Nuts and Boats

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Mrs. May’s Naturals Inc.


Founded:

2002


Core Business:

Snack manufacturer and distributor


Employees in 2006:

8


Employees in 2007:

15


Goal:

Producing healthy, wholesome snacks on a scale that can make the company as big as Frito-Lay


Driving Force:

Health-conscious consumers who want quality snacks


Executives at Carson-based Mrs. May’s Naturals Inc. say that shipping nuts and fruits to China for processing and then having them brought back to the United States actually makes economic sense.


The company makes nut, seed and fruit clusters and snack bars under the Mrs. May’s brand. The all-natural products come in a variety of flavors. These include traditional pumpkin seed snacks modeled after Asian new year treats, along with almond and cashew treats for typical American taste buds.


The process of moving production from Orange County to a factory in China, which the company did about five years ago, appears to have paid off.


“The labor cost was much cheaper in China,” said Augustine Kim, the 46-year-old president and co-founder of May’s Naturals. “And there is an unlimited capacity of making merchandise because there are so many hands there.”


The vegan products, which are made of nuts and fruit held together by rice malt, are priced in the $1-$3 range.


Currently, May’s snack foods are sold in big-box stores such as Costco and at small mom-and-pop shops, but the company has yet to get the product into traditional grocery chains. That’s a goal for the company in 2008, said James Kim, vice president of sales, who is not related to the company president.


“We want to be the Frito-Lay or Nabisco of the natural food market,” James Kim said. “Up to this point, our competition was the other startups. We want to be competing with the big guys in three to five years.”


Augustine Kim declined to state exactly how much the company spends on overseas shipping, but he said it comes to about 5 percent of May’s Naturals’ total expenses.


Abbye Freiman, a food manufacturing consultant based in Torrance, said that she knows of no other food company that ships raw materials to Asia for manufacturing and gets finished products sent back to the United States for sales.


“That’s an interesting reverse business model,” said Freiman, who advises snack food, baked goods and packaged salad companies on all aspects of their products. “Other companies that source raw materials manufacture in the U.S.”


May’s Naturals began in 1996, when Augustine Kim, who was born in South Korea and moved to Southern California as a teen, purchased a small nut company from a Chinese woman who made nut clusters for the local Asian population. Augustine Kim and his brother Michael, who is no longer involved in the company, paid $50,000 out of pocket for the enterprise, which was losing money.


At that point, Augustine Kim quit his job with toy manufacturer Bandai Co. Ltd. to focus on his new venture. For five years, he continued to operate May’s Naturals, keeping on three to four employees and running a factory in Orange County. But there were problems.


“We were losing money and not going anywhere,” said Augustine Kim, who speaks Chinese, Japanese and Korean, besides English. “Our product is handmade, and in the U.S. when we do handmade work it is very expensive and there is a limitation of how much you can make.”


Around 2000, Augustine Kim began toying with the notion of moving manufacturing to China, where inexpensive and efficient labor would make sense for May’s Naturals products. He had experience there as part of his job with Bandai, Augustine Kim traveled to China and oversaw factories to make sure they followed “living issues and health insurance” rules.


Before that, after graduating from UCLA with a degree in Eastern Asian Studies in 1986, Augustine Kim worked for Nozaki Inc., a Japanese trading company that dealt in food products such as beef, pork and seafood.



Early days

In 2002, May’s relaunched with a factory in Southeastern China and a new business model. Augustine Kim took out a $300,000 loan on his former home in order to put about $600,000 of his cash in the company.


“The first year was tough,” said Augustine Kim, adding that he interviewed about 10 factory owners in China before convincing a business associate there to build a facility from the ground up. May’s Naturals has no stake in the factory the company pays the owner for snack food manufacturing costs.


Over 50 percent of May’s raw materials are purchased in the U.S., and about 40 percent come from Vietnam, which Augustine Kim said produces superior quality cashews. He said that the company is focused on buying the best products from wherever they are available. The raw materials are then shipped to China.


“It comes down to basically cost of labor,” said James Kim. “The amount of money that it will cost us to hire 50 people in China for a month is equivalent to one person’s monthly salary here. It is not like we are underpaying them; it is the going rate. It’s like having 200 people at the factory at the cost of four or five here.”


Augustine Kim isn’t concerned about the recent wave of problems with Chinese manufacturing.


“You’d be surprised by how clean the factory is,” Augustine Kim said. “China is no longer considered to be a cheap country it used to be.”


Once the snacks are made, they are sent back to the U.S. in air-conditioned containers for distribution from the company’s Carson headquarters, where 15 people work. The products are also sold outside of the Unites States, in Australia, Canada, Mexico and the Philippines. For those markets, the products are sent directly from China. In 2006, the company did over $20 million in sales.


May’s Naturals first began selling the snacks in health food stores in April 2003. Costco began carrying the products the same year. Now, the company’s reach is far greater.


The products are now available in Wal-Mart and Sam’s Club, and James Kim wants to expand further.


“Grocery stores are the big goal of 2008,” he said. “Once we have it in those stores our company will be in position to say, ‘Yes, Frito-Lay is our competition.'”


May’s Naturals is planning on selling freeze-dried fruit chips early next year. Again, those products will be made in China and sent to the U.S. to be sold.


The company’s shipping practices could scare off health-conscious consumers also concerned with the environment.


“I definitely hear in the environmental community that you have to take into account the full impact of what you are buying,” said Paul Bingham, an economist who tracks port activity for Waltham, Mass.-based Global Insight Inc. “If you’re buying something organic that took a ton of energy to get to you, is that the choice you want to make? You have to look at the context of how that was produced in its entirety and brought to your house to eat.”

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