The challenges of taking a FaB startup national

Monday, December 14, 2020
Stacy Vogel Davis, BizTimes
 

Cindy Poiesz, founder of Evolve Brands.Cindy Poiesz, founder of Evolve Brands.

Cindy Poiesz, founder of Evolve Brands has a classic entrepreneur success story. She started selling her granola mix, Supernola, at farmers markets in 2015. Sales grew tenfold after she partnered with a food industry executive and bought a facility in Jackson. In February, Supernola launched in Walgreens stores nationwide.

But her journey has been slower than she would like at times, with some bumps and detours. She has navigated issues of equipment, financing, the national retailing landscape and, of course, a global pandemic in 2020. Critically, she did not do so alone.

Poiesz advises local entrepreneurs to tap into available resources as they chart their growth.

“There is a network here, and you should really use it,” she said.

For Evolve, that network includes industry group Food and Beverage (FaB) Wisconsin, Madison-based Food Finance Institute and brokers who help her tailor its product to national retailers.

Taking a food or beverage business national is complicated, said Shelley Jurewicz, FaB Wisconsin executive director. It’s one thing to get into local grocery stores but getting into regional and national chains is another challenge entirely. In all cases, companies must follow food safety regulations and obtain the proper equipment and production capacity to meet increased sales, which often requires large capital injections.

It’s crucial that entrepreneurs develop a targeted growth strategy, said Tera Johnson, founder of the Food Finance Institute (FFI) at the University of Wisconsin System Administration.

“The clearer people can get earlier on about the scale of their ambition, the better,” she said.

FaB Wisconsin created the FaBcap Accelerator in collaboration with FFI and the Wisconsin Economic Development Corp. to help entrepreneurs untangle these issues. The program, now hosted by FFI, accepts 10 companies each year for coaching and mentoring along with a $10,000 award and participation in a pitch event. Companies can participate in accelerator workshops even if not selected for the program.

Of the 40 companies that have graduated, 39 are still in operation, generating $35 million in annual sales, Jurewicz said.

The accelerator helped Milwaukee Pretzel Co. define its business plan and grow its network, co-owner Matt Wessel said. He and his wife, Katie, started the company in 2013 to bring Bavarian-style soft pretzels to Milwaukee. Its reach has since grown to 17 states.

Before 2020, the company saw annual growth of 25% to 30%, mostly in the food service sector, including restaurants, bars, festivals and stadiums, Wessel said. The COVID-19 pandemic crushed sales in that area but motivated the company to accelerate a different goal.

“We’ve always wanted to get into grocery, and this forced us to get into grocery faster,” Wessel said.

It quickly created its first grocery product, a 1-pound frozen pretzel called the Bavarian Beast. Palermo Villa Inc., another local food company that has gone national, added Milwaukee Pretzel Co. to its direct-store delivery network, and the product is now available in more than 200 stores in Wisconsin, Illinois and Minnesota, Wessel said.

Grocery sales, along with a 500% increase in online sales, will help the business finish the year with an estimated 10% dip in revenue despite a steep drop in food-service sales, he said.

“When we get through (COVID), our company certainly will look back on it and will have built two stronger revenue channels than we had before,” he said.

The company will move into a 22,000-square-foot facility on Milwaukee’s far northwest side in early 2021, Wessel said. It bought the $1.4 million facility three weeks before the pandemic hit with funding through BMO Harris Bank, the U.S. Small Business Administration and the Milwaukee Economic Development Corp. The financing included $600,000 for improvements and equipment.

The pandemic also struck at a critical time for Evolve Brands, Poiesz said. Walgreens started carrying Supernola in February 2020 after nearly two years of talks with the company.

Evolve worked with a broker specific to Walgreens on everything from packaging to production amounts.

“It’s very risky to launch into new retailers,” Poiesz said. “You can lose a lot of money if you don’t do it right, and so you need experts who have been doing it for a lot of years.”

Two weeks later, sales plummeted due to the pandemic. But the downtime allowed Evolve to update its growth plan and bring in necessary equipment to expand its capacity, she said.

Evolve added a West Coast distributor of Supernola in the fall, bringing it to 8,500 stores total. It’s now targeting convenience stores and has hired a broker to try to get into Costco.

In January, Evolve completed a Series A funding round.

“We were really focused on having the right investors who understood (the company),” Poiesz said. “COVID was a great test for that relationship, but they could not have been more supportive.”

A company that can scale up quickly through nationwide distribution, like Evolve, is attractive to private equity, Johnson said. Those funders are typically looking to grow sales to $10 million or more to attract a buyer to pay out their investment. Slower, steady growth is more likely to attract bank loans.

“I do a lot of work to try to get people to be clear about whether you want to be on that exponential growth plan or not, and that says a lot about the people that are going to invest in you,” Johnson said.

Kwadwo Owusu-Ofori, the founder of Wauwatosa-based Satori Food Project, pictured in his lab. Kwadwo Owusu-Ofori, the founder of Wauwatosa-based Satori Food Project, pictured in his lab. Credit: Lila Aryan

Kwadwo Owusu-Ofori, a 2020 graduate of the FFI FabCap Accelerator and founder of Wauwatosa-based Satori Food Project, aims for rapid growth. A doctor of pharmaceutical sciences, he developed a line of single-serving coffee and hot chocolate pods infused with vitamins that ease anxiety. He launched the product in June after years of research and consumer testing, including a previous startup that sold vitamin-infused coffee creamer.

He originally planned to sell the pods to businesses through office supply chains, but since people are staying home due to the pandemic, most of his sales come through Amazon. Production and sales have doubled each month, and he now sells hundreds of cartons a month, each with 12 pods, he said.

As the only full-time employee, he works with a contract manufacturer, marketing firm and sales consultant. He hopes to grow through digital sales, psychiatrist and psychologist referrals, and clinical trials that could prove the product’s effectiveness in treating anxiety.

Satori, based in the Milwaukee County Research Park in Wauwatosa, has raised $125,000 in funding so far, including $10,000 from the accelerator program; $10,000 from Project Pitch It, a local investment show; and $25,000 from Wauwatosa-based Global Capital Group LLC, Owusu-Ofori said.

“I think it’s going to be something that we’re eventually going to scale up and sell,” he said.

Brian Miller is on the other side of that process. His family owned Milwaukee-based Miller Baking Co. for decades, but it grew exponentially starting in 2007 when it introduced the Pretzilla pretzel-style bun. The company has grown by double digits each of the last five years, with Pretzilla products for sale at Whole Foods Market and other grocery stores nationwide. In November, the company announced its acquisition by Benestar Brands LLC, a portfolio of Dallas-based Highlander Partners L.P.

Miller passed on several sale offers over the years because he wanted to make sure Pretzilla was the established market leader, he said. He believes Benestar is the right partner to continue Pretzilla’s growth.

He will stay on for now as CEO and “brand cheerleader,” but he knows the company is entering a new era.

“It was a wild, scary and rewarding ride,” he said. “I kept grinding every day to get better because that’s what you instinctively do when you love what you do.”

 

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