Published in Food/Agribusiness
Kalamazoo healthy snack food startup raises $500K for expansion, R&D COURTESY PHOTO

Kalamazoo healthy snack food startup raises $500K for expansion, R&D

BY Sunday, April 03, 2016 03:39pm

KALAMAZOO — Ernie Pang’s goal to produce healthier snack foods didn’t quite pan out at first.

Lacking the right ingredients to hold it together, the first granola bar he made fell apart, so Pang and his colleagues tried again and figured out another recipe that worked.

Now, three years after coming to market with a line of “clean label” granola bars and cookies, Simply Eight LLC is growing and preparing for more expansion.

The Kalamazoo-based startup recently closed on a $500,000 investment of working capital from a trio of investors to expand into new markets across the country and to continue R&D on new products, said Pang, the company’s founder and CEO. 

“It will provide us with one heck of a lot of working capital to help us grow,” he told MiBiz.

Prior to the recent capital raise, Simply Eight had been supported by its founders and close friends, said Pang, a former marketing executive at Kellogg Co. The new growth capital was the first time the company sought outside investors, he added.

A subsequent “much bigger” capital raise will follow later this year when Simply Eight seeks investors for a Series A capital round to support further growth and attain a scale needed to generate cost and operating efficiencies, as well as higher margins, Pang said.

Founded in 2011, Simply Eight produces and sells “Junkless”-branded granola bars and cookies. The snack foods contain no trans fats and sport a list of ingredients that are free of artificial preservatives, flavors and colors; hydrogenated oils; high fructose corn syrup; and genetically modified organisms (GMOs).

Simply Eight instead uses “fairly simplistic” ingredients that you can buy in a grocery store — cane sugar, baking soda, wheat flour, rice crisp, peanut butter made from 100-percent roasted peanuts, vanilla extract, oats, chocolate chips, and canola oil.

“Food should be real. It should not be filled with all of this fake stuff,” Pang said. “We’re basically taking what is popular and refreshing it, giving it a new look and making it with ingredients your family is probably familiar with.”

Simply Eight uses a network of contract manufacturers to make its products. The company’s granola bars and cookies are on the shelves at more than 1,200 stores in about 40 states, including those run by major retailers like Meijer Inc., SpartanNash Co., Target Corp. and The Kroger Co.

Sales for Simply Eight have grown exponentially — “just short of” 600 percent from 2014 to 2015, said CFO Larry Beyer, who also previously worked at Kellogg.

“We’re playing in an arena where consumers are demanding this,” Beyer said.

Much of the company’s distribution is concentrated in the Midwest — Michigan, Illinois and Ohio — and Mid-Atlantic states. Simply Eight wants to start targeting population centers in markets on the East Coast and West Coast, the latter of which — especially California — is known for having a base of health-conscious consumers, Pang said.

‘SEISMIC SHIFT’

Simply Eight targets new markets as consumers nationally show an increased appetite for healthier and organic snacks.

A January 2015 report by Deloitte Consulting LLP noted that “traditional drivers” of consumer buying habits — taste, price and convenience — were changing, causing a disruption in the market as “evolving” drivers emerge. Those evolving drivers include health and wellness, safety, social impact, experience, and transparency.

The report was based on surveys of 5,000 consumers nationwide and interviews with executives from more than 40 retailers, food and beverage manufacturers, ingredient suppliers, and agricultural producers. In the product category for snacks and sweets, 42 percent of consumers said their purchase decisions are guided mostly by evolving drivers, according to the Deloitte report prepared with the Food Marketing Institute and Grocery Manufacturers Association.

The finding “clearly highlights a seismic shift in what consumers expect from the food and beverage industry. And these changes will require a response of equal magnitude from retailers and manufacturers to help meet consumers’ evolving needs,” according to the Deloitte report.

CONSUMER ALIGNMENT

Simply Eight’s marketing materials also cite a 2014 study by a Seattle research firm that said avoiding processed foods was somewhat important or very important for six in 10 consumers, and that one-third of consumers avoid foods with GMOs.

Pang believes Simply Eight can benefit from a greater consumer awareness and the growing backlash about what additives are put into the foods that they buy and eat.

The Deloitte report noted research that indicated 43 percent of consumers in the millennial generation — as well as 18 percent of non-millennials — don’t trust large food producers. Food and beverage industry executives also told Deloitte that “the issue of trust represents a growing challenge.”

Simply Eight has a “little bit of tailwind from the industry backlash that’s really beginning to happen,” Pang said.

“Consumers are starting to speak up,” he said. “We think this is a mainstream appeal.” 

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