“One thought only preoccupies the submerged mind of Empire: how not to end, how not to die, how to prolong its era. By day it pursues its enemies. It is cunning and ruthless, it sends its bloodhounds everywhere. By night it feeds on images of disaster: the sack of cities, the rape of populations, pyramids of bones, acres of desolation.” — J. M. COETZEE, Waiting for the Barbarians
The beginning of March is San Francisco brings two annual events — one is the flowering of the cherry blossoms in Golden Gate Park, and the other is the announcement of the results from TerraVia and the annihilation of more capital in pursuit of perhaps the most interesting industrial target of modern times: the replacement of foods made by production agriculture and its so-so health record with advanced super-healthy foods made by algae using sugar as a starting point.
It is not well known that the cherry blossoms that adorn the Japanese Tea Garden were cultivated by the man who popularized the fortune cookie, Makoto Hagiwara, which came not from China but Japan, in the early 1900s. They were initially served in boutique quantities at the Tea Gardens in days gone by — and eventually went mass market by adding lots of sugar and tapping the mass distribution of a set of strategics known as “Chinese restaurants”.
The Tea Gardens were not supposed to be about fortune cookies, or even much about tea.
It had its origin in the Depression of 1893 when California was casting wildly around for some way to generate economic activity, and a group of entrepreneurs came up with the idea of a World’s Fair that might take advantage of California’s mild winter climate. There were a host of transformative attractions and exhibits with a bold visual and promotional style along the general theme of “California will change everything”, and after the fair was over, not much was left except one museum of everything that had once been there, and a gorgeous and exotic tea garden that made its money selling alternative and disruptive food products.
In it’s own way, TerraVia has been on a similar journey.
It had its origin, as Solazyme, in the post-9/11 world when the United States was casting wildly around for some way to generate alternatives to imported petroleum, and a group of entrepreneurs came up with the idea of growing algae in ponds that might that would take advantage of California’s mild winter climate. There were a host of transformative applications and exhibits with a bold visual and promotional style along the general theme of “algae will change everything”, and after the days of Solazyme were over, not much was left except one museum of everything that had once been there, and a gorgeous and exotic Brazil-based fermenter that makes its money selling alternative and disruptive food products.
The Less than Thrill a Minute shareholder headlines
The business has been ramping up slowly, as did the fortune cookie business back in the day, come to think of it. This past week, Cowen & Company’s Jeffrey Osborne commented on TerraVia’s latest earnings call, and we summarize his summarization: 1. SBOils: loooower revenues. 2. Unillever: sloooower revenues. 3. “New products that we hyped last year”, leveling off. 4. Balance sheet: OMG. 5. A new board chair.
Overall, it wasn’t pretty, but the sale of the Algenist line to reduce debt and costs and increase focus — plus a cost reduction drive and hitting Q4 2016 production targets were all good things.
Do Ya Think I’m Sexy?
But here’s the thing. With the focus on nutrition and strong progress on production ramp-up, the business shifts from finding applications that can make money to finding more customers for the product. And the proposition is less sexy than some others in the field.
Impossible Foods, Perfect Day and Modern Meadow offer, respectively, meat without the cow, milk without the cow and leather without the cow. The attraction for, say, the vegan market is reasonably obvious — and the attraction for just about everyone can be summed up in two attractive words: no cow. No cow guilt of the kind that Chick-Fil-A focuses on.
Those companies focus us on a negative — the destruction of cows — and sell us a relief from our ethical dilemma without giving up on products so tasty or useful that they free us from our scruples.
What’s the pain point for TerraVia? Used to be simple, with Solazyme. No OPEC. They sold us a relief from our ethical dilemma over imported petroleum without giving up on products so tasty or useful that they free us from our scruples.
Here’s one very good one: No Palm. In some ways, that’s the Unilever value proposition — but there are industrial applications like shampoo and soap in there as well as the quantities of palm oil used to make margarine and ice cream.
For the flour market, the proposition is reasonable clear: Eat Healthy. But it’s not exactly a unique selling proposition in the world of food. There must be a thousand companies or more using that one, and it is very hard to rise above the noise in the food sector with a “healthy” marketing strategy. Hence the desire for partners who can shovel the product a little faster through their value chain, and ramp the sales.
About those sustainable brands
But here’s the dirty little secret, something that TerraVia CEO Apu Mody knows all too well. Companies do not want to acquire new behind-the-scenes technologies and put “new and improved!” ingredients into their existing brands. They want new, sustainable brands — and that means brands with some traction. They’ll pay heavily for them. But a brand without traction is an ingredient set.
For the past 25 years, food marketers have been trying to adapt to the changing faces of America, as well as the changing palate. For a number of years they have been targeting, for one, the Latino market. It’s a natural for them — it’s growing, and it’s differentiated, and in many ways the Latino market is sticky when it comes to brand-switching efforts. A combination of new immigrants and the desire to enjoy traditional foods creates new opportunities for Kraft that range far beyond “new customers for Kraft Dinner”. They like the Latin market for many of the same reasons they like the “healthy foods” market – there are new customers, the opportunity to establish new brands, and the market is generally much younger and has higher lifetime customer value.
Marketers for Change
For a number of years, US food marketers descended upon the Los Angeles Convention Center for the Gran Expo Hogarama (Hogarama is a neologism that, sort of, means “housewife” in Spanish, if you use your imagination). General Mills, Frito-Lay, Coca-Cola, Unilever and so many of the giants would come out in force to engage with this new market.
They found out then what TerraVia is finding out now — slapping up sensible targets on a whiteboard is one thing, stimulating people to make positive changes in buying habits as a path to changing diets, that’s another. The sad booth people at the Gran Expo Hogarama used to almost routinely outnumber the handful of customers that would wander in to the Convention Center looking for free samples of everything from detergents to snacks.
The ground would be littered with unused, pink Gran Expo show bags, and the clean-up staff had a field day with the unused samples that were donated to the community rather than undertaking re-shipment back to headquarters. After a number of years, they finally gave up on the Gran Expo. If memory serves correctly, there was quite a bit of discussion of pivoting to a strategy of attracting partners to drive faster commercialization.
The Red Bull breakthrough
Looking back, they always were all so positive, sold positive, sold features and benefits. Better. Healthier, Tastier. More convenient. More Affordable. It always seemed to be more and better.
Reminded me at the time of Jolt Cola, which debuted in the mid-80s with a slogan of “all the sugar and twice the caffeine”, and generated a lot of attention and some good sales, but the craze petered out about as quickly as you can say “Oat Bran” or “Crock Pot”.
Funny enough, there are a bunch of products on the market just loaded with sugars and caffeine — go sample an energy drink sometime, like Red Bull.
They never sold just features and benefits. Sire. Red Bull Gives You Wings, but what they sell is an extreme, hyped-up, fun, adrenaline-soaked lifestyle based in action sports and lights-out extreme action photography. The drink is not really the point, the can is point. The drink itself is really nothing more than the obscure Thai beverage known as Krating Daeng.
But now it is sold by the billions, and mostly to dudes under the age of 35 who buy into the mythic lifestyle.
What’s the mythic lifestyle for TerraVia, or Perfect Day, or Impossible Foods, or Ripple Foods or Modern Meadow? That’s the question. The difference between pet food and human food is that almost no one buys into lifestyle mythology when they buy pet food — they buy performance, price, and healthy attributes for the furry friends they love. But for ourselves, we choose myth.
Mythic lifestyle? Or, more booths at more “future food” expos where eager and intelligent salespeople wait, and wait, and wait, for the nextgen customer to arrive. Like the refugees “waiting, waiting, I’ll never get out of Casablanca,” I see all those Gran Expo Hogarama show bags flapping around in the breeze, like a plastic bag out of American Beauty. And I wonder.
The barbarians are at the plate, all right. But history teaches us that it is better to find enticing ways to get defenders to unlock the castle doors, than to bash a way in. Desire to transform the self is the agent for change on the mass-scale — not always the desire to transform the ingredient set.
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