As many restaurants teeter on the edge of collapse and other food businesses stand on shaky ground, some investors are betting on the tailwind RealEats America, a three-year-old company in Geneva, rides today and into the future.
The coronavirus pandemic has worked in RealEats’ favor, as more consumers look for options beyond restaurants, even after shelter-in-place orders have been lifted. For now, that demand continues.
Nationally, meal kit deliverers like Hello Fresh and Home Chef have seen their customer base expand as well, and they predict rosier futures after stagnating times. Online food delivery industry forecasts by research houses vary, but all expect double-digit growth and note the burgeoning demand for quick access to food. A Research & Markets report in January—issued before the pandemic struck this continent—said the North American market could reach $37.7 billion by 2024, growing 12.3 percent over a five-year period.
Closer to home, RealEats last month raised $2.8 million, hired a coveted New York City chef as its president and expects to close the year with at least a 100 percent increase in sales over 2019. The company plans to use the funds to acquire customers and build out its infrastructure.
Unlike most meal-delivery services that send subscribers fresh ingredients to prepare meals, RealEats offers healthy, farm-to-table, ready-to-eat food. With locally sourced, seasonal ingredients from New York’s agricultural community, these meals are cooked by chefs and packaged with a technique similar to the French sous-vide style. (Sous-vide, or under vacuum, uses precise temperatures to deliver consistent results for tasty, restaurant-quality food.)
“If you think about it, our product is a vacuum-sealed meal, which kind of locks out all the bad stuff—the germs, the viruses, the bacteria—and it locks in all the good stuff, the freshness, the flavor, and the nutrients of real food. So, (during the lockdown) and as we move forward in the role of health and hygiene, it started really resonating more with customers,” says Dan Wise, CEO of RealEats. “We saw a great response from customers for our product at the time and we do continue to.”
RealEats is not profitable yet, says Wise, adding that “we do not anticipate reaching profitability in 2020. Our focus continues to be providing consumers with meals made from the highest-quality, nutrient-dense ingredients at an affordable price. We don’t believe in cutting corners when it comes to peoples’ dietary health. So, it’s going to take a bit more scale to reach profitability for RealEats.”
All about timing
Backing RealEats again was easy, says Rami Katz, chief operating officer of Excell Partners, which manages Empire State Development’s Finger Lakes Forward Venture Capital Fund L.P. In total, across different investments, Excell so far has invested roughly $1 million in RealEats.
“We came in because we believe in the management team and we believe that it supports a very smart trend of eating healthy,” Katz explains. “You can imagine how explosive coronavirus was for this.
“Their growth has been exponential, they are in discussions with several strategic partners that will help them grow even further, even faster, and they are truly committed to growing jobs and working with farmers for locally sourced food in the Upstate New York region.”
The Finger Lakes Forward Venture Capital fund was the lead investor in RealEats latest seed series round, which closed in June, with a number of private and public investors, including Armory Square Ventures.
Somak Chattopadhyay, managing partner of ASV, did not invest in RealEats when Wise initially approached him a couple of years ago. Upon reconnecting with Wise this year, Chattopadhyay says, he was impressed with the company’s progress.
“So much about investing is timing,” he says. “When you think about what’s happening now in the pandemic, there were a lot of consumers who might have toyed with the idea of this type of product, but now there’s no other choice other than getting grocery delivery or maybe ordering takeout.”
While consumers have food-delivery options, indoor dining at restaurants is not the same. People are spending more time at home and the line between work and home life is getting even more blurry, Chattopadhyay says.
“Our bet is that the company is riding on some really important tailwind and it has applications not only for consumers but also for restaurants themselves,” he says.
Restaurants are looking to lower fixed costs and find easier ways to prepare food. Like ghost kitchens or virtual kitchens, a model that accommodates off-premise food sales, which have thrived during the pandemic. It is one trend that Technomic, a food research group, is watching closely.
“This enables more and more restaurateurs to even test new concepts and products by also potentially partnering with companies like RealEats,” Chattopadhyay says. “It has both consumer and B to B angles, which we thought was really exciting.”
Still, history shows investing in a food-delivery company can be risky. Maple, a 2015 startup that prepared and delivered affordable meals in New York City with top chefs behind the main menu, raised more than $25 million but ultimately had to close shop after soaring losses.
RealEats is different, Chattopadhyay says, with its deep domain expertise and its unique method of packaging and reheating the food. Many food-delivery startups raised too much money too fast and are spending huge amounts on marketing and promotion, he observes.
“This company has been perfecting this technique, everything from the. preparation, the delivery and being able to create a set of menu items that resonate with their user base…,” he says. “There’s always risks, but I think they’ve proven that they’re not going to make some of those types of mistakes.”
Wiley Cerilli, an investor in RealEats’ most recent round of financing, says the local business is solving a problem for a large audience: offering access to real food, cooking it and making it affordable. It is building a big enough beachfront, he adds.
Chattopadhyay, who worked with Cerilli on Good Uncle, another ASV investment, brought him to the table. He also asked Erik Battes, a co-founder of Good Uncle and a Michelin-starred restaurateur and James Beard winner, to kick the tires on RealEats. Battes ended up joining RealEats as president over Zoom. He was in New Jersey and Wise in Canada. The two have yet to meet in person given the coronavirus pandemic.
“The credit goes to Dan,” Chattopadhyay says. “To be able to persuade someone of Erik’s background to join a company of this nature in the middle of a pandemic, where you can’t even meet in person…that made us realize that there was something very special here.”
In addition to culinary expertise, Battes brings food management financial and operational chops to RealEats. Wise started the company in 2017 as a busy single dad looking to feed his children healthy food; now, that ambition has blossomed into a commitment to “build a healthier future.”
Battes calls the period brought on by COVID-19 a once-in-a-generation transition to readily available, healthier food options. A sous-vide believer, he says vacuum sealing food, or taking oxygen out of the package, offers an opportunity to scale real food and cooking.
“I think there’s something very important about being part of a business that’s going to be present for what people are figuring out, what the future of food is going to look like,” Battes says. “I don’t think restaurants are going to go back to normal anytime soon. (RealEats) has a really compelling value (proposition) to solve some real problems in the food industry.”
At its location in Geneva, RealEats is expanding its facility. Early last year, the company received state funds for a nearly $2 million project to grow its operations. RealEats committed to creating 400 new jobs over five years, a target that’s still in sight, Wise says. The company currently employs roughly 60.
In late 2019, RealEats took home the $1 million prize in the inaugural Grow-NY business contest, an innovation and technology startup challenge focused on developing the food, beverage and agriculture hub in Central New York, the Finger Lakes and the Southern Tier.
RealEats is building out its facility in a modular way, Wise says, keeping an eye on its coffers.
“We’re not just going out there and spending millions of dollars in the hope that we’ll have incredible demand at some point in the future but we are building out our infrastructure there to support the growth trajectory that we’re on,” he says.
With Battes, the company intends to expand culinary operations. Currently, 12 chefs prepare the meals in a couple of shifts. Battes, who will manage the food end of the business, plans to build a culinary research and development team, as the firm continues to optimize the menu for its subscribers, a number that Wise declines to disclose. The subscriber base has witnessed double-digit growth week over week, with a few exceptions, in the last couple of months.
“I’m extremely grateful that we were able to plant this seed and watch it grow the way it’s grown,” Wise says. “At the same time, we have a very small plant at the moment that can grow into an enormous tree. We have a tremendous opportunity in front of us and I think that truthfully, that’s not an easy to thing to do.”
Says Battes: “I think we have an opportunity to build RealEats into … (an) industry-best culinary program approaching prepared foods with a lens toward quality and real ingredients, not processed ingredients, that I don’t think has been attempted before and I think we’re well-positioned to deliver on that.”
RealEats is evaluating potential partners to expand its supply chain and distribution channels as it looks to further scale its business. It hopes to create more awareness about food and nutrition, making RealEats a household brand.
“That’s not an inexpensive proposition,” Wise says.
It also will mean work in terms of production, data and technology, and how information flows into the user experience. Managing growth carefully is imperative, Wise says.
A model for others
His team’s attention to metrics, from the cost of acquiring a customer and customer churn rate to unit economics, is not lost on the company’s investors. Chattopadhyay and Katz note the group’s ability to rely on data to make informed decisions will bode well for its future. Still, they remain tight-lipped about how big RealEats can become.
“When we make a bet… we’re looking for the potential for the company over time to be a $100 million-plus revenue business,” Chattopadhyay says. “Not every company is going to get there, but we’ve spent enough time with this team and looking at this space to see that if this company is able to crack the code, which it already shows early signs of doing, of not only providing high-quality product (but also) where the unit economics are strong.
“Many food businesses suffer because their unit economics are upside down; they’re spending more money to make the product and deliver the product and market the product than they’re actually collecting in revenue. That’s not the case at all with RealEats…which is very unusual in this space.”
RealEats’ ability to course correct based on data makes it exemplary, Katz says. He plans to use the business as an example for the rest of the CEOs Excell works with.
Wise points to yet another type of model: RealEats’ ability to foster a private-public partnership. It has worked with the state, the city of Geneva, the Center for Regional Economic Advancement at Cornell University and investors to build a business with a mission to feed.
Wise believes that model can be replicated.
“What we’ve created here is a private-public partnership (that) I believe is critically important to building a healthier food future,” he says. “In fact, it’s become our blueprint to be able to do that and we see the opportunity to roll that blueprint out potentially across the country.”
Smriti Jacob is Rochester Beacon managing editor.