🎧🍌 Building a $70 Million Chocolate Factory | Nick Saltarelli (Co-founder, Mid-Day Squares)
Competing with 100+ year old monopolies, surviving a 85% drop in revenue, building a moat in CPG, lessons from Facebook's launch strategy, and why founding teams should go to therapy
Nick Saltarelli is the Co-founder of Mid-Day Squares, a healthy, functional chocolate bar. Nick, his wife Lezlie, and her brother Jake started the company in 2018 from their kitchen in Montreal, and have since built their own factory with $70 million in capacity, and grown the company to a $26 million revenue run rate.
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In this episode, we discuss:
The history of the $200 billion chocolate market
Competing against 100+ year old monopolies
Finding a huge opportunity in healthier chocolate
The dirty secrets of contact manufacturing
Why no one knows how to make a Snickers bar and Coca Cola doesn't have a patent
How to build a moat in CPG
The reason Mid-Day Squares had to build their own factory
Making chocolate like Tesla makes cars
Copying Facebook’s launch strategy
Measuring product market fit in CPG
Almost running out of money during COVID
Why every founding team should go to therapy
Surviving a 85% drop in revenue
How to raise a bridge round
Building an enduring brand
Why marketers should study the music industry
Thanks to Zac and Xavier at Supermix for the help with production and distribution!
Find transcripts of all prior episodes here.
Turner: Nick, how's it going? Thanks for joining me today.
Nick: I'm pumped. Let's fire it up!
Turner: Can you just talk about the chocolate market? Help us understand everything that's going on, how big it is, what are the dynamics, all that stuff.
Nick: To set the stage, this is an industry that's caused war, that's caused corporate espionage. It's had largely three companies, maybe four, run it for the last 100 years. It's $142 billion industry. And anytime you have that amount of concentration of control with that much, let's call it treasure up for grabs, you're going to have a wild part of an industry.
So I would say Midday Squares has been trying to learn the politics of chocolate. Trying to make friends, trying to play the game rather than just sit here and complain that the game's hard to play.
We've had cease and desist thrown at us. We're still not allowed to call squares “functional chocolate,” like those two words are not allowed. At some points we even were questioning calling ourselves real chocolate, because we don't use dairy inside of our product and we don't use regular sugar inside of our product. We use like a coconut sugar, but there's no definition for coconut sugar.
Turner: You kind of market it as a healthy product, right? There's a reason that you don't.
Nick: It's absolutely a healthy product. Number one, it does not raise any of your blood sugar levels. It's under 160 calories per snack, under 10 grams of sugar. We don't use any artificial sugar, so we just use regular sugars, but we do it at a low threshold and we make a product that tastes good.
But like I told you, when you're entering an industry and you're pushing the status quo, you're going to be put in situations where you have to fight. And we've been in three of those situations already – one being a cease and desist from Hershey's that I'm proud about how we handled ourselves and how we came out.
But this is one of the craziest games in the world. It's a hundred years of four companies running the show. You're not going to just walk onto the stage claim your spot.
Turner: Okay, so that's not what I was expecting you to say. A hundred-year wars for companies. How did this all happen? Do you know the story around like market dynamics?
Nick: Europe was a huge component of the rise of chocolate. I read the Ferrero book and I think that, does a good job at explaining the history of chocolate. You have to remember, this was a sought after commodity. I won't go into the exact histories, not to botch it, but this was a treat that's been used for as long as probably modern civilization.
It's had many different formats along the way, from health aspects back in the day from the concentrated cocoa beans to the modern day confectionary snack. The cocoa bean can't be grown everywhere in the world. We can't grow it in North America. So that right there set the stage for a lot of problems in the cocoa trade in general, because most of the stuff's coming from Africa.
Most of it's now coming from South America, but still Africa's the dominant one. And I don't like getting into the war component, but everybody that knows anything about Africa knows that England pretty much controls most of the exports of Africa. And with that commodity has come a large lineage of problems which has caused chocolatiers to have to be very creative.
(Most cocoa is produced in Africa and South America. Source.)
That's really how Nutella was born. It was the rising price of the cocoa bean commodity and the introduction of a cheaper alternative through hazelnut. But nonetheless, this is a commodity that's had everything from modern-day slavery attached to it, child labor, all sorts of stuff that make dealing with this commodity intense.
And I think the average human doesn't understand what goes into commodities in general. I was just speaking with one of the biggest pineapple importers, and I'll leave their name out. They have a full militia. So this is a company that you guys know that is traded on a stock exchange in employment of a full militia that protects the jungle yards of their pineapples.
Nick: They finance an internal army and this is how intense it goes. We could sit here and talk about these things all day and here we are just a small little player that started in 2018 making chocolate out of their condo, trying to navigate this whole thing.
Turner: Yeah, I definitely want to hear more about that. You guys also have your own factory, which I definitely want to talk about in a little. So it's a, $142 billion market. That's like revenue for the four big kind of conglomerates?
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