“It’s becoming very popular. People get it” – US firm Spudsy on the market for upcycled foods
Spudsy founder Ashley Rogers talks to Dean Best about the new investment in the fledgling US business, its involvement in PepsiCo’s accelerator and her belief in the future of upcycled foods.
Sweet-potato snacks supplier Spudsy is one of a number of fledgling US businesses selling foods made from upcycled ingredients.
The area remains a niche but more products are appearing on US grocery store shelves, Big Food is testing the waters and investment is coming in from private equity. Entrepreneurs are convinced the market for upcycled foods will grow, buoyed in part by growing consumer interest in issues such as food waste.
One business that has attracted funding is California-based Spudsy, which also won a grant from PepsiCo in 2020 as part of the food giant’s Greenhouse accelerator programme. In September, Spudsy and founder Ashley Rogers announced the closing of the firm’s Series A funding round, investment she hopes will further grow the business’ presence in the US.
Just Food: What’s the story behind the funding?
Ashley Rogers: The investors that put in US$3.3m, KarpReilly and Stage 1 Fund, we’ve been partnered with them for the last year. They also put in $2m last July, so it's kind of a second tranche Series A, basically $5.3m in the last year. To date, we’ve raised $6.5m in the last two years. The remainder of it has been through seed, angel, investors.
What have KarpReilly and Stage 1 Fund brought to the table?
They’ve been in the CPG space for a while, a lot of food and beverage brands. They’re partnered with a tonne of agencies, attorneys, retailer connections – really anything that we need help with, we go to them and they have a database of people they can point us to. They’ve basically helped us to get our direct-to-consumer and Amazon [business] off the ground and they’ve helped us find the consultants we need to source the things we can't find. They get us to where we need to go quicker.
What will you be using these new funds for?
One, to support the current retailers we’re in. We really believe when people try the product they’ll buy it again. So investing in demos, TPRs [temporary price reductions], off-shelf programmes. We’re not a brand who just believes in selling the product into the store. We really want to support it and get our velocities up.
Another thing we will be using the funds for is to build out our team and to get into new retailers that we’re not in. We’re in about 6-7,000 retailers, which isn’t a lot in the grand scheme of things. Getting into new retailers in 2022 is a big part of our focus. The last thing is building out our direct-to-consumer and Amazon. It’s something we’ve just started focusing on. We know there’s a big opportunity there. It’s something we want to really dive into this next year.
Who are your largest customers?
Whole Foods is probably the biggest volume in stores. We’re in almost 500 Whole Foods. We’re in 1,200 Food Lion stores, in about 400 Sprouts stores and then 600 Kroger doors. We’re nationwide, so all 50 states.
In a typical Whole Foods or Sprouts, how many SKUs of yours are typically on sale?
Three to four.
What level of upcycled snacks would be stocked at a Whole Foods or a Sprouts?
They don’t really segment upcycled snacks. Spudsy is starting to be one of the leaders in upcycled snacks. It’s a big focus for us and when people talk to us about Spudsy that upcycled piece always is a part of that conversation. We work with a tonne of subscription companies that focus on upcycled also. [Subscription services] Imperfect Foods and Misfits are probably about 20-30% of our business.
Are all of your products made from upcycled ingredients?
The sweet potato flour specifically in the product is upcycled, and we’re working on getting the potato flour also to be upcycled. That’s going to be another thing that happens in 2022.
How would you describe consumer interest in the US for upcycled foods? Has the pandemic given upcycled foods a shot in the arm?
Yeah, I think people are just so aware of what they put in their bodies now – label readers, people that focus on Nutritional Facts, gluten free, non-GMO call-outs. I feel like upcycled is another piece of that. I do feel like it’s becoming a lot larger and there’s more awareness behind it. Imperfect Foods and Misfits do a tonne of business from selling upcycled produce and those two companies specifically have helped get the word out there. I do feel like it is something that is becoming very popular and people get it and understand what it is.
Who’s your target consumer?
It’s women between the ages of 25 and 40. Eighty five per cent of our consumers are women who have young families at home, so the millennial mom is really big for us.
What are your net sales due to be by the end of the year?
I can't really tell you that.
What’s your annual sales growth expected to be in 2021?
Every single year to date we’ve tripled our sales, so, the same for this year. Luckily, 2020 was a really good year for us, I feel like because grocery stores were panicking in the beginning to get food, it was something that really actually helped our brands.
Are there parts of the US where you’re a bit under-represented and you’d like to bolster your presence?
No, I think it’s more a retailer focus. We’ve been really focused on the natural and conventional channels. We’re starting to look at maybe club and bigger retailers, like Target, Walmart.
What do you think that will mean for the types of products you offer? And your pricing?
I definitely think a multipack is in our near future. Before we get there though, we just need more people to try the product so I think getting into these larger stores will just bring more brand awareness. I do feel like multipack will be huge for Spudsy, knowing one of our largest consumers is the mom with young children at home.
How do you think you can improve Spudsy’s sales velocity?
We have a promo calendar we put into place with all retailers. When you’re on promo, that incentivises people who haven’t tried your product to try it. When we do demos, they try the sample right then and there and then they use a coupon on the sample to get $1 off their next purchase or get a free bag or buy one get one free. It was pretty hard [doing demos] in 2020 [and] when we started demoing in Whole Foods again in January of 2021 we had to get creative. They’re still not allowing open samples, where you pour puffs into a little cup. We started making a 0.5oz bag and we were able to execute demos by giving away those little baby bags. It did cost us a tonne more because we had to produce all these new bags but it’s something that's really worked for us.
The fresh funding should give you greater financial muscle to do those kinds of more promos more often.
Totally. It gets very expensive but it’s worth it. We get these pools of data and we can physically see the areas where we’re demoing have a higher uptick in velocities than the areas we don't.
You’re starting to up your efforts in direct-to-consumer. Do you think Covid has made more consumers more likely to buy food products that way?
I do. I feel like it depends on what the product is though. I honestly feel like – and I hope I'm wrong – our product is a harder product to sell direct-to-consumer because we can’t just sell one bag of chips online. For shipping purposes, it doesn’t make sense. We have to sell multiple bags, so I feel like it is a harder purchase for somebody who has never tried the product because they have to buy six bags at a time. I feel like it’s more of a grocery-store item that you pull off the shelf, similar to beverages. So, I think it depends on what the product is but I definitely do think there is more of an opportunity because of Covid. As the pandemic has gone on, we’ve seen a shift in consumers being open to buying certain foods online that they might not have before. With this fundraise, we are planning on revamping our DTC channel, which will help us catch that new wave of shoppers.
What were your main takeaways from Spudsy’s involvement in PepsiCo’s Greenhouse Accelerator?
The one thing I loved about that programme is we got to work aside nine other brands that were in similar situations to us.
What did PepsiCo itself bring to the table?
The same thing as our investors help us with. When we needed help, we reached out to them and they were able to point us in the direction of somebody that can help us. They were basically a sounding board for us for six months and they helped us get better pricing on some of our materials.
Did you have any concern about entering an accelerator programme managed by the biggest savoury snacks company in the US? That part of the reason they launched the project is to see what up-and-coming brands are doing in certain areas?
That never really crossed my mind because if they want to launch sweet potato fries they’re going to do it. I think the problem with bigger corporations like that is it takes them so long to get a new product off the ground. That’s something they would talk to us about in meetings we had. It’s a two-year process for them to launch a new product, when us smaller brands can pivot and we’re able to do things more quickly.
What are your thoughts on the prospects for upcycled foods in the US? The Upcycled Food Association’s new certification and seal may help.
It’s definitely important to have that seal. I do feel like a tonne of companies now are just doing [upcycled] to do it and I feel like it will turn into something that’s more like you need that seal, like you do non-GMO, vegan, organic, to claim an upcycled product.
Have you got the seal?
We actually are Upcycled Certified. [The seal] is on our next order of film so that will be printed on our bags.
Given the fledgling nature of the business so far, you’re working with a co-manufacturer at present, correct?
We work with two separate co-packers – an extruder for our puffs and a pellet popper for our fries.
Might you need to expand capacity over the next couple of years should your sales continue to grow at the rate they have?
Well, one thing that was really important to me is to partner with the right manufacturer. We actually work with the largest salty snack manufacturer in the US, so they’re able to grow with us. I don’t think capacity will ever be an issue because they are able to purchase equipment ahead of time based off our projections. They’re actually equity partners in the brand so they make us a priority.
Who is this co-packer?
I can’t tell you that. Not Frito-Lay. They’re the largest private salty snack manufacturer.
What international ambitions do you have for the business?
We actually are sold in the UAE. We are working with international distributors right now but I definitely want to be where you’re at. I feel like London and the UK make sense for the brand. We definitely want to expand our international distribution. We’re just kind of focused on the US right now.
So, as far as international markets go, there aren’t any specific plans for 2022? It might be a 2023 initiative?
Yes, as of right now.
When do you think you may need more funding?
I would say probably the end of 2022.
What do you think those funds would be needed for?
To continue to build on our team, support these retailers, marketing. I do feel like we’re in a place where the brand is becoming profitable, so I'm hoping we’ll only need one more round of funding before we get to a good stream of profitability, where we can continue to fund ourselves. That’s something that’s really important to me: building a brand that’s profitable.
Is the business profitable now at a net income level?
This year we will be, yes.
Would the next round of funding come from the existing Series A investors or would you look to broaden your investor base?
Ideally, I’d like to stick with the current investors we are with. We have a really good relationship with them and they’ve truly been amazing to work with. We would like to go to them first. I feel like they would be on board for doing this next round of fundraising.
Overall, what’s your vision for Spudsy? What gives you optimism the brand and the business can continue to grow and that the product area of upcycled food can gain traction with consumers?
Yeah, my vision is to, one, become a household name. I want everyone in America, or the world, wherever it goes, to know what Spudsy is, to be a household product and to become a platform brand. I want to branch out eventually from the salty snack aisle and live in different aisles of the grocery store. I feel like sweet potato is an ingredient that everyone loves and it really can be turned into any carb.
Could new products come next year?
Possibly by the end of next year.