Multinationals Are Changing the BFY Game; Here’s What That Means

Dr Pepper Snapple Group snapped up Bai Brands. Hormel purchased Justin’s. Hershey now owns Krave Jerky. General Mills and Annie’s Homegrown. Famously, Kellogg and Kashi.

Rather than bootstrapping their own new product initiatives, multinational food and beverage companies are looking beyond their walls for innovation. They are scooping and slurping up niche brands at an astonishing pace. And big global players like Coca-Cola, Pepsi, Tyson Foods, and Campbell Soup Co. are launching their own business incubators seeking to invest in and shepherd smaller natural brands.

There’s no question that consumers are seeking clean, healthy(ish), whole, natural ingredients. Better-For-You (BFY) is no longer a niche grocery category (in fact, we’d argue, it’s not a category at all). Disruptive brands are coming not just from fringey startups, but from well-established global companies with lots of money to spend on promotion.

So how are these multinationals shaping the BFY space?

Big Food Companies Have Learned How to Handle BFY Brands

In 2000, Kellogg acquired the natural cereal and cracker brand Kashi — and it became the case study in how not to manage a beloved natural brand.

BFY consumers generally distrusted multinationals because they’re historically guilty of pursuing profit at the expense of quality, and clean ingredients. Big Food companies maximized return for shareholders, not consumers; part of what’s wrong with the standard American diet can be laid at their doorstep.

So when Kellogg brought Kashi to Battle Creek, MI, Kashi fans were concerned that what they loved about the brand — its commitment to organic, non-GMO ingredients, less sugar, and better nutrition — would be tossed aside. They were right to worry: Kellogg introduced GMO and non-organic ingredients, and consumers fled. At a business level, as well, the two organizations clashed culturally. Born in San Diego, Kashi was all about taking care of its products and its consumers; Kellogg was about taking care of the bottom line.

In the early 2000s, natural food was not yet a megatrend, and the BFY audience was still fairly small. When Kashi sales declined, the brand couldn’t make those sales up in other segments. While the acquisition put Kellogg on top of the cereal category in market share, the Kashi brand lost 35% of share to new startups in subsequent years. Eventually, Kellogg returned the Kashi organization to San Diego, restored its ingredient profile, and repositioned the brand, and Kashi has rebounded impressively.

We repeat this cautionary tale here to suggest that big food and beverage brands have learned from Kellogg’s mistakes (and, in fact, Kellogg has too, and is smartly managing its recent acquisition of RXBAR).

While consumers are still wary, global food companies have done a great job through acquisitions and incubators to steward natural brands in ways that retain trust.

Multinationals May Be Ideal Investors for BFY Brands

Big companies’ appetites for BFY products have changed. They are learning, listening to BFY consumers, and using their relationships with these BFY brands to shake up their old way of doing things and letting this new way of thinking permeate their legacy businesses. Kashi can’t transform Kellogg — but it can infect Kellogg in a good way.

What’s more, marketing and operational leadership within global F&B companies are changing. As Baby Boomers are exiting the workplace, a new generation of business leaders are Gen Xers, more of them women, who are longtime BFY consumers themselves. That ethos is more entrenched in large organizations than in the past.

All of which makes the multinationals more appealing as investors or owners to BFY companies seeking to grow or sell.

For small natural brands seeking a buyout, having multinationals in the mix changes the game; no longer are angel or venture capital (VC) investors the only option. Founder-owners are often fearful of outside investors.

Often, when VC investors take an interest in a BFY brand, they want quickly get a multiple on their investment. That can mean massive changes in the leadership team (often the founder is out), the organizational culture, operations, even the product itself. VC investors are playing a short game.

The next level of investors, private equity firms, typically are playing in the 3–5 year range. They’ll do what they can to keep the brand’s culture in place, but they’ll impose other big changes that won’t necessarily benefit the brand.

Multinationals, on the other hand, fearful of replicating the Kashi debacle, tend to value brand and culture above all else. They will shepherd a brand for 8–10 years, giving it a legacy that endures beyond the transaction.

These days, multinationals have created a different road where outside investment doesn’t need to feel like, “Wham, bam, thank you ma’am.” These companies have the infrastructure and resources and patience to nurture an acquired brand. It’s no longer about operationalizing and cost cutting to get growth. Hormel and Hershey and others are doing BFY acquisition right: Bringing innovation in a way that doesn’t defrock the original brand, building a portfolio that rounds out their offerings, taking their time, growing strong brands that stand for something.

If you care about your BFY brand, a multinational investor may be your best path to growth.