Why It's A Good Time To Be A Startup In The Healthy Food Space
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Here’s a look at some of the news headlines in the food business that we’ve been exposed to in the recent past:
• The Hershey Co., maker of the eponymous Kisses, announced in December 2017 that it is to acquire SkinnyPop parent Amplify Snack Brands for about US$1.6 billion.
• RXBar, maker of “whole food” protein bars, was bought by Kellogg’s in a $600 million deal in 2017.
• Hormel Foods Corporation acquired Justin’s Nut Butters for $286 million in 2016.
• Also in 2017, Danone acquired White Wave, whose portfolio of branded businesses specializes in organics and health-focused products that command a price premium. The $12.5 billion deal was Danone’s biggest in over a decade.
• Meanwhile, the retail world is still reeling over Amazon’s $13.7 billion deal to acquire Whole Foods in June 2017.
• In a substantial $2.3 billion deal, Nestlé, the maker of Kit Kat bars and DiGiorno’s frozen pizza, acquired Atrium Innovations, a global leader in nutritional products, in 2017 as well.
As the above headlines show, companies like Nestlé have been hit by the pervasive trend for healthier, more natural food, which has reduced demand for Nestlé’s crucial confectionary. As consumer awareness grows, people are looking for better healthier alternatives to the usual “full-ofsugar snacks.” Bigger brands are also trying to get into the healthy game by acquiring healthy food players. The healthy food market is growing at 30% year-on-year as compared to 3% of conventional packaged foods– presenting a huge opportunity.
But why are these guys acquiring companies instead of creating new brands?
As customers move towards the healthier food trend, they have started to lose trust in the larger companies to produce something that’s actually healthy, and rightly so– we know that “Diet Coke” is not really “diet,” some people claim it’s actually worse than the normal version of the soft drink.
At the same time, larger players are also looking to maximize margins. Whereas smaller companies are creating products out of a real need to bring something that’s good for people into the market. Customers are trusting these smaller players more, given their authenticity and personal stories, as opposed to yet another product from a conglomerate.
Not only is it hard for the larger players to build trust in the healthy food space, they also tend to lack innovation when it comes to producing something new. Who would have thought of healthy popcorn, or healthy truffles- the latter is something we do at my enterprise, Protein Bakeshop.
As for the rise in acquisitions: large F&B conglomerates are buying food startups, because we have something they don’t: we have a story, a heritage, an authenticity. The food giants can’t recreate authenticity within a brand that is already standing- for example, consider Snickers Protein: it’s still a Snickers, thus people will be wary of trusting it as a protein snack.
Keeping this in mind, it makes sense for the big corporations to buy the little fish, as the storytelling is done, the trust has been created, and it’s already bought into by the consumer. The latter is one of the hardest parts in creating a trustworthy, popular food business- especially in this health conscious, considered purchasing day-and-age where people buy into a story or reputation more than ever. Up and coming brands are more innovative- this is innovation happening at the grass roots!
One can expect to see a lot more of this kind of consolidation in the future, where bigger guys will continue to buy the smaller healthy snack players, and build a healthy food portfolio. There is also going to be a lot more innovation in form, price, and taste for healthy foods. It certainly looks to be a good time to be in the food business- especially when it’s healthy. Watch this space.