Imagine you could do it all over again, start a new company in any industry. Imagine you had no legacy customers to satisfy, no assets to maintain, no dividend to pay—nothing to stop you from creating the perfect postmodern organization.What would you do?If you’re a seasoned and successful chief executive like Christine Day, you just might join something that looks a little like Luvo Inc., an ambitious young company that makes, of all things, healthy frozen dinners.
Day’s the former Starbucks vice-president who, in 2008, moved a few hours’ drive north from Seattle to take the helm at Vancouver-based Lululemon Athletica. In the five years she ran the yoga wear retailer, sales grew 350%. Up to the day in 2013 she announced she’d be stepping down, its shares appreciated more than 400%.
To the surprise of many, the 51-year-old didn’t go back to the U.S., where the British Columbia-raised executive had lived since her college days. Nor did she step into another corner office at a multibillion-dollar company. Instead, last April, she joined tiny Luvo. A puzzling choice, at least to some.
Just before Christmas, Day took a break from negotiations with private-equity firms to explain her decision. In part, she had been craving the challenge of a startup: “You’re building the brand, you’re building the business model and the culture of the company and, frankly, all the growth and value creation is ahead of you.” But she also says she was drawn by the company’s values and potential to do good in the world. “Purpose- and passion-led companies are really important to me. And when I look at the state of nutrition and the state of the food industry, I think it’s ripe for disruption.”
Luvo’s healthy frozen meals are about as far as you can get from the Hungry-Man dinners typically collecting frost in the freezer aisle. Rather than salty Salisbury steaks, Luvo’s lineup includes burritos filled with chicken poblano verde or organic roasted eggplant and quinoa, pizzas topped with ricotta and apricot glaze, and entrees like red wine braised beef with polenta (All sell for between $4 and $8). Each contains fewer than 500 calories and 500 milligrams of sodium, along with antibiotic-free meat and foodie-friendly ingredients such as flaxseed-and-coriander flatbreads produced in Modena, Italy.
Luvo only made its Canadian debut in February, but the brand is better known in the U.S., where it’s stocked in 6,000 supermarkets, served on Delta Air Lines flights and pitched by celebrity investors that include retired New York Yankee Derek Jeter, NFL player Troy Polamalu and best-selling self-help author Dr. Mark Hyman. Last year Fast Company named Luvo one of the world’s 50 most innovative companies. And in January it was the subject of a Celebrity Apprentice challenge. In the episode, Day tasked the competing teams (which included Geraldo Rivera, Leeza Gibbons and former 90210 star Ian Ziering) with creating a pop-up Luvo bistro to showcase the brand. If it felt the slightest bit silly, you couldn’t tell from Day’s friendly but confident demeanour. While there may have been a whiff of flop sweat to those misfits, the fact Day has gone from minding one of the world’s premier lifestyle brands to shilling frozen burritos doesn’t mean she should be cast with them. TV dinners or no, Day just might have chosen the perfect Canadian startup, at the perfect moment, to launch her next act.
From its inception, Luvo has been a hybrid of passion and profit potential. Around 2010, Stephen Sidwell grew so tired of being out of shape—the result of too many fast-food lunches and white-tablecloth dinners—that the Vancouver investment banker embarked on a personal transformation. At first he tried a rigid diet plan pitched by an athlete on TV, but it gave him headaches and made him tired and grumpy. He tried to enlist his wife to cook healthy meals all the time, but it was exhausting, and the kids wouldn’t eat them. Finally he hired Stephen Ford, a nutritionist trained at the University of British Columbia, as his personal chef. Sidwell’s demand: three balanced meals a day, with no more than 1,700 calories in total and low on salt. “To my surprise, the food tasted amazing,” he says. Sidwell lost 30 pounds in three months, yet Ford’s meal plan didn’t leave him hungry or short on energy. It led him to ask, “Why isn’t this food available everywhere? This was so easy. It took no discipline on my part, because there was no sacrifice.”
Sidwell had already had a big score in the food business. In 2009 he and Yves Potvin (of Yves Veggie Cuisine fame) founded Gardein, a meat-substitute brand, which sold to Pinnacle Foods Inc. in 2014 for $175 million. The entrepreneurial wheels in his brain were turning again. He called Mike Roberts, the former chief operating officer of McDonald’s, now working as a consultant, for advice. At first Roberts wasn’t convinced. “How about I have my chef come cook for you?” Sidwell offered. Ford wound up spending 10 days at Roberts’s home in Chicago. By the end, the industry veteran wanted in.
“We had the idea from the beginning of creating a lifestyle brand where you’d have ready access to great-tasting, quality food wherever you are,” Sidwell says. But Roberts’s forte was food service, as was that of his consulting partner, Mike Donahue, another one-time McDonald’s exec. The team decided to start with a healthy restaurant chain. In the business plan it was called Stephanie’s Place, after Sidwell’s daughter (his wife’s name, Wendy, being already taken). Before the first outlet opened in Palo Alto, Calif., in 2011, a marketing firm came up with the name LYFE Kitchen, short for Love Your Food Everyday.
True to Sidwell’s vision, the company soon started selling a frozen version of its entrees and snacks in grocery stores under the name LYFE Kitchen Retail. As they grew in tandem, though, “the demands of the two different businesses were significant,” Donahue says. One being fresh and one frozen, they had completely different supply chains. There was also a potential conflict between the restaurants’ franchise model and the retail side’s corporate one. So in 2013 the partners split the company in two. The ownership was identical for both firms, at least at first, but the management was divided, with Donahue and Roberts taking the restaurants, and Sidwell helming what would become Luvo in Vancouver. (The Carlisle family of Memphis would later take a controlling stake in LYFE Kitchen, which now has 14 locations in the U.S. and plans to open up to 10 more this year.)
Sidwell had never met Christine Day when he read in a newspaper that she was stepping down from Lululemon. “I thought, Wow, she’d be perfect for Luvo,” Sidwell says. (A financier by trade, he never intended to run the company himself.) She had a demonstrated understanding of marketing, finance and operations, as well as consumer desires. But most of all, she had the ability to execute a business plan, Sidwell says. “In any startup, one of the most critical skills is execution.”
When Day arrived at Lululemon in 2008, she was considered a welcome change from the more top-down leadership style of predecessor Robert Meers. She gave store managers leeway (and a budget) to design their stores as they saw fit, to suit the neighbourhood and the clientele. (This echoes a point made by Starbucks founder Howard Schultz in his memoir, in which he credited Day with devising the way the coffee shops should be slightly different from one another, “like sisters,” rather than corporate clones.) When a decision was made, she was careful to spell out to employees why it was made. She was no fan of quantitative market research, urging executives to instead spend time in stores, folding clothes and talking to customers. But like Lululemon founder Chip Wilson, she espoused an Ayn Randian level of personal accountability, demanding people fix their own mistakes. When they couldn’t, as in the case of chief product officer Sheree Waterson and the company’s sheer pants debacle—in which customers reacted angrily to fabric so thin it bared their behinds—they were shown the door.
Day came away from Lululemon in January 2014 largely unscathed. True, she had detractors. In May 2013, Carolyn Beauchesne, a blogger who runs a site called Lululemon Addict, wrote that “Day has ruined everything special about Lululemon. The bulletproof quality, the fit, the femininity, the Lululemonness of the product.” And last year, a Stanford case study ascribed to Day a good deal of the responsibility for the company’s fabric quality problems. But if Lululemon was perceived to be coming apart at the seams, investors saw Day as the glue holding it together. The day she announced her pending resignation in June 2013, LULU shares slumped 17.5% on the Nasdaq.
“A lot of CEOs I come across are very driven and firm, and Christine is all of that, but she has this incredibly compassionate side too,” says Sue Matheson, who chairs the B.C. chapter of MacKay CEO Forums, where Day rubs shoulders with an otherwise all-male group of captains of industry. “When you look at her history with Starbucks and Lululemon, how can you not believe she’s going to be able to grow this company in the same way?”
If Starbucks sought to create a new kind of community space in an increasingly alienated world, and Lululemon promoted physical fitness and yogic mindfulness as paths to personal empowerment, Luvo’s social mission is even more ambitious. Day notes that nearly three-quarters of hospital admissions in the U.S. are for conditions linked to eating habits: diabetes, heart disease, hypertension, obesity. “Helping contribute to solving these problems is something I can get up for every day,” she says. “That matters more to me than a big paycheque. I’ve really worked for free for the last six months so we could get to the [private-equity] funding level. That’s how much I believe in what I’m doing.”
Luvo stands at the crossroads of at least three major trends: time deprivation, rising income inequality and consumers’ increasing demand for healthy food. The balanced meal cooked by Mom is no longer the norm; Day cites statistics indicating 47% of meals in America are currently eaten alone. So how do you make those quick, easy meals more nutritious? “When I stand in the middle of the grocery aisle, I see 200 SKUs [stock keeping units] that can be reinvented. That’s where I see both the business opportunity and the service opportunity,” she says.
As Day describes it, Luvo’s target market is made up of busy professionals who are nonetheless trying to proactively manage their diets to increase their chances of leading long and healthy lives. “Our brand is appealing to a psychographic more than a demographic,” is how Sidwell explains it, broadening the group to include moms and young singles. Like Starbucks and Lululemon, Luvo inhabits the “New Luxury” space identified by Michael Silverstein and Neil Fiske in their 2003 book, Trading Up. The authors, previously colleagues at Boston Consulting Group, noted how the growing income gap in the U.S. had created not only a sizeable affluent group able to purchase higher-quality items in almost every category but a habit among middle-income consumers of spoiling themselves on a single category of luxury purchases they identify with.
Luvo’s ultimate challenge will be to convince these foodies to frequent the freezer aisle. To date, rising incomes have been a mixed blessing for Canada’s $3-billion frozen-food industry. Higher employment levels since the recession have stimulated demand for convenience; working people say they have less time to cook. But when individuals have more money to spend, they tend to migrate up the food chain to restaurant takeout or prepared items from the rotisserie counter instead of buying more frozen fare, notes a recent report on the sector from research firm IBISWorld.
Luvo might have arrived on the scene at the right time, though. “It seems like it’s really on trend to how consumers are evolving,” says market researcher Robert Carter of NPD Group. The public’s understanding of the health aspects of food products has increased dramatically. “This has created a really good opportunity to speak to these people and encourage them to try your product,” he says.
It also answers the bell for convenience. Carter notes that three out of every four meals eaten in Canadian homes are prepared in 15 minutes or less. Still, nutrition and convenience take a back seat to flavour: “It all comes down to taste. If it doesn’t taste good, we’re not going back to that product.”
Pizza offers one analogue. It’s a frozen-food niche that has “exploded,” Carter says, to the point that the Dr. Oetkers and Nestlé Delissios have taken a sizeable slice out of pizza delivery and takeout operations. Can Luvo do the same with a wider selection and dominate the frozen-food category?
A few minutes into cooking, the pouch containing my Luvo meal swells, filling the room with an enticing aroma. Opened correctly, the meat and sides slide from its envelope onto the plate still separated. It would not be mistaken for fresh—the meat in my chicken enchilada, for example, is decidedly processed—but it’s better than any other frozen product I’ve tasted, and it beats most of what passes over a fast-food counter. The combination of spices is bold. The broccoli in the nine grain pilaf has noticeable bite, and the kale ricotta ravioli is a happy medium between firm and tender. The portions, while modest, are filling.
“I’ve changed what I eat dramatically, and it’s paying off,” Day enthuses. “I’ve lost two inches off my waist.” The Luvo dinners in her current rotation include chicken enchiladas, chicken chili verde, spinach ricotta ravioli and orange mango chicken, along with Luvo’s breakfast and snack offerings. Her kids eat it, too, though the bottomless appetite of a teenager is a curious thing. On coming home from football practice, she says, her 15-year-old son “eats two bean and cheese burritos, looks and me and says, ‘What’s for dinner?’”
Luvo employs techniques, one of them patented, that go a long way toward making its dishes distinct from traditional frozen fare. The food is plated before it’s sealed into its paper pouch and flash-frozen. Part of what makes it taste different from an old-fashioned TV dinner or airline meal is the way it’s reheated. Luvo takes care in how it distributes ingredients with high water content and coats some items in a light layer of water before freezing. The airtight packaging causes the food to be steamed rather than heated from within, a process modelled on the French en papillote method.
But it isn’t just about the freezing. “The real secret sauce is that we’re using less sodium and less sugar,” says Samantha Cassetty, Luvo’s New York–based vice-president of nutrition, who came to the company from Good Housekeeping magazine, where she was the nutrition director. “We feel we’ve cracked the code on using herbs and spices to hit those crave-worthy tastes.”
The reviews seem to concur. “We did some sampling, and it was unusually delicious,” confirms Glen Jackson, general manager of Ryan Vending, which will sell Luvo products through its network of machines in B.C. hospitals and colleges. “For frozen food, I don’t think you can get a quality product like this in the marketplace. It’s a big step forward.”
The flavour also won over celebrity investors and “brand ambassadors,” who are laying the groundwork for the brand’s marketing with event appearances and social media posts. Last fall, Luvo landed Derek Jeter fresh off his retirement from the New York Yankees. He had looked into launching his own range of performance food products, but on viewing Luvo’s lineup agreed to become a partner and “brand development officer” instead. “He really does work with us on things. This isn’t just an endorsement,” Day says. Jeter learned the hard way how difficult it can be for pro athletes to eat food that enables them to perform their best. He’ll be participating in outreach programs in schools, teaching young athletes about eating healthily. “He’ll consider himself successful if a rookie comes to camp knowing how to eat,” Day says.
The focus on celebrities is in large part a recognition that social media is more powerful than traditional media at establishing a lifestyle brand. Day notes that when she started last April, Luvo had 400 “likes” on its Facebook page, a number that now sits at almost 40,000. “These are all organic, unpaid people discovering the story, discovering the product, [deciding] it’s important in their lives. When you get that emotional connection with your customers,” she says, “that’s what makes a company powerful.”
It can be equally important to get that connection with staff. In this way, Luvo can be seen as a test for a lot of the current thinking on how to design and run a business. The company employs about 40 people across its headquarters in Vancouver, its marketing department in New York, and at executive chef and chief innovation officer John Mitchell’s kitchen near San Francisco; 50 more work at a production facility in Schaumburg, Ill. Many job postings on the Luvo website state the location as “anywhere.” Senior leaders meet for a week in New York once a quarter, but they otherwise have autonomy to run their teams as they see fit.
Luvo management has so far opted to remain a virtual company for two reasons, Day says, the first of which is recruiting. “We’ve deliberately looked for people who are builders, who’ve been there with growth companies, who are best in class at what they do, and we really don’t care where they’re located, because at this small size we can do everything on the phone, and we use GoTo Meeting and Skype,” she says.
The second rationale for the virtual structure, which has yet to be proven out, is that the company’s continent-spanning footprint can scale up more quickly than a company with a more parochial base could. “By not worrying about relocating people, and by building and focusing on great relationships, both internally and externally, we’ve been able to move quickly,” Day says.
In Canada, Luvo plans to start with an exclusive four-month phase-in with one grocery chain, then expand to other outlets. As for the U.S., “we’ve got the right number of doors,” Day says. The job for Luvo now is to increase the number of products in each store (it currently offers 14 entrees, seven burritos, four flatbreads and four breakfasts), such that customers can buy enough different items to cover all their single-serving meal occasions for the week. “They don’t want to eat the same things, so having that choice is critical,” she says.
Day doesn’t hold back when discussing her dreams for Luvo. The new private-equity funding should capitalize the company for the next two years, she says. “Hopefully by then we’ll have a great story that’s on its way to becoming a public company or potentially a strategic sale exit.” The idea isn’t to simply introduce a product, execute brand extensions and dominate one distribution channel. “We take it from the position of, What is the brand we want to build?” Answering her own question, she talks of disrupting the convenient- and processed-food industries, before dropping the words every investor likes to hear: “to be a billion-dollar company by 2020.” We’ll be watching.
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