
Hampton Creek Ran Undercover Project to Buy Up Its Own Vegan Mayo - pgroves
http://www.bloomberg.com/news/articles/2016-08-04/food-startup-ran-undercover-project-to-buy-up-its-own-products
======
themgt
> _In at least some cases, Hampton Creek lumped in expenses related to buying
> its own products with wages paid to contractors, according to five former
> workers. All five said money they were given to buy jars of Just Mayo were
> treated as taxable income, making them liable for a higher tax bill than
> their actual earnings would require. One former contractor provided H &R
> Block tax records showing this to be the case. Another Creeker asked the
> company in an e-mail to separate the expenses from taxable income. But the
> request was ignored, the contractor said. Hampton creek declined to comment
> about the alleged practice._

Sketchy and unacceptable

~~~
homegarlic
Almost anyone in a highly competitive market doesn't play by the rules.

Isn't it sketchy when egg-carton has a chicken freely roaming the grass on it?

Isn't it sketchy to write cage-free when the chicken is in a dark large
container clumped together with hundreds of other chickens?

They are selling a product that has to compete with billion-dollar businesses
that already have plenty of sketchy and untruthful marketing.

They spent a meager 77k on this and somehow that is unacceptable.

It's just the same if not less worse than what their competition does.

~~~
thieving_magpie
It's sketchy to call egg-free-white-flavored-oil-mix Mayo. It's sketchy to put
a giant egg on your egg-free mayo.

"While Just Mayo is egg-free, Hampton Creek Chief Executive Josh Tetrick also
emphasized that it doesn’t use the term “mayonnaise,” only “mayo.”"

It's mayo, not mayonnaise you silly consumers.

[http://www.wsj.com/articles/just-mayo-reaches-agreement-
with...](http://www.wsj.com/articles/just-mayo-reaches-agreement-with-fda-to-
keep-name-change-label-1450394163)

edit: You know, of all the things I could comment I talk about eggless f'ng
mayo. I wish I could delete this :)

~~~
Shog9
Meh. Mayonnaise is mostly emulsified oil anyway. The egg helps emulsify it and
adds a bit of flavor, but it ain't like you're eating much egg on your
sandwich or salad.

Which is fine; oil is tasty. I'm sure Just Mayo tastes fine.

The misleading marketing (trumpeting health benefits or - like our parent post
- less animal cruelty) is fairly ridiculous though.

~~~
nikatwork
_> The misleading marketing (trumpeting health benefits or - like our parent
post - less animal cruelty)_

If the product truly is free of animal products, then it is most certainly
reducing animal cruelty compared with mass-farmed chicken egg mayo. Ethics
aside, that is an objective fact.

~~~
erikpukinskis
> Ethics aside, that is an objective fact.

It's actually not an objective fact. Compare two scenarios:

10 acres of rainforest were clearcut to grow palm oil to make the mayo

1/2 acre of grassland in Iowa that was previously used for corn is allocated
to raise pastured happy chickens, rotated with market heirloom grains. They
are allowed to live out their natural life, and are fed even after they stop
producing eggs.

Which of those scenarios has more animal cruelty? In one situation you are
essentially committing genocide of an entire microecology, in the other you
are giving some animals an incredible life, and eating part of their waste
stream, eggs which are not necessary for their survival or happiness, and in
fact are over-budgeted in their genetics to allow for predation.

Veganism is an _OK_ heuristic for animal cruelty, but it's far from perfect.
It's often better than nothing, but a vegan Whole Foods diet may well cause
more animal harm than someone living near the poverty level in, say, Korea,
eating some animal products, but also making much more efficient use of land.
Vegans love to pretend land use doesn't matter, but land use = animal
displacement.

Eating more plants can be a great way to reduce cruelty. But Vegan\ _ism\_ as
a hard rule is more about religious purity than it is about animal cruelty.

Signed,

Someone who ate entirely vegan today and most days

~~~
kevb
Just Mayo does not include palm oil

While it might be a fun thought experiment to find situations where a non-
vegan dish includes less animal cruelty than a technically vegan dish, for
99.99% the people reading this and in 99.99% of the real world situations they
ever be in, choosing the vegan dish will mean choosing significantly less
animal cruelty.

A common pro-vegan argument is actually less land use for growing feed crops
for raising livestock.

~~~
erikpukinskis
I never said Just Mayo includes palm oil.

And I'm not really impressed by your made up statistics. Again, if you
actually cared about animals you would actually care about the numbers, and
not just make up fake percentages to make your decisions seem better.

It's not hard to find vegan diets that destroy more habitat per calorie than
many meat-based diets. Look at hunting for example, which is often a net
positive for animal habitat.

------
SwellJoe
I really like Hampton Creek products (I'm vegetarian, and my girlfriend is
vegan, but Just Mayo is a high quality product regardless of whether you eat
eggs or not). I'm honestly excited to see it show up in local stores, and have
been known to go to stores that I know stock it specifically to buy it. But,
this is pretty sketchy behavior.

I guess investors will be forgiving if the growth of the company ends up
catching up with the faked numbers, which seems to be what's happening, but I
dunno if the stores will be as quick to forget. Then again, if demand catches
up quickly, they may not mind, either.

~~~
jdoliner
> but I dunno if the stores will be as quick to forget.

Why would the stores be mad about this? It seems like Hampton Creek has
basically sent them a jar of Mayo for $5 and then turned around and bought it
back from them for $10. (I'm making these numbers up but I'm assuming the
stores aren't selling this Mayo at a loss.) Stores should be happy to do that
all day long.

edit: I guess part of the reason they did this was to deceive the stores into
giving them more shelf space. I could see that rubbing stores the wrong way.

------
bluejekyll
This is yet another young company that I've heard of which is being driven by
a desire for quick growth by trying to short-circuit the natural growth of
their product.

LendingClub: misrepresenting financial standing of borrowers. Theranos: their
new test is as accurate and more efficient than existing tests. Zenefits:
dodged proper training of employees.

All of these seem to be inline with spurring growth. Is the expectation of
quick return and/or increased valuation (no down rounds) driving companies to
make these poor decisions?

~~~
2muchcoffeeman
'It's easier to ask for forgiveness than permission' seems to be a feature of
American startups.

~~~
kevindong
I mean, that's basically Uber's business model.

~~~
paulcole
AirBnB as well.

~~~
dsfyu404ed
toss in manifest destiny while you're at it.

------
dpiers
They're defrauding retailers by manipulating the results of their trial runs,
resulting in larger buys and wider distribution than they would have obtained
otherwise.

I would be surprised if the retailers didn't have language in their agreements
prohibiting this type of behavior. If the product ends up having high sell-
through rates, this is just a clever growth hack, and it's a win-win. However,
if the product doesn't sell after they tricked a retailer into putting a large
quantity of product on shelves nationwide, it could easily end in litigation.
Especially if these test runs and subsequent retail orders were material to
the investment decisions of their backers.

Also: if they engaged in these practices, it probably isn't the only
unscrupulous thing they've done. A fish rots from the head/where there's smoke
there's fire/etc.

------
bagacrap
Perhaps naive, but how is this different from spending investors' money on
traditional or viral advertising? Seems like either way they are spending
money to create demand. Is the only difference how it shows up in accounting?
I wouldn't feel too bad for their business partners---Safeway was still making
a profit, presumably, just as an advertising company instead of a retailer.

~~~
alanpost
One salient detail that's a bit difficult to pick out of the article: Hampton
Creek gave cash to contractors with instructions to use that cash to purchase
Just Mayo. However, they recorded (some of?) these cash payments as wages on
those contractor's 1099s, meaning those contractors had to pay taxes on that
"income" when in truth this was (at best) a business expense.

~~~
paulcole
What I don't get is why the contractors didn't just claim the expense on their
taxes to striaghten it out?

~~~
pcvarmint
Because their expenses would have to total at least 2% of their AGI in order
for them to deduct them.

This means someone making $50K would need to buy $1000 worth of Just Mayo or
other qualifying unreimbursed expenses.

------
alaskamiller
Reddit: faked accounts to seed activities

AirBnB: scraped and spammed craigslist

OrderAhead: faked phone in orders to restaurants not participating

LendingClub: faked financial viability to lenders

Zenefits: faked hours for accrediting licenses

Homejoy: faked out investors

~~~
rwc
And Theranos?

~~~
alaskamiller
Different class.

------
coverband
How is this different from other guerrilla marketing tactics? If I'm a small
company just starting operations, of course I'll do whatever I can to make
myself look to be more in-demand. Not defending the accounting or
payment/expense irregularities, but if they were only spending a small amount
that could otherwise be spent on advertising, I would consider this an effort
to help them take off in the marketplace.

~~~
WhitneyLand
They lied to investors about it and won financing based on the results of
falsified sales data.

~~~
coverband
I'm not endorsing fraud, but if they spent only $77K (or twice as much) to
carve their product some shelf space against Kraft or Conagra with their
billion-dollar marketing budgets, I would look at their action in a different
light. Without knowing the true intent and just based on the limited info
presented in the article, IMHO, this is not in the same league as what
Theranos was doing.

~~~
tssva
They have shown themselves to be deceitful, so how can you have any trust in
that $77K number?

------
repnation
[http://www.businessinsider.com/hampton-creek-ceo-
complaints-...](http://www.businessinsider.com/hampton-creek-ceo-
complaints-2015-7)

Let's not forget, no one really has any idea what is in their "mayo." They've
been caught lying about ingredients and their "huge" database of flavors

------
dfsegoat
This is not at all surprising if you know anything about putting a product
into retail: Big box retailers have suppliers pretty much literally bent over
a barrel (unless you are PG, General Mills, etc).

If your product does not sell through (volume in units) to their satisfaction
in ea. / every store or region, typically you will be contractually bound to
do almost all of the following:

* You will pay them to buy all product back

* You will pay logistics / restocking fees to remove the product

* You will have to figure out how to put all that product back onto your books.

Compound that with a highly perishable, refrigerated product - and of course
this happens all the time.

^Edit for punc ^^ edit for detail

~~~
xenadu02
This is all true and it is even worse in many cases. Wonder what those "don't
return this item to the store" notices are about? Most big box retailers have
automatic refund percentages and penalties built in so every returned item
gets placed in the trash compactor and the manufacurer eats the cost plus a
penalty. Too many returns result in escalating penalties.

------
woodruffw
Isn't this the same company than ran afoul (no pun intended) of the FDA for
labeling their non-mayonnaise product as mayo?

I bought a jar of their stuff about two years ago. It was essentially
thickened vegetable oils and a sizable heaping of salt and coloring. I was
unimpressed, to say the least, considering how far vegetarian and vegan
alternatives to meat and dairy have come in the last decade.

------
hristov
Hampton Creek are flat out dishonest. They have a product that is not
mayonnaise, but they call it mayo. Furthermore, their product does not include
any eggs but they had a huge image of an egg dominate their entire label. The
entire product was based on a lie and I am not surprised they tried to mislead
their investors and distributors as well.

I am all for removing animal products from the diet but that does not excuse
lying to the consumer. If you think you have a great egg-less mayo like sauce,
you should be proud of the fact that is egg-less and make sure the consumer
knows it. Not hide it.

And no it does not taste anything like mayo. It has a weird spicy taste.
Mayonnaise is not supposed to be spicy. Some people may like it, but the
people that are expecting the taste of mayonnaise will be quite disappointed.
I am willing to bet that a lot of food has been thrown in the trash because of
this little marketing trick.

~~~
erikpukinskis
What about bacon fat mayo, which is made with bacon fat instead of the
traditional olive oil?

Or how about Hellman's which almost certainly doesn't use olive oil, instead
using some cheap vegetable imitation, should that be allowed to be called
Mayo?

In Japan they use apple cider vinegar or rice vinegar, should that also be
labelled as "rice-vinegar based mayo-like sauce"?

~~~
jstsch
Mayonnaise is almost never made with 100% olive oil. It will dominate the
flavor (sharp/grassy/bitter). A dash is fine, but a neutrally flavored
vegetable oil like canola, rapeseed or sunflower oil is typically used.

~~~
erikpukinskis
From Wikipedia:

> According to Trutter et al.: "It is highly probable that wherever olive oil
> existed, a simple preparation of oil and egg came about — particularly in
> the Mediterranean region, where aioli (oil and garlic) is made."

So, no. What you are talking about is some imitation Mayonnaise-like sauce
which should be law not be allowed to be called "Mayo". Because that's what
the legal system is for: protecting the traditional definitions of foods from
people like you who think some sort of cheap Canadian imitation flower seed
oil should be allowed to be used in a traditional recipe like Mayonnaise.

------
hyperbovine
> “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. :)”

Wow! :) Shady! :)

As far as displacing Hellman's, good luck with that.

[http://webcache.googleusercontent.com/search?q=cache:uWZnLEm...](http://webcache.googleusercontent.com/search?q=cache:uWZnLEmJ64wJ:www.slate.com/articles/life/food/2013/12/hellmann_s_mayonnaise_formula_why_does_this_high_amplitude_condiment_taste.html+&cd=1&hl=en&ct=clnk&gl=us)

~~~
homegarlic
When the tax benefits of the farming industry start to fall, the prices will
go up, and the Hellman's may become a niche product.

This is just engineering and science at it's best. Produce food that tastes
the same but has a much smaller production cost. The energy conversion from
soy to chicken egg to mayo is less efficient than soy to liquified soy with
some protein emulsifiers (not that it's made out of soy, I just picked soy
randomly).

------
dismal2
I guess that's one definition of dogfooding!

------
kristianp
Scrolling away from the video prevents it from playing on the news sites I
usually visit. Not Bloomberg!

"Don't try to get away from that video by scrolling down to the article, we'll
keep it in the corner for you!"

Thanks bloomberg. Adding their video player to ublock.

------
Overtonwindow
I don't see any problem with this. If it's illegal, then prosecute them. If
it's not illegal, then it's up to the shareholders to hold the executives
responsible. I don't see how consumers were defrauded or deceived in any way.
Major food producers pay huge buckets of money to be on those grocery store
shelves. And we know the major food producers have been trying to put Hampton
Creek out of business since it started. I like Just Mayo and I say good for
them.

------
fasteddie
A friend at a mobile gaming company once had to run an analysis on the
cost/benefit of spending her company's money in one of their game to drive it
up the top grossing charts. The question was whether high placement on the top
grossing charts could drive a lower CaC (the cost being the 30% of spend that
goes to apple) than buying similar amount of users through FB ads.

~~~
trimbo
Soooo... did they do it?

------
WhitneyLand
They have placed themselves on the wrong side of the line between growth
hacking and actionable fraud.

Worst yet, when Josh Tetrick (CEO) was called out on it, he tried to justify
it rather than coming clean and promising not to do it again.

He'll be lucky not to be sued by investors since funding was granted based on
falsified data.

------
kumarski
I love the mindset of this founder for utilizing this tactic. I'm okay with it
as long as the LTV exists.

Reddit faked comments in the early days. SocialCam juiced user invites before
Apple banned the practice.

I see this as no different. I do however believe they should have outsourced
the calls more efficiently utilizing something like upcall.com.

This founder believes he has the vaccine of sorts to a ton of waste and if the
result is a product that will reduce consumption because it's environmentally
friendly, I'm okay with him being a bit vicious with it.

Also for QC, you usually buy a statistically small number of units.

You can't do this type of fake demand tactic though without letting the
investors know. I think that's murky territory.

Homejoy did something similar buying fake reviews and juicing yelp reviews.

So there's always a fine line, really it's important to make sure you have
lifetime value on the product.

------
brazzledazzle
If you're going to order your employees to do questionable things you'd better
make sure they're treated right. You would think it goes without saying...

~~~
brazzledazzle
Upon rereading this it may seem like I support what is ostensibly fraud and I
should make it clear that I do not. I just wanted to note that mistreating
(and in some cases apparently defrauding) someone who can testify against you
is probably not a smart move. It speaks to their ignorance, stupidity or
perhaps narcissism.

------
ars
I'm finding it hard to be troubled by this.

If real customers will not buy the product then it will fail, no matter how
much the company tries to fake it.

It's not that different from gaming the system to get on the Best Seller list.

Or how movie studies get their films to rank high so everyone thinks it's the
thing to watch.

Or to mess with amazon sales rank.

