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Failing to Find New Source of Funding, Tattooed Chef Declares Chapter 11
Frozen plant-based meal brand Tattooed Chef has declared Chapter 11 bankruptcy, the publicly traded company announced via a press release on July 5.
“Our business has continued to be impacted by a challenging financing environment and an inability to raise additional capital,” Tattooed Chef chairman and CEO Salvatore “Sam” Galletti, stated in the press release. “The actions we are announcing today are designed to promote a fast, efficient, and value-maximizing sale, which will allow us to provide clarity on the future of the company for all our stakeholders.”
Filed in the U.S. Bankruptcy Court for the Central District of California, court documents indicate the company plans to pursue a sale of “substantially all of its assets” under Section 363 of the Bankruptcy Code. Next steps, lawyers said in the filing, are to list all assets and evaluate any bids received, a process that will be overseen by the bankruptcy court. In emergency motions, Tattooed Chef also petitioned for access to cash collateral and $3 million in loans in order to keep the business afloat and maintain its value for a future sale.
The company cited an inability to raise additional capital, either by selling additional shares or via “alternative financing and funding solutions.” In addition, the bankruptcy filing noted, the company explored various “reductions in expenses” such as reductions in its labor force. At this point, the company has more than 1,600 creditors.
“Due to the debtors’ restated financial statements, changes in the capital markets, and the general economic conditions affecting the Debtors’ market segment, the debtors were unable to obtain any new financing,” the filing noted. “[Between 2020 to 2022], the debtors’ liquidity became constrained and the debtors fell behind on payments to suppliers and other parties necessary to the continued operation and profitability of their business.”
For the fiscal year ending December 31, 2022, Tattooed Chef reported revenue of $230 million, up from $208 million the year prior, for a year-over-year growth rate of 11%. Still, net loss grew to $141 million for the fiscal year and adjusted EBITDA was negative $91.7 million. Though the company was able to reduce total operating expenses in the first quarter of 2023 by 37% compared to the same period in 2022, and reduced losses from Q4 of 2022, net revenue also declined by $8.6 million to $59 million.
Founded in 2017, Tattooed Chef produces an array of frozen products, including meals, pizza, burritos, smoothie bowls, sold under its Tattooed Chef brand as well as private label offerings. In total, the company sells 132 SKUs across 21,000 retailers and has 175 concepts and recipes in the R&D stage. Tattooed Chef was created, and went public, via a 2020 reverse merger between Ittella International and the publicly traded Forum Merger II Corporation, a transaction that valued the plant-based meal company at roughly $482 million.
Alongside Sam Galletti, his daughter, Sarah Galletti, serves as the company’s chief creative officer and largely acts as the public face of the company. In addition, the company has 800 full time employees in the U.S. and 140 full time employees in Italy.
From April 2021 through August 2022, Tattooed Chef spent over $66 million to acquire a sizable pool of assets including: Ittella Italy SRL (“Ittella Italy”), a 100,000 square foot processing plant in Italy; New Mexico Food Distributors; Karsten Tortilla Factory; Belmont Confections and Desert Premium Group. The debtors also lease processing facilities in California, New Mexico and Ohio; as well as storage facilities in Italy and California.
According to the court filing, at the time of Tattooed Chef’s IPO the brand had household awareness of under 6% and was only available in 4 major retailers, for less than 4,000 doors. By 2022, household awareness was at over 26% and door count had increased to around 20,000 doors. To try to further drive sales, earlier this year the company expanded beyond frozen into refrigerated snack bars and tortilla chips.
Still, this accelerated growth has come at a cost, with the bankruptcy document stating that Tattooed Chef has invested over $100 million into marketing and promotions over the three year time period. Revenue also did not keep pace, the company reported in the document, growing from $147 million in 2020 to $230 million in 2022.
The bankruptcy filing comes on the heels of other legal woes, with several lawsuits stemming from the company’s October 2022 disclosure that its 2021 annual report and first, second and third quarter earnings contained material errors such as overstating revenue and understating net losses. According to the allegations, even once the error was discovered, executives continued to downplay the scope of the company’s financial difficulties or the lack of internal controls that had led to the issue.
The bankruptcy news also follows several other notable closures by plant-based companies, with both The Meatless Farm and The Very Good Food Company running into financial difficulties in the last five months.
Unilever Buys Yasso As Part of ‘Premiumization Strategy’
Frozen novelty brand Yasso announced it will be acquired by global conglomerate Unilever in a deal that is expected to close in the third quarter of this year.
Terms of the deal were not disclosed. Piper Sandler & Co. served as financial advisor to Yasso in the transaction, and Ropes & Gray served as the Company’s legal advisor.
“I am delighted to welcome Yasso to the Unilever family,” said Matt Close, president of ice cream for Unilever, in a statement. “It has built a strong customer appeal in the fast-growing, premium ‘better for you’ segment.
At NOSH Live last winter, Yasso CEO Craig Shiesley said the company estimated its 2022 sales would hit $240 million and said the brand was on track to eclipse $300 million in 2023. Unilever’s ice cream portfolio also includes Magnum, Breyer’s, Talenti and Ben & Jerry’s.
Yasso was founded in Boston by Amanda Klane and Drew Harrington in 2009 and backed by Castanea Partners, also an investor in ice cream brand Jeni’s. In 2019 the company brought on Shiesley as CEO and relocated to Colorado in order to focus on growing beyond its homebase in the Northeast.
Yasso is now distributed in thousands of retailers including Whole Foods Market, Walmart, CVS, Target, Kroger, Costco and Safeway with a low-calorie product line that includes stick bars, dipped stick bars, frozen greek yogurt sandwiches, mochi and Poppables – a chocolate coated frozen yogurt snack that was recently relaunched as a better-for-you, Dibs-like competitor.
Though the emphasis on bars has remained constant since its founding, the brand’s portfolio has taken various shapes over the years and once included pints and smaller kids’ bars. In 2021, as it evaluated possible line extensions, Yasso launched popsicle brand Jüve and tested sales online as well as in a limited number of retailers; however, Jüve’s website now says the line has “melted away.”
For Unilever, adding Yasso will support the multinational’s planned “premiumization strategy” for its ice cream division. The brand will likely roll up to Russel Lilly, President North America Ice Cream at Unilever, a 17-year veteran of the company who has worked within the division for the last five years.
In January 2022 Unilever executives announced the company would be reorganized into five distinct business units, one of which would be dedicated solely to ice cream. Moving forward, each division would be “fully responsible and accountable for their strategy, growth, and profit delivery globally.”
The move was beneficial, Close noted in a recent Unilever blog post, allowing the group to better focus its domain expertise and “get to market faster, make quicker decisions and take more experimental risks.” Digital solutions and delivery programs will be another core focal area for growth, he said, in order to offset a portion of the seasonality the category faces in retail and out-of-home. For example, last summer Unilever expanded the reach of its ghost storefront, The Ice Cream Shop, through a partnership with Instacart. That program now allows consumers across the country to have Unilever-owned treats delivered in as fast as 30 minutes.
There’s a lot of cash at stake given how much of Unilever’s overall sales come from ice cream. At last December’s annual investor presentation, Clouse said that at the end of 2021, Unilever’s ice cream business was valued at $7.7 billion and had grown 3% over the last three years.
In addition to looking for expansions in low-sugar and low-calorie spaces, the ice cream team saw the greatest opportunity for growth in its premium lines, where it could invest heavily in R&D and marketing. At the time of the presentation, Clouse said premium brands Ben & Jerry’s and Magnum alone were expected to represent 50% of Unilever’s share of ice cream sales by 2025.
Mars Enters Agreement To Buy Kevin’s Natural Foods
Mars, Inc. has signed an agreement to acquire Kevin’s Natural Foods, adding the ready-to-eat meal business to its portfolio of better-for-you brands. The acquisition is expected to close during the third quarter of 2023.
Financial terms of the deal were not disclosed but a representative of Kevin’s said that the purchase includes the company’s Kevin’s California production facility.
“We have been hugely inspired by Kevin’s, a business whose mission fits squarely with our purpose: Better Food Today. A Better World Tomorrow,” Mars Food & Nutrition President Shaid Shah said in a statement. “We look forward to drawing on our experience of nurturing and scaling founder-led brands to help bring their products to even more people.”
Following the sale, Kevin’s will operate as a standalone business within Mars’ Food & Nutrition segment, reporting up to Shah. The sale will also enable an exit for the brand’s minority partners, investment firms TowerBrook Capital Partners L.P. and NewRoad Capital Partners.
The company declined to comment on whether its founders, Kevin McCray and Dan Costa, will continue on in their respective roles as COO and CEO after the sale has been completed.
“As a standalone business within Mars Food & Nutrition, we’ll be able to maintain the entrepreneurial spirit and authenticity of our brand while getting the support and capabilities to continue our long-term growth journey,” said CEO and co-founder Dan Costa in a company press release.
McCray launched Kevin’s as meal kit company Chef’s Menu in 2012, which evolved both its name and business model in 2019 alongside investment partners Dan Costa and Kelsie Costa-Olson of Innov8 Partners. The concept was inspired after McCray changed his own diet as a result of an auto-immune disorder. All of Kevin’s Natural Foods products are keto- and paleo-certified as well as dairy-, gluten- and soy-free.
Interest in the ketogenic diet has declined in recent years as brands have pivoted away from marketing themselves as keto-based. Kevin’s has increasingly leaned into its paleo-diet credentials expanding its refrigerated meals as well as shelf-stable sauces in the last year.
Rumors about an exit began to circulate in January when Axios reported that the company was seeking an IPO or a buyer for the business. Initially, the company rejected the claims. Last month, an anonymous source tipped Bloomberg that the ready-to-eat meal business was seeking a valuation between $700 million to $800 million.
In the four years since it was founded, Kevin’s has experienced “double-digit growth,” according to the company, and is available in over 17,000 retail locations in the U.S., U.K., Canada and Mexico, according to the company.
The multinational food maker has been building out its better-for-you snack portfolio with the acquisition of KIND in 2020, and subsequently Nature’s Bakery, and whole-fruit snack maker Trü Frü last December.
Tony’s Chocolonely Brings In $21M To Expand Mission
Tony’s Chocolonely has tapped into its existing shareholder base to raise $21.8 million (or €20 million) that will see the organization accelerate the growth of its mission, brand and B2B business, according to a June announcement. The round saw participation from majority shareholder Verlinvest, investment firm Jam Jar and holding company Genuine Chocolate, among others.
The Netherlands-based company still needs to secure Competition Authority approval from regulators in its home country in order for the round to officially close. A few investors “will sell a small percentage of their stake” as part of the deal.
“This investment will help us accelerate our progress towards our mission of ending exploitation in the cocoa industry,” said CEO Douglas Lamont, in a press release. “I am delighted that all the funding was raised from within our existing shareholder base, who we know are all committed to supporting our long-term mission.”
Lamont can back up that long-term mission commitment claim too. Jam Jar is run by the founders of Innocent Drinks, where Lamont’s was last CEO before joining Tony’s. Investor Genuine Chocolate is a holding company started by Tony’s former CEO Henk Jan Beltman.
The news also puts some weight behind Tony’s performance over the past twelve months and Lamont said the new funds will go toward accelerating that rapid global growth. The company operates both its branded chocolate business, Tony’s Chocolonely, and a global business-to-business ethical bean trading company, known as Tony’s Open Chain. The chocolate brand sells a wide range of flavors and formats including Big Bars (6.35 oz.), Small Bars (1.8 oz) and Tiny Tony’s (0.32 oz.) as well as co-branded and seasonal chocolates.
In late May, Tony’s locked in its mission for the long haul via a new corporate governance structure. Known as the Mission Lock, the independent foundation is chaired by Eat the Change Founder and CEO Seth Goldman and supported by two Mission Guardians, Anne Wil Dijkstra, ex-Co-Captain of Tony’s, and Ikeena Azuike, a former lawyer turned social activist and broadcaster. That new structure gives Goldman, Wil Dijkstra and Azuike the ultimate decision-making power over proposals that affect how Tony’s does business.
As it shored up its sourcing model, in February the sustainable and ethical cocoa company brought on a second processing partner, Baronie & Cémoi, to give its Open Chain brand partners additional options for intermediary processors. Barry Callebaut, which has served as the company’s sole processing partner for the last decade, will continue to manufacture Tony’s transparently-sourced beans into chocolate.
Tony’s commitment to end modern slavery, child labor and deforestation has inspired numerous other companies to join the cause including wellness brand Huel, cheesecake maker Pleese and mission-driven ice cream company, Ben & Jerry’s. Each has agreed to source a portion, or in the case of Huel all, of its cocoa through Tony’s Open Source chain in addition to introducing new products made with the transparent chocolate. With the new capital, Tony’s will have the bandwidth to bring in more mission-aligned names to that list.
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