Investments in packaged food and beverage companies have been focused on the same areas for the past few years, with perhaps an increasing focus on alternative protein sources as well as social impact (excluding the impact of the pandemic on dining at home and home delivery).
No recipe is perfect, but as accountants, we’ve started keeping track of the numbers. Here are some of our findings after years of working with growing CPG companies. The breakdown might seem a little basic, but sometimes it’s good to understand which boxes you check so you can phrase it right when you’re considering your options.
So here’s our scale. Companies that possess at least five of the following will typically raise capital at average multiples of revenues. Companies that possess 7-8 of the following are likely to get a premium valuation and those with nearly all of these attributes may approach “unicorn” status where multiples can vary widely depending on the competition among suitors for that particular brand.
Better for you – Do consumers believe the product is better for their health and wellness? Is there brand extendibility, meaning if it is marketed to a specific consumer base (say keto advocates, for example), it also appeals to others outside of that niche? Additionally, brands will usually fit at least two of these criteria:
Lower sugar/carbs – in particular “unsweetened”*
High protein – in particular “Paleo”, “Keto” and/or “plant-based”**
Any medicinal properties (i.e. functional beverage)***
All Natural and non-GMO
Social Mission/Impact – Do consumers believe your brand is sincerely interested in improving the planet and in raising people’s standard of living? (Companies will usually need to demonstrate 2-3 of these or more):
- Show support of farmers
- Pay higher than minimum wage
- Donate to environmental causes and/or be a Certified B corporation
- If protein-dense, protein comes from non-animal sources
- Demonstrate commitment of the Founders/CEO in key areas, such as authenticity, inclusion and diversity
High Growth Potential – The product resonates with specific demographic(s) with high growth potential such as certain ethnic markets or parents of young children.
Kitchen Friendly – Products are well suited for at-home consumption.
Safe and Snackable – Products are well suited for snacking and/or are kid-friendly.
Great Taste – Regardless of how many of the above are applicable, the product must taste good as well. Consumers are not willing to sacrifice taste entirely to get the above attributes.
Thoughtfulness around expansion of distribution – Companies have demonstrated consistent success in at least one prominent channel. If they have an omni-channel presence, assurance is needed that they have done so thoughtfully and are not prioritizing quantity of distribution channels over quality.
Brand Equity – Consumers want to feel good about the brands they purchase. The brands with multiple suitors often have an authentic founder’s story, a clear mission and a loyal following of consumers who feel passionately about the brand. These factors can make it more difficult for other brands to compete and, ultimately, win share.
A strong, visionary leader and management team – The founders and leadership of successful brands bring energy, passion, deep knowledge and an entrepreneurial hustle. They build talented teams and inspire achievement.
Profitability – The era of investors funding “growth at any cost” is over. Potential investors/acquirers want to look at businesses that have reached or are quickly approaching self-sustainability.
Again, there is no exact “recipe for success.” But investors in the food and beverage and overall branded CPG industry are savvy and recognize progress and potential in key areas such as the ones we’ve just listed above. Good luck up there and we hope to see you develop your own recipe for success in the days to come.
About the Authors
Stephen Plattman, CPA, CGMA, is an Accounting and Audit Partner at Anchin. He is Co-Leader of the Firm’s Private Equity Group and a key member of the Firm’s Food and Beverage, Cannabis and Technology Groups. He is also a member of Anchin’s Transaction Advisory and Public Company Services Group. Steve brings his clients almost 25 years of experience in both the public and private sectors, including national accounting firm experience.
Gregory Wank, CPA, CGMA, is an Accounting and Advisory partner at Anchin and a member of the Firm’s Executive Committee. Greg is the Leader of the Firm’s Food and Beverage and Branded CPG Practices, providing accounting, business, and tax planning services to privately held companies and investors throughout the industry, including emerging brands, manufacturers, distributors and retailers.
Footnotes:
* Per the data technology company SPINS, products labeled “Unsweetened” experienced significantly higher growth than their overall category for the 52-week period ended December 26, 2021.
** Per SPINS, plant-based protein powders grew significantly faster than other sources of protein for the 52-week period ended December 26, 2021 across the Natural Enhanced & MULO Channel as well as on Amazon.
*** Per SPINS, functional beverages had double-digit growth with some such as Green Teas with very high double-digit growth for the 52-week period ended December 26, 2021 across the Natural Enhanced & MULO Channels.