"Meat Snacks For Sale"

Two popular meat snack brands were sold in the past three months. Chomps co-founder Pete Maldonado predicts there are more to follow.

When my 4-year-old son asks me what I do for a living, I tell him “Daddy sells Chomps.” It’s simpler than explaining I run a snack brand in a category that is experiencing the beginning of deep consolidation, driven by too many unprofitable brands, investors’ demands for a return and changing consumer behavior.

If you’re tracking my industry, you probably heard the news that Chef’s Cut, another meat snacks brand, was recently purchased by Sonoma Brands. In May 2020, Sonoma Brands purchased another meat snack brand called Krave, originally founded 11 years ago by Sonoma Brands’ co-founder and managing partner, Jon Sebastiani. Sonoma purchased it back from Hershey, which previously acquired Krave in January 2015. So, roughly six years after selling Krave for $220 million, Mr. Sebastiani bought it back for what I can only imagine was pennies on the dollar, based on retail data and Hershey Co.'s massive $108 million write down of the brand, cited in The Wall Street Journal.

Krave's recent sale, and Sonoma Brand's purchase of Chef's Cut months later, is the equivalent of meat snack musical chairs, and further evidence of the consolidation that lies ahead of the category.

I co-founded Chomps in 2012 with my business partner Rashid Ali (a company profile from Crain’s Chicago Business, here). The success of brands like Krave helped lay the foundation for ours. But if you’ve shopped for meat snacks the past two years, you know there is now an overwhelming amount of choice, with meat snacks that are just too similar in quality and taste. Twenty-seven (27) different brands of meat snacks have arrived at stores since we founded Chomps. It’s overwhelming. And when shoppers feel overwhelmed by too much choice they often go back to familiar brand names (another reason cited by Hershey for their write down of the Krave brand). We were fortunate to introduce Chomps when the competition wasn’t as intense, and that timing allowed us to become one of those familiar brand names the past 8 years.

Since Chomps launched in 2012, 27 different brands of meat snacks have arrived at stores.

The Covid pandemic has hit a lot of food brands hard because of retail and consumer dynamics. Chomps was spared the worst of the downturn because we started as a direct-to-consumer brand. Over the years we've built a strong customer base through our own website, and ultimately built brand loyalty. In fact, after shifting our e-comm messaging to be a “pantry staple” in March, we saw a 30% increase in our online sales that month.

But we were also impacted by the shifting dynamics of Covid safety precautions at retail and by changes in consumer shopping behavior. Because of newly implemented customer occupancy limits (in May for example, grocery chain Wegmans "lowered the number of shoppers and workers in its stores to a 15-20% capacity" per The Wall Street Journal) and the installation of safety shields for grocery staff, our grab-and-go sales at the checkout counters were hit hard. In other stores, at the height of hoarding, consumers were simply shopping for the most basic of necessities.

Through these challenging months, Chomps remained strong as a company and brand because we’ve been operating a well-managed, cash-positive business since our first year in business. The brands that are struggling today, and being sold off by their owners or private equity partners, are the ones that didn’t focus enough on profitability and stronger financial structuring. In short, the meat snack brands selling off now are part of what I predict is an ongoing string of fire sales. It’ll be spun by founders and private equity as “joining forces” or “synergistic,” but trust me, these are fire sales and there will be more to come across all snack categories.

The snack brands that are struggling today, or being sold off by their owners or private equity partners, are the ones that didn’t focus enough on profitability and stronger financial structuring.

The Chomps approach

Chomps has never relied on outside capital. We’ve bootstrapped the business on the way to becoming a snack brand with growing national distribution and multi-million dollar sales. In fact, I was the company’s only full time employee for the first five years, and ran Chomps out of my Chicago apartment, strictly as a DTC brand until we started selling at our first retailer in 2016: Trader Joe’s. Rashid didn’t give up his day job as an operations consultant until Chomps passed $10mm in sales in 2017. My advice on scaling your team: use hiring 1 full time employee (FTE) for every $1 million in revenue as a guideline. Some might say we were too conservative in building this brand, but I disagree, because I believe you cannot build a strong brand without a strong infrastructure behind it.

It’s a blueprint that always made sense, but a blueprint that has been highly ignored during the natural foods boom that has attracted so much private equity money the past 5-6 years. Now a pandemic, the volatility of the financial markets and capital markets drying up, reinforce for us, as Chomps’ founders, that we made the right moves and were prepared for a year like 2020.

The idea of a well-managed, cash-positive food start-up has been highly ignored during the natural foods boom that has attracted so much private equity money.

Manage your margins

A strong business starts with strong margins. My advice for most start-ups: use 40% margin as a goal and a guideline. The best time to put your COGs under a microscope isn’t when you achieve some level of early success, it’s before you enter the market. One big reason: once you start selling in retail, you’ll find some channels can be very expensive to sell in, for example: slotting dollars. If you don’t have the COGs dialed-in when you launch, you’ll never get it under control without severely impacting quality or your operations as you scale the business.

Make e-commerce work for you

Focus on e-comm initially, use it to prove your concept works and start building sales and a community for your brand. Gather feedback, perfect your product, nail down supply chain and operations, find profitability and build an engaged following on social media. Even after you get in stores, and even after retail drives the majority of your sales, this loyal fanbase will support your velocities in retail. Selling products in stores gets you major sales volume, and many entrepreneurs take their eyes off their direct-to-consumer business. What happened to so many companies and brands at the start of Covid -- who ignored e-commerce -- is a perfect example of why a direct-to-consumer sales strategy has been critical for most businesses the past decade. I recommend that an established consumer brand generate a minimum of 30% of their total revenue from e-commerce. 

Final thoughts on a strong business

I also recommend using a net effective pricing model that includes all your actual costs: COGs, discounts, trade spend, shipping/freight and brokers’ fees.  

Focus on key, hero products. Excessive SKUs are the kiss of death for a newer consumer brand. Build the equity of your core offering and avoid too much innovation until after you’ve reached critical mass. 

Creating a successful business today, or restructuring your snack brand’s business and financial model (I’m staying in my lane here), requires more discipline and an eye on profitability every year, from year one. I’ve never been a fan of free spending to build market share at the expense of the company’s fundamentals, and I’ve never been happier we stuck by that principle than I am today.

I welcome your feedback. Please DM me on LinkedIn.