Where did it all go wrong for Riot Foods?

  • 05/10/2018
Art Green and Ryan Kamis.
Art Green and Ryan Kamis. Photo credit: Riot Foods

Jihee Junn for The Spinoff 

Art Green's company Riot Foods (parent company of CleanPaleo and Poppy & Olive) hit headlines this week for all the wrong reasons as a letter to shareholders revealed it needed $1 million in the next two weeks or risk being sold.

Green and co-founder Ryan Kamins reveal exactly what went wrong over the last six months, which involves a supplier going into receivership and an entire factory rusting over.

It all started on the set of Spartacus, a TV show about a sword-slinging, sandal-wearing Thracian beefcake that was shot over four seasons in a Mount Wellington studio.

Between takes as extras on the show, personal trainer Art Green, cricketer Mitchell McClenaghan, and business graduate Ryan Kamins bonded over a shared interest in paleo – a diet adopted by all three men in 2012.

By 2013, CleanPaleo was born – a company created to make the paleo lifestyle easier, one biltong packet at a time.

Since then, the company's experienced a steady growth, aided in no small part by Green's high profile appearance on The Bachelor NZ

Along with his co-star and now fiancée, Matilda Rice, Green has become a shining example of health and wellbeing on social media.

His success has been CleanPaleo’s success, and his growth in fame has seen the business grow in fame too. It’s been a good deal, really – until now.

'Art Green's Riot Foods needs $1 million or may be sold' proclaimed the New Zealand Herald, who reported on Monday that Riot Foods – CleanPaleo's parent company – needed to raise the seven-figure sum in just two weeks or risk having to sell the business.

In a letter to shareholders, Kamins said that Riot Foods had faced "significant challenges" after a fumigation/sterilisation company had destroyed one of its factories, leaving the company in a precarious position.

Soon enough, the news quickly made the rounds – on the internet, in the papers, on the 6 o'clock news.

Green's attachment to the business as director was what made it newsworthy, and when he and Kamins spoke to The Spinoff a few days after the news first broke, Green almost seemed apologetic.

"If I wasn't involved in this business, I don't think it would've been dragged down in the media like it has done.

"It's a two-sided coin because it’s really positive for the business when I'm the face of it in some circumstances, [but] as soon as something’s a little bit negative, people want to cut me down personally, and to have the business attached to it, I feel like the business gets dragged through the mud with me," says Green.

"I'm perceived to be running this company [and people think] I'm just swanning about, going on holiday all the time. [But] I'm a non-executive director and I'm now positioned as a contracted ambassador for the company. I go around and do sales and some marketing stuff. I'm basically the face of the brand. Any work that I do is pretty much done either free or for minimal pay to make Riot Foods as profitable as possible. The way that I make money is through social media."

In fact, from an operational perspective, the one really pulling the strings is Kamins, who manages the business on a day-to-day basis (McClenaghan left the business in early 2017 to fund a new startup).

And this year was supposed to be a big year for Riot Foods: it raised over $1 million via equity crowdfunding back in December to undertake a number of goals, the main ones being to build a second factory, and supply Aussie supermarket chain Coles with its biltong products.

But events over the last six months have left Riot Foods in tatters – not only was its factory destroyed, but Kamins reveals it also lost the Coles deal when its biltong supplier (the only supplier that it can legally export its dried meat from) went into receivership halfway through its first order.

"In March, we were supposed to start supplying Coles in Australia with our biltong products," says Kamins. "We'd sent the first half of our first order to the Coles distribution centre, which was going into 800 stores. When we hadn’t received the second half of our order, we went to visit our supplier and found the doors were closed and it had been put into receivership."

Where did it all go wrong for Riot Foods?
Photo credit: Clean Paleo

"Myself and another shareholder soon got thinking that [if we owned this plant], we wouldn't have to set up our second plant. They've actually got what we need. So we worked nonstop [over one weekend] doing due diligence to raise over $1.5 million from our existing shareholders to purchase the company as a going concern. Unfortunately, we were beaten at the last minute by another company and came second in the bid."

"Maybe for financial reasons, maybe because of the receivership… the product that was meant to go to Coles [produced after the buy out] came back not of the quality we wanted. So we pulled out from Coles because we didn’t trust [the supplier] anymore. We didn’t want to damage New Zealand’s reputation by selling subpar beef."

Having lost both its supply and distribution channels for Australia, construction for its second plant went rapidly ahead, albeit with the added cost of having to spend more to make the factory an export standard plant (the factory was initially slated to produce biltong exclusively for the local market).

By June, the new Ascot Road factory was basically ready and the last step was to undertake cleaning and fumigation. They enlisted a company that was "well respected" and had done for "Fonterra and all the big guys" in the past. 

They did a standard chemical gassing and wash-down process, and part of that involved using chlorine dioxide gas. While the process was thought to be harmless, it turned out to be anything but. 

"There was water everywhere and rust pretty much covering every piece of stainless steel in our plant," recalls Kamins. "For some reason the gas had turned corrosive. Every single keyhole, every screw, every rivet had rust on it. The machinery was even covered for protection. It's unbelievable, almost incomprehensible how that happened. One day our plant was fine and ready to produce. Next thing we knew basically [all our new equipment] had to be thrown away."

"We immediately called our insurance and had an assessor sent in immediately. A couple days later after he’s done his investigation, he says to us: 'There's [one of] three people that are going to pay for this. It's either going to be your own insurance, the third party's [cleaning company’s] insurance, or the third party themselves.' He said this was a no-brainer claim and told us we could probably expect the cash within the next few days."

"But our insurance company… after five, six weeks rejected our claim based on some pretty ambiguous clauses. So we're still debating with them, and we've made a claim against the third party and their insurers as well. We’re still yet to find out three months later whether they're accepting liability for what happened."

Today, the Ascot Road factory’s been completely rebuilt and is currently awaiting MPI sign off as the last step.

Recently, CleanPaleo launched a bunch of new products – Better Balls, new cereal flavours – much sooner than initially planned in an effort to source new revenue from new customers.

Unexpected events also meant the business has had to undergo a serious shake-up, one that’s meant several front-end staff have had to be let go.

"We've had really, really bad luck… for reasons outside our control. We don't want people losing their jobs, we don’t want the business falling over, but yeah, it's happened."

Where did it all go wrong for Riot Foods?
Photo credit: Clean Paleo

Kamins, however, is optimistic. While August ended up being Riot Foods' worst month ever, September also ended up being its best month in over a year, which is being taken as proof that the restructuring is starting to pay off. "I was confident in what we were doing, we just needed these new products to come through and to keep costs down.

But August spooked a lot of our key shareholders who were saying: 'You just lost a shit load of money in August. What are you going to do? Am I willing to put more cash into this business?' Then one month later, it was the best month we’d had in over a year. We’ve got the confidence that the plan's working, but now we need some other people’s help to execute the plan."

Which is where Riot Foods is at now. Simply put, the business needs more cash, and while more equity crowdfunding has always been in the plan (it was outlined to investors in the previous round that another crowd raise would be happening this year), circumstances have meant that not only has it had to be brought forward by a month, it's now become quite an urgent matter.

"We've got a responsible board and shareholders and we won't trade insolvently. I'm looking at our finances every day and we’ve got probably two weeks, maybe three if we're lucky," says Kamins.

"I'm confident right now though. We've got significant current shareholder support but our current crowd only has so much cash… It's not because myself or the company owes $900,000 in the next month or anything. It’s not like that at all. It's that I can do a better job with $900,000 than with just half of that… the ideal scenario is that we don’t sacrifice any of our longterm opportunities that are coming to fruition and that people don't lose any of their jobs.  So the more money we can raise, the more we can ensure those things happen."

Rust damage on new equipment.
Rust damage on new equipment.

Kamins is a man under serious stress, and rather than be crushed by it, he's fighting hard. He's obviously hustling to save the business, and he’s also not pulling any punches, particularly when it comes to the media. "The media's made out that crowdfunding and everyone involved in it are stupid, basically," he says. "What’s happened in the media [in the last few days] has put New Zealand small business at risk, it's put the crowdfunding industry at risk, and it's insulted both my potential shareholders and existing ones."

He points to an intro piece that played before their appearance on The Project on Monday night as an example, which he says oversimplified its explanation of how equity crowdfunding worked.

"It basically made out like crowdfunding could be done by any idiot company and that it's approved by people who aren’t up to the level of a like, a bank manager. But it's a rigorous process. It took us 12 months to get approved to do our first crowd raise. It’s not an easy process to do equity, which is what we did. So I felt a lot of anger… because it’s actually jeopardising the backbone of New Zealand’s economy. I know other businesses are trying to raise funds. Potentially those companies are now wondering whether they should be maybe even in business if the media is going to bash them like that."

"Nobody wants to look stupid, do anything illegal or lose people’s money. Who would want to go through this sort of shit storm again?"

If all goes to plan (plan A, that is), it looks like another equity crowd raise is going to happen very soon. It has to, really, otherwise, it'll have to be plan B, or plan C, or worst-case scenario, being forced to give it all up.

"I think we’ll get the support, and ideally enough that we’re not on the bones of our ass."