Startups have become the darlings of the food industry, offering the buzzwords consumers want (authenticity, transparency, sustainability, natural, organic) combined with the agility to pivot quickly once those buzzwords inevitably change. A small, successful brand is possibly the oxymoron of the manufacturing sector, as is hard to hold on to one title while keeping the other. Big companies have been trying to crack the code of the startup for a few years now, in hopes of creating brands that resonate with consumers in the way artisanal brands do, all the while grabbing market share back from these small companies.
But, it seems creating an authentic, gourmet brand out of thin air that is appealing to Millennials and other target demographics is harder than it sounds. The answer to this dilemma has become acquisitions, as buying a business that already has appeal and a customer base is much easier than growing one organically.
Rabobank analyst Tom Bailey reflected that sentiment in a recent report on dairy alternatives, noting as traditional dairy companies struggle to compete with the alternatives, one option is to continue their investment in the space, looking to buy what they cannot create on their own, reported CNBC (May 29).
The past few years have proven this fact, as large brands have drastically ramped up their acquisition efforts geared towards startup food brands. In 2017, Unilever alone accounted for many of these such mergers, acquiring specialty condiments maker Sir Kensington’s, organic herbal tea producer Pukka Herbs, natural and organic food business Mae Terra, the Tazo tea brand from Starbucks, and investing in meal kit startup Sun Basket. In addition, General Mills' food incubator 301 Inc. invested in healthy snacking startup D's Naturals and acquired a minority stake in Purely Elizabeth; Campbell Soup Co. acquired Pacific Foods; Cargill invested in lab-grown meat producer Memphis Meats; Conagra Brands acquired snack makers Thanasi Foods LLC, Bigs LLC and Angie's Artisan Treats LLC; Dean Foods invested in milk alternative producer Good Karma; Hershey Co. acquired Amplify Snack Brands; and Nestle acquired Chameleon Cold-Brew, meatless frozen food maker Sweet Earth, and stakes in Blue Bottle Coffee and healthy ready meals group Freshly.
In 2016, Hormel Foods Corp. acquired Justin’s LLC, a producer of specialty nut butters; The Hershey Co. acquired Ripple Brand Collective LLC, the maker of the barkTHINS snacking chocolate brand; and Jack Link's Protein Snacks acquired Grass Run Farms' meat snacks division. In addition, Danone merged with WhiteWave Foods Co. to expand its organic offerings and "appeal to future consumer trends."
This year was looking to be slightly less exciting than the others on this front, but then May rolled around. On May 6, Mondelez International agreed to acquire premium cookie and baked goods brand Tate’s Bake Shop for approximately $500 million. Then, just last week, PepsiCo Inc. entered into a definitive agreement to acquire Bare Foods Co., a maker of baked fruit and vegetable snacks. Other deals in 2018 include: Lactalis' acquisition of Icelandic yogurt maker siggi's, Saputo Inc.'s plans to acquire Shepherd Gourmet Dairy (Ontario) Inc., General Mills' investments in Rhythm Superfoods and Urban Remedy, and Tyson Foods' investments in Memphis Meats and Future Meat Technologies.
Many CPG brands will likely agree that their biggest competition isn't the other brands of their size, but all of these new, small companies combined. One startup isn't going to take away all of a big company's customers, but 500 might make a nice dent. One main advantage small businesses have over the major brands is their agility. They are able to quickly adapt to trends, develop new products and bring them to market much faster than a large company can, which helps them retain their connection with today's consumers. As shoppers become more concerned with trust, transparency and personalization, that agility and authenticity will become increasingly vital. It seems these startups will only become more attractive for acquirers over time, as the food industry keeps getting more competitive every day.
Jennette has been with The Food Institute since 2013. As Marketing Director, she is responsible for promoting all Food Institute books, seminars and webinars, as well as writing and editing the Food Institute’s annual publications. Additionally, she writes for and edits the daily news update, Today in Food, and contributes to the biweekly Food Institute Report. She has a background in non-profit and environmental marketing, programming and writing, and graduated from Rowan University in 2012 with a degree in Communication Studies.
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