A year after receiving investor backing, Snak King has aspirations to become the largest private-label, salty-snacks manufacturer in the US under newly installed CEO Michael Axelrod.
Falfurrias Management Partners took an undisclosed stake in the California-based business before former TreeHouse Foods executive Axelrod took the reins.
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Set up in 1978, Snak King is predominately focused on private label for retailers but also dabbles in co-manufacturing, along with a few brands of its own, namely El Sabroso in Hispanic snacks.
Simon Harvey (SH): What’s the set up between private label, branded and co-manufacturing?
Michael Axelrod (MA): The real focus is on growing the private-label part of the business. Branded is not a big part of the portfolio.
SH: Well, it is an area that’s been gaining traction in the US.
MA: Private label has gained traction for the past 10-15 years. It’s been transitioning and getting much more sophisticated. What I mean by that is, if you think about a good, better, best strategy of a retailer, private label emulates that in some categories. Private label continues to innovate and innovate faster than the competition.
For me, one of the differences that we’re building at Snak King is the ability to provide real solutions for customers – using data, category management, understanding shopper behaviour, understanding what drives that particular customer, and then we’re able to provide a solution of products that fit that particular consumer and customer.
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By GlobalDataThat’s been a point of difference because what you have usually seen historically is a private-label manufacturer would just knock off a brand for a lower price. That was the strategy for a long time. In fact, our retail partners have created separate departments to manage their private-label business.
They treat it as strong on the P&L, they end up making more money and they build their own store brand. In some cases, those store brands, if it’s an authentic product, they’ll want a brand on it, which is why we have something like El Sabroso.
SH: Private-label growth picked up during the cost-of-living crunch but I get the impression it’s starting to slow down?
MA: Salty snacks as a category is under pressure given some of the health trends in the US market. You’ve got to peel that back. As a total market, there are parts that are growing and there are parts that are declining. Private label is still growing underneath all of that.
If you look for better-for-you trends within the sub-categories, you’ll see pretty strong growth, particularly if it’s around protein solutions, or better-for-you oils. You do see a consumer migrating to those products.
Over Covid and post-Covid, there’s been a lot of price inflation in branded snacks and so the ability to come in and offer value to a consumer is what we’re striving to do.
Snak King has a major competitive advantage because we have the scalability of a large manufacturer but we’re pretty nimble and can react pretty quickly to our customers and consumers.
SH: Can you give a sense of the rising demand for better-for-you snacks particularly given the volume declines in salty snacks some of the big US guys have been seeing?
MA: For example, in traditional tortilla chips – salted, a little bit of flavour on the lime part – what you’re seeing is that part of the market is either flat or declining a little bit. Where you’re seeing growth is in protein chips, those that have a high degree of protein, typically in eight-plus grams. There’s a big trend in avocado oil and that’s where you’re seeing a lot of the growth.
GLP-1s have had an impact. The frequency of snacking is coming down
You’re also seeing growth in packaging, our ability to do different types of packaging and differentiate that way has also been strong. One way consumers control their calorie count is they have smaller portions.
We have invested in our manufacturing assets to be in sync and ahead of the market. We can do different things in different types of oils or different types of proteins. We have two facilities that are at scale and we’ve automated and we have the ability to scale up in a way that’s in sync with where the market is going.
SH: What are your thoughts on GLP-1 weight-loss drugs and whether they are driving any of these better-for-you trends in snacks or whether it’s more linked to the general health trend?
MA: I think GLP-1s have had an impact. The frequency of snacking is coming down. With GLP-1s you need protein and that’s why you’re seeing a pretty significant move to protein. That’s where the challenges are. You’ve got to make protein taste really good in a snack because people use that as a reward.
You’re seeing younger consumers looking at oils and saying, ‘I don’t want bad oils, I want better-for-you oils’ and we’re seeing the migration there. And then pack sizes.
SH: I’m hearing a lot about a switch to oils like avocado but an industry analyst recently told me there is only so much of the fruit to cater to the demand.
MA: For us right now, the supply chain is fairly robust and we’re able to get what we need. There are only so many avocados being grown but I think that’s been expanded with a lot more investment beyond just Mexico. As that starts to take hold, you’ll start to see more avocado oil come to market.
We’re also seeing demand in coconut oil and a lot of the beef tallow is coming back.
SH: What are your priorities going forward? Are there any areas you have identified since becoming CEO that need fixing or improving?
MA: Providing and expanding the solutions that we offer to where our consumers are going. There’s a lot of innovation but you need to focus because not everything is going to be a home run. Scaling and continuing to automate and make strategic investments to support our growth.
SH: What would those investments focus on?
MA: We continue to invest in automation and packaging to continue to be flexible on what we can provide our customers depending on how packaging evolves. We’re building capital plans to support sustainability, recyclability and we’re learning ways of reusing oil.
I want to be the largest manufacturer of salty snacks in the US
SH: What aspirations do you have for the business in, say, five years?
MA: We are probably the second-largest manufacturer of snacks [salty snacks] in the US. I want to be the largest. We’re on track to do that. We’re on track organically to do that as well in the categories in which we’re in. I want to continue to grow our business, grow our distribution, invest in additional manufacturing scale.
SH: Is Falfurrias Management pushing Snak King toward M&A?
MA: We’ve got a tremendous amount of runway with our current portfolio in our current addressable market with our customers. Falfurrias has a history of creating a tremendous amount of growth and they do that in a combination of organic growth and M&A. We’ll continue to look for opportunities in the market that are a good strategic fit but we’ve got enough ahead of us to do what we need to do organically.
SH: What are the biggest challenges in salty snacks for you right now?
MA: The challenge is continuing to quickly adapt to where the consumer is going. For example, there are different types of proteins that you can add to a product. That introduces allergens into the mix. That creates a challenge for a business and we’re adapting to that. We’re putting in the right processes and equipment to enable us to be in sync and ahead of where the market is going.
