Sovos sees Rao’s as a billion-dollar brand and more than just a sauce

LOUISVILLE, COLO. — With Rao’s sauces generating $580 million in sales in fiscal 2022, Sovos Brands, Inc. thinks the line is on track to $1 billion in annual sales and is further branching out into different departments within the grocery store.

“Rao’s had another impressive year, growing 35% organically over the full year and exceeding half a billion net sales, accelerating to 45% in the fourth quarter,” said Todd R. Lachman, President and CEO. March 8 conference call to discuss annual results. “Even though we have quintupled household penetration for Rao’s since we acquired the brand in 2017, household penetration is still only 15% today and awareness is only 58%. With our plans to grow our marketing and R&D expenditures in double digits in 2023, we are confident that we can continue to carry years of sustainable volume-driven growth into the future.”

With sauces at the core of the line, Sovos Brands has expanded Rao’s to frozen entrees, frozen pizza, pasta and soups.

“All of the more recent Rao’s soup, pasta and frozen core categories continued to grow well ahead of their categories in the quarter, driving 45.5% and 41.1% growth in dollar and unit consumption, respectively, and our business in dollars and units in each category. at least 30%,” said Mr. Lachman. “Household penetration and dollar shares for Rao’s brand in each of these categories are at or below 2%, reflecting the material runway ahead. In the second half of 2022, we tested Rao’s frozen pizza among select retailers. Due to the successful test market results, we will expand nationally in 2023.”

Sauces currently account for 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 about $6.5 billion, he said, “I mean two shares of frozen pizza — you can understand the math — it’s a pretty big deal for us and that’s our goal.”

Sovos Brands acquired Birch Benders, its baking mixes brand, to Hometown Food Co., Chicago, paving the way for Rao’s to pursue its $1 billion sales target. Resources used to support Birch Benders will be diverted to support Rao’s, according to the company.

“…We are building a long-term business and we are building Rao’s at $1 billion and beyond,” said Mr. Lachman. “We also have no doubt that Rao’s will surpass $1 billion in net sales.”

For the year ended December 31, 2022, Sovos Brands posted a loss of $53.5 million, negative from fiscal 2021 when the company earned $1.9 million per common share, equal to 2¢.

Sales increased to $878.4 million from $719.2 million the previous year.

According to the company, the loss is largely attributable to the divestment of Birch Benders.

In fiscal 2023, the company estimates sales to be in the $900 million to $925 million range, with adjusted EBITDA of $130 million to $135 million.