How 4 disruptive startups upended the status quo
Young companies often enter a market that was underserved or untapped, and with the right product and timing, can end up completely changing the game.
In 2017, Halo Top seemingly came out of nowhere to become the #1 selling pint of ice cream in the U.S., beating out iconic brands such as Ben & Jerry’s and Breyers.
But its rapid ascension as a disruptor — crafted under the promise of fewer calories, less sugar and higher protein — was nearly derailed three years ago by mounting debt accumulated by its founders. Halo Top was discontinued in half the stores it was in, with underwhelming packaging and an ice cream consistency that turned off many consumers.
For Halo Top founder and CEO Justin Woolverton and his business partner Doug Bouton, president and COO of the company, the long hours, growing losses and brutal competition in the ice cream space that had long been dominated by the same few companies for decades was starting to take its toll.
“We told ourselves, we said 'When this money runs out we’re done if the company hasn’t taken off. It’s too hard. It’s too painful. We were both personally bankrupt in terms of our credit card and student loan debt, and it’s such a grind, you are so fatigued."
President and COO, Halo Top
The former lawyers had racked up thousands of dollars in debt; Woolverton had five credit cards maxed out and Bouton accumulated about $50,000 on his own credit cards. Each had more than $200,000 in debt from law school. Things got so bad that at one point in 2014 they each applied for a loan from a predatory lender to keep the business afloat. Bouton received one for $35,000 with a staggering 20% interest rate, but Woolverton's credit was so poor he was turned down. In 2015, they raised $1 million in their second and final round of funding from friends and family.
“We told ourselves, we said 'When this money runs out we’re done if the company hasn’t taken off. It’s too hard. It’s too painful. We were both personally bankrupt in terms of our credit card and student loan debt, and it’s such a grind, you are so fatigued. You are putting in so many hours a week into this thing … you are just working so hard and when it doesn’t work out, at least immediately, it gets really depressing and you can get dejected and you can get really negative,' " Bouton told Food Dive. "It’s a really dark, dark place to be.”
Things began to turn around after Halo Top, which Woolverton started in his kitchen in 2012 after craving ice cream he could eat but not feel terrible about consuming, reformulated the product to reduce the chalkiness and overhauled the packaging.
Halo Top ditched the homemade, nostalgic label with a more minimalist, aesthetically pleasing one that was Instagram friendly and prominently displayed the calorie count on the label. A pair of news articles within a week of each other in early 2016 garnered the company much-welcomed publicity. Soon after, sales began to double each month, and at one point more product was sold in a single quarter in 2016 than all the prior years combined.
Today, the maker of chocolate chip cookie dough, oatmeal cookie and sea salt caramel ice creams is raking in nearly $350 million in sales annually across 35,000 stores. Competitors like Unilever's Ben & Jerry's and Nestle's Haagen-Dazs have responded by introducing their own low-calorie versions. Bouton said the company didn't set out to disrupt the ice cream space, but found a void that had been untapped by the bigger players: the idea that the popular frozen treat could be good for you and taste great at the same time.
"We knew if we could execute on those in terms of taste and nutrition that it would blow peoples' minds and they would be like, 'This is too good to be true. I can’t believe this exists,' " Bouton said. "We knew we were filling a void. In hindsight, you can certainly see the disruptive nature of the void that was filled, but it wasn’t like we intentionally set out to disrupt."
Getting the timing right
Food and beverage brands such as Halo Top have attracted a reputation as disruptors. One common theme among these companies is that the founders didn't go into business with the intention to disrupt, though in hindsight there is a consensus that it's what each of them did. They discovered a market that was underserved or untapped altogether. In some cases, their intentions were focused squarely on altruistic motives such as alleviating hunger, boosting sustainability or helping the environment.
By entering these niches at the right time with the right product, coupled with a little bit of luck, their businesses thrived, even though some, like Halo Top, took a few years to catch on. In some cases, they captured the attention of big food companies, which responded by rolling out products that mirrored those of the startup in an attempt to gain a share of the rapidly growing segment.
Erik Gordon, a business professor at the University of Michigan, told Food Dive that disruptors not only need to have a successful product that they can expand production and distribution of quickly enough if it catches on, but they need to reach the market at the right time.
"Successful disruptors have to be in the game early enough to get customers to associate the disruption with their brand, for example, early enough to have people think of Chobani when they think of Greek-style yogurt."
Business professor, University of Michigan
"Successful disruptors have to be in the game early enough to get customers to associate the disruption with their brand, for example, early enough to have people think of Chobani when they think of Greek-style yogurt. But they can't be too early," Gordon said in an email. "If they are too early, they either stay too small to disrupt anything or they go broke because the demand for their disruption does not grow quickly enough. Many low-fat, no-sugar, or gluten-free companies that never got big enough for us to remember them were too early to the game."
Gordon noted that being a disruptor doesn't mean the company has to take over an entire market. He pointed to companies like Diet Rite Cola, the first diet cola, and Columbo Yogurt, the first big yogurt brand in the U.S. as products that introduced something new to a category or changed an existing one. Ultimately, they captured the attention of the big players who have production and distribution advantages that eventually enabled them to grab a substantial share of the market.
"A disruptor doesn't always take over or create and retain the category," he said.
To be sure, there are scores of companies throughout the food and beverage space that are viewed through the lens of a disruptor because of the sweeping impact they have had on the industry. Food Dive interviewed founders and executives from four of them — Halo Top, Beyond Meat, JUST and Chobani — to gain a deeper insight into how they ultimately shook up the spaces they play in — and in some cases dominate today.
JUST: The benefits of capitalism
After graduating from law school in 2008, Josh Tetrick, the brash founder of food maker JUST, spent time working and volunteering for charities in Sub-Saharan Africa during a seven year period. He lent insight to the United Nations and nonprofit groups aiming to help people inhabiting the world's second most-populous continent, many of whom he witnessed were hungry kids living on the street and sleeping in cardboard boxes.
But Tetrick soon realized that the reach of nonprofits and governments was limited in scope — helping only a few kids at a time rather than the millions that were in need. After returning to the U.S. in 2011, he started thinking about finding a better way to do more to give people access to a cheap, nutritious and sustainable food supply, while using less land and water or harming animals. The answer, he soon found, was in plain sight in what might be viewed by some as an unorthodox place: capitalism.
"The reason I started this company wasn't ... because we really wanted to build a company that sells a lot of stuff, that we make a lot of money, that we do a little bit of good along the way, that wasn't the purpose of the company," Tetrick told Food Dive. "The question of how would (we feed people) in a way that is healthy, in a way that is sustainable, in a way that tastes damn good and in a way that is affordable necessarily means you have to be disruptive."
His disruption came in the form of JUST, formerly known as Hampton Creek, that, despite some internal hiccups along the way, has been wildly successful. It commands a value of more than $1 billion today. Its products are sold in more than 15,000 stores, including Albertsons, Walmart, Whole Foods, Publix and Safeway, and online at Fresh Direct and Walmart's Jet.com.
In its San Francisco office, the seven-year-old company has worked with protein isolates to create vegan mayonnaise, salad dressing, cookies and egg-like products. JUST's latest food science venture is lab-grown chicken and beef; with the chicken expected to debut in a few high-end restaurants later this year and beef following a similar track in 2019. To do all this, JUST employs a unique hybrid of biological engineers, food scientists and Michelin-star chefs.
What surprised Tetrick, he said, is the acceptance JUST has received from the very egg and meat companies his business is competing with. When JUST first dabbled in egg substitutes, he received a less-than-enthusiastic welcome from the industry. Tetrick said he now probably spends more time with executives from major egg companies than he does any other industry.
"What I care about more than anything is creating more of that meaningful change, so because that’s the most important thing it would be completely hypocritical of me not to want more competition, not to want the biggest food companies to launch products that are solving problems.”
In addition, JUST entered into an agreement in principle to produce and distribute its vegan JUST Egg product in Europe with Italy-based Eurovo last July. Tetrick told Food Dive he's talking to other egg and meat companies around the globe, including the U.S., about similar partnerships. More deals are expected within six months.
"What I care about more than anything is creating more of that meaningful change, so because that’s the most important thing it would be completely hypocritical of me not to want more competition, not to want the biggest food companies to launch products that are solving problems,” Tetrick said. "You would have to be out of your mind to think that a single company can solve the entire problem. Whether their goal is impact or profit, it doesn't matter a whole lot to me.”
Tetrick acknowledged that for JUST to follow through on its mission and help alleviate the problems it's aiming to solve, making money is essential. A spokesperson for JUST said all the products they sell are profitable.
"We have no chance of those things happening if we're also not extremely profitable," Tetrick noted. "The profits are the means to me to do the things that I really want to do."
Chobani: Greek yogurt juggernaut
When Chobani founder Hamdi Ulukaya started his yogurt company in 2005, there seems to be little evidence that it would grow into the market-disrupting juggernaut it is today. He got a loan from the Small Business Administration, purchased an old Kraft Foods yogurt plant and hired workers, all with the goal of making the same product he grew up eating during his childhood in Turkey.
The main problem, however, was that Greek yogurt, now the dominant seller at grocery stores, commanded a scant 0.8% market share compared to the sugar-laced varieties that had stocked shelves for years.
Today, Chobani, which means “shepherd” in Turkish, is the leader in the $9 billion yogurt space. Greek yogurt is far-and-away the most popular variety, and Chobani has more than half of the market. Thanks to the familiarity of Greek yogurt, the segment has embraced other international-style yogurts, such as French, Australian and Icelandic varieties.
Peter McGuinness, Chobani's chief marketing and commercial officer, told Food Dive that market data, financial advisors and trend watchers tried to discourage Ulukaya from moving into a space that appeared to have little room for growth. But Ulukaya saw a product that was high in protein, low in sugar, nutritious and was a great snack, giving him faith that it would eventually catch on with shoppers.
“I don't think he would say he woke up in the morning wanting to be a disruptor. I think he would consider himself an entrepreneur. I think he would consider himself a consumer advocate. I think he would consider himself someone that could see trends and identify people with what they needed and wanted,” McGuinness said. “He’s also the kind of person who’s not afraid to take risks.”
Today, 11 years later after its first product hit the market, McGuinness said it's fair to view Chobani in the spotlight of a disruptor not only because of the dominance it has in Greek yogurt, but also from the innovative things it has brought to the environment: helping refugees and improving communities, childhood nutrition and health and wellness through its foundation.
“We’ve innovated and disrupted well beyond the products we make and the categories we’re in," he said. "We stand for more than we make.”
To be sure, Chobani has been at the forefront of several trends impacting yogurt and food space, many of which have been quickly copied by its competitors. In addition to Greek yogurt, it introduced the Chobani Flip in 2013. It also started a food incubator in 2016 that gives upstarts access to Ulukaya and other food industry thought leaders, designated space at Chobani's New York facility, a $25,000 equity-free grant, and classes and workshops.
McGuinness said product imitation remains a source of consternation for the company. He said the replication of products confuses consumers and fails to bring meaningful growth to yogurt because companies are merely transferring sales from one manufacturer to another. Chobani is planning to launch a slate of new products that address unmet segments or nutrients in yogurt in January, though McGuinness declined to give more details.
"They say imitation is the best form of flattery. I think it’s the primary source of frustration," he said. "It’s not flattering. I think there is something to be said for originality and think other food manufacturers should have innovation departments and not duplication departments.”
Beyond Meat: 'Never seen anything like this'
The founder of Beyond Meat, Ethan Brown, took a pathway similar in some ways to JUST's Tetrick when he realized that working for a company making fuel cells wasn't going to have the impact on the environment he desired. In 2009, Brown, who developed a love of animals after spending time on a family farm in Maryland, started the maker of plant-based meats, debuting its first commercialized product — chicken strips — three years later.
But the real break for the company came in 2016 when the first iteration of its hamburger — meant to look, cook and taste like the 80% protein, 20% fat burger —hit Whole Foods shelves, making it the first plant-based burger sold in the supermarket meat section.
While the product is now carried by virtually all major retailers such as Kroger, Safeway and Wegmans in the meat section next to their traditional beef products, some chains initially wanted to put the Beyond Burger in the frozen or the produce section where veggie products have long resided. For years, the frozen veggie burger market was represented by brands such as Kraft Heinz's Boca Burger.
Charles Muth, Beyond Meat's chief growth officer, told Food Dive the company resisted the move because unlike prior iterations of veggie burgers, the company was targeting meat-eating consumers. Placing its product, which sizzles and oozes fats while cooking, away from the real thing would substantially restrict who sees it and diminish the close similarities it has with meat when it comes to taste, texture and smell. The end result would be closing off its potential market and curbing future sales before the product ever had a chance to tap into the millions of Americans who eat meat.
“We fought the good fight with retailer," Muth said. “In every case, they’ve come around to our point of view and put us in the meat department. We had conviction about what we wanted to do and we stayed with it.”
Sales of plant-based foods jumped 20% in the past year to more than $3.3 billion, according to data from Nielsen and the Plant Based Foods Association. Specifically, plant-based meat alternatives totaled $670 million in sales — up 24% compared to 6% last year. Plant-based foods such as meats, beverages and yogurts are quickly growing in popularity among consumers concerned about the heath risks that come with consuming meat or the impact animal agriculture has on the environment when it comes to water and land use.
Beyond Meat, and its other dominant competitor in the space Impossible Foods, have been among the biggest beneficiaries. Beyond Meat reported triple-digit revenue growth in 2017, thanks to the popularity of its Beyond Burger and frozen products which are available in more than 32,000 outlets globally. In April, it introduced its latest product, a plant-based sausage that has proven so popular the company claims it has not been able to scale up production fast enough to meet demand. In an effort tap into the demand and fast growth, Beyond Meat has reportedly hired investment banks to help with an initial public offering.
“There has really been no true innovation in the (meat) industry. The world is changing, consumer tastes are changing and you have to stay up with those, and if you don’t, you get left behind," Muth said. "In the case of the meat industry, if you’re providing a protein center plate option for consumers, and those consumers are looking for other alternatives, you would be wise to consider us.”
Muth, who joined Beyond Meat in 2017 after nearly 30 years working for Coca-Cola where he oversaw sales for young and emerging brands such as Honest Tea and Zico Coconut water, said the company has benefited from what he called "a perfect storm of good things" in what its products bring to consumers.
“It’s incredibly disruptive,” Muth noted. “We’re in unprecedented times right now and I’ve personally in my career never seen anything like this.”
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