Crispy fried tofu is prepared at a restaurant. (Photographer: Nicky Loh/Bloomberg)

The California Startup Selling America on Tofu

(Bloomberg Businessweek) -- Hidden behind gray walls and metal window guards on an industrial street in Oakland, Calif., Hodo Inc.’s tofu factory has a Willy Wonka-style energy. Vats full of soybeans bubble before they travel down chutes to be pulverized, strained, and compressed into giant cakes. In another area, workers toting supersize mesh strainers in each hand deep-fry cubes of tofu in oil. Later, they’ll add seasonings for products such as Hodo’s best-selling Thai curry nuggets.

On an average day, Hodo goes through 30,000 pounds of American soybeans to produce 40,000 pounds of organic soy-based products ranging from plain firm tofu to fully cooked, ready-to-eat meals of flavored tofu cubes. The products are sold across the country, from gourmet markets in San Francisco to health food stores in Brooklyn. Hodo is used by the salad chain Sweetgreen and the Michelin-starred State Bird Provisions in San Francisco. In a June Nielsen data report produced for Whole Foods Market Inc., Hodo was cited as one of the fastest-­growing companies in the plant-based protein category, which includes competitors such as Sweet Earth Foods, Wildwood, and Tofurky. Hodo’s current revenue is $15 million, with year-over-year sales growth of 35.9 percent.

Plant-based foods—the kind packed with legumes, seeds, and vegetables, once synonymous with unappetizing dishes from the 1970s—have become a lifestyle ­statement as more consumers focus on the environmental impact and health risks of eating too much meat. According to a 2017 Nielsen study, more than one-third of Americans—39 percent—described themselves as ­pursuing a more plant-based diet. Much of the buzz is about engineered vegetarian and vegan products. Silicon Valley company Impossible Foods Inc. has ­created a popular faux meat from soy and plants; it mimics real beef so closely that the company’s Impossible Burger “bleeds.” The company has raised $400 million and ­captivated Bay Area venture capitalists. Tofu, on the other hand, the world’s oldest plant-based protein, ­dating to 2,000 years ago, is seen as a relic of the ­hippie set.

Minh Tsai, founder of Hodo, wants to give tofu a culinary makeover. The 47-year-old Vietnamese-born entrepreneur came to the U.S. in 1981. He received both a B.A. and a master’s from Columbia University, then worked in finance at JPMorgan Chase & Co. and Charles Schwab before shifting his focus to tofu.

Tsai grew up in Vietnam eating what he describes as an exceptional version of tofu produced by mom and pop shops. He saw an opportunity in the U.S., where, in his view, the major Asian manufacturers made good tofu that wasn’t organic, and local companies made organic tofu that wasn’t very good.

For two years, Tsai sold his homemade tofu at a farmers market in Palo Alto. Farmers market shoppers, he says, “care about organic, local products, and they have disposable income.” He quit finance in 2004, pulled together about $80,000, and started Hodo. One of its first items was a line of chewy strips of paper-thin skins that resemble pasta, called yuba.

In 2005, Tsai brought on a business partner, John Notz, who became chief financial officer and helped raise money for a factory, 10 percent of which came from loyal farmers market customers. They invested in equipment, including a soy milk-producing machine and a conveyor press, and opened the facility in 2008. Hodo products were soon selling in stores including Bi-Rite Market and Whole Foods in San Francisco.

Hodo now makes about a dozen products, with several items rolled out every year. In 2018 the company created a line of regionally flavored tofu cubes including Moroccan spice and Mediterranean harissa, which come in 8-ounce packages and retail for about $6. A major expansion of the factory, from 25,000 square feet to 40,000, will be completed this fall, raising production capacity to 70,000 pounds of soy product a day.

More stores will stock Hodo’s products, too. By the end of August, Hodo will be in all 450 U.S. Whole Foods stores. Tsai is talking to Target Corp., though there’s no deal yet, and he’s testing new products on Costco Wholesale Corp.’s “roadshows,” events where vendors sell merchandise at the store for a limited time. Soy-free products also are in Hodo’s future. “We will explore all possibilities with the plant-based set, from ready-to-eat to drinks to snacks,” Tsai says.

Kyle Connaughton, chef and owner of SingleThread Farm in Healdsburg, Calif., winner of the World’s 50 Best Restaurants’ One to Watch award for 2018, has used Hodo products since he opened the restaurant in 2016. “They’ve developed an entire line of soft, Kyoto-style tofus that are incredibly elegant and consistent,” Connaughton says of the sumptuous, indulgent product. New York chef Brooks Headley features Hodo products at his acclaimed vegetarian spot, Superiority Burger.

For Tsai, this next phase of Hodo represents a brand refresh. “The word ‘tofu’ has baggage. ‘Plant-based’ has become an exciting phrase in popular conversation, and it represents the mainstreaming of plant-forward eating,” he says. “I want to reframe this product that’s thousands of years old, so people talk about it as much as they talk about the Impossible Burger.”

©2018 Bloomberg L.P.