Del Oro High School graduate Joey Grassia had shopped at plenty of grocery stores, but he didn’t understand how food was priced until he launched his own food company, San Francisco-based Kutoa Health Co.
For four years now, Grassia has produced the Kutoa health bars that are sold at Whole Foods and other organic retailers in flavors such as blueberry almond, cherry cashew and chocolate banana. Two weeks ago, he introduced a new product called Steamm, a bottled espresso that he’s delivering straight to consumers’ doors.
His Kutoa Health Co., named for the Swahili verb that means “to give,” feeds a child in need for every bar that shoppers buy: micronutrient packs and nut paste designed to help cure acute malnutrition in foreign lands; sandwiches and Kutoa bars for children in the United States. Every double shot of espresso sold helps to fund a polio shot for children in countries where the disease has not yet been eradicated.
Although Kutoa bars are selling in thousands of stores nationwide, the 29-year-old Grassia said he has yet to turn a profit. He blamed a broken food distribution system for the challenges that his and other small and startup food companies face, and he is changing his retail strategy in hopes of lowering the cost of his product while also improving his bottom line.
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“Most companies, when they launch, they think being a success means being in Safeway or Whole Foods or other major retailers,” Grassia said. “But Whole Foods and Safeway don’t buy from you directly, especially when you’re small, because your volume is not going to be high. … They force you to go through a sales broker.”
The sales brokers negotiate sales for Kutoa and other producers, he said, and once a deal is struck, the producers work with a retailer’s distributor. The distributor maintains the supply of product.
“The food broker takes 5 percent (of the retail price),” Grassia said. “The retailer never orders directly from you. They order from their distributor, and their distributor takes between 25 and 40 percent. So, you deliver to the distributor, and the food distributor delivers to the retailer. The retailer takes about 40 percent. It makes it more efficient for the retailer, so they can order from one distributor. They don’t have to order from 1,000 or 2,000 different brands.”
Using this system, Grassia was selling his health bars for $1.70 to $2 at organic food stores. At this cost, he said, he doubted that any working-class consumers would be able to afford the benefits of his health bars, which are made from non-GMO, vegan, preservative-free ingredients.
He and his investors decided to try a different route. They looked for grocery retailers that didn’t use distributors, Grassia said, and they discovered that they could supply their health bars directly to Grocery Outlet, Costco and Cost Plus World Markets. By cutting out distributors, Grassia said, he can sell his Kutoa bars for about $1 each.
“There’s a lot more potential of really trying to bring Kutoa to the average consumer who can’t afford to pay $2 for a bar,” Grassia said.
Many new food products geared toward health-conscious consumers have a tough time gaining traction before entrepreneurs run out of funding, Grassia said, so he advises newcomers who consult him to find markets where they don’t have to use distributors.
As he was developing a sales strategy for his bottles of Steamm espresso, he said, he decided on supplying directly to consumers. Buyers order a six-pack or 12-pack at www.steamm.com, and the beverages are made to order before being shipped to the consumer. By supplying the product directly, Grassia said, he can pay his coffee farmer in Mexico a fair price.
“If we wanted to sell Steamm at Whole Foods for $3,” Grassia said, “we would have to make it at a third of the cost. So, we would have to cut corners.”
Grassia spent 18 months developing a method to make a shelf-stable espresso. The son of an Italian immigrant, Grassia had grown up having espresso prepared virtually every morning by his father, Sal. He loved that morning boost of energy, he said, and he felt it would be a healthier alternative to some of the energy drinks on the market.
Grassia has carefully developed Steamm to make it more accessible to the American palate than traditional espresso, which many domestic coffee drinkers describe as too bitter, he said. He steeps the espresso in raw cacao to add a chocolaty flavor and then adds a little organic stevia to knock out the bitterness.