Why Rao’s Sauce Is Worth Billions, According to Campbell’s

Why Rao’s Sauce Is Worth Billions, According to Campbell’s

Although it became known for its sauces, Rao’s offers a range of other food products, including dry pastas, soups and frozen entrées. Photo courtesy of Sovos Brands.

In August, Campbell Soup acquired Rao’s sauce owner Sovos Brands for $23 per share, reflecting a total value of a staggering $2.7 billion. While Sovos owns other food brands like Noosa Yoghurt and Michael Angelo’s, its standout star has always been Rao’s. So, what makes this sauce brand worth billions of dollars and will Campbell’s new ownership impact the brand?

Founded in 1992, Rao’s sauces expanded out of a historic Manhattan restaurant that offered expensive Italian food products. Since then, it has become the leading brand of high quality sauces, but its offerings also include dry pastas, soups and frozen entrées. In fact, Rao’s accounted for nearly 70 percent of Sovos Brands’ 2022 sales, or $837 million.

Sovos, which was only founded six years ago, went public in 2021. Early on, the company noticed that brands emphasizing craftsmanship, transparency and compelling narratives were on a rapid rise in the food sector. This led Sovos to acquire and foster such brands for greater expansion. Michael Angelo’s was its first acquisition, followed by Rao’s, now renowned for its exceptional sauce range.

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Since Sovos’ acquisition of Rao’s in 2017, the brand has expanded over ninefold, according to Yuri Hermida, the chief growth officer of Sovos Brands. A noteworthy achievement is volume-driven growth, particularly in an era where growth is often price-driven. With Rao’s, the brand has consistently seen close to 50 percent annual growth in volume. 

At $8 per jar, Rao’s sauces come at a much higher price point than fellow Campbell’s brand Prego. Despite the premium price tag, the brand has gained a cult following thanks to its inclusion of high quality ingredients and successful word-of-mouth marketing.

Rao’s impressive success has only been possible because some consumers are willing to spend more for quality items. While price is typically reflective of the various costs associated with production, packaging and distribution, Rao’s also uses it as a selling point. The high price point differentiates Rao’s sauce from its competitors since many consumers see it as an indicator of quality.

Campbell’s, famously associated with its soups and Goldfish crackers, might not initially seem like the right fit for a premium food label. But for a large corporation aiming to tap into the premium sector, acquiring a top-tier brand can be a strategic move. This allows the company to cater to customers already accustomed to upscale prices, without upsetting their current customer base by raising costs. 

When the acquisition was announced, Campbell’s and Sovos were enthusiastic about the deal; however, there was online resistance, especially from devoted Rao’s enthusiasts. Many voiced worries about potential changes in the popular sauce’s flavor or ingredients. As it stands, Rao’s promotes its Homemade sauces as free from added water, sugar, tomato paste or colors.

The new management has committed to maintaining Rao’s sauce’s signature taste. “We will not touch the sauce,” affirmed Mark Clouse, the CEO of Campbell’s. If the flavor stays consistent, most consumers likely won’t be concerned about the change in ownership.

The transaction is expected to close by the end of December.

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