The scrambled start-up
12 August, 2016
Everybody loves big-talking entrepreneurs who promise to turn an industry on its head.
Josh Tetrick, the founder and CEO of San Francisco-based food technology start-up Hampton Creek thinks big and talks big. His aim is to make Hampton Creek the "biggest food company in the world" within five years.
Having started with one product, Just Mayo, an eggless mayonnaise made from pea protein, he now has 560 new plant-based products in the pipeline to "challenge and disrupt" the traditional food industry.
Unfortunately, Tetrick's ambitious vision has just become a little harder to realise.
A Bloomberg investigative report has revealed that, while trying to raise capital from investors in late 2014, Hampton Creek executives launched an undercover project to buy mass quantities of Just Mayo from stores — to make the product appear more popular than it was.
Founded in 2011, Hampton Creek marketed itself as a food technology company using plant proteins to re-formulate everyday grocery items like mayonnaise and cookie dough.
Tetrick promoted his vision to investors in Silicon Valley and in 2014 raised $US120 million from leading venture capital firms and several billionaires. He neglected to tell investors at the time that some of the revenue growth the company was enjoying was due to paid contractors, known as "Creekers", buying product in bulk across the US, using company money.
Tetrick has responded to the report saying the "programme" was all about quality control and total spend was less than 0.12 per cent of the company's sales.
However, several disgruntled Creekers have produced receipts and emails confirming quality assurance was the last thing on the minds of the Hampton Creek management team.
One contractor reported purchasing more than 140 jars of Just Mayo per day; another described buying at least 20 jars per store and visiting over a dozen stores in less than a week. It is hard to believe 140 jars a day needed to be tested for quality.
The Creekers said, prior to 2014, their job involved dressing in the Hampton Creek uniform and holding Just Mayo tastings and demonstrations around the US.
In 2014, the job changed. As well as promoting Just Mayo, they were instructed to buy it — at different cashiers and outlets to avoid suspicion — and to call store managers pretending to be customers keen to get their hands on the mayonnaise.
The campaign was intended to prompt retailers to order more Just Mayo and stock it in additional stores to meet the obvious and growing demand.
Things came unstuck when Creekers found themselves paying too much tax on income they didn't receive. The money provided by the company to buy mayonnaise was treated as taxable income, leaving the contractors liable for hefty tax bills.
Hampton Creek is currently raising more capital, hoping to fund their product pipeline which includes bread, cheese, pasta, meat and seafood alternatives.
Investors may be prepared to overlook the buyback controversy — the company has survived other issues.
Last year the Food and Drug Administration issued the company a warning letter for falsely labelling its product as mayonnaise; the legal definition requires eggs as an ingredient.
A media report last year said the company didn't develop its vegan spread in-house, that Tetrick's dog roamed around the food preparation facilities and he unfairly promoted an employee he was dating.
Whatever happens from here, Tetrick will be ready. He is a man on a mission — and a pretty big one at that.