Can Natural Foods Compete In Conventional Cold Cases?

0:00What does the team covet in the club channel? why brands may go after a conventional first strategy when it comes to retailers and consumers, and how Reds is using this approach to achieve growth and last year, attract an acquirer.

0:26Hi, everyone. I'm your host, Carol Ortenberg. On the NOSH podcast, we go inside the business of natural, organic, sustainable, and healthy food. Today, the team discusses how brands can find and reach their target shoppers, before hearing from Red's CEO and founder, Mike Adair, about how the frozen food company developed its own channel strategy. Joining us today are reporters, Adrian DeLuca. Hello, Carol. Hiya, Lucas Southerd. Hello. Hello. And Editor-in-Chief, Jeff Kleinman. They got me all mic'd up in here. Ooh, that's good to hear, Jeff. Don't want you to be too quiet today. I can't be off mic.

1:09They got me all mic'd up. Last week, I had my parents in town, and I think it might be hereditary to my family, but we love visiting grocery stores. This comes as no surprise. And my dad, when he was here, one of the things he wanted to do most was go visit a Massachusetts Costco. The man loves a good Costco. I actually gave him a Costco puzzle. It's of a Costco for the holidays last year. And it was interesting for me because what he stocks up on is so wildly different than what I stock up on. I don't know if you guys are club members, but I have to ask, if you were or if you are, what's the item you would do buy in bulk?

1:49I like to go buy really big chunks of meat and slice them into steaks myself. I'm one of those people who will take a full sirloin or a full rib from a cow and hack it up. Do you have special tools, Jeff? Yeah, do you have your own scimitar? No, I have a knife, a big knife. Sounds like a Christmas gift idea. The most important tool I have is actually the freezer paper and the freezer tape so that I can preserve these steaks that I cut up in my kitchen. You know who really loves me when I do it? Your dog? Flanders. I've never been as attractive to my dog as I am when I am slicing up a sirloin. It's funny you say freezer paper, Jeff, because the thing I always covet from Costco is a vacuum sealer.

2:56I really, really want a vacuum sealer and Costco seems like the place to buy one. Yeah, but what do you buy on the rig is the question, right? So do you go in and buy a vacuum sealer every time? No, I buy the veggies made great little egg bites. That is a staple. Spindrift is a staple. And when it's there, Yasso, but recently it's been the mint chocolate chip, which is not a favorite in this house. And then string cheese. String cheese is a must. We must have like 100 sticks in the house at all times. First of all - Basically a lot of dairy. Yasso mint chip is the best flavor. I'm just going to say that straight up.

3:34That's always my go-to. Mint chip nothing is the great. Or the, actually, the, was it black raspberry or black raspberry chocolate chip or whatever. We call it purple cow in this household. So that's what I call it. But that's always a huge one amongst the kids. I have a European size refrigerator, so there's no stocking up in here and 700 square feet nothing is bought in bulk we simply do not have space yes we we do most of our shopping at the club store although we we unfortunately there is no costco in the uh the general vicinity of pittsfield so um we have the bj's and so i i like to say the the stepchild of uh of costco is what we have here and bj's you know it serves our purposes But that's where we do most of our shopping.

4:25You know, we've got a family of two little boys. So there's a lot of snacking going on in this house. We buy a lot of paper goods, you know, a lot of detergent. Very clean, clean people, the Kleinman's. My dad was really excited by, like, large tubs of smoked fish. And I had to break it to him. Like, even if he bought it, there was no chance I was going to go through the rest of it in time. so uh he was he was a little depressed he tried to convince my mom he should take it home and she was like you are not putting that in my luggage it is just not happening for you well your dad and my dad are very similar because my dad always gets the large tub of smoked white fish when he goes to to bj's with us so i don't i don't i can't imagine that's really good for you to have that much smoked white fish uh especially for a man who is usually living alone here so uh but to each their own.

5:19I'm not going to judge. Adrian, I don't have a ton of space though. And it was crazy to me though, that it was cheaper to buy the four pack of Costco huge condiments of like ketchup, mustard, relish, and a double ketchup than it was to buy them individually in a Target. So now I have this set of giant Costco ketchups. And of course I feel bad creating food waste. So I have to figure out what to do here. But it was$9. It was$9. Greatest deal, actually, greatest deal at Costco is the giant jar of capers for like$5. But again, how many capers am I going to go through? But it's cheaper than buying a small jar.

5:57So what do I do? You know, if you got the whitefish though. There we go. Yeah. The tub of whitefish. Have your dad in town more often. In fact, you could just pour the capers right in there. Yeah, just mix it up. And then just eat it with a giant spoon. That is actually how Lucas's father is surviving the winter. I mean, I wouldn't be surprised. I do have to say, though, one of my problems with shopping at a club store, especially more than I ever have in my life, is that I'm not a huge fan of multi-packs, like of variety packs. Because there's always that one flavor that you just don't want or that one variety that just is nobody likes in the house.

6:35And then sooner or later, that's the last one there. And me being the person I am in this house, I'm like, all right, I'm going to eat it so we can just move on. Get the next variety. Get another variety pack. So that's my problem. We talked about dad dinner. That's dad dinner. Yeah, that's dad dinner. Dad bod dinner. Dad bod dinner. The variety crap that no one else wants. Yeah. Can I tell one quick Costco stock upstreet? Yeah. I was going on vacation. I needed three very specific items. I needed a bottle of bourbon. I needed a case of Spindrift and I needed a side of meat. And I bought them at Costco and I posed them on the hood of my car and sent a picture of them to Bill Creelman, the CEO of Spindrift.

7:33were those your rations for the whole vacation? Yeah. What was his response? He ignored me. That he didn't get it. I don't just have a love of club channels. You're right. It is hereditary. I love all grocery stores. So let's give some other channels some attention. The past few weeks, we've covered lots of innovation from an investment in natural products. And what I thought was pretty interesting about these stories was that although they were better for you products, they were really targeting mass and conventional retailers, or at least starting off there. Jeff, why do you think some brands pursue this strategy?

8:12Well, I mean, the good part about getting into conventional channels is that the store footprint, the consumer footprint is a lot bigger. The chains tend to be bigger. You can spread within these sort of larger entities more quickly. Problem is often that you're also offering a lot more on a minimum buy. It's harder to activate a lot of stores in a lot of different regions. The brand, you're competing with bigger brands, typically in your own category. And so they have bigger marketing budgets, they have category captainship, they're able to merchandise you out of the picture. So there are plenty of brands that have launched in conventional that have managed to succeed.

9:10But what we've seen over the past 20, 25 years is that brands that have launched in natural, in specialty, tend to try and prove themselves out there before they move into conventional channels. Jeff, I think it's also about where you can stand out. I talked to Skinny Dipped this week, given their recent funding, and they were expressing that in conventional, they draw a lot of attention. So a healthy, low sugar confection in natural is great, But when they're next to a Reese's peanut butter cup, they really stand out as a better for you product. There's also just a lot more going down that aisle in conventional.

9:56So there's the opportunity to draw a lot of eyes on the product. Yeah, it's just they're not all your customer is often the issue there. if you're trying to target a specific consumer group. And yeah, more and more people in conventional are interested in health and wellness products, but there's a lot of timing involved. There's, again, a lot of proof of concept. That was actually exactly the story I heard from actual veggies recently, who did not intend to go conventional first, but is now working their way back into natural. Both founders had stressed that they got this opportunity to show themselves on QVC.

10:41That kind of started their trajectory towards conventional, and then they kind of kept pace with that. Now three years in, they just got into Whole Foods nationwide. But he said, you know, having that proof of concept that they could sell to especially QVC's fan base, which is a lot of, you know, Midwestern consumers, they're like, that was the proof of concept we needed. I don't want to step on my own interview coming up at the second half of this episode, but it's the same thing that I heard from Mike Adair at Red's Naturals is that they actually have found that they do better, that their products sell more basically when they're next to conventional products in the freezer aisle and that they actually prefer that than to be placed next to Amy's or other kind of natural organic frozen foods.

11:32The problem is, you know, a lot of those decisions aren't really up to the brands themselves, obviously. And the merchandising, you know, a lot of times just goes through the retailers themselves. It's clear that this strategy definitely works a little better now that natural products are being integrated into the store versus being sort of segregated into that natural store within a store where you had to purposely go down that aisle be looking for the one, you know, maybe frozen burrito or two frozen burritos there. Now they're right next to another product. Jeff, you kind of alluded to this though, while natural has been a good place to incubate brands, can you actually incubate a brand in mass or conventional?

12:17It's hard because that consumer is considered a little bit more price conscious. So a Reds – and Reds has managed to level out its pricing a lot, but it sells at a premium to what we'll call a Hungry Jack burrito. So you have to be able to have your economics in place so that you can absorb the promotional requirements of these bigger accounts so that you can absorb the minimum purchases that a lot of these bigger accounts require. And so that you don't go out of stock if your product starts to do well in these sort of larger accounts. You know, we've certainly had a lot of conversations with retailers like Kroger and Walmart.

13:16You know, they've come and presented at our shows about how they would like to be thought of as incubation channels for new companies. But they also acknowledge that it is really hard to hit the minimums that they need in order to help a brand grow, particularly if they're sort of living from production run to production run. That's something I talked about with Mia last week. We were discussing BIPOC, AAPI, or women-owned brands and how a lot of retailers bring these products in and there's a lot of appetite for them. But then if you don't have assistance on the back end of things, be it supply chain or even discounts when it comes to those free fills or marketing programs, it's really hard to move off the shelf and stay on shelf.

14:12So she sort of feels like half the equation is there, particularly when it comes to larger retailers. Yeah, they want these brands very badly because they can sell them at a premium. At the same time, holding up that back end to get these premium products onto the shelf is harder and the unit economics may not work at that scale. That's a lesson that founders sometimes learn the hard way. They, you know, look, they have been pleasantly surprised in the past. I think Red's got to a point where they had enough manufacturing scale that they were ready to take on it just about any channel. And they, you know, really succeeded since then.

15:06Well, seeing as we're talking about Reds a lot, why don't we just jump right into my interview that I had with the CEO and founder of Reds Naturals, Mike Adair. he talked to me a lot about how the brand evolved in the frozen category and has been able to expand its reach amongst conventional shoppers as we were just alluding to by offering kind of a clean label alternative to popular snacks and breakfast foods that have really become a main day in the Frozen aisle. Let's hear from Mike. Great to have you here on the Nosh podcast today. Really excited to talk a little bit about what Red's Naturals has been doing in the Frozen category.

15:52And I'd love for you to tell me a little bit about how you initially envisioned the brand when it launched 14 years ago. Sure. So when I started the business 14 years ago, I didn't know anything about anything. I didn't know anything about food business. I didn't know way around a grocery store. But, you know, I think we just kind of got lucky falling into this category that was in its infancy of, you know, clean label actually becoming relevant. You know, Amy's was the dominant player then and in many respects still is today. And they've been a great pioneer for a lot of, you know, clean label brands in the frozen category.

16:24And so we've got a tremendous amount of respect for them. But, you know, at the time I was just fell in love with the idea of starting a business, fell in love with the idea of my wife made her a really good burrito. My dog's name was Red. And, you know, kind of that was about the extent of the homework I did. A match made in heaven right there. You got a dog with a good name and you got a wife who knows how to make a frozen burrito or a burrito that could be frozen. And as they say, ignorance and bliss. I had no idea what I was getting into, but I just I really developed this incredible passion for, you know, consumer products goods.

16:56You know, when I first started this, you know, the overall perception of frozen was still pretty negative. It was like a, you know, a hangover from the 80s of highly processed TV dinners, super loaded with sodium. And ultimately, it just didn't have a very good reputation by and large. And so we kind of set out to try and to change that along with a bunch of other brands in the category over that time period. And as I've learned over the last 14 years of doing this and manufacturing and doing everything frozen, is that it ultimately is one of the absolute best places in the grocery store. So we really have the benefit of not having to engineer shelf life and all the things that a lot of other categories have to worry about because when you flash freeze a product, put it in a package, the entire supply chain is then frozen.

17:48And ultimately, consumers can get arguably the best experience possible with the most efficient supply chain possible because in our world, you know, the waste is very, very, very minimal. Given how long you've been in the game, shall we say, in, I mean, at least how I think of things in the last 15 years or 20 years of Frozen, I used to think of, especially in terms of like a breakfast burrito where you guys started out as kind of cheap and convenient stuff in the Frozen aisle. And over the years, we've seen that kind of evolve and more and more kind of clean label, preservative-free products enter that space, organic brands.

18:28How have you kind of leaned into that ethos as a brand? And how do you differentiate yourself as it becomes a little bit more crowded in the frozen case for a better for you frozen meal or frozen entree? What we realized is that we didn't want anyone to sacrifice, right? There's always this perception of if it's clean label, organic or whatever, that somehow or another, it's not going to taste as good. You know, and that that's been one of the biggest challenges to, you know, perceptions to overcome is, you know, we're not going to eat our own products unless they taste delicious. Right. And so first and foremost, you know, you can make an incredibly delicious item with higher quality ingredients, right?

19:09They're somehow or another, they became separated into people's minds. And we've been, you know, working really hard to try and kind of have those come back to overlapping where, you know, we want to make an item that's as good or better than anything in the freezer aisle, right, from a taste perspective. And then we just do it with cleaner ingredients. And ultimately, we've kind of found our niche in, you know, in the convenience factor. So to your point, you know, breakfast burritos, burritos, whatever it is, breakfast sandwiches, they're super convenient, right? And, you know, ultimately, that's become our niche is delicious, clean label and convenient.

19:43And that's, that's kind of, we've made a lot of mistakes along the way, we've gone into the entree business, we made big burritos at one point, the first item we actually ever launched was this massive beast of a burrito. It was like an 11 ounce, 11 just happened to be my little. And it was super, super delicious, but it wasn't that convenient, right? So trying to reheat a big 11 ounce burrito, whether it's in a microwave or an oven, takes a considerable amount of time. You lose the convenience factor when you're taking like, you know, 30 minutes in a microwave. Like nine times, so it doesn't fill up everywhere.

20:19And, But, you know, that's been part of the journey. It's been really fun and ultimately meet somebody and, you know, they've had a great experience. You know, that's what keeps us going every day. That is, you know, that's why we keep doing it. Mike, I'd love to hear a little bit about your decision to move Reds into a self-manufacturing model and some of the heartache that comes with controlling all aspects of your production. I'd also love to hear how that decision eventually played into the deal that you struck last year. So I'll try and take that into little chunks. The first one is the self-manufacturing piece.

21:00And we co-packed for our first six or seven years, I believe. Since ultimately, I knew that in order to deliver on the highest quality product and control capacity and be as customer-centric as we possibly can, then we had to get into the manufacturing game. If I had any idea how hard it was going to be, I'm not sure I ever would have done it because it's probably taken 20 years off my life. But we opened a facility seven and a half years ago, and it was definitely one of the most challenging things that I have ever done. But it was the best decision we ever made because ultimately we could control our own destiny.

21:39We had complete ownership of the quality of that product day in and day out. It was ours from, you know, from the supply chain all the way through the manufacturing. You know, the employees were ours. And, you know, and ultimately, if it's being made by your own kind of team members, family members, then they're going to care a lot more than than somebody else will. And so that was a really, really important piece to us. Um, and so I think then kind of moving into the conversations with Bonsk and how that all came about is, you know, Bonsk is, you know, the chairman of Mark Beck has been in the consumer products goods world for the last, you know, 30 plus years and, um, has built some amazing brands, amazing companies.

22:18And so ultimately they kind of knew and understood the manufacturing piece being a very important part, um, you know, and kind of supported us through some, some expansions over the course of the last six to 12 months, they, for the most part, you know, they, they ask questions and we give them updates, but they've been really supportive. Um, they've been helpful and they're letting us continue to build and grow the business. And we're sharing a similar vision in regards to where we want to take it. Um, you know, it's not, it's not all, you know, sunshine and roses. It's, there's definitely a lot of challenges that happen in a day-to-day business.

22:52And, you know, but instead of pointing fingers at us, they're, they're kind of getting in the trenches with us and helping through, think through how we solve the problems, how we're going to get to where we want to go and what's the best, you know, most efficient way to get there. And so, so far it's been great. So in, in looking at the self-manufacturing and, and all the kind of, as you alluded to the trials and tribulations of controlling your own destiny, how did moving into, you you know, a self-manufacturing model kind of allow you to reevaluate your supply chain and maybe even change how you did product innovation or what categories you wanted to expand into?

23:36So the supply chain piece is always, even when we were co-packing, we were very, very involved in the supply chain. From the self-manufacturing, you know, ultimately we were able to buy equipment and set up a process that enabled us to streamline the self-manufacturing. So the piece about self-manufacturing, though, the supply chain has been arguably one of the most important things we do. As we've continued to scale the business, the supply chain in natural organic is still in many categories. It's in its infancy. The supply chain for a lot of our raw materials, either not readily available, not available in the right quantity or quality.

24:14And then also the cost. So there are certain aspects of the supply chain that are disproportionately higher than they should be. If we could, we would 100 % of our portfolio would be organic, certified organic. And there are certain organic raw materials that are 50 % to 500 % more expensive than some of the commodity counterparts. And then when you start to get further processed, somehow or another, there's a little bit more of a gap in their kind of understanding or willingness to spend more for something that's certified organic and an item that's already been packaged for them. So we're trying to get as many, the highest quality ingredients we possibly can in there without having a$14 burrito, right?

24:59So we're always trying to find that balance and push it as hard as we possibly can. You were just talking a little bit about how positioning and the frozen category can be different and takes a different kind of strategy than the rest of the store or center store kind of brands. What strategies have you found that have worked to get more products onto shelves? And where in the category have you found the most success? You know, Frozen is one of those categories where you can't really market. There's no off-shelf placement, right? So every once in a while, you might get like an end cap. But for the most part, you have to just do the basics blocking and tackling really well.

25:43and you've got to try and just deliver on, you know, and again, you probably ad nauseum hear me talk about it, but like the quality of the product has got to be key. I've seen countless brands come and go, whether it's in frozen or other categories who are so excited to get going that they kind of lose sight of the fact that if you don't have the product perfect or damn near perfect, then, you know, you're, you're out of business already. You just don't know it yet. and you've got also then get the right product you know get it on some shelves and then in frozen you know one of the best opportunities you have even though it's you know it's an expensive one is is doing some promotional activity to try and create trial so if you actually have the right product you actually are on some shelves you know and and hopefully you've you've made um you know not too many mistakes in regards to launching the wrong products with the on flavor profiles or whatever it is.

26:35It's got enough of a mainstream appeal that you get it on, you've got the right product, and then you do some promotional activity. And, you know, then all of a sudden you get some trial and then hopefully you've delivered on something that's really unique and special and delicious. And then they come back and they'll try it again and again. And it just takes longer though, right? So it's, you know, the thing that the only reason I think we've survived is I basically said no to just about anything and every opportunity that came our way over the course of the first 13 or 14 years from, you know, all sorts of crazy marketing activities, you know, PR, we've never done any PR, any, we've effectively said no to spending money on marketing in any way, shape or form to try and make sure that we're delivering on the product.

27:19We're delivering on executing really well on, you know, the promotional strategy and then making sure we're on the right shelves, you know, partnering with the right retailers. And that enabled us to survive, you know, for another day, another week, another month, and eventually became years. Whereas there were so many brands in Frozen that all of a sudden are trying to catch lightning in a bottle like the people do in some other categories. And they're marketing this brand to death. But effectively, if you're spending a ton of money on marketing, that's money that you don't have to survive. And so I would say the best advice I can give to anyone getting into Frozen is you got to be patient.

27:56You got to deliver on an amazing product. But ultimately, I would probably just stop and focus on a different part of the grocery store. That sounds like you're just trying to get the competition out of the frozen aisle. So you can have a little bit more shelf space. I love competition in this space. I mean, I think I would, the frozen needs more, you know, natural organic brands. We need more scale. We need more, we need more shelf space. And I think the tide will rise for all of us as, you know, as more of us continue to be successful. So I love it. It's just it's you got to be patient. You're not going to kind of get scale overnight.

28:32So you got to kind of keep grinding slowly, but surely. But, you know, the other comment I made was that now knowing what I know, I'm this is the best place in the world to be. You know, finally, the tides are starting to, you know, to rise in Frozen perception. You know, there's more and more scale from natural organic brands. And so now that we've actually got, you know, more placement and more really good partnerships and more good, you know, solid products out there, we've made so many mistakes over the years. Now, I feel like the next five to 10 years are going to be a ton of fun. You know, Frozen will continue to grow.