PeaTos Closes $7M in Funding
Snack brand PeaTos yesterday announced the close of a $7 million funding round, which included a $3 million convertible note from 2019. The round was led by financial services firm Jackson Springs Management Partners (JSMP) and venture capital firm Connetic Ventures, with participation from returning investors Apu Mody, former CEO of Lenny & Larry’s, and Carlos Barroso, former head of global R&D at Frito-Lay. An undisclosed private hedge fund and former NBA basketball player Tracy McGrady also took part in the round.
As part of the deal, JSMP co-founder Greg Pearlman will join PeaTos’ executive board. PeaTos CEO and founder Nick Desai, who has welcomed controversy, often directly taking on snack giant Frito-Lay, said he looked for investment partners who would support his aggressive style.
“They like the direct approach which could scare some investors off,” he said. “Investors have to have a big stomach for it.”
The new cash will be used to increase the brand’s marketing spend, grow distribution and invest further in e-commerce, a channel Desai said has recently seen “dramatic growth,” largely fueled by 15-count variety bundles. Fueling marketing, including hiring a new CMO, and driving velocities are the major focus, he said; the brand is also developing a new product to launch in 2021.
The company, which launched in 2017, sells its pea-based salty snacks in over 4,700 stores including Kroger, Safeway and Sprouts, and last month made its club channel debut in Costco’s Northwest region.
As part of a push into foodservice, PeaTos also began a partnership with Alaska Airlines last year. Although foodservice sales are slower now, having an omnichannel approach is important, Desai said, if the company wants to take on Frito-Lay, a goal that previously resulted in a trademark battle with the larger company. Indeed, PeaTos is up against stiff competition: Frito-Lay has 62.4% of the $21 billion salty snack industry, according to Desai.
While PeaTos wants to be a big player, Desai recognizes there are still some limits to its growth, namely, affordability. For example, a .6 oz. bag of PeaTos retails for $1.29 compared to a 1 oz. bag of Cheetos which sells for around $0.59. Desai said the company is happy to offer a premium product, albeit to a smaller customer base.
“We will always be at a premium to Frito-Lay items as we are offering a much higher value proposition,” said Desai. “There is a certain consumer base of traditional junk food that’s going to be more price-conscious; anything where price consciousness is not in the equation we definitely want to go after.”
The brand is certainly not shy in its attempts to rival Frito-Lay, having recently launched a “Hey Chester” marketing campaign referencing the ubiquitous Cheetos mascot. But its marketing efforts have not always landed well with Frito-Lay, which in 2018 filed an infringement claim over issues with the brand’s name, paw-print logo and slogan “Tigers Live Longer than Cheetahs.” While the terms of the settlement were not disclosed, PeaTos did not incur any financial ramifications, other than the cost of funding its own legal team. The brand also agreed to drop the slogan and changed its packaging the next year, though Desai maintains the spat with Frito-Lay did not influence the choice to rebrand.
Looking ahead, another fundraising round will likely follow in early 2021.
“Building a large company with the vision we have is an expensive endeavor,” he said. “We’ll continue to raise and find the right partners as we go.”
