Dear Hoff Sauce Fans, Investors, Future Investors, Followers, and Curious Lurkers,
As of July 1st, I embarked on my fifth year as the President and CEO of Hoff and Pepper. When I joined over four years ago, our annual revenue was around $400,000. With no dedicated sales team, it was a collective effort to produce just enough sauce to satisfy our customers. The only formalized business process we had was for sauce-making safety. About a quarter of our revenue stemmed from the Chattanooga market.
There were around 5 of us, myself included, with average compensation near $15 per hour. We couldn’t afford to offer any benefits such as health, vision, dental, paid holidays, or time off. Hoff was balancing a full-time role as a project manager at a software consultancy.
We lacked an "operations mindset," with no emphasis on continuous improvement, or kaizen. Our production was batch-based, and while we packed boxes mindfully, we lacked awareness of how to prevent breakage. There was no inventory management system, so stocking materials fell to whoever was available. We had no bookkeeping, payroll system, bill management, or financial reporting.
We had no office except shared spaces at the Chattanooga Business Development Center (BDC), which offered invaluable support for small businesses like us. Despite its benefits, our unit's AC failed for most of the summer due to vinegar fume-induced outages. Ventilation was minimal until we moved downstairs, but even then, it didn't suit our production needs. Respirators were often required just to enter our production area comfortably.
Everything, from pallets to spices, needed to be transported via a freight elevator. Trucks couldn't load or offload many deliveries due to the dock's height, adding a $200 lift gate fee for each heavy delivery.
Nothing was efficient, everything was challenging, but it was all worth it for the fun we had!
Fast forward 8.5 months to March 15, 2020. My son was 2, my daughter just 5 weeks old. Hoff had just committed full-time to Hoff and Pepper when the COVID-19 pandemic hit. We had to lay off our team, now grown to 11 members, leaving only the four managers from our StartEngine Equity Crowdfund Campaign.
We quickly adapted. Michelle handled production and fulfillment, Asher focused on online sales and Facebook ads, and Hoff produced long-form cooking videos.
For about four weeks, our revenues dropped 44%, from an average of $16,765 to $9,295 per week. But then, our revenues nearly doubled, held steady, then surged an astonishing 64%, staying consistent for the rest of the year. We were able to rehire everyone, ending the year stronger than ever.
We then tackled a supply chain crisis that threatened to halt us for a year. Yet due to our team's resilience and our vendor's support, we never missed an order, even amidst bottle shortages. Then, we faced massive inflation. Payroll costs for new hires rose $4 per hour. We increased our team's wages accordingly and managed surging material and packaging costs.
Despite our robust margins and surging revenue, we had to increase prices by 20% for the first time in 2022. By 2023, rising shipping costs forced us to pass those expenses onto our customers as well. We saw some attrition, but overall our customers remained loyal.
In 2022, we collaborated with Goonzquad, launching Dang Sauce to immediate success. This sparked further partnerships with other influencers like SpicyCam and CoreyB, leading to six different products (eight SKUs) within 13 months. Amidst these developments, we moved to our new offices and production facility, a significant leap towards operational efficiency and future growth. In Q4 2022, Hoff and Pepper celebrated its first $1M quarter.
Since then, we've focused on acing the Fancy Foods show and launching our StartEngine campaign, both of which have proven successful.
In just four years, we've navigated change, challenges, victories, errors, losses, and wins. Post-campaign launch, we took our leadership team to a 3-day offsite to reflect and strategize about our company's direction. We sought to identify our strengths, weaknesses, opportunities, and potential growth inhibitors.
Through these discussions, we defined our identity: We produce Hoff Sauce and other top-tier products based on Hoff Sauce. We reaffirmed our mission: Make Every Meal Taste Amazing.
We also set a Big, Hairy, Audacious Goal (BHAG) for the next five years: Hoff Sauce in the top 30 retailers nationwide. It's a daunting goal, requiring intense focus, relationship building, effort, and some luck.
While we love creating new products, we realized our significant growth will stem from deeper market penetration with existing products, not new ones. We must focus on getting our "Hero" products—Hoff Sauce, Original BBQ, and Smoken Ghost Ketchup—on as many top retailer shelves as possible, including our new POP display.
Focus is intimidating as it means sacrificing potential growth avenues for long-term gains. But it's necessary, and we're committed to making tough decisions for our long-term success.
As I enter my fifth year as Hoff and Pepper's CEO, I extend my gratitude for your continued support and investment in our journey!