How food and beverage companies score celebrity investments
Endorsements are out, as big-name stars and athletes put money — and influence — behind their favorite products.
Four years ago, basketball star Kobe Bryant invested roughly $6 million in a small start-up sports drink company.
BodyArmor is a better-for-you sports drink marketed as a healthier alternative to Gatorade, which was a natural fit for Bryant. Athletes like Andrew Luck, James Harden and Anthony Rizzo followed suit by going to the company and also investing early on.
"Often times, our athlete investors have come to us because they have discovered the brand on their own," Mike Fedele, VP of corporate marketing at BodyArmor, told Food Dive.
And the investments paid off. The brand has seen 110% growth this year and is expected to reach more than $400 million in retail sales by the end of 2018. This summer, Coca-Cola acquired a minority stake in BodyArmor and based on the valuation of the deal, Bryant’s 10% investment in the brand is now worth approximately $200 million — a massive return on investment in just four years.
But Bryant is only a small part of a bigger trend. Celebrity investments can benefit both A-listers and brands. More food and beverage companies have been looking to celebrities as investors, searching for famous fans who align with the company's values and the desire to invest.
From Gwyneth Paltrow to Beyoncé, these big names have been amassing stakes in food and beverage startups that they use and can help them build their own brand. Branding experts and people from companies that scored investments from the famous told Food Dive that more celebrities have also been seeking out products they consume because they want to have a personal stake in watching the companies grow — in addition to continuing to earn cash.
Endorsements are the past
For years, Big Food has shelled out to have celebrities advertise their products. But both brands and A-listers are moving more toward investments.
Jeetendr Sehdev, celebrity branding authority and author of "The Kim Kardashian Principle," said the U.S. food industry is growing at a steady rate — and brands are now looking for celebrities to "put their money where their mouth is."
"Long gone are the days when you can just get a big celebrity to endorse your product and expect for your sales to increase," he said.
"Long gone are the days when you can just get a big celebrity to endorse your product and expect for your sales to increase."
Celebrity branding authority
He said the most credible deal is when a celebrity wants to both invest in a brand and be the face of the product.
"It's the celebrity not only saying, ‘Hey, you know, pay me for endorsing your product.’ It is actually a celebrity saying, ‘I believe in this business, I believe in this product and I'm willing to take an equity stake in this product,’" Sehdev said.
For BodyArmor, athletes invested because they felt a connection to the brand. Bryant has written and co-directed four of the brand's ads. Other athletes, like James Harden, have followed Bryant's lead and invested in and advertised the product.
"BodyArmor’s athlete investors are all obsessed with their craft and are always looking for more — to be better than they were yesterday — and a big part of that is not only aligning with brands they believe in, but products they use every day,” Fedele said.
Bryant first found the emerging sports drink while undergoing rehab for a torn Achilles tendon. He decided to make it his first investment for Kobe Inc.
"This product can be very disruptive," Bryant told Forbes in 2014. He said the sports drink market was largely controlled by Gatorade and Powerade, becoming "bland with no innovation."
This is also an opportunity for celebrities to become a part of a business and make huge financial gains. On the other side of the table, if brands can appeal to a celebrity who wants to make more money and be a part of the company, they could sink a large investment.
Erich Joachimsthaler, founder and CEO of global branding strategy firm Vivaldi, said there are three main reasons why celebrities invest in food and beverage companies. Not only can celebrities make money off of investments in food and beverage brands, but there is an emotional benefit for them to feel like they are funding a product and want to see it succeed. Lastly, these investments help them stay relevant in the news and conversation.
In 2015, Weight Watchers disclosed that media mogul Oprah Winfrey spent $43.2 million to buy 6,362,103 shares in the company. At current prices, her investment is now worth more than $400 million.
"Oprah has a real sweet deal. She invested money, she made a lot of money in the investment. She influences the product and she influences a lot of Weight Watchers."
Founder and CEO, Vivaldi
Joachimsthaler said Winfrey, who has publicly discussed her struggles with weight throughout her career, invested so much in Weight Watchers — now rebranding as WW — because she connected with the program.
"Weight Watchers has given me the tools to begin to make the lasting shift that I and so many of us who are struggling with weight have longed for," Winfrey said in a statement in 2015. "I believe in the program so much I decided to invest in the company and partner in its evolution."
Through the years, Winfrey has wanted to be intricately involved in innovation and product development, Joachimsthaler said. Her partnership with the company has continued to grow. She is currently on the company's board and is featured in its ads.
Weight Watchers CEO Jim Chambers in a statement in 2015 that "through our conversations, it became clear that there is tremendous alignment between Oprah's intention and our mission."
Joachimsthaler said the investment is paying dividends for both the mega-celebrity and the company.
"Oprah has a real sweet deal. She invested money, she made a lot of money in the investment. She influences the product and she influences a lot of Weight Watchers,” he said.
Healthy fare is a celebrity favorite
Consumers and CPGs — and celebrities — have been trending toward more better-for-you foods. Sehdev, the celebrity branding expert, said traditionally, celebrities have come under the gun for endorsing unhealthy foods and now stray away from that entirely.
"It's more of a cohesive picture and a believable picture," he said. "Brands now are very careful in not just falling for the allure of how large a celebrity is, but actually selecting the right celebrity that is right for that brand."
Suja, which offers a variety of cold-pressed organic juices packed with fruits and vegetables, fits into many of today's beverage trends. Celebrities including Leonardo DiCaprio, Jared Leto and Sofia Vergara have invested in the brand. A spokesperson at Suja said in an email to Food Dive that their celebrity investors are "more than just consumers who enjoy our products, they really wanted to join and influence the health and wellness movement."
At the time of the investment, Leto said Suja helped him maintain his health and energy.
"I am passionate about discovering brands that I not only actually use and enjoy, but also holistically believe in, and Suja is a great exemplifier of this search," Leto said in a statement at the time.
"I am passionate about discovering brands that I not only actually use and enjoy, but also holistically believe in, and Suja is a great exemplifier of this search."
These investments have helped Suja with capital to build a new facility, as well as helping to drive brand awareness and bring new consumers into the category.
"Our overall strategy is to utilize external investment to fund rapid growth," Suja said in an email. And the investment strategy seems to be working since Suja is now looking to explore a possible sale.
According to Joachimsthaler, by investing in healthier products, celebrities can feel like they are doing more with their careers in the business world.
"We are more than just some starlet on the silver screen. And so there is meaning to invest in health products," Joachimsthaler said.
This investment strategy for celebrities and athletes extends across the globe. Giles Humphries, the co-founder of Mindful Chef, a UK subscription box that offers health-focused recipes for gluten-free, dairy-free, vegan, flexitarian, vegetarian and pescetarian diets, has had high profile British investors such as tennis player Sir Andy Murray, rugby player Will Greenwood and jockey Victoria Pendleton. Humphries said having A-listers for investors has been an asset to the company because they believe in the product and want to see it succeed.
"Victoria has been particularly supportive of the Mindful Chef business, mentioning the brand in numerous press interviews, featuring in branded content, and helping us connect with other influencers in the sports and nutrition space," Humphries said.
With investments come risks
These investments come with potential downsides to both parties. When a celebrity is investing in a product and chooses to endorse it, they can become intrinsically linked in the mind of consumers — and a target of lawsuits if the product is flawed.
Several celebrities, including Justin Timberlake, had invested in better-for-you drink Bai before it was hit with a lawsuit about lab-made malic acid. Although that suit is still in process, consumers can associate the product with the celebrity. In fact, Timberlake was personally sued in the class action lawsuit against Bai, which claims the beverage company deceived consumers by saying their drinks are all-natural when they are not.
The lawsuit says Timberlake’s "monetary assistance, creative inputs and marketing of Bai helped elevate the better-for-you and name-recognition of the brand." But Timberlake is seeking to have the lawsuit dismissed, claiming there is no evidence he had a role in the design, manufacturing or distribution of the Bai drinks, according to court documents reported by The Blast.
"The stakes are getting higher when you are so intricately related to a company."
Founder and CEO, Vivaldi
On the other side of the issue, Sehdev conducted a survey of 1,500 people in the U.S. to find out the impact on brands when celebrities find themselves in trouble after supporting a product. He found that 1 in 5 would be less inclined to purchase a product backed by a celebrity convicted of a DUI, but 4 in 5 said wouldn't purchase a product backed by a celebrity who was convicted of domestic violence or rape, according to Business Insider.
There have been many occasions where celebrities have endorsed products and then companies later found themselves in hot water because of the association. Rapper Curtis Jackson, better known as 50 Cent, invested in Vitamin Water early on before it was acquired by Coca-Cola from parent company Glacéau for $4.1 billion. Although he profited heavily from that acquisition, he tried to hide the details of the deal as he filed for bankruptcy. Additionally, his original investment in the deal came around the time that he was arrested for criminal possession of a weapon.
Joachimsthaler said there is a vetting process before brands reach out to celebrities for investments. The process includes assessing what the brand stands for and finding a celebrity that fits with that, but it isn't always foolproof.
“The downside risk, of course, the stakes are getting higher when you are so intricately related to a company,” Joachimsthaler said.
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