Do Consumers Give A Chip About Your Supply Chain?

0:00This week on the Nosh Podcast, when is it worth investing in your supply chain, how to determine your product's unique points of differentiation, and how to find the messaging that resonates with shoppers.

0:22Hi, everyone. I'm your host, Carol Lortenberg. On the NOSH podcast, we go inside the business of natural, organic, sustainable, and healthy food. Today, we sat down with Zach Gazaniga, the CEO and founder of Zach's Mighty, to learn more about how and why he decided to start a tortilla chip company. Zach also spoke with me about how he's approached building his supply chain and manufacturing process from scratch and provided advice about how to handle messaging around these unique points of differentiation to consumers. Hey Zach, thanks so much for joining me today. Thank you, Carol. I want to dive right into this.

1:05A lot of people might look at Zach's Mighty and think, okay, it's another tortilla chip. Maybe in our industry, they like turn it over and they're like, okay, so what's the scoop? Is it an adaptogenic tortilla chip, CBD enhanced? But no, your initial premise and still to this day came down to the idea of corn. So tell me a little bit about that sourcing journey and how it led you to start Zach's Mighty. You know, I decided to start a tortilla chip company first because tortilla chips are my favorite food. And I'd always been obsessed with them. I was always just snacking on them all the time. And as much as I love them, the thing that would really annoy me would be when they break in guacamole or when you're trying to get that last scoop of salsa at the bottom of a jar and the chip breaks and your hand falls in and I call it salsa knuckles.

1:55And this was just a big pain point in my life. I feel like if you're ever a professional boxer or something or a wrestler, that's your new name is Salsa Knuckles or something. Yeah, that's true. I need a sponsor of MMA fighter. So I said, okay, well, I love tortilla chips. I want to make a sturdy one. And I didn't really look in to see if launching a tortilla chip company was a good idea from sort of a sales standpoint or competition standpoint. I had a background in food, so I knew how to kind of look to see if a certain product was a good idea. But as I was figuring out what to do, when I was thinking of, you know, quote unquote, good ideas of what the market said was, was the right thing to do.

2:36It didn't, I didn't connect with it. So I said, okay, if I'm starting a company, it's gotta be something I love. I love tortilla chips. And I started a mission when I started the company, which is our mission today to create delicious tortilla chips that don't break in guacamole. And so those are the pillars of my company are flavor and sturdiness. Is that the same descriptors for you, like as a CEO, maybe? Yeah, I hope so. They're two pretty good descriptors. But when I thought about tortilla chips, it's interesting because it's a food, of course, but it is very much a tool. It has a purpose.

3:14It is supposed to bring guacamole and dips and salsa to your mouth. And so when I have a weak tortilla chip and it breaks, it's kind of like not servicing its base mandate, which is that it is a chip. It's a tool. It's a shovel. It's supposed to bring stuff to your mouth. And so sturdiness was very important to me as well as flavor, of course. And so I set off saying, okay, I'm going to have a fairly simple mission here on sturdy and delicious chips. And what I learned when I started to fulfill that mandate was that the supply chain I needed to build to be sturdy and delicious was anything but simple.

3:52And first I said, okay, well, let me start with the corn. If I'm going to make a delicious corn tortilla chip, I got to find delicious corn. And I have a background in supply chain. I've launched lots of products. I've sourced lots of raw materials. I said, this would be no problem. Let me start researching where's the best corn. and I started to stumble down the 10 ,000 year history of corn. And what I learned was that there used to be a really delicious type of corn that grew all across the Northeast of the U.S. called flint corn. And there were thousands of varieties of it pre-European contact.

4:28All the Native American tribes had their own sub-variety forever they were. And it was a corn that when Europeans showed up to New England in the 1600s. They found the corn, they brought it back to Southern Europe. And since New England and Southern Europe are on the same latitude, it started to grow and spread really quickly all across Europe. And I grew up in Vermont. And so when I was reading this history, I said, wait a minute, I didn't know that New England corn had this big impact on world culinary history. Because as modern Americans, we just think of corn from the Midwest. So you found this mysterious corn.

5:07How'd you go about getting it into a tortilla chip? This, if you had to read about it, it sounds like it might not have been in every ingredient company's catalog of options. No, in fact, it was in no ingredient company's catalog of options. And when I read about flint corn, it was always talked about as being tall, slender ears of corn that were colorful, beautiful, and delicious. And that's what intrigued me. The romance of the story of this lost corn, of course, excited me because I think it's cool. But really, it was about the flavor. And my original mandate was having delicious chips. So when everything I read was that flint corn is the most delicious type of corn, I needed to find it.

5:50And so what I discovered was in the early 20th century, there was still flint corn growing in New England, but it couldn't keep up with the yields of more modern dent corn that was being grown in the Midwest. So the New England flint corn farmers kind of couldn't compete anymore and they stopped growing flint corn. They switched even more to dairy and flint corn just disappeared. There still exists today though, some diehard families out there that have kept certain varieties of flint corn alive. And so I contacted some of these folks and I was able to get my hands on five varieties of flint corn.

6:29And so I was super excited. And the favorite variety I chose was this type of corn called Longfellow yellow. And I was dealing with this family in Exeter, Rhode Island, that as far as I know, are the only people left in the world still growing Longfellow yellow. I can't really find anyone else doing it. And they're wonderful, but they're not, this is sort of a side project that they've done for decades. They're not a farm. They're actually, they're a family of firemen, but they do this kind of on the side. And so I said, okay, great. Like I love the Longfellow Yellow. I want to buy it from you.

7:03I want to use it for my company. How much can you sell me? And they said, we've got 2000 pounds of grain and two pounds of seed grade corn, which to put in perspective might sound like a lot, but that is nowhere near enough to start a company with. How many bags of tortilla chips does that get you? That would, that would last me like less than a week at, you know, Whole Foods in New York. Okay. Okay. So we're talking really small, really small. Yeah. And so, you know, at this point I had already spent kind of almost 10 months on my Flint corn journey, figuring out what it was, finding out to see if people still grew it, going and meeting with those folks hiring the chef and coming all together.

7:45And, and, and meanwhile, I hadn't started my company yet. It was still an idea and I just needed to find the corn first. And then I learned there is no corn. There's no Flint corn. I've been searching for this ghost for 10 months and I kind of got down. Um, but then I called the buddy of mine, Glenn Roberts of Anson Mills. And I was telling him about this journey. That's the guy to call if you need a grain for sure. Absolutely. He knows he is just an encyclopedia of grain history. And, and he gave me the idea. He said, you know, flint corn traveled to Italy centuries ago, 300 years ago, and was so delicious, it created polenta.

8:22And so he said the Italians call it ottofile, and the Italians have kept flint corn alive. So if you want flint corn seed, go to Italy and see if you can find it. And so that's exactly what I did. I booked a flight to Piedmont, Italy, and then I spent about 10 days driving around like an idiot asking people for flint corn. I had a bunch of - Do you speak Italian? No, I don't speak Italian. Lots of hand gestures for - Lots of hand gestures. I had just started taking Spanish, which I thought this could help, but was just more insulting than helpful to people. And eventually, though, I was able to find a family that they are an organic and biodynamic certifying agency, and they sell seed, and they had relationships with a collection of farmers.

9:11So through them, I was able to buy 2 ,000 pounds of seed grade corn, became a corn importer with the USDA, brought it into the US, and then partnered with organic and regenerative farms in the Northeast for my first year of growing, which was 2019. Okay, so that's a long, corny journey that we've got going on. I know from talking to you, you were like, you know what, this isn't complicated enough. Let's change a production too. So tell our listeners a little bit about how you make your chips. This was probably the biggest revelation I had when I started working on tortilla chips, and I took a peek behind the curtain of manufacturing of chips.

9:55I'm just picturing like you skulking around tortilla chip factories. Yeah, so it's kind of like that, you know, just, hey, let me in. I've got a couple of questions. But what I learned, which I was surprised by, was that most tortilla chips that you buy at a grocery store are not made from tortillas. The traditional way and the authentic way to make a tortilla chip is to make tortillas, stack them, let them rest, and then you chop them, fry and bag them. That is also how it's done at most restaurants. And so this is why, you know, as a consumer, you might wonder how come I can always get great chips at the hole in the wall, you know, taqueria.

10:35And, but when I go to the store, it's a different experience. A lot of that has to do with where the chips, where they cut from tortillas or were they done in the more industrial inline process? And so this was kind of the first thing where I said, oh, man, there's actually the process and how you make it really impacts the final product, which was new for me because I came from the condiment world. And in condiments, so much of the secret was the recipe. And the recipe was very secret. And it'd be like a few grams of this, a sprinkle of that. And then you kind of put it all into a kettle and cook it.

11:11And there wasn't a lot of differences in how you process it, but all the difference was in the formula and the ingredients you chose. With tortilla chips, pretty much every tortilla chip company has roughly the same formula, right? It's roughly 75 % corn, roughly 24 % oil, roughly 1 % salt, variations within there. So there's no real secret in a formula. All the magic in tortilla chips are the ingredients you use as well, but in the process of how you make it. And that was a cool new experience for me. All right. So let me review. You decide I'm going to use this corn no one else is using. I'm going to use this process that none of the big tortilla chips are using.

11:55How did you know that this wasn't a bad idea or just, you know, you were going to lose tons of money and there was no way to actually make this a viable business? It might still be a bad idea, but it makes a better chip. And for me, my background, I was the first employee of Sir Kensington's Condiments, and I had an amazing time there. I was there for six and a half years, and we grew from a two SKU ketchup company to a 60 SKU condiment brand. And I was in charge of our supply chain and our retail sales. And so I was very lucky where I got the full experience of a product from ideation to sourcing raw materials, to getting the packaging, working with the co-packer, getting it made, and then going and selling it to buyers and setting up promotions.

12:51And I got a real understanding of how to bring something to life. And I just love building supply chains. And I find it so addicting to create things that didn't exist before. And the standard that always interests me and which I learned at Sir Kensington's was, you know, we only ever wanted to make excellent products. And so when I started to research corn, the problem with Flint corn was that I learned about it. And once I learned that there was a delicious type of corn out there. It just weaseled its way into your head and you couldn't you couldn't stop thinking about it. Exactly. And so kind of just learning there's this delicious corn and there's this better process.

13:33I can't I can't make a chip that doesn't follow those things. Now, that make that commitment to those two things has been incredibly hard and has required a lot of out of the box thinking. and it does take more money and it does take more, you know, time spent on operations. And we kind of had to, we had to do a lot, we had to do CapEx to build the type of line we wanted with a co-packer as opposed because what we wanted just wasn't available. So it definitely took a lot more work, but it's the only type of chip we wanted to make. If you look at the business as a whole, are there areas where you've had to sacrifice in order to make that supply chain and upside work?

14:19Because you are still an emerging brand. You know, you don't have an unlimited amount of capital, I would assume. And you don't have a giant team. So there are trade-offs I imagine you have to make. One of the trade-offs was made in the very beginning. And so initially my plan was to have a 100 % flint corn chip. And I grew it in 2000. You know, the way a corn cycle works is you kind of plant in May or June and you harvest in September, October, November, depending on where you are in the weather of that year. So you grow throughout the summer and you harvest in the fall. And our first year of planting in the US was 2019.

14:59Long story short, we ran out of, we had way less corn than we wanted. And so that was probably the first big compromise was realizing, wait a minute, I'm the only one really growing flint corn in America now. I need some flex here. This is such a wild card. So what we do is we blend flint corn with organic dent corn. And that was probably maybe my first compromise from where I first said, I'm going to have 100 % flint corn chip. And that's been very helpful. And that's what we do now. And it makes a great product. But I'd say since then, we haven't had a lot of other compromises. We've kind of just sort of kept our head down and have been steadily growing.

15:42And, you know, for us, demos are really important because we think we have a great tasting product, a great performing product. And so we're kind of like this snowball on a slightly inclining hill rolling downward. The baby hill, the baby hill. Exactly. Exactly. Now, we're recording this with video on, I can see your face light up when you talk about corn and tortilla production. When you went and gave this to consumers, were they as excited as you were? This was probably my biggest learning in the first year of launching the company was that I made a mistake of I care so much about these things, and I thought everyone else would.

16:26Of course, consumers love supply chain. That's like the number one thing they want to hear about. Totally. And I have this, you know, I tell people if you give me 45 minutes with any consumer, I can turn them on to Zach's Mighty with my corn story. But that's not how, you know, sales work. They walk down the aisle, they look at the bag and they make a split decision in a second. And so what I learned was, no, no one cares about, you know, the nuances of did this come from a tortilla or not. And the whole flint corn thing is so weird because the standard corn that everything is made out of is dent corn.

17:04But no one knows that. No consumer knows the phrase dent corn. So we found ourselves in this weird education loop where we're trying to say, hey, first thing you got to know is you're normally eating dent corn, but we've got flint corn. Yes, they rhyme, but let me tell you the differences. It was just so convoluted. And I had to realize, oh, wait a minute. Must have had some good demo reps is all I can say to explain that. Yeah, or not good enough. But then I had to remember, okay, my journey has taken me to these kind of really complicated areas of making the product a reality. But the mission is simple, which is delicious and sturdy.

17:44And so, you know, the flint corn coming from Italy is in service of flavor. and all the complications we do to create tortilla chips from tortillas is in service of sturdiness. It's not so I can tell people like I make them from tortillas and others don't. It's because it makes a sturdier chip. So we have learned to kind of streamline like what is the thing consumer cares about and the consumer cares about. And ultimately, we feel like our positioning is we're here to make the best tasting chip that won't let you down when you need it to scoop something in your mouth. And we have all these values and we have these things we care about, but that's not necessarily why someone should buy.

18:28It can be a part of it, but ultimately someone should buy the chip because it's a great chip. I'm sort of reminded of the Sir Kensington's Aquafaba Mayo, because when that launched, I heard all about how it was this upcycled, you know, normally wasted part of processing chickpeas. And then it seemed like it kind of became, we make vegan mayo. Yeah. You know, aquafaba was a lot of fun and very exciting to us. And you're right. It's kind of exactly the same thing. So why did we look at aquafaba in the first place? We were in search of a better emulsion from a non-dairy product or a non-egg product.

19:10And so, you know, we felt like the emulsions were much thicker and much better when you had eggs than the vegan items on the market. So we were searching for emulsion. And that led us to aquafaba. And aquafaba, for those that don't know, it's basically when you soak chickpeas in water, and then you remove the chickpeas, you cook and soak, you need to apply heat. So you cook and soak chickpeas in water. The remaining solution is this viscous egg-like replacement that you can use to for egg whites, you can use to make cocktails, you can use for baking and you can use it to replace egg yolks and mayonnaise.

19:46And it's really, really cool. And so that was a complicated supply chain where we partnered with a hummus company in the beginning, Ithaca Hummus, because they were just pouring aquafaba down the drain and we would take that and we'd make mayonnaise from it. And it's a perfect parallel because it was in the beginning, we thought, oh, this story is so cool. And aquafaba is so cool. And the supply chain is so cool. That's why people are going to buy. And then we remembered, wait a minute, this is in service of trying to just have a good emulsion without eggs. And so eventually we went back to that because sometimes supply chain is just so complicated to communicate on a package or to also, I think the trap is, I think this happens a lot in natural food is, all of us, like we spend so much time creating these products that when we get to the finish line, we know like what we put into it and think that that's why people should care.

20:43And that's a lesson I continue to learn is that that's not, that might be my burden to make a great product, but that's not the consumer's burden to care about that. What about investors? because you have raised some capital fairly recently. Do investors care about the supply chain and how you go about making these tortilla chips? Yes. And there's definitely a mix with my investors. So I have some investors that really like the corn story and they really like that we're the only chip in the world made with Flint corn. I think we're the largest growers of Flint corn now, we own our seed. So when we contract with growers, we buy acres with the grower and we provide the seed.

21:25And so there is this cool, direct connection to agriculture and our corn supply chain that exists outside of the normal corn market that is attractive to investors that like finding kind of differences and nuances in supply chain. And then there's other investors that are attracted to what we've had to do on the tortilla making front. And ultimately, because most chips on the market aren't made from tortillas, that means most factories don't have this capability. So what we did was we found a larger, medium-sized, I'd say, tortillaria, and we partnered with them where we did a CapEx deal and we financed bringing in a fry line to a tortilla so that we could make tortillas and fry them all under one roof, which was very exciting and attractive to us.

22:16So some investors I have, they care less about the corn story, but some investors are just hard asset guys. So they like the fact that we own equipment. And so it's a mix of what attracts them. And then other investors are more on the market side and the sales side and where we're selling. And so we've got a good mix, I'd say. Has this process slowed your path to profitability? Because when we talk investing in general or on the podcast, you know, that's the number one thing that comes up when it's a buzzword with investors, right? Is it's not growth at all costs. It's about profitability. You know, how does that play out when it sounds like you have a steady growth plan, but you are investing more on the ingredients sourcing and production side of things?

23:09So before that CapEx deal that I just mentioned, we, I think I was probably the least profitable tortilla chip company ever created. That's, that's an award you should put on your wall. Definitely. Yeah. And, and, and I, I don't, I mean, literally we had periods of, because in, in 2022, the price of every single item for everyone went up. So pallet costs went up, corrugate costs went up, film costs, salt, every single thing went up in price. And we didn't change our price. And the reason we didn't was because we were working on this CapEx deal that was going to have some efficiencies where we could be more efficient than we were on the production side.

23:54And so there was definitely periods of time in 2022 where we were selling chips that cost more than what we were selling them for, which is not even gross margin, like negative product margin, which is just a horrendous business model. But, you know, going back to your question on sacrifice, we didn't feel like there was an obvious thing that it was like, well, you know, we know we're paying more for regenerative corn, but no one really care if we get that rid of that. There wasn't something that seemed that obvious as a cost saving there. Really, we put all of our focus on, OK, we don't want to cut the ingredient costs, but we can be more efficient in production.

24:38that fueled the CapEx deal. And so we have now with the CapEx deal and with our growing volume, we are very much on a path to profitability. But another part of that, and this was a lesson I learned at Sir Kensington's, was I felt like at times at Sir Kensington's, we had more bodies than we needed. And when you're trying to do this impossible thing as a food entrepreneur, which is grow and become profitable with slotting fees and support and demos and promos and all that stuff. One thing that I think can be hard is if you let your head count get out of control, gross margin might never overcome that to get EBITDA.

25:20And for me, I said, okay, we've made huge gross margin improvements this year, but we're still not a super high margin product. And so our focus is how can we continue to improve gross margin but how can we really keep below the line lean? How can we have a lean team? And so I think we have what's a relatively lean team. There's five of us, including me. And I think there's a lot of companies our size that have more bodies than that, but that's sort of our formula. But to answer your question, profitability is the most important thing right now. And we are working every month we get closer to profitability.

25:59it's interesting you mentioned that because uh yesterday i think it was the ceo of butcher box uh a d2c uh meat company announced that they were laying off 15 employees not not a huge amount of their team because they felt they had lost operational efficiency and um you know he said in his LinkedIn post over the past three months, it's become clear to me that even as we are and remain profitable, we've gotten off track. And then he continues on to say, we've scaled our staff quickly and have been slow to implement projects which have made us bureaucratic and unable to make moves towards achieving our mission.

26:44And to me, that just really, you know, sounds familiar to what you're kind of describing. Yeah, it's true. I mean, especially the bureaucratic part, like even at small companies, when you, there's a big difference between a five person company and a 30 person company. And both are small businesses, no doubt, but there's something I really like where we're at now at Zach's Mighty, where I feel very much like a player coach in the sense that there's a lot of things I do. And at, at Sir Kensington's, I was the COO and towards the end, right before we got acquired by Unilever and the team had gotten bigger and I had much more direct reports, I noticed that at that time, a lot of my time was spent just emails internal.

27:34And I felt like I was chief HR manager as much as I was CLO. And it was less time where I was boots on the ground at the factory doing deals with suppliers. And now we're all... you know, I just yesterday I was at our factory for two days in Arizona and we're working on a new product line and, and I love it. I love it. We were there for 12 hours tinkering on the line. And that's very much stuff that I find fulfilling, but as a company grows, and especially as a CEO, you don't necessarily have as much time to do that. And so right now I feel like everyone's got a good mix of, we're still jumping in and doing things.