Rao’s notches up double digit growth: ‘We don’t have consumers, we have fans’

By Elaine Watson

- Last updated on GMT

The Rao’s Homemade portfolio includes pasta sauces, pastas, dressings, vinegars, roasted vegetables and more.
The Rao’s Homemade portfolio includes pasta sauces, pastas, dressings, vinegars, roasted vegetables and more.
Does premium pay in the pasta sauce category? Do the math, says Rao’s Specialty Foods president Jim Morano: “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 is the fact that “Theaverage profit per jar of Rao’s​ is $2.22, whereas the average for the category is 40 cents,” ​observes 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,” ​adds 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.”

Meanwhile, private label penetration in pasta sauce is “only 7.6% and it’s declining,” ​notes Morano, while “organic is a growth area, but it’s pretty small… we’ve been looking at it but we’re not in the category at the moment.”

When consumers try Rao’s we have a conversion rate of 60%

So what's driving the growth at Rao’s?

Some is coming from distribution gains as Rao's – 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 the brand is also delivering organic growth in existing accounts because conversion rates are high and loyal customers become brand advocates, he claims: “We don’t have consumers, we have fans.”

Rao's meatballs
Meatballs served at Rao's restaurant in New York

As for the marketing strategy, the fact the Rao's brand (via the restaurant in New York) has been around since 1896 resonates with some consumers. But most people outside the New York Metro area are not familiar with the restaurant, he explains (although there is some brand recognition in Las Vegas and Los Angeles, where it has also opened restaurants); they just love the product.

Millennials are reading labels and they want cleaner labels, but the taste is the key. When consumers try Rao’s we have a conversion rate of 60%​."

Rao’s was clean label before clean label even existed

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, says CEO Eric Skae.

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,” ​adds Skae, who founded The Bricktown Group, a change management consulting firm in 2012 before joining Rao’s in August 2016 with Morano (he was was previously CEO at specialty tea company New Leaf Brands and managing partner of Iceland Springs).

“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.”

This brand works across all channels

So what’s next for Rao's?

Continued growth across all retail channels, says Skae: “The beauty of this brand is that it works across all channels and we expect to grow even faster in the second half of 2017.”

Several new products are also in the pipeline: “We’re developing an Alfredo sauce, which is 12% of the category nationally, so we need to be in the space; and we’ve also got a tomato and herb; and a sausage and mushroom sauce in development.”

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