Dive Brief:
- Small companies have become major disruptions in the food and beverage industry, but when larger companies invest or acquire them, they can risk losing the benefits and corporate culture that spurred their growth in the first place.
- Smaller companies may have difficulty with cash flow or capital needed to invest in a new facility or equipment to expand their operations, so investments or acquisitions by larger companies is still a common route for startups.
- Acquiring manufacturers can attract startups in today's competitive M&A environment by offering more autonomy in addition to capital, resources and relationships with suppliers and retailers.
Dive Insight:
Autonomy was a deciding factor in Justin's decision to go with Hormel when Justin's founder decided to sell the company. Hormel has proven its ability to expand into neighboring categories, such as natural and organic meats with Applegate, and provide what the acquisition needs to grow without changing the fabric of the company's portfolio and corporate culture.
Since, Applegate has been a key driver of Hormel's ongoing growth, including its contribution to the refrigerated foods segment's 9% increase in dollar sales last quarter. The brand has continued to grow under Hormel's ownership while maintaining its own leadership, including a recent announcement that the company would remove GMOs throughout its supply chain, including animal feed.
Major manufacturers have also experienced the opposite in the past. Kashi was a fast-growing brand when Kellogg acquired it in 2000. But after a few missteps, including taking over once-autonomous operations and supporting the use of GMO ingredients while calling the cereal "natural," Kashi's sales fell dramatically after 2010. Kellogg is still in the midst of a turnaround for the brand.
This "few strings attached" mentality could be crucial for manufacturers going forward as the food and beverage M&A environment becomes more crowded and competitive. Manufacturers have launched venture capital units to begin investing in promising companies—rather than acquiring them—earlier in the due diligence process. VC investments limit risk and exposure while giving manufacturers an in with the startup long before they become an acquisition target.
Without autonomy, smaller companies risk losing the appeal that attracted consumers in the first place, particularly in terms of transparency and engagement. When buying in, larger manufacturers should have a plan in place to avoid speculation that the brands they acquire are "selling out" and ensure they remain valuable additions to the larger portfolio.