#211 - Acquisition Story: How Hector Saldivar Grew Tia Lupita Foods From a Family Recipe to a Successful Acquisition

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0:59In retrospect, I would have paced myself a little bit more on the growth. It's inevitable to get excited, you know, when Target or Walmart or Kroger or Albertsons come to you and say, you know, we walked you in and we're going to give you 2 ,000 stores. You know, it's huge. Is it the right thing to do at the stage you're currently in? And that's what you really need to think about, right? And really be disciplined about it, right? For me, there was a couple of retailers that we decided to move forward, and it was not the right time to go to 1 ,000 stores. Even to go on a certain stage, even to go to 500 stores, you have to think of how you're going to activate that.

1:50Welcome, everyone, to the Startup CPG podcast. There has been a burst of recent M &A activity, and we're here today to celebrate and reflect with Hector Saldivar, founder and CEO of Tila Pita Foods. It's a better-for-you healthy Mexican-inspired food brand that uses clean and simple ingredients in all its products. They were the first brand to introduce nopales cactus as an alternative functional ingredient, and Hector was even recognized by Time Magazine is one of 80 Mexicans helping shape contemporary culture. Today on the episode, we talk all about the history of the brand, how they grew, his time on Shark Tank, and of course, all about the acquisition by Velore Foods, including what led to it, how it happened after a conversation at Nutopia, and so much more.

2:33I love hearing about positive outcomes for brands, so I hope you love this episode just as much as I did. Enjoy!

2:45All right. Welcome, everyone, to the podcast. I'm really excited to have Hector on here to tell us a story, because as probably most people are aware, recently Tia Lupita was acquired with a deal with Velour Foods. So I was really excited to have Hector come on to just tell us all about it. And I think it would be great just to first start with a little bit about the brand. So, Hector, welcome to the show. Do you mind introducing yourself and just telling us a little bit about your story? Absolutely. Thank you so much, Daniel, for the invitation. It's a pleasure to be here. My name is Hector Saldivar, founder of Tia Lupita Foods.

3:23We are a Better For You Mexican-inspired food brand that uses clean, simple ingredients in all of our products. We have a line of hot sauces, no added sugar, low in sodium, non-GMO, and gluten-free certified. We have a line of brain-free tortilla chips as well. We use a novel ingredient in them called cactus nopales, which provides a lot of fiber in per servings. And we also have a line of salsa matcha, also known as, or as I like to say here, Mexican chili crunch. It's an olive oil-based chili oil made with chile murita, fried garlic, pepitas. It's quite delicious. I like to say it's the condiment you didn't know you needed.

4:04All right. And so I know a little bit of this story because I watched your Shark Tank, but can you just tell everybody, like, what made you want to start this? What was going on? How did you get the idea to do it? How'd you get the confidence to just go for it? Yeah, great question. Absolutely. You need a lot of confidence to take the dive and the plunge into entrepreneurship for sure. And I can safely say that I am not a very confident person. But, you know, taking a lot of years of friends and colleagues kind of like pushing me to do this. So it all started sharing my mom's hot sauce. It's a family recipe hot sauce, very unique in the part of Mexico that I'm from, in northeast Mexico.

4:49You know, when I moved, because I'm originally from Monterey, Mexico. And so when I moved here to San Francisco, my mom would ship me carrot packages, right? So I started sharing those carrot packages. And I think the uniqueness of that hot sauce transported over here, because it was also unique in my hometown. People would show up, bring the doorbell randomly to ask for my mom's hot sauce, you know, to use it for their tacos or whatever food they brought. And so that translated really, really well also to the United States. And so for many years, I would share that hot sauce. Yes, I was the guy that brought the hot sauce to the workplace.

5:24But that helped me to realize that this was unique and people tried it. They loved it. And every time I went back to Mexico, it would be more and more and more until it just became unsustainable, right? And so that gave me the confidence. That gave me the boost, you know, years and years of people trying it, new people to try it, asking for it. And people that had it want to get more and more and more. And so, yeah, that's kind of how it all started. All right. And so, you know, I think you've probably had a lot of pivotal moments for the brand as you grew from just somebody who found the confidence to launch this product and start getting out into market to then starting growing in retail.

6:06And, you know, I think you actually got like$900 ,000 in sales your first full year actually in the market. Can you just talk a little bit about that journey getting into retail? Like how did you manage to grow so fast? Yeah, it all started fairly quickly. I always like to say to other future entrepreneurs and people that are starting a food and beverage is kind of like to start small, always start small and start building from there. And that's exactly how it started, but it went fairly quickly. It grew fairly quickly. I think that's two other factors. But I did at first started doing this myself.

6:46I would make the hot sauce. I would rent a commercial time in a commercial kitchen. But before that, I'd bring my mom over from Mexico so she could teach me how to make the hot sauce. So I had to learn and I had to, you know, I had to source the ingredients, find the suppliers. You know, not a lot of red jalapeno suppliers over here. So kind of looked for all that. And then once I was able to secure all that, then I kind of rented a commercial kitchen. I was able to do seven cases of hot sauce for the time I located in the commercial kitchen. And with those seven cases, I would go out here in the San Francisco Bay Area and, you know, drive around and knock on stores, especially those specialty mom and pops, you know, where they would appreciate something that was artisanal or a small batch, right?

7:37And through there, you know, little by little, it started to grow. So I did this, maybe I want to say for the first two to three months. And then I, a little local distributor, Windovie, called the Food Guys, are three old grumpy men, like really salty men. But they saw that I was putting the hot sauce kind of like in their territory, right? And so, you know, then that's kind of how I started like thinking about, all right, now there's a middleman. Now, what does that do to my margin? and well now I need to find someone that can co-pack it for me because you know seven cases these guys would move it like that so I started interviewing co-packers and it was like a very natural progression that I could keep up with right and and within six months six to seven months you know I went from a local distributor to a regional distributor because Whole Foods also saw my product and that Whole Foods wanted to bring me in and so for me to get to Whole Foods I need to be at a bigger distributor, you know, more structure, all that stuff.

8:41And within less than a year, I was already adding a second skew. I always like to say that to do a startup, a Futterberg startup, aside from the confidence to take the plunge, you have to be a little bit of ignorant and overconfident, right? And so, for example, in my case, I was like, I only need one skew, right? You know, one hot sauce, that's all I need to make a business. Thinking about Tapatio has only one skew, you know, Valentina, Cholula, et cetera. So now they have, Cholula specifically has many different skews, but I was kind of like what I was thinking. And so, yeah, that's how it all caught on, little by little, but on a very quick progression.

9:22And all that also, you know, that also helped me to realize, you know, being out in the market, being visiting stores, That's kind of key and very important. Sometimes a lot of entrepreneurs see the romantic side of the startup, right? Which is, you know, like there's the hustles of the pitching and the raising money and this and that. But for the true part of entrepreneurship is getting your hands dirty, being outside and selling, being driving store to store, getting doors slammed in your face, waking up super early because buyers and grocery stores all get in super early and there's very limited time to receive people.

10:05I also had that background in me when I started in food and beverage. I started as a field rep. And so I had that passion and disregard of not caring about getting dirty and bringing product and helping merchandising shelves at the store and creating relationships that way. I gotcha. So let me ask you a question because people always talk about how competitive different categories are. You know, I hate hearing when people shoot someone down like, I don't know, that's a really competitive category. So I'm like, yeah, everything is competitive. You know, that like tell me a category that isn't competitive is what I always say.

10:43But if you want examples of really hard categories, I'm like hot sauce. That seems like the really hardest one because I feel like I know 1000 people who have sent me a hot sauce sample. And I'm like, I don't know. It just seems like it like the barrier to entry is low because I think a lot of people feel like they can make one. And it's pretty easy to get one made. And I think low MOQ. So what do you think was key to you actually doing it and doing it successfully and getting onto shelves and getting off shelves? Yeah, I still hear it today. Like, it's like, how are you able to differentiate your hot sauce from others?

11:17And, you know, in my case, I love hot sauce. I was raised in a place that ate spicy food quite a bit. when I moved to the United States, I couldn't find a hot sauce that tasted like my mom's. So that was kind of like for me, I was kind of doing this for myself, right? Like, you know, at the end of the day, if nobody buys this hot sauce, I'm making it for me. And at least the circle that has been asking for me for this hot sauce, let's call it almost 10 years. And so the The tricky part here was how do you stand out on the category, on the set? You know, a shopper has four seconds. You have four seconds to get the attention of a shopper walking a four-foot set.

12:05I think it's less than four seconds, you know, because of attention span has been, you know, diminishing, getting shorter and shorter. So kind of like what I did is going out and doing your own market research, right? And seeing that in the hot sauce set, for example, all the hot sauces have the same shape bottle. They're all five, they're called the five-ounce woozies, that skinny bottle. Number two, most of the hot sauces are vinegar-based. The number one ingredient is kind of vinegar or water, right? Which makes it very runny, not necessarily, you know, something that would stick or grip on the food.

12:44And number three, for me, it was also, you know, I like to do this exercise when I talk about the positioning of Tia Lupita is when you close your eyes and you think about that hot sauce set, it's very polarizing. It's very macho driven. It's very like it's all about flames, skulls and bones, the devil, a donkey farting flames. And so, you know, so all that for me was like, okay, I can definitely differentiate from all these three things that make it so monotonous or so overwhelming. And so I wanted to make it the hot sauce that was approaching, that communicated flavor. And then the other thing on top of that is I, understanding that I was a Mexican and I trying to elevate my heritage and bring authenticity, I didn't want to be casted as your quintessential, like the Mexican branding, right?

13:45Like there's always the cutout of paper mache or a sombrero or a mustache or piñatas. There's always something around those elements, typecast elements or Mexican food. And so for me, I was like, you know, authenticity, it comes from the house, from the home. And so Tia Lupita, when people ask me, well, if it's your mom, why do you call it Tia Lupita? right it's like well she is my mom but she's your tia like she's your aunt she's that that's our kind of way to welcoming you to the family so i think you know i used all those elements to try to differentiate and position us hot sauce and then you know then you have the the other attributes right like you know the the non-gmo and the gluten-free and the no sugar added but low sodium.

14:37We're one of the lowest sodium hot sauces out there. And so then our number one ingredient is the pepper versus, you know, water or vinegar. So those, I think, you know, come in a secondary and tertiary points. But yeah, for me, that was what I used to differentiate ourselves until most importantly, and I think this helped me having the background of working in food and beverage was understanding what buyers are interested in. Buyers are looking for it. And what buyers are interested in and what buyers are looking for for the category and how they measure is incremental dollars, right? They want to bring a product that it's not going to steal share from what they already have, right?

15:21Why would I be interested in bringing Tia Lupita to steal away from what I already have from Cholula or Tabasco or Tapatio or Frankie Red Hot. So our position was we are premium, and the premium segmentations of hot sauce category was just starting. It was not even there. It was just starting, right? And so by positioning ourselves as premium, we were able to tell this in story of incrementality, right? The shopper, that you have your everyday user of hot sauce that uses Frikes Red Hot for breakfast, lunch, and dinner. But that same user will buy, on top of that, a premium hot sauce to reward themselves when they're cooking something really nice, right?

16:10Or when they have guests over. It's the same dynamic as beer, right? You know, you have your everyday beer drinker, your Coors Light Miller, Bud Lights, etc. And then you have that same beer drinker that's going to grab that artisanal IPA, six pack or four pack of IPA that costs$17,$18 ,000, right? So that they can share that when they have a guest or after a long week. It's the weekend. I'm going to open it. And they don't care that that beer costs, you know,$4. We'll be right back. What's up, friends? Years ago, I opened an account with one of the old banks, but they were stuck in the past. The online banking was terrible.

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18:17There's an interesting point about the, you know, the branding being a little bit differentiated and incremental. I'm not somebody who grew up with hot sauce. Nobody in my family was reaching for hot sauce to put. Where are you from? Where did you grow up? Chevy Chase, Maryland. zone oh yeah yeah so uh you know kind of vanilla people you know we can't handle the heat there although as an adult i have learned to really enjoy it so as an adult i've learned to enjoy it but when i have been out for dinner with friends who do eat a lot of hot sauce it's funny how they order it because they'll be like and i want hot sauce like but like give me the real hot one and they kind of like look around at everybody and it's like a point of pride you know like yeah i I'm a man and I can handle the hot stuff.

19:02And, you know, I feel like the kind of branding you're talking about, at least with like my guy friends who I go out to dinner with, like, they'd be like, yeah, that's the one that speaks to me because I can handle the hot stuff, like the macho branding. I would even do it the way I chose branding was it would be more to talk to you to get your interest in trying our hot sauce. Like, you know, having you walk that set and instead of, you know, quickly step right past it, you know, maybe stop and say, hey, this one looks delicious. This one seems like it's not going to burn me or make me uncomfortable because I also hate that.

19:35You know, even though I grew up eating spicy, food is meant to be enjoyed. My mom would say that hot sauce is supposed to enhance the flavor of the food you put the hot sauce on, not mask it. And I don't know if that makes sense, right? Sometimes hot sauce is so overpowering that you only taste heat. And not the food you're putting on either if it's poultry or fish. Yes, I know what you mean. So, yeah, your branding actually makes sense to me in terms of how people would look at it as incremental. Because as I got older and, like, you know, moved around and experienced dining out with different kinds of friends, then I would be really impressed with the ones who would order their meal and be like, and I want, like, what kind of hot sauce?

20:24I want extra, extra hot. And then they would kind of like look around at everybody like with some bravado and you're like, whoa, okay. And so it did kind of seem like a super macho thing to me. And so it kind of makes sense when you're talking about a lot of the branding that's out there about like fire and like, you know, very macho and just like really aggressive stuff. So it then that also then following makes a lot of sense why a brand like yours that isn't intimidating, that isn't overly masculine would bring in incremental consumers. That was kind of like what I wanted to do. I wanted to connect with the Daniels of the world, right?

21:01Like to people that instead of walking really quickly, passed by the hot sauce set, you know, maybe to stop by and to pay attention, like why does that bottle look different? Oh, that bottle actually looks delicious, right? And pick it and seeing that the ingredient, there's no crazy ingredients about it, right? You know, my mom would say that hot sauce is supposed to enhance the flavor of the food you put it on, right? Not mask it. And those people that are like, bring me the hottest that you have available. Unfortunately, that's what they're doing to their food. They're going to mask the flavor of the food you put it on, you know, with just heat and uncomfort.

21:45And that's not what we want, right? And so that's hot sauce is to make supposed to make food taste better, not to make the only thing you taste is hot sauce. So what do you think is actually happening when you bring people like me into the set? Because honestly, I never would have looked at hot sauce at all. But I think just my personal journey back into hot sauce, I think there are maybe two brands that just for whatever reason kind of got me interested in it. One was Yellowbird with the ghost pepper. I don't know why but for some reason I think maybe it's a different kind of heat where I'm like oh no this is like good and I can handle it it's not too hot for me like you know didn't just like blow my tongue up it would give me kind of like I felt like roof of mouth kind of hot which I feel like I can take better and I just got I was like oh no maybe I do like hot stuff like that's cool and then I feel like also maybe fly by jing and you know just kind of explosion of chili crisp that kind of stuff got a lot of people interested in hot stuff in general like yeah maybe I do like hot stuff.

22:47People who, like me before, didn't have this culture growing up of loving hot sauce instinctively. So yeah, when it comes to appealing to people like me, do you think that there has been a shift of a lot of new people finding their way into hot sauce? Absolutely, absolutely, a hundred percent. And the way that it just, I think, evolved again. If we go back to the comments I made before, it was like, for the most part, hot sauce here in the United States is just water, vinegar, salt, and the pepper, right? And so, you know, what Yellowbird did was bring other profiles of flavors and ingredients like, you know, carrots and onions, you know, into the hot sauce that complement really well and dilute, you know, the spiciness.

23:38For example, you know, like you said, ghost pepper. Ghost pepper is a super spicy pepper. Like there's no way that on its own, that is something that at least I could tolerate, right? So, and actually same with the habanero for me, for example. Habanero is one of those peppers that is delicious. It's fruity and it has depths and has some incredible brightness, but it's very high on the Scoville level. And how can you put a habanero on product without just fatiguing your taste buds? That's kind of what I like to say. And so for us, at least, it's like, all right, so let's tear it using my mom's recipe.

24:23But we also use mangoes and dates and carrots and onions, kind of like to dilute that heat and just complement and amplify the flavors of the pepper. So it becomes a very pleasant experience. And same with the chili crisp, the Asian chili crisp. That's something that I was very pleasantly surprised to see catching on, you know. And that's kind of like understanding that that's coming from a different culture, from different countries, trying to ride that wave. Because, again, in Mexico, we do have our own style of chili crisp or chili crunch. And that is, you know, salsa matcha. And for us, you know, we use different spices, you know, the Asian chili crisps.

25:08They use, you know, some spices that are a little bit more numbing, which is gives it a different experience. And not numbing in a bad way. It's numbing in a good way, right? Versus us, it's maybe a little brighter for us. Maybe it's a little nuttier on that regard. You know, maybe there's more hints of sweetness because we do use, you know, maybe some fruits. Like for us, we use raisins and cranberries in one of our versions. So usages are kind of like the same. And so if you want to put salsa matcha in your noodles and your rice, you totally can. The same way that we can use chili, the fly by jing in tacos and eggs.

25:52Yeah. Interesting. Yeah, I know they use a lot of, yeah, Sichuan peppercorn that has the numbing, like mala, I think they call it effect inside of it. A lot of people have been, yeah, if you go to a lot of Chinese restaurants, you might have it in a spicy dish, which can numb your mouth and even like kind of make you salivate a little bit, which is pretty interesting when mixed with the flavor of the dish. And yeah, the couple brands doing pretty interesting things with that these days. So let's fast forward a little bit because I'm really interested in, you know, congrats on the successful acquisition.

26:23We know it can be really hard to make that happen in the Slack. I always see brands like even in their first year, they're like, hey, I would love to sell this thing probably now at this point. Anyone know where I can? I'm like, it's very hard. like you know people are not interested in acquiring generally a brand at a very early stage even if you think you've created this incredible recipe you know and like gotten a couple doors it's really hard to create something that somebody really sees the value in acquiring to grow so can you just tell me a little bit about how this all came about like how do you decide that this was the path you wanted to pursue how do you get acquainted with the acquirer all the good stuff you know in our case it was that we started pretty much this decision the moment we started to raise money, right?

27:07The moment you start raising money, and I think it's past that friends and family stage, right? That seed round where it's like, all right, this is going to be the path, you know? And either you, when you start your business, there's two ways, I think, and there's no ifs or buts about it. There's two ways. Either you are going to do this profitably at your own pace right which means grow as fast or as slow as you can where you can still pay your suppliers maybe yourselves if you if you can in the black uh p &l book or the let's raise money let's pour cash into the business. Let's see how quickly it grows.

28:01And profitability is not that important because of the growth and performance. We're going to become point of interest to a strategic or whoever can take it to the next level. It's when you start falling in the middle that it becomes kind of like, you know, really hard and things start to get a little dire. You know, for us, we didn't raise a huge amount of money. You know, we did a friends and family. I think, you know, we raised around, you know, 500, maybe 500 to 600K. Then we did a little pre-seed, which we raised another 700K. And then we did a seed round where that was like the first time we raised a good chunk of money.