Big Food’s Warm Embrace

Jan. 25, 2016

Why a free-from pioneer sold his successful food company to a multi-billion-dollar firm.

Kenny Rodger’s advice on when to hold ’em and when to fold ’em applies just as much to food industry entrepreneurs as it does to gamblers. Just ask Scott Mandell.

February marks the one-year anniversary since Mandell sold Enjoy Life Foods Inc. to Mondelez International Inc. At that point, Mandell and his associates had built the 2001 start-up into a $40 million leader in a category described as “free from”: no common allergens, no gluten, no GMOs.

A native of the Chicago area, Mandell was working as a commercial banker in the late 1990s when he enrolled in the MBA program at Northwestern University’s Kellogg School of Management. The school had recently introduced a class focusing on entrepreneurship in which students developed a business plan for a start-up venture. A classmate whose mother had multiple schlerosis described to the difficulties people with food sensitivities had in sourcing products that did not contain ingredients and preservatives that aggravated those sensitivities.

The under-appreciated and large audience of celiac’s disease sufferers and people with the eight leading food allergen convinced Mandell and Kellogg classmate Bert Cohen that they had a viable business model. “I may not know anything about the food industry,” Mandell recalls thinking, “but no one is going to have the passion or commitment I can bring.” An 11-person advisory board was formed, and the two entrepreneurs began meeting with angel investors with a goal of $850,000 start-up capital.

Coming four days after Al Quaeda’s Sept. 11 attack on the World Trade Center, impeccably bad timing haunted the first private placement was impeccably bad. Undeterred, the founders pressed ahead with half the hoped-for funding, and production began Nov. 8, 2002, in a 6,000 sq. ft. facility.

Gaining distribution is as daunting a challenge as raising capital and required resourcefulness and innovation. Distributors wouldn’t handle the line, so Mandell, armed with a list of 100 Midwestern natural food stores, hit the road. If the products appealed to shoppers, retailers were asked to sign letters to their distributors, asking them to carry Enjoy Life. Letters also were tucked inside on-line orders that satisfied buyers could give to their local grocers. “We developed a grassroots sales team that we weren’t paying,” he says.

Enjoy Life also was developing trust with core consumers. Trust, along with taste, set the firm and enabled it to compete as larger and better-financed competitors began entering the free-from space.
“We used to kid that we were leaders in a category that didn’t exist,” Mandell laughs. “In the early days, our products weren’t great; they were O-K. We realized we couldn’t live on that, we had to taste great and continue to learn.”

Food proteins can be divided between those that are known allergens and those still awaiting identification of an individual allergic to them. Concluding allergen-free was an impossible claim, Enjoy Life’s management settled on “allergen friendly” and assured buyers that the eight major allergens (as well as Canada’s 12 and the European Union’s 14) that the proteins accounting for well over 90 percent of allergic reactions would never cross the threshold of Enjoy Life’s production facility.

Outsourced production is advisable for 95 percent of food start-ups, Mandell believes, but a dedicated facility was the only way to provide the assurance the core market craved. Shopping for children with food allergies is a stressful experience, forcing shoppers to scrutinize ingredient labels to determine if only some allergens are excluded and if the product was produced in a facility where inadvertent cross-contamination could occur.

Shelf space in Whole Foods opened up in 2004, keying region-by-region distribution in independent grocery stores. Within a few years, a low-carb fad had fizzled and major supermarket chains seized on free-from foods as the next big thing. “Now Wal-Mart wants these products,” Mandell relates. “It’s evolved.”

Early promotional budgets included money for print ads in publications targeting celiac’s disease sufferers and other individuals with food sensitivities, but social media absorb most of today’s marketing spending. Joel Warady, chief marketing officer, is credited for a powerhouse program that significantly strengthens the bond with loyal customers. “It’s the great equalizer when you’re competing with the big guys,” Mandell says. “The response is immediate. If you hide from those conversations, the conversation is going to go on without you.”

Fortunately for Enjoy Life—the first food company to put the Facebook symbol on packaging, he believes—loyal shoppers have its back. “People are invested in this brand,” he adds. “They come to our rescue if they need to.”

Beginning in 2010, Enjoy Life reeled off three consecutive years of 40 percent growth, giving the organization its greatest financial security. Nonetheless, the buy-out offer from Mondelez, conditioned on the continued involvement of Warady and Mandell, was too good to pass up. “At some point you have to give (investors) a return,” the CEO says. “More importantly, we felt we needed some real capital and expertise behind us if we were going to continue to grow.” Severe cash crunches, particularly in 2008 when the firm’s continued existence was in doubt, were not something management was eager to experience again.

“All your chips are on the table,” Mandell says of independent ownership. “At some point you have to pull that risk off the table.”

More than a few successful start-ups have been acquired by major food companies and never heard from again, victims of a smothering corporate environment. Mondelez had as shaky a track record as anyone. Corporate executives were determined not to repeat the mistakes of the past and gave Enjoy Life considerable latitude, stepping in only when asked. Back office functions like human resources remain with Enjoy Life.

“It was refreshing to hear from the start that they didn’t want to screw this up,” Mandell says. “This is kind of a case history for the industry. If they can figure out how to acquire companies like us without screwing it up, they can replicate it.”

Mondelez is financing relocation from Enjoy Life’s Schiller Park, Ill., facility, which grew from 16,000 to 76,000 sq. ft. over the last decade, to a brand-spanking new plant in the Louisville, Ky., area. Square footage will triple this summer, though capacity expansion is considerably higher. As sole tenants of the Jefferson, Ind., building, Enjoy Life will operate “the world’s largest allergen-free facility,” Mandell believes.

The new plant also will accelerate Enjoy Life’s international growth plans. “We already have a large presence in Canada and a toe in other markets,” he says. The parent organization, on the other hand, already is on shelves in 165 countries. “That’s where Mondelez is going to help us.”

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