Hodo Soy is clearly positioned as a premium brand with retail pricing of a 12 oz. tofu package coming in around $4.29, as compared to $2.19 for a 10oz. package of tofu from the Wildwood brand (which is made by a subsidiary of a Korean holding company). Hodo Soy is currently sold in approximately 75 retail stores including Whole Foods, Mollie Stones, Costco and a variety of independent natural food stores. In addition to tofu, it also sells soymilk, yuba (tofu skins), flavored nuggets and a V-EGG-AN Salad.
Aside from the general challenges associated with building a new company and new brand, Hodo Soy sells a product with extremely limited consumer demand in the United States. For many Americans who grew up eating ground beef and eggs, tofu can be unfamiliar and intimidating to eat and to cook with. Mr. Tsai admits that "Tofu is such a mystery… In the West, people don't think of tofu beyond that bland, firm, white chunk." Unless you are of Asian descent, a vegan, or a die-hard vegetarian, you probably only rarely eat tofu. Consequently, the Soyfoods Association of America estimates that retail sales of tofu in 2011 was only $255 million and that these sales were basically unchanged since 2008. Compare this to an estimated $15.5 billion of sales of beef at retail in 2008, and you can see tofu is a relatively tiny retail category.
So how does a premium brand in a tiny, no-growth category with limited consumer demand find ways to increase its sales? Increased grocery and natural food store distribution in new geographic regions is certainly a possibility. Investing marketing dollars to steal market share from lower priced competitors, or in bringing in new consumers to grow the category, however, seem to be unlikely. Nothing short of a game-changing category shift would appear to help Hodo Soy reach a larger group of consumers. Fortunately, Hodo Soy may just be on the leading edge of such a transformative change.
On February 12, 2013, Chipotle Mexican Grill began testing a new vegetarian option for its burritos, tacos, burrito bowls and salads with what it is calling sofritas – shredded tofu made by Hodo Soy and braised with chipotle chiles, roasted poblanos and a blend of spices. My taste test of the sofritas is that they were a delicious option in my burrito. The test began in seven San Francisco Bay Area stores, and if the test meets Chipotle's measures of success, it could be expanded to all of its 1,400+ U.S. locations.
What intrigues me most about this test is that it's a rare example of where a premium brand has been willing to enter into a foodservice relationship that is not necessarily about brand building. For example, Taco Bell has had tremendous success with its Doritos Locos Tacos. Much of that success is undoubtedly attributable to the fact that customers know the shells are made by Doritos, and Taco Bell has featured the Doritos brand in its advertising, in-store merchandising and even product wrappers.
But when you visit one of the Chipotle Sofritas test stores, you won't see any mention of the Hodo Soy brand. The option is simply listed as Sofritas. If one of the major goals of building a premium brand is to command premium prices at retail, why would Hodo Soy be willing to sell tofu to Chipotle as basically a private-label supplier? Profit margins are typically lower selling to foodservice accounts than they are selling to grocery and mass merchandiser accounts. Most customers ordering Sofritas from Chipotle will never know that the tofu is made by Hodo Soy.
"The win here is people will be exposed to tofu like they've never been."
~Minh Tsai
Mercury News
I believe the strategic benefits that Hodo Soy can realize from the Chipotle test are potentially huge and could help build the premium brand in the long term. Should the Sofritas test prove successful and launched nationally, the potential benefits would include:
- Increased incremental sales and profits;
- Increased awareness and trial of tofu by mainstream customers of Chipotle;
- Growth in retail sales at grocery as consumers learn to enjoy tofu;
- Being positioned as a national tofu brand to grocery category buyers and being able to use that positioning to gain retail distribution in new geographies at grocery, mass and club store accounts.
A large, national chain such as Chipotle is capable of instantaneously exposing deliciously prepared tofu to millions of Americans who currently view it as mysterious and bland. By becoming a partner with a national restaurant chain such as Chipotle, Hodo Soy stands to benefit from the growth and acceptance of tofu across mainstream America and from sales and profit growth that can be invested into future brand distribution and development as a premium category leader.
I for one, hope the test proves successful!
Q&A with Minh Tsai (via email)
Q: Did Chipotle seek out Hodo Soy or did Hodo Soy approach Chipotle?
A: Chipotle found Hodo more than 2 years ago and have been working with Hodo on tofu recipes that resulted in the Sofritas.
Q: Are there / were there any concerns participating in the test knowing that most Chipotle customers would never know the tofu was made by Hodo Soy?
A: Chipotle does not publish vendor in the store, but does on their website and other copy. As a "Food with Integrity" company, Chipotle intends to share the source of tofu with its customers.
Q: When the Chipotle test moves beyond the Bay Area, will Hodo Soy seek grocery distribution in those new markets or is market expansion not tied to the Chipotle test?
A: We have grown organically to keep our tofu products tasty and of the highest quality. We will continue with this ethos as we grow to broader markets.
Q: What's the biggest benefit to Hodo Soy of a successful test at Chipotle?
A: The best result would be that customers find the Sofritas tasty and know that Hodo's tofu and our collaboration with Chipotle lead to its deliciousness. From our founding, Hodo has strived to re-educate folks about the high quality tofu and how great it is. Chipotle allows us the opportunity to reach a greater audience.
Q: Should the test fail, what do you think you will have learned that will allow the company to take advantage of?
A: We are learning all the time to make better tofu dishes. The success or failure of our test with Chipotle does not change how we learn and grow as a company.
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This is a case study that exemplifies one of my ideas of how to increase sales as found in my free ebook, 54 Ways to Increase Sales Like a Rock Star. It’s based on idea #36 – acquire new customers via new distribution channels.