How One Critical Pivot Saved Hungryroot
Last year, growth at Hungryroot had stalled, and we were losing money. Less than one year later, we are growing over 300% quarter-over-quarter, and we’re profitable. Here’s how we pivoted the business, what others can learn from our turnaround and how it led to a $22 million growth investment.
It’s 2018, and if people aren’t busier than ever, they certainly feel they are. Between the pervasive need to be connected, a global news cycle that demands attention and the growing value of time more generally, it can be exhausting just to get through the day, let alone stay healthy during it.
Packaged foods have long served a critical need in times like this. They offer a quick and easy solution for people on-the-go. Yet there has been a remarkable lack of innovation in packaged foods over the past several decades. Comprised of bagged chips, canned soup and frozen dinners, the vast majority are overly processed, unhealthy and don’t leave you feeling great.
That’s why we started Hungryroot in 2015. Our mission was, and still is, to make healthy eating easy. In a world where 88% of shoppers want healthier food options, we felt it was important to create a brand anchored in wholesome, convenient and indulgent foods, and to deliver them directly to the customers’ doorstep. In doing so, our goal is to understand and cater to the consumer like no packaged food company has ever done before.
This approach has allowed us to innovate in unique ways and drive meaningful consumer adoption, but early last year we found our growth handicapped by an overly complex operation, and we faced a critical crossroads that would ultimately shape the future of our business.
We launched Hungryroot in April 2015 out of a small production kitchen in Queens, New York. We initially offered six 7-minute meals, but quickly expanded into sides, snacks and sweets (our Almond Chickpea Cookie Dough was, and still is, a big hit). As we grew, customers continuously asked us to launch new products, and it was important to us not to disappoint. In 2016, Forbes named us one of the most innovative brands of the year, and by that fall, we were growing significantly. Several top venture capital firms became interested in our business, and in November 2016, we raised $7.7 million to propel our growth even further.
Despite this success, there remained one key constraint to our business: as we grew, so did the complexity of our operation. By the end of 2016, our products required over 150 unique ingredients, 20 different specialized pieces of equipment, production processes ranging from baking to blending to hand cutting, and 70+ staff members working multiple shifts each week. This operational complexity consistently held back our ambitions. We would dream up exciting new products to meet customer demand, but we wouldn’t have the production space or time to make them. By early 2017, we had grown to a position where we could no longer take on new orders because of these limitations.
At this point, we had to make a decision, as so many other companies have when faced with similar roadblocks. Should we continue trying to solve the constraints holding us back or take a new approach entirely?
Pivot or peril
Many food companies invest into owning larger and larger production facilities to support their growth. Blue Apron, for instance, has about 4,500 employees working in their facilities. We too considered opening and staffing a new, bigger facility. But as we explored this option, we thought long and hard about what makes Hungryroot special. We believe it all comes back to the reason we started the company in the first place. If we can understand and cater to the end consumer in a way traditional packaged food companies are unable to, we can build the most innovative packaged food brand of the future. By cutting out the middleman, selling directly to the consumer and being really smart about data, we can leverage customer insights to create new products and to personalize customer experiences.
We came to realize that owning our own production facilities doesn’t help in that effort. In fact, it detracts from our core competencies. What makes Hungryroot special isn’t being the best at how to produce food; it’s understanding what food to produce and for whom. To do this better than anyone else requires a relentless focus on the end consumer, not on the manufacturing operation.
This clarity led to the decision in March of 2017 to completely pivot our supply chain and move out of the business of directly manufacturing food. This was an extremely difficult decision because we knew that to do so correctly required shutting down our Queens facility to focus 100% on setting up our new supply chain. This meant that we could no longer support those 70+ jobs, and we had to pause customer shipments for six months — a consequence that our team and investors weighed heavily.
Making it work
Despite these concerns, we were convinced that this was the only way to truly scale our business while delivering an exceptional customer experience. After all, food is a zero-error industry. Since people physically consume food products, food companies have a unique obligation to ensure their product is 100% perfect 100% of the time. This necessitated that we set up our new supply chain with partners who would embody our values and quality standards.
With an extensive vetting process in place, we ended up turning down the majority of manufacturers we evaluated. This was an emotionally exhausting time for myself and the team. Going from significant revenue to zero sales while seeing numerous partnership opportunities fail to materialize was not easy. But it is a testament to the people we have at Hungryroot that we made it through this transitional phase. We came together as a team and embodied our company values of being positive, proactive and transparent day in and day out. After several months, we selected twelve specialized, industry-leading food manufacturers to make our products, and we set our eyes on September 2017 to resume customer orders.
As soon as the first week of customer feedback came in, we knew we had made the right decision. Customer satisfaction rates were higher than ever (in fact, we are now one of the highest rated food companies on Facebook), repeat order rates had increased over 40% and our manufacturing partners were ready to take on more volume. The fourth quarter of 2017 quickly became our best performing quarter ever, and the first quarter of 2018 has already grown an additional 300% from there. Importantly, we managed to achieve profitability this quarter, something that stands out in an industry that has struggled to make the fundamental economics work.
To help us enliven even more consumers’ daily lives through delicious nutritious eating, we are proud to announce today that Lightspeed Ventures Partners, Crosslink Capital, Lerer Hippeau and KarpReilly Investments have invested an additional $22 million into our business. Our mission is to make healthy living easy, and this growth capital will help us fulfill that vision.
Why did our pivot work? There is always an element of luck in business, and I think it would be shortsighted not to attribute a significant amount of our success to things just coming together at the right time behind a selfless team. In addition to luck, though, I believe it’s because we concentrated all of our energies on what we felt would add the most value to improving the experience of the end customer, and we stopped doing everything else.
When a company focuses on doing one thing exceptionally well, something amazing happens. It drives all of your actions and objectives, and it shapes the company culture. It becomes all you think about. For us, that’s using data to understand our customers, and creating innovative products around their needs and wants. We’re able to spend the time asking questions like what type of items are highly rated? What does that imply about products that have yet to hit the market? What products do visitors click on most or spend the most time reading about? Every interaction becomes an insight that we can use to develop new items that customers will love.
We have a long way to go, but ultimately, we believe this relentless focus and expertise will set Hungryroot apart. By being the packaged food company that is closest to the end consumer and understanding them on a deeper level than our competitors, we will be able to develop the most innovative and desired products tailored to their personal needs and preferences.
Pivoting isn’t easy, and it’s inherently risky, which is why some companies decline to make big changes and end up losing market share over time or going under. The most meaningful lesson from our experience at Hungryroot is that a pivot doesn’t have to mean a change to who you are or what you stand for as a company. On the contrary, it can mean a refinement towards and focus on what you believe in most and know best. We believe this change will ultimately define Hungryroot’s identity, culture and mission for years to come, and we’re grateful to be a stronger team as a result.
Want to join us? We have 14 open positions in New York City! https://www.hungryroot.com/careers/