Hello, everyone. Thank you for joining us today. My name is Brian Holland, Senior Research Analyst at D.A. Davidson. Pleased to have Chairman and CEO Adam Michaels from Mama's Creations with us to discuss his business. Mama's Creations is a manufacturer of fresh, deli-prepared foods. For what it's worth, Mama's is our top pick in packaged foods today, as it is our view that, one, the company is effectively positioned at the intersection of convenience and value, and consensus is discounting that runway, perhaps materially. Two, a seasoned C-suite is applying a fairly straightforward playbook against an under-leveraged asset, which we think invites meaningful margin expansion potential, and three, there is credible and compelling consolidation opportunity. We're going to dig into these themes, among others, during our discussion today. Adam, good afternoon. Thanks for being here.
Thank you for having me.
For those who may be getting introduced to the story for the first time today, perhaps we can just start with a brief history of the company. Who is Mama's Creations, and at a high level, what's the playbook?
So again, thank you. So MamaMancini's, we've adjusted the name a little bit, but MamaMancini's has been around 15-plus years now. Started as a Northeast Italian meatball company. So there really is a Dan Mancini. I get to hang out with him all the time. He doesn't have a formal role in the business. I'd say he's the heart of our business, and I stay very close to him. Unfortunately, Mama, his grandmother, has passed away about three years ago. So I've been in the food space for most of my professional career. The last 10 years or so, I was at Mondelez, Nabisco, and then before that, for about eight years, I was in management consulting at Booz Allen Hamilton, with PepsiCo being my biggest client for well over six years. I joined about three years ago.
I shared with the board my vision for creating a one-stop shop in the deli. The deli is a $60 billion category. Anywhere you want to go, any store you shop, think behind the glass, in the hot bar, in the cold bar, in the prepared food set, in the grab-and-go set. It's a $60 billion category, massively fragmented. So I don't think you could even get to six, but let's call that about half a dozen billion-dollar brands. There's maybe another half dozen, $500 million-$1 billion-dollar brand. And then after those 12, you just have thousands, literally thousands, of mom-and-pop. They make the best potato salad in Kentucky, and they do that really, really well. And I thought that there was an opportunity to create this one-stop shop in the deli.
We'll get back to the fragmentation of the space a little later in the discussion. I mentioned in my introduction there's a very experienced management team, especially given the size of the company today. I think it would be helpful for folks to hear just a little bit on your background. So maybe just touch on a little bit of some of the key hires that you made since joining Mama's, where they came from, et cetera.
I mean, it's everything. So it took me three years to build this team. We've completely turned over the entire leadership team. Folks like Chris Darling is our first-ever Chief Commercial Officer. He was the head of sales at Boar's Head. Skip Tappan, our first-ever Chief Operating Officer. I do believe we have one of the, I would say, obviously I'm biased, the most overqualified management team in the deli space. And what they have been able to accomplish is pretty amazing. So it took me three years to bring them all together. This year was a good year, and I think we could keep doing even better.
The company plays in the ready-to-eat, prepared section of the grocery store. I think intuitively, investors in the room here might appreciate the attractiveness of where you sit. But could you provide some context or data points that might hammer home sort of the relative performance of that aisle relative to, say, broader retail or certainly food service?
I think that one of the things I learned early was it was way better to ride a wave than create your own and the deli category is doing just incredibly well. The category, two years ago, I think grew 5%. This year is probably going to end up closer to 4%. Last month, literally, the category grew more in volume than it actually did in dollars. First of all, I don't know many categories outside of energy drinks. I'll give them credit. I don't know any categories that are growing in volume, let alone growing more in volume than in actual dollars, so this is a category that has just tremendous tailwinds for them. I'm not happy about it, but the market is, things are tough economically. Out-of-home inflation is almost 2x in-home inflation.
That makes restaurants, I mean, you guys know this well, and I'm sure there's lots of restaurants here today, it's just making it very challenging for the restaurant space, and literally, you listen to some of the earnings calls. I've heard some big restaurant chains talk about they're not losing to their peer. They're not losing to McDonald's or wherever. They're losing to people eating at home, and that's where we're winning, so it's almost this triple win, so for the retailer, it's great. So if you understand, look at retailer economics, it's one of the most profitable parts of the store. It's upwards of usually 50%. So if I sell it to them for $5, they're selling it to you for $9.99. It drives incremental trips. People actually choose, and think about it yourself, people actually choose where they shop, often based on their prepared food set.
You don't pick it because they have Oreos. Everybody has Oreos. But if you have a fresh, prepared food set, it's a driver for them. So most profitable, more trips, bigger baskets. So what's awesome is the retailers are actually adding shelf space. In 25 years of my professional career, I think with the exception of I got to play in Sour Patch Kids and Swedish Fish, that was pretty good. We were adding shelf space there. With that exception, never in my career have I ever been in a category that's actually adding shelf space. So it's great for the retailer. It's great for the end consumer. Our product is. Well, I want our product to be $9.99. More often than not, it finds its way to $8.99.
I mean, your body's a temple, but you try to go to McDonald's, you cannot get out of there for less than $10. And then obviously, it's pretty good for the manufacturer. So this triple win is providing this tailwind for the category.
To your point, I think Chipotle's commentary on their most recent earnings call was certainly instructive about share shifts. And I think Kroger, from an aisle expansion perspective, has touched on this pretty pointedly very recently. From a top-line perspective, what stood out to me during my diligence process was how underpenetrated this portfolio is, both from the standpoint of breadth and depth. So I want to try to tackle that from a few different angles. So first, how many stores are you in today, and what is the average number of items you sell across that footprint, and how does that compare to before you joined in September 2022?
First, you don't have to rub it in. We're not that horrible. Throw me a bone a little bit, but.
We'll save it.
Earn it. So when we started, we were probably in about 8,000 doors, moved up to 10, 12. On our last earnings call, we just announced entry into Target and Food Lion. So probably once that's finished, we'll probably be closer to about 15,000 doors. So again, like you said, definitely under 50% penetrated. Let's not even talk about the convenience channel where our paninis and Meatballs in a Cup items are great. That's a whole different group. Items carried, when I started, probably under five. I could give you the number. It's probably around seven now, a little more. The "problem" is we're doing really well in Club and Masse. So we're now in every Costco in America. We're in every BJ's in America. We're in every Sam's Club in America. We're now in half the Walmart's. Obviously, those have a smaller set relative to grocery.
So every time Sam's Club does well and revenue goes up with their few items, it actually suppresses our AIC in theory. But I could tell you nearly every single customer that we've worked with this year have added shelf space, whether it be new paninis at Publix or new vegetable items at BJ's or new items at Fresh Market. These two new vegetables, with this honey thyme carrot is my new favorite at Fresh Market. So I feel good that the business, Chris and his team, are doing an incredible job.
Maybe just to kind of frame that for folks, I mean, one, just the sheer number of stores that you're in at this point, sort of you can get to some pretty compelling math for what one incremental item could do for the business over time. Frame sort of the range of outcomes for how many items theoretically you could produce for a customer, just given how vast your portfolio has become.
I mean, not in theory. I'm actually disappointed personally. If we're at seven today, we should be at 27. I mean, without innovation, there is no reason why we should have three beef items in every store in America: meatballs, meatloaf, sausage and peppers. These are all items that are doing well at other stores. Chicken, grilled chicken, breaded chicken, roasted chicken. Again, we're selling these well at other stores. Paninis, Nashville Hot Paninis. Chicken Bacon Ranch is the big winner. Chicken Pesto, we should sell those. We bought an olive company. So we're selling three different types of olives: salads, Mediterranean Farro, Israeli Couscous, Persian Rice. I could keep going. I mean, what is it? Eight times three is 24 items, and that's not innovation. That's literally items that we already have. So Chris understands actually. He is bonused on. His goal is AIC.
That is the most important one. People always love to talk about ACV. That's the old, I don't know, golf, but I know you what is it? You drive for show and you putt for dough. You drive for ACV. It's really cool to tell people that you're in a new store. I couldn't care less. Why? Because I'm cheap. And that means that if I can get one more item into a truck that's already going to the store, that creates a billboard effect. I'd tell you the ROI is way better than telling people that I got into a new door. So AIC is number one to me. Velocity is number two. Lauren, our CMO, is doing a great job working with Chris on marketing programs, trade programs. And then a super distant third is actually ACV.
So tying this back to the team, and let's kind of dig into the mechanics of this. You are a product now that I believe prior to the Crown One acquisition was about 50/50 branded.
R oughly.
I think folks would assume that's a non-branded part of the store, so talk about your ability to penetrate these customers with a branded product, which in theory transfers leverage from the retailer to you, assuming your product is turning, and how do you convince retailers to take your product when they don't have your product and also take it branded, given, again, I think generally speaking, there's a thought that that's not a big part of that part of the store.
So I mean, I look at it. This is a real partnership with the retailer. Actually, if you step back, the whole reason why I'm here today, I think I mentioned the last job I had when I was at Mondelez was I ran M&A in North America for them, bought a whole bunch of companies, found that I was exceptionally good at spending other people's money. Now that it's actually my money, I'm much tighter with it. And we bought a company called Give & Go, In-Store Bakery, if you guys have heard of it, Two-Bite Brownies. And they've done an amazing job. We've done an amazing well, it's not we anymore, I guess. But Give & Go has done an amazing job. And actually, Joel Flatt, who's the CEO, who actually, I'm not sure he ever liked me. I'm still not sure if he does.
But he taught me a lot. I give him a lot of credit. And he was the one that actually taught me it's not just the end consumer. Growing up at PepsiCo, growing up at Mondelez, it's about the Super Bowl ad. Who cares about the retailer? If the end consumer wants your Pepsi, it doesn't matter. Everyone needs to carry it. Joel is the one that gets the credit for teaching me that it's just as important to look out for the retailer as it is the end consumer. So my team understands how do we make it easier for the buyer. So the first and most important thing is we don't require or demand branded. We have the data to show. We've done A/B testing at different stores. I know that when it says Mama Mancini's on it, it actually does better than if it's private label.
But it is totally up to the retailer to make that decision. Now, because my CFO is OK with this, there is no discount. The price is exactly the same whether you put our brand name on it or not. So from a financial standpoint, we're indifferent to it. I just know the velocities will be higher if it actually says MamaMancini's on it, if it's an Italian product. But what we have seen when I started, again, it was more private label. Over the past couple of years, and I think you've seen some of this, everything at Costco for us is branded. Even something like at Publix was supposed to be private label. For the first 10, 12 years before I got here, it was almost all private label.
Now go to the store, and even though it's supposed to be private label, it all says Mama's Creations, MamaMancini's. The best merchandiser I have in the company is my mom. She lives down in Florida, so she makes sure that all the products look good. Even the meatball, so if you guys, anyone from Florida know the Pub Sub program is huge. You do not walk into a Publix at noontime. That is dangerous. Their top Pub Sub is the meatball Pub Sub that's exclusively ours. And now when you see it in the promotions and everything, it literally says made with MamaMancini's meatballs. So I could tell you the same thing with BJ's. BJ's is supposed to be all private label. Go into BJ's now. They ask us to put the Mama sticker on it. So we're a partnership with the retailer. It's totally up to them.
I could show you that it's better to do branded. But if not, totally cool. I'm not going to lose business because they want it private label.
And so presumably then, can you provide any sort of examples of we did it non-branded, we did it branded, branded turned faster? That'd be the first part. And then second, not to go out of order because I want to talk about your margin expansion initiatives. If you're selling the product for the same price, if it's the same product, presumably it costs the same to make it. So that's margin neutral, whether it's Mama's Creations or not Mama's Creations. But the incremental benefit is you are using margin expansion, which again, we'll get to in a minute. We'll bookmark that. But you're using the margin expansion to fund increased trade spend, which obviously amplifies the awareness and visibility of Mama's. It becomes a virtuous cycle if the retailer's adopting that.
So, talk about anecdotal evidence you have or tangible evidence you have that Mama's does turn faster with that labeling on it versus branded.
I mean, we did it. Actually, The Fresh Market was one that we did. They actually asked us to A/B test. They literally took half their stores. They called it behind the glass. They called them beef meatballs. The other half, they called them Mama Mancini's meatballs, and those did better. Again, I'll let the stores, any retailer do that themselves. I'm very proud and excited to have that. The trade, we actually put money. It is OK. I mean, we're the exclusive more often than not on these items. If I can make BJ's grilled chicken turn faster velocity-wise, I don't care because I'm the exclusive maker of the grilled chicken. Again, it truly is a partnership. We are very flexible. The goal is to drive velocities, old school Jack Welch. I don't care.
The big thing that everyone always talks about, hey, I'm in this number of stores. Don't care. This number, we have this many items. Don't care. For me, I want the number one or number two item in the deli set. I take no pride in wasting some linear feet of space if my product's not turning, and I will be the first. Actually, my team proactively will go out to a retailer and say, hey, we have 10 items. These two are your two lowest. Let me give you two new ones, and they do that.
I could rattle off the new customer wins, but we don't have enough time. I think actually, as I ran through the list with you before this, you had to correct me on a few that I didn't have there. You mentioned Food Lion and also Target in the most recent quarter were new business wins. The one that I think those familiar with your story are most interested in hearing an update on is Costco. Mama's is currently participating in its first ever national multi-vendor mailer or MVM with the retailer. I think that's through next Monday, running through next Monday. How is that performing so far? How do we think about the potential sales lift from an event like that for your business at this stage?
I mean, when I find out, you'll find out. The good news is they keep pulling beyond where they said they were going to pull. So that's a good sign. I'm really excited, really proud of the team. Scott Scheffer gets all the credit. He's been leading that account for some time now. And it's a great partnership. Look, when I started, I think the first year I was here, I think we did like $540,000 of Costco sales with one rotation in one region. Last year, we got our first ever national buy. We did about $10 million last year, which is certainly a lot for us. In Q1, we did our first ever digital MVM, and we did $10 million just in Q1 this year. And like you said, the MVM is traditionally even bigger, and that's in Q4.
We have a weird cycle, and our year ends January 31. So we have another 20 days left in our FY . But I'm really happy with the Costco partnership. Remember, all branded, great driver of trial. I mentioned Dan Mancini. Dan, I don't think has slept in the past two months with all he actually personally responds to all the social media. You send him a note, he responds personally to it. And we're getting just really, really great traction that, no, others love it. It's really good.
I want to make sure we leave time for the M&A component of this because I think it's a really compelling part of the story, but want to hit on one of the ways you'll fund reinvestment in the business. Ultimately, M&A, et cetera, will come from margins to a degree, and similar to the top line, you've got a lot of low-hanging fruit there, so we'll try to consolidate some of what I have here. In the last two years, you've renovated, expanded two of your two legacy facilities in Farmingdale, New York, East Rutherford, New Jersey. How much revenue capacity do you have today versus two years ago?
I would probably say if we're run right now about $200 million between the space that we just acquired through the Crown One acquisition and we actually already have in East Rutherford. We're in a building with two sides to it. We actually just took over the second side. We should be able to. I mean, obviously, product mix is a factor, but we should be able to double our revenue with the facilities that we have. So that feels great, and obviously, Skip's doing an amazing job driving more and more efficiency and throughput. I think I shared. I think we increased throughput 40% last quarter versus a year ago. So the more Skip is able to work with his team, that same footprint produces a lot more for us. So I feel great.
Again, I'm super proud of Skip and his team on what we've been able to do to drive margin. Like I told you, when I started, we were 11.9% the quarter before of gross margin the quarter before I started. Now we're consistently in the mid- to high 20s%. Obviously, we were 30%, but I've been starting to invest in more trade, which obviously hits gross to net. But like you said, it's driving great trial. Our repeat's awesome. If you just get it in their mouths, they seem to like it, whether it's the meatballs, the chicken, vegetables. It's great.
We're going to skip to M&A, but I would just point out this business has insourced a lot of operational functions like trimming and tumbling capabilities around the chicken. That has significant margin implications. You are famous for saying what gets measured gets improved. So you've installed a lot of tools around supply demand, performance, staffing, warehouse management, procurement. So I think worth folks' time to dive into those themes when you have opportunities to meet with Adam. Let's flip to M&A quickly with the time we have left. What are you looking for in an asset? Is it about categories, customers, capabilities, geography? What kind of multiples have practical targets sold for?
So for me, I'm buying capabilities. Literally, it just so happens to have revenue and profit attached to it. So for me, we're in the deli space. It has to be. I don't care the number of bankers that have recommended I buy a shoelace company because it's under book value and it's an amazing deal. No. So first, it's in the deli. Ideally, incremental. So like you saw with the Crown One acquisition, the Sysco division, we got two of their top three customers we couldn't get into. These were cult-like customers that for three years I tried to get. Return our phone calls. Magically, we did the acquisition. They called us. Chris has already met with them. They came to our offices, if you could believe that. So ideally, it's incremental customers, incremental capacity.
Like I told you, we just added 42,000 sq ft of space, all state of the art. It is the coldest building I've ever been in in my life. So that's great. Maybe it gets us into new subcategories within the deli space. So I'm looking for capabilities or people. Sorry. People is probably the most important one. There are people that, whether it be through the Chef's Inspiration acquisition we did, the Creative Salads acquisition, now the Crown One acquisition, these people have taken on enterprise roles, which is great. And they're having massive impacts on the whole business. So people, infrastructure, machinery, technology, or getting us into either new customers or new regions would be huge.
And then really quickly, you made reference to the Crown One acquisition. You talked about customer penetration that was harder prior to the acquisition. Can we assume that integration is going well so far?
It's actually going better than well. I really, again, credit to Abby Meeks, our HR leader, our people operations leader and Skip. I love the culture. These people are just, they seem so happy to be here, quite honestly, and I love working with them. I go every single week, so culturally, it's exceeding my expectations. That's always the scary one when you do M&A. Chris has already taken over all. There is no such thing as Bay Shore or Crown sales versus Farmingdale sales. Chris is already fully integrated. Alberto has already fully integrated all the procurements. There's one version of the truth, so I'm really happy. I'm so proud and appreciative of the entire Bayshore team for doing some amazing work, but still work to do.
I'm going to sneak in one last one as we wrap. You don't provide firm annual guidance, so nothing to ask you about reaffirming there. But you do have long-term targets. Just how do we think about those?
Look, when I came in here, I was not looking to, again, not looking to make an Italian work at an Italian meatball company. This is a $60 billion category. I share with the board. I built a consumption model. This will be a billion-dollar business. Started a little before I got there. It was $40 million. It's now $200 million. We're ahead of the plan I laid out for the board. And half of that growth is going to be organic growth. We're growing 20% year over year. And then the other half is we'll use all of the things that Mondelez and PepsiCo taught me to acquire about $500 million of revenue.
What's the right margin for that?
I think we should be able to do. We're like 10% now. We should be in the mid-teens EBITDA margin once we're at scale.
Great. Thank you so much, Adam, for the time. Thank you.