Can Oregon Food Artisans Scale Up Without Selling Out?

The Ecstasy—and Agony—of Building Scalable and Sustainable Business Models

 

Every business starts with an idea—a stubborn and tenacious idea that can nag and nudge and push people into a kind of frenetic Klaus Kinskiesque ecstasy so mercurial that not acting on it wouldn’t just be a personal failure, but a cardinal sin.``

Then again, sometimes a business gets off the ground by lucking into someone’s else’s bad luck.

That’s how Anheuser-Busch broke into the beer game in 19th-century St. Louis. Eberhard Anheuser was a local soap-maker who took over a bankrupt brewery in 1860. Shortly after the that, a local beer supply salesman named Adolphus Busch married Anheuser’s daughter, providing him a clear path into the brewing industry.

Anheuser-Busch was the first brewery in the United States to distribute its own beer using refrigerated rail cars

Anheuser-Busch was the first brewery in the United States to distribute its own beer using refrigerated rail cars

But Busch was ambitious. He aspired to conquer the beer world. And he did. By vertically integrating hop farming, bottling operations and distribution into his business model, he scaled up so quickly and so forcefully, that by the end of the 20th century, his one-time craft brewery had transformed into a dynasty so iconic that it practically rhymed with the very idea of America.

Adolphus Busch: Not a beer drinker

Adolphus Busch: Not a beer drinker

But successful scalability isn’t without its perils. By the 21st century, Anheuser-Busch had long been a publicly held company, making it vulnerable to a hostile takeover—and hostilely overtaken it was, by InBev, the Belgian-Brazilian international beer conglomerate. That takeover meant that the profits that the brewery claimed may have been made in America, but they were now going abroad to line the collective pockets of a worldwide consortium that had the nerve to briefly change the name of Budweiser, its signature brand, to “America” as part of an ad campaign. America, the gullible, bought into the swindle and, naturally, drank it all up.

The main streets of good old American business ingenuity are littered with similar stories, especially those founded with a social mission in mind. Clorox strong-armed Burt’s Bees. Colgate-Palmolive did the same to Tom’s of Maine. And Ben & Jerry’s, as we all know, was pushed into a corner by Unilever.

Takeovers like these—in which one person or a couple of people build a product from the ground up only to helplessly watch as their life’s work is sold to people with deeper pockets—prove that when shareholders are involved, no mission statement is considered too holy.

Evidence suggests that in order to keep your following loyal, you need to keep it local, keep it honest and don’t sell out. If you follow those three rules, Oregonians will have your back. But does that mean you have to keep it small?

That depends on whom you ask.

The Wizards of Alberta Street

Ice cream savants: Salt & Straw’s Kim and Tyler Malek / Stuart Mullenberg

Ice cream savants: Salt & Straw’s Kim and Tyler Malek / Stuart Mullenberg

 

More than any other Oregon business, the one that most closely tracks with the success of big time players like Ben and Jerry’s is the Portland-based ice cream shop, Salt & Straw—and not only because both companies were founded by ice cream savants.

LikeBen & Jerry’s, Salt & Straw started as a two-person operation with Tyler Malek and his cousin, Kim, parking a small push cart out in front of the restaurant Aviary on Portland’s Alberta Street.  Also like Ben & Jerry’s, Salt & Straw relies on dairy milked from in-state cows. And both have a history of giving back to the communities in which they set up shop. Ben & Jerry’s made sure their employees were paid a living wage and invested in programs that promoted growth in its home state of Vermont. Salt and Straw works closely with local PTAs, collaborates on flavors with local celebrity chefs, and every Thanksgiving puts out a flavor inspired by U.S. House Representative Earl Blumenauer’s family’s fruitcake recipe. Proceeds from the sale of each fruitcake scoop are then donated to the Portland Community Cycling Center for its annual holiday bike drive.

For a while, it looked like Salt & Straw would avoid the kind of mistakes that, in the end, doomed Ben & Jerry’s independence. The artisan ice cream makers were on a path of steady growth, opening four shops in Portland, four in Los Angeles and one in San Francisco, with another planned for Seattle later this year.

When we spoke with him in April, Malek explained the company’s growth would eventually hit a ceiling, maxing out at around 25 to 30 shops. 

But on May 16, The Oregonian broke the news that Salt & Straw had just taken on an outside investor: Danny Meyer, the industry heavy behind New York City’s Gramercy Tavern, the fast-casual darling Shake Shack and the head of the Union Square Hospitality Group (USHG), which oversees dozens of food and beverage programs all over the country.

That same story also reported that even with USHG’s investment, the Maleks will control a majority of their ice cream company, although they didn’t say how the pie would be sliced when asked.

So, does such an investment rise to a Ben & Jerry’s-style takeover? Probably not. 

Meyer doesn’t have the reputation of a corporate raider. He’s more of a mentor to the companies in which USHG invests, helping them grow while sticking to their principals, procedures and missions. And USHG doesn’t have a board of directors, either, so there are no shareholders to satisfy. Still, USHG now owns a piece of that Salt & Straw pie.

The question is how do we still stay genuine to our product and stay genuine to our relationships to our cities and the elementary schools near our shops, and the community organizations we partner with?

Malek, for his part, is over the moon about the deal. “This partnership will allow us to both increase our quality and give us a runway to have a deeper impact on the food and art communities that our shops are in.” He also points out that Meyer and USHG mentored Salt & Straw during its initial growth phase via seminars and classed the Maleks took several years back.

“Making the very best ice cream possible is what has always driven us, and that won’t change one bit,” he wrote in an email. “We’re still using the same small batch approach, folding every single ingredient in by hand. We’ll continue to develop unique seasonal menus in each city. Some of the programs this partnership has already afforded us takes our current level of quality and amplifies it beyond our imagination.”

Still, how did they get to where they got in just a few short years?

“We change our [menu’s flavors] every four weeks and we still want to use small local farms,” Malek explains, pointing out that the food manufacturing system wasn’t in any way designed for that. “We’ve had to get creative and really innovative with all our food manufacturing standards.”

Salt & Straw: How the ice cream gets made

Salt & Straw: How the ice cream gets made

Five years ago, that process was a fairly easy one, considering it was just a two-person operation. But today the company employs around 300 people, including a five-person purchasing team responsible for sourcing everything from flowers in Canby to tomatoes from Sauvie Island. And because he doesn’t want his company at the center of a listeria scare, many ingredients, like those tomatoes, are sent to a third party for testing to ensure that they’re safe for consumption.

“No one’s ever done high-end manufacturing at this level, where they’re getting that much care in their products,” Malek says, referencing 2015’s listeria scare. “We’ve got people’s lives at out fingertips here, so we immediately made a huge investment over the last three years in food-safety standards.”

And until that Meyer money came along, Malek admits that the tricky part of running a blossoming ice cream empire came down to how he and his cousin export their product—and their brand—to communities outside of Portland.

That’s because there’s a danger to becoming too popular. After all, when you’re getting love from Oprah (she’s a fan of Salt & Straw’s olive oil ice cream flavor), your ubiquity can be your albatross. A few years back, the coffee roasters Stumptown faced a serious local backlash when founder Duane Sorenson sold the company to TSG Consumer Partners, a private equity group that in turn sold the company to Peet’s Coffee, which is itself owned by an international conglomeration out of Luxembourg.

(It should be noted that the backlash—and even outright boycotts—Stumptown faced was a collective case of pearl-clutching. After all, it’s not like local beans grow on trees in Portland; they’re just roasted here. And Sorensen took his profits and reinvested them by opening two of Portland’s favorite restaurants, The Woodsman Tavern and Ava Gene’s. Sorensen didn’t just roast coffee beans; he branded them as a lifestyle. When he sold it, his loyalists took it personally because, to them, he was selling a part of their collective identity with it.)

And while the Maleks will retain autonomy over the flavors and how the ice cream gets made, they still know that it’s a dicey proposition to move into a city or neighborhood that might view you as exploitive gentrifying outsiders.

“The question is how do we still stay genuine to our product and stay genuine to our relationships to our cities and the elementary schools near our shops, and the community organizations we partner with?” Malek asks.

The answer, he says, is simply getting to know the people in the neighborhoods in which Salt & Straw wants to open shops. “It’s how you prove that you’re not taking from the neighborhood,” Malek says. “So far we’ve been able to prove that we genuinely care about where we’re opening.”

Malek thinks this model is scalable, sustainable and replicable so long as he and his team stay true to what got them there in the first place: making small-batch ice cream in old “crappy” five-gallon machines, using regional seasonal ingredients, packing each pint by hand, and then hand-signing each of those pints—something the company will continue doing, even with Meyer’s investment. (Although it should probably be said that those ice cream-making machines will likely be far less crappy going forward.)

The Conservationist

 

Salt & Straw does source many of its ingredients from small local farms, but there’s one ingredient that can be sourced on a small-tie scale: dairy. Malek says that dairy eats up 70 percent of his ingredient budget each month. Still, you can’t fault Salt & Straw for sourcing from big dairy. There simply are no small-scale dairies that can provide the volume of milk needed to put out Salt & Straw’s roster of flavors.

On its face, the same might be said for cideries. To stay competitive, a lot of cideries right here in Oregon make cider using pressed juice concentrates that are trucked into the state from juice providers throughout the country. Often the concentrates come from places are far-flung as China, despite an abundance of orchards right here in Oregon.

 

—— film image here

 

The next time you make a beer run, inspect the labels wrapping Oregon-based cider brands. More often than not, you’ll read that the concentrates come from anywhere but Oregon, and often the cider are made a blend of concentrates from several states. To put it simply, Oregon ciders may be fermented in Oregon, but the main ingredients—fruit and juices—are not from the state, which turns the whole “Made in Oregon” thing on its head.

You can’t really blame these cideries, though. Up until now, that’s the way the game’s been played. But there’s one man who’s trying to change all that, and he’s doing it in a way that seems so obvious that you wonder why no one else does what he’s now doing.

Sean Kelly is the owner-operator of WildCraft Cider Works in Eugene. And he gets fruit for his ciders the old-fashioned way. He hand-picks it from Eugene’s trees.

Eugene, he says, was once home to a lot of orchards. Back then, we planted those trees for our survival. The apples were grown specifically for cider, which Oregonians used to drink when the drinking water was unsafe for consumption.

But in the 1980s, developers hoping to cash in on urban renewal craze bought those orchards up and raised all their trees. Some of those developers were successful and made a lot of money, but a lot of them weren’t. In the end the only thing they had to show for their investments were empty lots that were nothing more than ghosts of those orchards.

The thing is, even when you level all those trees, they grow back. And when they grow back, they bear fruit, and if those trees aren’t properly maintained, that fruit falls to the ground, and when it does, all of the sudden you have bears, deer and raccoons wandering into a populated area. Saddled with this nuisance, the city of Eugene paid to have them razed them again. And when they grew back, they razed them again.

 

— could put in razing clip of Sean onsite —

 

For municipal workers, those trees were as much of a nuisance as the animals they once brought into the city. But Kelly didn’t see a dilemma. He saw an opportunity.

“Once you notice the abundant fruit there in the area that’s been laid to waste, it’s hard not to see some potential in it,” he says. “Cider traditionally is a farmhouse beverage. So I’m restoring these old farmhouses and restoring these old orchards that were originally farmed for the making of ciders. That’s my objective—to steward the land.”

In a deal with the city, Kelly makes sure those old orchard lots are free of rotting fruits. All the fruit that doesn’t fall, he gets to keep for his ciders.

You have all this fruit at your disposal. It’s free. You just have to pay the labor to harvest it.

Like the Maleks—and perhaps even more so—Kelly is a savant when it comes to cider. He can blind taste a cider and tell you where its apples were harvested. He’s as much of a forager and a botanist as a fermenter, often introducing into his ciders nettles, lilacs, wild roses, quince, wild plums, elderberry and other natural ingredients he finds in forgotten patches of Eugene. And when he talks about terroir and acidity and sulfites, he can lead you so far down the cider-making path that you might feel a little alone, swallowed up in the tall grass.

 

— cider labels 

 

Like a lot of his Oregon artisan peers, Kelly didn’t get into the cider-making game to make a pile of money. That said, he’s seen a modest growth in production over the last four years. Last year, WildCraft produced 62,000 gallons of literally all-natural additive-free hyper-local hard cider, up from 40,000 gallons the year before.

Still, when it comes to growth, Kelly doesn’t envision hiring more pickers or ramping up production. Rather, he’d like to better manage the public—and in some cases, private—lands he’s been entrusted with. To wit: Even with a team of pickers, he simply can’t get to all of Eugene’s apple and pear trees. By his estimate, he and his team are only able to salvage one in six fruits. They other five fall to the ground and get cleaned up before they rot.

To do this, Kelly will need to know which fruit on which trees on which property is ripe for picking. That’s how he says WildCraft will grow—that, and through developing relationships with the community, which grants his access to their yards and their lands. If people bring pick their own fruits and drive them to his farmhouse, he’ll trade them on the spot for some free cider.

“There’s a lot of community support going in to this product. I would actually put myself closer to a nonprofit in a lot of ways,” he says. But it keeps him honest, too. “It looks like I’m competitive when you compare price points on the shelf. I just don’t want to out-price my consumer.”

They’re his neighbors, after all.

And while Kelly has admitted that he’d like to scale similar projects out in other cities like Austin or Santa Cruz, he mainly wishes that his cider-making peers would refrain from relying on out-of-state concentrates and join him in making heritage farmhouse ciders with Oregon apples and pears.

“You have all this fruit at your disposal,” he says. “It’s free. You just have to pay the labor to harvest it.”

 

— link out to the episode—

 

The Cautionary Tale

Damian Magista: The former Bee Local Honey mastermind is now marketing edible cannabis products / Alan Weiner

Damian Magista: The former Bee Local Honey mastermind is now marketing edible cannabis products / Alan Weiner

 

Before they knew each other, Kelly and Portlander Damian Magista were spiritual peers. During the fermentation process, Kelly separates each batch by property. One lot gets its own blend, another lots gets its and so on. In the end, he’ll blend them all together, but not before first gifting limited edition bottles of cider to each lot’s landowner. 

Magista has taken a similar approach. Until last fall, he was the brains behind Bee Local Honey, a small operation that built bee hives in different Portland neighborhoods. The idea was brilliant in its elegant simplicity: Let the bees do their thing. Since each neighborhood has its own distinct flora, the different honeys literally tasted like the neighborhoods from which they were harvested. The model was, itself, the very essence of what it means to be hyperlocal.

 

— clip of damian geeking out on the bees/rooftop

 

The business was a smashing success. In just eight letters and two words, Bee Local told a story about its community and its mission: to save the environment by saving its bees. Portland ate the whole sticky story up. Writers wrote about Magista, chefs had him set up hives on their restaurant rooftops and consumers were buying jars of the stuff to send to their friends and family back east. And like Salt & Straw is doing now and what WildCraft hopes to soon be doing, Magista envisioned scaling the concept up and out by replicating it in cities across the United States.

On paper, however, Bee Local was struggling.

“I wasn’t really a business man, I didn’t know how it all worked or what I was doing, and it got to this point where the demand for it was growing, and I was only one person, and I felt like maybe someone else can come in and handle the business end while I handle the production,” Magista says.

So he found a partner who invested about $5,000 into the company under just that premise. Unfortunately, it didn't take long for that arrangement to sour, and after a short time, Magista asked his new partner to exit the company. Magista says he always knew he’d have to pay back the $5,000 that his partner had invested, but that ex-partner lawyered up and demanded a severance figure closer to $30,000.

Magista considered walking away from the honey game entirely, but then another partner approached him and offered to pay that 30 grand in exchange for ownership of the Bee Local.

 

— shot of bee local display at Feast

 

“At first, I thought, ‘Great, it survives, the company can thrive and I can still run it.’” Magista says. But that arrangement quickly went south, too.

For starters, Magista says his new boss frequently questioned his judgment. Eventually that friction bubbled to the surface last summer. Magista explains that there’s a short window of time—late-July to September—when hives need the most care. During those months, the hives must be cleaned, maintained and winterized for the winter ahead. But rather than being allowed to see to those important tasks, Magista says he was inexplicably kept busy at the warehouse in the packaging department. 

I learned some hard lessons. I have to take responsibility for this, too, because I didn’t do my due diligence, and part of it’s because I just didn’t understand it.

Magista says he knew that the bees would die if he couldn’t get out there to save them. And he was right. They did die. In all, he estimates that the loss of life was around 90 percent. And to add insult to actual injury, the honey—which had long been branded as hyperlocal neighborhood honey—was now being sourced out to big apiaries.

Magista found that he wasn’t merely disillusioned—he was demoralized.

“I was looking for an out for a long time, and then another opportunity came up, and it was opportunity for me to create something again that was mine, and to be able to do what I know how to do and not be questioned or pushed aside and actually be able to make some money,” Magista says. So last November, on his birthday, he gave himself a present: He walked away from the company that he literally built by hand.

Looking back, Magista says there are lots of things he’d do differently if he knew then what he knows now. 

“Number one: You really do need to get everything in writing,” he says. “You really do need to have a lawyer. You just have to and it sucks, because I don’t like that shit. I come from a place that’s very old school. The other thing is listen to people. Be humble and stick to your fucking guns. Sometimes you just know [that an idea will work] and people will try to talk you out of it, and people think they know better, but you know what’s right for yourself and what’s right for your vision. Stick to that. Don’t be arrogant though, you have to listen to other people, but just trust yourself.”

“I learned some hard lessons,” he continues. “I have to take responsibility for this, too, because I didn’t do my due diligence, and part of it’s because I just didn’t understand [the costs of operating a business].”

When asked if he’d do it all over again, he says, “Would I do it again? I am doing it again.”

This year, he launched Annata, a brand of cannabis flowers, oils and edibles that are manufactured out of the old Nalley Foods potato chip factory outside of Tacoma. He has lawyers. He’s signed contracts.

And once again, he has a partner—but this time it’s one he trusts: someone he shares the same blood with.

Damian Magista's Annata makes edibles and oils out of weed.

Damian Magista's Annata makes edibles and oils out of weed.