Hershey buys Krave jerky

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He made his first sales by setting samples of his exotic- flavored beef jerky out on card tables in his hometown grocery stores. Five years later, Jon Sebastiani is savoring success after showing that consumers are ready for an upscale, more natural style of jerky.

Sebastiani, 44, was the center of attention Thursday after news broke that his Sonoma-based gourmet jerky company has been acquired by chocolate colossus Hershey Co. While financial terms weren’t disclosed, Reuters reported earlier in the week that Sebastiani’s Krave Pure Foods Inc. would be valued between $200 million and $300 million.

After early morning interviews Thursday with the New York Times, Fortune Magazine and other news outlets, Sebastiani was quick to admit that even he had been “a little skeptical” about how consumers would respond to such products as Black Cherry Barbeque Pork Jerky, Basil Citrus Turkey Jerky and Sweet Chipotle Beef Jerky. He credited his wife, Carol, and mother, Vicki Sebastiani, with giving him the encouragement to see the venture through.

“The first three years were a grind and it was incredibly grueling because I wasn’t sure if it was going to work,” he said.

Now, Sebastiani is about to begin a new chapter as president of a standalone food business belonging to a corporation with $7.4 billion in annual sales.

Krave will remain headquartered in Sonoma, where 25 of its 70 staff members work in offices near the Sonoma Plaza. As president, Sebastiani will report to Michele Buck, president of Hershey’s North American operations.

The acquisition and the decision to keep Krave in Sonoma shows the North Bay is developing a reputation not only for quality wine but also for “really changing trends in the way people consume food,” Sebastiani said.

Krave produces the No. 2 jerky brand in U.S. grocery stores and last summer made the Inc. 5000 list for its three-year revenue growth spurt of 4,632 percent. It generated about $35 million in net sales over the past 12 months and was named to Forbes’ 2015 America’s Most Promising Companies list.

Moreover, its sales are outpacing the competition in a fast-growing food segment. In the past five years, the U.S. meat snacks category has experienced an annual compound growth rate of about 10 percent, according to Hershey. But during that time Krave sales increased at a rate “almost four times greater than mainstream brands.”

Krave is the second high- profile business for Sebastiani, who became a member of one of the most prominent families in Wine Country when his mother, Vicki, married Sam Sebastiani. He served as president of the couple’s winery, Viansa, and presided over its sale in 2005 following their divorce.

Four years later, Jon Sebastiani dreamed up the concept for Krave while training to run the New York City Marathon. Looking for a high-protein, low-fat source of food, Sebastiani turned to jerky. What he found in stores were products that contained enough sodium nitrates to give the dried meat a two-year shelf life and to “mask every possible flavor.”

“It hit me like a ton of bricks,” he said. “This is a misunderstood product.”

Even so, he said, he wondered whether consumers would care if he gave them a more natural alternative. At least a few folks questioned the whole idea.

“People had thought I lost my mind,” he recalled.

Nonetheless, in 2009 he founded Krave, developed his first flavors and got them on the shelves of hometown Sonoma Market and Broadway Market. Big breaks followed when Safeway and later Whole Foods Market agreed to stock Krave products in all their stores.

Retailers now say Sebastiani and Krave have done something worth noting.

“It‘s great to be able to do business with a local company,” G&G Supermarket’s CEO Teejay Lowe said Thursday. “It’s great to see them being successful in it, and they’ve really changed the market for beef jerky with their unique flavors.”

Last year, jerky sales in the U.S. totaled $1.41 billion, up 13 percent from 2013 and 22 percent from 2012, according to IRI, a Chicago-based market researcher.

Next month, Krave jerky will be available on a test basis in certain Starbucks stores. And later this year the company plans to release a meat snack bar to compete with other higher-end protein snack foods like Clif Bars.

In 2012, Krave received a minority investment from Alliance Consumer Growth, an investment capital group. Sebastiani said he knew that would mean the eventual sale of the company because such an investor “has to have an exit.”

Hershey and Krave began talks last fall. Sebastiani said he found them the right suitor because “it was the kind of company I’m proud to be associated with.”

Krave currently doesn’t own a production facility. Its jerky is made by co-packers in Fairfield and in three states outside California.

With 13,000 employees worldwide, Hershey is a strong player in the candy market with brands like Reese’s, Kit Kat and Twizzlers.

Even so, the Krave purchase “represents one of the first times Hershey has taken a bigger step outside confectionary” products, Morningstar senior analyst Erin Lash wrote Thursday in a note to investors. The deal, she said, signals the company’s openness to move beyond the candy aisle.

Buck, Hershey’s North American president, told the Associated Press on Thursday that the company plans to continue expanding its offerings across the “snacking continuum” through acquisitions and in-house development.

“We know consumers have an interest in portable and protein- based nutrition,” Buck said.

Hershey on Thursday reported fourth-quarter sales and profits that missed Wall Street expectations and lowered its earnings and revenue outlook for the year.

In a note to investors, J.P. Morgan analyst Ken Goldman wrote that the Krave deal “perhaps indicates that Hershey is less enamored of candy’s growth potential than it previously was.” He noted that indulgent snacks like chocolates and cookies generally underperformed categories like trail mixes, nuts and meat snacks.

Hershey said it will fund the Krave acquisition through cash and available credit facilities. The closing of the deal is subject to regulatory approvals and customary closing conditions.

This story contains information from the Associated Press. You can reach Staff Writer Robert Digitale at 521-5285 or robert.digitale@pressdemocrat.com. On Twitter @rdigit.

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