In the world of business, many acquisitions fail to live up to lofty growth expectations. But with Rao’s, Sovos Brands has created a playbook of what works, growing the brand over 9x since acquiring it in 2017. I sat down with Yuri Hermida, the Chief Growth Officer of Sovos Brands, to discuss the company’s journey to building Rao’s into a billion-dollar brand, the importance of maintaining an unwavering commitment to quality, and how they are driving awareness and household penetration.
Dave Knox: Can you share with us the story behind the success of Rao’s brand?
Yuri Hermida: To understand the Rao’s brand in particular, it’s important to spend a little bit of time talking about Sovos Brands itself. Our company is relatively new, established just six years ago before going public in 2021. After recognizing that small brands with craftsmanship, clean labels, and great stories were the fastest-growing brands in the food industry, we decided to acquire and nurture them to grow even further. Our first acquisition was Michael Angelo’s, followed by Rao’s, which is now well-known for its red sauce portfolio. Rao’s celebrates the flavors and culinary traditions of authentic southern Italian food, using premium ingredients such as whole peeled Italian San Marzano style tomatoes, fresh garlic, fresh onions, and whole leaf basil. The sauces are slow-simmered in small batches in open kettles and do not contain added sugars, colors, paste, or water – making them highly differentiated from our peers.
Today Rao’s is more than nine times bigger than when we acquired it in 2017, and what we are most proud about is that that growth is volume led. I make high emphasis on that because it’s a rare thing these days when a lot of growth is being driven by pricing. With Rao’s, however, the brand has averaged nearly 50 percent annual growth through volume and in the last quarter we announced the growth rate of Rao’s alone was 38 percent.
Knox: It’s fascinating to see how you’re trying to drive awareness and increase the household penetration of Rao’s brand. How have you been able to challenge the existing brands in the pasta sauce aisle and make them recognize the difference in your product?
Hermida: Even though our growth has been remarkable, our awareness is still relatively low. The awareness of leading brands is around 90%, while ours is at 58%. We’ve achieved our growth by focusing on the quality of our ingredients, unique cooking style, and offering different sizes and product offerings. Our growth has been driven by word of mouth, distribution increases, and brand extensions such as soup, dry pasta, frozen entrees, and recently, frozen pizza. While Rao’s now offers consumers far more than its classic pasta sauce, we are careful to ensure that the quality of the Rao’s brand is consistent across all these extensions. For example, our slow-simmered soups come in a clear jar so that you can see the ingredients, while our pasta is bronze die-cut, a higher quality differentiation. By maintaining the elevated quality of our brand, we’re able to challenge the status quo and differentiate ourselves from the competition.
Knox: It’s interesting to see how you’re expanding into different product categories and reaching new retail buyers. What gave you the confidence to make that switch when there was still so much untapped potential in the core pasta sauce category?
Hermida: While these other adjacencies represent a smaller portion of our business, they are growing quickly. However, sauce still generates 80% of our business. We continue to extend sauce by innovating with new varieties and elevating our overall assortment. We also entered the Alfredo sauce category, another natural extension of our brand. Like I mentioned, we carefully study and ensure that the quality and ingredients of our brand extensions are consistent with our brand’s values. At the end of the day, however, our focus remains on driving growth in the sauce category, where we have so far only achieved 13% household penetration but are currently the number one sauce in the food channel and number two on a national level. In the other adjacencies, we’re still relatively small and have a lot of room to grow.
Knox: The brand experienced significant growth during a time of solid economic conditions, but the current macroeconomic environment, especially from a super-premium price point perspective, is challenging. Has the brand had to evolve and change its strategy for the next two years compared to the last six years?
Hermida: The growth of the brand has been especially heartening as it comes from every generation and income level group. We’re seeing strong growth rates across all demographics and socioeconomic levels we target. Our focus remains on driving awareness, extending distribution, and increasing household penetration. For example, while the brand is broadly distributed, it is not yet in every household, and changing that is one of our main focuses. Currently, the brand has exceeded $600 million in sales on a 12-month basis, but we firmly believe we can become a billion-dollar brand. We remain committed to our strategy and have not felt the need to significantly change it in response to the challenging macroeconomic environment.
Knox: Achieving the goal of becoming a billion-dollar brand is ambitious. What are the key things the team needs to focus on to achieve that growth and overcome any challenges?
Hermida: Our unwavering commitment to quality is definitely first. As a premium product, our price can be three times higher than the sauce category average, and we need to ensure consumers see the value behind our price point. However, in difficult economic times, people are spending more time at home and looking for great family meals at a decent price, and we believe Rao’s offers that at a great value. Second, we need to extend our distribution to increase awareness and household penetration. Our aim is to continue to grow awareness until we reach 80-90% levels. These are the fundamentals that will help us achieve our goal of becoming a billion-dollar brand.
Knox: As Chief Growth Officer, you have many options for investing in the company, such as investing in current businesses, investing in adjacencies, acquiring new brands, or investing in a new brand altogether. How do you determine the right mix of innovation for the company?
Hermida: Our current priority is organic growth and our primary focus is on driving Rao’s to a billion dollars in net sales and beyond. We’re investing in marketing, R&D, talent, and our supply chain to support growth and stay ahead of the industry.
Rao’s has been the main driver of Sovos Brands’ growth, and its remarkable growth rate is rare to see in the consumer goods industry. The commitment to clean labels, premium quality ingredients, craftsmanship, and storytelling that made Rao’s successful also resonated with our noosa brand in yoghurt and gelato and in our Michael Angelo’s brand, which has frozen entrees and now a mid-tier pasta sauce. We’re excited about their potential and the great family of brands that make Sovos Brands the company it is today.
Knox: As you strive to achieve the billion-dollar mark, how do you balance appealing to new consumers while staying true to the core audience that made Rao’s successful?
Hermida: Our focus is on growing our current offerings and extending our distribution and awareness of these products. We have significant untapped potential with only 13% household penetration in sauce, 2% household penetration in soup, and under-penetration in pasta, frozen entrees and pizza. We will continue to evaluate adjacent spaces and explore new innovations under the Rao’s name. Quality is paramount in the food industry, and we take our responsibility to bring great products to more families seriously.
Knox: You have spent most of your career building traditional CPG brands, but this is your first foray into the food industry. What differences have you noticed between food CPG and non-food CPG?
Hermida: Quality has a different meaning in the food industry since people actually consume the products they buy. We take our responsibility seriously and strive to bring great products to more families.