The Blueprint For A CPG Hero

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0:36Hello, friends. I'm Ray Lateef, and you're tuned into Taste Radio, the number one podcast for anyone building a business in food or beverage. Scaling a CPG brand isn't just about finding more ways to grow. It's about knowing which opportunities are worth pursuing. Hero Bread is taking on some of food's most entrenched categories, with baked goods and pasta that deliver the taste and texture of traditional carbs, with zero grams of sugar, along with added protein and fiber. With products now in more than 9 ,000 retail locations, including Whole Foods, Target, Walmart, Publix, Sprouts, and Wegmans, the brand has built significant momentum, and attracted investors including Tom Brady, Kevin Durant, and The Weeknd.

1:28In this episode, HeroBread CEO Y.C. Chang shares hard-earned lessons on scaling a CPG brand, including why the company walked away from a major food service opportunity, how D2C helped fuel retail growth, and why adding SKUs can actually hurt the business. He gets candid about the hidden costs of expansion, from inventory and logistics to opening new doors, and explains how founders can make smarter decisions about where to put their next bet.

1:59Hey, folks, it's Ray with Taste Radio. Right now, I'm supremely honored to be sitting down with Y.C. Cheng, the CEO of Hero Bread. Y.C., it's great to see you. Great to see you. We're out here in San Francisco at the offices of your primary investor. Yeah, great point, Ventures. Great point. Yeah. And lucky for me, you're traveling in San Francisco today. Hero Bread's based in the city, but you're based in Boulder. Yeah, that's right. Yeah. Talk a bit about your background and how you got involved with Hero Bread. The journey in food really started after I was at Topgolf. So I was the president there and sold the business Callaway.

2:33And through that business and being there for a long time, just fell in love with the food service part of it and bringing people smiles and joy by the food that we bring them and really revamped that menu to be a lot better and a lot healthier. and just I got the bug. And so after selling the company, just loved being on the investor side and invest in a whole lot of food companies and health companies. And my own personal thesis and the family office I work with is that we want to invest in technologies and companies that allow you to be your own CEO of your own health. That's our thesis that there's no one else looking after your health and you should do it.

3:13And anything that enables you to do that is a good thing. In that, we invested in a bunch of companies, Herobred being one of them. And I just can't stop being an operator and helping. And I just have a really personal joy when I help founders be the best that they can, because I wish I had more help and advice and stuff when I did it, because I ran into a lot of brick walls and took a lot of bruises. And so I try to pay back a little bit and fell in love with our founder, Cole Glass, and the Hero product and just saw a huge opportunity to be able to sort of invest and help them in operating. And then the president there at the time, his name is Blaine, who was the CEO of Panera Bread.

3:59He had some health issues, so he had to retire. And Cole and the board tapped me on the shoulder and said they kind of liked my ideas. And let's see if we can grow this company together. Bread sometimes is bread. Hero Bread is not that. Hero Bread is different. How? Hero Bread does everything that bread should do. And our main innovation is that we enable people to easily use it. And it tastes like you would expect. You can prepare it and eat it the way that you would expect traditional bread to be eaten. And, you know, our big litmus test is you can give it to your family and they won't reject it.

4:41Most of the time, they won't even know that you kind of swapped it out. And it does all of that work, but at the same time delivering much stronger macronutrients. And we do our best to make it, you know, as clean as possible too. So we're really meticulous about our sourcing, but we have a theory that, again, to help you manage your own health and your family's health, we really want to help you get the nutrients that you need. And in our American current society, you read all the headlines and you talk to any doctor and they'll tell you that we're really short on protein, we're really short on fiber, and we eat too many simple carbohydrates and sugars.

5:23So Hero really addresses those things and at the same time delivering a great experience and making it easy for you, you know, because you don't need to work any harder. You're already doing enough and we just try to make it better for you. Who's it for? I hear and see people often talk about how they're getting rid of bread in their diet. They're not eating as much bread. They're reducing the amount of carbs that they eat. but there are some people who want bread just can't eat it are those the people you're targeting no actually hero bread has shown in the last four years to be for everyone you kind of know you're being successful when a lot of different groups claim you as theirs and so we're really lucky that you know people who are trying to you know manage their weight say hero bread's for me People who are trying to manage their sugar and maybe have some blood sugar issues, they claim us.

6:19People with dietary distress, gut health, they claim us. And then just people who generally want to eat healthier, who don't want sort of the overly commercialized products and eat empty calories, they claim us. And the best group that I love is people who just love eating bread and are still trying to avoid, you know, the calories and other things. And like me, I'm not of one category of like, I'm not keto, I'm not weight loss, I'm not whatever. But I do want something that's going to work for me more than just, you know, the taste. And that's why I love Hero myself. A lot of people will love the taste of Auntie Annie's pretzels.

7:02And I think that's another product that a lot of people have avoided because they feel like it's not the best for them. But it's a lot better for them now that Hero Bread has gotten involved. You recently announced a partnership between the two companies. What did you see in that collaboration that could help both brands? Like many people, Auntie Anne's was at the mall when I was growing up. And yet, you know, I personally hadn't ate it for many years until we made our formula with them. And it's been an amazing collaboration because we can bring our baking know-how and our ingredient know-how to a taste profile that a lot of people are very nostalgic about.

7:41And it's a great flavor. Like, they've really nailed it. But, like, a lot of people, I haven't really leaned into that product until the Hero product because I want that protein. I don't want as many calories or sugar that's in their traditional product. And it's a great product, but for me, I want my food to work for me. And so that's why this opportunity really came up. When you see an Auntie Annie's, you might see a subway in some of those malls across America. The food halls, is that what they call them? They don't really call them food halls. What do they call them? Mall cafeterias. Mall cafeterias.

8:17Someone's going to email me. Food court. Food court is what I'm looking for. You might see a food court with an Auntie Annie's with a subway. and Hero Bread might've been involved with both brands if there hadn't been a pivot in the business. Because you started out with Subway. You started out focusing on food service and the food service opportunity. Why did you see that opportunity as a better path to growth than traditional retail, at least at the outset? Originally, when you start a company, you're just grasping at anything that can help you scale because you have so little resource and you have so little awareness and anything that you can use to help you get awareness, help you get distribution, help you get funding, is something that is very enticing and you want to latch onto it.

9:06And that was the original intent with Subway. Cole and the team really needed that extra lever because just having your own product and praying that people will use it is just not a great strategy. So the whole agreement with Subway worked out because it helped them raise money, It helped them get awareness. But at its core, the commercial reality of it and the unit economics and the expectations of such a big company from such a small business that Hero was at the time are just very outsized and they're not quite aligned. And so, you know, it just had a recognition that it wasn't the right thing at the right time.

9:47And yet it is something that we would love to do. And we started leaning more into food service as we're now more mature and can really have the resources to do it well. But yeah, as a lot of things in life, it was a timing issue. Sometimes you don't get a second chance to make a good first impression. How did you navigate out of food service in a way that would set you up for retail success? I would say we were not very elegant, but something my mentors taught me is like, you got to expedite what's inevitable. Just do it, pull off the Band-Aid, get it done. We did it as kindly as we could. Subway understood.

10:21They, I think, saw the writing on the wall, too. And we all just agreed it's not sustainable. So it's not like there was a great transition. But what we did in saying no to that opportunity is to say yes to something else. and that yes to something else was DTC. So we took the resources, redirected it towards DTC and it's just a strategy that we employ today which is like control your own destiny by getting your product in people's mouths as efficiently as you can and that's what DTC really is. And it's the people who love our brand, who want to try our new products and it allows us to sort of like take the layer away between us, our products, and the consumer.

11:07The issue with retail and food service and some other channels is that you don't get the direct feedback. You don't get the speed of understanding what they like and don't like. And you can't viscerally feel it as much. And I'm very much a consumer-driven type of person. And our company is very much consumer-led. And to have a faster feedback loop and a more non-filtered feedback allows us to make better products and to understand what the trends are. And you can then take that data and sell it into the retailers. So we took the data from D to C that we have, you know, thousands of people buying this stuff.

11:46And we kind of know generally what region they're buying it in. And then, you know, we took that data at the time to Sprouts, to Market District, to Publix, and showed them that their consumer really wanted a product like ours, which was, you know, a really good tasting sort of mainstream taste profile bread, but to have a lot more protein and to have a lot more fiber and just generally be better for them. Hey, listeners, this September 10th roundup brings jobs at cpgjobs.com from Barrel RM, Revolution Brewing LLC, and Good to Grow. Harkin Sweets, Russian River Brewing Company, and Trade Turbine keep it rolling.

12:27Check opportunities and apply today. Need great people? Put your opening before category pros following the industry. Reach operators, sales leaders, supply chain pros, and retail buyers spending more time with candidates and less on mismatches. At cpgjobs.com, post your opening. Use code TASTERADIO26 and save on the listing. Your inbox should reflect the parts of CPG that matter to you. Choose from BevNet's seven free newsletters covering beverage, food, beer, spirits, careers, education, and more. Sign up and select your favorites at cpgmedia.com slash newsletter. Earlier you said that Hero Bread is a brand for everyone, and everyone could be eating Hero Bread.

13:15when you're selling D2C, you might get a more specific consumer, a sense that you understand where they're coming from, how old they are, what walk of life, income, etc., etc. Did you get a sense that you were zeroing in on a specific demographic, a specific type of consumer? Or were you getting that sense that, no, Hero Bread really is for everyone? No, it was a lot broader than we had imagined. And it very largely mirrors, you know, what you see in food today. A lot of them are women and moms trying to buy for their families. And they're just trying to make us a healthy decision that doesn't take a lot of effort.

13:58How do you get your first customers online? What was your customer acquisition strategy like with Z2C at the beginning of your decision to make that pivot? Well, we were lucky in that we did have some awareness from Subway. And so people were already coming to Hero.co. And we would then, you know, try to harvest those people and get their contact information. So when we did launch, we could tell them. So there was a really healthy, organic growth there. But we did what most companies do. You try a bunch of ads on, you know, TikTok and Instagram and Meta and Google searching. And you just start kind of tuning that for whatever budget you have or whatever targets you have.

14:41And you can start building a list. How much do you need? What size budget should you have if you're trying to build a community, build a following when you're launching D2C? You don't need very much. Anywhere from$10 ,000 to$15 ,000 a month on ad spend can get you a really good read. Assuming your unit economics and your repeat business are good, like you'll recoup that money. The key is, though, the repeat business. Like you need to have a product that people like and can use frequently. That's where the subscription model comes into play. Were you finding that people started and wanted to subscribe from the get-go, or was it a learning process for those consumers?

15:25Did you have to sort of spoon-feed them a reason to subscribe? Well, obviously, we try to make it easy for them. We try to... How do you make it easy for them? I think it's twofold. Generally, our philosophy is, and this is just something I've developed over the years, is like, do what's right and what the consumer wants. As a philosophical stance for our business, it's not like you have to subscribe. We're one of the few subscription companies that still offers individual sales and all that stuff. So we always took the stance that if you want to subscribe, great. Here, we'll make it really easy for you.

16:01We'll make it easily reoccurring. We'll remind you when it's happening. We'll let you skip it. We'll let you pause it. We'll let you change the configuration. We let you save a little bit if you do it. But if you don't want to, that's fine. We'll still service you. And your life is hard enough. You don't need a company like us telling you how to buy bread. Well, fulfillment is also a really big part of it as well. and making sure that people receive the product on time, receive the right product in the right condition. I wouldn't want to meet that mom who was expecting her loaf of hero bread that she was going to make sandwiches for the week and doesn't have it.

16:38So how do you make sure that you're buttoned up on the fulfillment end of things? Well, we have an amazing operational, logistic, and e-commerce team. One of the benefits of being a hero and being a brand that people really believe in is that we're able to hire really good people. Is that outsourced? Well, we run it ourselves, but the 3PL and stuff like that is outsourced. But we manage it closely. We pick the best partner we could. And we have really high operating standards. And we pride ourselves on having really responsive customer service. And you kind of like manage what you measure. And we measure the quality and the delivery and satisfaction metrics really closely.

17:16Our goal is to make sure that families can get it when they want. That is really why people do subscription is because it is sort of their regular routine. And I think that what the pandemic and now people are discovering is that just like it was a routine to go to the grocery store every week, I think a lot of people now, and I think the statistics say something around 20 % or so, do order online with a subscription for a general grocery run. And they just love the convenience of it, that every month you stock up on your Hero products. You don't have to think about it. It comes, you know what you have, you know it's going to show up on time and good quality, and you throw it in the freezer and you use it when you want to.

17:57Well, I see you've talked a lot about the good of D2C. There's obviously challenges as well. What have been your biggest challenges on D2C? What have been some of the mistakes that I assume you have made? And how did you fix them? Well, lucky for us, most of the mistakes we made, we did with our previous companies. So, you know, we've all learned and got our bruises in that way. The biggest challenge is clearly the logistic and logistical cost. The marketing opportunity is great. The way to build a relationship is great. And the technology platforms are so much simpler now. You know, you don't need a whole team to build a website anymore or anything like that.

18:35So the biggest challenge is getting the delivery and making sure that you're not losing your shirt and delivering a great experience for the customer. So it's apropos, you know, with oil getting close to 100 some dollars a barrel and every single freight company that I know is starting to add on freight surcharges and they're adding 10 percent, they're adding 15 percent. And D2C operates on very low margins. So like that alone can hurt the business. So that's by far the biggest challenge. And it's really just a spreadsheet type of exercise to make sure that you know exactly what you need the average order size to be, what you know your delivery costs will be.

19:16You know what your 12-month LTV is. So, like, you know, very few companies are first order profitable on D2C. But you better be pretty sure you're either second or third order profitable depending on, you know, what your lifetime value of your customers for 12 months. And, you know, balancing all that is just very difficult. When you're forecasting for the future and you don't see an end in sight for oil prices, at least oil prices rising, does it make you wonder about changing the products in any way, say, decreasing the size of it or making a loaf an ounce or two less? Do those things come into play?

19:57I think those are all valid strategies. We try not to compromise the product ever. That's kind of our internal motto. But if we can save a little bit on logistics by bundling or shipping full truckloads or, you know, we're big enough now that we can make arrangements with our delivery partners to find ways to bulk deliver. And so, yeah, we try to find everything we can logistically. We try to get more efficient from a marketing perspective because every penny saved is contributing to the overall business. So we'll dig in all those parts before we compromise a product because the product is really the secret sauce.

20:35It's the hero. Yeah, 100%. If we could put a cape on every loaf, we would. But it's that word of mouth and that trust that the consumer has and their love for that creates the repeat business. And for us in food, you just can't survive without repeat and without word of mouth. So, you know, we really don't want to kill the goose that's laying the egg. And so, you know, we want to nurture that as much as possible. We want to continue to make the best product. Because if we compromise too much on that, then what else do we have, right? Like, we might as well be another big CPG company that is squeezing margins out of their product every day.

21:14And that's just not our frame of mind. We'd rather operate way more efficiently and keep the product quality up. word of mouth doesn't sound like something that you have a ton of control over, but it seems like something you could cultivate. How do you cultivate word of mouth? Oh, it's very intentional. The success of any great brand or good product is word of mouth. It just goes back to my early days as a product manager and as a software engineer and stuff that if the product is great, people will find it. And yes, you do have to market. And yes, you do have to talk about it. But you will find a way to make a business out of a good product.

21:55And if you're gonna spend a dollar, you're better off spending a dollar making a product better than spend a dollar marketing it. In general, you just really focus on what the consumer wants, and why they want it. And how does it fit into their lives? It comes from like choosing products that are in categories that people really do need. I have a very hard time working at companies or developing products that are just kind of like ancillary or things that are nice to have. I find those very challenging. But if it's something that someone genuinely needs, then you want to make it easy and you want to make it really good.

22:34that's the science behind it is like how do you make something incorporated into people's routines easily and have enough wonderfulness to them that people want to talk about it those are the kind of levers i hear sometimes people talking about hero bread is tom brady's bread tom brady is one of the prominent investors in hero bread kevin durant the weekend has that helped word of mouth and awareness? Yeah, for sure. Yeah, yeah, for sure. I think, you know, it greases the skids. It shows at least some level of credibility. And, you know, retailers and buyers and investors all like to sort of be in that group a little bit.

23:13I don't know what percentage it is, but there's a reason why a lot of celebrity led investor brands and stuff like that just have some success. Like it only takes you so far, though, you know, it maybe it makes getting a retailer meeting 10 % easier, Or maybe it raises your awareness, you know, a couple points on YouGov or whatever, but every point helps. But it can't make your company successful by itself. Right. Well, if you can get Tom Brady to come to your meeting with the Walmart buyers, it might help a little bit. But you still have to get that meeting in the first place. And I imagine your success on D2C helps a little bit.

23:51But how much does data and sales numbers on D2C really matter when it comes to retail and big retailers like a Target? I think it matters a lot, especially Target, actually. Like, it's funny that you just picked that example. I think Target cares more because they've seen the benefit of nice, hip brands in their store. and I think some of the trouble that they had and issues they had the last couple years and why they're going back to the playbook now of having great brands within their walls is because they know it helps it always goes back to you know John I went upon a farm and you see you know Jennifer Garner not only running around to retailers but running around to all the bankers and all that stuff before the IPO like that really helps and she wow puts the work in so if you're able to get something like that, like that, I think it helped tremendously.

24:46And not everyone can have a celebrity or something. So then your DTC data can help show and paint that picture. And it's empirical. You can tell that the hero brand on social is viral. People are talking about it. Like it's not just us paying people do it. Of course, you have to pay a little here or there to juice it and to help it and fuel it. But there's an organic buzz about it. And then that story can be shared and the retailers understand that that's happening. You know, we have outsized store velocity because of the activity and the energy around Hero Bread. And if you can paint that picture and show it empirically with data, it helps a lot more.

25:26How much does innovation matter to those retailers? You have a strong product, you have a strong portfolio of products already. Oftentimes retailers want new products, They want exclusives. How does innovation fit into that retail strategy? I think everybody wants it. Everybody meeting? Retailers, I think, internally, investors. The media. Yeah, everybody. Give me something new to talk about, right? Exactly, exactly. That's why we all go to Expo West, right? Yeah, but what pays the bills is your core items. So it's the same conversation we have with the retailers. It's just like, yes, we're fantastic at innovating.

26:05You know, we've come out with roughly 10 SKUs that are all performing extremely well across it. So, you know, we're not just bread now, right? We're bread. We have this amazing protein noodle that's made with wheat. We have amazing pretzels like we talked about Auntie Anne's. We just came out with this really, really tasty sort of uncompromising shortbread biscuit that it's basically our team saying, what would it be like if we had no constraints and made something delicious? Our bagels are selling tremendously well and our tortillas are selling really well. Like I don't think there's actually a better tortilla in the market today.

26:41And that's not just because I'm biased. So everybody wants those new things to sell. But the core items are really what fuel the growth. And we'll give some innovation here or there. I don't actually think we've done any on the retail side. It's like here's our portfolio. Everybody should take all the skews. like the data will show you that. But yet some people hold out at the retailer for their own strategy or for whatever reason. But we believe that all of them should go to everywhere as much as we can. But innovation is hard. It's expensive. And they don't always sell that well. And I think the main issue there is that things that are innovative don't yet have an audience and they don't have it in their routine yet to buy.