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Sonoma entrepreneur Jon Sebastiani writes new chapter with repurchase of Krave beef jerky brand

Jon Sebastiani is embarking upon the next chapter in an eclectic and storied business career before he turns 50 next month, the likes of which hasn’t been recently seen in Sonoma County.

To recap: Sebastiani was part of the fourth generation of the legendary Sonoma Valley wine family, serving in his 20s as president of his parents’ Viansa winery until its sale in 2005 in the aftermath of their divorce. He then set out on his own in his 30s on the risky venture to create Krave beef jerky. It became a top seller based on its high-quality meat and unique flavors, providing a fresh alternative to the greasy and heavily processed jerky typically found at truck stops and convenience stores.

Five years ago, he sold the brand to the chocolate giant Hershey Co. for an astounding $232 million, which triggered an arms race in the meat snack sector. Not too content to rest on his laurels, Sebastiani took his profit and formed Sonoma Brands, a food-and-drink fund that has made investments in everything from the hip New York-based Milk Bar dessert chain to Sebastopol’s environmentally conscious Guayaki Yerba Mate drinks.

And last month came the latest twist: Sebastiani announced he bought Krave back from Hershey five years after he sold it. He didn’t disclose the sales price but termed it a bargain after the brand became an afterthought within a corporate bureaucracy focused on chocolate and candy.

“This was really an emotional and monumental part of my life. When you build a brand with my fingerprints all over it, it is like a child. You kind of handed the child off and you are very protective of it,” Sebastiani said in an interview.

Sonoma Brands is ramping up hiring for Krave, moving its offices back to Sonoma from the Hershey-mandated move to Austin, Texas. It is bringing back some former and new staff such as Matt Grebil, who served as vice president of operations at recently shut down Three Twins Organic Ice Cream in Petaluma.

“The intention here is to build a Navy SEAL-type team - highly potent,” Sebastiani said.

The Krave rebuilding is part of the latest effort by Sebastiani, who has a unique perspective on the food-and-drink sector that is a major driver of the Sonoma County economy. He grew up in the wine industry, where family traditions of the vineyards are often cherished over the latest consumer trend. But Sebastiani has found success in the food sector by thinking of unique concepts, capturing consumers via strategic marketing and a strong brand identity that provides his businesses a big upside for potential growth.

“Jon had something to prove. And he decided to prove it in an adjacent space after a not as successful venture before (with wine),” said Steve Blank, a lecturer at UC Berkley’s Haas Business School, who served as mentor to Sebastiani and also invested in Krave because he was impressed by the business plan. “Like all great entrepreneurs he was relentless, he was driven and he had a vision and he built a spectacular company. It was a classic come from behind when no one believed it could be done.”

Blank is still bullish on Sebastiani, noting that “he basically reinvented what beef jerky means,” and believes with Krave that “he will make the brand rise again.”

To speak with Sebastiani is also to gain insight into a highly competitive food sector where the mergers-and-acquisitions activity and the influx of outside funding is much greater than compared to the North Coast wine industry. For example, after Hershey bought Krave, General Mills bought rival Epic for a reported $100 million and others jumped into the market, backed by investor funding.

While Sonoma Brands has only six people, the company now has more than $200 million in assets under management with equity stakes in 14 companies that have more than 5,000 employees. Some are just minority investments, while others are products it created such as Smashmallow, a marshmallow made with non-GMO ingredients and organic cane sugar, and Medlie, a healthy vegetable drink line that ranges from a kale-avocado drink with collagen to a 2-ounce carrot-ginger-?turmeric immunity shot. The firm has a board seat on every investment, which has up to a 10-year target for claiming its return.

“He connects things on levels that other people don’t connect. He’s very focused on the health segment and quality segment of the business and I think he got that at his training at Viansa and his family business and background. He looks at food trends and he looks at national focus and he sees things farther out than a lot of other people do. He is a serial entrepreneur,” said Pat Roney, CEO and founding partner of Vintage Wine Estates, which owns B.R. Cohn Winery in Glen Ellen, Sonoma Coast Vineyards in Bodega Bay and Cosentino Winery in Napa.

In fact, Sebastiani could not personally shrug off his love for the wine sector. Almost two years ago, Sonoma Brands purchased a minority stake in Vintage Wine Estates and took over management of Viansa, the Sonoma winery he once oversaw. He was attracted to Vintage because he said Roney was one of the best operators in the wine sector and had built a strong digital presence with its direct-to-?consumer business.

“Those (wineries) who will have strong databases will thrive,” said Sebastiani, who also served earlier in his career as managing partner of Wine.com and realizes the importance of maintaining a strong relationship with customers. “Brands that have a digital strategy, telemarketing, outbound digital strategy are seeing the largest velocities per month that they have ever seen. And certainly with Vintage Wine Estates, I can speak confidently.”

He also is keeping up innovation as the winery plans to release a wine/kombucha drink later this summer produced with vineyard-designate grapes. That follows a worrying trend in both beer and wine circles of the rapid growth of hard seltzers like White Claw and Truly, which the research Nielsen now says is a $2.3 billion annual market that is approaching about 10% of the beer category.

“The younger consumers are looking for less carbs, less sugar and less alcohol,” Sebastiani said. “They are drinking less - it’s just fact.”

Sebastiani is also mindful about changes that have taken place under the coronavirus pandemic with more consumers staying home. On-premise sales have cratered with the shelter-in-place orders, which is troubling because he said about 55% of money spent on food in the country was spent in restaurants, bars or other eateries. That has now changed.

“The majority of that has been shot down. … We think that the restaurant landscape will change permanently,” he said. “There will be a higher percentage of consumers with food at home.”

He has seen the effect with his investments. At Milk Bar, for example, the company had a line of five different cookie products in grocery stores such as Whole Foods by March, which was crucial because 80% of the business at its own retail stores was shut down as a result of the coronavirus, Sebastiani said.

In response, Milk Bar ramped up its digital videos with founder Christina Tosi to what “was an equivalent of a small cable channel,” Sebastiani joked. The outreach has paid off as the company’s digital sales are up as much as 10 times before the crisis. “Like Vintage Wine Estates, where one channel has closed down, the digital business has grown so much that it is making up and then some for the loss of closing those stores,” he said.

The recent public health crisis has affected other brands. The boom in baking has helped with sales of Smashmallow as more are looking to make comfort food such as cookies, he noted. “People want to bring a smile to their face,” Sebastiani said. On the other hand, another investment, Dang, a low-sugar coconut, onion and sticky-rice snack, hasn’t fared as well because it is suffering from less foot traffic in retail locations where the product is displayed.

While he juggles his various investments, the focus has turned to reviving Krave, which was the No. 2 jerky brand with about ?$35 million in sales when he sold the brand. Sebastiani noted the mistakes that were made in the aftermath of the sale, especially as about 100 other brands appeared looking for a piece of the segment and it became hyper-competitive. Hershey was slow to react.

“What happened is that competition came in a really meaningful way,” he said. “It ushered in outside capital to fund a lot of me-too brands.”

Hershey also failed to realize setting up a supply chain for meat is different than chocolate. Under Sebastiani, Krave had co-packers in Fairfield and in three states outside California to do production. Hershey never worked to bring the production in-house.

“What happened was that over a couple of years is that the quality of the product began to deteriorate. That was just fact,” Sebastiani said. “When you have a loyal base of customers who have begun to reach for Krave as your go-to brand and you deteriorate the quality, they abandon you.”

Finally, Hershey failed to innovate with popular trends such as low-sugar and ketogenic diets. Senior managers would move onto other brands and no one had an ownership stake in Krave, Sebastiani contends. “The first mover of the competition caught up. Then you had a big organization where you had a brand that starts to struggle … it becomes orphaned.”

Sonoma Brands intends to build a bigger presence with Krave in stores by buying at least one other jerky brand to have different price points, he said. “We become a more powerful partner for a retailer because we can promote more heavily,” he said.

Changes also could come with production by getting its own facility in the future, a strategy which Hershey never pursued, he said.

“Cost matters. If you are paying a co-manufacturer a significant amount of your profit, then you can’t invest it in your brand as much. We think that is one of the challenges that Hersey faced. Because they never owned their own manufacturing they could never perfect quality and lower costs,” he said.

Sebastiani said he was thankful that Hershey called him first when it sought to sell Krave, a relationship that he values as he noted that he has a “number of brands” that could fit in its portfolio in the future. But in the near term, he has to focus on getting Krave right.

“I was emotional about it (the sale). … This brand changed my life,” Sebastiani said. “At the same time, I’m now back on the clock and I got to make it work. It’s kind of like winning that Super Bowl ring ... we have to write a whole new playbook.”

You can reach Staff Writer Bill Swindell at 707-521-5223 or bill.swindell@pressdemocrat.com. On Twitter @BillSwindell.

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