Food Businesses

Can Established Food Brands Stomach a Change in Customer Demands?

Can Established Food Brands Stomach a Change in Customer Demands?
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This story appears in the December 2015 issue of Entrepreneur. Subscribe »

While sales of legacy brands are stalling at America’s leading packaged-foods companies, mission-driven “healthy” brands are boasting double-digit growth. But keeping up with soaring consumer demand is harder than it looks. While additive-free, non-GMO, organic brands are killing it at specialty-foods stores, these innovative companies often lack the financing, marketing muscle and global distribution to go head to head with traditional brands in supermarkets.

Increasingly, the solution is to sell out. Smaller brands are finding the support they need by forming what used to be considered unholy marriages with food conglomerates. In September, Niman Ranch, a natural pork, beef and lamb producer, became a division of poultry giant Perdue Farms. That followed the $775 million sale of Applegate Farms, a producer of “natural” deli meats, to Hormel Foods. A year ago, Berkeley, Calif.- based organic packaged-foods high-flyer Annie’s Inc. sold for $820 million to General Mills.

Such deals are a rational response to revolutionary change. Twinkies and Doritos cannot be reengineered to be healthy. And consumers aren’t fooled when big food companies cobble together “healthier” choices that contain a laundry list of unpronounceable ingredients. The conglomerates’ remaining option is to acquire smaller brands.

But can those blamed for the obesity crisis provide a decent home for kale lovers? In the struggle over resources and standards, will the acquired company be Kashi-ed? “We studied Kashi closely,” says Annie’s president John Foraker. “General Mills gets it. Kashi is a cautionary tale for them, too.”

In 2000, Kellogg Co. bought La Jolla, Calif.-based Kashi and showered it with resources while allowing it to march to the beat of its own drummer. For nearly a decade, the healthy star of the cereal aisle flourished. The growth stopped when Kellogg integrated Kashi into the same manufacturing and marketing unit as Frosted Flakes. GMO ingredients were everywhere, and Kellogg paid a $5 million settlement after customers sued the company for using synthetic chemicals in cereals labeled “all-natural.” In 2013 Kashi’s California offices were closed. Two years later, after Kellogg’s public mea culpa, Kashi’s sales haven’t recovered.

Annie’s home office remains in Berkeley. “We make our own decisions,” Foraker says. “We’ve kept control of our brand expression and our ingredients.” Most significant, General Mills has expanded its commitment to organic agriculture. The goal is to double organically farmed U.S. acreage to 10 million acres during the next decade.

“Annie’s values are a guiding influence at General Mills,” Foraker adds. “There is a lot of change at Big Food. If they want to remain relevant with customers, they have to change.”

And that change needs to be real. “Authenticity is hard to fake,” Foraker says. It’s especially true for corporate giants faced with a healthy dose of consumer skepticism. That vigilance may just be a healthy food brand’s best protection.

Edition: December 2016

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