Transforming the Mexican Food Aisle: Miguel Leal's Journey with SOMOS Foods

0:00The biggest difference in the category today where we want to take this category and it's a$28 billion upside for retail. Well, it is if you had a Mexican grandma that taught you how to cook from scratch, you're a lot more likely to find to go and visit that shelf. So at some point we're like, well, why don't we just hire 100 Mexican grandmas, put them in a call center and have a 1-800-HOT-TACO number that you can just call and they can tell you what to do. And that is very hard to execute for many obvious reasons. But now with AI, we can have that digital and you can take a picture of the back of our pack and you can tell the abuela AI, you know, like, what do you have on your fridge?

0:50What is the somos product you have and come up with a recipe. And we think the same way we're developing some AR technology that you can actually do that on the shelf as well. And we think there is, when you focus on the experience versus focusing on the category, we're not launching products. We're trying to solve for a solution, for a big gap that is in the market today. Then the product, the system, all of these things that add up to experience become super, super obvious. But they were not before. They were not for us two years ago or a year ago. Hello, I'm your host, Mike Gelb, and this is a Consumer VC podcast where we discuss the intersection of venture capital and consumer innovation.

1:35If you're enjoying the show, also subscribe to my newsletter at theconsumervc.com where you'll receive new episodes straight to your inbox and a weekly recap of all the consumer deals that are happening. If you're also listening to the show on Spotify, Apple Podcasts, or YouTube, hit that subscribe button if you're enjoying it and please leave a review. All content and episodes are for informational and entertainment purposes only and is not investment advice. Our guest today is Miguel Leal, who is the co-founder and CEO of Somos Foods. Somos Foods makes Mexican food with authentic recipes and plant-based non-GMO ingredients.

2:12We discussed the origin story of Somos, why he started D2C and then had to pivot quite quickly to retail, how he thinks about entering different categories, and leveraging AI. Without further ado, here's Miguel.

2:31Miguel, thank you so much for joining me here today. How are you? I am great. Thank you for having me, Mike. It is such a pleasure to be here with you. Oh, no, it's an absolute, absolute honor for you to come on the show. Really excited to chat all things Somos. So I know you worked at Kind Snacks for a long time, and then you worked at Cholula, both brands that I adore and really love. But why did you feel March 2021, take me through it. Why did you feel that was the right time to launch Somos and the right time to actually you found your own company? Yeah, I mean, I think Kind was transformational for me.

3:10I have worked food for 25 years. But as you know, Kind was just such a special company, a lot of values and a lot of ways of doing business. Not only I learned, but it confirmed a lot of theories that I had for myself and the way, you know, food could come out into the world. And Cholula, you know, great brand, great experience. And at the end of that journey, we sold that company to McCormick. I ended up, first of all, without a job. So I thought it was a really good time to try something new. It was probably the first time that I didn't have a plan B. It was a much shorter time at Cholula than we expected.

4:00We always thought we would own and run that company for five to seven years, and it ended up being 18 months, which was the right thing to do, but it still surprised us. So I think it was the first thing, just finding yourself in a situation where everything is a possibility. The second piece, it was just like a really weird time. We were coming off from this pandemic. There wasn't a lot of innovations. Things were already starting to change, you know, from D2C to retail, from consumer acquisition costs to, you know, maybe advertising on Facebook and Google. It's not what it used to be. Obviously, a lot less pressure on growth and a lot more pressure on profit.

4:45And I just thought that that marquee environment was going to generate a lot of opportunities. But the third thing, and probably the most important was a call I got from Daniel. You know, Daniel was ready to do something new as well. And, you know, he called me up and just to have an opportunity to do something to do together, you know, with someone that not only I admire, but I consider, you know, a friend and, you know, to put a business plan together. I don't know if it was like the right time or the wrong time, but I thought there's always the right time to do a business with a friend that is awesome.

5:25And when you say Daniel, you're talking about Daniel, the founder of Kind Snacks. Is that correct? Yeah, Daniel Lubetzky. So Daniel Lubetzky is the founder of Kind. He's also on Shark Tank for the fourth or fifth season. And I think he's one of the most successful founders in food, but as a Mexican-American, he's the most successful Mexican-American entrepreneur that I know or, you know, that is visible. So, you know, just talking to my wife about it, who always gives me, you know, I've been married for 19 years, who always gives me great advice. He's also, you know, the highest integrity. So he's like, hey, you know, whatever you do with him, it's not only going to be successful, but you're doing it with a person that you can learn values and many other things.

6:16So that was probably the reason to do it. When Daniel approached you for what ultimately became Somos, what was the thought? What was he seeing that was different? And maybe what you were seeing as well, that you both decided to kind of joined forces on this venture? Yeah, so Hima and I have been friends for 15 years. You know, we were friends first, then eight years later, we were colleagues and now we are co-founders. And one of the things, you know, we lived in New York City with our third co-founder, Rodrigo, who was the head of product at Kind. And the three of us would go out to restaurants a lot, to Mexican restaurants.

7:01The three of us were born in Mexico. And we would see how much Mexican food change in the last 10 years at restaurants. I mean, it is incredible. Like, you know, taco cabanas became chipotles and, you know, like even food that you see in birria food car trucks in New York with a block of people in line waiting for it. Just food became so innovative, so authentic, and so much more like the food we ate growing up in Mexico. We eating out at Mexican restaurants honestly reminded us a lot from home. But the three of us grew up in the food industry, selling food in retail stores. and still when we would go to the stores, there was no innovation in the last 10 years.

7:56It's still the taco kit with the fluorescent yellow hard corn shells and the canned beans. And just that disparity between the two was what really started us. We would talk about this category constantly when we were working together at Kine and how we was ripe for reinvention. and I think when we got together, there were a couple of other things from the learnings of Cholula, just how much the palate is changing and how we just thought we wanted to be the change we wanted on the shelf. That makes a ton of sense. I mean, it reminds me a little bit of my conversation with Dario, the founder of Takambi, who's also been on the show and what he's been doing on the restaurant side to see some of that innovation.

8:50But as you say, you didn't see that innovation when it came to the actual CPG in the grocery store type setting for what it actually came to Mexican food. Yes, exactly. Dario is a good friend. We're both from Monterrey, Mexico, and we live in New York. And I listened to your podcast with him. And I think it is the same thesis. You know, I see it a lot in what Dario and other people are doing on Mexican food at restaurants. I think it's a white space and maybe elaborating a little bit of that in the spirit of better to overshare than undershare. Mexican food is the largest ethnic food in America, 68 billion.

9:37It is largest than Italian food and it is much larger than all the other foods. But it's different to Italian food, which is the next closest one. Italian food is about 50-50 restaurant and grocery. Mexican food is 82 % sold at the restaurant. So only 18 % of Mexican food, people cook it at home. And moreover, it's mostly cooked by people like me, that we have a Mexican abuela that taught us how to put things together. And when you walk the Mexican set versus the Italian set, it's very easy to see why. All the Mexican set is packed with ingredients, while the Italian set is packed with solutions, pasta and sauce.

10:23To cook Italian food, you need two ingredients and 10 minutes. To cook Mexican food, you need tortillas, spices, cooking sauces, rice from scratch, beans from scratch. It takes an hour to do tacos at home, and it leaves your kitchen a mess. And we want to be the pasta and sauce for the Mexican aisle. We want to be the one that brings the mainstream consumer to that aisle, and that people that don't have a Mexican abuela feel comfortable grabbing two or three of our pouches and having a complete meal in less than 10 minutes. I'm glad you pointed that out. And I also really appreciate the stats.

11:02I think that's really interesting and kind of like the comparison of Mexican food to Italian food. And as well as trying to get people to be able to cook really good Mexican food in a shorter amount of time. But as you say, when it comes to a lot of the products, when it comes to Mexican food, there's a lot of different ones. You need the tortilla, you need the rice, you need maybe the protein, maybe some peppers, maybe the salsa. I know that you have a wide range of products at Somos. When you were launching, which kind of category did you want to start out with? Was it rice? Was it salsa? Or did you decide you wanted to actually go and be a multi-category brand from the beginning?

11:41Yeah. So let's talk about like the Somos then and the Somos now, because there is a difference. So when we started the company 2021, we started it as a direct to consumer brand. And our original idea was we saw so many people doing Taco Tuesdays coming out of the pandemic. That's when Mexican food like really accelerated at home. and we thought let's send everybody a pack that has all the ingredients you need for taco Tuesday. I mean, we did the rices, we did the beans, we did the salsas, we did the taco fillings, we did the tortillas, we did tortilla chips. That was like a really extensive assortment, but it was extensive for a reason.

12:29So you could receive this kit and in less than 10 minutes, you can have a full taco Tuesday done for your family. at home. Things change from that time to the next year. It's one of the biggest changes in businesses that we've seen. iOS changes, fulfillment costs, inflation of food, you name it, interest rates, just moving everything to profit. And the most important one for us, Mike, was consumers just stop buying food from direct to consumers. Everybody went back to the retail stores. So last year on Expo West, March of last year, we had to pivot and we pivoted our business to grocery, but we pivoted with a D2C portfolio.

13:24So for example, we only have two rices in a rice set that has 200 SKUs. We only had two beans in a bean set that has 300 SKUs. So we had to find a way to break through in that shelf. And what ended up breaking through for us was the convenience, the way that you can get less than five items and have a complete meal. It would reduce the items in your recipe from 12 to 5 and the time that you need to prepare from an hour to 10 and 15 minutes. And bringing that experience into shelf is really the category that we are focusing. So to specifically answer your question, we didn't try to be like, oh, let's be tortillas.

14:16We want to be the pasta and sauce. We want to be something that doesn't exist today. We want to be the anchor on your solution for bringing a taco tuesday to your family so so for that we needed to create a new category we needed to create something that didn't exist so it was that whole thing of like what is the right aisle where is the right space and then how do you bring the experience to life i i understand the reason why and the opportunity you saw um within d2c and selling direct and thinking about, okay, we're actually more of a, we're not a meal, a meal kit company, but, but we're essentially with our ingredients.

14:58If you buy from us, you'll be able to build, um, for your taco Tuesdays and maybe for other, um, it may be if you just love Mexican food, which I, I, I love Mexican food. I probably eat it multiple times a week. Um, uh, but not just taco Tuesday, but, um, I, but I understand that, you know, you wanted to make it really simple. It's all there. It's all there. And you kind of buy a pack. And that was kind of your strategy. Which I do think all this is also pretty fascinating because with Tallulah and Kind, I mean, those were kind of huge wholesale businesses, right? I would imagine they weren't really big D2C direct-to-consumer businesses.

15:39So I think it's also kind of interesting that from an experience side, since you've been in food for a long time, I'd imagine it's much more prone to wholesale rather than direct to consumer. But you went the direct to consumer route because of this thesis that you and Daniel had in terms of making food simple and also during the middle of a pandemic and people actually wanted to, you felt that people were buying more online, which at the time they did. How did that translate though when you're in stores? And now you can't just kind of sell in a bundle, right? You have multiple products and what have you.

16:15You have a salsa here and rice here. How do you think about making that experience simple with your products and differentiate that it was maybe easier to do online? Yeah. And it was a journey. I don't want to say that we started there. I think when we pivoted to retail, what we found out was that some of our lines were doing better than others. So for example, rice is super intuitive to have rice in a pouch and put it through 90 seconds into the microwave. Taco filling, you know, probably less so because, you know, that product didn't exist on the shelf until we brought it in. I think the insight that got us to our conversation today, Mike, was we saw that when consumers cook with two or three of the products, our repeat rate and our loyalty went through the roof.

17:12So we had to understand, okay, what is going on? I think at the beginning we're like, okay, we're going to launch this eight or 12 SKU portfolio into different retailers and we're going to see what haunts and then we're going to lean in into that product. But that was not the case. Even though some products were doing better than others, the sum of its parts was so much bigger than the whole. When you got a consumer that would buy a taco kit and then buy a Sommo's rice, beans, and salsa to go with it, or someone would buy a rice and beans and a veggie and do a burrito bowl together, we saw just the repeat rates, the engagement, everything just jump quickly.

17:58So that was the biggest challenge. I think what made this business so different than Cholula, so different from Kind, so different from other business out there is like, OK, it seems like our original thesis was right, but now we need to make that happen into retail. And that was our biggest challenge. We went to Expo West this year and we won tons of distribution and tons of award because we were doing that for everybody. And when consumers or customers or buyers will come in, they will tell us, I cannot believe taste this good came out of the microwave. You know, where did you cook it? How did you do it?

18:37And like, no, it took us five, 10 minutes to put it together. So how do we bring those magic into store? That was our biggest challenge. And I think we started simple with promotions. How do we merchandise them together? and how when we promote, we don't promote a product. We did a kind of cholula. We promote a recipe. So you can see it behind me, actually. There is our burrito bowl chipper. And that was our version one of that chipper. Doesn't look like that today. But it is a recipe. Three ingredients, simple price point, and you take away the recipe digitally or physically with you. is when we reach out to an influencer is not to highlight the product, but it is how that product comes together with two other products to make a complete meal.

19:30So it has really been in every single step. I can give you 12 different examples in the path to purchase, how we don't promote the product, but we promote what we call internally the SOMO system, which is that experience of the consumer to turn a meal in 15 minutes with almost zero cleanup after that. To your one point, if you buy three of your products, the retention rate goes through the roof. And so it actually is a pretty different strategy to what you actually came from. It is very different. It is very hard to find other brands that do it in store. We've been focusing a lot of brands, for example, like Lego, that they sell systems and how they are successful at selling systems and how we can bring some of those systems learnings into the retail environment.

20:30And I told you the work that we've been doing so far, which it has been on merchandising, on social digital, on the back panel. We also think there is a great road ahead on how we bring two or three different products into one pack in-store. We have a big innovation on that coming up this fall with one of our retail partners. But we are also looking at how does AR and AI play a huge role with this. You know, like if I could, like I told you, The biggest difference in the category today where we want to take this category, and it's a$28 billion upside for retail, it is if you had a Mexican grandma that taught you how to cook from scratch, you're a lot more likely to go and visit that shelf.

21:26So at some point, we're like, well, why don't we just hire 100 Mexican grandmas, put them in a call center, and have a 1-800 hot taco number that you can just call and they can tell you what to do. And that is very hard to execute for many obvious reasons. But now with AI, we can have that digital. And you can take a picture of the back of our pack. And you can tell the abuela AI, you know, like, what do you have on your fridge? what is the sumoist product you have and come up with a recipe. And we think the same way we're developing some AR technology that you can actually do that on the shelf as well.

22:06And we think there is when you focus on the experience versus focusing on the category, we're not launching products. We're trying to solve for a solution, for a big gap that is in the market today. Then the product, the system, all of these things that add up to experience becomes super, super obvious, but where they were not before, they were not for us two years ago or a year ago. Yeah. So it seems, I guess, back to what we were originally saying that you're kind of focused on how do you make the meal that tastes good, right? Or it tastes great. And so if I understand correctly on the AI side, you could, or the vision is, or I'm not sure if you're able to do this now.

22:51But the idea is you go to a grocery store, you say, okay, I want to get Somos salsa, let's say. And then maybe also it's rice. And then you can tell the AI, I want to buy these two products from Somos. Maybe I have cheese, tortillas, or other products already at home, or whichever. What could be interesting meals that I could make? And then it actually tells you really simply how to make a meal. Is that roughly correct? Yeah, that is one of the applications. We see several of them. We see from creating the shopping list. We also see you had that experience that you just described, but you have some leftover refried beans in your pantry.

23:38And here are other things that I have. Hey, I got cheese and I got tortillas. Perfect. Do some quesadillas with refried beans. Just throw any salsa that you have. But for me, it's very intuitive. And I think, you know, that's why, in my opinion, the Taco Tuesday is the greatest Trojan horse in the history of like an international meal. because once you bring that home and you do it once and you have something left over, you can see how versatile. You have leftover chips. You can make chilaquiles in the morning. You have leftover beans. You can make quesadillas. You have leftover salsas. You can make guacamole.

24:17And mixing and matching is a very pleasant adventure. Yeah, no. I can understand why Taco Tuesday, because, I mean, almost everybody knows what Taco Tuesday is. it's taco Tuesday. I mean, we, we, we try to make tacos or fajitas or, um, uh, quesadillas every Tuesday, um, uh, in our household. So, um, totally, totally makes sense. Talk to me a little bit more because I'd imagine that was a pretty tough curve going from D to C to wholesale. Um, at what, at what point did you realize that the consumer, like, um, cause it gets talked about now quite a bit about how DTC or e-commerce penetrations down, retail penetrations back up, that we're looking at roughly the same numbers from five years from now, what it would have been if COVID never happened.

25:12But when did you know? Because it seems like you pivoted pretty early from, because you started in March, 2021. When did you pivot to wholesale? So we launched, we had our beta test in September of 21. We put together a couple of kits on our website. We sent it to friends and family. We thought we were going to do X and we did 5X. So we were like, wow, this is lighting in a bottle. Let's, you know, hire the team. Let's put together our partners, influencers, you know, chefs, et cetera. build the supply chain. Let's make a bunch of these kids and let's just light it up in January. So January 1st, we launched it big time, put a lot of money into Google and Facebook.

26:04And I think it was a blessing. It didn't feel like a blessing at the time. It really felt like a curse. But in two, three months, we burned so much cash, Mike. I am ashamed to say it here in your podcast that I just, it was very clear. I had to go back to my two partners and be like, hey, we don't have a sustainable business here. And I think it was great that it was fast because we had a chance to pivot quickly. And also timing was great because we made that decision kind of like after a couple of months, like end of February, and we had Expo West a week later. So Expo West was a good place to test if this range could grow in a retail environment.

26:57And to our surprise, we had a couple of customers. We had like 500 confirmed stores, but we left Expo West with 5 ,000 stores. We ended up at closer to 6 ,000 by the end of last year. so we you know we would talk to retailers and retailers will pitch us the Somos category story before they open the deck you know we need mainstream consumers we need to make it easy we need solutions we don't need more ingredients in the shelf you know we want people to feel comfortable to not feel like this is something difficult to do and then we would open the deck and it will be verbatim the story of what we were trying to do with Somos so So I think we were very lucky that things D2C failed very fast.

27:48Very expensive way of learning, but we were able to put it behind us and move on. And then we're also very lucky that coming out of the pandemic, retailers were so hungry for innovation, especially in this set. In terms of also during the pivot from DTC to retail and wholesale, did you have to also rethink your sales and your pricing structure, your margin structure, and as well as also change anything about your packaging? Yes, yes, and yes. So everything. I think price is something that we talked about a lot. But I think the way we promote our items became incredibly important. Like I said, how do you promote items as a system when rice, beans, and salsas have different price points and different promotional points?

28:46So that is something that required a while, and I'll get to the end. But the solution is you get this meal for your family for$10. So it's less about the individual price point, and it's about all the items coming together, or save X number of dollars when you bundle this recipe together. That's really the communication that makes the most sense. And the most important piece is the one that you said, and it is about the packaging. I think when we started, I got a little too cute with some of the names. So, for example, my mom has a recipe called picadillo, and I wanted to have that on the package.

29:29And when we switch to plant-based taco filling, our sales increased tremendously on that item because it was a lot more intuitive, a lot less cute. Same with our salsas. We started with the salsas with the ingredient names. And once we went to mild, medium, hot, you know, chipotle, red and green, you know, that was a lot easier for consumers to understand. We saw a ton more trial. We just launched what I think is the best product that we make, which is our salsa matcha. And we on purpose didn't launch it as salsa matcha. We launched it as Mexican chili crisp. And just the adoption of that name change has also been tremendous.

30:14So it's really the signing with the end consumer in mind and with the final recipe in mind versus the signing. You know, we were very product first at Kain at Cholula. And I think we are very experienced first at Somos. Got it. Why did you change to plant-based taco filling? Yeah, because consumers didn't understand, didn't know what to do with the product, didn't know what to do with the way that the name was, that was Picadillo. So Picadillo is something that is very regional. And for us, the thought was that that would drive a ton of authenticity, but it didn't drive adoption. And I think the way that it works, if we are successful with what we are trying to build, people are going to come first for the recipe.