Amid rumblings that Campbell Soup was looking to sell its Emerald nuts business earlier this year, Flagstone Foods saw opportunity.
The private-label manufacturer of snack nuts, trail mixes and dried fruits with about $800 million in annual revenue, was under orders from its private equity owner to accelerate growth. Acquisitions were a major part of the strategy outlined by new CEO Harry Overly.
What makes the purchase unique is Emerald is Flagstone’s first foray into a branded offering in its 12-year history. The move not only provides Flagstone with a new way for the Minnesota-based company to grow sales, but also allows it to explore previously untapped opportunities to innovate or connect with customers partial to branded offerings.
Emerald, the fourth-largest branded nut company, had about $66 million in net sales in fiscal 2022, according to Campbell Soup. While the brand is still a major player in the category, Flagstone estimated Emerald sales are down by about 50% from a decade ago. It was clear the nut-focused brand wasn’t a top priority for Campbell Soup, which has a strong presence and growing business in chips, popcorn, cookies, pretzels and crackers.
Overly, who took the helm at Flagstone last September, is no stranger to working with smaller brands acquired from Campbell Soup. He was running Sun-Maid Growers of California in 2021 when it acquired Plum Organics, a maker of baby food and kids’ snacks, from the soup and snacking giant.
Overly spoke with Food Dive following the Emerald acquisition about how the deal came about, what it means for Flagstone and where his company is looking to go next.
This interview has been edited for brevity and clarity.
FOOD DIVE: How did the deal with Campbell Soup for Emerald come about?
HARRY OVERLY: We’ve been in dialogue with them for a couple of months. So we had reached out to them because we had heard there was potential consideration that might be something they would look to divest. We were serious, and obviously they were serious and were considering multiple potential suitors for the business.
I had done a deal with Campbell’s before. Part of our offer was leaning a bit on that credibility saying, “Hey, we know how to do this. We can take it out. We can take it out quickly. And really help your team so that they can move on and focus on the things that they want to focus on.”
You’re in the private label business. What attracted you to this business? Why did you want to have a branded name in your portfolio?
OVERLY: As a private brand supplier, we bring the insights. We bring innovation, but we also know that the biggest drivers that are going to drive sales on shelf, are going to be the price and the value and the packaging design. The marketing support or tactics provided by the retailers can vary and tend to be a bit cyclical. They really play within shopper marketing, digital marketing, etc.
But for the most part, what you see is the national brands are really the ones who drive a lot of that activity because they’re marketing their products. They’re building awareness.
And what this does for us from an addressable market perspective is now we could actually bring some of that innovation to the consumers directly. So we can lean on the fact that we already are very strong in category knowledge and consumer knowledge. We built the infrastructure to service our private label customers. We’ve studied the insights, the analytics. Now we can actually take that directly to the consumer.
How does innovation differ from owning your own brand versus working with a retailer on a private label offering?
OVERLY: As a brand, we can actually move a bit faster if we choose to. Because with private brands, if we wanted to consider different types of claims, they tend to be obviously category-relevant or category-specific and we work within our customers’ timeframes. They also have the responsibility in thinking about, “How does my private brand work across all these multiple categories?” They have to understand what that impact would look like.
In having our brand, maybe we can decide to take more risks or move a little bit faster. As a branded product, we can position differently. We can appeal to a different shopper.
Those branded consumers expect something different, and we’ve got to deliver on that proposition. If I were to go buy a brand that would be considered, let’s say [as] another value alternative that would be pretty close in terms of the value positioning or price per ounce basis that you’d see in private label, then I would be competing directly with that private brand shopper, which is something purposely we did not want to do.
So we really were careful when we were considering acquiring a brand in the space, that it had to be toward the premium end of the spectrum because we wanted to target different shoppers and we really want to focus on bringing new shoppers in.
Would you like to do more acquisitions of branded offerings?
OVERLY: I was brought into Flagstone late last year with the mandate from our equity owners ... we really need to accelerate growth. Buying a brand was a play because it expands our market. It expands the ability to look at adjacent categories as well as to think about snacking in its totality. So we expect to look at acquisitions within both branded and private-brand positions.
What was attractive about Emerald, and what kind of shape is it in now?
OVERLY: It’s not a new story that some of these smaller businesses, even at 100 million bucks, are kind of orphaned within these big organizations, and they can’t garner the resources that they would need to be successful.
It’s an opportunity for us where we’re able to absorb that, run it very efficiently. And we’ve got an equity that just needs some tender loving care. People know what it is. It’s not brand new.
And that’s a great position to be in because I don’t necessarily have to focus as hard on driving and building the awareness for the Emerald brand. I can focus on great products the brand will bring because people already have a degree of recognition. So Emerald, I see as a bit of a less risky move from an acquisition standpoint.
When Emerald was launched in 2004, it had built a great degree of equity in high-quality roasted products, cocoa roasted products. Then they transitioned that into these 100-calorie packs, which are still on-trend today. And those products still have a role in the category, and so despite a minimal level of support behind the business, it’s actually remained pretty steady for the past five years.
So the condition we found it in, Campbell’s was doing a really good job. They’ve got a great strategy on their snacking side. [They have] a $100 million brand among their multibillion-dollar cookie and cracker businesses. I don’t think it’s difficult to imagine that their marketing dollar investments probably go further for them and work harder for them behind those brands than it does on the $100 million Emerald brand.
We found the business in just really good shape. They took care of it. They managed it with customers. They serviced it well. They continue to deliver quality, but they just didn’t have the resources around marketing the product and innovating around the product and the brand.
If you do another acquisition, would it have to overlap with something you do already — like with Emerald — or could it be an entirely different snacking category?
OVERLY: I think it could be either/or. What we have is a tremendous scale in roasting nut mixes, creating mixes, that type of thing. But you could also argue to say I’ve got tremendous packaging, scale and flexibility. So we could put a lot of stuff in bags and pouches.
Does it have to be nuts or mixes? An element of that is there’s an operational synergy bringing other categories or products into our facility. That is something that we have considered and will consider.
I think when I look strategically, we know the snacking consumers. I think what will make sense for us when we look at further acquisitions, and particularly on the branded side, is it would very likely be in that better-for-you snacking space.