Can you buy your own mayonnaise?

Hampton Creek, the maker of vegan mayonnaise called Just Mayo, has come under scrutiny by regulators for its business practices.

Founders ran an undercover project to buy up their own products from stores, thus increasing the sales numbers. There is more on this on Bloomberg.

In late 2014, fledgling entrepreneur Josh Tetrick persuaded investors to plow $90 million into his vegan food startup Hampton Creek Inc. What Tetrick and his team neglected to mention is that the startup undertook a large-scale operation to buy back its own mayo, which made the product appear more popular than it really was.

I was shocked to read how surprised media acted — this is getting done online every single day.

When a product is launched on Amazon it is lost in a pile of millions of similar products. Since products are ranked by popularity by default, not having any sales means the new product is on the last page of results. Unless external ads are employed it will never have a single sale.

A couple years ago retailers realized they can easily kickstart a product by having friends and family buy the product and leave a review. But instead of asking them to pay out of their own pocket they would each be given a 100% discount coupon. As this trend spread it went beyond friends and family and there are now many websites offering free or discounted products in exchange for a review.

As those fake sales came in Amazon’s popularity algorithm would start ranking the product higher and soon enough it would be the first search result. At which point other customers would find it too and sales would continue to rise — as long as the product was decent it would no longer need artificial sales.

This then didn’t last long as it had potential of ruining Amazon’s search results and reviews trust forever. There has been some lawsuits against companies offering reviews in exchange for money, changes in Amazon’s rules, etc. Nonetheless it is still possible today when done correctly. Hundreds of new products are launched like this on Amazon every day.

Hampton Creek wanted to do the same thing but in physical stores.

Groceries business is a tricky one because manufacturers tend to not have any direct way to impact their growth. They of course can improve the product, but most of the time they don’t even know what stores sell it. That part is handled by one of the major distributors. In this relationship consisting of 3 players they all have limited access and power. Ultimately meaning that communication between stores and manufacturers does not exist.

I talked to a food startup who knows their product is getting sold at Whole Foods, one of the hip retail chains, but had no idea at which locations. A distributor would order a few thousand units every couple of weeks and that was it. As someone who is obsessed about using data to grow things this would drive me mad. There is zero visibility or actionable data to use for improvements.

And yet grocery stores work exactly the same as Amazon. Popular products get better positions on the shelves and thus sell even more. New brands are stuck at the bottom shelf or all the way at the top for tall people like me to pick up. I guess I’m a major key to new brands making it.

The people behind Hampton Creek realized this and tried to hack it the same way online retailers do. I think this was brilliant. And probably done more often than a consumer realizes. For example, the New York Times bestsellers list sounds like a very easy thing to play. Buy up all books printed, gain the bestseller status and then ride the new wave for years.

But this got Hampton Creek in trouble because it might be fraud. Both in terms of promises given to investors and contracts with stores. To me, I would like to know the amount involved. If 1% all sales was buy back and it has resulted in even more growth — great. But if it was 10% and there was no growth still then I’m not so sure about it.

I think this is going to get Hampton Creek in serious trouble as more details are uncovered. There might be some real fraud behind this because of the way it was executed. As I was reading about this there are many hints about struggling product quality too.

Still I’m not alarmed by it. As retail stores, ecommerce websites or even app stores employ popularity based ranking, how else would you get to the top? This is 2016, meritocracy for products does not work.