Califia Farms chief executive Greg Steltenpohl speaks to just-food on the implications of the coronavirus outbreak on the US-based dairy-free business.
Califia Farms was lucky enough to have secured US$225m in investor funding in January before the Covid-19 coronavirus took hold in the US, giving the dairy-free firm some protection to weather the storm while many others risk going under.
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Food manufacturers are finding themselves in an arguably enviable position as consumers still need to eat but the surge in demand is putting added strains on businesses, whilst having to ensure the health and safety of employees. Some are taking on more workers to keep supermarket shelves stocked, with panic buying compounding logistics efforts in getting product to stores.
Governments are handing out lifelines to some companies that might otherwise be shut off from credit markets, but it’s the small- and medium-sized businesses that are more at risk. Foodservice is likely to be hard hit as consumers either avoid going out or as some countries impose restrictions on people’s movements to curb the spread of the Covid-19 virus. But for manufacturers that’s an unexpected bonus as the usual restaurant demand shifts to retailers, and in turn their suppliers.
Speaking to just-food, Califia founder and chief executive Greg Steltenpohl says the outbreak is an opportunity for alternative-food manufacturers to capture a bigger audience, not just from those pursuing vegan or vegetarian diets, or those promoting environmental issues, but from traditional meat and dairy eaters who might not otherwise have considered plant-based options.
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He uses the example of fresh milk, which is naturally seeing increased demand in the US as consumers strive to secure nutritional and protein-rich food stuffs. The California-headquartered business has received around $300m in total financing since it was founded in 2010 to support the development of its oat-based ‘milk’ drinks and creamers, with a good proportion of the cash coming from sovereign wealth funds in Asia and the Middle East.
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By GlobalDatajust-food: So what sort of impact is coronavirus having on Califia?
Greg Steltenpohl: The mechanics of the business demand for the particular category we’re in is really unprecedented. And the dairy system in the US is not set up for any shelf-stable packaging format. The only thing consumers could do with regular dairy is freeze it. And then our freezers are being filled with frozen stuff. Furthermore, cows can’t produce on demand, just the regular production. We have never seen logistically anything like this before in terms of the need to ramp up production.
“Our largest distributor asked for four times the usual orders this last week for our top-selling plant-milk SKUs”
Data are showing plant milks are amongst the top-five items US consumers are trying to put in their pantries or make sure they have for this home-reserved period. Our largest distributor asked for four times the usual orders this last week for our top-selling plant-milk SKUs.
just-food: Given Covid-19, what’s the outlook for the plant-based category?
Greg Steltenpohl: I certainly didn’t predict this kind of Black Swan event but I do feel this could be the tipping point the plant-based industry has been anticipating. It’s not just Califia but Beyond Meat has held its valuation despite the disaster in the stock market. They have maintained over a $4bn valuation, and Impossible Foods just announced a $500m capital raising. So if you look at our fundraising, Beyond Meat, the Impossible Burger, this shows the market is looking ahead.
You have the demand-pull and the supply-creation capabilities starting to come together. We’ve been able to use pretty extensive lines of credit even during this crisis. I think all of that indicates that the financial community views this sector not just as an opportunity but a mission-critical part of the food-supply chain. And I think that’s been part of the big tipping point – it’s not a novelty any more.
just-food: Before coronavirus, it seemed the plant-based food trend was pretty solidified. What now?
Greg Steltenpohl: It’s almost like you have to turn to cultural anthropology or sociology to really try to understand generational shifts, because that is the key to what becomes the so-called trend. That means young people.
We found the primary consumers of plant milk have been omnivore families. These are the families where they had both dairy milk and plant milk in the fridge. And, usually, what you had is older males being used to their dairy milk habit and then you had the younger kids shifting to plant milk. Now, all of a sudden, you have parents trying it. So I don’t see any back off whatsoever.
just-food: Do you have the capacity to meet the demand?
Greg Steltenpohl: So far we do. But the logistics are between us and the end consumer. So we see empty shelves for not just our products but the whole dairy case. It’s the trucking and warehousing operations to get this product flowing through fast enough because what you’re seeing is, not only the stockpiling or pantry stocking that the individual consumer needs, but all of a sudden you no longer have a foodservice sector. Plus, they’re not eating at work. So all that demand has to funnel through the home pantry.
just-food: I guess it helps if you haven’t got to cater to foodservice and can focus on retail?
Greg Steltenpohl: Absolutely right, it’s good news for us as a company, not just in the short term but in the long term because we’re getting a lot of trial from people trying great tasting products like goat’s milk that they might not have tried before, thinking it didn’t taste good. So we’re cautiously optimistic about that.
We don’t have any business from our foodservice distributors but we have our supermarket distributors who can’t get enough trucks. So it takes a while for the system to start to actually serve, or properly serve, the demand. And in the US, 85% of the fluid milk volume was dairy coming from the cow, and all a sudden that doesn’t work any more relative to meeting that demand. So plant milk has to go from supplying 15% of the volume but probably the true demand is about 30% right now.
just-food: Are you managing to meet the increased orders?
Greg Steltenpohl: We have been following the situation in China for many months. About a month ago, it was very clear that the virus was going to come to the US, so we started stockpiling inventories, getting first in line at co-packers and starting to beef-up our own reserves and raw materials.
just-food: Have you had to take on additional workers to meet demand?
“There is a liquidity crisis coming next. There are many businesses that are going to be running out of cash”
Greg Steltenpohl: Yes. We recently had quite a major fundraising. There is a liquidity crisis coming next. There are many businesses that are going to be running out of cash. I think then we’ll have a loan crisis or credit crisis because all those companies will need to try to borrow.
There are so many ramifications that are going to make things pretty difficult for small businesses in the short term. The timing happened to be very fortunate for us in that we’ve completed the major fundraising. That’s given us a war chest of cash reserves. So we can put that to work, expanding production, distribution, specialised new products that can help the consumer with this type of immunity resistance and so on. We have a lot of R&D going on and are just looking at what the landscape is going to look like post-crisis.
just-food: Do you think there’s enough raw materials to cater to demand?
Greg Steltenpohl: Oats are one of the largest grain commodities in the world. It has different production cycles around the world because of climates. Right now, oat milk is a small part of total demand. Plant commodities, and grains in particular, are much more diverse and you can greatly shift the planting acreage within six months. And farmers are very adept at serving those flexes in demand. So that’s probably the least of our worries.
just-food: To what sort of extent have you had to change plans because of Covid-19?
Greg Steltenpohl: We are extremely interdependent with all our suppliers. So not just the big almond, oats and coconut suppliers but also all the technical ingredients. An important role in the food system is to make sure our relationships and our inventories of all our critical supply-chain elements are in stock. And that involves going into surplus warehouse space, reserve trucking and and transportation arrangements, and then internally, how do we get shift relief for people? How do we provide for the stress on employees and so on? It’s the multi-dimensional chess cube, you have to try to stay on top on a daily basis.
just-food: Are you exporting anywhere else in Europe apart from the UK?
Greg Steltenpohl: I think we’re the second-largest plant milk supplier in the UK. And we have also helped pioneer the cold brew business in the UK. Our product mix – coffee and plant milks – seems to have struck a chord with the palette of the British consumer. Right now, we don’t really need to go too far afield there. So we’re focused primarily on the UK in Europe.
just-food: You are attracting a lot of investor interest, why do you think that is?
Greg Steltenpohl: Including my start-up money it’s over $300m at this point. I deliberately wanted to get the expertise of the various food-related investors. One of our investors, Qatar Investment Authority, is one of the largest shareholders in Sainsbury’s. So the Qataris have looked forward. And I think what some of the Arab states have had to understand is the decline of their asset base in oil and gas. I personally was really seeking the participation of the sovereign wealth funds because of their long-term perspectives.
just-food: What is your turnover?
Greg Steltenpohl: We supply close to 1.5 million servings per day of our plant-based products and that equates to about 35 million US gallons a year. We hope to be a half-billion dollar revenue company within the next three years.
just-food: What is your largest market?
Greg Steltenpohl: The US is by far our largest market but I would have to say at this point, the UK is the fastest growing.
just-food: Are all your products based on oats?
Greg Steltenpohl: Oats is the top seller for us but we use a lot of almonds, coconut and yellow beans, which have a lot of plant protein. We have a product that we’re launching this month, which is oats plus protein. It’s the first time we’ve seen a product that really has an equal or superior macro-nutritional profile to dairy milk because it has eight grams per eight-ounce serving.
We have about 90 SKUs in five categories. And we’re also launching plant butters this month. We basically looked at the dairy case and it’s kind of spreading the wings of plants through that whole refrigerated dairy case.
just-food: Have you only got one production unit?
Greg Steltenpohl: No, we actually have our main plant, which is a 100,000 square-foot facility in the Central Valley of California. And that’s where a lot of our raw materials are grown, almonds and rice and so on. But our oat suppliers come from the Midwest and we have several plants that package for us in the east of the Midwest, and then another plant in California. And then we have a plant in Spain that we rely upon for a lot of the European volume.
just-food: Have you had to put any expansion plans on hold?
Greg Steltenpohl: Everyone’s just focused on meeting US demand. But I think once things normalise here, our product will probably be even more in demand. I mean, as people have pondered the origin and vectors of not just Covid-19, but the whole series of these types of viruses, they’re coming to understand the animal-base vectors or origin points, so it’s given people a lot more awareness of their own personal health.
just-food: It looks like Covid-19 is going to have a severe longer-term impact?
Greg Steltenpohl: Yes, there’s no question about it. This is my 40th year in the natural food business. I started in 1980, when healthier foods was really being driven by people like myself who were just evangelists or early visionaries. But today, we also have to look at the opportunities not just the trauma to businesses.
We are in this position partially because of scenario planning, the systematic way to think through all the potential impacts. And in this case, once we saw what happened in China [Covid-19), you could kind of see it rolling through the global economy. Once people are back on the streets, they’re going to want their coffee again. So I think it’s about riding it out and planning ahead. But to underestimate the impact, I think would be a huge mistake.
And we don’t know the future of how the government will restrict even employees being able to go to work to produce food. I think they’ll make exceptions for that because the last thing any country’s leadership needs is social unrest because of a lack of access to food. We think the government is going to provide some kind of way, either through an ID system or whatever, to allow food workers to maintain their ability to go to work.
They really have looked at a 45- to 60-day kind of peak impact period and that’s where the supermarket system and retail system and foodservice disruption [is going to be]. I don’t see any way of looking past that time span for at least 60 to 90 days.
