Kessem Foods Founders Prove American Dream Is Still Alive
Immigrant brothers turn startup into million-dollar company
CARLSTADT, N.J.—After four years of hard work and many tribulations, two immigrant brothers can say they have made it in America.
David Elam, 23, and Uri Elam, 26, have transformed New Jersey-based Kessem Foods from a snack stand into a multimillion dollar company manufacturing gourmet, gluten free, cheese breads.
The two Jewish brothers have demonstrated that a free society can transform ideas into something of value, but something had to give first. As finance and accounting majors, both brothers faced dwindling career prospects as the last recession hit.
“We looked at the whole situation, and the economy, and we said that things are going to change at some point very soon, and we need to be prepared. We need to arm ourselves in a way that we can survive later on. A business in the food industry seemed very appealing. … We are selling something of real value,” said David Elam, co-founder and vice president of Kessem.
When they came to the United States from Brazil to go to college in the middle of the last decade, they believed that a degree in finance was going to guarantee them jobs on Wall Street and high incomes. The financial crisis shattered that dream but it gave birth to something bigger, and far more exciting.
“We felt very disheartened following our careers in finance and accounting,” said David Elam. “We went away from that mind-set of thinking purely about profit, and started thinking also about the value aspect.”
Looking for alternatives to build a career and earn a living, they realized that their most popular childhood snack from Brazil “Pão de Queijo” or “cheese bread” was missing from American supermarket shelves. Despite knowing nothing about food production, they saw the potential niche of the savory—yet healthy—snack, and decided to start their own business.
Hard Work and Learning
Beginning with no experience, the brothers spent about six months in 2009 researching how to mass produce the product for the U.S. market. They then rented a kitchen by the hour to produce the first samples and started promoting them within the kosher market, and at different trade shows. Juggling college and work, they got up at 4 a.m. most mornings and put in 18-hour days. By 2011, both brothers had left college to focus exclusively on their business.
The brothers said they have utilized some skills from their college education, such as Excel and accounting, but most has been learned through research or by practice.
The work paid off and Kessem’s cheese breads were an instant hit with consumers. The product soon found its way to the shelves of major retailers, such as ShopRite and Whole Foods Market. Made of the tapioca root, the golf ball-sized snack is riding the success wave of gluten free products.
Gluten Free Craze
Kessem’s Pondi Kesso cheese balls have only 60 calories each, but they are still rich in cheese flavor. Consumers have five flavors to choose from, and the product does not contain any preservatives or artificial ingredients. The tapioca root is high in fiber, and its carbohydrates are easier to digest than those of wheat and potatoes.
“First we just noticed how big the trend is. We only later researched why gluten free is good,” says David Elam. “Gluten-free in our product is just a plus,” added Uri Elam.
Having no money for advertisements, the two brothers went out to the supermarkets to distribute free demo snacks. “We did more than 2,000 demos just my brother and me during the past three years,” said Uri Elam. “Most people who tried it also bought it,” he added.
In 2010, Kessem sold $250,000 worth of Pondi Kesso just doing trade shows. In 2013 the company is on track to achieve $5 million in sales. Kessem recently moved into the old Twinkies factory in New Jersey abandoned by Hostess during its recent bankruptcy.
Having a strong presence in the northeast, the company is expanding into Florida and Texas, and has even shipped two containers to Israel.
Today there is no longer any need for advertisement; the product is so popular that it spreads by word of mouth and the three top distributors in the country are distributing Kesso products.
Apart from being a niche product with great taste and all-natural ingredients, reasonable pricing also helps.
Normally 10 ounces of a gluten-free product starts at $6, but Pondi Kesso starts at $2.99. “Volume is the key,” says David, who also mentions that other firms could lower their prices, but are maximizing profit. Kessem wants to grow the business by ramping up volume instead of going for the highest margins.
“We want a product that is gluten-free but a regular person can eat, so the price needs to be the regular price and not the gluten-free price,” says David. “Don’t forget, we always knew that 200 million people in Brazil eat it every day. Not because it’s gluten-free, but because it’s good,” Uri adds.
Sky’s the Limit
“Every day, more and more stores want us in their gluten-free shelf, because more and more customers are talking about it,” Uri Elam said.
“We can’t do everything by ourselves. We don’t hire or fire the next people. The people under us are going to hire and fire them. They are the people that sit with us once a day in this conference room,” said David Elam.
For Uri Elam, trust of their executives is the most important. “We created a circle of trust, because we have friends working here as well.”
To finance capital expenditure and new equipment, the brothers recently secured a loan from the federal government for small businesses. The two brothers still own 100 percent of the business.
They managed to achieve this by gradually scaling up the business and reinvesting the cash proceeds. They also got some support from family through loans. Having started with just $60,000 after the financial crisis, the Elam brothers said banks were reluctant to grant them a loan.
Kessem also managed to buy back a 50 percent stake from a venture capitalist after both sides agreed that they could not run the business together. The investors had installed a director in his 40s from a retail background, who did not fit the culture.
“They were squeezing us for as much as they could; they were literally sharks with us,” said David Elam.
After having lost some accounts and momentum during that period, the brothers managed to buy back the stake using a loan from their uncle who had previously been skeptical.
“He didn’t believe in us in the beginning. He didn’t take us seriously. Our family primarily thought that we should go back to school,” said David Elam.
Having been rewarded for their ingenuity and hard work, Uri Elam and David Elam don’t need to go back to school. A recent offer by another venture capital firm values their business at $12 million.