Mike Salguero’s online meat-seller has roared to $550 million in sales by outsourcing food production, not owning it. Now growth is leveling off as customers get more expensive to enlist.
Salmon is so popular with the customers of Mike Salguero’s subscription food-box service, ButcherBox, that he wanted to see the famous harvesting process himself. It’s quite the spectacle. In a matter of weeks an entire year’s supply of the wild-caught variety, some 70 million salmon, is pulled from Alaskan waters. Salguero made the trip from Massachusetts to witness it.
Salguero hopped aboard a fishing boat. He inspected the factory where the salmon is packed and he watched the work of thousands of seasonal workers who sleep in dorms between their 16-hour shifts. He even bumped into regulators, who count salmon from rickety metal towers and decide how much fishing can take place that day so the practice remains sustainable.
“That’s one of the things I really feel is important about my job: to really intimately understand how it works,” Salguero, ButcherBox’s founder and CEO, told Forbes. “Then I can make the conclusions on whether this is the best path possible.” ButcherBox is expected to sell 1.5 million pounds of salmon this year.
Since its 2015 debut, ButcherBox has grown to become one of the largest online meat-sellers in America with $550 million in sales. This comes at a time when food-box companies, which once seemed to be the next big thing, have mostly faded. Stock prices of competitors like Blue Apron and Hello Fresh have plummeted. Just this month, New Age food brands Tattooed Chef and Do Good Chicken filed for bankruptcy. But Salguero’s $169 monthly subscription did two things his rivals didn’t: as a promotion, he gave away free bacon (or chicken wings, or ground beef), and he shunned venture investment. That stemmed from a bad experience Salguero had with investors in a previous startup.
“I was pretty disillusioned by my experience,” said Salguero, 42. “I felt like it was very adversarial, and I felt like I couldn’t build the company the way I wanted to because I had investors.” He added: “If we’d taken outside investment, we’d be out of business right now.”
ButcherBox spends a lot — up to 20% of its revenue — on social-media advertising and on its iconic promotions. To keep from spending even more, the company is focused on targeting former subscribers or visitors to its website who haven’t joined. Unlike most of its competitors, ButcherBox has been profitable since the start, but not ridiculously so. Last year’s annual Ebitda margin came in at under 5% — on par with the razor-thin profits of the grocery industry.
“We constantly go back and forth on whether we should be aggressively marketing and trying to squeeze everyone out of the market, even though the cost of the market is way higher, and the cost to acquire customers is higher than it’s ever been,” Salguero said. “Or we take the approach of, let’s not market as much, it’s okay if we don’t hit what we wanted to hit, let’s just maintain, let’s increase our profitability.”
‘Mike’s A Smart Guy’
ButcherBox is asset-light by design. In contrast to some of its rivals, ButcherBox doesn’t raise animals or slaughter them. The brand buys meat from a handful of big producers — including 90% of its pork from Perdue-owned Niman Ranch, grassfed beef imported from Australia from a joint venture with agribusiness giant Cargill, and organic, antibiotic-free chicken from Perdue. ButcherBox packs the subscriber’s monthly choices into a box of dry ice and ships it off.
“Mike’s a smart guy. He’s avoided the pitfalls,” said Matt Wadiak, a Blue Apron cofounder who left and created Cooks Venture, a chicken company that raises and sells its own breed. “It’s arbitrage on somebody else’s product. They’re a marketing organization.”
The dry ice is the only part of the business in which ButcherBox has a direct stake. In 2020, after Salguero saw that the Covid-19 vaccine would need to be shipped at sub-zero temperatures, he decided to buy dry-ice-making machines for $2 million each and set up his own facilities, in Oklahoma and Iowa. That decision has ensured a steady supply as frozen shipping costs have doubled since the end of 2020. ButcherBox produces more than 55 million pounds of dry ice a year, and even sells some to other brands.
Salguero can make decisions like that. He owns 72% of ButcherBox. Employees own the rest. Based on how competitors are trading publicly, Forbes conservatively estimates Salguero’s stake in ButcherBox at about $175 million. Another valuation the company commissioned this year put the figure much higher. It said ButcherBox was worth $550 million, meaning Salguero’s piece would be in the $400 million range.
“I’ve been increasing my position despite financial advisors telling me that’s a bad idea,” Salguero told Forbes with a laugh.
Salguero came to the U.S. from Paraguay with his divorced mother when he was four months old. They settled in the Boston suburbs, in a small Massachusetts town off Route 91 called Williamsburg. That’s where what became ButcherBox began, in 2014, when Salguero started buying beef from farmers in a parking lot. Salguero had figured out how to source meat for his wife, who has the autoimmune disease Hashimoto’s and needed to make sure that the meat she ate was antibiotic-free and grassfed. Salguero realized it was cheaper to buy a whole carcass himself, break it down and sell pieces to friends. When it caught on, he decided to turn it into a business.
Salguero had been burned before. A few years earlier, he cofounded an Etsy-esque business called CustomMade.com that raised $30 million in venture funding, with investors including Google and First Round Capital. But the company failed. It left a bad taste in his mouth.
That’s why, when Salguero set out to make ButcherBox a business, he refused to raise venture capital. Instead, he put in $10,000 himself and in 2015 tapped Kickstarter. Customers quickly jumped on board, lured by the promise of bacon added to their first shipment. Salguero set out to raise $25,000 without giving up equity. The campaign hit $40,000 the first day. Within a month, ButcherBox secured $210,203.
The Kickstarter offer of free bacon ended up becoming ButcherBox’s signature. But its continuation has been something of a mistake. Salguero’s team couldn’t delineate between Kickstarter supporters or regular customers, so ButcherBox kept it going. The confusion eventually turned into a bacon-for-life offer that thousands of customers felt they couldn’t refuse.
In its first full year, ButcherBox drew $5 million in revenue. Sales rose to $33 million by 2017, as it expanded to include wild-caught salmon. Then in 2018, ButcherBox topped $105 million.
Expectations And Overbuilding
ButcherBox’s birth came at an interesting moment for the industry. In 2017, Blue Apron, which sends recipes and their ingredients to customers, earned a $2 billion valuation and went public. Then the market turned. Blue Apron had invested millions in owning the sources of its food and developing long-term contracts with farmers even though it was losing millions every year. Hello Fresh, its meal-kit competitor, went public the same year and fueled a race over who could gobble up more of the U.S. market. Investors hoped subscription meals would disrupt the grocery industry and for a while, it seemed as if they might. But Blue Apron gave away too much for free and got lost in the logistical complexities of the farming and food-distribution business.
“It’s evident to me that when meal kits started taking off, the expectations grew exponentially and all of them overbuilt way too fast,” Daniel Kurnos, who covers Blue Apron as managing director of Benchmark Co., told Forbes. “Blue Apron in particular built way too much capacity and never realized it. They expected the business to grow exponentially and it didn’t happen.”
Shares of Blue Apron and Hello Fresh reflect a distressed industry. Blue Apron has lost more than 99% of its value since its IPO, while Hello Fresh, while it has become profitable, still trades 76% lower than its all-time high in August 2021.
Meanwhile, ButcherBox says it’s focused on stacking cash in anticipation of uncertain economic times. That cash could also be used to acquire struggling firms to expand ButcherBox’s business.
“A lot of these companies got funded after Covid on really good numbers, and now the reality has set in,” Salguero said. “There’s going to be a lot of opportunity in the acquisition world, and we have a lot to offer there.”
Higher Quality Meat
With its scale, ButcherBox has been able to demand higher quality meat from producers. But fast growth creates new problems. Take, for example, ButcherBox’s pork, which has come from Niman Ranch since 2017. In 2020, ButcherBox saw demand for its meat more than double and Niman didn’t have enough supply. Instead of sourcing lower quality meat, ButcherBox put new subscriptions on pause so that it could fill existing orders. The break gave Niman the time to catch up.
“It would’ve been really easy for Mike and ButcherBox, both in the beginning and along the way, to compromise on the company values he first established,” Niman Ranch general manager Chris Oliverio told Forbes. “He chooses the hard no versus the easy yes. A lot of companies have made compromises.”
ButcherBox now uses its iconic bacon-for-life promotion — as well as similar variations like ground beef for life, wings for a year, salmon for three months — to lure new customers and keep existing or inactive ones. “We’re dealing with an increasingly fickle customer, and an increasingly hard-to-acquire customer,” Salguero said.
Growth has been leveling off, but existing subscribers are spending more on each box they order — more than $200 on average. Orders grow as ButcherBox adds to its 115 offerings. Chicken nuggets, launched in April 2022, is its most successful addition, with customers buying more than 12 million nuggets. ButcherBox’s recent expansion into its own pet-food line is another way to enlarge customer orders without changing the cost of each box.
The biggest challenge ahead, Salguero said, is how to compensate employees that want to cash out at ButcherBox’s latest valuation without blowing the chance Salguero has to maintain control of the business. That’s why ButcherBox has offered three tenders to buy or sell shares. In the future, Salguero said he may create a profit-sharing model, so that more control will rest with him, like many of America’s biggest food businesses, which tend to be closely held and family-run. Examples include mozzarella maker Leprino Foods, Trident Seafoods, top meatpackers like Perdue and agribusiness giants like Cargill.
“We’re in a very unique position and I don’t want to change that,” Salguero said. “But I’m not saying I would never sell or raise money. Anything is possible.”
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