Rao's Homemade sauces 'well on track' to become a $1bn brand, says Sovos Brands CEO

By Mary Ellen Shoup contact

- Last updated on GMT

Photo Credit: GettyImages / MEDITERRANEAN
Photo Credit: GettyImages / MEDITERRANEAN

Related tags: Sovos Brands, Birch Benders, pancake and waffle mix, Sauce, Tomato sauce

Well represented in key at-home eating categories of sauces (Rao's Homemade), yogurt (Noosa Yoghurt), and frozen entrees (Michael Angelo's and Rao's), Sovos Brands highlighted the performance of the company's largest brand Rao's Homemade pasta sauce, which founder, president, and CEO Todd Lachman said has the makings of becoming a $1bn brand.

Sovos Brands reported a 22% increase in net sales to $197.4m in Q2 2022 vs. the prior year period and raised its full year 2022 net sales guidance to $825-$835m.

The company reported that dollar sales growth of Rao's Homemade, the largest brand in its portfolio, grew by +34% and unit growth by +28% in Q2 2022 compared to Q2 2021. Household penetration of Rao's also increased by 210 basis points to 11.9%. 

On a year-to-date basis, Rao's net sales have grown by 30%, reported the company.

"Net sales growth remained strong for our largest brand, Rao's, as we rapidly progress towards building a $1bn brand. Rao's continues to be one of the fastest-growing center store brands of scale in the US, and represents more than half our portfolio,"​ Lachman said on the company's Q2 2022 earnings call late last week.  

However, the rising star brand has not been without its challenges, added Lachman.

Rao's entry into the frozen meal category was met with strong headwinds with the brand experiencing significant supply chain obstacles (a tornado hit its primary pasta supplier halting all production of its pasta-based frozen entrees). 

"This had a material impact on our ability to supply product to the market, causing us to pull nearly all promotional activity to better service our base business. We have reinstated frozen promotional activity in Q3 as inventories are nearly back to target levels,"​ said Lachman.

Not out of the woods when it comes to inflationary pressures around increased costs to raw materials, packaging, logistics, labor, and energy costs, the company is implementing a second round of price increases for all of its brands including Rao's starting immediately.

"At this point, as we look ahead, we don't see the current challenges abating in a meaningful way in the near term,"​ said Lachman.

Despite price increases to Rao's products (an already premium, restaurant-quality brand), Lachman said that the brand is largely insulated from trade-down behavior and consumers are willing to spend more on the products. 

"We have sourced volume from private label versus private label sourcing from us... private label is usually an analog to a mainstream brand, not a premium brand like Rao's,"​ noted Lachman.

"We have driven double-digit distribution growth on Rao's every quarter since we have acquired that brand, which is rapidly on track to grow to $1bn."

Noosa Yoghurt finds new growth in gelato

As for the other brands in its portfolio, the company experienced positive net sales growth for Noosa Yoghurt (+8.8%) and Michael Angelo's (+6%) in Q2 2022 vs. last year, but reported another struggling quarter for Birch Benders. 

"The second quarter once again proved challenging as we expected ​[for Birch Benders],"​ said Lachman. "The declines were driven primarily by lapping the balance of a key customer promotion that similarly impacted us in the first quarter while we continue to see declining trends in keto."

In response to the brand's underperformance and to help resolve future impairment risk to the brand, the company took a noncash goodwill impairment of $42.1m.

In yogurt, Sovos grew its core spoonable yogurt dollar growth by mid-single digits and velocities nearly 10% across its 8-ounce, multi-pack, and 24-ounce package sizes. Noosa's new frozen yogurt gelato launch has been a new source of rapid growth for the brand with distribution and marketing efforts gaining traction, noted Lachman.

"We're selling better than expected, and velocity continues to build as a result of national marketing promotions across the board, big in-store promotional push... We're really bullish on the launch of gelato,"​ said Lachman.

Tale of two brands: 'We did need to make a priority call'

In frozen, which saw total dollar consumption grow by +7% for the quarter, Lachman said the strength of two distinct brands (Michael Angelo's and now, Rao's) will solidify its presence in the frozen aisle.

Asked by analysts whether the brands are in direct competition with one another, Lachman said, "They can absolutely coexist.

"Michael Angelo's is premium priced for the category. Rao's is super premium priced for the category. Michael Angelo's has a very loyal following. It's been a consistent contributor to our portfolio since we acquired it in January of 2017. And what we have seen is two brands are able to coexist very well where they're both in distribution together.

"The priority of the two is Rao's as we are really driving Rao's to that $1bn sales goal that we're well on track for," ​added Lachman.

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