Innovative Challenger Brands Panel

THE FOOD AND BEVERAGE INDUSTRIES today enjoy a historical confluence of rapidly shifting consumer trends and low barriers to entrepreneurship, generating a flood of innovation. To explore the motivations as well as technical and business challenges of entry-level food and beverage entrepreneurship, Global Food Forums convened a panel of entrepreneurs to share their insights and experiences.

The panel was moderated by Kara Nielsen, Vice President of Trends and Marketing, CCD Innovation, an Emeryville, Calif.-based food and beverage innovation consultancy.

Panel participants included:

• Miyoko Schinner, CEO and Founder, Miyoko’s Kitchen, a Petaluma, Calif.-based manufacturer of vegan dairy cheese alternatives.
• Dariush Ajami, Ph.D., Vice President, Research & Development, Beyond Meat, an El Segundo, Calif.-based manufacturer of vegetarian meat alternatives.
• Kurt Seidensticker, CEO and Founder of Vital Proteins, Elk Grove, Ill., a manufacturer of hydrolyzed collagen products for joint health.
• Natalie Shmulik, M.L.A., CEO, The Hatchery Chicago, a business incubator focused on food and beverage start-ups.

Nielsen opened the panel by describing her own company’s focus on developing “challenger brands”—the focus of the panel and a term that reflects how many emerging companies are challenging the status quo in food manufacturing. “When we look at challenger brands, we need to ask what it is that we are challenging and why. Consumers have changed and, consequently, their needs have changed. So, when thinking about the trends these new brands are driving, we are talking not only about changing consumers, but also about their evolving values.”

Nielsen then asked panelists what motivated their entrepreneurial ventures.

Entrepreneurial Motivation
For Miyoko’s Kitchen’s, Schinner, a vegan for 30 years, it was an opportunity to change the world. “I have a deep respect for all species to live on this planet as they wish to live, not as commodities for us,” she began. “To be healthy, we need to think about the health of the planet and the health of animals…and create a world that supports all life forms.” But, she emphasized, “we also need to appeal to people’s taste buds, to make people think, ‘if I like products like this, I could go vegan.’”

Ajami, Beyond Meat, said that his company’s goal is to engineer a global shift from animal to plant-based meat. “We believe we can perfectly replicate animal muscle protein with plant protein.” He argued that, ultimately, the animal protein industry is not sustainable.

Seidensticker, Vital Proteins, was motivated to create his company five years ago as the result of sports-related joint injuries. “Humans are creatures of motion and flexibility,” he said, and that means they need to create collagen for joints and other connective tissue. His research suggested that humans synthesize insufficient quantities of the essential amino acids required to meet their collagen maintenance needs. He also found that collagen supplementation helped his joint recovery after running. Thus, he launched his company on the value proposition of health, wellness and functional benefits of hydrolyzed collagen.

For Shmulik, The Hatchery Chicago, motivation in her work was to, in turn, help entrepreneurs succeed. The Hatchery currently occupies a 400,000 sq ft (37,200 sq m) facility that Shmulik expects will eventually house 75-100 entrepreneurs, along with manufacturing, packaging, training and support resources. She also added, “Our social mission is to serve one of the most underserved communities in the nation with one of the highest unemployment rates.” Shmulik predicted that the Hatchery would create 900 new jobs within five years of inception.

Initial Hurdles
For Beyond Meat, said Ajami, the first major obstacle to overcome was a supply chain issue: to identify appropriate sources of protein, as defined by amino acid content, that were available in the amounts required. For Miyoko’s Kitchen, the first major hurdle was manufacturing scale-up. She had started making artisanal vegan cheese at home but ran into problems with scaling up the ripening process. They initially built an aging room using galvanized steel but were forced to switch to stainless steel after rust problems developed.

For Seidensticker, it was about speed and persistence: “The quickest way to learn is to do and optimize something yourself.” Thus, Vital Proteins, built its own manufacturing facility from day one and quickly constructed a vigorous online-sales and marketing presence to develop consumer awareness. Plus, he stated, “Anytime you create a new market category, you may have to go through three or four iterations before you get it right.” That requires time and money.

Shmulik listed the top hurdles she had observed in her work with entrepreneurs. First, she said, they need to do their market research up-front, in order to confirm that what they perceive to be a market opportunity really is a market opportunity. Financing is also a major challenge, as entrepreneurs almost always underestimate how much funding they will need at the outset. “We encourage our clients to build their first prototypes on the cheap and to get them in front of potential customers for feedback.” Third, they should investigate the legal and regulatory terrain in order to avoid making expensive, “brand-shaking” errors.

Nielsen asked Schinner to address the potential labeling issues of marketing non-dairy cheeses as “cheese,” as the U.S. dairy industry is required to label its products, including cheese, according to rigidly defined Federal Standards of Identity (SOI).

“Even though SOIs exist to prevent confusion in the marketplace, they don’t help determine what new, innovative products should be called,” said Schinner. “So, if you can’t call something a substitute for something else, this only further confuses consumers.” There is a lot of legislation and lobbying underway by the plant-foods industry to resolve these issues, she continued, but, until then, “we decided to put ‘cheese’ on our label.”

Sometimes, entrepreneurs need to be bold and willing to create their own market category, added Seidensticker. “At first, I didn’t think we could enter the protein category, as it was so crowded and dominated by dairy and plant proteins. So, we decided that we would create a third category…functional protein.” He and his colleagues spent a lot of time testing their concept by talking to people at trade shows. “Trade shows gave us the opportunity to get in front of major influencers and perfect our message.”

Nielsen asked Shmulik how The Hatchery Chicago advises its clients to leverage resources. “We encourage our community of entrepreneurs to exchange resources, such as leads to distributors and outside manufacturers,” she responded. Being an entrepreneur can be very isolating, and “we spend a lot of time playing psychiatrist.” Also, many entrepreneurs become so excited and anxious to get their product out to retailers that they overlook the importance of negotiating favorable terms and developing long-term relationships with retailers, said Shmulik.

“One of the things that we did very successfully was to go first to consumers through online sales in order to build brand recognition,” said Seidensticker. As a result, Vital Proteins was able to immediately secure national distribution at Whole Foods based on its online presence and extensive consumer community. Ajami added that developing tight relationships early on with the supplier community is critically important. “We wanted to communicate to them that we were in it for the long-run, so that [our supplier community] would be there when they were most needed.”

“Sometimes we come up with products on purpose, sometimes we don’t,” observed Schinner. Some new products are developed by sheer accident, but an active online interaction with consumers provides instant feedback on whether they represent real market opportunities or how they can be adjusted to better fit consumer expectations. Seidensticker confirmed: “Direct-to-consumer sales allow one to innovate more quickly and develop closer, interactive relationships with their customers. They send us suggestions that help us to better resonate with our customers.”

Also, consider cross-brand collaborations, offered Shmulik. She not- ed several such collaborations, such as online custom coffee roaster Stumptown Coffee‘s (Portland, Ore.) collaboration with Taza Chocolate (Somerville, Mass.), an online, direct-trade chocolate manufacturer.

Some innovation opportunities become evident from simple walk- throughs of food and beverage stores. “If you walk into a butcher shop, you will see all the products that we seek to emulate,” explained Ajami, of Beyond Meat. The company has systematically expanded its original platform to include The Beyond Burger, Beyond Sausage, Be- yond Breakfast Sausage and Beyond Chicken product offerings.

Authenticity and Transparency
Authenticity is the key to resonating with consumers, said Seidensticker. “When we first got into this space, there were collagen tablets in the market, but nobody knew what collagen was…it was perceived to be some type of pharmaceutical or chemical material. We had to explain that it was made from the remnants of already dead animals and that we only obtained our collagen from humanely raised animals. People could connect with that.” Vital Proteins’ website prominently features a video explanation of its collagen’s sustainable origins.

For Miyoko’s Kitchen, “whole foods” is the key. “We have an easy job, because all of our ingredients are organic-certified, clean label ingredients; the fermentation used for aging is a traditional process well-understood by consumers,” said Schinner. “Natural, whole foods are what we believe to be healthier, and they are also in line with consumer trends,” agreed Seidensticker.

Ajami concurred. “Our strategy is to be very transparent with consumers. Currently, we use a variety of proteins to ensure our products can not only meet, but in some circumstances exceed, the nutritional profile of their animal counterpart. We recognize that consumers are looking for cleaner labels, so we are constantly trying to come up with technical solutions to reduce the complexity of our ingredient lists. Focusing on simple, plant-based ingredients and building products without gluten, soy or GMOs, as we know consumers are increasingly uncomfortable with those ingredients, is a key guardrail that guides our innovation team and helps ensure a simpler label.”

Exit Strategies
Nielsen asked panelists how they viewed the role of large consumer packaged goods companies (CPGs) in food and beverage innovation, particularly with respect to mergers and acquisitions (M&A).

“Gone are the days when consumers perceive big-brand acquisitions of start-ups as a problem,” maintained Shmulik. “When we speak with entrepreneurs, 99% have an exit strategy that envisions acquisition by a larger company, and we now see more entrepreneurs and CPGs embracing the concept of partnering.” Meanwhile, CPGs have been learning to let entrepreneurs keep doing what they do best without meddling in the process. “Such partnerships become especially beneficial if entrepreneurs can access the legal and regulatory resources of larger firms and learn what it takes to build and maintain a brand,” continued Shmulik. Many CPGs also offer access to venture capital.

Miyoko’s Kitchen’s Schinner noted, “You need to build a brand that you believe will attract investors whose values are aligned with your company’s mission.” This point prompted Seidensticker to add: “But you don’t build a brand to sell it; you build a brand about which you are passionate.”

Ajami noted that Tyson Foods, a leading American CPG company, has been a major investor in Beyond Meat. “It’s nice to know that Ty- son recognizes that the protein aisle is changing,” he said.

The People Factor
Growth brings challenges, especially with regard to people.

“As we get bigger, we want to make sure that we keep our start- up culture,” added Ajami. Three years ago, the company’s employee count rose from 20 to 200, he noted. “We have to be very careful about our hires, as we want to make sure that they are passionate about the company’s mission.” To which, Seidensticker added, “The danger is that the larger we get, the more we start behaving like a big CPG company.”

“Human resources (HR) becomes a huge challenge as we navigate companies from point A to B,” agreed Shmulik. “We offer HR ser- vices to our companies; getting the right talent for them is extreme- ly challenging. Companies need to strike the right balances between hiring people straight out of school that are agile and enthusiastic, and hiring experienced people that know how to take a company to the next level.”

Keep it Simple
An audience member asked about the challenges of having to deal with people, whether customers or investors, that don’t share the same vision as the entrepreneur.

Schinner replied that the underlying issue is the difficulty of explaining an entrepreneurial vision. “Ultimately, what you want is a self-explanatory product,” she noted. Shmulik agreed: “Sometimes success eludes innovators, because they spend too much time and re- sources trying to explain their vision or product to others…because it’s their baby!” That can make it difficult for them to listen to the ad- vice or feedback of others. Thus, Shmulik said she often found it necessary to find ways to convince entrepreneurs that any changes made were “their idea.”

“Our company’s decision to call itself ‘Beyond Meat’ was actually quite clever,” noted Ajami, “because it is easy for consumers to under- stand.” It is also not a challenge to meat-eaters. “Our major target is carnivores, and our products are developed for that group.”

“Ultimately, it is the entrepreneur’s responsibility to educate the market on their product’s benefits,” concluded Seidensticker.

Keep it simple, in other words.

2018 PTT Biz/Innovative Challenger Brands Panel

This presentation was given at the 2018 Protein Trends & Technologies Seminar. To download free presentations and the Post-conference summary of this event, go to https://www.globalfoodforums.com/store/protein-seminars/

See past and future Protein Trends & Technologies Seminars at https://www.globalfoodforums.com/proteinseminar/

Posted on:February 4, 2019

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