Does baby food have to be vile?
Neil Grimmer, a former designer at IDEO and currently the CEO of Nest Collective, pondered that question back in the early 2000s after his first daughter was born. A triathlete and food fanatic, Grimmer and his wife wanted to feed their kids healthy foods as well as begin to develop their palates. Walks down the aisles for kids’ foods, however, depressed him: strained spinach-like materials, added sugar, mystery meats shaped into smiley faces.
So he did what people do in Silicon Valley to cure their problems: he came up with a business plan, raised VC funds and started laying the groundwork for an empire.
Nest, which Grimmer founded with former Clif Bar CEO Sheryl O’Loughlin, is now one of the fast growing companies in the region. Revenue has grown from $200,000 in 2008 to $39 million in 2011 on the strength of products like Beetbox Berry, a beet and strawberry smoothie in a resealable pouch for tweens, and Fiddlesticks, a gluten-free snack twig made with garbanzo flour. A favorite under its Plum Organics label is a baby food made from blueberry, pear and purple carrots.
His ambition, ultimately, is to build a 21st Century Kraft with an umbrella of brands spanning demographic segments. Since 2007, Nest has released 15 different product lines and 69 different products.
“Our goal is to health up every high chair and lunch box in America,” he says. “There is nothing wrong with enjoying your food.”
Nest is actually part of a growing wave of companies modernizing a multi-billion industrial segment that they argue has not kept pace with consumer tastes. A lot has changed since the Gerber Generation after all. Chefs rival rock stars for celebrity status. British chef Jaime Oliver, First Lady Michele Obama and others have personally made healthy heating personal causes. And homeowners in upscale, gated communities install their own chicken coops so they can have fresh, organic eggs.
In Austin, Texas, former Dell exec and new mom Caroline Freedman faced the same dilemma as Grimmer. NurturMe, which she co-founded with Lauren McCullough in 2008, devised freeze-dried, organic baby foods: just mix to taste.
Within 18 months, it has managed to get its products onto shelves in 1,000 outlets including Babies R’ Us and Whole Foods. Next up: possibly a line of freeze-dried snacks for outdoor athletes.
Meanwhile, Revolution Foods, which primarily specializes in healthy school meals, has opened six “culinary centers” that cumulatively prepare over 120,000 meals a day for over 600 schools in nine states. Revenue has doubled annually since its founding in 2006 and will come to $50 million this year. The company isn’t profitable, but four of the six culinary centers–which serve schools within a three hour driving radius– operate in the black, says CEO and co-founder Kristin Groos Richmond, a former investment banker and mom to young kids.
Revolution’s meals cost less than, or within pennies of, government subsides of $2.75 to $3.00 per meal. Approximately 80 percent of the kids eating Revolution’s lunches, snacks and breakfasts qualify for subsidies: the company is not restricted to upper-income schools. In other words, she’s not just serving the Portlandia crowd.
Revolution also licenses its name to Nest for a line of tweener foods. (The companies have inadvertently created an impression that they are one company, but they are distinct entities.)
“The size of the market is huge and people are just fed up with all of the junk food in schools. They know it has huge implications,” said Nancy Pfund, managing partner at DBL Investors, one of the VCs that put money in Revolution. “It is predicable too. If they sign up a school in August, you know you have revenue for the following school year.
“Just because it is not the next Facebook app doesn’t mean it isn’t powerful and revolutionary,” Pfund adds.
But will these upstarts be able to survive against multinationals? The industry is clearly watching intently. When Freedman traced the origin one of NuturMe’s first large orders, it turned out to be the R&D lab of Nestle, which owns Gerber.
“It’s challenging. There is not a lot of IP,” she said.
Branding and segmentation could give these companies some degree of insulation, argues Richard Schnieders, the former CEO of Sysco and a Revolution board member and investor. In food, companies can typically take one or two directions: they can seek to become a low-cost provider or differentiate themselves. Most have chosen the low-cost route.
It’s tough to do both. The low-cost providers want to keep margins razor-thin and the incentives, sales agreements and entire business structure is geared toward that. Many—Pepsi, for instance– have tried to expand healthy options, but it has been a big struggle, he said.
“They want to bring the same hot dogs to all of their units across the U.S.,” he said. “Revolution can be much more fleet of foot.”
Organic foods can cost more, but so far the public has shown it will tolerate, to some degree, higher prices. The relatively low-price of baby food servings also means that the marginal cost truly is marginal.
“Organic is one of the fastest growing categories in the food industry. In beef, the fastest growing segment is grass-fed beef,” he said. “The market snuck up on them (traditional food producers.)”
The Golden Rind
Both Nest and Revolution spring from a twelve mile curve of land in the flats of the East Bay that seems to be emerging as a food center: call it the Golden Rind. The headquarters of Clif Bar and the Northern California offices of Whole Foods sit nearby. Annie’s Home Grown, the 22-year old behemoth that made organic macaroni and cheese a pantry staple, moved to the area a few months ago from Napa. Method, the groovy home cleaning products company from San Francisco, is a seedbed for employees.
Other rising names include Numi Organic Tea, Blue Bottle Coffee, Kid Chow and Fra Mani Salumi. The Gourmet Ghetto—where Alice Waters ignited the restaurant revolution in the U.S. at Chez Panisse—sits at the edge of the Berkeley hills. Besides DBL, other VCs attracted to food include Catamount Ventures, Oak Investment Partners and the Westly Group.
Study in Contrasts
Nest’s overriding strategy has been to marry modern family culture with good ingredients. Yo’ Drops, a snack made from freeze dried drops of yogurt, is a parent-friendly version of Dibs, the tiny ice cream balls. Fruit Shredz, which consists of fruit cut into thin, chewable strips, provides a novel eating experience. Grimmer compares it to Big League Chew, a shredded bubble gum. Messages directed at parents play off humor. Brand development and an emotional attachment between Nest and its consumers are imperative to its success and survival, he maintains.
Does Nest to explain that its Mashups, pouches filled with fruit puree for 6 to 13 year olds, are quite a bit like its Plum Organic baby meals? That probably isn’t the integrated eating experience or brand conversation teens seek, one might say.
Underneath the wacky packages lurks a meticulous manufacturing process. Nest meticulously selects its farmers and manufacturing partners, like Tree Top, by region and crop. One of its signature achievements was popularizing the resealable pouch in North America. Since Nest came out with it, other processors have adopted it over glass jars for baby food. The pouch allows food to be cooked at lower temperatures, for better flavor, but it takes up only 1/14th of the space in landfills. Kids can also feed themselves with the pouches at about eight months old.
“When we talk about innovation, it is about interactivity, taste and texture and nutrition,” he said. “Re-thinking parenting is fairly universal.”
If Grimmer sounds like a Steve Jobs of snacks, Revolution’s Richmond would be the Michael Dell of the cafeteria food. Revolution’s main challenges revolve around logistics: how do you feed thousands of kids seared green beans and chile verde for a few dollars without falling for the siren song of flash freezing and deep frying? The company’s financial survival largely rests on ordering and organizational systems and models it has created in-house.
“The way you receive, the way you cook, the way you assemble, the way you distribute is all kind of a proprietary process,” Richmond said. “There is a challenging economic equation for sure, but we are proving it can be done: you can bring healthy, fresh foods to underserved communities. There aren’t a lot of excuses out there.”
The recipe process is painstaking. The turkey meatloaf took a year to design. Numerous versions of chicken nuggets were discarded until Revolution hit upon its signature Chicken Bite. “None of the specs” on whole grain buns on the market hit it out of the park, Richmond said, so it devised its own. Two big launches—a non-fried chicken wing requested by East Coast customers and a grass-fed beef hot dog—just took place.
Caroline Freedman and Lauren McCullough
“With everything we design we have to think about price point, kid-friendliness, operational feasibility, compliance and nutrition,” she said. “It’s iteration after iteration after iteration.”
Earlier this year, Revolution kicked off a vending machine line and a meals-on-wheels program for elders. Next, it will come out with to-go foods for high schools and, possibly, take-home meals for parents. Revolution also offers health benefits and stock options to its 770-plus employees: many are school parents who needed jobs as servers.
The meals are cooked at the culinary centers and then driven hot to schools or chilled—but never frozen, she admonishes—and reheated. Some suppliers, such as Stonyfield Farms, have given the company better-than-average pricing. Recipes can come from local centers and customers, but chefs in the central operation fine-tune it for national preparation.
If anything, the audiences are receptive. Moms regularly send pictures of their babies to Nest. A caption contest increased Facebook friends from 8,000 to 40,000 in eight weeks. Revolution’s Richmond, meanwhile, says the company gets a continual stream of inquiries from administrators, students and parents. Kids, she adds, also tend to become less finicky eaters around their peers. Butternut squash, although new to many kids, has been a surprising hit.
“One of them said, ‘What is this hot mango on my plate?’ but the response is pretty good as long as you get them to try it,” she said.
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