How I Built This with Guy Raz - Freshpet: Scott Morris

Episode Date: October 9, 2023

Freshpet co-founder Scott Morris helped transform pet food by sidestepping traditional kibble and cans, and making slice-and-serve meals that almost looked palatable enough for humans. When Scott and his partners launched the business in 2006, the concept of fresh pet food was so novel that retailers balked at installing special refrigerators for it. So Freshpet provided its own refrigerators, a logistical nightmare that nearly ground the business to a halt. More than 30,000 refrigerators later, Freshpet has a 96% share of the fresh pet food sector, with a customer base of 10 million dog and cat households.This episode was produced by Carla Esteves, with music by Ramtin Arablouei.Edited by Neva Grant, with research help from Alex Cheng.Our engineers were Gilly Moon and Maggie Luthar.You can follow HIBT on Twitter & Instagram, and email us at [e-mail] episode is brought to you in part by Canva, the easy-to-use online design platform for presentations, social posts, videos, websites, and more. Start designing today at Canva – the home for every brand.See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

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talking to other retailers it was back to the you want me to do what? And I don't care if you were successful there. I don't think that's going to work in my store. It was a really, really difficult time in that kind of 2008 period. And I remember one day leaving work and getting in the car and openly sobbing in the car on the way home. Welcome to How I Built This, a show about innovators, entrepreneurs, idealists, and the stories behind the movements they built. I'm Guy Raz. And on the show today, how Scott Morris figured out how to squeeze dog food into slice and serve rolls and grew fresh pet into the country's leading brand of fresh pet food. You know that old cliche about if you want to

make a friend in politics, get a dog? Well, let me throw out a new one. I actually made this one up. If you want to make a lot of money as an entrepreneur, sell to pet owners. In 2022, Americans spent $136 billion on their pets. And that was a 10% increase from 2021. Think about how massive that market is. And why do we spend so much on our animals? Because we love them. My cortisol levels plummet every time I snuggle my dog Kiki or our cats, Millie and Morty.

Anyway, about 20 years ago, an entrepreneur named Scott Morris started to notice a new pattern of behavior among pet owners. For one thing, they were moving away from your standard kibble and canned food. Pet owners started buying things like organic, grain-free, meat-heavy dog foods. And for their cats, beautiful, corrugated cardboard scratch cocoons. How do I know? Because I was one of these people. Anyway, seeing this trend, Scott realized that maybe, just maybe, you could make a premium pet food that wasn't only fresh, but also refrigerated and with an expiration. date. You know, like human food? So when Scott launched Fresh Pet in 2006 with a few partners who,

like Scott, had worked in Pet Food before, he faced massive challenges. For starters, Pet Food Isles didn't have refrigerators. There was dry food and there was canned food. So in order to get fresh pet off the ground, he had to not only make fresh pet food, he had to get into the refrigerator business, and many, many stores resisted the idea of installing coolers. It would take a lot of failure, including spoiled pet food and faulty refrigerators, to figure out how to make it all work. But today, Fresh Pet dominates the Fresh Pet food market. And though the company is not yet profitable, Fresh Pet is valued at around $3 billion. Scott Morris grew up in the 70s and early 80s in Long Island, and it was during high school that he began to lean into entrepreneurship.

He started his first company with a friend. It was a landscaping business. And after, he went on to study business at the University of North Carolina, where he was also a star track and field athlete. And at UNC, he started yet another side hustle with a guy he knew from his track team, a business that built loft beds for other students. We went to a lumber yard. We bought a ton of lumber.

We took all of it initially, and we decided. we were going to use the track team locker room. We were kind of somewhat out of season at the time, and we got back early in the summer, and we started cutting all the pieces, and we advertised that not only UNC, but also Duke and North Carolina State, we ended up building hundreds of lofts across the three schools. And we started hiring people. If I wasn't going to school or starting to train for track, I was building lofts. What would you charge for a lot?

I think it was $110 at the time. Did that include the lumber? Yeah, yeah, it did. Wow. And, you know, it was several years ago. But I want to say it was right around $110. And then we had kind of bells and whistles that people could add. So it would go up a little bit from there.

But it was obviously you want to keep things as cost effective as possible. Yeah. And that wasn't even your first business. I mean, I think you and a high school friend started like a landscaping business. And then you kept it going in college. Is that right? Yeah. No. We had had a couple of businesses together and they were successful enough where we made a pretty fair amount of money. We had actually sold them. We had employees. How much you sell it for?

We actually sold it for a little over $10,000. Wow. That's pretty good. And again, it was a fair amount back then, but we had, it wasn't just landscaping. We were doing, I mean, we were doing yards every week, but we were building decks. We were building mailboxes. We were putting in brick patios and pavers. I remember one of the things that was. silly, but it was kind of a breakthrough for us, was we kept putting flyers in mailboxes and we weren't getting any phone calls. And then we started putting prices on every one of the flyers that we put in mailboxes to advertise. You would basically put a price on it and people were like, wow, that's cheap. Yeah, they thought it was really reasonable. And they also knew it was a couple of college kids or at the time, somewhere between high school and college at different times, that were doing this. And I think people wanted to support us. And it kept growing and growing. and we were buying equipment, and I was very involved in fixing and taking care of the

equipment and working with the employees, and Roger was typically the one who's dealing a little bit more with the customers. All right. So after you graduate college, you've got this business degree. And I guess you decided to see what it's like to work for a corporation. So from what I understand, you do a bunch of interviews, and I guess you wind up taking a job at Ralston Purina, which is a company that makes a company that makes. like cereal and pet food and things like that.

And what were you hired to do? So I was kind of in a sales training role when I came into the company. And the big joke from everyone else that was on the team was they had all taken the worst stores and the worst areas. And through all the different other salespeople in the area and they had given that to me and that was my sales territory. So it looked kind of a looked a little bit like a voting district sometimes. and it seems to be kind of, you know, very circuitous and a little bit all over the place. That was my sales territory. It kind of stretched all over the place.

So how did you, and you had the south, or part of the south, that was your area? Yeah, it was kind of downtown Atlanta all the way over to Alabama. So, you know, here I was, this Jewish guy from Long Island driving around, you know, Atlanta and all the way into Alabama and Piggly Wiggly and all these different stores that I was, it was an incredible learning experience. And you were focused on selling pet food? I was pet food and cereal. So it was Czech cereal.

There was a brand called almond delight. And then there were a lot of pet food brands. It was the dog chow, dog chow, puppy chow, high pro, Purina 1, meow mix, cat chow. And the initial job was literally to, you know, get in my car. And I had a little over 100 and something stores. We did a lot of shelf sets. where we were setting the shelves literally at night. You were literally putting product on the shelf and making sure that it was prominently displayed.

Exactly. We would lay it out. And, I mean, I remember one time it was 3 a morning. I'm setting a shelf. And I was actually working with a noseguard from Notre Dame from another company. I think he was working with Carnation at the time. And we were kind of looking at each other going, what's going on here? It's in the middle of the night and we're setting a grocery store, self. And, you know, we'd just both finish college and we're like, didn't we go to college for this? But it was one of those situations where you did look around and suddenly go, like, wow, we are

really starting at the bottom. That's really where so much of the hard work is in so many of these industries. And I think that sometimes that work is underappreciated. So you would end up spending over decade at Ralston-Purina and really getting into the marketing side of things, and you became sort of a marketing leader there. And I'm wondering at, in sort of this is the 90s, right? Was, I mean, marketing presumably was television, uh, coupons, right? Because people got, I mean, everybody looked at coupons in their Sunday papers. Like, that was a thing. Um, is that what you did? Um, you know, it was, I think that was traditionally how it was done. And, uh, there were me and, and another partner, this gentleman,

Rick Speakerman, and what we started realizing was there were millions and millions and millions of dollars that were being spent in couponing and discounting that were really not very productive. They were drawing people in that would buy it once and then go back to whatever the next promotion was. Right. It wasn't building affinity or loyalty for the products. And I think that was an incredible, really, really salient learning. And we kept bringing that data forward.

And him and I, I'd say we were the key catalyst in really changing the way we started moving away from discounting. And it was at the time it was $70 million in all kinds of discounting and couponing that we were able to move out of those kind of inefficient activities into really like really fundamental brand building activities. So after you, by the way, by the way, did you, I mean, you kind of fell into the world. of pet food, but were you like a pet person? Did you have lots of pets? Was that part of your own life? It was. I mean, I always had pets growing up. And then when I met my wife, you know, I met her when I was at Ralston Purina and she owned, she had four cats when we first started dating. And she had worked at a shelter and had an, you know, incredible heart. And she ended up taking some of these cats home that didn't have homes. And so I was always involved with pets and

I loved them. And what I started realizing more and more is the value that they bring into people's lives. And there was actually a lot of research that had been done that people with pets live longer and healthier lives. And there were three aspects on why they did. One of them was the emotional benefits of having a pet and having kind of a, you know, someone you love in your life and caring and nurturing. People are caring and nurturing. And you get to do some of that with a pet. It's part of it's because they make you more active. And then the third piece that is people do not think about to realize is, believe it or not, it's actually the microbiome. It's actually the bacteria that pets bring into our lives. People with pets tend to have less allergies, typically. But I knew

that being involved in an industry that did that, that I could feel really good about being involved in it. You would eventually leave Purina after it got acquired by Nestle in 2001. And I guess at that point it becomes a different, so somewhat different company, right? Oftentimes when companies get acquired, they sort of become different. And I think there was like a cultural shift there that you weren't happy with, right? Yeah. And so from what I understand, you wound up joining the leadership team.

at Meow Mix, which had been part of Ralston Purina, but eventually it got spun off as a separate company, right? Yeah. So when I was at Meow Mix the entire time, first of all, it would completely awaken my entrepreneurial spirit because there was literally no company behind it. So we had to build a company almost from scratch. I mean, it was a really wild experience because it was like, well, here's a brand. It's selling about $200 million a year. And you have to figure out how to build a company. company, you have to figure out how to find the people around the company. You have to figure out how to make the product over time. You have to figure out every single aspect of it. Yep. And when I walked in there, we were using our, we didn't even have desk phones. We didn't have business cards. So it was a few desks sitting around in a big office space. And it was like, well, we now have to go build a company and become an entrepreneur again. Huh. All right. So in 2006, just about four years after you joined Miamics, it got sold to Del Monte for a lot of money, I think like $700 million. And you left at that time in Formata Gather. You walked out of that opportunity with quite a bit of cash, right? Because you were on the leadership team. So presumably you did okay out of that.

I did really do well, and it was a lot of money. And I think when I was mentioning a bit ago that when I was at Purina, one of the things that happened was, it was potentially all those changes when Nestle bought Purina. It was really kind of, I thought it could impede my ability to be successful. And what I started realizing was I didn't like not being empowered. Yeah. I didn't like that someone else had made a decision that was going to affect my future. and my safety and my ability to, you know, make a living for my family. And I looked at that and I said, wow, that's, I didn't like that feeling.

And I had, you know, realized that along the way, I started kind of awakening, you know, on my own and started thinking about like what was great food. And I remember somewhere along the way, someone said to me, you're selling McDonald's for cats. and I didn't I didn't like that I kind of knew what that meant even back of 2000 so I think it was a it was a great brand and I think cats loved it and consumers loved it but I just felt like it was time for me to really kind of continue to move forward

yeah so you you sort of your time with with Miomics comes to an end and you you have some cash with you. And at that point, did you think, okay, now I'm, maybe now is a time for me to start my own thing. So, you know how you have these times in your life that are incredibly, like you remember like it was yesterday and it's just crystal clear. And I remember there were a few of us sitting around talking about like maybe what we wanted to do next. And the CFO of Meow Mix came by and handed me an envelope. And that envelope had a seven figure check. And that envelope had a seven figure check. And, inside of it. And it was, you know, maybe more money than I thought I might have ever had, quite honestly. And there was incredible excitement around getting the check, but I swear, I remember opening it up. And it was the emptiest moment maybe of my life. And I realized it wasn't about

just the money. I mean, the money was about that empowerment, but it was about building something great. And I remember that so clearly. And I had become very awakened around nutrition. and just thinking about what food is and a lot about the food supply. And that led me and two other gentlemen to start thinking about if we reinvented pet food, like if we were going to start literally with a completely clean sheet of paper from scratch, what would we make? What would that product be? And we started thinking it probably wouldn't be kibble because the conversation literally was

is kibble even food. And when you say we, who was the we? Who were you talking to? Yeah. So there were three of us. It was a gentleman named John Phelps and another gentleman named Cahill Walsh. And they were also in the pet food business? They were in the pet food business.

John worked with me at Miao Mix. And then Cahill was not at Miao Mix, but John had worked with him in Australia, actually. And they had seen fresh pet food. So they had seen fresh pet food in Australia that people were. basically buying like in like a refrigerated section. Yeah. It was actually initially when it was launched. It was literally just ground raw meat and it was kind of all the leftovers.

It was it was done very, very differently in Australia. It had byproducts. It had preservatives. It had kind of like all the scraps. I mean, everything in there. But the point is that people were buying, they weren't buying dry pet food. Or wet pet food in a can. They were buying it in a refrigerated section, which I guess in 2006 did not really exist in the U.S.

No, it didn't exist at all in the U.S. There was some raw food in the U.S., like what was originally done in Australia, but it was frozen. And so I think it was definitely that's where like the initial inspiration came from, but we knew we had to do it completely differently here in the U.S. We knew we needed someone to kind of help kick this off and that could really start immediately. And that was this gentleman, Cahill. Huh. Cahill worked with Nestle in Australia and Cahill started writing a business plan. So I think we all started working together to try and figure out, well, how do we make this food?

So he comes to the U.S. and you guys decide you're going to explore this. And I have to assume, I mean, given that you, you know, you got a pretty nice payout of a few million bucks. You had money to finance it? Well, when we first, first started, we didn't have a whole lot of money because I didn't have that check yet. Right. Yeah. So we did cobbled together some money for sure.

Cahill and John actually both took out some loans. And I had a little bit, but we cobbled together. It was like, I think it was $875,000 if I remember the number. initially. And what we learned quickly was that sounds like a lot of money, but it's not at all. And when you start doing packaging and you start trying to figure out how to initially import product and then you're trying to sell it in and then you're paying for refrigerators and then you suddenly realize I have to figure out how to make this product because what I'm getting just doesn't work, it's incredibly expensive to typically start up some type of manufacturing operation.

All right, so you kind of start the process of, I guess, initially, just exploring how you would do this. And I would imagine, this, you know, 2006, I'd imagine, you know, it's like making Jimmy Dean sausages or something, right? Like you're, I just think of that because it's like a round tube of meat that you would go and you would find meat, grind it up and just, you know, put it in a tube. I mean, first of all, what was the, what was the first step you had to take? I mean, did you, you had to source meat, I guess, initially, and find a place to make this. Yeah, no, you're exactly right. We literally, we did. The analogy I would give you is we knew we wanted to make cookies, but we didn't have a recipe.

Right. We knew the product we wanted, but we didn't exactly know how to make it all. So, yes, you had to find, you know, meat and other ingredients, and you had to figure out, like, well, how do you, what types of ingredients? What are the specifications of them? It has to meet certain nutritional requirements. How do you cook them? Yeah. How do you actually cook it?

How do you get it into the package? And we started figuring it out. Yeah. I mean, you had experience in the industry. You knew that you knew who bought canned food. You knew who bought dry food. But surely there was, it was risky to think about refrigerated food because, you know, it isn't as convenient. Oh, it's not convenient at all.

In fact, it's exact opposite. And people love, although they were nutrition aware and although pets were part of their lives, they love convenience. And we felt like that was one of the biggest challenges for us bringing this to market was, hold on a second, I have to buy my pet food refrigerated. I got to keep it fresh and I have to keep it in the refrigerator and then I have to cut it up. And it was one of these situations where I think a lot of people looked at it both in the industry and the retailers. and it was so different, they couldn't get their head around it. And the thing I always recognize was if something was so different, it's either brilliant or completely stupid. And I think in 2006, the verdict was out for quite a while.

When we come back in just a moment, Scott starts rolling out the first fresh pet products only to find out he's got to roll out new refrigerators too. Stay with us. I'm Guy Raz, and you're listening to How I Build. this. Let's face it, we humans are smelly. All of us, and there are actually things we can do about it, like for starters, using Loomi Whole Body Deodorant. Lumi's starter pack is perfect for new customers. It comes with a solid stick deodorant, cream tube deodorant, two free products of your choice like mini body wash and deodorant wipes and free shipping. Loomie is also excited to announce the launch of their men's line, Mando, with more masculine scents and packaging, but still

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So it's 2006, and Scott and his partners are working through a list of all the things they want their new dog food to do. And the list is pretty easy to put together. The hard thing is how do you actually make the food? How to make it where it was nutritionally complete. It looked appealing to the consumer. It had great shelf life. It lasted for a really long time.

It was firm enough to cut. So it was a good experience again for the consumer. It smelled good. So we kept working it, working it, working it, working it. So you wanted it to be like a meatloaf? rather than like a sort of a refrigerated, like canned, wet canned food, you know, you just, like you could, I guess, make that into a refrigerator product and it would be sold in like a Tupperware container. But you wanted something that was more like a, like a meatloaf that would be sliced. Yeah, we wanted it.

The initial inspiration was almost like deli meats. And it wasn't going to be as solid as a bologna. It was still going to have like, it was still going to break apart once you put in the bowl, like ground wet food. No, actually, it was pretty firm. We wanted it where people didn't mind touching it. Right. Okay. Because, and if you think about, so there's two aspects to the product. One of them is we wanted to use the freshest ingredients we possibly could. And the second thing was we wanted to cook it as little as possible. Because we, John and I were really focused on this idea of bioavailability. So the more you cook certain ingredients, the less bioavailability or nutrition that they're, there actually is for the person or for the pet. And you needed refrigeration in order to keep it fresh. What was your thesis at the time? I mean, you know, the pet food business, I think in 2006 in the U.S., it was like a $15 billion industry in the U.S. has grown a lot since then. So clearly it was growing and it's just exploded, right? Especially because people seem to be having more

pets than kids now. But what was the, like, how, you know, why did you think that people would be interested in refrigerated pet food, you know, and people that were buying canned food, people were buying dry food. How did you think you could convince people that, you know, this refrigerated food was going to be a better option? There were two major trends that we were watching. And one of them was that people were definitely starting to head down that path. Like, I'm becoming more aware that I need to eat better food and less processed food. Right. Not snack wells.

Exactly. Exactly. They needed to start eating a better diet for themselves. Now, whether they did that or not is another story. Yeah. And then the second piece of it, we, just like you were mentioning, dogs were becoming an incredibly important part of our lives. And the simple analogy is, you know, maybe 50 years ago, they were mostly in the backyard. And they went from the backyard to the dog house, to the garage, to the launch.

room to the end of my bed every night. Exactly. Yes, exactly. On my feet. Absolutely. They have become our kids. And you started to see that, you really start to see that come into focus around that time. Exactly.

And it was referred to in the industry as the humanization of pets. So this idea of pets were becoming more like kids or humans. And the thing I kept asking everyone in the industry was, if everyone realizes that this idea around humanization of pets, why are we feeding them like, honestly, like farm animals? Because initially, kibble came from animal feed in the 40s, 50s, 60s. That's really where that grew out of, the idea of having a kibble. So we should probably be feeding them differently. But let me ask you about, let's just go back to making it, right?

You wanted to make something that was fresh, could be shelf stable for 12 weeks, I think, for three months. and was sliceable. Those are all challenging things to do. Yeah. You know, it's interesting. We actually worked with a team of initially veterinary nutritionists, and we said, what's the perfect pet? What's your dream pet food?

Tell us what it is. And they had some ideas. And then we continued to talk to different people that were involved in processing different foods and cooking different foods on the human food side. and we started in the first partner I think we had with Fresh Pet was a group called the Hunsburgers. It was in Quaker Town, Pennsylvania. It was a meat producer.

They produced meat for humans, right? Exactly. They did. They produced meat for humans and actually the pet food market. Okay. And we actually convinced them to let us have 10,000 square feet of their manufacturing facility, kind of off on the side in this other room. And that's literally where the trials to start making fresh pet started.

So it took you, do you remember how long it took you from the time you started to experiment with? And were you using beef or using chicken or turkey or what? I think maybe it was just chicken and turkey in the very beginning, but soon after we used, we were using beef also. So we wanted to have a handful of different proteins because different people and dogs like different types of proteins. And I would say it was probably a year of testing and trying and tinkering before we thought we had it. But it's a lot of times today you'll hear people say it's version 1 or V1. I would say that was V1. And we thought it was ready to go to market.

And the reality was it probably was good, but it wasn't where it quite needed to be on kind of that version 1. You guys were doing this out of a manufacturing facility in Pennsylvania. and they were making the food for you. They were able to make it for you? No, it was our facility. So it was their building, and it was we rented right next to in this chicken processing facility where they made human meats. Not human meat, human grade meat, you should say. Not grinding up humans.

No, no, no. Oh, my God. Yeah, we had space in that facility, and we started bringing in. equipment. And initially it was just a simple mixer, and then it was a giant steam oven. And then we had something that was, it's called a chub machine or a K-pack machine where it basically puts the meat into the sleeve. And then initially we were putting in these giant pallet-sized totes of ice water to cool it down because part of pasteurization is the cooking part where you heat it up or the steam oven. Yeah. And then part of it is where you have to bring the temperature down pretty quickly.

So we were trying to follow kind of the USDA guidelines around how to actually do pasteurization on foods. Yeah. And did you, by the way, I'm assuming you had to bring these to actual real live dogs to test. Oh, yeah, yeah. Because dogs eat everything. I mean, they eat poop, right? I mean, like, they'll eat anything. Yeah.

So how did you know whether this was, you know, good? you know, there's a range of dogs. There are dogs that will eat almost anything. Then there's a very large group of dogs that will not eat, you know, almost nothing. And we wanted to test with all the dogs. And part of it was about taste, but we had to make sure the nutrition worked for the pets. And then when the consumer opens it up, they have to look at it and go, oh, my God, this looks good. It looks like food I could eat.

And we would literally go out of our way to make sure it smelled good for the consumer. So the first tip is the dog loves it and eats all of it. And then the more people used it and the longer they used it, the more they saw literally a visible difference in their dog's health in some way. So once you had it down and you were ready to pitch it, because you guys were based in, or are you living in New Jersey at the time? Yeah, I was still living in New Jersey and Cahill had been back and forth a little bit. He originally started off in San Francisco and then he moved to. we figured we all need to be together. So he was now living in New Jersey, too. So you needed some retailers to put this in their coolers, right? And by the way, at this point,

this was still, I mean, you guys were still financing this with some of the friends and family money and then the money that you guys pooled together? Yeah. At this point, it was still, there was, I would say, still that friends and family group. But at the time, we finally talked both PetSmart and PECO into doing a small. test with us in the San Francisco Bay Area. And the Bay Area, presumably, because that's where people are sort of more first adopters, like more experimental. Yeah.

So we just thought it was a, we both agreed, both the retailers and us, agreed that we thought it was that consumers were fairly progressive around nutrition. Now, honestly, for us, the other thing is we wanted to be able to test it in a place where we could have, like, one distribution network. It ended up being a van that we literally ended up hiring someone to drive a van. to deliver to the stores because that was one of the next challenges was no one wanted to carry the product for us, none of the distributors. Right, because it had to be refrigerated. Yeah.

Yeah. But how did you, I mean, at the time, 2006, did Fresh, did Petcoe and PetSmart have any refrigerators? No. No, they didn't have any refrigerators. And the original idea was, oh, well, let the retailers buy the refrigerators. Yeah. And they said, are you kidding? You want me to spend our money on your refrigerator?

So you had to buy them. Yeah, and that was us kind of starting to launch into owning all of our refrigerators. But it was we not only ended up in the pet food business, but we ended up in the refrigerator business. These were refrigerators, by the way, that were like open, like you see them in supermarkets, the open refrigerators and they would just stock the fresh pet rolls, I guess. Yeah, we had some open air. We had some closed air refrigerators. We had all different ones that we would use for the test. But we also had this idea of go big or go home.

So we felt like we needed like a really big display, big merchandising for someone, you know, the consumers to actually look at it and realize what it was. And it said fresh pet on it. It said, yeah. Well, actually, we initially started the company under the name Professor Connors. We wanted to name it Dr. Connors. And then we couldn't name it Dr. Connors because we didn't – you needed a vet to be able to call it doctor. So then we called it Professor Connors. And then it was, I joke about it as it was one of my moments of weakness where I agreed to call the company Professor Connors.

And it was around for about a year as Professor Connors. Professor Conner's pet food? Was it dog food initially only? Professor Conner's Deli Fresh was the original original name. And I know it's a little bit of like a tangent. But John, we kept talking about we got to change this name. And John didn't really want to change it. And he went away over on vacation.

And the second he walked away, I turned to call and said, we have to change the name of this company. I said, we're going to regret this forever. And we ended up changing it to Fresh Pet. And when he got back, I had changed the name in front of the, we had a small little house as our office. We changed the business cards and we completely changed the name. And then started to moving on the packaging.

And when John came back, he actually literally drove by the office the first time because he didn't recognize the sign. He just drove past it a little bit. And he came in and said, what do you guys, what do you guys do? And I said, John, you're going to thank me for this later? We could not be Professor Connors. We needed a name that really was understandable

and quickly digestible by consumers and retailers. And 20 or 30 years from now, it may be Kleenex or it may be Xerox, where it's the name of the category. but for now, this is the right decision for us to be making. And I think within about a minute, he realized that it was the right decision for us and it was a good decision. And I mean, it's today the name of the category is literally you'll see the sign in the grocery aisle, fresh pet food up on the sign. And it was super important to have a name that told the consumer what it was fast. Right.

So you were initially in, what, like 20 Bay Area stores or 15? I think it was 25, I think was the number between Petco and PetSmart. And you had to buy all the refrigerators for these stores. Yes. And we didn't know what we were doing, buying refrigerators. And that was, and how did you, I mean, you had enough money to finance that? We, I think for this period of time, we had enough money in the very beginning, but we quickly started realizing, wow, we, this manufacturing piece is taking a lot more money. Yeah.

And then we're now buying refrigerators. And then we also had this team of people that we had worked with in the past that we were like, wow, this is going to take off. And we're going to need this team of people and we don't want to lose them. The team of people who are at Miomics with us. At Miomics, right. Yeah. I mean, so just presumably to recruit those people who, you know, they had certain salary expectations, they were experienced. I mean, this isn't a startup with like 25.

year olds. No, no. You know, I always equated to, it's like when you're dealing, you're watching an incredible basketball team. All five of those guys know where the other one is and what they can do. And that's the people that we wanted on the team. We knew how they could play. We knew the positions they could play. We knew what they could get done. So now we had a ton of overhead. We had these people coming in. We started building manufacturing. We're now buying refrigerators. And we were quickly, quickly, the business was not developing fast and we were quickly running out of cash and it got very, very scary and very, very real, very fast. So presumably there wasn't a whole lot of money left to market this. You had to just,

you know, you've got these refrigerators. They are in the Bay Area, which is a place where people tend to be more, you know, experimental and willing to try new things. But how did you, how did you get customers in those stores to try that? that product. The biggest single thing that we did were just demonstrations or demos, and we'd stand literally in the store, and we would show consumers what the product looked like, and that it looked good, it smelled good. And the one thing that was working for us is, as we gave people samples, they went home and they fed it to their dogs, obviously. Yeah. And the dogs, they had a great experience. And then once they started using it a few times is when they started seeing the performance

of the product. Did you ever do any like, any like stunts where like you took a bite out of it to say, hey, you know, it's safe for humans or good enough for us? We have, we definitely have done some of those things along the way. We've been willing to, you know, ate it and taste it. I actually had, we had a reporter tour a factory probably about five years ago. And I literally took a bite off the line. And so did she.

So yes, we did everything. We had, we had people in those markets that we call. these like kind of road warriors and they would spend time literally driving around and visiting bed offices and going to dog parks, dog daycare, giving out samples. So it was it was very much kind of like on the street kind of ground level gorilla type marketing to try and get enough people to try the product. And how did it do in those stores? I mean it did probably okay. It was a little below expectations, but the complexity of the supply chain and making it in Pennsylvania and shipping it to the West Coast and then having the right product and inventory and then filling

those fridges. And there was so much product in the fridges that it would have had to done extraordinarily well for it to sell fast enough to get through it before we ran into shelf life. Right, because by the time you make it, the clock starts ticking and you're rushing it from Pennsylvania. That's probably five days already. So now, right, you get to the, so every day counts. Yeah. But what we didn't realize was 12 weeks sounded like a long time, but to start shipping it around the country, to make it and ship it around the country and then actually have it sold out of a refrigerator. There was a concept they were introduced very soon after, and it was called sell it or smell it.

And it was literally, if you didn't sell the food, you'd start smelling it because it was going bad. And that was really like a kind of a rude awakening. And we realized 12 weeks was not enough shelf life for this to work in the beginning and get it started. We needed a longer shelf life. And we were absolutely 100% committed to making sure that it was all natural. We were not putting any artificial preservatives in there. Could you do that? Were you able to?

I mean, could you figure out how to do that, to make it last longer? Yeah. I think we went from version one to version two of the product very quickly, and it was the only way we were going to be able to get any type of significant investment is if we solved that problem because... You had to make it last for how long? We actually moved it from 12 to 16 and then eventually to like 18 and 20 weeks over time. Wow. Yeah. So what explains why, in your view, it wasn't doing that well in those Bay Area. So it was more expensive?

Was it the price point? I think it was more expensive. I think that when people don't know about what something is, they're hesitant. People typically are not like fast adopters to change. And it's that I think that that piece of information applies to almost everything. But now you're feeding your kid. And I want to make sure that this is a good food and a good product that is safe for my kind of quote unquote kid or pet. Yeah. How much did it cost at that time in 2006, a rule? I think we were at $9.99 for initially, like it was a, I think we were targeting $9.99 for a six-pound roll, which was pretty cost-effective, quite honestly. You could still make money off that. I mean, it was cost-effective for the consumer, but you could still make a profit off that? We weren't making much, and that was another problem that we had to, like, we wanted to, again, make it as affordable and it's accessible, but we kind of sacrificed some margin up front because we felt. it was important to get the momentum going behind it and getting it into consumers' hands. So we wanted to make it as cost effective as possible for consumers. But of course, that was still challenging.

And challenging for you, as you say. I mean, because you said that when you set out at the beginning, one of the principles was we're not going to, like from your time at Ralston-Purina. Yes. We're not going to use discounting. It damages the brand. And it was a real key learning. And it became one of those incredible principles that we put in place up front. So you had like multiple challenges.

I mean, you had, you know, short shelf life, really high overhead costs because you had an expensive team. And you were in the refrigeration business. And that was, and by the way, if this wasn't going to work, it was going to fail. Like basically Petco and PetSmart were going to be the proud owners of free refrigerators. Yes. Yes, unfortunately. So, I mean, there were times where you start questioning, wow, is this a good idea and can we do it? And I think what's really important for me was I think you can talk a little bit about that with the team because you want to be honest, but you can, I think you can never lose, you know, their confidence. Once the team starts losing confidence and what we're doing, then I think it can literally become a quick fit. So really, I mean, there were so many, so many challenges you faced in terms of convincing retailers to carry this. The first and foremost was the refrigeration. I mean, if you wanted to

be in the pet food section of a big box retailer, you'd have to basically like open up that shelving space and put a refrigerator there in the middle of that section. And I have to assume that there was probably a lot of resistance to that idea initially. Absolutely. That came into the situation where we presented to retailers. And even after we had made a little bit of progress with Petsmart and Petco and we started talking to other retailers, it was back to the, you want me to do what? And I don't care if you were successful there. I don't think that's going to work in my store.

And it was so hard for them to understand that we wanted to put a refrigerator in the middle of their aisle. So there was a lot of, there were a lot of eye rolls. And at the same time, with all of these challenges, we literally had the economy starting to fall apart in 2007. Yeah. At the end of 2007, you could just, you know, how you can just feel when the economy's starting to change. So then retailers were like, you know, your dog food's still kind of expensive. Your pet food's expensive. And although consumers may love it, how can you expect people to pay for this?

When we come back in just a moment, how Scott gets into a battle with Walmart about refrigerators and takes a huge risk by not backing down. Stay with us. I'm Guy Raz, and you're listening to How I Built This. This episode is sponsored by AG1, the daily foundational nutrition supplement that supports whole body health. I literally drink it every day. And the reason I wanted better gut health, immune system support, and I wanted to be able to replace. place a bunch of supplements that are already in AG1. I drink AG1 minutes after I wake up. It actually helps power my morning workout. Since I've been drinking AG1, I've noticed I have more sustained energy, better clarity, and even improve digestion, and it doesn't spike my blood sugar levels. And with just one scoop, preparing my drink takes a few seconds. Age 1 is part of my daily

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So it's 2007, and Fresh Pet has a lot on its plate. The economy is in bad shape. Retailers don't want to install refrigerators. And even people in the pet food business think fresh pet food is a dumb idea. I remember one time I was literally in our booth at a kind of a pet show setting up where retailers would come and walk the floor of a trade show. And I had an island with a cutting. board and we had a refrigerator and I had gotten these hay bells and and I hear this, ah, Morris, Turtle Morris, fresh pet food.

Boy, oh, boy, I wish I had thought of that. And it was, it was someone I had worked with at Purina that was now at a different company. And he was happy to see me, but he thought what we were doing was completely ridiculous and laughable. And I think that was a pretty tough moment. When you, I mean, essentially you had to, in the first, I think, probably in the first three years, I mean, you had to constantly imagine look for money to finance because you bought a manufacturing facility in 2007, right? I mean, that was a slightly larger one. Yeah, we kept expanding the one we were in in Quaker Town, right? Right. And that, I think, took $10 million. I mean, so I imagine that a big part of the job was just constantly looking for money to help finance the group. Because this is a cash intensive business. Right. So one of the people that we'd worked with at Meow Mix that was almost immediately involved was a gentleman named Dick Kassar. And he knew this other gentleman, Charlie Norris. And he said, you know, I think Charlie may have some money. You should go talk to him.

So Cahill and I flew out to California, and we met him in kind of one of the lounges at the airport in San Francisco, and Charlie flew up from L.A. to meet us. And we explained to him what we were doing. And he said, look, I believe in jockeys, not horses. He goes, and I believe you guys can make this work. And I want to think about it, but I may be able to pull some funding together for you. And that was the original angel funding network that we were. able to pull together was led by Charlie, who eventually became the chairman of the company, and he just retired after, I think it was 16 years with us a couple of months ago.

Yeah. I mean, you know, despite all of the, you know, all of the sort of challenges and despite the economic challenges, right, 2008 into 2009, was there any indication at all that people were still willing to spend, it's like, you know, the lipstick principle, right? That you still buy lipstick to look nice. Or cigarettes still sell. Were there indications that people are still willing to spend premium dollars for their pets or not?

I think that there were definitely a core group of consumers that started showing us that they were really willing to spend money on their pets. And we started making a little bit of progress. But it was like it was moving inches and we had to go miles. And it was store at a time, store at a time, a little bit of progress, a little bit of progress, fix the product, raise a little bit of money, continue to make more improvements of the product. And it was just, it was kind of every day, it was, you're playing whack a mole. And I remember one day leaving work and getting in the car and openly sobbing in the car on the way home. And I tried to never let anyone see that, you know, we were scared or we were losing confidence.

But quite honestly, it was one of those things, go home, go for a run, wake up the next morning and get back to work and go figure it out. In March of 2009, you guys got an investment from Tyson Foods, the biggest supplier of me, I think, in the world or one of them for sure. Did that, I mean, I imagine that was a shot in the arm. But I also imagine that that was at the time, like, you know, really crucial, critical to stabilize the business. It was absolutely critical. This was, I mean, we realized if we didn't get a significant investment from someone other than the angel group that we weren't going to be around. Yeah. So when we found Tyson, and we found the right person at Tyson, we found a gentleman who he was basically running a group that was looking to create other business units.

out of Tyson's kind of main or core business units. And they made an investment in us. And as part of the criteria, they had basically a term in the agreement that means they could decide if we had had any other fundraising what the terms were. And what happened was there was a change from one CEO that we originally shook hands with. And it turned from one CEO to literally the day we signed the deal. it was another CEO that was kind of in place for a while. And then finally, about a year later, a third CEO. So kind of ended 2009 into 2010.

And the last CEO that came in did not get along. And he said, let's get rid of all these other businesses. And they were basically like, well, what do we want to do with Fresh Pet? And he said, I don't care. Don't give them another penny. And because they had the ability to basically decide whether we could raise money or not, they were literally trying to bankrupt the company or trying to get us to give them the company. Wow.

I mean, this is a classic case of a new CEO coming in and just being a jerk and, you know, and, you know, just discounting anything their predecessors did. And he was like, let's just give them nothing, you know, bleed them dry, and then we can acquire them for pennies and the dollar. Yep, exactly. And it was from, it went from, oh, my goodness. We're working with Tyson and we saw a path forward for really delivering the potential that this company had to within a year, literally being back into the worst crisis we'd ever had. And Charlie, on his own, the original angel investor and our chairman at that point, stepped up and gave the company like an extended significant loan for a period of time in order for us to get through that period. Well, so essentially you have this, you've got this challenge. But meantime, you were expanding.

I mean, you did manage to get into some big stores like Kroger, even Walmart, some Safeways. How did you convince those stores, given the skepticism around refrigerated dog food? How did you convince them to let you put a refrigerator in the pet food aisle? It was never easy to sell in new refurbism. refrigerators because every single retailer said, even if you said we were doing great at retailer A and B, they're like, that's not mine. That's not my store. I want to test it. So they would start up with one fridge or maybe five or if someone was really aggressive, 10 stores. And you'd have to prove it out in those 10 stores. And we just kept building the network slowly over time.

Meantime, you were still losing money and you were hamstrung. You couldn't raise more money. So, I mean, this is a long period of time, almost two years where you're hamstrung and your ability to bring in more capital. And you're trying to expand retail sales, which means that you've got to expand capacity and you've got to invest in manufacturing and even advertising. So you guys were just, I mean, you were probably losing a lot of money at the time. We were losing a lot of money. And we were fortunate enough in 2010 to unwind the Tyson deal. And we brought in a private equity firm called Mid-Ocean Partners. And they invested in the company and they helped fund it.

And the next thing that started to happen was not only were we able to prove it out on a fridge-by-fridge or a store-by-store basis, but we started using kind of broad-level marketing. And we were able to get dramatic increases in sales. and we were getting incredible returns on our advertising. And when they saw the potential of adding all these fridges, they recognized that all they needed to do was feed this machine and it would start to take off. It seems like you went from, and I mean this with the greatest of respect,

from crisis to crisis in trying to resolve all of your problems because you get out of this or you're starting to get out of this problem with Tyson. and at the same time you're starting to encounter refrigerator problems, right? Like, I just can't even imagine this because you had to service and maintain these refrigerators in addition to delivering the food to these refrigerators. And some of them were breaking down or like they'd be in stores where the stores weren't air-conditioned and they were like open refrigerators and the food was spoiling. Yeah.

We had an opportunity with both Kroger and with Target. And when we had kind of talked about the expansion with Target, we wanted to go with these open-air refrigerators. And especially at night, the refrigeration or the air conditioning was turned off in the store, and the stores would get hotter, and the refrigerators just couldn't hold temp. So we ended up having to, over time, put doors on all the refrigerators and enclose them, which was absolutely fine, but it was a long, it took months. in order to figure it out. Tell me a little bit about the, I mean, so basically every year you were growing, right? Like 2012, you had reportedly $44 million in sales and then about a little less than $20 million losses. 2013, $63 million in sales and then about $22 million losses.

But at that point, you had like 10,000 refrigerators in stores. You had visibility. people and the ad campaigns by the way from from what I understand were like kind of designed to mainstream refrigerated pet food like like at this point people were kind of spending money on doggy day spas and all kinds of things that were you know no judgment I love my dog I put my dog in a you know my dog gets groomed and all that stuff but but still there was there was kind of a feeling that some of this was over the top but I guess you wanted to kind of position fresh pet as like just a normal thing that you would do for your dog or cat.

Yeah, well, I think what we did is, you know, you steal the quote from Wayne Greske. You always want to be where the puck is moving to. And I think what happened early on is we got there too early. And then all of a sudden in kind of 2010 and 2011, when we started getting the entire model figured out, the puck was now coming to us. And we wanted to be in all the retailers and as many stores as possible and as many consumers as possible. So we really started thinking about, well, how do we get retailers and consumers when they're thinking about pet food to think fresh first, fresh as the center of the bowl,

as the base of the meal. By the way, when did you get into the cat food side of the business? So early on, I'd say early on like 2010, we had cat food. It's been a very small piece of the business for many, many years, but it's something that we see as a potential, like, long-term opportunity for the organization. It is, by the way, I'm assuming, is the dog food category more, is it bigger? Much larger. Yeah. It's larger, right?

Yes. Dogs eat more. Yeah, they eat a lot more. Think about, like, the size of a cat and then the, even if you take the average size of a dog. I know. I've got two cats and a dog. Yeah. I've watched a meet.

Yeah. Yeah. I mean, the joke always was, we love the people with two golden retrievers versus one cat. Why did you decide? to take the company public in 2014. Why did you decide that was the right time? Did you need to raise capital? We knew that we needed additional capital for a significant expansion in our manufacturing. And we felt like going public was really the right path forward for the organization. So let's talk about it. I mean, you go public in 2014. And that means all of a sudden you've got it. You sort of, become a somewhat of a different company. I think within a year of the IPO, the stock price

declined by like almost 70 percent, right? And so that all of a sudden you had some shareholders who were like, you know, upset about that. I think there was a point where like Jim Kramer on CNBC called your stock the disaster of the day. And you must have been aware of all this going on. Yeah, I mean, you're always aware of it. And I think that, there are a lot of people that have not believed in what this could be early on. And then, sure, like, you start going public and, boy, you're on a different type of stage. And we were making incredible progress. We had over 40% growth the year we went public. Yeah. But operationally, we had, we had a misstep. And we weren't as profitable as we thought we were going to be. And

our margins slipped a bit. And it caused, you know, an incredible change in the stock and a loss of confidence in the market. And I mean, the thing that was terrific is the people that believed in us that stayed with us after we were public were able to kind of ride back the progress that we made and make many, many times, you know, their investment. You know, now that obviously you are a public company, all of your data is public as well. And, you know, and so, you know, I was looking at your your sales figures for 2019, which were very impressive, you know, $250 or $250 million in sales that year and a very small loss. I mean, it's, you know, $1.4 million. So at that point, it seemed like you were probably on track to hit profitability. But at the same time, I guess for you, the strategy then and still is to just expand, continue to grow even if you are post. hosting losses. Mm-hmm.

Yeah. And, you know, the question starts to become what's acceptable in the marketplace. And the market on, like, their acceptance and their comfort level with some type of loss has kind of ebbs and flows over time. Yeah. And I think the, you know, especially the moving through kind of the last several years, the appetite for companies that are like losing money and not having a clear path to profitability. has really waned. So we have, we've definitely kind of modified some of our plans along the way. And now we had a couple of years where we were growing over 40%, you know, and we want to kind of trim back the growth just a little bit. We want to stay in that kind of 30-ish percent range.

And that's going to allow us to basically grow and be able to fund our growth going forward. And that's really the plan that we've laid out to the public markets. I'm curious about this kind of, I don't know what's called it, this dispute with Walmart. It happened, I think, before the pandemic, which was they apparently wanted to own, I mean, you had refrigerators in all these Walmarts. They counted then and maybe even still do now for 20% of your business. And they wanted to use your fresh pet refrigerators to sell. other refrigerated pet food. And you guys were, you know, you were facing, you know, an 800-pound gorilla here. How did you prevent that from happening? It was a very, it was a series of very,

very difficult and challenging discussions. And I think the initial discussion was what we had internally was we can't allow anyone to put anything in our refrigerators. Because if I have one problem. I've got 25 or today over 30,000 problems. Yeah. Um, out there across the market, the number of fridges that we have. So, um, we went back to Walmart. We explained like the perspective and the point of view that we invested in this category from the very beginning. We spent all of our money. Um, we invested hundreds of millions of dollars to figure this out and build it and buy these refrigerators. And those were our refrigerators and it was their stores. And if they didn't want our refrigerators and their stores, they could let us know that,

and we would move them out. But if they were okay with it, we would continue on the model that we had always kind of moved forward with, which was our products go in our refrigerator. And if they wanted to put other products in, someone else needed to buy their own refrigerator. And I think over time, Walmart didn't like it, but they think they got comfortable with the concept that, you know, the analogy that's out there is, the red cans go in the red fridge and the blue cans go in the blue fridge. And what I'm talking about is Coke and Pepsi. Yeah. So we use precedent that was out there. We use the initial kind of agreement. And I think we also kind of laid out kind of a business plan forward with them that demonstrated that we can be an incredible growth engine for their entire category. And it's a scary conversation. But you had to, you had to have it and you had to be honest about it. Because you guys were, I mean, you do direct to consumer sales, obviously, right?

Very, very little. Like, really, it's not. It really hasn't been a part of our business. And why? Why not? Why didn't you, yeah. It's interesting. So, you know, when we made the commitment to retailers and we said, we're working with you

and we're putting our fridges in the store, the deal was we weren't going to go around the retailer and go direct to consumer. And we feel as though the opportunity to deliver fresh food is where people are going to buy their fresh food over time. And that's going to be, they're typically going to make a trip to a store to do that. So that fresh trip is owned by the brick and mortar guys. And those are our partners that we went in with in the beginning. So even when we have played with this idea of shipping food to consumers, we're actually working with our retailers to actually ship it through their stores or their distribution centers. So, I mean, you started this company in 2006. We're talking now in 2023. It has been a very successful brand. And presumably, you know, part of the mandate is to get it to profitability in the next few years. You know, what, what do you sort of where do you see yourself in in five or ten years?

You know, I don't, I don't exactly know in five or ten years. But. I try and be super objective about that. I sit back at the end of every year and I think about the contributions that I've made and the work that I've done and how I feel like I'm still helping to guide and lead and create the company and lead to success. And the day I stop having impact and contributing significantly to the organization is the day that I need to walk away. So when you think about your own journey and where FreshPed is today, how much do you attribute? to luck and how much to how hard you worked. You know, it's interesting. When going all the way back to early on in athletics, I had won a great coach.

His name was Jeff Ward, another one was Charles Foster. And they both said to me, you know, if you take a step back and you look at the people that have created, you know, been great athletes, they said there's two parts to it. One of them is they believe they can do it, and the other one is they have the skills to pull it off. And I think the third one is being at the right place or the right time or some level of luck or fortune or whatever you think it is. So everyone's going to have luck passed by them, and it's a question of what you do with it and how you think about it and how you take advantage of that luck. That's Scott Morris, co-founder and president of Fresh Pet. By the way, Scott is very happy to tell you about his own pets.

He has one dog and Aussie-Doodle and two cats, or three, if you count as grown daughter's cat, which, of course, he does. There are unquestionable perks to being Piper, Milo, sorry, Marlorego, Suzu, and Piper. There are definite perks. They definitely, they eat well. I think, yeah, they probably lucked down a little bit showing up at the Morris House. Yeah, Michelin three-star cat and dog meals. That's right. Hey, thanks so much for listening to the show this week.

Please make sure to click the follow button on your podcast app so you never miss a new episode of the show. And as always, it's totally free. This episode was produced by Carla Estevez, and our music was composed by Ramtin Arablui. It was edited by Neva Grant with research help from Alex Chung. Our audio engineer was Gilly Moon. Our production staff also includes J.C. Howard, Casey Herman, Sam Paulson, Elaine Coates, John Isabella, Carrie Thompson, Ramel Wood and Chris Messini. I'm Guy Raz, and you've been listening to How I Built This.