In order to participate in this round of funding, investors must contribute at least $299.88 apiece to the firm’s crowd raise. In exchange for cash, investors will receive common shares in the business, valuing the firm on a pre-money basis at $4.11 million. This is actually quite low, all things considered. It is because of this low valuation that Z0Cal rated highly on its Price score.

The market for ice cream and other related deserts is not exactly great. In a space where the majority of players are 50 years of age or older, it’s difficult to grab a slice of the pie. In the US alone, one source pegs the market opportunity at about $13.7 billion. But that same source also believes there will be little to no growth in the 1.4 billion gallons of the product consumed annually between now and 2024. A different source thinks the market is a bit smaller at $11 billion. Globally, the space is quite a bit larger. One source puts the size at about $64.5 billion. This says a lot about the American market. It is responsible for 21.2% of the world’s ice cream and frozen dessert consumption by dollars spent, but accounts for only 4.5% of the world’s population. That same source believes that the market should grow at a rate of about 4.1% annually until reaching $78.8 billion in 2025. Though this market is sizable, the growth rate is not particularly fast. The presence of well-established players in the space combined with how competitive the food industry is in general resulted in a middling Market rating for Z0Cal.  

The mastermind behind Z0Cal is Jareer Abu-Ali. He is the founder of the business as well as its CEO. At present, he is also the CEO of New Direction Foods, which is involved in the food and beverage research space. Its main foray recently has been the production of gelato, but it also has a relationship with Z0Cal. Earlier this year, New Direction Foods handled the distribution of (and in turn collected all of the revenue associated with) Z0Cal. That relationship has since ended, and the business now only acts as a co-packing partner of the startup. Abu-Ali also has other valuable experiences in this space. He is also the Director at Naresuan University’s ASEAN-American Industrial Food Consulting Center. That organization provides consulting services to companies in the food market. These services are centered around new product development, cost reduction, and market research. Before that, Abu-Ali was a Director of Product Development at Pinnacle Food Corp. He also served at one point as the Head of Global Gum Innovation at Cadbury-Kraft Foods. Another prior experience for him was a stint at Pepsi as a Senior Research Scientist. 

The other key member at Z0Cal is Dr. Puntarika Ratanatriwong. She presently serves as Director of R&D. Since 1995, she has worked as an Assistant Professor at Naresuan University. At one point during that period she was employed by Nestle as a Researcher. Ratanatriwong also earned a PhD in Food Science and Technology from Ohio State University. 

In all, the experiences of these top two members of the Z0Cal team are impressive. Both core members are well-educated on this topic, and the CEO in particular has a variety of valuable experiences to back his education up. This resulted in the Team score being one of Z0Cal’s higher across the five metrics.

Ice cream and other frozen desert consumers have — for a long time — had to choose between good taste and good health. Good taste has often won historically, but now a middle road seems to be opening up. If management can gain sufficient traction with its product lines, it will provide a truly healthy option at a quality taste for frozen food lovers. Of course, ‘good taste’ is subjective, but the key determinant of success will be the amount of control the business can wrest from its competitors. The company’s focus on allulose and its proprietary production process are clear differentiators. But it would be a mistake to assume that Z0Cal is the only player to capitalize on this opportunity. One competitor, for instance, is Sweetie. It has dozens of locations spread across at least four states. It also operates a direct-to-consumer sales strategy like Z0Cal does. Z0Cal’s proprietary process, however, could be a material differentiator for the firm. While the product itself is interesting and different from a lot of other products out there, it really is hard to be truly differentiated. It would not take much for a competitor to at least mimic the use of allulose and, in fact, we have already seen other players do it. This has resulted in a lower rating for Z0Cal’s Differentiators score.  

At this time, financial information about Z0Cal is more or less non-existent. The company launched its brands earlier this year and for 2019 it recorded nothing in the way of revenue and no costs. This is odd for a company with products under development, but there are reasons why this may be accurate. For instance, products developed may not have been done under the umbrella of the existing business.  In particular, if the products were created prior to the start of the enterprise or if they were initially created under a different entity.  Management boasts bi-coastal sales and a growing direct-to-consumer business. This means that some revenue and expense should exist for 2020, but nothing has been made known publicly at this time. That does go a long way toward explaining the low valuation on the business. Similarly, it serves as justification for Z0Cal’s extremely low Performance score.  

While investors like to cheer for the little guy, the fact of the matter is that management has chosen a tough market. While sales are growing globally, the frozen dessert market in the US is stagnant. Slow growth or no growth at all makes it difficult to expand, especially in a market dominated by players more than half a century old. At this time, Z0Cal’s low valuation is reflective of its traction. But investors should push to see financials to get a better idea of where the business is fundamentally. Throw in uncertainties caused by the COVID-19 pandemic and there’s a lot to be bearish about.

On the bullish side, there’s a lot for investors to be grateful for. Z0Cal is aiming for a targeted, underserved niche in this space. Its valuation is also lower than most startups. This could provide more upside for earlier investors, all other things remaining the same. The health-conscious trend in the US should help to bring customers in, but price and taste will be the largest determinants of Z0Cal’s success. Its bi-coastal exposure and healthy characteristics should be a net positive in the eyes of investors and customers alike.

Z0Cal is a fascinating concept. Though the market the company works in is saturated and growing at a slow rate, the niche the firm hopes to fill should be in demand. This is especially true when you consider the shift toward healthy eating. Some uncertainties do exist, primarily centered around the firm’s traction since launching. But with a low pre-money valuation, the risk isn’t as much as if the firm were priced higher. In all, though, until we can see that traction and see just how well the business can grow in the years to come, it’s difficult to grant it anything north of a Neutral rating. 

For questions regarding the KingsCrowd staff pick or ratings for this company, please reach out to support@kingscrowd.com. 

Analysis written by Daniel Jones.