February 28, 2021

Thesis - Freshpet manufactures and supplies organic, refrigerated pet food. Founded in 2006, their mission is to make better, healthier food for pets. They research the products, create the recipes and cook the ingredients in-house. They own and operate the refrigerated distribution to their retail suppliers. Their retail partners include some of the biggest names in the US, such as Walmart, Target and Whole Foods. Within these retailers they place a branded refrigerator that only stocks their products. This is a straightforward business, that offers a loved product in a growing segment of the pet food market. Freshpet takes advantage of two trends; the increasing preference for organic and unprocessed food and the continued humanisation of pets. Since 2018, the company value has increased by almost 10 times.

Financials & Performance - Freshpet has accelerated annual revenue growth for 5 consecutive years, from 14% growth in 2016 to 30% in 2020. Annual revenues are now at $318m. This year, the company was unable to keep up with demand, due to covid-related disruption and higher-than-expected demand. They are aggressively expanding their production capacity through expansion of their factories and increased automation, such that they can better meet demand in the coming year. Such was the confidence of the management team, they revised upwards their expectations of growth. They are now targeting revenues of $1.25b in 2025, having previously guided for $1b. They also increased their expectations of household penetration from 8m to 11m in 2025. Each year, they expand their store count, and are now in 22,716 stores. They also have impressive buying behaviour amongst individual customers, with each customer increasing the value and frequency of purchases year on year. If the company can successfully increase capacity to better match demand, they have shown they can execute in all other ways and have a strong growth story.

Leadership - The leadership team contains an array of seasoned executives. The company was founded by Scott Morris and Cathal Walsh, who met whilst working at Nestlé Purina, the pet food subsidiary of Nestlé. They partnered with Richard Thompson, who served as CEO from 2010-2016, who helped grow the retail presence of the brand and took the company public in 2015. Richard had previously been CEO of Meow Mix a successful pet food brand that merged with Nestlé Purina. Scott Morris currently serves as COO and President and they have hired Billy Cyr as the latest CEO, who has previously been CEO of Sunny D (of Procter & Gamble). This web of pet, product, marketing and retail specialists have all the skills to grow the brand.

Opportunity - Clearly, the current capacity problems are a challenge. They need to improve this so that the products are available when retailers and customers need stock. Of all the problems to have, too much demand seems a good one. Freshpet also use the health aspect of organic, fresh foods in their story, but there is no scientific evidence (yet) to suggest pets actually benefit through increased lifespan.

freshpet growth

Written by Stevan Popovic, growth investor, web developer and founder of this site.