What do you do when you have an itch that won’t go away? Pete Maldonado scratched his itch and didn’t quit until CHOMPS was born.
Dave Young:
Welcome to the Empire Builders Podcast, teaching business owners the not so secret techniques that took famous businesses from mom and pop to major brands. Stephen Semple is a marketing consultant, story collector, and storyteller. I’m Stephen’s sidekick and business partner, Dave Young. Before we get into today’s episode, a word from our sponsor, which is, well, it’s us, but we’re highlighting ads we’ve written and produced for our clients. So here’s one of those.
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Dave Young:
Welcome back to the Empire Builders Podcast. Dave Young here, along with Stephen Semple, talking about businesses and things. So you told me that we’re going to talk about Chomps.
Stephen Semple:
Chomps. That’s correct.
Dave Young:
Chomps. They’re a beef jerky company.
Stephen Semple:
Yes, they are.
Dave Young:
My surprise at this one. Like I think I’ve heard of them. And I eat mostly keto carnivore kind of style, so you’d think I would know about Chomps. Who knows? I may have some of their stuff in the kitchen. I just don’t think of a brand name maybe.
And my question to you was I didn’t know that a beef jerky company had risen to empire status. It sort of reminds me of like the whole what is an empire in our view. We have to look at this like we’re the Federation of Planets. Once an organization acquires warp speed, then we pay them a visit.
Stephen Semple:
Let me wet your whistle here a little bit. Today, they do over $100 million a year in sales.
Dave Young:
I mean, that’s an empire to me. 100 mil sounds good.
Stephen Semple:
Here’s the thing that’s kind of interesting about them, they started in 2012, so they’re just a little over 10 years old, in Chicago by Pete Maldonado and Rashid Ali, and they originally started it as a side hustle. It was going to be a thing for making some extra cash on the side. Because Pete was in the real estate and Rashid was a consultant, so they had these full-time jobs. And as I said, today they’re both working at it full-time because it’s a $100 million business. And what makes them unique is they use grass-fed beef and no sugar.
So it’s this grass-fed beef, very natural ingredients, not a lot of additives to it. So it’s basically a healthier alternative to regular beef jerky. So Pete grew up on Long Island, and in high school he was super into sports and he became a fitness trainer. And when he was in college, he was doing well as a fitness trainer. He was making up to 150 bucks an hour, but he didn’t finish college. Here’s what happened. So he’s in business school and one day he sees his business school prof struggling changing a flat tire on his car.
So Pete goes over to give him a hand, and this car is a complete beater. And the prof’s complaining about the car and how he wishes he could get something better. In that moment, Pete’s like, what can this guy teach me about business? He doesn’t even have a decent car. So he quit school and he became a personal trainer full-time. He’s 22 years old. He moves to Florida. He wants to start a business, and it was in the heyday of the no money down buy homes, flip homes. And as we know, Florida was huge in that.
So he got into that, bought some homes to flip. He had perfect credit, so he was able to get loans and he was going to make his fortune flipping homes. And he went in, as he describes it, at the absolute height of the market, like the absolute peak of the market and he’s leveraged to the gills. He has a couple of million bucks in debt and owns four houses that he can’t sell because the market crashes, and he had to declare bankruptcy. So here he is, 27 years old and bankrupt, so he goes back to personal training.
So while he’s doing the personal training, he’s finding he’s spending a lot of time creating diet plans for his clients. So he has this wild idea to start a food company, and he looks at meal plans. And around the time, the only meal plan out there was Nutrisystem. So he decides to create something better than that. So he creates these frozen prepackaged foods, and he has basically two lines, one for weight loss and one for bulking up. And they had the right balance of carbs, protein, fat, as well as micronutrient friendly.
So he finds a co-packer, and he originally wanted to do like the Nutrisystem, like delivered to the home, but what he found was it was very expensive at the start and the delivery cost was a killer. So he decides to sell out of gyms. He finds these four glass top ice cream cabinets for a really low price, buys five of them, drops them into the gym, stuffs food into the freezers. So he creates a business plan for this. He wants to expand and do this more.
And he reaches out around town to see whether he can raise some money, and there’s this one guy he met who put him in touch with another guy who owns RV parks, who was looking for additional investments. So this guy agreed to put in $250,000, but in the end actually put in 60K because he also got really hard hit in the real estate meltdown and went so far as not only am I not putting any more money in, I want the money I put in back.
Dave Young:
Oh, so the lesson here today, folks, is to diversify your investor pool. Don’t just rely on investors from one. That’s probably not the lesson though.
Stephen Semple:
Well, and when they say they’re going to put in 250, get the 250.
Dave Young:
Yeah, exactly.
Stephen Semple:
By the time he wanted the money back, Pete was in over 50 gyms, and it turned out to be this absolute logistic nightmare because the part that Pete hadn’t considered was restocking. He was literally spending all of his time driving the gyms, putting food in the freezers. There was a gap in his business model around the delivery side, but he proved the need for the product, so that was kind of exciting.
There was so much tension between himself and the investor, he came to a point where he just basically handed the business back to the investor. He said, “Fine. I can’t give you money back. We can’t grow this without more money. Here’s the keys. It’s yours.”
Dave Young:
So if you want your 60 grand, go earn it.
Stephen Semple:
Go sell the food. $60,000 in inventory sitting in gyms.
Dave Young:
Oh my gosh.
Stephen Semple:
So he moves back to Chicago, because he moved with his girlfriend, and he got back in the real estate. Remember? Because he was going to do the whole flipping homes things.
Dave Young:
Buy low, sell high.
Stephen Semple:
Yeah, but this time he’s an agent. He’s doing the real estate agency. He’s making good money, and he enjoys making deals. But he wants to build a side hustle. And during the last business, he learned he loved the food business. He loved the making of the food, knowing it was going to be eaten, all of this stuff he found. He just really loved that business, and he was still in the fitness personally. Then he discovered CrossFit and he loved it because there’s this element of competition inside the fitness.
Dave Young:
Yeah. I’m thinking now, here we go.
Stephen Semple:
Yeah. So he wondered if he could create something for that community that would be great in food. So back then, the concept to test things was, and a lot of people did this and Tim Ferriss talked about this, is proof concept, run a bunch of cheap Facebook ads, and also look for what search terms have this big trajectory. So what he discovered was by doing this that grass-fed beef was a big deal. And the Paleo diet at this time was getting big. It was a cult-like community and also big in the CrossFit community.
So he went, huh, I think I could do something with grass-fed beef. So he starts this idea of Logic Meat Locker, and that was the idea. Now how’d he get it going? So he’s at this wedding. It turns out his brother-in-law knows a few people in the meat packing business. And in fact, he knows a guy who owns a certified organic FDA approved meat packer, which means he also has relationships with farmers doing grass-fed. So they talk about the idea, he goes out and meets them, and this guy’s going to be the co-packer.
And it’s 2019 and Rashid meets Peter. Rashid’s wife is friends with Pete’s wife. They’re at a party. They get chatting. Pete shares his idea on grass-fed beef. Rashid had never heard about this. His background is finance, operations, things along that lines, but he saw that they could work together. They were complimentary. They had two very different skill sets. So they met for lunch, and basically Rashid said, “I want to be a partner of yours. How much money have they put in so far?” Pete said, “I’ve put in this much money so far.”
Rashid hands him a check for that amount of money and basically says, “We’re partners.” And again, it’s going to be a side business. And Rashid was a customer of Omaha Steaks, so he know how Omaha Steaks kind of mailed these steaks out.
Speaker 2:
Oh yeah.
Stephen Semple:
So he got the idea of Pete was trying to do. Here’s the thing though, he’s an operations guy and he starts trying to figure out how to ship frozen without scale because they’re small. They wanted to be a side hustle. He could not find any way for them to do it profitably. That was the roadblock.
Speaker 2:
That makes sense.
Stephen Semple:
And they felt they were unable to charge for shipping, so it was really hard to get the economics to work. Now, what they also learned was the co-packer they were working with was also making these meat sticks, like a multipack meat sticks. So the question they then had is could they make a healthy version of Slim Jim that would solve the frozen problem? Single stick, shelf stable. When they’re working on this idea is when they created the name Chomps, and originally it was gochomps.com.
They now have chomps.com, but the sticks the co-packer was making had to be refrigerated because of the moisture content and whatnot in it. So what they now need to figure out is could they make one that didn’t require refrigeration? So they started looking at various beef jerkies, and everyone that has a FDA approved co-packer, the co-packer is listed on the package. So now they go looking for different co-packer, and they found this little one in Missouri, two and a half hours south of Des Moines, that was basically making its own jerky.
Plant was not really a manufacturing facility. When they got there, what they found was it was kind of like a deli with a little oven. And this guy was grinding up beef, stuffing in the casing, cooking at a low temperature to dry. So they hire him and they start experimenting, doing lots of challenges, lots of things went bad. They also learned not all grass-fed beef is created equal. But once they had it down, they did lots of experimentation. Once they had it down, they did their first order of 9,000 jerky sticks, and it literally fills Pete’s extra bedroom in his apartment.
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Dave Young:
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Stephen Semple:
So they start identifying influencers in the community. They reached out to them. And look, it’s different today. Today, it’s hard getting influencers and you got to pay them and everything else. But back then, it was still the earlier days of social media and things like that. You could reach out. They had a Shopify account and they would get orders. They would pack them and then drive to the post office, and it would all be delivered by UPS.
They’d heard about this one website called Uncrate, which does this general health stuff. So they sent them a sample and they never heard anything. Pete’s on vacation in Bali, and they had their Shopify account set that as soon as they got an order, the phone would bing. So this gives you an idea of how they wouldn’t get that many orders. He’s on vacation in Bali, and suddenly the phone’s going bing, bing, bing. They’re getting thousands of orders because Uncrate had actually wrote about Chomps.
Dave Young:
Okay.
Stephen Semple:
What was really interesting about these buyers, these buyers were people who were just general people interested in health. They weren’t from the fitness community. All of a sudden, they discovered this product actually has a broader appeal, but it took them weeks to fill the orders. And they realized now they needed a fulfillment company because they were also…
People liked the product and they were getting repeat orders. And it was still a side hustle, and they’re also finding it harder to find suppliers of meat. They were going through it, but they found one in Australia because Australia is really big in grass-fed beef. So 2014, they do 100,000 in sales. 2016, the business is now growing enough that Pete is full-time.
Dave Young:
Okay.
Stephen Semple:
One day, Pete’s out walking the dog and he gets a call from Trader Joe’s.
Dave Young:
Oh man. Okay.
Stephen Semple:
Saying, “We want to put your product in our store,” and it’s a high up person at Trader Joe’s who calls. And here’s the interesting thing, so you know how we talk about things often take this circuitous route. It’s not A leads to B which leads to C.
Dave Young:
Mm-hmm.
Stephen Semple:
So this person from Trader Joe calls and his daughter had been eating Chomps and had brought it home and the family liked it. So it was the experience that this person had through his family. Then he went, “This is a great product. I want to put this in the stores.” Now, what they wanted to do is a private label, and here’s where Chomps actually got very lucky. They want to do it as a private label, but Chomps was not set up to do that. And when Rashid looked into it, he suddenly realized this would be very complex to actually have two lines and whatnot.
So they said, “Yeah, we would love to be in your store, but we can’t do a private label.” Now, it turns out there’s a small amount that a Trader Joe’s buyer can bring in non-branded, non-private labeled. So they went ahead and brought in Chomps under Chomps. So they’re sitting there going, “Well, this is really great. This is awesome,” and the first PO comes in and the first PO is for 1.1 million sticks. Now, this is larger than the previous year’s sale, this one PO, by a lot. So let me put it in perspective.
Up to this point, they’ve been processing about five to 10,000 pounds of beef a month. This one order would require 150,000 pounds of beef, so 15 times what they did in any month was this one order. The other challenge is it’s not e-commerce. Because in e-commerce, when the person puts in the order, you get the cash. This is wholesale to retail, so the money comes later. So they do an analysis. They need over a million bucks to fund this order.
Dave Young:
That they don’t have.
Stephen Semple:
That they don’t have, and they don’t have time. The PO’s in hand. So they call everyone they know to raise cash. Simple term sheet from eight different investors.
Dave Young:
Hopefully not all in the same category. Hopefully they’ve learned the previous lesson.
Stephen Semple:
Yeah, exactly. Well, not only that, they needed the cash. It’s like, no, you can’t give it to me later. I need it now. So August 8th, 2016, they launched at Trader Joe’s, and that year the business grows by 10 times. And Rashid is still part-time. January 2018, they hit $10 million in revenue and Rashid finally decides, you know what? I think I can quit the day job and do this thing full-time.
Dave Young:
I’m following along and I realize, no, I absolutely have heard of Chomps. I’ve eaten Chomps. I might still have a couple of sticks, but I’m jumping ahead and I’m guessing. Okay? At some point, they got into Costco because that’s where I’ve bought Chomps.
Stephen Semple:
Well, yes, they did.
Dave Young:
Is that a key part of this?
Stephen Semple:
It took them a long time to go from Trader Joe’s to another retailer, because they decided not to leverage the Trader Joe relationship. Everybody said, “Oh, now you’re in Trader Joe’s. Go to here. Go to here. Go to here.” They wanted to be the best Trader Joe partner.
Dave Young:
Okay, I’m sorry. I interrupted the whole Trader Joe’s part of the story. So they stuck with Trader Joe’s.
Stephen Semple:
Because they felt it would be wrong otherwise, because Trader Joe’s was their big break. They still grew e-commerce, and then also C-stores. So they got very big in C-stores because they looked at C-stores and they said, “The C-store does not really compete with Trader Joe’s. Just like a Costco does not really compete with Trader Joe’s.” So they looked at it and they said they didn’t want to go into places that was in competition with Trader Joe’s. They wanted to be very loyal to Trader Joe’s, and their objective is they wanted to be Trader Joe’s best partner.
Dave Young:
Okay.
Stephen Semple:
Now, there’s a risk to that as well because…
Dave Young:
Because yeah, Trader Joe’s made you, Trader Joe’s could break you.
Stephen Semple:
Remember what happened with Springfree Trampoline.
Dave Young:
Yeah.
Stephen Semple:
Right? They were in Costco and it was doing great in Costco, and all of a sudden the president of Costco was like, “We’re not selling trampolines in Costco,” and they had just opened a factory. It is a big risk. But in this case, it seems to have turned out well for them. The other thing that surprised them was their core customer is primarily female, 70% female, and 40% of their customers are new to jerky. Never had beef jerkies before.
Dave Young:
It is different. It’s a fresher kind of jerky than most of the beef sticks that you can buy, if that makes sense.
Stephen Semple:
Yeah, it does make sense.
Dave Young:
It really is what they say it is.
Stephen Semple:
Right. So in 2022, they took an outside investment, $80 million, would put the valuation of the company at $200 million. They also wanted to bring in the expertise as well, because they were at this stage of we’re doing $100 million in sales, we can’t manage this any longer, but it’s kind of cool. The whole idea was a side hustle. It was never even supposed to be a full-time business.
Dave Young:
Yeah, yeah. A $100 million side hustle.
Stephen Semple:
Look, they’ve kept it very lean. It’s not a big company in terms of headcount and things along that lines.
Dave Young:
So that spare bedroom is still the warehouse?
Stephen Semple:
No, they moved beyond that. Look, some of the things they got lucky, like the Trader Joe call which exploded them. There was an element of luck to that. Their first big break, the Uncrate, no, they were reaching out to influencers. But it also speaks to when you’ve got a good product that you just keep putting out there, you just never know what is going to happen, and you can have that moment.
They were hustlers. Because a lot of people would even get that PO and go, “What do I do? I don’t have $1 million.” It’s like, well, let’s put together a quick term sheet and let’s run around and find a bunch of people who we can raise $1 million from.
Dave Young:
You know you’re running in the right circle of friends when you can do that. There’s a little aspect here that’s a part of this story, but it’s not the story. It would almost make an interesting episode, but I think it’s an interesting lesson. So Uncrate looks for unique things, right? They want to send you stuff that you’ve never seen.
Stephen Semple:
Correct.
Dave Young:
Was it Trader Joe’s that found them at Uncrate?
Stephen Semple:
Well, that’s interesting. I don’t know.
Dave Young:
Right. So are the Trader Joe’s people looking for new things by keeping an eye on the people that are also looking for new things?
Stephen Semple:
That’s a great point. Because if you’re a buyer at Trader Joe’s, you are going to scour things like Uncrate. A guy like Tim Ferriss does his Friday email of new products and ideas. You’re going to also tap into all of those things, because yes, you’re also looking for new things.
Dave Young:
Cool story.
Stephen Semple:
What caught my eye as well was when I first heard about it, and all they do are these little beef sticks and they do over $100 million a year, I’m like, are you kidding me? Holy crap. That’s a lot of meat sticks.
Dave Young:
A lot of meat sticks. Thank you for sharing this one. I really enjoyed this. I’m sitting here, once I figured out that I had eaten it and I’m like shopping Amazon and the stuff’s in demand. There’s the variety pack that I was looking for on Amazon. It’s like they can’t even deliver it to me for two weeks.
Stephen Semple:
Wow. Wow, that is in demand.
Dave Young:
I mean, I may just head to Costco.
Stephen Semple:
There you go.
Dave Young:
Trader Joe’s. I’m not even sure where Trader Joe’s is where I live. Thanks for sharing the Chomps story, Stephen.
Stephen Semple:
Take a bite out of it. There you go.
Dave Young:
Take a bite out of it.
Stephen Semple:
All right, thanks, man.
Dave Young: Thank you. Thanks for listening to the podcast. Please share us. Subscribe on your favorite podcast app and leave us a big fat juicy five star rating and review. And if you have any questions about this or any other podcast episode, email to [email protected].
