Nate's Food Company (NHMD)

[Lyons2112]

A history of the road to Nate's Homemade

How One Man Confused Grocers and Won Customers with Canned Pancakes"

Sean O'Connor has struggled with a monster.

"Grocery is the biggest business you never think about," he says. "It moves incredibly slowly. We had no idea of the hurdles."

He should know. He's spent the last three years in a virtual industry crash-course, pushing a product that has flummoxed grocers, aroused fear (then love) in consumers, and out-maneuvered some of the biggest food manufacturers on earth. And he did it with pancake batter in a whipped cream can.

"This is Batter Blaster," he says, handing me a can. It looks exactly like you'd expect batter in a can to look. Golden-yellow pacagaing; cross-hatched label pattern; USDA organic seal of approval. "Last year, we sold 3 million cans," he says. "This year we expect to grow by 300%."

batter blaster Being a twenty-something male, I am equally allured by food-in-a-can as I am suspicious of it. O'Connor says that all the ingredients--wheat flour, can sugar, egg solids, soybean powder--are all organic, and that each can holds 28 silver-dollar pancakes. That's almost a week's worth of breakfast. It's the size of an ordinary whipped cream can. I do not believe him.

When I arrive home, I cook pancakes with abandon. Sure enough, it's regular batter inside the can--though less viscous, and without the chunks visible in the batter I usually make. It's sweeter than normal batter, but not saccharine, and it fluffs and browns well in the pan.

I try to eat an entire can. I can't do it. Touché, Sean O'Connor.

He conceived of the idea after starting a restaurant in 2001. "We were always playing around in the kitchen," he says, and they started making flavored whipped cream. Then the idea for batter struck him. "I wondered, why aren't people doing this?"

Frustrations cropped up quickly. Nate Steck, a food manufacturing alum and O'Connor's co-founder, went door-to-door to friends and family, raising money. "We sat in front of angel investors and VC funds," says O'Connor, "but most of them had no experience in consumer packaged goods. They didn't understand how food is distributed."

So the men raised all the money themselves, in two rounds during 2008: $1.5 million in the first, and $4 million in the second. Though they haven't yet burned through all the cash from the second round, O'Connor says, they're right at the precipice of being a profitable company.

The company has grown to 16 employees, complete with a food scientist, R&D department, and sales force, all located near their manufacturer in Oxnard, CA. O'Connor owns a patent on the charging process, in which the batter is set at a certain temperature and forced into the can. (Reddi-Whip owned the original patent on canned whipped cream.)

"We were audacious, and a little naive," he says. The problem: supermarkets don't have a section for frozen breakfast goods. They couldn't categorize O'Connor's product, and because they couldn't categorize it, they were loath to sell it at all. "The challenge with retailers is that this product doesn't fit in their 'boxes.' And they're all about those boxes," O'Connor says.

There were other problems. Comparable products drew unflattering comparisons: Cheez-Whiz, Spam. "But once people use it, they immediately get it. If it means that they can make heart-shaped pancakes with their kids, or save 10 minutes in the morning--it sounds goofy, but it works."

As soon as Batter Blaster hit shelves in its first retailer, Costco, O'Connor was approached by General Mills. He describes the scene like a shake-down. "On one side of the table, there was me and my co-founder. On the other were 15 guys from General Mills."

The first thing General Mills wanted to know: how'd they pick the color for the can. "I was like, are you serious?" O'Connor says. "They asked me what the focus groups said. Focus groups? Are you serious? We didn't have focus groups."

No deal was made, but O'Connor doesn't fear that General Mills or any other food manufacturer will step on his toes. "These companies are like massive ships; they move so slowly. Even if they wanted to do something like Batter Blaster, they couldn't. It would take an act of Congress."

The next barrier was getting a toe-hold in supermarkets that are used to charging $40,000 just for space on a shelf--a process known as slotting. "I thought, $40,000? Really? I'd throw up if I gave away that kind of money," O'Connor says. So he devised his own slotting plan--something he claims is unheard of in the grocery business. He paid the 40 grand, but part of the ideal included coupons to be advertised on cartons of generic eggs that promised a free dozen eggs for every can of Batter Blaster a customer purchased. "I had to make sure we got cans in people's homes," O'Connor says.

After entering Costco in 2008, Batter Blaster moved into shelf space in over 9,000 chain supermarkets--most of which were acquired in just two months at the end of 2008. They include everyone from Wal-Mart to Whole Foods to Safeway to Kroger, with more to come. In 2009, O'Connor expects to ink deals with BJ's, Target, and more SuperValue supermarkets, which include Albertson's in California, and Shaws and Acme on the East Coast.

After all that chicanery and persistence, he now has to channel his energy into scaling up with grace. "To get in, you have to be a take-no-prisoners, rogue operation," he says. "But to run a business as a CEO, I'm learning, you can't be like that."

The company plans on expanding its line to cupcake and brownie batter, but will stick to staple flavors like chocolate and vanilla. When asked if he'd considered doing colored pancakes for kids, O'Connor winces. "Yeah. You can make pink by using organic beet juice. And the batter looks great coming out of the can, like a real Crayola pink. But when it browns in the pan, it looks like a dirty sponge."

Every idea has its limits. But Batter Blaster is working on industrial products, too, and may eventually release a canned egg product for fast-food chains. Otherwise, it's the business of selling as usual. "We're trying some guerrilla marketing," O'Connor says. "My brother and I got an Airstream trailer and drove it around this summer. 18,000 miles: state fairs, supermarkets, samplings... we're not talking anymore."