For all of the sturm und drang about investment in beverage companies – and we’ve certainly been part of the weather – it was interesting to see that the first big deal of the year was the sale of none other than good old Sunny Delight, one of the few brands to be able to actually give our esteemed publisher a run for the money in terms of longevity.
But I suppose it shouldn’t be such a surprise – after all, it follows a couple of years in which a lot of the investment money that had been expected to trickle into entrepreneurial coffers instead went into the buying and selling of established-to-slightly-tired brands between large funds and food conglomerates.
Last year, two big deals launched the overall M&A value in the consumer space into the stratosphere: the Heinz/Kraft merger and the AB InBev/MillerCoors merger. Skittering across food and beverage, however, we saw a lot of these Sunny D-type deals: the sale of Green Giant to B & G Foods; Perdue buying Niman Ranch; Apple & Eve going to Lassonde. As we discussed at BevNET Live, a lot of the money going toward entrepreneurial beverage brands was much more exploratory – $3 million to $30 million, typically growth capital.
The disconnect in size would be of concern but for the fact that having big companies and funds shed older brands should mean that they are indeed looking to re-orient themselves for the future. General Mills and Campbell Soup Co., to name two, have been remixing their structures to better accommodate consumer trends. (The Coca-Cola Co. has also been working hard at it, but nevertheless has to feed the big red monkey on its back.)
So yes, it’s discouraging when an investment market that has been described as an 11 on a 1-10 scale (as opposed to the Nigel Tufnel scale, in which 11 is a sonic phenomenon) might seem to be skipping over the little guys – but, in fact, it’s making room for them. The move from canned to fresh, from preserved to raw, from corn syrup and saturated fat to real sugar and whole ingredients, and from one-size-fits-all to bespoke will benefit emerging ecompanies sooner than later.
Where do we see this re-ordering reflected? It’s in the parts of the culture that are growing. When a place like America’s Test Kitchen starts to put out a Paleo cookbook, there’s a fusion between specialty diet and mainstream. When a huge entity like Campbell Soup decides to label products that use GMO ingredients, that means that there’s awareness among big strategics that trends are evolving into market forces.
Still, there are always going to be a lot of losers before companies become huge winners. In speaking with investors and board members lately, one thing that comes up is that it’s one thing to have an on-trend product, another to have a quality brand, and even more to have a good company. Inevitably, when you speak with any investor, from angel to fund to strategic, they always talk about the bet they’re making on team, as well as on product and trend.
As we look to the new year, we see so much that is yet unsettled – definitions of raw and natural, legislation to tax sugar or ban plastic bottles, science in dispute. But one thing that is indisputable is the overall wave that has brought these issues to the front: a growing number of people want to be healthier, and they want their beverages to either help with that – or, at the very least, not hurt it. That doesn’t mean the end of the road for long-standing brands, though – it just means it’s time to make room. Sometimes that has to happen on the balance sheet as much as it does on the shelves.