THE BUILDER | Christine Day thinks she can achieve a similar sort of success at Luvo as she did at Starbucks and Lululemon
The CEO of Luvo–speaker at this year’s Top 100 event, held June 23 in Vancouver–on why she invested in Luvo (and how it’s nothing like her exes, Lululemon and Starbucks) and what she’s got her eye on next
She was there when Starbucks was known to only a handful of Seattle coffee snobs. She was there when Lululemon was stretching to break free of its Kitsilano roots. Now the 52-year-old retail visionary is taking on arguably her biggest challenge yet: making frozen meals nutritiously cool, not just in Canada but around the world. Christine Day took the reins of Vancouver-based gourmet food maker Luvo Inc. in 2014, with a promise to deliver nutrient-rich, quality food in a frozen format (the patented steam-cook method heats food in its paper packaging, thus preserving its nutritional value). After years of treading water in the U.S. market—where Luvo launched in 2011 and still does 70 per cent of its business—sales are finally taking off; in Canada, where Luvo had no presence six months ago, its products are now available on shelves across the IGA, Whole Foods and Loblaws chains, with Sobeys up next in October. Speaking of taking off, Luvo food can also be found on all Air Canada flights starting in July—the second airline, after Delta, to partner with Luvo.
You were employee number three at Starbucks, so you’ve done this before. How do you build a company from nothing into a Top 100 business?
You have to start with a good business model and a good brand strategy and positioning. Most companies that fail, they fail at this early stage. And then there’s another growth tranche at $100 million where they almost fail again. And then it happens again at around $500 million. And then it happens again at around $2 billion. And more competitors come in as you scale up. That’s what I’ve seen as I’ve scaled and grown all these companies. You have to shift strategy because you’re playing on a different field. If you look at the list of companies that have started in Vancouver, we’re an incubation machine—in retail and food services, in particular. The tricky part is, because there’s a lack of capital and resources, a lot of them get sold before they get to the Top 100.
In a recent interview, you said your hope was that by 2020, Luvo would be a billion-dollar company. You’re not there yet, obviously.
I can’t be explicit about revenues, but this company was basically at zero when I started in 2014. There was other revenue from other sources, but they weren’t about this product and how we go to market. Those had to go, because we couldn’t support them and they were really poorly done. The revenue was just around $2 million. Within two years, we’ve gotten to over 6,000 grocery stores. We’re the number two fastest-growing brand in our segment in frozen food—just behind Udi’s frozen food. We have an average of about eight items on shelves out of the 20 or so items that we carry. So that’s a pretty rapid penetration. We’ve passed well-established brands like Kashi, Tandoor Chef—a lot of the other, smaller brands. Pretty much all that’s left that’s bigger than us now—in the single-serve meals—are Amy’s and Blake’s.
So what sort of benchmarks have you set for Luvo’s revenue growth?
If we continue to hit the plan and develop the products we’re developing, I think we can be pretty much a $500-million business within three years. In all the research I’ve done and looked at in this industry, pretty much everybody starts out in year one doing $2 million; then they get to around $9 million, then they pop up to $20 million, $35, $40, $85, $100 million. There’s a pretty classic CPG [consumer packaged goods] slope, a pretty standard five-year trajectory. And what that tells you is that it’s all about distribution—not only the number of grocers but also the number of items on the shelf.
And then it’s about catching on with consumer sentiment—catching a trend. Our goal is that nutrition becomes that trend, like natural or organic or GMO-free or gluten-free or paleo. The good news is, a lot more people are concerned about nutrition than gluten, which is something like 14 per cent of the population.
Video by Luvo Inc
When you got involved with Luvo in April 2014, it was quite a different company.
It started off as a restaurant concept, Lyfe Kitchen. Then Steve [Sidwell, the founder] and Mike [Roberts, his business partner] took the meals from that and created a grocery/retail brand, just like you would Wolfgang Puck Kitchen or Vij’s. Some of the original items did have a very good nutritional profile—not all of them did. It wasn’t clear from the standards and the concepts. There were a lot of disagreements in terms of how to run the companies and the brands, because Mike didn’t understand retail. So they decided to split the company, with Steve taking the retail product and renaming it Luvo.
That’s about the time he approached me as an investor—and I saw in it the ability to create the nutrition platform that I was looking to do. There were enough points of differentiation with the pouch and the high-quality ingredients. Then we hired a nutritionist. Then I brought in the investors that bought Steve out. Steve was a great investment banker, but he wasn’t really an operator of a business. The past two years have been about cleaning things up and getting the sales growth. Now we’re at the point where, next year, in 2017, we should be in positive EBITDA, positive cash flow—and off to the races, if we continue on track.
What excited you about the opportunity?
I’ve always been a part of growth stories, of scaling up. When I started at Starbucks, revenues were $300,000 a year. There was only Howard [Schultz], Dave [Olsen] and myself in the office. It was very early stage. I had joined Howard at Il Giornale, which grew to five stores, and then we bought Starbucks. I was there from one store at $300,000 a year to $7 billion a year. That was quite a journey. Plus starting it in 10 countries in Asia: I got to redo the beginning of the business model over and over again. At Lululemon, sales were just under $200 million when I joined; it was $1.6 billion in six years, when I left. They had really just started the U.S. expansion when I got there—and it was actually being done very poorly, so there was a lot to clean up when I walked in the door.
The part of the business I like the most is seeing the opportunity to disrupt a category. Standing in that grocery store, you can see 200 items that need to be reinvented to hit the criteria for what consumers are looking for. Just like I saw at Starbucks and at Lulu, the consumer actually has a need that’s not being met by the industry—and there’s a trend that’s occurring underneath it that makes it incredibly relevant.
At Starbucks, it was about the third place*, the connection, and coffee was the medium to do that. It was about personalization, and the model scaled because you could order an extra hot half-sweet no-whip mocha anywhere in the world—and have it be personalized. The third place was a big part of that. At Lulu, the disruption of the industry was about bringing fashion to athleticwear and making it beautiful—but also creating a retail store and colouring it with a mindset of yoga, which was very on-trend at the moment.
And what’s the disruption at Luvo?
It’s this huge concern about transparency and quality and nutrition in the food industry. The whole health and wellness coming together, where we’ve got a really horrific quality of life if obesity and diabetes and heart disease trends continue. The need is real. The economic need is real. You don’t have an industry that’s responding. They’re off worrying about GMOs and organic—about other things other than the actual quality and nutrition. When you see the forces coming together—and the ability to disrupt a market and to build a brand that consumers trust—that’s what I love doing.
But you face a challenge you didn’t have at Starbucks and Lululemon, which is that that they have lots of visibility—and you don’t.
Oh, you’re right. The worst thing about this job is that I can’t control the experience that the guest has at the point of purchase. Grocery stores aren’t good at building brands. And I’m doing it behind a frozen glass door. So that’s where our digital strategy comes into play: if you look at our website, it’s a lifestyle brand website where we educate the consumer, where we’re a resource for the consumer on nutrition. That’s why we have the partnerships with our brand ambassadors and our training programs that we’re putting in schools around nutrition. Just like we believed at Lululemon that if you gave free yoga classes, you built the number of people doing yoga—and that built the business of the yoga instructors. It attracted more people in, grew the market—and then we sold more yogawear. Now I’m in the business of growing the market for nutritious products.
Luvo is also different from Lululemon in that it will get to a point where it becomes difficult to scale up to the next level, because of the manufacturing involved, the distribution required—the fact that you’re not vertically integrated with your own stores.
My focus is on developing products and brand. So the complexity of capital it adds and the returns to shareholders to also be the manufacturer is tough. If I had the capital to build out the retail stores, believe me I’d do that in a heartbeat. But you’re talking about products with 35 to 40 per cent margins versus products that have 70 per cent margins, in the apparel world or the coffee world. When you take other people’s money, you eventually have to give them a return on their money.
So you either have to go public or you have to almost become a regular income stream, a REIT, like an A&W would be—where you in essence license the brand to them and pay them a royalty. Or you do what Vega did or Gardein did and you sell to somebody who’s looking for new innovation. The big companies end up buying or investing in a lot of the small brands; it’s probably one of the reasons I’m the only one left standing, because pretty much everybody gets bought out at the stage I’ll be at next year. But I won’t have provided the return to shareholders that I’m looking for if I sell out that quick. So I need to give it a few years.
You’ve talked before about having “excess capacity”—and Luvo is currently small enough that you have time to work on other projects, including for Adidas and your new VC fund, Campfire. Do you see Luvo growing into a full-time job? Or do you like this new world of having your fingers in a bunch of different pies?
I kind of like the new world! I find I’m actually at one of the most creative points in my life. There are a lot of small companies that need help—through both Campfire or otherwise, like the Wize Monkey guys, who created this green tea coffee-leaf product that gives farmers in coffee-growing regions a nine-month crop versus a three-month crop. I actually have time to help the Wize Monkey guys figure out a better business plan. And that’s what I like to think about: business models and brand strategies and positioning and scaling.
Having a partner like Adidas allows us to grow Luvo’s nutrition story, which is what they’ve committed to, and in exchange I’m helping them a little bit with their branding. I can do that in my sleep, so that’s pretty easy. I don’t have to be tied to the day-to-day stuff at Luvo. I’ve got a very strong team here that I rely on, that’s growing the business with me, and when it gets to that size and scale—in about two to three years—the truth is, it’s probably time for whatever the exit strategy is anyway.
So you don’t want to stay on as CEO when Luvo is owned by, say, General Mills?
No, I wouldn’t. I couldn’t. That would drive me crazy.
How about running another big company?
No, I have no desire. I like creating businesses and brands and coaching and mentoring young companies. I can do that from my boat up in Prideaux Harbour. I can do that from my home in Whistler. I get to live a little bit of a life while building businesses. That’s actually pretty attractive.