“The majority of that has been shot down. … We think that the restaurant landscape will change permanently,” he said. “There will be a higher percentage of consumers with food at home.”
He has seen the effect with his investments. At Milk Bar, for example, the company had a line of five different cookie products in grocery stores such as Whole Foods by March, which was crucial because 80% of the business at its own retail stores was shut down as a result of the coronavirus, Sebastiani said.
In response, Milk Bar ramped up its digital videos with founder Christina Tosi to what “was an equivalent of a small cable channel,” Sebastiani joked. The outreach has paid off as the company’s digital sales are up as much as 10 times before the crisis. “Like Vintage Wine Estates, where one channel has closed down, the digital business has grown so much that it is making up and then some for the loss of closing those stores,” he said.
The recent public health crisis has affected other brands. The boom in baking has helped with sales of Smashmallow as more are looking to make comfort food such as cookies, he noted. “People want to bring a smile to their face,” Sebastiani said. On the other hand, another investment, Dang, a low-sugar coconut, onion and sticky-rice snack, hasn’t fared as well because it is suffering from less foot traffic in retail locations where the product is displayed.
While he juggles his various investments, the focus has turned to reviving Krave, which was the No. 2 jerky brand with about $35 million in sales when he sold the brand. Sebastiani noted the mistakes that were made in the aftermath of the sale, especially as about 100 other brands appeared looking for a piece of the segment and it became hyper-competitive. Hershey was slow to react.
“What happened is that competition came in a really meaningful way,” he said. “It ushered in outside capital to fund a lot of me-too brands.”
Hershey also failed to realize setting up a supply chain for meat is different than chocolate. Under Sebastiani, Krave had co-packers in Fairfield and in three states outside California to do production. Hershey never worked to bring the production in-house.
“What happened was that over a couple of years is that the quality of the product began to deteriorate. That was just fact,” Sebastiani said. “When you have a loyal base of customers who have begun to reach for Krave as your go-to brand and you deteriorate the quality, they abandon you.”
Finally, Hershey failed to innovate with popular trends such as low-sugar and ketogenic diets. Senior managers would move onto other brands and no one had an ownership stake in Krave, Sebastiani contends. “The first mover of the competition caught up. Then you had a big organization where you had a brand that starts to struggle … it becomes orphaned.”
Sonoma Brands intends to build a bigger presence with Krave in stores by buying at least one other jerky brand to have different price points, he said. “We become a more powerful partner for a retailer because we can promote more heavily,” he said.
Changes also could come with production by getting its own facility in the future, a strategy which Hershey never pursued, he said.
“Cost matters. If you are paying a co-manufacturer a significant amount of your profit, then you can’t invest it in your brand as much. We think that is one of the challenges that Hersey faced. Because they never owned their own manufacturing they could never perfect quality and lower costs,” he said.
Sebastiani said he was thankful that Hershey called him first when it sought to sell Krave, a relationship that he values as he noted that he has a “number of brands” that could fit in its portfolio in the future. But in the near term, he has to focus on getting Krave right.
“I was emotional about it (the sale). … This brand changed my life,” Sebastiani said. “At the same time, I’m now back on the clock and I got to make it work. It’s kind of like winning that Super Bowl ring … we have to write a whole new playbook.”
You can reach Staff Writer Bill Swindell at 707-521-5223 or [email protected]. On Twitter @BillSwindell.
