Founder Nancy Rosales has upended tradition

 After working for KRON 4 in San Francisco, Rosales went into retail with her sister in 2007, and opened a storefront called Pepito's Ice Cream in San Francisco. One specialty: paletas, or Mexican ice pops.

"In 2008, the economy tanked," says Rosales, noting sales dipped from $1,000 a day to $100 a day. "In 2010, we were out of money."

After the shop closed, customers kept calling her looking for paletas and she decided to go into manufacturing at a commercial kitchen. "I took all my grandpa and grandma's recipes," says Rosales.

These aren't Bomb Pops. Pepito's Paletas contain zero high-fructose corn syrup, but agave syrup, fresh fruit, premium ingredients, and -- in some cases -- tequila.

Chunky Mango and Mexican Hot Chocolate are top sellers, but the selection is tied to the availability of ingredients, ranging from guava and watermelon to caramelized bananas and Oreo cookies. Beyond the liquor-infused paletas, there are also cleanse paletas and other healthy recipes. "We try to avoid water. We don't use sugar, we use agave honey. We're trying to push healthy ingredients," says Rosales. "We're really doing a 180 on what's happening in the popsicle world."

 But that's not the only anomaly at Pepito's: Rosales moved to a web-based model to deliver paletas and ice cream directly to customers. "I started doing weddings and parties," says Rosales.

Volume hit about 5,000 paletas a month, then San Francisco International Airport called with an order for 6,000 paletas. "I said, 'This is big,'" she says.

But scaling on demand simply wasn't possible without rethinking the manufacturing model. "It's such a labor-intensive business," Rosales notes. She says it wasn't profitable and she had to turn away orders due to a lack of capacity.

She filled the order "and learned from that experience," so Pepito's started working with California Popsicle, a manufacturer in South San Francisco, in 2016. At the same time, she moved away from ice cream to focus exclusively on paletas.

"I did reach out to three other places," Rosales adds. "They were either too busy or couldn't take on another customer. . . . Everyone is busy doing their own product -- they don't have time for mine."

  But that wasn't the case at California Popsicle and its focus on co-packing. "The pricing was right, and I could focus on the marketing," she says. "I feel we've grown together."

Monthly volume has tripled in the time since to 15,000 paletas, and California Popsicle has plenty of capacity to accommodate more growth. "I'm also helping him get more clients -- because if he shuts down, we all shut down," says Rosales.

The model continues to eschew retail distribution as the company has teamed with event planners to grow sales. Beyond weddings and parties, Pepito's now supplies Silicon Valley. "We cater for Facebook and Google and everyone under the rainbow," says Rosales, noting that the minimum order is 150 paletas, the average is 300, and orders of 2,000 aren't uncommon.

 The model dovetails into innovative packaging developed in-house to cut distribution costs. "I was paying $1,500 a month just to keep the freezer going," she says. The Pepito's Signature Box eliminates this expense with dry ice and layers of cardboard and wax paper, and keeps up to 300 paletas frozen for up to eight hours. "It's taken me six years to figure it out," she says. "I've gone through so many boxes."

That dovetails directly into same-day delivery from Napa to Monterey. "If it's fresh, it melts in your mouth," says Rosales.

Challenges: "Not being able to deliver the orders if we get a lot," says Rosales. After meeting with UberEats, she is working towards a Pepito's-branded scooter to deliver paletas in San Francisco.

The nature of the Pepito's Signature Box has made it much simpler. "That's the beauty of the box," she says. "I didn't have to have a freezer truck."

Managing growth is also challenging. "Baby steps," Rosales says. "I don't want to create a monster I can't control."

Opportunities: More work with the big Silicon Valley players is one. "I wanted to get into tech. How can we get in without a tech degree?" says Rosales. "Now we're at those events."

Because of the focus on local fruit, she doesn't envision shipping popsicles much beyond the Bay Area. "If I were to do that, I'd want to do it franchise-style," she says.

Rosales says she sees an opportunity to get back into retailers like Whole Foods with same-day delivery of Pepito's Signature Boxes. "That would be my dream," she says.

"We're really banking on this summer," adds Rosales. "This year, I think it's definitely going to pick up because of all of the marketing. We just got all of the caterers on board."

Needs: "Capital," says Rosales. "More capital than we have to scale up to where I want."

As Pepito's is a profit-sharing co-op, she's also looking for more partners. (Pepito's currently has nine, and other 12 employees at California Popsicle are also partners.) "Five more would be awesome," she says.

"This is the way it should be," says Rosales of the co-op model. "I don't want to be a millionaire and see my employees struggle." She adds, "They're going to treat the business like their own."