because of that, we've been able to have relatively strong margins.

12:47unknown host:And when you're trying to scale your own brand, that's so important because gross margin is really what allows you to reinvest in growing your company without having to be constantly raising money. So that was super valuable for us. One of the things that we realized about big corporate environments that's less desirable and we didn't bring with us was what I would call analysis paralysis. It's just like speed of execution. So contrary to popular belief, it turns out that it is possible to make a decision without five different PowerPoint decks and 10 meetings leading up to making a decision. And we got comfortable right away with making decisions under ambiguity, you know, which isn't to say we were just shooting from the hip.

13:37unknown host:But we'd work with whatever information that we had and be comfortable accepting some amount of risk and knowing that if we had to, we could just course correct along the way. And, you know, so like one difference there is in my corporate experience, it wasn't unusual to start commercializing a new product a year in advance. And, you know, we like to plan in advance and work in advance, but there have been times when customers have come to us and asked for things or made suggestions. And we've turned that conversation around into a new product on shelf in 16 weeks. So, you know, it's like the analogy of a speedboat and an ocean liner.

14:17unknown host:One thing can move pretty fast and turn quickly, and the other thing just has unstoppable momentum, but it's super slow. So, you know, we're very proud of the fact that we move quickly while not being completely undisciplined.

14:31Adam Deremo:Yeah, I mean, you need to move quickly. Analysis paralysis, especially with so many new things coming out, it's just going to stop you in your tracks when you're a new company.

14:38unknown host:And it is one of the very few advantages that you have as a challenger brand in a big category. Our lack of scale is actually an asset if you look at it through that lens.

14:50Adam Deremo:You're in a space also of functional foods. So we're seeing so much innovation and so much growth in the functional foods. I mean, right across beverage, you're looking at adding probiotics to drinks and prebiotics and postbiotics and, you know, so many other pieces and caffeine to create functionality in foods that we're eating every day. Talk to me a little bit of where you see the future of functional foods going and how, you know, you know, awake is kind of in that forefront. Yeah.

15:16unknown host:Also a good question. I happen to think that functionality is the number one trend in all of food and beverage. You know, most big categories have benefited from the entrance of functional brands at this point. And our analysis suggests that something like 80 or$90 billion of enterprise value has been created by functional brands in the last 15 years. So just numerically, it's really unbelievable. Also, though, I think there is a consumer expectation at this point that if a product could do more for you, it should do more for you. Like, why should I settle for something that let's use a legacy chocolate bar as an example?

16:00unknown host:It just tastes great, but I know it's not particularly good for me. And if instead I could eat something that tastes equally great, but also provides me with a health benefit of some kind, increased energy and alertness, I'm going to make that choice. That happens in all kinds of categories. And I think it's going to extend for a long time. We do a lot of research in this area to find out what chocolate category buyers are interested in. And as an example, we did a research piece last year with the help of a college here in Canada that surveyed chocolate category buyers in the United States and in Canada.

16:41unknown host:And what we discovered was that 94 % of them are interested in getting functional benefits from their chocolate. So that's awesome. That was music to our ears. But what was also interesting is that there's a real long tail of different functions that they're looking for. It so happened that the one they were most interested in was energy. But there's a variety of other functional benefits that they told us they were interested in. For example, mood management, like the addition of adaptogens to help you feel calm and relaxed. That one wasn't a shock because it's really showing up in the beverage space right now.

17:21unknown host:You know, there are well-known brands like Recess or Moment is a brand that we know and like quite a bit. Other functional benefits that people were interested in improved quality of sleep. That's becoming a real issue of concern for a lot of consumers. Gut health. And then there were other smaller ones. But I guess the point I'm trying to make is that our experience is that even in the chocolate category, consumers are increasingly looking at their food and snack choices as an opportunity to get other benefits. And I think everybody's going to have to meet that need in order to grow over time.

17:58Adam Deremo:So as you started thinking about the brand, functionality and chocolate, looking at your website, you've got different flavors and bites and bars and things that you're doing. What is your future expansion and distribution? And correct me if I'm wrong, but did you start direct to consumer online?

18:17unknown host:We didn't actually. So you started.

18:20Adam Deremo:Wow. Wow.

18:22unknown host:So when we got started, we did a number of things about 180 degrees backwards to what most companies do. Like every startup, we had pretty limited resources. And so we felt we needed to make a really focused bet on which consumers we were trying to reach. And we bet on college and university students because they're busy. And we just we thought they would understand what we were trying to do. And that turned out to be a very good bet. In our first 90 days as a company, we went from zero to being on about 100 college and university campuses in Canada and getting great sales results. And we were able to leverage that data into campuses in the United States.

19:05unknown host:And we went from zero to almost a thousand campuses in a year. Did great. because of that we were able to build relationships with the biggest food service companies compass sodexo aramark and based on the quality of our performance in campus we were able to start selling to other sectors that they service so like office campuses um healthcare hospitals are a great point of sale for us manufacturing is you name it if people are away from home and there's a packaged food offering, we were starting to sell there.

19:40Adam Deremo:Well, and if they're in a place where they need to stay awake, honestly, because you're thinking of manufacturing and hospitals and universities, those are like three prime places that you don't want to go to to take a nap.

19:51unknown host:That was our strategy, essentially, like follow our consumer, be available where they're going to want our product. And that strategy went really well. We grew our business 30 to 50 % a year for the first six years, we became profitable, had little to no need for outside capital. We thought we were very smart, but what we didn't realize is we were putting a large number of eggs into a relatively small basket. And then COVID happened and 75 % of our ship twos were forced to close in less than two weeks. Most of them remained closed for over a year. So that was an existential risk for us. And we had only in about 2019 started to think about D2C.

20:33unknown host:That was a channel that we had ignored for six years to our own detriment. I think mostly because what my co-founders and I understood was selling in brick and mortar locations. Like that's what we had done. That's what the companies we worked for thought about. But thankfully, a couple of people on our team really had strong opinions that we should be indirect to consumer. And, you know, they kind of like were able to make a persuasive case that we should try Amazon, build a Shopify store and and build a business that way. And I'm so grateful that that they kept pushing that on us because it was in 2020 when everything closed down, that part of our business took off.