Lessons from a Serial EntrepreneurDate: 07/01/10 | Source: Specialty Food Magazine | Author: Denise Shoukas
Categories: Industry Operations; Suppliers | Tags: Brand Spotlight
Twenty years ago, Alex Dzieduszycki co-launched Terra Chips. Next he brought Alexia Foods to the world, and now he’s working to reinvent the frozen waffle market. Dzieduszycki shares some of the lessons he’s learned, tried-and-true practices and practical advice for creating memorable and successful specialty food brands.
By Denise Shoukas
Alex Dzieduszycki has a knack for finding holes in the specialty and natural food segments and filling them with new and innovative products. With partner Dana Sinkler he started Terra Chips. Little did they know at the time that the exotic root vegetable chips produced out of a storefront in Manhattan’s East Village would become iconic and officially set Dzieduszycki on the path to become a visionary in the specialty food industry.
THE BEGINNING OF TERRA CHIPS
A self-described cook by trade, Dzieduszycki’s journey began when he returned from a stint abroad in the 1980s to work for Jean Georges Vongerichten at Lafayette, where the chef got his first four stars. “I quickly realized there are very few people like Jean Georges at that level. He helped me identify for myself that I needed to find my own way in the food business,” Dzieduszycki remembers. “It was a good thing for me to recognize. I thought my focus should be more on the catering side or something more production oriented, like my previous hotel experience,” he says.
Dzieduszycki and Sinkler began a catering business, but the seeds for the Terra Chips business were already simmering. “We had seen vegetable chips and lotus root chips in our former jobs, but they were usually little garnishes,” he notes. Interested in creating a signature dish for their company, Dzieduszycki and Sinkler created a trio of taro root, sweet potato and lotus root chips. But it was a happy accident that elevated their vegetable chip concept. “We were playing around with beet juice and Dana figured out how to cover the taro root with it and create another chip altogether, which really made that brand special,” Dzieduszycki says.
The breakthrough moment was in December 1989. He recalls, “I was doing a party for 40 editors from Family Circle magazine. I was by myself, under budget. I put out one big basket of the vegetable chips in the center of the room and then proceeded to put an entire buffet of appetizers together.” The next thing he knew, “40 editors descended upon that basket and tore it to shreds. I called Dana and said, ‘We’re in the wrong business.’” And their specialty food company was born.
Dzieduszycki knew it was prudent to try making the chips with the smallest investment possible. “We figured out what the least amount of money was that we would need to invest in equipment to be able to make this product on a manual basis, on a very small scale,” he recalls. As for the name that is now synonymous with exotic vegetable chips, Sinkler’s wife at the time coined it during a brainstorming session. “Vegetable chips sounded so blasé. Once she said Terra Chips, we trademarked it right away. It was a perfect and beautiful name,” Dzieduszycki says.
THE CHALLENGE OF GROWING TERRA
Demand for the chips grew quickly as did their need for more space, so production moved to bigger facilities. Meanwhile, Jack Acree, currently executive vice president of American Halal (dba Saffron Road) in New York, came on board. “He was the first salesman we hired and in five years, he helped us get to $5 million,” asserts Dzieduszycki. “He and Sinkler were solely responsible for that first platform.”
Acree says, “The product, far and away, was the key to that. And one of the key parts of the product was how much people were willing to pay for it.” In 1991, they were paying $8 for an 8-ounce bag. Acree explains, “It was what we needed to charge because it was labor intensive to make and we owned all of our own production.
He continues, “I quickly understood who the right customers were because we still had limited production capabilities. There were many times when we couldn’t sell to everyone who wanted to buy because of that.” And then, by sheer luck of being in the right place at the right time, around 1993 Whole Foods changed the nature of health foods to natural foods, he recalls.
“A product like Terra Chips was a perfect example of how you could eat something that was natural but in no way, shape or form sacrifice the food aspect of what you were eating,” says Acree. “It was the perfect poster child for the message [Whole Foods] wanted to get out to all of the consumers they were trying to attract.” That’s when the chips’ growth really blossomed.
Even with the rapid ascent, the owners realized by 1994 that, if they were going to be successful for the long term, they needed help. In the end, they partnered with private equity firm TSG Consumer, already successful in the natural category with Arrowhead Mills and DeBoles Pasta. They were willing to give up controlling interest in the equity of the company to TSG in order to get to the next level.
“It was scary for us at first. We were letting go of our baby that we nurtured along for the first five years,” says Dzieduszycki. In addition, he says, “If we couldn’t rise to the occasion and prove to them that we could be good managers, we would get replaced. It was very stressful.” But it paid off. In a little more than three years, they grew the business by four times.
“The private equity firm came in with their objective point of view to help us operationally, strategically and on the marketing side. Our strengths complemented theirs,” says Dzieduszycki. The firm quickly brought in a seasoned sales professional who had run a $70 million division for Celestial Seasonings, who built up the whole sales organization.
Eventually, TSG Consumer merged Terra with Arrowhead Mills, DeBoles Pasta and Garden of Eatin’ to make a larger group. In 1998, they were all sold to The Hain Celestial Group, Inc., where Dzieduszycki worked for three years running a portion of the snack division. “I had a good run, but I left in June 2001.” Today, Hain produces Terra Chips in a 75,000-square-foot manufacturing plant in Moonachie, N.J.
CREATING ALEXIA— Launching a Premium Everyday Product
Dzieduszycki came up with his next idea, an upscale, healthy line of frozen potatoes, in late fall of 2001. “I saw a vacancy there. When I looked at the sea of Ore-Ida® Reds in the freezer section, all I saw was the same Russet potato cut in a different way, fried in the same soybean oil, but there wasn’t anything compelling.” He wanted to provide a healthier, more interesting specialty alternative to Ore-Ida that would be affordable, so he differentiated by introducing new potato varieties, using healthier oils and interesting seasonings.
When launching Alexia Foods, Dzieduszycki went to Whole Food first to try to get a footprint in the freezer section on a national basis. “We developed a full shelf of products rather than a singular product that would have gotten lost in the freezer section,” he says. Whole Foods helped put him on the map with national distribution right from the get-go, and he filled in quickly with specialty food stores all across the country by launching at the Natural Products Expo and then doing every Fancy Food Show thereafter.
“We came from an environment with Terra that the product was looked upon as a specialty-entertainment item, not something you would buy every day,” notes Dzieduszycki. In contrast, Alexia was an affordable specialty alternative. Acree, who again joined Dzieduszycki in a sales role, says, “The key thing that happened at Alexia, again because we were doing the right thing at the right time, was that we launched the first frozen potato that was transfat-free just as French fries got singled out as a transfat villain. And there we were.”
In addition, says Dzieduszycki, “Our pricing was aggressive to the other extreme. It served us well because it got us a lot of distribution but didn’t bode well for us for the long term.” He admits, “There’s a learning curve when you go from the snack industry to the frozen industry. There were a lot of hiccups and disappointments.” His takeaway, he says, is that “I won’t make the same mistakes twice, I guarantee you.”
The marketing strategies have shifted with each brand. With Terra, “We made it up as we went along,” says Dzieduszycki. They were selling 5- and 8-ounce silver bags with black and white labels, “and they were all mixed and matched,” he says. Their marketing consisted of trade ads, trade spending and promotions, but nothing for the consumer. Dzieduszycki feels they succeeded anyway because “we were ahead of the curve, ahead of the competition, the bag spoke for itself, the product quality spoke for itself. We didn’t need to do that much.”
Alexia was a different story. “It wasn’t as sexy as Terra,” says Dzieduszycki. The strategy, which worked well, was to go after the specialty and natural market through specialty and natural food distributors Kehe, Haddon House and through UNFI for Whole Foods. In addition, “We invested in a huge demo budget with the club stores, worked with Weight Watchers®, and placed some consumer advertising.” There was also an extensive coupon campaign, which expanded sales, and aggressive trade spending. Website development was also important for Alexia.
CREATING A STRONG VISUAL IDENTITY
A common thread through both of these brands is the look of the packaging—strong, clean and inviting. “In the beginning at Terra, we didn’t know the difference between real packaging design and advertising. So we were fumbling about with different advertising firms here in New York City. And then we met a guy who introduced us to Bright Strategic Design in California,” he says. In 1992, the team at Bright put a professional face behind the brand and the products. To this day, Dzieduszycki works with the same firm and relies on its expertise on any venture he’s considering.
Although spending big money on packaging and design was an enormous investment for a fledgling company, “it was the best investment that we ever made,” Dzieduszycki says, “because we got so much press and recognition. It paid for itself in droves.”
For Alexia, he contacted the team at Bright Strategic Design early on, who urged him to personalize the name. “We launched in March 2002 with two Yukon Gold products and two olive oil oven fries in newly designed packaging, and shipped our first pallet in April. And we were at the $5 million run rate the following January. It went really fast,” Dzieduszycki notes. In the summer of 2007 Alexia was taken over by Con Agra, where Dzieduszycki then worked for two years.
THE NEXT CHALLENGE—Frozen Belgian Waffles
When Dzieduszycki left Con Agra in 2009, he was eager to focus on a new project. In November, he narrowed down his ideas to one that he felt held great promise and meant a lot to him personally—frozen Liège-style Belgian waffles. “I’m a first-generation American, but both my parents were from Europe. I’d been eating these waffles for as long as I can remember. And it’s been part of my family’s life.” He knew they were a proven success in Europe, surpassing €100 million each year, so he reformulated the recipe to an all-natural platform.
The name of the brand, Julian’s Recipe, is a tribute to his 14-year-old son Julian’s discerning palate. “Julian is my muse as well as my harshest critic,” says Dzieduszycki. “I’ll make something for him and he’ll say, ‘that was a really good use of pepper.’ He’s wonderful to cook for because he pays attention to every detail.” He told the story to Bright Strategic Design in December 2009 and they picked up on the idea of naming the brand after Julian.
By mid-December he had a new brand name, and by the end of January 2010, he had signed an exclusive distribution agreement with a Belgian supplier. And it’s not just about waffles. “There are a list of international ideas that are tried and proven but haven’t made their way into the U.S. in quite the way I would bring them to market,” he explains.
The Liège-style waffles are made from yeast-risen sweet bread that has pearl sugar folded in at the last stage. Stored in the freezer, they can be heated up in a toaster oven or kitchen oven, quickly producing a delectable sweet waffle. To keep them at an affordable level, the pricing will start at $3.99.
“If it’s successful and we get to a significant level, then I’ll figure out how to manufacture in the U.S. quickly. It’s critical that we do that,” Dzieduszycki says.
Dzieduszycki will be the first to admit that he’s been fortunate. He explains that he has an incredible group of peers with whom he can discuss ideas. He’s had good timing with product introductions. He’s been lucky that the people he likes to work with have been available when he needed them to come onboard. And most importantly, consumers have loved his products.
But what he considers good fortune, may simple be the combination of hard work, an innovative mind, a great staff and a cautious approach to setting up the businesses. For example, in the early stages before the product is tested and proven, Dzieduszycki prefers not to borrow anyone else’s money for his ventures. Also before he builds up his team, he feels the business must get to a certain level and “we have to demonstrate that it has viability for the long term.”
He continues, “I don’t want to make commitments to staff without the confidence and understanding that this thing has legs and will succeed.” His approach is simple: “I’m waiting for consumers to buy it. And then I’m waiting for them to buy it again and again and again. And only that way will we really know.”
Acree agrees, “You can have a plan, and you have to have a plan, but the biggest thing is to be prepared to respond to something that you don’t even know is going to happen. Be flexible so you can take advantage of whatever positive things come your way.” |SFM|
Denise Shoukas is a contributing editor to Specialty Food Magazine.
PROFESSIONAL ASSESSMENT: What You Can Learn from Dzieduszycki’s Brands
Food and beverage brand marketing expert Tammy Katz of Katz Marketing Solutions in Columbus, Ohio, examines Dzieduszycki’s approach and discusses ways other specialty food companies can strengthen their own brands.
PERFECT YOUR PRODUCT: Both Terra Chips and Alexia have outstanding product quality and taste profiles that are dramatically different from the competition—which creates strong brand loyalty and fans. Dzieduszycki achieves the ‘wow factor’ through an exceptional taste experience.
What You Should Do: Treat product appeal as ‘Job 1’. Tirelessly optimize your product formulation, and continue to improve it, so that it significantly outperforms competition. Continuously and objectively monitor how well your product appeals to consumers with external taste tests. Don’t depend on internal taste preferences alone.
HIRE OR ACQUIRE TO FILL SKILL GAPS: Dzieduszycki is a product development and innovation visionary and has the wisdom to acquire or seek counsel from others on sales, package design, naming and marketing. This frees him up to not only leverage his most distinctive skills but also, most likely, do more of what he is most passionate about. Unfortunately, his willingness to tap other resources is more of the exception than the rule.
What You Should Do: You, or your leadership team, should be pragmatic and egoless about identifying what you are truly great at—and leverage this strength. That’s what drives long-term superiority in the marketplace. Similarly, acknowledge where you lack skills, and hire or acquire those competencies to fill in the gaps. Ensure that if your company doesn’t already excel at sales, marketing, operations and finance, it soon will.
Tammy Katz has led numerous Fortune 500 and specialty food brands and launched more than 100 new products with cumulative sales of $2 billion. Katz serves on the Board of Directors of several food companies and is Adjunct Instructor of Brand Management at the Fisher College of Business MBA Program at The Ohio State University.