Nearly a half century ago, executives at little-known sweets maker Herman Goelitz Candy Company discovered a way to infuse flavor into the center of a jelly bean. The revolutionary breakthrough eventually helped turn the company, better known to consumers today as Jelly Belly, into a household name that produces about 15 billion brightly colored bean-shaped treats each year in popular flavors such as cherry, popcorn and root beer.
The long duration of Jelly Belly's success — unusual in the fast-evolving food space that has seen thousands of smaller competitors disappear or get gobbled up by larger companies or private equity firms — has made the 150-year-old candy maker a mouth-watering acquisition target. So far it has been a futile effort for those who have inquired about a deal.
"I'm really good at saying 'No,' " Lisa Rowland Brasher, the fifth generation to lead the iconic confectioner Jelly Belly, told Food Dive. "Probably every week I get a call, an email, something about 'Hey, we want to buy you.' They've all been here. They've all asked. Some people can't really understand why you wouldn't sell it, but when you have this many generations and this many generations still working in the business as well, there is just more to it."
While thousands of independent food and beverage brands line shelves across the country, a growing number are being acquired by big food companies — including PepsiCo's purchase of Bare, Mondelez buying Tate's Bake Shop and Perfect Snacks and Kellogg snapping up RXBAR — who are eager for growth or seeking to quickly enter popular spaces, such as natural or organic.
The widespread consolidation has left a handful of well-known standalone companies whose products seemingly define a product category — think Bush's Baked Beans, McIlhenny Company's Tabasco sauce, Chobani in Greek yogurt, Johnsonville in sausages and Jelly Belly in jelly beans.
"There are not a lot of guys left standing out there," Sophie Ann Terrisse, senior adviser with brand management firm 26FIVE, told Food Dive. Independent brands with sales topping $100 million "are very rare. They actually should be far more coveted and far more recognized than they are today."
Food and beverage companies that remain independent often contain similar characteristics that can be found woven throughout the fabric of their businesses.
Many operations are family owned and have been for decades. Jelly Belly, for example, has four generations working at the company, including one who is seventh generation, while Milwaukee-based frozen pizza manufacturer Palermo Villa has three generations involved with its operations.
The companies also deeply value their ability to operate out of the glare of public shareholders, private equity investors or a large CPG owner with dozens of brands competing for their attention.
These businesses contend their independence gives them more freedom and flexibility to run the operation in the same way that has made them successful in the past — a foundation built on an autonomy to develop and launch new products and carefully cultivate an authentic persona with their customers. In addition, executives tout their product quality and ability to innovate among the reasons that shoppers keep coming back despite a plethora of other choices on the market.
"Part of the DNA for those private owners is to perpetuate the legacy ... and when you go into a group you can grow, you can do a lot of things, but it's very hard to retain your culture. It's very hard to retain your consistency," Terrisse said. "Do they leave money on the table (by not getting bought out)? Absolutely. Do they leave opportunity? Probably. But they also retain some piece and they protect their (identity)."
A bigger piece of the pie
At Palermo's, the maker of its namesake pizza, Screamin' Sicilian, Urban Pie and Connie's, the company prioritizes community involvement and has fan clubs to help increase customer engagement and stretch its marketing budget.
If Palermo's is trying a new sauce, some fans will be invited to its innovation center to participate in taste tests; other times pizza is shipped directly to their homes. The company has on occasion flown consumers to Milwaukee to try new products. Devotees are even asked to help pick the name for a new pizza or choose between packaging design choices. A recent online survey generated 800 responses in two hours.
"There are a lot of big players now and that does pose certain problems for us, but then this is nothing new. We have pretty much dealt with this since the beginning."
Lisa Rowland Brasher
President and CEO, Jelly Belly
Jelly Belly, the California-based candymaker known for its true-to-life flavors, has employed its own tactics. Brasher said Jelly Belly doesn't have the budget to nab shelf space like Hershey, Mars and Ferrero, or the budget to do a major national advertising campaign. Instead, it depends on packaging to attract consumers at the shelf, social media to keep it relevant online and the making of jelly bean portraits at conventions and fairs as one way to generate free publicity.
"There are a lot of big players now and that does pose certain problems for us, but then this is nothing new," Brasher said. "We have pretty much dealt with this since the beginning."
Laurie Fallucca, chief creative officer at Palermo's, said unlike pizza giant Nestlé, which owns DiGiorno, Tombstone and Jack's, or Schwan's, whose suite of offerings include Red Baron and Tony's, her company has less room to fail when it launches a product. This underscores the importance it places on fostering a close relationship with its core consumers to help it minimize the risk.
Nestlé and Schwan's "probably will put out 10 to 20 products and if one of them is successful they're happy with that, whereas we can't do that or we'd be out of business," Fallucca told Food Dive. "We have to be a lot more sure so we have to get closer to the end consumer."
The strategy appears to be paying off. As of December, sales were growing double-digits at Palermo's, outpacing the roughly 8% growth the $4.7 billion frozen pizza space has been experiencing as a whole — much of which is coming in private label brands where Palermo's has a meaningful presence.
Despite its success, Palermo's is tiny compared to industry giants Nestlé and Schwan's.
In the 52 weeks ending Dec. 1, 2018, Palermo's sales, excluding its private label business, were almost $126 million, giving it a market share of 2.7%, figures that were easily dwarfed by Nestlé and its nearly $2 billion in pizza revenue and 42.6% slice of the market, according to Nielsen data. A Palermo's spokesperson said new product offerings and expansion into additional retail outlets in 2019 are expected to increase sales and market share for the pizza maker.
Nick Fallucca, Laurie's son and the chief product and innovation officer at Palermo's, said the company's strong growth and household brand names have attracted the interest of buyers.
"The market is shrinking. Everybody is buying everybody. That's kind of an overstatement. We like being our own bosses. We like not doing what private equity or Wall Street or whoever tells us we have to do."
Nick Falluca
Chief product and innovation officer, Palermo's Villa
To battle the industry heavyweights, Palermo's has focused on innovation and stoking consumer demand for new and creative ideas. Palermo's was one of the first to have premium thin crust and margherita versions, which were both later copied by bigger players, executives said. In 2015, it launched a super premium, overtopped craft pizza in its Screamin' Sicilian and extended the brand's reach three years later with a version that has cheese or pepperoni baked into the crust.
"At one time, we got really frustrated at how large Nestlé and Schwan's were, but then if we look and say 'Hey we’re No. 4,' that's pretty good for a little family owned business," Laurie Fallucca said. "At times, we're frustrated because we're so much smaller than them and we don't have the resources, but then if we look at it, we're still here and celebrating our 55th anniversary (in 2019), that's something to be proud of."
Selling out or staying independent
The decision for a smaller company to sell itself hinges on a host of reasons, including dwindling cash stockpiles or mounting competition; the chance to tap into the acquirer's experience, financial resources, supply chain and market connections; and, of course, the opportunity to exit with a lucrative check in hand.
But for some businesses, executives define success less on wealth and more on values such as their family name, a good reputation and an internal culture that adheres to what has come to define the company, brand managers told Food Dive. Some owners want to avoid being responsible for hitting an earnings or sales goal target if they're purchased, while others may want to avoid disruptive changes like layoffs or closing a plant that can alter employee morale.
"It's a different definition of profitability," Dave Donnan, a senior partner with A.T. Kearney's consumer products and retail practice, said in an interview. "A lot of people value those things more than money."
This way of thinking is even more prominent today among younger entrepreneurs who see more of a social obligation to their business, he added.
Phil Kafarakis, president of the Specialty Food Association, an organization representing more than 3,700 independent companies, said business owners need to decide if it's more important to maintain values such as sustainability, traceability or becoming more entrenched in their community rather than simply adding more points of distribution to boost sales.
To be sure, just because a company is taken over doesn't mean its values will disappear.
Ben & Jerry's, the Vermont ice cream maker known for quirky flavors such as Chubby Hubby and Cherry Garcia, established a national footprint and then sold itself in 2000 to Unilever for $326 million. Even after the deal, the company and its founders have continued promoting social and environmental causes.
Justin's, the nut butter maker purchased by Hormel Foods in 2016 for $286 million, initially rejected an offer and considered other companies in its bid to find the perfect home. Founder Justin Gold, who has watched as other founders have backed away from their businesses after being purchased only to see the companies flounder, insisted he remain involved with Justin's to help nurture and grow the brand following a deal.
Today, Hormel officials said Gold is active with the creation of new products as well as making sure his company's values of quality, sustainability and corporate responsibility are adhered to. Justin's recently launched Nut Butter Covered Nuts that stemmed from Gold's desire to provide a snack that people could enjoy on the go and feel good about eating. It comes with attributes in demand with consumers such as plant-based proteins, organic and Non-GMO Project Verified.
"We need to continue to lean into what made this brand great, maintaining authenticity, which includes involvement from the founder Justin Gold ... while continuing to scale and leverage the resources and expertise that Hormel Foods brings," Randy Simonson, president of Justin's, said in an email.
"You will get to these places where you're going to have to make some decisions and if it’s a desperate situation where you need cash and you got bills to pay and then all values and ethos and what you believe in goes out the window because you need cash to stay alive. And that's the beginning of handing off your company to somebody else who may not share the same values."
Phil Kafarakis
President, Specialty Food Association
But for every Ben & Jerry's or Justin's, there is a Bai. Dr Pepper Snapple — now Keurig Dr Pepper following the 2018 mega-merger — initially struggled to integrate its $1.7 billion purchase of the enhanced water manufacturer. After early evidence that it was struggling, Dr Pepper dismissed the founder of Bai as CEO and replaced him with a 10-year corporate veteran.
While some companies lsuch as Bai weigh the risks and decide to sell, a growing number of businesses are choosing to stay independent "because they don't want the obligations that come with the money," Kafarakis said.
Still, as big food companies hunger for growth, these nimble, more trendy upstarts are often the target — a trend that shows no sign of abating.
Kafarakis advises young upstarts to decide early on in their business what their plans are for the long run. Is their goal to start a business and sell it, or will they prioritize growing in their community or making causes such as the environment or health and wellness central to their operation?
"You will get to these places where you're going to have to make some decisions and if it's a desperate situation where you need cash and you got bills to pay and then all values and ethos and what you believe in goes out the window because you need cash to stay alive," Kafarakis said. "And that's the beginning of handing off your company to somebody else who may not share the same values."
