Industry: Food & Beverage
Products: Hot sauces and condiments
Founder and CEO Kelly Schexnaildre sees hot sauce manufacturing as a balancing act between food safety, cost structure, and fire and spice.
Schexnaildre comes from a food-loving family. "I was born and raised in Louisiana," she says. "I've been cooking since age seven."
That chicken dinner she made 25 years ago was an early sign of her career path to come: "It just seemed I would always be in food."
She worked in restaurants during her college years at University of Louisiana at Lafayette, then relocated to Denver in 2010. She continued working in the restaurant industry while planning her move into manufacturing. "I was recreationally making a lot of hot sauce, a lot of salsa, a lot of tomato sauce," says Schexnaildre, who soon came up with a recipe for a peach-habanero sauce called Peaches & Scream that "was a hit. Friends and family kept asking for it for gifts."
Schexnaildre subsequently went from hobbyist to pro with Merfs, but not before a lengthy phase of due diligence and R&D. "There's a ton of market research that goes into starting a business," she notes. "It took me a couple months to figure out what the branding was going to be."
She settled on Merfs, named for her parent's basset hound, out of affinity for the breed but also the recognizable silhouette.
At the time, there were only a few local hot sauce brands in business on the Front Range. "There weren't that many," says Schexnaildre. "I saw there was plenty of opportunity in the market."
Today, there are about 20 Colorado companies in the hot sauce business, but Merfs had won a lasting following with its first two products -- Peaches & Scream and Hand Grenade Sriracha -- before most of its competitors launched.
The sriracha's recipe diverts from mass-market "Rooster Sauce" by including pineapple in lieu of processed sweeteners. "How can I make a sriracha that's healthy and not full of chemicals and sugar?" says Schexnaildre of the thought process.
After manufacturing at four different commissary kitchens, Merfs moved into its current facility south of downtown Denver in 2018. The operation scaled along the way, with growth of 30 percent or more every year. At first, Schexnaildre says she was making two-gallon pots in four hours. As of 2019, "In five hours, we can do 3,000 bottles -- 150 gallons."
The sauce catalog now includes seven varieties, including the two originals and the bestselling Electric Lime. "It's out of control," says Schexnaildre of the latter.
But the company's success involved shoe leather as much as it did capsaicin. "There's a myth you can have a successful business without cold calls -- it's not true," says Schexnaildre. "I ran the streets. That got me my first 110 wholesale accounts."
She notes that it took about five visits on average to seal the deal with a new account, but she had a serious value proposition: Unlike many craft manufacturers, she sells Merfs sauce on price. "Merfs' motto is affordable quality," she explains. "We're less expensive than Tabasco wholesale." A bottle of Merfs typically wholesales for 50 cents to $1 less than a bottle from the Louisiana hot sauce titan. Other local sauce makers are often twice the price.
Merfs sells wholesale to largely Colorado retail and restaurant accounts and direct to consumers online. Schexnaildre estimates that restaurant sales to such accounts as Next Door and the Urban Egg make up about 80 percent of the business. "It's a volume game with restaurants," she says.
"I'm really into understanding my cost structure down to the last penny," says Schexnaildre. "Numbers are what make or break a business. I'm not in the hot sauce business, I'm in the numbers business. The hot sauce is just the vehicle to drive the numbers."
To this end, the Merfs supply chain mixes local and national suppliers. "We get our peppers from Lulu's Farm in Brighton," she says. Shamrock Foods, Markon, Golden Organics, and The Spice Guy are other key suppliers of ingredients, and Amen Packaging of Denver provides Merfs with bottles. "You just kind of shop around," sasy Schexnaildre.
Hot sauce manufacturing is highly regulated. "Hot sauce is an extremely dangerous product to produce," says Schexnaildre. "It's an acidified product. . . . If hot sauce isn't prepared correctly, you can build an environment where botulism can grow."
She adds, "For every recipe, we have to file a schedule of process with the FDA. We have to keep extremely detailed paperwork for every batch." That includes everything from tracking suppliers to logging temperatures and pH levels. "All these records have to be available to the FDA at any given moment," says Schexnaildre. "We pass with flying colors."
Challenges: "The challenge would probably be cash flow," says Schexnaildre. "I never intend to take on any investor cash under any circumstances, no matter how tempting the offer. I didn't get into business to work for somebody else." Instead, Merfs relies on a banking line of credit and equipment loans to navigate the cash ebb and flow.
Opportunities: While the Merfs distribution map is centered on Colorado with a few California accounts, a broader market expansion could drive future growth. "There's so much money to be made here at home," says Schexnaildre. "I've not maxed it out, but I have saturated the market."
Her gaze is shifting to the southeast: "I'd really like to expand to Texas and Louisiana. Those are on my list now." That means Schexnaildre might be "spending some time at home hitting the streets" soon. "I love running the streets. Cold-call sales is nerve-racking and exhilarating at the same time."
Needs: A sales team. "I need someone who's older than me who has a lot of contacts in the food industry," says Schexnaildre, 32. "I need some more ideas about sales."