According to an investigative report by Olivia Zaleski for Bloomberg.com, Hampton Creek ran an undercover project to buy up its own vegan mayo, apparently to make the company look more attractive to potential investors. Josh Balk, who lists his current employer as The Humane Society of the United States (HSUS) on LinkedIn, co-founded the vegan-based company. In fact, his LinkedIn page proclaims: "For my work founding Hampton Creek, Inc. Magazine named me as one of its "35 under 35" list and Lifehack awarded me as one of the "15 Entrepreneurs Who Will Make 2015 An Unforgettable Year."
Buying "Just Mayo" Was Just Wrong
It appears 2016 may turn out to be an unforgettable year for the HSUS advocate as well, but not in a good way. Bloomberg uncovered Hampton Creek's program of systematically buying back its vegan mayonnaise from retail shelves.
Bloomberg alleges the buyback was done to inflate retail sales figures of the eggless mayonnaise, called Just Mayo, as the company sought investor financing. At least eight months before Hampton Creek sought funding, executives quietly launched an initiative to purchase mass quantities of Just Mayo from stores, according to five former workers and more than 250 receipts, expense reports, cash advances and e-mails reviewed by Bloomberg.
Now, the Securities and Exchange Commission has opened an inquiry into whether Hampton Creek broke the law by not disclosing the scheme to buy back product.
Grubstreet.comreports the "sketchy-sounding program went down in 2014 when Hampton Creekraised $90 million from big-time venture capitalists."
Shelf space is hugely important to food companies, especially start-ups. Thousands of new packaged food items are introduced each year in the U.S., and a majority of them fail. Bloomberg reported, "For a young company like Hampton Creek, it's critical to perform in a test market, with those results used by retailers to justify increasing distribution, said Jim Hertel, a grocery industry analyst at Inmar's Willard Bishop. Sales from a major retailer can also be used as part of the pitch to investors. 'If you're an early-stage company, there's a lot of pressure to demonstrate results,' Hertel said."
They Found It, They Bought It, They Threw It Away
In 2014, employees "were being asked not simply to promote Just Mayo but to start buying it as well‚Äîan initiative the company dubbed "Special Project" or "Buyouts," they say," said the Bloomberg article. Caroline Love, who was director of corporate partnership at the time but has since been promoted to Hampton Creek's vice president of mission, wrote in an April 2014 e-mail to contract workers (referred to as Creekers):
Bloomberg reports that Love's memo also referenced a key competitor. It said she wrote, "The most important next step with Safeway is huge sales out of the gate. This will ensure we stay on the shelf to put an end to Hellmann's factory-farmed egg mayo, and spread the word to customers that Just Mayo is their new preferred brand. :)"
Love even suggested how Creekers could do this most effectively in an e-mail to a contractor, Bloomberg reported. "I might go through the self-checkout lanes, or make several transactions going to different cashiers each time to avoid questions like, 'Why are you buying so much mayo?!'" Love wrote, reports Bloomberg. "Make sure you are not wearing your HC gear when you go into Safeway. This is an undercover project."
According to Bloomberg, employees were instructed to conceal their identities, pretending they were customers, and to call store managers of Whole Foods, Safeway and Kroger locations to stoke demand.
It's Not Even "Mayo"
The article also stated that in late October 2014 the parent company of Hellmann's mayonnaise, Unilever, filed a lawsuit against Hampton Creek for false advertising. The company argued that Just Mayo couldn't be marketed as mayonnaise because it doesn't meet the U.S. Food and Drug Administration definition of the product: 65% vegetable oil and at least one egg yolk-containing ingredient.
"Unilever dropped the suit in December 2014, and the FDA in August 2015 warned Hampton Creek that Just Mayo's labeling was misleading because the product did not meet the standards for 'mayonnaise,'" said the article. Read the Bloomberg article in its entirety here.
Back to HSUS's Balk
PORK Network reached out to Balk for a comment. He sent an email back, saying HSUS was not an investor in the company. The email also contained a link to a page that looked like the company's website that discussed the buyout program, however the page can't be found on the website. There were two spreadsheets with information about the buyout program, which the company asserts was specifically for quality control, but they were too small to read. An additional chart showed a small blip in what the program cost compared to overall sales.
The link also showed an example of the mayo, shown here, which clearly shows quality control issues. However, if this buy-back program was truly for quality control, then why were employees and contractors asked to refrain from wearing their HC gear? Why did most employees throw the product in the trash instead of checking it for quality? And why didn't survey database‚Äîcontaining almost 3,900 entries in 15 states from March 2014 to January 2015, according to the Bloomberg article‚Äîaccount for hundreds of Just Mayo purchases by Creekers during that period?
"I'm passionate about working with corporations to help animals while also creating a thriving business model," Balk states on his LinkedIn page. He encourages investment firms and individual major investors to contact him if they are, "looking for start-ups to back whose business models are as solid as their mission."
Let's hope those potential investors do their homework first, and that they wait for findings from the Securities and Exchange Commission.