Financial terms were not disclosed.
Berkeley, CA-based Sovos Brands is on a mission to “acquire and build value in one-of-a-kind food and beverage brands,” and sees “numerous opportunities” to expand the Rao’s brand “into adjacent food categories.”
Described as having “the soul of a start-up, the experience of an industry leader, and the financial backing of Advent International, one of the leading global private equity firms in the world,” Sovos is focused on “high-quality brands in on-trend categories with the potential to accelerate growth by investing in distribution, marketing, production and product innovation.”
The transaction is expected to be completed during the third quarter of this year, and does not include Rao’s restaurants in New York, Las Vegas and Los Angeles, said Rao’s CEO Eric Skae.
“With the resources and expertise of Sovos and Advent, we will be in an even stronger position to pursue the significant growth opportunities ahead of us. We look forward to expanding our product offering and introducing more consumers to the authentic taste of our pasta sauces and other specialty foods.”
‘We are starting to see more space allocated to super premium: $5 and above’
In a recent call with FoodNavigator-USA, Rao’s Specialty Foods president Jim Morano said that Rao’s had proved that premium paid in the pasta sauce category, adding: “The average retail price in the category is $2.25; our average is $7.84. The category is growing at 3% year on year, and we’ve growing at more than 20%, and we’ve been around for 26 years.”
Equally compelling data for retailers pondering how to allocate space in their next shelf re-set was the fact that, “The average profit per jar of Rao’s is $2.22, whereas the average for the category is 40 cents,” observed Morano, whose father Joe first launched the Rao’s brand into the retail market in 1992 using recipes popularized by the legendary Rao’s New York restaurant (established in 1896).
“Retailers are realizing that in order to grow their topline category sales they can use Rao’s as the catalyst,” added Morano, who became president in 2016 after carving a successful career at leading CPG firms including L'Oreal, Great Atlantic & Pacific Tea Company, E&J Gallo and Unilever, and has been instrumental in driving a more “data-driven” approach at Rao’s that has helped to deliver dramatic top line growth in recent months.
“The story we are communicating to the trade is that if you want to grow the category you should support Rao’s. Like a lot of categories in grocery, pasta sauce is premiumizing and we are starting to see more space allocated to super premium: $5 and above.”
The Sovos Brands team:
- Todd Lachman (president and CEO) has held senior management roles at Mars, Del Monte Foods, Heinz and Procter & Gamble.
- Larry Bodner (CFO) has been CFO at firms including Big Heart Pet Brands and Del Monte Foods.
- Bill Johnson (chairman) was formerly chairman, CEO and president of H.J. Heinz.
We don’t have consumers, we have fans
Some of Rao’s growth is coming from distribution gains as the brand – which started in the northeast and is now available nationwide in stores from Sprouts and Whole Foods to Walmart, Kroger, and Albertsons/Safeway – continues to gain traction in the Midwest and the west coast.
But Rao’s is also delivering organic growth in existing accounts because conversion rates are high and loyal customers become advocates for the brand, claimed Morano: “We don’t have consumers, we have fans.”
Unlike many pasta sauce brands, which use a base of water, tomato paste, soybean or canola oil, and dehydrated onion and garlic, Rao’s uses only Italian tomatoes, olive oil, and fresh onions, garlic, and basil (among other things), which is how it’s always been made in the restaurants, added CEO Eric Skae.
"Growing a food company is not easy," Rao's CEO Eric Skae - who will be staying on post the acquisition along with president Jim Morano - told FoodNavigator-USA.
"While we’ve been extremely fortunate to get the brand to where it is today, we’ve been looking for the right buyer who will take what we’ve built to the next level. We are excited about Sovos Brands and what it can mean for the business, our employees, our customer and suppliers. Sovos Brands is the right fit for us because they are a company that exemplifies the values and approach to business that will enable us to continue to grow the business. Sovos Brands’ executive team will be working with Rao’s Specialty Foods’ leaders and employees to develop a strategy for Rao’s to be in an even stronger position to pursue the significant growth opportunities ahead of the company."
“Rao’s was clean label before clean label even existed, it’s always been super premium, all natural, with simple ingredients, no preservatives, no added sugar, no fillers. We’ve always used fresh ingredients, no dehydrated garlic and dried herbs, only fresh artichokes, fresh garlic cloves, whole onions. Our tomatoes are from southern Italy because they make the best sauce.”
Morgan Stanley & Co is serving as exclusive financial advisor and Morrison & Foerster LLP is serving as legal advisor to Rao’s Specialty Foods on the transaction. Weil, Gotshal & Manges is serving as legal advisor to Sovos Brands and Advent International.