LOUISVILLE, COLO. — With Rao’s sauces generating $580 million in fiscal 2022 sales, Sovos Brands, Inc. sees the line as being on a pathway to $1 billion in annual sales and branching farther into different departments within the grocery store.
“Rao’s had another impressive year, surpassing half-a-billion of net sales, up 35% organically for the full year and accelerating to 45% in the fourth quarter,” said Todd R. Lachman, president and chief executive officer, during a March 8 conference call to discuss annual results. “While we have quintupled household penetration for Rao’s, since we acquired the brand in 2017, household penetration is still just 15% today with awareness at only 58%. With plans to grow our marketing and R&D spend double digits in 2023, we are confident that we can continue to drive years of sustainable volume-led growth into the future.”
While sauces are at the line’s core, Sovos Brands has extended Rao’s into frozen entrees, frozen pizza, pasta and soups.
“Our newer Rao’s beachhead categories of soup, pasta and frozen all continued to grow well ahead of their categories in the quarter, generating combined dollar and unit consumption growth of 45.5% and 41.1%, respectively, with our business in each category growing dollars and units at least 30%,” Mr. Lachman said. “Household penetration and dollar shares are at or below 2% for the Rao’s brand in each of these categories, reflecting material runway ahead. In the second half of 2022, we conducted a test of Rao’s frozen pizza across select retailers. Due to successful test market results, we will be expanding nationally in 2023.”
Sauces currently make up about 85% of Rao’s sales, but Mr. Lachman sees frozen pizza as a springboard for the brand’s future growth. Noting that US frozen pizza sales are approximately $6.5 billion, he said, “I mean a two share of frozen pizza is — you can get the math — that's a sizable business for us, and that's what we have our sights on.”
Sovos Brands cleared a path for Rao’s to continue its trajectory toward $1 billion in sales by divesting baking mix brand Birch Benders to Hometown Food Co., Chicago. The resources used to support Birch Benders will be redirected to supporting Rao’s, according to the company.
“… We are building a business for the long term, and we’re building Rao’s to $1 billion and beyond,” Mr. Lachman said. “And there’s no question in our minds that Rao’s is going to blow by that $1 billion net sales marker.”
For the year ended Dec. 31, 2022, Sovos Brands recorded a loss of $53.5 million, which compared unfavorably to fiscal 2021 when the company earned $1.9 million, equal to 2¢ per share on the common stock.
Sales rose to $878.4 million from $719.2 million the year before.
The loss was largely attributable to the divestment of Birch Benders, according to the company.In fiscal 2023, the company is guiding sales will be in a range of $900 million to $925 million and adjusted EBITDA will be between $130 million and $135 million.