692: I Was Selling Muesli From My Car Boot - Now I Run a $35M/Year Brand

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1:03How much do the retails take usually? Now the category margin minimum is 55. That's a big jump. Contract manufacturers wanted volume and I didn't have volume. So me being your typical entrepreneur, I was like, well, why can't I do this? So I took a pretty bold, brave risk. When no manufacturer believed in her vision, Narelle made a decision that would change everything. She borrowed$8 million and built the factory herself. You went to the bank, it cost$8 million. How can they get that money? One page agreements with some key brands. Yeah, they backed it. My site was a paddock nine years ago, so I certainly had a vision to go hard or go home with my manufacturing facility.

1:42Brands don't exist without supply chain. Brands don't exist without somebody making the product for them. We whiteboarded all this costs and I think it's just the eye opening of that's a lot. I'm super proud of where I've come from. If I believe in someone's vision, I'll back them because someone did that for me.

2:00Hear the stories, learn the proven methods and accelerate your growth and future through entrepreneurship. Welcome to the Founder Podcast with Nathan Chan.

2:14Hey, I have a quick ask. If you're loving these episodes, leaving a quick review is honestly the best way to support us. It helps the show grow and means we can keep bringing you the founder stories and insights you tune in for. Please share it with a friend. Thank you so much. Now let's get into it. Welcome, Norelle. Thanks for having me. Pleasure. So I want to talk to you about manufacturing, food for health. You own your own factory. I want to go through that whole journey, but tell me how did it start for you? Food for Health started a long time ago 20 odd years ago and it was purely through identifying a solution to a problem which was people with food allergies, people that had celiac disease, people that had footer smell absorption, wheat allergies.

3:0520 years ago it wasn't so trendy as it is now as such or readily available. So for me, it was as a practicing naturopath, identifying through patients that there just weren't solutions mainstream. So I created Food for Health through making recipes for my patients to actually take home as part of their dietary plan and their treatment plan. And through that journey, I just identified that there's a need for this in a wider market. So So whilst I had my practice in my health food stores, which is where it started, I then decided that there's an opportunity here for a wider market. So I launched Food for Health.

3:46So when did you launch? And you didn't start with your own factory facility, right? You now have your own factory facility. I want to go through that whole journey. And now you produce a lot of products for a lot of big, well-known companies as well, especially here in Australia. So tell me about that journey. How did you come up with the products? How did you start? That's a very long journey. How many hours have you got? So we're talking 20 years, not five. Food for Health. The journey through Food for Health, as I said, was a need. So I created the brand and like most FMCG brands, you start small and you build.

4:26And yes, it's a typical story of putting product in my car boot and selling it and then going to that next level. And for me, Food for Health grew because I was fortunate enough to have an opportunity through the retailers in Australia to actually then present the brand. And there was nothing on the shelf that actually supported food allergies. So this was a long time ago when the health food aisle was known as Natura in the retails. And it got to position, which is the irony of it now, it's so prevalent now health in retail. that it actually had the position of the dirty, dusty, dark, dingy corner of the retailers.

5:07So now health is in every aisle, which has been detrimental to some brands, and I can go on about that later. But Food for Health grew out of a necessity, and I was really passionate about supporting people with food allergies, given my background as a naturopath. So the way I got the bigger ranging within the retailers was an interesting journey. You get stores where you get trial stores. And I think I had three. So I made sure that all my friends and family went and bought from those three stores. So the herder rates were there for national ranging. So you do what you've got to do to be successful, I suppose.

5:48So I was fortunate enough to actually then have Food Health nationally ranged. And at that point, I was still manufacturing that by hand myself. But then contract manufacturers wanted volume. And I didn't have volume until I had the retailer support. So I got the deal. And then I hustled for a co-man to believe in my vision. And then what happened next? So what happened next was the bank of mum and dad helped me with$13 ,000. It was my very first Woolworths order. from one of the retailers, came through in a fax. They don't exist anymore, I don't think, faxes. And so I had to pay COD for my very first purchase order.

6:32And that purchase order was 14 to 15 pallets that landed at my front door. So I hand-loaded that pallet, that truck of goods, and it was onwards and upwards from there. It just became FMCG and just the brand and the hustle. It just was in my veins. So then it was like, what's next and what's next? So I launched with three SKUs in the retailers and it just evolved from there. Natural progression from cereal is generally to go into snacking. So then I went into snacking and I was really proud to be the first, to launch the first FODMAP gluten-free bar on the market a long time ago, 15 years ago.

7:11And that had such great traction and that had such great following because no different to now, snacking is a part of what we do and we're, you know, it's a little busy. So that SKU in the South, my fruit-free bar was over a$2 million SKU, just that one SKU in one retailer. So it has such great support. So when did you start your own manufacturing facility and how did that come about? So Grain & Bake is my manufacturing facility. Grain & Bake is nine years old. My site was a paddock nine years ago. So I certainly had a vision to go hard or go home with my manufacturing facility. So through the journey of Food for Health and when I hustled for my co-manufacturer to make my brand for me, I identified that whilst I was looking for a manufacturer to support me, there was actually one or two available in Australia.

8:06So me being your typical entrepreneur, I was like, well, why can't I do this? So through the journey of that, I identified that the capacity in those particular facilities that were available for Coman was running out. So my vision of Grain and Bake happened a long time ago and it was a very expensive exercise, which we can go into. But I saw an opportunity to then support other brands like Food for Health because brands don't exist without supply chain. Brands don't exist without somebody making the product for them. And I identified that here in Australia that there was an opportunity to be, at that time, the third biggest manufacturer of toasted cereal.

8:50That was my call when the grain and bake business call started. So I took a pretty bold, brave risk. I did so, though, through that journey before I did take that risk. Tapped on a lot of brands. and met with these brands. A lot of these brands still exist and a lot of these brands I still make for and a lot of these brands have been around a long time. I'll give you an example. 5am, you'd know 5am yogurt. 5am used to have breakfast cereals. And so I tapped on there like you do. You ring until someone answers. And I picked up the fund and I ended up meeting with the team at 5am and said, I know where your brands are currently being made.

9:37You need supply chain. If I went into a manufacturing business at scale, would you support a business like mine? And I would have spoken to maybe eight brands before I went, this is actually an opportunity here in Australia to support brands. So with some support from 5AM and other brands, I pitched a deal to the bank. And they believed in the vision of my vision to support Australian manufacturing. They believed, I had brands that had believed in my vision or just want a supply chain, one of the two. So that's where grain and bake evolved from. But grain and bake has been a significantly huge investment.

10:20It's certainly paid off now. And we've certainly got some big plans ahead in the next two or three years. It's actually really smart because you've effectively turned a cost center into somewhat of a profit center. similar to like what Amazon do quite often with their businesses. So I'm curious, you went to the bank, it cost$8 million. How come they gave you that money? I was fortunate I had Food for Health for some time. So Food for Health in itself. When Food for Health was at its peak, it was an$8 million,$9 million brand. So I'd had that history with the bank. And I think they had seen that I had built that from nothing to there.

11:00I think they believed in my ability to be able to scale. And I keep saying the word hustle. I still use that word today because that's what it is. And they believed in me. And I think that I had had some one-page agreements with some key brands, let's just say, that may support my vision. Yeah, they backed it. So I then went on a journey to go, do I want to build my own site or do I want to revamp an old site? and I thought food has to be sexy and I want to do a brand new site. I had been into multi-different manufacturing plants that were old and the refurbing of those just didn't appeal. So whilst my plan for grain and bake was longer than anticipated, it certainly was worth the build.

11:50So I now have a 10 ,000 square metre site at Moorabbin Airport and I still have significant room to grow within that shed. And how did you go about building a manufacturing facility if you've never done that before? It's the same model as anything. You know, you have good people around you and, you know, they're your greatest asset. So I reached out to a few people that I knew in the industry, having been involved with co-manufacturers to make my bars and my muesli for myself and food for health. I reached out to some key people that I had formed a relationship with and so I offered them a bit of a deal and said, this is my vision, this is what I anticipated I'd like to do, I'd love you to be on my consulting team and advisory team.

12:41I don't know where to start with an oven. I don't know whether I get an impingement oven, I don't know an aeroglide oven, but I just know I want a big oven to help me find a big oven. So that's what we did. So we trawled Europe and ended up with the oven that we have. And this oven now pumps out over 6 ,000 tons of muesli a year. Yeah, there you go. Okay. So for brands that are watching, listening, and they want to work with a manufacturer that perhaps will take a chance on them and do a test run or a relatively low MOQ, especially in the CPG space, it's very high order quantities usually. Agree.

13:28What would you say to founders? I've lived that journey and I think Grain and Bake exists to bring brands' ideas to life, right? So we always will be here for brands and help them to leverage and, again, as I said, believe in their growth plans. I think I would say to them is be really educated on the cost associated with and really I'm a I've always been very transparent within Grainer Bank and I think one of the differences for Grainer Bank compared to my competitors is it can be very closed door I've got nothing to hide manufacturing's bloody tough no doubt so I'm always really transparent so if a client will come or a customer come and knock on our door.

14:16I want to be very clear that these are our cost hurdles and these will be your cost hurdles. So at the end of the day, when you get to the point of the RRP, there's a heap of costs that have gone through that. We are certainly willing to support brands if we believe in their vision and we're certainly there to support brands with small MOQs, which we have done so in the past. And I think that just comes down to, you know I have to work with people that I value and have the same values as you know there's a lot of cowboys out there that think they can make it and I always say that you know people that have never done it have always got the most biggest opinions and I think if I believe in someone's vision I'll back them because someone did that for me.

14:58Yeah and one thing that I've noticed amongst a lot of founders that I speak to is they all a lot tell me this story DDC founders or e-com founders where a manufacturer has taken a chance on them. They couldn't afford the usual MOQ for whatever the product is, usually costs a few hundred thousand dollars, but they believed in that person and then they made it work. And just because this is our minimum doesn't mean it's always the case. That's what I've noticed, a definite through line. And I think that's the difference with Food for Health being my business. I'm not a big global business. It's me.

15:40And I get it. And I get the journey. And I get how hard it is to take that next level to scale. So I think that I'm fortunate to have lived that. I understand that. I'm probably more compassionate around that journey as opposed to being a big global manufacturing business. So, yeah, I think that, yeah, the journey for manufacturing, if you believe in someone, I think everybody deserves a shot, right? You just never know where that brand will be. That brand could be the next big brand. So they've just got to get a leg up. So as we talked about offline, I have a lot of food allergies. I don't really share this that often, but I'm allergic to dairy, egg, nuts, sesame, peanut, coconut.

16:23I've had food allergies my whole life. I've had anaphylactic reactions quite a few times. I've been ICU a couple of times, very close calls. and I actually used to have this muesli bar that my mum used to buy for me in bulk at Costco and I used to have this muesli bar everywhere I went and I travelled all around Southeast Asia, all around Europe. I used to backpack a lot, do backpacking all around the world when I was younger and I always had, took with me at least 30 to 50 of these bars in my backpack and then one day thankfully I was in Melbourne I had this muesli bar and when I get an allergic reaction I get like a little bit of a funny taste in my mouth it doesn't feel right and I had that I had a bite of the muesli bar but I was like well I've had probably hundreds if not thousands definitely thousands of these at this point I'll be fine so I ate the whole muesli bar and that was my closest call to my anaphylactic allergic reaction and being like, oh my God, I might not make this.

17:36And I've always thought to myself, how cool would it be if I could create an allergy-friendly bar like for my allergies? No tree nuts, no pine nuts, no peanuts, no coconut and something that is extremely low calorie because I'm into my health and fitness. I'm training, trying to get in shape for my wedding. Very mindful of those calories, right? Yes, yes. I get it. So if I was to come to you to make this bar, what would I have to be prepared to spend to bring this product to life? And what would the minimum order quantity be generally if you didn't take a chance on me? And then what would be if you did?

18:18The cost associated with something like that is more around the clean times and the risk matrix on allergens. That's where the cost, raw materials are raw materials. And whilst raw materials will make up 70 % of the cost, they'll come down to what you want or what you don't want in your bar. Whereas our responsibility is that it's around making sure the allergen cross-contamination is not happening. So we would do, as I said, the cost around about 10-hour gluten-free clean and a sesame clean every other week when we're running those products. That is a very intensive clean for us. That involves, let me do my numbers, eight people for 10 hours of cleaning intricacy within our oven and our site.

19:11So we then have to swab. We then have to make sure that that swab is passed off through the test. So it is very intricate. So that is probably the biggest cost associated with making an allergy-friendly bar, is making sure we don't stuff it up. So you don't have on your label that it may contain cross-country? We do. Yeah, we do. Yeah, we do. Food for Health does, and most manufacturers will say you have to have that. Grainer Bank is not, but there are manufacturers out there that are specifically peanut-free. Yeah. 100 % there are. and I know one really well and they do a fantastic job. Grain and bake is not purely a nut-free facility, but we have sesame, we have nuts, we don't have dairy.

19:57We do do gluten-free products and we do non-gluten-free products, but the cost associated with doing those is far greater because of the making sure of the clean and that there's no cross-contamination. So that bar that I had for sure would have had either developed an allergy or what I don't know. But when I see things like, you know, a salada biscuit, right, like it always says make content. I don't really pay that much attention because all the companies now do basically do that to, I guess. To cover. Yeah, yeah. So if you could give me a range, like if I want to do a bar, like what I described, would it be$50 ,000,$100 ,000, like for someone to start a business like that?

20:41Oh, back of envelope, you know, cost associated with something to do a small run. So like say as a muesli bar and, you know, our MOQ is 100 ,000 bars, which is a lot, right? Because we have a big beast of a machine. Yes. But as I said, I have done smaller runs of people that I believed in in their brand. So for me, it would be that you might say a bar might be 38 cents a bar, 40 cents a bar. Yep. Now that would not necessarily include packaging. Yep. That pretty much is just manufacturing the bar, making sure the cleans, including all the procurement costs associated. That may or may not include the packaging.

21:20So, you know, you might say for a 35 to 40 grand bar, let's just round it up to 40 cents minimum. Got you. So when it comes to packaging, you guys will support on packaging or do you have to go get it designed yourself? How does that work? We do both. So it depends on what our customer wants. at Grain and Bake. So we do procurement of packaging for some and fathers not. So it really comes down to what that customer solution they're requiring. And of the brands you've supported, what are some of the distinct things that you have noticed or any common similarities to get traction in retailers, especially on the shelves?

22:01Obviously, packaging is a big part of it, the product, the category, the cut through, the differentiation. but I'd love to hear your take because you would see, you know, businesses come and go. Yeah, I do. And even now, like big brands that are really struggling, big brands that are having to sort of reformulate because it's just the cost associated with doing business with the retailers is tough. Every year margins go up, margin expectations go up every year. The retailers' expectation of promo rotation is huge. um you know and one one thing i think um for me is understanding that and understanding the expectation of the retails and factoring that into your costs promo activity is just a non-negotiable with retails but it's so expensive um and you know it's it's a it's the devil's advocate type of scenario because you want your promo to be successful but that you're also like holy shit that's a big check now because it was so successful because you know if you've got a 50 50 split funding with the retailer or 70-30 funding split with the retailer.

23:02Either way, you're out of pocket a big check if your promo has been successful, which is what the retailer wants because it keeps your baseline up. So it is a bit of a vicious circle around that. But yeah, look, I think, as I said, getting in and making sure you launch the product well, but you've got pretty cuts, right? You've got, what, 13 weeks to make sure the product works. And as I said, the flip side of that is in big retail, big brands are now really struggling with keeping product on shelf and the competition is far greater and how to do things better, how to do things smarter. So that's up to me as a manufacturer to make sure I keep innovating for my customers and investing in the automation to stay competitive and then it becomes a partnership.

23:45So what do we need to do to make you competitive on shelf? So the brands that I support, let's invest in a partner or let's invest in something so we know that we can get better efficiencies out of the line so therefore, you know, your cost sale price is less. So it just continues to be revolving doors. How do we get better? How do we get smarter? How do we do things more efficient at less cost? So when it comes to retailers getting into retail, somebody wanted to start, you know, like a Nathan Chan allergy friendly bar. Do you go, do you go and get proof of concept, work with someone like yourself and your business first and then go pitch retails or do you start the D to C path first and then go to retail?

24:35What is like for in your space? What do you recommend? I'm going to say we've done it all, right? We've had customers, they've come to us first and go, this is what we'd like to do. And I've helped some, I've spoon fed some excited brand owners for the journey, which has been awesome. The easier way, I suppose, nothing's easy, but is if you get ranging in the supermarkets, which is no different to what I do with Food for Health. Once you have ranging, you then get buy-in. You then understand the volumes. You then understand how you can cost and work backwards. If you present a concept and you have a good relationship with retailers and go, this is what we're after.

25:12We're after Nathan's Allergy Friendly Bar. We know there's a market for it. We're passionate. We're going to get behind it. Let's work backwards from that. but as we've also done reverse we've gone bottom up so we've gone from we have the brands we get brands calling Granibank all the time we want to do this we want to do this concept we've squashed some ideas because it's just not commercially viable we've engaged with some brands we've actually just launched a pretty significant brand overseas and they we held their hand the whole way through and we we worked with them every step of the way around the packaging We procured the packaging for them.

25:46They had no idea around packaging costs. They had no idea around EOQ costs. They had no idea about how the bars are made commercially. So we've gone from both ways of that. So I think from my point of view, the easy road is you get the buy-in from the retail and then you go that way. Or the other road is that you actually go, if you align with a manufacturer, like somebody like Granibake or whoever that you align with, and they walk you through, I think you can go both ways. Yeah, I've started a D2C brand and exited it, but I never, and we were in some major retailers in the US, but never really went hard.

26:24Like the product wasn't fit for supermarkets, even though over time it was ripped off by others that the supermarket supplied. but I've always thought to myself if I was to create a product that is you know a CPG product or consumable you just go like crazy liquid death style packaging something really out there to grab attention and just something that's like you know Seth Godin refers to as like your purple cow like it just really stands out do you see that being true with brands are brands like really kind of going for it like that or not really? They're pretty safe or like, because that's how I do it.

27:04I do something like crazy. I think new brands have to go crazy. I think older brands or established brands play it safe a little bit because they stick to their brand philosophy. Yeah, I think I absolutely believe that you sort of got to go a little bit crazy. The risk in that is the longevity of that. So if you're going crazy and then you've got to, you know, factoring obviously the marketing around that and the exposure around that. So I think brands certainly, you're going to get the attention of the retailers if you're going big and bold, but it comes at a cost. I was saying earlier that to do NPD from a manufacturing point of view is extremely costly, right?

27:43So you've got to be really mindful of that cost around associating how we manage the process of launching that MPD. And so what advice would you give to founders that do run a CPG brand that want to get into retailers, whether it is, you know, Whole Foods or here in Australia, Coles or Woolies, what advice would you give? Do your homework. I have a mentor and it's a young gentleman that came in who is an ex-AFL footballer who wanted to launch a protein bar. and I spent some time with him in the boardroom and he came in with this brand idea. He had all these footballers that were going to support the brand and great.