Food Brand Investors: 5 Things to Fix Before You Sell09.25.18 / David Lemley
Food and beverage (F&B) is a hot market for investment right now. The number of investors backing small food brands has tripled in the past four years, as private equity firms, big food companies, and even tech-focused investors have entered the space.
Investors and behemoth companies are drawn to specialty F&B brands like RXBAR (acquired by Kellogg), EPIC Provisions (General Mills), and Bare Snacks (PepsiCo) because they’re passion-driven, founder-owner companies with great products and dedicated fans. Typically, private equity funding jumpstarts the brand from niche to mainstream, and then the investors sell to a big multinational that takes the business global.
We’ve witnessed the action from the inside. Working with investors and their leadership teams, we’ve seen what it takes to take a brand through that niche-to-global transformation.
So, you’ve invested in a brand that makes great products, employs good people, and has strong-ish sales. Your due diligence shows a big upside to this growth opportunity. Where should you invest first to get traction?
5 Areas to Target When Transforming a Food Brand
1. Employee engagement
A passionate workforce is usually one of the most appealing aspects of a food brand for investors. It’s also a stumbling block because passion can stand in the way of progress. Vision is the biggest problem here. Has the company’s vision changed from its early founding days? If there’s new leadership at the table, it probably has. And it’s no longer clear to the team.
As the new equity partner, if you don’t communicate the vision properly in a way that reassures employees, they’ll create their own narrative based on fear. Your message has to be more about growth and progress than about flipping and selling because passionate employees don’t want to be a part of something that’s solely transactional. A compelling vision for the brand’s future, communicated in a way that gets employees to buy in, is essential to keeping them engaged.
2. Sales and distribution
When facing the ever-increasing competitive set, a brand may struggle with velocity at retail. Having a defensible brand position with clear point of difference — one that the sales team believes in — is a game changer.
As an investor, you’re targeting growth, and you may have relationships that can facilitate new production capacity or distribution channels for the brand. That’s great. But you still have to make the sales team into evangelists. That’s where brand strategy comes in: It will give you the language you can share with the sales force so they can embrace the changes you’re implementing and move quickly to engage retailers.
3. Product innovation
Leaders of F&B brands talk about it, but they often misunderstand what it means or what it takes to be truly innovative. We see two key challenges for F&B brands in transition:
First, innovation is reactive, not proactive, focused on short-term gains instead of how new products extend the brand’s promise. Leaders make ingredient tweaks — hey, chia is hot now! — looking to get a sales blip.
Second, it isn’t supported by dedicated dollars and brains. Brands need a strategic pipeline of products coming one, three, even five years down the road. These new products may entirely replace the initial line.
As an investor, you need to view innovation through a macro lens, looking not at narrow trends like flavors but at megatrends that are long-term and global, like the shift to whole ingredients. For example, we knew five years ago that plant-based protein would be a major trend in food, so we’ve helped our clients push their products in that direction.
Innovation should be about meeting customers’ needs rather than pandering to their desires.
The topic of capacity comes up frequently in our work with F&B brands looking to spark growth. How can you meaningfully expand retail outlets when you don’t have the means to actually make more product? This kind of growth comes at a real cost, either buying capacity in another facility or building one yourself.
It’s a huge challenge, and equity investment can be the bridge. When we were working with a midwestern food manufacturer, for example, their goal of getting into Costco came with significant risk because they didn’t have the output to fulfill that business. Our market research showed that it was a good opportunity, however, so the brand’s PE partner made the move and invested in additional capacity.
The brand’s fundamental promises — and the way that you as an equity partner keep them — all affect the first four items. A solid brand vision engages employees with a clear and compelling value proposition. Meaningful points of differentiation will reassure your sales team and your retail partners of your brand’s market potential. Brand strategy drives new product development and new distribution channels. And it provides a benchmark for taking on risk.
Investors recognize that there’s big opportunity in F&B to transform a niche brand into a global name, a product with moderate sales into a must-have for consumers. The work takes vision and guts. It takes getting the right people at the table to have fierce conversations about reality, to use data to confirm or disprove assumptions, and to make decisions based on fact.