In his nearly three decades in the CPG space, Todd Lachman saw firsthand as larger brands ceded sales and market share to smaller, on-trend products that prioritized being all natural and contained a shorter list of recognizable, better-for-you ingredients.
Sensing a lucrative business opportunity, the former Mars, Kraft Heinz and Del Monte executive founded Sovos Brands in 2017 to acquire and build "one-of-a-kind" disruptive brands specializing in premium offerings.
Now just four years later, that hunch is paying off. Sovos' portfolio of pasta sauce, pancake mix, yogurt and frozen Italian meals has turned the upstart into the fastest-growing food company of scale in the U.S. and given it confidence to launch its IPO last week in a deal valuing the young firm at more than $1.3 billion.
Sovos "is not your ... grandparents' roll up of dusty, rusty old assets that's beholden" to the past, Lachman said in an interview on Sept. 23, the day of the company's IPO. "We're really nimble, and we're going to be agile and entering the right categories that we can continue to deliver outsized growth in."
The Colorado company, which takes its name from the Latin word for "one of a kind," started out by acquiring two high-end Italian food brands: premium sauce brand Rao's Homemade and Michael Angelo's Gourmet Foods in 2017. Yogurt brand Noosa became a part of Sovos in 2018 and Birch Benders was added to the fold last year, with revenue rising 15% since the acquisition.
Lachman said Sovos, which priced its IPO at $12, decided now was the right time to go public in order to acquire talent, open up access to new forms of capital and add cash to its balance sheet for acquisitions.
"It's really the right time for a company like ours, which is pioneering a new approach to packaged food, to enter that arena," he said.
The company turned a profit in the fiscal year ending Dec. 26, 2020, with net income of $10.8 million on net sales of $560 million compared to a loss of $27.1 million on $388 million in sales during the prior year. Sovos benefited along with other CPGs from the upswing across the food space as consumers stockpiled ingredients to prepare meals at home during the COVID-19 pandemic, in many cases trading up to premium products.
So far, Sovos has thrived at finding and buying disruptor brands with opportunities to rehabilitate, grow and expand the parts of the grocery store where their products can be found. Despite making inroads, Sovos' four brands each have household penetration under 10%, giving the company an opportunity to increase awareness and tout its product attributes to consumers in an effort to grab market share.
Rao's — which has expanded under Sovos' ownership from sauces into dry pasta, frozen entrees and soups — is the No. 3 pasta and pizza sauce brand by dollar sales, according to the company, compared to No. 7 when it was acquired four years ago. The brand, which currently represents 55% of Sovos' sales, is planning to expand into pizza and salad dressings next year.
Noosa and Birch Benders also are among the fastest-growing brands in the yogurt and pancake and waffle mix categories. Similar to the strategy Sovos has employed with Rao's, it is considering moving Noosa into other products such as frozen novelties and ice cream. Birch Benders is entering baking mixes and frostings, with ready-to-eat baked goods, refrigerated baking and even spoonable yogurt other potential avenues for future expansion.
Acquisitions remain a key piece of Sovos' growth strategy, with Lachman predicting the company could "potentially average one a year going forward." He declined to outline what types of brands Sovos is looking to purchase, but said any deals would contain disruptive opportunities and likely be adjacent to categories it is already in.
"We're really looking for brands and entering categories that we believe can almost create a category in and of itself," he said, pointing to the success Sovos has had with Rao's with ingredients like fresh basil, onions, whole Italian tomatoes and olive oil; Noosa in indulgent yogurt; or Birch Benders in keto and paleo. "We know what we do well."