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Acquisition Whets Food Co.’s Appetite for Growth

Gabriel Perez Krieb is now CEO of the recently acquired San Diego-based Chosen Foods, known for its avocado oil-based products.

San Diego’s Chosen Foods, best known for its avocado-based cooking oils, is now a division of the company that makes its products, Sesajal S.A. de C.V., the Mexico-based harvester and processor of specialty oils, nuts, seeds and ingredients used in Mediterranean cuisine.

Chosen Foods’ acquisition by Sesajal was completed in early 2017. Financial terms were not disclosed.

Becoming part of Sesajal, which sells ingredients such as hulled sesame seeds, roasted peanuts and cooked chickpeas to food manufacturers worldwide, is allowing the San Diego company to further broaden its product portfolio and expand its distribution, company executives said.

Chosen Foods founder Carsten Hagen, a naturopathic doctor who traveled extensively, was inspired to start the company in 2009 after spending time in Mexico, where he was exposed to foods unfamiliar to shoppers in the United States. Originally, the company debuted with the tagline “ancient nutrition,” a reference to the seeds and plants, such as chia, from which it planned to produce its goods.

George Todd

Co-founder George Todd, who was introduced to Hagen through a friend, had been working as an investment banker in Seattle before the financial crisis. As business slowed, Todd decided to use his financial acumen to develop a business plan for Hagen’s fledgling food firm.

They decided to establish the company in 2011 in San Diego because of its proximity to Mexico, where Chosen Foods planned to source all its ingredients.

Even after relocating from Seattle, where he had lived for 35 years, to San Diego, Todd said he remained uncertain whether avocado oil would be a retail success.

“How many millions would you have to spend to advertise a product and introduce it to the market to get some shelf space?” he said.

In the meantime, the firm socked away some capital by taking advantage of high margins on selling chia, which at the time was relatively inexpensive to buy in Mexico compared with the price U.S. buyers would pay for the ingredient.

Getting In Costco

It was another friend of Todd’s that ended up connecting the firm to Costco, the club warehouse giant that first sold significant quantities of the company’s avocado oil. The deal prompted Chosen Foods to team up with Sesajal to harvest and produce the product.

After landing a contract for a trial at about a dozen Costco stores in the San Francisco Bay Area, to which Chosen Foods promised to deliver 30 pallets of one-liter bottles, “we feverishly went to work on packaging,” Todd said.

Customers at the Westfield UTC mall’s Williams-Sonoma store, which would occasionally allow local companies to sell their wares there, ended up providing input that led to Chosen Foods’ final packaging design, he said.

“Those people chose the white label with the big, green avocado on it, so it was those customers who helped us decide what label to use, what the bottle would look like and all those things,” Todd said.

Fortunately for the company, bottles of its avocado oil ended up flying off the shelves, which encouraged Costco buyers in other regions of the country to add the product to their stores’ lineups.

“I think the magic move for our company was that people were just into avocados,” Todd said. “Even at that time, people just equated avocados to healthy foods, and we were just starting to move into that consumer change, where we want food that’s better for us.”

After the oil hit Costco shelves in 2012, the company’s annual revenue went from “zero to $8 million or $9 million,” he said. “It gave us the capital so that we could say, how can we get this in every store in the U.S?”

A More Direct Sales Channel

In 2015, after a few years of making products for the company, Sesajal bought 50 percent of Chosen Foods’ shares. Sesajal executive Gabriel Perez Krieb, whose wife’s family owns the firm, joined the Chosen Foods board. Perez, under the acquisition terms, is now Chosen Foods’ chief executive officer.

“We had been talking for many years about the possibility of establishing an operation in the U.S.,” Perez said. “Our focus had been exclusively in the B2B arena before we started our relationship with Chosen Foods.”

The partnership gave Sesajal an avenue to sell directly to shoppers, who, spurred by an increasing interest in healthier food options, are developing a taste for specialty oils.

According to a 2017 report on the margarine and cooking oils industry by research firm IBISWorld, demand for alternative, specialized cooking oil “continues to expand.” Imports were projected this year to rise at an annualized rate of 2.7 percent to $10.5 billion in the next five years. As discretionary income rises, more consumers will be able to “trade up” to pricier oils for cooking, such as those made from avocados, the report

Natalie Morse

said.

There are a few hurdles to getting shoppers to try oil made from avocados, said Natalie Morse, who joined the company shortly after it launched in San Diego. (Todd, who is her father, asked her to lead the firm’s marketing efforts; she never returned to her previous job, from which she had taken leave while pregnant with her first daughter.)

As director of marketing and innovation, Morse said the central challenge in getting consumers to buy that first bottle of oil is convincing them it will not taste like avocado.

“The consumers’ need to really understand it’s not going to mask or impact or mess up the flavor of their food was really critical,” she said. “Beyond that, we focused on consumers gaining acceptance of healthy fats.”

Informing Consumers

Today, Chosen Foods products are sold in more than 30,000 stores in North America. The company has about 50 employees at its headquarters in San Diego.

Morse said being part of Sesajal gives Chosen Foods an advantage over other companies that are trying to compete with their own avocado oils because of the firm’s vertical integration.

“As the market expands … the consumer is getting really, really savvy and they don’t just want to know the product is healthy for them; they want to know about the company and they want to know about where the avocado oil came from and how it was processed and that the quality of the product they’re buying is what they think it is,” she said. “We have 100 percent control over the product from the moment the avocado leaves the tree until the oil is bottled and processed and trucked up to our warehouse in San Diego.”

Chosen Foods, which also sells quinoa and avocado oil-based mayonnaise in a variety of flavors, plans to expand its product line by introducing additional products in two areas: healthy fats and plant-based proteins.

The company has 42 new products in the pipeline that will launch over the next two years, Perez said.

“We want to bring products to the consumers that are not out there,” he said. “We thrive on that innovation … it’s at the core of our strategy.”

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