106. Debt Financing for New Food Businesses, Arik Markus, Herbn’ Pantry

Arik Markus, Herbn’ Pantry

Jordan Buckner: [00:00:00] Everyone, welcome to today's episode of the Start Up to Scale podcast. And for today's conversation I have on a Arik Markus, who is the founder and owner of Herbn’ Pantry. Arik, welcome to the show. 

Arik Markus: Thank you so much. Thanks for having me. 

Jordan Buckner: So, I would love for you to start off by telling me about Herbn’ Pantry and how you started the business..

Arik Markus: Sure. Well, Herbn’ Pantry is my line of global street food inspired hot sauces. I'm a fan of hot sauce and definitely not the kind that is gonna cause you pain as you're eating your food, but rather to have more authentic international ingredients to compliment and enhance your favorite foods without feeling like one sauce fits all..

Jordan Buckner: And your flavor profiles are great enough flavors from around the world. How did you get started with that approach? 

Arik Markus: Well this all was born of my background as. A traditional chef. I worked in traditional hospitality, running [00:01:00] restaurants and catering companies, doing a lot of consulting. But being able to prepare authentic foods from around the world, especially as I kind of came up in an era that suddenly went through this fusion phase.

But I wanted to really honor. Those authentic flavors and compliment them in ways that were appropriate for the venues in which they were being enjoyed. So if I threw a couple random examples out there when I cooked in a Pan-Asian restaurant, In San Francisco, I learned about samal ole and chili garlic sauce, and I wanted to incorporate those flavors of proper red chilies and fresh ginger, fresh lime, fresh garlic into appropriate Asian sauces.

I've cooked a lot of Italian food and when I first tasted the chilies of the Southern Italian region of Calabria, It was an eye-opener and a life changer. So things like that I found inspiration in and just wanted to carry a few steps [00:02:00] further. 

Jordan Buckner: I absolutely love that. And I love that you have experience on the flavor side of food because you know, I talked to a lot of brands who have kind of lost touch with that food should actually taste good.

And so it's always refreshing that you come from the culinary side of the business. One thing that I'm always fascinated by talking to early stage companies is how you finance your business, because this business is really, really expensive and deceivingly. So because it's very cheap to get started and very expensive to grow.

So can you tell me about how you started the business and how you've been able , to get off the ground? 

Arik Markus: Sure. It's almost a little bit tongue in cheek the way some of this came about. So, right before Covid lockdown started, I had been consulting for an Italian restaurant group.

And developing a new concept while overhauling both the menu and operations of an existing one. And there were things that I just started bringing in on my own as we were working on dishes with the chefs and going [00:03:00] through some menu item development. I just kind of geeked out on my own. I had that proverbial container of collab and chilies in my backpack and got everybody to discover them and share it and fall in love with it.

And then we went into lockdown. And for me with. A father of a son and my wife at home and a dog and the access that I had to food in any kind of meaningful way. And this is when the cloud was forming over the world and what the, what the hell are we gonna do? And I bought a wholesale bag of 50 pounds of brown rice and I bought a 25 pound box dry white beans and.

I wanted to come up with ways where if we were gonna be stuck inside for who knows how long, that I could still bring some variety into the meals that we were gonna prepare every day. And I leveraged my knowledge of the world's cuisine to try and simplify things like literally rice and beans and we just loved.

Even my 10 year old was like, dad, this tastes really [00:04:00] good. It's just making my food taste better and it's not hurting me. It's not burning me. So that was kind of where it was born. I was able to order things like bottle and caps online. I took some online food safety classes and got certifications in.

Processing consumer packaged goods. And I just started making these things in my home kitchen and people started to really enjoy them.

Jordan Buckner: I love that. So you started in your home kitchen as a lot of food products do, which is really exciting. Who were your first customers? How did you start getting them to the world outside your home?

Arik Markus: Yeah, that's a really great question. Basically went to ask some friends about what they thought. And all the friends who I asked are chef buddies here in the Boulder and Denver, Colorado areas, and like, Hey, let me just throw you some bottles, you all taste them, see if you like 'em.

And as you're getting exclusively takeout orders, maybe put some of this stuff in little ramekins and send it along and just see how people like it. And it [00:05:00] really all started as that word of mouth. Just do it for free. And hopefully people who receive it are calling the restaurants after the fact to ask about it and to see how they can get it more.

And it had some eyebrows raised and it got some interest..

Jordan Buckner: That's exciting. So were you selling mostly them once you got out into the world, like selling on online and having a D two C business? Did you think that you would grow the business into retail source? What approach you take? 

Arik Markus: That was definitely the desire. I mean, the benefit of being in Boulder, Colorado is such a foodie town not just on the restaurant side, but also on the retail side.

And we've got these really unique one-off businesses that are old school here. There is a random. Block size hardware store that's independently owned called McGuckin Hardware, and they are known for having a wall of hot sauce. And that was my first target. Let me get these four varieties on the wall of hot sauce and let's see what happens. And that was the first place they landed. I [00:06:00] started to build out my own website on Shopify and. Tried to just get it in front of people as best I could, knowing that people were in front of their computers more. But the goal definitely became to grow this into more retail outlets.

Jordan Buckner: And I think a couple years into being a bootstrap business, you had an opportunity to launch with a large customer, Fred Meyer. Is that right? 

Arik Markus: It is, yeah. There too. An absolute lucky break. I'm a member of the Naturally Network in Naturally Boulder, and it's a phenomenal community of people and companies on all sides of the food and health products related businesses.

And it was going to the annual pitch slam. At the naturally bolder get together and learning during that pitch slam that there was gonna be a little internal pitch slam that would filter upwards towards the Kroger group and some leaders out of Cincinnati who were coming down [00:07:00] to try a few brands that the naturally bolder, higher ups filtered out and thought would be cool to present.

And I was one of 10 companies with products selected to then go in front of Kroger and I think I was one of two or three to actually be selected to move forward. So Miracle of Miracles. 

Jordan Buckner: That's exciting. How big was the first order that you got from them? 

Arik Markus: It was for a pallet of each of the four sauce.

Which was phenomenal. There are 240 cases on a pallet with 12 bottles in a case. So all of a sudden I had a lot of work to do and the trickiest thing then, of course, is looking at my cost basis. And thinking about what it was gonna cost me to do the production before I could even bill for it, let alone deal with whatever delays there might be with setting up with new distributors.

Somehow I had to come up with almost 12, $13,000 to be able to go through the production piece. [00:08:00] And that wasn't exactly sitting around the house.

Jordan Buckner: Yeah, no food is known to be very expensive. And especially when you get those big opportunities, it's like, this is amazing. Oh shit, how am I gonna finance this? Yeah. To actually get out the door, let alone sell it at the end. So tell me about what you were thinking about as you consider ways of financing this order.

You know, sometimes people go to friends and family if they're. Lucky enough. Other times they'll think about raising money, sometimes looking at debt. What options did you think about and, and kind of why? 

Arik Markus: Yeah that's a really great question. Something that I had been able to do in the past was to go to friends and family.

Who were in a better financial position than my own. And this goes back years and years to when I opened my own restaurant. And some of it was just time and place and it was people believing in me and I made the mistake that I still beat myself up for, for picking a shitty partner and.

All those people who had invested [00:09:00] cash in my efforts to open a restaurant, basically all got left out in the cold. And it's still an emotional burden I carry with me for as much forgiveness as I've gotten from all these folks. They also still haven't gotten their initial investment back, let alone a return on it.

So I wasn't going to them again. I looked into the possibility of. Taking a loan against my home mortgage and not knowing what was gonna happen , in the world considering you know, this global epidemic pandemic. I didn't want to go that route cuz I liked my house and I like my family being together with me under it.

And lucky enough to. A resource for references like the Naturally Network. I just asked the executive director of Boulder of naturally bolder, Hey, I've got this PO and I want to make the product. I don't have any funding to get it. And it took him about four seconds to say, I want to introduce you to a company called Aion Financial.

[00:10:00] Based here in Boulder with offices in several other cities around the country, and one of their founders lives here in Boulder. Let me make the introduction and let's see what happens.

Jordan Buckner: That's definitely a huge opportunity to make it work. So tell me about that conversation that you had then you reached out to Aion Financial about funding this order and what did they say? I know you're a small business, it's probably your largest order to date. Had they approach it, 

Arik Markus: well, they were really open to it and understanding, and it was pretty clear to me that they have dealt with similar situations with similar operations in the past. I think what I appreciated about them is that their initial turnaround and access to cash from the time of application was relatively quick.

Which allowed me to respond quickly to Kroger. I can only imagine that if I was slow out of the gate, that it would've been easy for them to say, okay, yeah, yeah, thanks again. And moved on to the next outfit. They at Aion wanted the documentation of the [00:11:00] purchase order. They wanted to see that I had all of my operations.

Documentation in place that I was food safety certified, that I had already done the exploratory outreach to various co-packers that all of my logistics and operational know-how was set up. And then it gave them more confidence to gimme the cash We set up very reasonable payment terms and their initial.

Interest charges, their percent interest that they got out of me was also very reasonable. So it allowed me to keep more and more money in the business based on my product of goods and be able to keep my roof. 

Jordan Buckner: That is definitely important. And you know, there's a lot of stories about founders, you know, putting up their houses and sometimes losing their houses, and that's not a risk I think a lot of people actually wanna take.

So I'm glad you were able to find the way and especially being a smaller business that they were able to work with you. So that was, sounded like a PO financing. Vehicle that you were able [00:12:00] to use with them, and then how did it go? Were you able to get everything produced and get the order out?

Arik Markus: Yes. Yeah, once I was able to take on the PO and live the order, Kroger passed me on to the distributor, U N F I, and it was a, Deep breath of air for me that when Kroger goes to U N F I and says, Hey, guess what? You're bringing this product in because we're gonna drop it into 85 stores in the Pacific Northwest, so get on it.

That's definitely a much easier way to get into that distributor's book than it is for me to hope I run into them at Expo and beg for. You know, glass of water somewhere, so I can try and get in front of somebody. So in that way it gave me a lot of confidence in my product. And because I had earned the confidence of the largest retailer in the country that also was able to drive me into the next geographical area.

So outside of [00:13:00] Oregon and Washington State Kroger also got me in touch with D P I and increased my footprint across the state of Colorado and now into Arizona, which Arizona was a surprise. I had no idea that was coming. But for me, being able to fund additional PO's because of , the profit margins that I had earned.

After the initial sale from that first PO has made a huge difference when I had the additional pos and I needed just a little more funding just to be able to get that production over the finish line. I had already proved my worth t o thankfully, and even though they made available a lot more money than I wanted to take, I certainly appreciate that, but that's where better financial management for me, it's like I only want to take what I need and maybe less than that so that we keep our relationship solid.

Jordan Buckner: That's definitely a good discipline. Have you been able to utilize or have plans to utilize any other financial [00:14:00] vehicles with them or others as you grow? 

Arik Markus: I think right now really being able to focus on operations and now it's much more gonna be on marketing and public relations efforts.

I feel like. I got a very, very lucky break in that people tasted the product, fell in love with the product, wanted to see distribution of the product, and now I've gotten on over 300 sets of Kroger branded shelves. Now my biggest challenge is getting it off the shelves. And as I look for more retailers, hey, that's great, but movement off the shelves is what's gonna ultimately allow me to stay.

And to be able to score more purchase orders from them. 

Jordan Buckner: Oh yeah, I'm a huge fan of that. And as a little plug, we just launched our ultimate guide to working with merchandisers for c p g brands that go through how to think about that exact thing of moving your product off to shelf. So check it out at foodbevy.com on our industry news section.

Erik, it was great having you on and thanks so [00:15:00] much for telling your journey and I'm excited to follow you and see what's next and see Urban Pantry flying off the shelves. 

Arik Markus: Yeah. And hopefully see it in your baskets and on the favorite dishes of you and your friends and family. And Jordan, thank you so much for your time.

And thanks for considering Herbn’ Pantry. A company worth your interest, so thank you very much.