Freshpet: Scott Morris

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26:15Hey, welcome back to How I Built This. I'm Guy Raz. So it's 2006, and Scott and his partners are working through a list of all the things they want their new dog food to do. And the list is pretty easy to put together. The hard thing is, how do you actually make the food? how to make it where it was nutritionally complete. It looked appealing to the consumer. It had a great shelf life. It lasted for a really long time. It was firm enough to cut, so it was a good experience, again, for the consumer. It smelled good. So we kept working it, working it, working it. So you wanted it to be like a meatloaf rather than like a sort of a refrigerated, Like canned, wet canned food, you know, you just like you could, I guess, make that into a refrigerator product and it would be sold in like a Tupperware container.

27:10But you wanted something that was more like a like a meatloaf that would be sliced. Yeah, we wanted it. The initial inspiration was almost like deli meats. And it wasn't going to be as solid as a bologna. It was still going to have like it was still going to break apart once you put in the bowl, like ground wet food. No, actually, it was pretty firm. We wanted it where people didn't mind touching it. Right, okay. Because, and if you think about, so there's two aspects to the product. One of them is we wanted to use the freshest ingredients we possibly could. And the second thing was we wanted to cook it as little as possible.

27:47Because we, John and I were really focused on this idea of bioavailability. So the more you cook certain ingredients, the less bioavailability or nutrition that there actually is for the person or for the pet. And you needed refrigeration in order to keep it fresh. What was your thesis at the time? I mean, you know, the pet food business, I think in 2006 in the U.S., it was like a$15 billion industry in the U.S., grown a lot since then. So clearly it was growing and it's just exploded, right? especially because people seem to be having more pets than kids now. But what was the – like how – you know, why did you think that people would be interested in refrigerated pet food?

28:35You know, people were buying canned food. People were buying dry food. How did you think you could convince people that, you know, this refrigerated food was going to be a better option? There were two major trends that we were watching. And one of them was that people were definitely starting to head down that path of like, I'm becoming more aware that I need to eat better food and less processed food. Right. Not snack wells. Exactly. Exactly. They needed to start eating a better diet for themselves. Now, whether they did that or not is another story. Yeah. And then the second piece of it, just like you were mentioning, dogs were becoming an incredibly important part of our lives.

29:15And the simple analogy is maybe 50 years ago, they were mostly in the backyard and they went from the backyard to the doghouse, to the garage, to the laundry room. To the end of my bed every night. Exactly. Yes, exactly. On my feet. Absolutely. They have become our kids. And you started to see that. You really started to see that come into focus around that time. Exactly. And it was referred to in the industry as the humanization of pets. So this idea of pets were becoming more like kids or humans. And the thing I kept asking everyone in the industry was, if everyone realizes that this idea around humanization of pets, why are we feeding them like honestly like farm animals?

29:57Because initially kibble came from animal feed in the 40s, 50s, 60s. that's really where that grew out of, the idea of having a kibble. So we should probably be feeding them differently. But let me ask you about, let's just go back to making it, right? You wanted to make something that was fresh, could be shelf-stable for 12 weeks, I think, three months, and was sliceable. Those are all challenging things to do. Yeah. You know, it's interesting. We actually worked with a team of initially veterinary nutritionists. And we said, what's the perfect pet? What's your dream pet food? Tell us what it is.

30:40And they had some ideas. And then we continued to talk to different people that were involved in processing different foods and cooking different foods on the human food side. And we started in the first partner I think we had with Fresh Pet was a group called the Hunsburgers. It was in Quakertown, Pennsylvania. This is a meat producer. They produce meat for humans, right? Exactly. They did. They did. They produced meat for humans and actually the pet food market. OK. And we actually convinced them to let us have 10 ,000 square feet of their manufacturing facility kind of off on the side in this other room.

31:18And that's literally where the trials to start making Fresh Pet started. So it took you, do you remember how long it took you from the time you started to experiment with? And were you using beef or using chicken or turkey or what? I think maybe it was just chicken and turkey in the very beginning, but soon after we used, we were using beef also. So we wanted to have a handful of different proteins because different people and dogs like different types of proteins. And I would say it was probably a year of testing and trying and tinkering before we thought we had it. But it's a lot of times today you'll hear people say it's version one or V1.

32:00I would say that was V1 and we thought it was ready to go to market. And the reality was it probably was good, but it wasn't where it quite needed to be on kind of that version one. You guys were doing this out of a manufacturing facility in Pennsylvania, and they were making the food for you. They were able to make it for you? No, it was our facility. So it was their building, and we rented right next to in this chicken processing facility where they made human meats. Not human meat, human-grade meat, you should say. Not grinding up humans. No, no, no, no. Oh, my God.

32:42Yeah, we had space in that facility and we started bringing in equipment. And initially it was just a simple mixer and then it was a giant steam oven. And then we had something that was – it's called a chub machine or a K-Pak machine where it basically puts the meat into the sleeve. And then initially we were putting in these giant pallet-sized totes of ice water to cool it down. because part of pasteurization is the cooking part where you heat it up or the steam oven. And then part of it is where you have to bring the temperature down pretty quickly. So we were trying to follow kind of the USDA guidelines around how to actually do pasteurization on foods.

33:24Yeah. And did you, by the way, I'm assuming you had to bring these to actual real live dogs to test. Oh, yeah, yeah. Yeah. Because dogs eat everything. I mean, they poop. right i mean like they'll eat anything yeah so how did you know whether this was you know good you know there's a range of dogs there are dogs that will eat almost anything then there's a very large group of dogs uh that will not eat you know almost nothing they will and we wanted to test with all the dogs and part of it was about taste but but we had to make sure the nutrition worked for the pets and then when the consumer opens it up they have to look at and go oh my god this this looks good.

34:07It looks like food I could eat. And we would literally go out of our way to make sure it smelled good for the consumer. So the first tip is the dog loves it and eats all of it. And then the more people used it and the longer they used it, the more they saw literally a visible difference in their dog's health in some way. So once you had it down and you were ready to pitch it. Because you guys were based in, were you living in New Jersey at the time? Yeah, I was still living in New Jersey and Kyle had been back and forth a little bit. He originally started off in San Francisco and then he moved to New, we figured we all need to be together.

34:45So he was now living in New Jersey too. So you needed some retailers to put this in their coolers, right? And by the way, at this point, this was still, I mean, you guys were still financing this with some of the friends and family money and then the money that you guys pulled together? Yeah, at this point, it was still, there was, I would say, still that friends and family group. But at the time, we finally talked both PetSmart and Petco into doing a small test with us in the San Francisco Bay Area. And the Bay Area, presumably because that's where people are sort of more first adopters, like more experimental.

35:22Yes, we just thought it was, we both agreed, both the retailers and us agreed that we thought it was the consumers were fairly progressive around nutrition. Now, honestly, for us, the other thing is we wanted to be able to test it in a place where we could have like one distribution network. It ended up being a van that we literally ended up hiring someone to drive a van to deliver to the stores because that was one of the next challenges was no one wanted to carry the product for us, none of the distributors. Right, because it had to be refrigerated. Yeah. Yeah. Yeah. But how did you, I mean, at the time, 2006, did Petco and PetSmart have any refrigerators?

36:01No. No, they didn't have any refrigerators. And the original idea was, oh, well, we'll let the retailers buy the refrigerators. Yeah. And they said, are you kidding? You want me to spend our money on your refrigerator? So you had to buy them. Yeah, and that was us kind of starting to launch into owning all of our refrigerators. But it was – we not only ended up in the pet food business, but we ended up in the refrigerator business. These were refrigerators, by the way, that were like open – like you see them in supermarkets, the open refrigerators, and they would just stock the fresh pet rolls, I guess.

36:34Yeah, we had some open air. We had some closed air refrigerators. We had all different ones that we would use for the test. But we also had this idea of go big or go home. So we felt like we needed like a really big display, big merchandising for someone, you know, the consumers to actually look at it and realize what it was. And it said fresh pet on it. It said, yeah. Well, actually, we initially started the company under the name Professor Connors. We wanted to name it Dr. Connors. And then we couldn't name it Dr. Connors because we didn't – you needed a vet to be able to call it doctor. So then we called it Professor Connors.

37:11Um, and then it was, I joke about it as it was one of my moments of weakness where I agreed to call the company Professor Connors and it was around for about a year as Professor Connors. And then - Professor Connors pet food? Was it dog food initially only? Professor Connors Deli Fresh was the original, original name. And I, I, I know it's a little bit of like a tangent, but, but John, we kept talking about, we got to change this name and John didn't really want to change it. And he went away over on vacation. And the second he walked away, I turned to Kyle and said, we have to change the name of this company.

37:46I said, we're going to regret this forever. And we ended up changing it to Fresh Pet. And when he got back, I had changed the name in front of the – we had a small little house as our office. We changed the business cards and we completely changed the name and then started to moving on the packaging. And when John came back, he actually literally drove by the office the first time because he didn't recognize the sign. He just drove past it a little bit. And he came in and said, what do you guys do? And I said, John, you're going to thank me for this later? We could not be Professor Connors. We needed a name that really was understandable and quickly digestible by consumers and retailers.

38:26and 20 or 30 years from now, it may be Kleenex or it may be Xerox, where it's the name of the category, but for now, this is the right decision for us to be making. And I think within about a minute, he realized that it was the right decision for us and it was a good decision. And I mean, today, the name of the category is literally, you'll see the sign in the grocery aisle, fresh pet food up on the sign. And it was super important to have a name that told the consumer what it was fast. Right. So you were initially in, what, like 20 Bay Area stores or 15? I think it was 25, I think was the number, between Petco and PetSmart.

39:11And you had to buy all the refrigerators for these stores. Yes. And we didn't know what we were doing, buying refrigerators. And that was, and how did you, I mean, you had enough money to finance that? We, I think for this period of time, we had enough money in the very beginning, but we quickly started realizing, wow, we, this manufacturing piece is taking a lot more money. Yeah. And then we're now buying refrigerators. And then we also had this team of people that we had worked with in the past that we were like, wow, this is going to take off and we're going to need this team of people and we don't want to lose them.

39:46The team of people who were. At Meowmix with us. At Meowmix, right. Yeah. Yeah. I mean, so just presumably to recruit those people who, you know, they had certain salary expectations, they were experienced. I mean, this isn't a startup with like 25-year-olds. No, no. You know, I always equate it to, it's like when you're dealing, you're watching an incredible basketball team. All five of those guys know where the other one is and what they can do. And that's the people that we wanted on the team. We knew how they could play. We knew the positions they could play. We knew what they could get done.

40:22So now we had a ton of overhead. We had these people coming in. We started building manufacturing. We're now buying refrigerators. And we were quickly, quickly, the business was not developing fast. And we were quickly running out of cash. And it got very, very scary and very, very real very fast. So presumably there wasn't a whole lot of money left to market this. You had to just, you know, you've got these refrigerators. They are in the Bay Area, which is a place where people tend to be more, you know, experimental and willing to try new things. But how did you get customers in those stores to try that product?

41:01The biggest single thing that we did were just demonstrations or demos. and we'd stand literally in the store and we would show consumers what the product looked like and that it looked good, it smelled good. And the one thing that was working for us is as we gave people samples, they went home and they fed it to their dogs, obviously. And the dogs, they had a great experience. And then once they started using it a few times is when they started seeing the performance of the product. Did you ever do any like, any like stunts where like you took a bite out of it to say, hey, you know, it's safe for humans or good enough for us.

41:37We definitely have done some of those things along the way. We've been willing to, you know, eat it and taste it. I actually had – we had a reporter tour a factory probably about five years ago, and I literally took a bite off the line, and so did she. So, yes, we did everything. We had people in those markets that we called these, like, kind of road warriors, and they would spend time literally driving around and visiting bed offices and going to dog parks, dog daycare, giving out samples. So it was very much kind of like on the street, kind of ground level gorilla type marketing to try and get enough people to try the product.

42:19And how did it do in those stores? I mean, it did probably okay. It was a little below expectations, but the complexity of the supply chain and making it in Pennsylvania and shipping it to the West Coast and then having the right product and inventory and then filling those fridges. And there was so much product in the fridges that it would have had to done extraordinarily well for it to sell fast enough to get through it before we ran into shelf life. Right, because by the time you make it, the clock starts ticking and you're rushing it from Pennsylvania. That's probably five days already. So now, right, you get to the...

42:55So every day counts. Yeah. But what we didn't realize was 12 weeks sounded like a long time, but to start shipping it around the country, to make it and ship it around the country, and then actually have it sold out of a refrigerator. There was a concept they were introduced very soon after, and it was called sell it or smell it. And it was literally, if you didn't sell the food, you'd start smelling it because it was going bad. And that was really like kind of a rude awakening. And we realized 12 weeks was not enough shelf life for this to work in the beginning and get it started. We needed a longer shelf life.

43:35And we were absolutely 100 % committed to making sure that it was all natural. We were not putting any artificial preservatives in there. Could you do that? Were you able to? I mean, could you figure out how to do that, how to make it last longer? Yeah. I think we went from version one to version two of the product very quickly. And it was the only way we were going to be able to get any type of significant investment is if we solve that problem because – You had to make it last for how long? We actually moved it from 12 to 16 and then eventually to like 18 and 20 weeks over time. Wow. Yeah. So what explains why, in your view, it wasn't doing that well in those Bay Area?

44:17Was it more expensive? Was it the price point? Why? I think it was more expensive. I think that when people don't know about what something is, they're hesitant. People typically are not like fast adopters to change. And I think that that piece of information applies to almost everything. But now you're feeding your kid. And I want to make sure that this is a good food and a good product that is safe for my kind of quote unquote kid or pet. Yeah. How much did it cost at that time in 2006, a rule? I think we were at$9.99 for initially, like it was, I think we were targeting$9.99 for a six pound roll, which was pretty cost effective, quite honestly.

45:01You could still make money off that. I mean, it was cost effective for the consumer, but you could still make a profit off that? We weren't making much and that was another problem that we had to – like we wanted to, again, make it as affordable and as accessible. But we kind of sacrificed some margin up front because we felt it was important to get the momentum going behind it and getting it into consumers' hands. So we wanted to make it as cost-effective as possible for consumers. But of course that was still – it was still challenging. I mean, and challenging for you, as you say. I mean, because you said that when you set out at the beginning, one of the principles was we're not going to, like from your time at Ralston Purina.

45:42Yes. We're not going to, you know. We're not going to use discounting. It damages the brand. And it was a real key learning. And it became one of those incredible principles that we put in place up front. So you had like multiple challenges. I mean, you had, you know, short shelf life, really high overhead costs because you had an expensive team and you were in the refrigeration business. And that was, and by the way, if this wasn't going to work, it was going to fail. Like basically Petco and PetSmart were going to be the proud owners of free refrigerators. Yes. Yes, unfortunately. So, I mean, there were times where you start questioning, wow, is this a good idea and can we do it?

46:29And I think what's really important for me was, I think you can talk a little bit about that with the team because you want to be honest, but I think you can never lose their confidence. Once the team starts losing confidence in what we're doing, then I think it can literally become a quick failure. So really, I mean, there are so many challenges you faced in terms of convincing retailers to carry this. The first and foremost was the refrigeration. I mean, if you wanted to be in the pet food section of a big box retailer, you'd have to basically like open up that shelving space and put a refrigerator there in the middle of that section.

47:14And I have to assume that there was probably a lot of resistance to that idea initially. Absolutely. That came into the situation where we presented to retailers. And even after we had made a little bit of progress with PetSmart and Petco and we started talking to other retailers, it was back to the, you want me to do what? And I don't care if you were successful there. I don't think that's going to work in my store. And it was so hard for them to understand that we wanted to put a refrigerator in the middle of their aisle. So there was a lot of, there were a lot of eye rolls. And at the same time, with all of these challenges, we literally had the economy starting to fall apart in 2007.

47:57At the end of 2007, you could just, you know how you can just feel when the economy's starting to change. So then retailers were like, you know, your dog food's still kind of expensive. Your pet food's expensive. And although consumers may love it, how can you expect people to pay for this? When we come back in just a moment, how Scott gets into a battle with Walmart about refrigerators and takes a huge risk by not backing down. Stay with us. I'm Guy Raz and you're listening to How I Built This.

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52:57Hey, welcome back to How I Built This. I'm Guy Raz. So it's 2007 and Fresh Pet has a lot on its plate. The economy is in bad shape. Retailers don't want to install refrigerators. And even people in the pet food business think fresh pet food is a dumb idea. I remember one time I was literally in our booth at a kind of a pet show setting up where retailers would come and walk the floor of a trade show. And I had an island with a cutting board and we had a refrigerator and I had gotten these hay bales. And I hear this, Morris, Turtle Morris, fresh pet food. Boy, oh boy. I wish I had thought of that.

53:43And it was someone I had worked with at Purina that was now at a different company. And he was happy to see me, but he thought what we were doing was completely ridiculous and laughable. And I think that was a pretty tough moment. And when you – I mean, essentially, you had to – in the first – I think probably in the first three years, I mean, you had to constantly, I imagine, look for money to finance because you bought a manufacturing facility in 2007, right? I mean, that was a slightly larger one. Yeah. We kept expanding the one we were in in Quakertown, right? Right. Right. And that, I think, took$10 million.

54:30I mean, so I imagine that a big part of the job was just constantly looking for money to help finance the group because this is a cash-intensive business. Right. So one of the people that we'd worked with at Meow Mix that was almost immediately involved was a gentleman named Dick Kassar, and he knew this other gentleman, Charlie Norris. And he said, you know, I think Charlie may have some money. You should go talk to him. So Cahill and I flew out to California, and we met him in kind of one of the lounges at the airport in San Francisco. And Charlie flew up from LA to meet us. And we explained to him what we were doing.

55:11And he said, look, I believe in jockeys, not horses. He goes, and I believe you guys can make this work. And I want to think about it, but I may be able to pull some funding together for you. And that was the original Angel Funding Network. that we were able to pull together was led by Charlie, who eventually became the chairman of the company. And he just retired after, I think it was 16 years with us a couple of months ago. Yeah. I mean, you know, despite all of the, you know, all of the sort of challenges, and despite the economic challenges, right, 2008 into 2009, was there any indication at all that that people were still willing to spend it's like you know the lipstick principle right that you still buy lipstick to look nice uh cigarettes still sell were there indications that people are still willing to spend premium dollars for their pets or or not i i think that there was there were definitely a core group of consumers that started showing us that where they were really willing to spend money on their pets.

56:23And we started making a little bit of progress, but it was like, it was moving inches and we had to go miles. And it was store at a time, store at a time, a little bit of progress, a little bit of progress, fix the product, raise a little bit of money, continue to make more improvements of the product. And it was just, it was kind of every day it was, you're playing whack-a-mole. And I remember one day leaving work and getting in the car and openly sobbing in the car on the way home. And I tried to never let anyone see that, you know, we were scared or we were losing confidence. But quite honestly, it was one of those things, go home, go for a run, wake up the next morning and get back to work and go figure it out.

57:11in in march of 2009 you guys got an investment from tyson foods the biggest supplier of meat i think in the world or one of them for sure did that i mean i imagine that was a shot in the arm but i also imagine that that was um at the time like you know really crucial critical to to stabilize the business it was it was absolutely critical this was i mean not we realized if we didn't get a significant investment from someone other than the angel group that we weren't going to be around. Yeah. So when we found Tyson, and we found the right person at Tyson, we found a gentleman who, he was basically running a group that was looking to create other business units out of Tyson's kind of main or core business units.

57:56And they made an investment in us. And as part of the criteria, they had basically a term in the agreement that means they could decide if we had had any other fundraising what the terms were. And what happened was there was a change from one CEO that we originally shook hands with. And it turned from one CEO to literally the day we signed the deal, it was another CEO that was kind of in place for a while. And then finally, about a year later, a third CEO. So kind of end of 2009 into 2010. And the last CEO that came in did not get along. And he said, let's get rid of all these other businesses.

58:39And they were basically like, well, what do we want to do with Fresh Pet? And he said, I don't care. Don't give them another penny. And because they had the ability to basically decide whether we could raise money or not, they were literally trying to bankrupt the company or trying to get us to give them the company. Wow. I mean, this is classic case of a new CEO coming in and just being a jerk and, And, you know, just discounting anything their predecessors did. And he was like, let's just give them nothing, you know, bleed them dry, and then we can acquire them for pennies on the dollar. Yep, exactly.

59:16And it went from, oh my goodness, we're working with Tyson and we saw a path forward for really delivering the potential that this company had to within a year, literally being back into the worst crisis we'd ever had. And Charlie, on his own, the original angel investor and our chairman at that point, stepped up and gave the company like an extended significant loan for a period of time in order for us to get through that period. Well, so essentially you have this got this challenge. But meantime, you were expanding. I mean, you did manage to get into some big stores like Kroger, even Walmart, some Safeways.

1:00:02How did you convince those stores, given the skepticism around refrigerated dog food? How did you convince them to let you put a refrigerator in the in the pet food aisle? It was never easy to sell in new refrigerators because every single retailer said, even if you said we were doing great at retailer A and B, they're like, that's not mine. That's not my store. I want to test it. So they would start off with one fridge or maybe five or if someone was really aggressive, 10 stores. And you'd have to prove it out in those 10 stores. And we just kept building the network slowly over time. Meantime, you were still losing money and you were hamstrung.

1:00:41You couldn't raise more money. So, I mean, this is a long period of time, almost two years, where you're hamstrung in your ability to bring in more capital. And you're trying to expand retail sales, which means that you've got to expand capacity and you've got to invest in manufacturing and even advertising. So you guys were just, I mean, you were probably losing a lot of money at the time. We were losing a lot of money and we were fortunate enough in 2010 to unwind the Tyson deal. And we brought in a private equity firm called Mid-Ocean Partners. And they invested in the company and they helped fund it.

1:01:22And the next thing that started to happen was not only were we able to prove it out on a fridge by fridge or a store by store basis, but we started using kind of broad level marketing. and we were able to get dramatic increases in sales and we were getting incredible returns on our advertising. And when they saw the potential of adding all these fridges, they recognized that all they needed to do was feed this machine and it would start to take off. It seems like you went from, and I mean this with the greatest of respect, from crisis to crisis and trying to resolve all of your problems because you get out of this or you start to get out of this problem with Tyson.

1:02:05And at the same time, you're starting to encounter refrigerator problems, right? Like I just can't even imagine this because you had to service and maintain these refrigerators in addition to delivering the food to these refrigerators. And some of them were breaking down or like they'd be in stores where the stores weren't air conditioned and they were like open refrigerators and the food was spoiling. Yeah. Yeah. We had an opportunity with both Kroger and with Target. And when we had kind of talked about the expansion with Target, we wanted to go with these open air refrigerators. And especially at night, the refrigeration or the air conditioning was turned off in the store and the stores would get hotter and the refrigerators just couldn't hold temp.

1:02:51So we ended up having to, over time, put doors on all the refrigerators and enclose them, which was absolutely fine. But it was a long – it took months in order to figure it out. Tell me a little bit about the – I mean, so basically every year you were growing, right? Like 2012, you had reportedly$44 million in sales and then a little less than 20 million in losses. 2013 63 million in sales and then about 22 million losses um but at that point you had like 10 000 refrigerators in stores you had visibility people and and the ad campaigns by the way from from what i understand were like kind of designed to mainstream refrigerated pet food like like yeah like at this point people were kind of spending money on doggy day spas and all kinds of things that were, you know, no judgment.

1:03:48I love my dog. I put my dog in a, you know, my dog gets groomed and all that stuff. But still, there was kind of a feeling that some of this was over the top, but I guess you wanted to kind of position Fresh Pet as like just a normal thing that you would do for your dog or cat. Yeah, well, I think what we did is, you know, you steal the quote from Wayne Gresge. You always want to be where the puck is moving to. And I think what happened early on is we got there too early. and then all of a sudden in kind of 2010 and 2011, when we started getting the entire model figured out, the puck was now coming to us, and we wanted to be in all the retailers and as many stores as possible and as many consumers as possible.

1:04:29So we really started thinking about, well, how do we get retailers and consumers when they're thinking about pet food to think fresh first, fresh as the center of the bowl, as the base of the meal? By the way, when did you get into the cat food side of the business? So early on, I'd say early on, like 2010, we had cat food. It's been a very small piece of the business for many, many years. But it's something that we see as a potential long-term opportunity for the organization. It is, by the way, I'm assuming, is the dog food category more, is it bigger? Much larger. It's larger, right? Yes. Dogs eat more.

1:05:09They eat a lot more. Think about like the size of a cat and then even if you take the average size of a dog. I know. I've got two cats and a dog. Yeah. I've watched them eat. Yeah. Yeah. I mean the joke always was we love the people with two golden retrievers versus one cat. Why did you decide to take the company public in 2014? Why did you decide that was the right time? Did you need to raise capital? We knew that we needed additional capital for a significant expansion in our manufacturing. And we felt like going public was really the right path forward for the organization. So let's talk about it.

1:05:48I mean, you go public in 2014 and that means all of a sudden you've got – you've sort of become somewhat of a different company. I think within a year of the IPO, the stock price declined by like almost 70 percent, right? And so that all of a sudden you had some shareholders who were like, you know, upset about that. I think there was a point where like Jim Cramer on CNBC called your stock the disaster of the day. And you must have been aware of all this going on. Yeah, I mean, you're always aware of it. And I think that there are a lot of people that have not believed in what this could be early on.

1:06:34And then sure, like you start going public and boy, you're on a different type of stage. And we were making incredible progress. We had over 40 % growth the year we went public. Yeah. But operationally, we had we had a misstep and we weren't as profitable as we thought we were going to be. And our margins slipped a bit and it caused, you know, an incredible change in the stock and a loss of confidence in the market. And, I mean, the thing that was terrific is the people that believed in us, that stayed with us after we were public, were able to kind of ride back the progress that we made and make many, many times their investment.

1:07:17You know, now that obviously you are a public company, all of your data is public as well. And, you know, and so, you know, I was looking at your sales figures for 2019, which were very impressive, you know, 250 or$250 million in sales that year and a very small loss. I mean, it's, you know,$1.4 million. So at that point, it seemed like you were probably on track to hit profitability. But at the same time, I guess for you, the strategy then and still is to just expand, continue to grow, even if you are posting losses. Yeah. And, you know, the question starts to become what's acceptable in the marketplace and the market on like how their acceptance and their comfort level with some type of loss has kind of ebbs and flows over time.

1:08:12Yeah. And I think the, you know, especially the moving through kind of the last several years, the appetite for companies that are like losing money and not having a clear path to profitability has really waned. So we have we've definitely kind of modified some of our plans along the way. And now we had a couple of years we were growing over 40 percent, you know, and we want to kind of trim back the growth just a little bit. We want to stay in that kind of 30-ish percent range. And that's going to allow us to basically grow and be able to fund our growth going forward. And that's really the plan that we've laid out to the public markets.

1:08:51I'm curious about this kind of, I don't know what to call it, this dispute with Walmart. It happened, I think, before the pandemic, which was they apparently wanted to own. I mean, you had refrigerators in all these Walmarts. They counted then and maybe even still do now for 20 % of your business. And they wanted to use your fresh pet refrigerators to sell other refrigerated pet food. And you guys were, you know, you were facing, you know, an 800-pound gorilla here. How did you prevent that from happening? It was a series of very, very difficult and challenging discussions. And I think the initial discussion was what we had internally was we can't allow anyone to put anything in our refrigerators.

1:09:45Because if I have one problem, I've got 25 or today over 30 ,000 problems out there across the market, the number of fridges that we have. So we went back to Walmart. We explained like the perspective and the point of view that we invested in this category from the very beginning. We spent all of our money. We invested hundreds of millions of dollars to figure this out and build it and buy these refrigerators. And those were our refrigerators and it was their stores. And if they didn't want our refrigerators and their stores, they could let us know that and we would move them out. but if they were okay with it we would continue on the model that we had always kind of moved forward with which was our products go in our refrigerator and if they wanted to put other products in someone else need to buy their own refrigerator and i think over time walmart didn't like it but they think they got comfortable with the concept that um you know the the the analogy that's out there is the red cans go in the red fridge and the blue cans go in the blue fridge And what I'm talking about is Coke and Pepsi.

1:10:50So we use precedent that was out there. We use the initial kind of agreement. And I think we also kind of laid out kind of a business plan forward with them that demonstrated that we can be an incredible growth engine for their entire category. And it's a scary conversation, but you had to have it and you had to be honest about it. Because you guys were, I mean, you do direct to consumer sales, obviously, right? We very, very little. Like really it's not – it really hasn't been a part of our business. And why? Why not? Why didn't you – yeah. It's interesting. So when we made the commitment to retailers and we said, we're working with you and we're putting our fridges in the store, the deal was we weren't going to go around the retailer and go direct to consumer.

1:11:39And we feel as though the opportunity to deliver fresh food is where people are going to buy their fresh food over time. And that's going to be – they're typically going to make a trip to a store to do that. So that fresh trip is owned by the brick and mortar guys. And those are our partners that we went in with in the beginning. So even when we have played with this idea of shipping food to consumers, we're actually working with our retailers to actually ship it through their stores or their distribution centers. So, I mean, you started this company in 2006. We're talking now in 2023. It has been a very successful brand.

1:12:20and presumably, you know, part of the mandate is to get it to profitability in the next few years. You know, what do you sort of where do you see yourself in five or 10 years? You know, I don't exactly know in five or 10 years, but I try and be super objective about that. I sit back at the end of every year and I think about the contributions that I've made and the work that I've done and how I feel like I'm still helping to guide and lead and create the company and lead to success. And the day I stop having impact and contributing significantly to the organization is the day that I need to walk away.

1:13:01So when you think about, when you think about your own journey and where Fresh Pet is today, how much do you attribute it to luck and how much to how hard you worked? You know, it's interesting. Going all the way back to early on in athletics, I had a great coach. His name was Jeff Ward. Another one was Charles Foster. And they both said to me, you know, if you take a step back and you look at the people that have created, you know, been great athletes, they said there's two parts to it. One of them is they believe they can do it. And the other one is they have the skills to pull it off. And I think the third one is being at the right place at the right time or some level of luck or fortune or whatever you think it is.

1:13:49So everyone's going to have luck pass by them. And it's a question of what you do with it and how you think about it and how you take advantage of that luck. That's Scott Morris, co-founder and president of Fresh Pet. By the way, Scott is very happy to tell you about his own pets. He has one dog, an Aussie doodle, and two cats, or three if you count his grown daughter's cat, which, of course, he does. There are unquestionable perks to being Piper, Milo, sorry, Milo, Ringo, Suzu, and Piper. There are definite perks. They definitely, they eat well. I think, yeah, they probably lucked out a little bit showing up at the Morris house.

1:14:29Yeah, Michelin three-star cat and dog meals. That's right. Hey, thanks so much for listening to the show this week. Please make sure to click the follow button on your podcast app so you never miss a new episode of the show. And as always, it's totally free. This episode was produced by Carla Estevez and our music was composed by Ramtin Arablui. It was edited by Neva Grant with research help from Alex Chung. Our audio engineer was Gilly Moon. Our production staff also includes J.C. Howard, Casey Herman, Sam Paulson, Elaine Coates, John Isabella, Carrie Thompson, Ramel Wood, and Chris Messini. I'm Guy Raz, and you've been listening to How I Built This.

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