Navigating the Food Industry with Kalahari Snacks
/Tyler Noyes, Branchfood Mentor in Residence, is the Co-Founder of Kalahari Snacks, a packaged food brand that brings South African inspired biltong and crisps— air-dried beef snacks—to America.
To continue Branchfood’s support of the food & beverage community, we recently had the pleasure of hosting ‘Ask an Entrepreneur’ with Tyler, where he shared insights on his company’s launch, the R&D process, how to expand your distribution market, and more. Check out our upcoming events designed to help you achieve your goals, and continue reading for Q&A highlights.
Q&A:
If you could launch Kalahari Snacks all over again, what would you do differently and why?
I would encourage my former self to recognize that you can’t let the prospect of “perfect” be the killer of “good enough”. As entrepreneurs and founders, we are so focused on trying to get everything perfect, even these small little nuances with things like font adjustments. When I look back, though, time is really critical. Time is something you just can't get back, and I would urge founders to put your product in the briefcase and just start selling, just to see what you've got. If I could go back I’d encourage myself to be more thoughtful about that and just get moving faster, not to get so hung up on these minor improvements in my mind.
How do you model financials to understand profitability when you start selling through other channels like wholesale distributors?
Really good question, and I think it's a critical one. This is something that I wish I had known a little bit more about when I was starting out, and something that every CPG entrepreneur should focus on, because if you don't do it right, you'll get stuck. You won't have enough margin to go nationally, or you wouldn't want to because it just won't make good business sense. Thinking about this now, early and often, is great.
There's not necessarily a definitive answer to this. A lot of people say the minimum gross margin you’ll want to work with is about 40 points (percent). Understanding the challenges of an early stage entrepreneur, though, you may not have some of the economies of scale lined up on things like your plastic, your caddies, your POPs, your minimum shipping orders. You need to look at these factors, and think about where you want to be on shelf, and work backwards. The distributors are all going to have different prices they sell to the store. You have to talk to buyers and ask: What price are you seeing in your UNFI system? That helps you understand what UNFI’s expectations of a mark-up are going to be, and what price you need to sell to UNFI to ensure the final price on shelf.
Additional factors would include items like slotting fees or free fills, which you will encounter when opening up new doors. To model out slotting fees, I would budget one case refill per store unless you know that particular chain is going to be more aggressive. Shaw’s is probably going to ask for $10k per SKU, but most stores usually request a free case. Other stores like Publix and Wegmans are great: no free fills. That’s what makes them so amazing. You also have to factor in that the distributors themselves are going to require you to do a certain amount of promotions per year.
To model this out, I would do it based on door count, so what you need is a bottoms-up model. You plug in your doors, how many free fills--that takes care of your slotting. Then you have to figure out what the percentages might be on advertising, or TPRs and price reductions. And then finally factor in the distributor promotional periods, which you can assume those are 15% discount off of their orders for 2 - 3, 6 week periods.
So in summary, I would look at it from a free fill per door as a starting point. I would factor in several 15 point OI periods for your distributors. And finally figure out out what other kind of additional price promotions, demos etc. you would like to do with those stores.
My husband and I started a business almost a year ago, and we’ve completely bootstrapped it. We’re at the point where we want to bring it to the next level and start working on this full time. What would you recommend as the next step, and how do you find those investors that match with your mission?
Really good question, and it's probably a different answer for most. There's never gonna be this silver bullet answer, it's very much brand specific, but I think that the natural evolution for fundraising is what I call the friends and family round. You start with that phase early and then you can work your way up the food chain, provided you grow enough. When you do take capital, you just want to be cognizant of the kind of brand you want to be when you grow up. If you take, for example, venture capital money, there is an expectation that generally comes in the form of a big hockey growth stick. It’s important to recognize what taking capital from different sources might mean for your business and how you want to grow it, so I would encourage you to start with the friends and family route first.
Additionally, one of the key parts to our early funding success was not the venture capital route, where we ultimately went; it was in building a really great relationship with a regional bank. It's all about building that relationship when you don’t need it, so that when you do need it, they already know you. We had a great relationship with Leader Bank, and they took a chance on us to get a small SBA loan for $25k. At the time I literally thought that would last forever and solve all of our life's problems — that's not the case, but it was still a good starting point and a great milestone. I would really encourage you to explore that if you haven't already. It's a wonderful way to get funding, and then as you go forward you can either go the loan route, or you can go with the line of credit route. That’s exactly what we did — we just kept building even in times when we didn't need it, and that really served as our ability to grow. If you're growing profitably, the profits can go back in, you can tap the line of credit to pay for the working capital needs for the next phase of growth, and then the profits start up and you can pay that down.
So ultimately, I strongly recommend you find those friends and family — not just your direct friends and family, but those in your greater community, and get their buy-in. There’s a multitude of ways to do that, whether it’s engaging with people directly, doing a Kickstarter, or what have you. And then, I highly recommend an SBA loan.
I’m transitioning from having a full-time job to being self-employed and working full-time on my business. How do you structure your time and organize your week as the founder of a growing company?
Time management is key. You get to the point where there are never enough hours in the day to accomplish your list. There's being busy, and there's being efficient, and those are sometimes very different answers.
In terms of my own experience, I was working full-time, and then working on my business during weekends and nights. I had a mentor tell me that you can't expect full-time results from part-time effort. If you're trying to keep up with your day job, some of your cognitive function is going to be invested there, even if you put it on the back burner. That's a personal call you're going to have to make, but at some point in time you just have to make the jump, and you may or may not know what it will look like.
However, to go back in time. In our early days, when we were probably in around ten accounts, the day was largely focused on a variety of different tasks ranging from: marketing, the website, sales, samples etc. The advice I wish I’d gotten is to just get out there and go sell. One of the fun things that my co-founders and I did was a little bit of an accountability contest. We had a minimum of five samples that had to go out each day, and each person had to publicly state them at the end of the day. There were penalties in the form of beer, wine, whatever was good currency for us at the time, to ensure it actually got done.
One thing you can do rather rapidly at the beginning when you’re working locally is to reverse engineer how many samples you need to send out to gain a certain number of customers. For example, if you send out 20 samples, get 10 follow-ups, and 5 become customers, now you know roughly how many samples you need to send out to gain 20 new customers. Samples were king for us, because I could map out exactly how many customers I was going to get out of it.
So most of my time was spent on shipping, samples, sales, and mapping those key accounts to understand supply chain and production. The other piece of all of this is that you need to try to think ahead. You can get this ostrich-in-the-sand mentality where you chug along to open these doors, but you don’t look up to see the ramifications. Are you going to need a lot of working capital if you get to 100 doors? Or what if someone from Wegmans comes along and loves your product? You need to be prepared to solve for situations that. That goes back to what I mentioned earlier — making sure you’ve got that banking relationship set up in advance and spending the time to invest in it early on, so you’re not scrambling when you need it.
You’re also going to want to focus on talking to your customers and getting as much feedback as possible.
Did you take weekends off or have a normal working schedule in the early days?
I'll be honest, there were no weekends. One competitive advantage of biltong is that we were selling to wine and cheese shops on the charcuterie angle, but those beer and wine tastings are all on the weekends. It’s not a badge of honor, and if there was an easier way to do it I would highly recommend it, but for us that was the reality until we were able to smooth some things out and get some help on those demos.
Customers aren’t familiar with my product, but once they try it, they love it. Now my products are expanding into more stores throughout the region, and on top of that, we are still facing COVID-19 restrictions, so I can’t always be there to do live demos. How do I promote my product when I'm not there to hand-sell it, especially for a product that's not familiar to people?
That’s certainly a pertinent question for me too, because biltong is effectively an unknown word — maybe less so now, but certainly at the beginning, nobody really knew what it was. We battled with that same awareness campaign. COVID has definitely made this more challenging, because our strategy before was absolutely demos, demos, demos. Unfortunately, that’s just not scalable. We used to have co-founders flying around the country to build awareness, and eventually we leveled up to using third-party agencies for demos. Now, we’ve had to resort to other efforts.
We decided to put together an inexpensive trial pack advertisement on social media. You can’t find that deal on our website, because we didn’t want to degrade our brand value, but we use that as a proxy for demos. We’re not making any money off of it, but that’s not the purpose — it’s to drive trial. That allowed us to hit a larger geo-targeted area and drive awareness. Ultimately, it’s a multi-pronged approach:
When demos come back, as they eventually will, you’ll need to figure out how they’re going to work for you. It’s important to understand how fast you’re expanding so you know if you have enough resources to support retailers with the requisite demos and awareness campaigns.
Leverage your e-commerce platform via some sort of trial pack. Engage in geo-targeted campaigns around certain retailers. Get the store list, get the zip codes, and then run social media awareness campaigns that show off the product, show where the customer can buy it, and offer a discount.
Ultimately, it’s just hard work, getting in doors, building relationships, and finding those great folks who are going to be in stores talking about your product. You might not have the time to demo for days on end, but you know who can demo for you? Store managers. We made every store manager our best friend, set them up with t-shirts, swag, you name it, and the next time someone came in, they had a lot to say about Kalahari.
Can you describe what scaling your production looked like from starting out early stage, navigating packaging and likely working with a co-packer, to where you are today?
I started the business out of my basement, and when we got orders initially, UPS would drop off boxes on the sidewalk. As we grew a little bit, they’d drop off pallets on the sidewalk — literally the dead middle of the sidewalk. It was just laughable trying to move our product inside in the middle of a sleet / snow storm, with our neighbors watching us thinking it was some kind of meat snack Breaking Bad episode, wondering what we were doing in the basement. When I think about scaling, we certainly had humble beginnings.
As far as packaging, I know there’s a deep desire for a lot of entrepreneurs to make it look phenomenal right off the bat, but we started off with a sticker on a bag. It wasn’t economical, and it was a pain in the butt to put the stickers on each side of the bag, but we knew that we were going to learn in front of our consumers to figure out what works best. We didn’t want to invest too much into that plastic supply chain early on, and tooling fees that go along with it. Those once-off fees can continue to bite you if you’re not careful, so you don’t want to keep evolving your packaging too often. We started off with a basic black matte bag with stickers on both sides, and we didn’t really have to forecast much in those days because we were probably only in ten doors.
As it scaled, though, it definitely got more challenging. If you scale too rapidly, you really need to ensure you keep a close eye on your quality control. If you’re making it yourself, that’s obviously on you, but if you’re working with a co-packer, you need to set a standard for your product that everyone can agree on. We needed to set a standard with factors like the amount of spice, the amount of moisture, and the type of cut. That allowed us to have objective, rational discussions about what the product was supposed to look like if we needed to rapidly scale, and the co-packer tried to take shortcuts. We did experience that, and it was a very challenging lesson to learn. We also realized that if we were going to scale so rapidly, we needed to start planning it out more than week to week, so we went to month to month planning.
Looking at our plastic supply chain was also different than our meat supply chain. At the time, we were sourcing our plastic internationally, and with that lead lag it was roughly ten weeks once everything was done, god forbid you get held up in customs. For the record, that world had changed now and I would highly discourage anyone from doing so. We thankfully flipped to domestic packaging, which is a bit more expensive on a per unit basis, but when you factor out the shipping, it nets out to be about the same, and my packaging lead lag time went down to around six weeks.
You really have to start being thoughtful about looking around at the next quarter. Let’s say your goal is to get from 10 to 50 new doors this quarter, and then next quarter you want another 50 – have you thought about that? Do you have the requisite working capital to pay for that product? Are you factoring in that some people aren't going to pay you on time? Do you have a good working relationship with your supplier and your co-packer to have the terms to survive that?
It becomes an evolving conversation where you’re always looking to gain further economies of scale. I always ask brands what their world is going to look like six months or a year from now. Do you have a quote for 100,000 packages? 500,000? Always work towards that. Even if you can’t afford 100,000 right now, maybe you can afford 50,000. You can find deals that allow you to commit to that 100,000, if you have another six months to get there. Now you’ve just achieved some economy of scale, even though you’re not ready for it yet.
You also want to think about if you have any supplies or raw materials that fluctuate in price. I don't know if anyone's ever thought about meat futures before, but that’s a thing — locking in meat prices for the foreseeable future, and how many pounds you’re bold enough to buy at one point in time.
Ultimately, think about your raw ingredients, think about your raw materials, and understand where the next economy of scale price point breaks are. When you think about your margins today, those could be very different from your margins six months from now, based on your growth and what you’re able to negotiate.
What did the process look like from manufacturing your product at the very beginning, to actually having a co-packer? Did you start out making it by hand?
When we got back from South Africa, my co-founder was really excited because he actually already made biltong at home. The way most South Africans make biltong is using a cardboard box with a heat lamp at the top and a small fan on one side. I looked at that setup, and even though I didn’t know much about the USDA yet, something told me that wasn’t going to get approved. Making it ourselves wasn’t really an option for us, so it was direct to a co-packer for us.
There’s pros and cons to both paths, though. There's an attitude people like to throw around a lot that you should either be a brand or a co-packer, pick one. But, if you start out making it yourself and having that hands-on experience, you can be really dialed into what your product should look and taste like. Then, when you move to a co-packer, you can realize when the product doesn’t taste right and figure out what went wrong.
From the perspective of other brands we’ve seen, you can get to the point where you get an order that you just don’t know how you’re going to fulfill, because there just aren’t enough hours in the week. You’ve probably gone a little too far on making it yourself, and may need to investigate going with a co-packer. There are certainly examples of brands who have done it all in-house, and kudos to them, but I think those are probably more of the exception than the rule. You need to ask yourself if you have the capacity, the ability, the willingness, and the energy to not only make the product, but sell it. If you really want to do it yourself, you’ll start off in a commercial kitchen, but eventually find that the kitchen can no longer handle what you need anymore. So, you’ll need your own space – but you’ll also need to raise the requisite capital for all the machines. That can be a pretty painful upfront cost that you may not want to incur right away as a brand.
In terms of manufacturing from your kitchen to co-packer, how did you go from initial recipe to the point that you were making the same recipe over and over again?
This is an evolving process. The work is never finished, much like packaging. The amount of nuanced detail that we are probably noticing when we are trying batch over batch--is our average consumer picking up on that? I’d be impressed, but probably not. So again, it’s this constant refinement and recognizing the work is never done. For Biltong, in particular, we worked with our co-packer to find a flavor profile that we liked. The co-packer was actually South African, selling predominantly to South Africans, and we felt like that flavor profile wasn’t quite right for the American audience. It was just a little bit different.
To answer your question a different way: Kalahari Crisps was much more hands-on. The Southwest Verde, in particular, is a really challenging flavor to get right. I know it sounds easy, but it was brutal. Or Rosemary Citrus was the same; we’re balancing. You had to figure out which you wanted more of, and that constant refinement just came through. I would say 10 months of R&D for that one. As we changed one flavor note you would have to change another one, it’s kind of a multivariable calculus. A lot of trial and error, and a lot of taste testing. A lot of very good friends that we’re thankful for, giving us honest but gentle opinions in those early R&D phases.
What are your go-to sources for asking questions and getting feedback from a broader community?
I only recently connected with Branchfood, and it’s actually one of the things that I feel remiss about. I wish I had connected with this community earlier on, as there were probably a lot of great lessons I could have saved myself the pain of. Branchfood is a great starting point, for sure. We’re also engaged with a law firm downtown called Nutter who's been really great to us. They're really good about holding events that are generally open to all, and I’d strongly encourage anybody to attend those types of events. We were also fortunate to have my first business, RacePak, so we already had this broad base of companies we could reach out to.
It might sound old and tired to say, “just go ask somebody”, but you’d be shocked. That can be your best bet. I’ll never forget being at a food conference with a founder of a pretty big food company. Somebody asked a question about mentorship, and he just provided his email on the spot and offered to help. It’s a small world, getting smaller, and I think not enough folks take advantage of that. All it takes is a quick intro and fifteen minutes.
With that said, my email is tyler@eatbiltong.com. Feel free to email me anytime, and I’m happy to answer questions as best I can. We've been very, very thankful to receive a lot of help I want to make sure that we do our best to pay it forward.
Interested in more insights from industry leaders? Visit Branchfood’s membership opportunities, and check out Food Edge Summit, taking place October 21-23, 2020, to meet with food & beverage experts.
