'We haven't changed the way that we do it': MìLà co-founder Jennifer Liao on transforming from a restaurant to a frozen food brand

0:03Hello, everyone, and welcome to the Modern Retail Podcast.

0:30really raised a recent round of funding, and they have some really interesting co-founders, including Celebrity Simo Liu. I want to talk about all of this, the expansion, just how you're, I'm always so fascinating to talk about when you are a food startup that begins predominantly online, how the economics work, which I think is something you're probably thinking a lot about, Jen. How are you doing? Thanks for joining. Thank you so much for having me. I'm doing great. How about you? I'm doing okay. I can't complain. So first, why don't you tell me a little bit about your background and how you ended up starting Mila?

1:02Because Mila is a relatively new name. You were a different name before then, right? Exactly. So we actually started as Shotsuji and we do have one single restaurant location. So we opened the restaurant location October 2018. It's a fast casual spot. And a little bit about my background, I actually was in the health tech biology world before this. So very different. and essentially was working at this company called Avidation, which is a health tech company for about six years. And during that time, my husband and co-founder Caleb, we started a restaurant called Shazzeje together with our co-founder Norman.

1:45And so for about a year and a half, we had this fast casual spot and we really just wanted to eat our favorite street foods that we had grown up eating when we went back to China to visit our families. and during COVID, we had to, of course, shut down for a little while. And during that time is when we started to experiment with frozen soup dumplings. So then the e-commerce side was born and we started to experiment with starting to deliver the frozen soup dumplings first within a close radius of the restaurant. And then we expanded further and further away as there was more demand and a lot of referrals outside of that close radius.

2:25and then greater Washington and then Pacific Northwest and then nationwide by the end of 2020. So that was very exciting times. Wow, that is a wild trajectory. But I want to go to the first, not pivot, but change. You said you just wanted to eat your favorite street foods. Was that really what made you want to start a restaurant or had you always wanted to start a restaurant? Because it's a very different margin structure. I imagine maybe at the beginning you were making less money than you were in health tech, though. Correct me if I'm wrong. Yes, it definitely was not my income stream. I think we were mostly, I think, so our main hero item at the restaurant is something called Xinjiang Bao, which is a pan-fried soup bao.

3:08And it's very delicious, but you do have to cook, for example, 70 of these bao at once in a cast iron pan and then sell out within 30 minutes because it is very crispy and hot, which is delicious. And it's from Shanghai. It was Caleb's favorite food. One of our friends, Norman, who we had started this with, had been asking me if we wanted to start something together. And his first thing was a poke restaurant. I'm allergic to fish, so I had said no to that. But he kept asking, you know, if we wanted to do something together. And I asked if he could start a restaurant that sold this particular item so we could go eat it.

3:45And the intention wasn't really to go into restaurants or the food industry at all. And slowly, he kind of pulled us into it. And before we knew it, we had opened the restaurant together. So it truly was for our own passion project. And it was, of course, operated as a business where we could at least break even on the restaurant itself. But it wasn't necessarily at the beginning meant to expand into a larger operation. Got it. Did you ever have ambitions pre-pandemic that you were going to make this into a CPG play? Absolutely not. Did not think about that route at all. Wow. Well, look at you now.

4:28That's pretty wild. I was doing some research before, and I think I read that it was one of those things. I covered it back in 2020, and I feel like every city was doing it where if you were a restaurant, you closed and you figured out how best to do it. Some of them started markets. others started doing e-com and you you guys did like a google form right it was pretty much where like you did it can you just walk me through how you were able to to to get that and get that off the ground yeah so essentially we started playing around with the frozen soup dumpling we were literally manufacturing let's say one bag that day just to see if it was possible and we did have a path to be able to do, let's say, 10 bags a day.

5:12And so we had sent out a Google forum over WeChat, which is a Chinese messaging app. So my mom actually formed this neighborhood group for Seattle for people who had tried Shotsuchit before. And in the WeChat group, she sent the Google form out. And then Facebook also had a lot of activity from different communities that were supporting local businesses. So this was like a Facebook Seattle restaurant support group. And one of our friends posted in it with our Google form asking if anybody would be interested. And we did have quite a bit of interest the first day. So then kind of immediately, we were able to bring in a couple folks back.

5:54We had already done a few deep cleans for the restaurant to keep people employed. But for this, once we had the interest, we brought a couple people back into the restaurant to make the soup dumplings. And then we had a few other people who were driving kind of no-contact drop-offs in order to bring them to folks' home. And it was literally in a brown paper bag and a Ziploc bag. And we would text people who entered into the Google Form when we dropped it off on their porch because there was no contact. And then they would come out and take it into their house, which actually worked really well for us because it is a frozen product.

6:31And it was very lucky that everyone was at home when we had started this. Wow. So Ken, I want to jump forward a little bit because soup dumplings are something that need to be frozen. And shipping frozen things and scaling that is really difficult. I think I read that you now have 90 people working in your facility. Is that true? Or is that more now? This was at the start of the year. Yeah, we have about 100 across the entire company. So that includes corporate plus production plus customer service. So all together about that. Wow. Can you talk about how you were able to make it so that the product worked and didn't become degraded and how you built out an entire supply chain with that?

7:13Because you didn't really have an entire CPG backend with you at the time, I imagine. Yes, exactly. So it took about a year and a half to get to what it looks like most similar to our current model. And we're still continuously iterating and changing our packouts, our SOPs, in order to get it to people successfully. So in the beginning, as I mentioned, it really was people driving like ourselves whenever we had to fill in to drop off on people's porches. And that was okay because everyone was home and they could immediately take it in. But we discovered along the way that soup dumplings are actually as sensitive as ice cream to melting because of the dough.

7:56So when it melts, it will stick together. And then because it's soup dumplings, if it melts and you pull it apart and there's a hole, then the soup will leak out. And so it was really important to us to maintain the integrity of the skin and the dough and the product throughout this whole process. So when we were expanding away from, you know, driving and dropping them off, we did use local partners to deliver within, you know, Washington itself as the radius. And for those, we started to pack in dry ice. And again, started with something like just liners. We had dry ice. We had these local delivery partners who were helping us to drop it off.

8:32And as we expanded further and further, we had to get a lot more disciplined around what materials we used. And I think a big shift was when we started to work with 3PLs, so other warehouses that would pack it and then ship it out. And we set up the shipping networks with them, whichever networks they used, we would negotiate rates and then have those set up. And essentially for these third-party warehouses, then we had to come up with all the SOPs and we had to order materials that would get sent to them in order for them to pack it correctly. And we would have to give them guidance on how much dry ice, for example, and they would start to expand to other states for us.

9:13And then we had to account for different temperatures in different states in different weather conditions. And so then we have to go for the maximum packout in order for it to arrive frozen. And actually our first year, we had worked with a single shipping provider who had three different warehouses that we could utilize for this purpose. And we had actually about 20 % failure rate for our soup dumplings where they would arrive melted. And And that was obviously very painful because we established pretty early on a melt-free guarantee. So that way people could actually have the product as intended, since you can't really return a melted dumpling and then have it replaced.

9:54So we had a melt-free guarantee. We would reship it. But the 20 % failure rate was just very painful. And it wasn't necessarily all from the warehouses. It was also because UPS and FedEx were just slammed during 2020 since they were set up for more commercial deliveries and now everyone was residential. And so they had to build out their networks for that. But then their guarantee on on-time deliveries, they took that away during that time period. So we had to just really, really hustle in terms of putting together the right supply chain for it to arrive not mounted. So then we shifted away from this larger partner to individual warehouses that we could work more closely with.

10:37so that way at least we could eliminate all of the melting issues before it got shipped out with UPS and FedEx for example and then UPS and FedEx essentially how we sell for that was building out enough warehouses where we could have two-day ground shipping almost guaranteed or within a certain threshold that we defined for the company and the two-day ground shipping was the most reliable. Air is fast but then if it gets stuck then that automatically extends it one or two days or it just completely disappears into the ether a little bit. And so two-day ground shipping was what we went with. And then we looked at coverage maps and just made sure that we had all states covered within two days.

11:18You sort of tended at this, but I want to go a little bit deeper because it's something that I love to geek out on, which is fulfillment in 3PLs. And specifically when you have a bespoke product like yours that requires, it's very high touch, or I don't know if high touch is the right word, but it requires a lot of specifics tied to it. It sounded like when you were working with the national player, just because of the general way, it was difficult to do it. So you had to do it on an individual basis. What does onboarding look like when you're working with these individual players? And how are you able – do you have a system to ensure that they know exactly how to handle your dumplings, what to do?

11:54Because I imagine it's one thing to give instructions, but it's another one to make sure that they're actually following them, you know? Yep, exactly. So it was a lot of in-person, going there, setting it up, doing the packouts together, doing a few trial runs, writing out very detailed SOPs. And then I think what actually really helped is that because we were relatively high volume for a frozen D2C company, we actually then were, and we were rigorous with data from the very beginning. I think a lot of these warehouses really liked working with us from a leadership perspective because then we were helping them with a lot of the analysis.

12:34So we would say, hey, this had two-day ship time or this had three-day ship time or this arrived, melted, and when we diagnosed it, it actually probably started from the warehouse. So we need to make sure that the temps are this temperature before we actually ship it out and it's stored at this degree. and then we're packing it at this temperature and this is the exact packout. But we used a lot of data to work together with them. So it was less of a qualitative, hey, you need to do better, and more like we ran the analysis and then we showed them the exact protocol on how to do it. And because we were relatively large as a frozen D2C company, even at our tiny size in the beginning, we actually could get fairly good rates for some of the materials that they also needed.

13:21So we negotiated dry ice rates across all of our warehouses and box rates across our warehouses. And we were able to include those warehouses and their other clients into those rates. And so then they could save on other clients as well. So they were very willing to work together with us as a partner. Got it. I wanted to ask actually about that because this is the one thing I hear from food and specifically frozen food founders that do DTC is that the margin structure is awful, specifically because of what you're talking about. So how do you combat that? It sounds like you got good rates, but even with those good rates, was that enough?

14:00Yes, it was pretty decent. I think for us, as we expanded, of course, the further you go, the more expensive it is. So Seattle, let's say, is like half the price as a nationwide shipping thing. And so as we went further, we were just very disciplined about keeping the rates around the same as what we started, even as we scaled up, because that felt very important to us as a company that could have a higher ceiling of skill across our products. And if we had to charge, for example,$80 of shipping on top of everything else, then that would, you know, it's still a feasible business, but a much smaller business.

14:43And most frozen shipping, I think the average consumer doesn't really realize how much shipping costs, especially for frozen food. But other shipping companies that do mostly gifting, for example, they do add a$75 to$80 shipping rate on top, which is packaging, dry ice, and the actual shipment fee. And we wanted to bring that way down in order to keep costs okay for the consumer as just an average price of a product. Absolutely. Did you have to change the ingredients or the process of making it to make it work as an e-com product? And how did you do that entire process? So we actually haven't changed the ingredients or the quality of ingredients at all.

15:24And so that I think we really, really care a lot about because we started as something where we care about being chef crafted, restaurant quality. And so we haven't changed the quality of the ingredients. I would say the actual manufacturing process, we haven't changed the way that we do it, but we have obviously scaled much more efficiently. So it's less about like, hey, these pieces, we've always done it this way. We've changed it. And it's more, we've become more efficient because of scale. And so that's the same thing with the ingredients where we're able to keep costs reasonable because we scaled.

16:01And as we scaled, we were very disciplined about renegotiating rates because we had scaled up. And so if we scale up and then we have larger volume, we have more leverage to negotiate a lot of our vendor contracts. And so we can keep the same quality while keeping the prices down or about the same even as we scale further. All right, we're going to take a quick break right now. We'll be right back after this message from our sponsor. How have you done quality control at scale? Because I imagine, you know, when you're in a restaurant, you're able to look at every dumpling and you have the recipe.

16:34But when you're sending it nationwide to, you know, hundreds of thousands of people, it's a much different calculation? So we do do, for example, QAQC, we do have a whole team and department for that. And it just has to be, for example, spot checks where you take dumplings from each batch and you do a cross cut and then you analyze, for example, what's the dough ratio, what's the filling ratio, what's going on. And you do have equipment, especially as you get certified for USDA or SQF, you have like a metal detector, for example. And so that at least can identify any dangerous components that are going through.

17:13But outside of the spot check, we actually do have everyone touching every single dumpling because we throw out ones that have holes. When we are either, it has come out from the machine and we're about to move it to freezing. People are placing it onto the mats. And at that point, you can throw out any that are very clearly misformed. And then after freezing, sometimes that can also have holes or they might stick together if they shifted on the mat, for example. And so then we'll throw those out in the process of bagging. So I think there's a lot of pieces of automation, but we also do have a person in the loop to ensure quality.

17:52Got it. Makes sense. Let's talk about the last year or so. So you've done a few expansions. You're beyond just soup dumplings now, right? Yep. Yes. So what was the product expansion and how did you choose which areas to go into? Yep. So we started with soup dumplings and our first next product was actually Chinese skewers or saw call. And this was my favorite street food, which is why we had done it. And I think for our product philosophy, it was really to do things that were value add to the ecosystem or had some kind of unique differentiator. So there weren't a lot of Chinese skewers in the market in the US.

18:33And if they were, they're in restaurants, but still fairly rare. And we hadn't come across very many that had been done well. So we moved into this, especially because it could also be a good summertime item, since soup dumplings can be associated with colder weather. And so we started with that as a second item. And we also had released ice cream. And that's what we had done as the first two items. And then following last year in October, we released noodles. So that was probably our big kind of next hero expansion product. And so for noodles, we had released an entire line. And that actually took a couple of years to come to fruition.

19:15We were originally going to release it in 2021, but we did a beta test. And at the time, we only had Dundun Noodle, the spicy noodle. And when we did the beta test, there were still a lot of people, even within our own consumers that were unfamiliar with the spicy component. And in this case, for Sichuan spices, it's mala. So it's like a tingly, numbing sensation. And half of our consumers had never heard of it, had never tasted it before, even within the tighter Seattle area. Really? I'm surprised by that. We were also surprised. And that basically led us to rethink how we launched the product.

19:56There are a lot of requests to reformulate it in a way that took out the spice or made it adjustable. Exactly. So that is kind of actually a very main key component of the dish itself. And so when we thought about it, we're like, how can we solve for this without compromising on what the dish is? And so our solution was, I guess we just have to make two other noodles so that people have an option. and it's not that their first impression, like if they really love soup dumplings and they were willing to buy whatever else we put out there and their next impression is something that they didn't have a good experience with or they didn't know how to eat, that would also be bad.

20:40So then we expanded to a variety noodle pack where there was something for everyone and that was kind of the idea. Got it. Yeah, to have a dandan noodle without Sichuan pepper in it would just not be a dandan noodle. Yeah. What have you found? Like, are you finding more people as you introduce this line are glomming onto the less spicy ones? Or are people trying the spicy one and totally fine with it? Most people try the spicy. So I think most people know themselves of whether they like spicy or not. That's true. So I think if people like spicy, they definitely go for the dantan noodle. It is our most popular noodle.

21:21and they really like it. I would say that about at least two-thirds of our consumers identify as liking some spice, and so they do go for the danda noodle. And then for the other noodles, it's especially for people who know that they don't like spicy, and they will be, you know, repeat customers of the non-spicy items. Got it, got it. Can you talk a little about, because you have begun, and I wasn't able to find any update with this, but I know that you've done a little bit of a retail rollout in the Bay Area. Is that correct? Yes. So we just launched in Costco Bay Area a few weeks ago. Oh, how's that going?

22:00Also, is that your first account or first wholesale account is Costco? We are doing a couple of tests in Seattle first. So we released in Met Market, Town & Country, and QFC in some select locations in Seattle. And for us, really, that's to run tests to see, you know, shelf placement, pricing, category, having, you know, multiple flavors, no flavors, like all of these different things, combinations to test like, hey, if we go into this market, what does that look like? If we have different locations, what does that look like? So we did those tests starting in April, end of April. And then Costco would be our first large account that we're rolling out into.

22:48So we released in all of Costco Bay Area two weeks ago. Got it. And like Costco, we had a story I want to say like six months ago, although who knows what time is any more about, how more online brands are using Costco as a way to expand. um but it's such a different type of shopper and like thought process than it is for say a qfc uh where like that that's just your normal grocery store you know you go you buy oh there's a bag of dumplings i'm gonna get that at costco you're buying a much bigger thing and also it's less less merchandising like it's it's a much more scaled out so how how are you how is that going how are you approaching that i know you're only two weeks into it so you can't give me like numbers about it, but like, what are you thinking about?

23:32It's going pretty well. We have beat their estimates by about 40 % already. Wow. Congrats. Yes. So I think that's going well as a first rollout right now. And it is very different and they do have a much larger freezer section than some of the other grocery stores. So that works on our benefit. I think a lot of shoppers also go to Costco for frozen items versus some of the other grocery stores, it kind of just depends on how they've other grocery stores have positioned themselves, how large the section is. Maybe it's a little bit of a chicken and egg problem as well in terms of what's available and interesting to shoppers.

24:12But for Costco, I think that's worked out well for us because obviously online we have a large family pack to start with. And so that sizing, I think, isn't too different than what a lot of people have seen in our ads or our online e-commerce site. And so I think the Costco piece has worked well so far. Got it. That's great. So let's talk about earlier this year, you announced a pretty big fundraise and you also announced both an investor and a celebrity chief creative officer. Is that the right? And Simu Liu, can you just give the background behind it and sort of how that plays with your growth and expansion plans?

24:49Yeah, so for the fundraising, we brought on Stripes for our second round of fundraising. And our first round was with Imaginary and they also participated this round. So for us, because we're moving into retail and we are vertically integrated, we wanted to get ahead of this in terms of our manufacturing facility. So a lot of it will be going into building inventory for retail, going into a new manufacturing facility for retail, scaling the team to be able to handle omni-channel, which is actually, I think we expected some complexity, but it is an exponential complexity and not an incremental complexity to go into multiple different channels, especially if you're manufacturing your own items.

25:35So that was for the fundraise. And then bringing on Simu has been really great. I think he's been a great partner to us in terms of being engaged and thoughtful and participating in different ideas. And now we have a streaming campaign that's launched on two commercials that have him in it. Oh, wow. Yeah. So I wanted to ask, I know that he's involved, like he's sort of a spokesperson figurehead who's in these campaigns. He also provides ideas and brainstorming, correct? I always love talking with people like you who bring on a well-known person and they get a new title. But what does it actually mean and how does that change your day to day?

26:14Yeah. So Simi Liu, he's our chief content officer. And essentially what that means is I think the way that I would describe it is a mix between a board member, exec and advisor. That's the type of role that he plays. So we're talking about a lot of different big campaign ideas and different strategies to be able to broaden our reach or reach different people and how do we storytell? How do we participate in different areas or events, for example, that maybe we weren't thinking about before? And so we're really looking at how can we leverage his position, his platform, his ideas to expand beyond what our core audience or our core areas are.