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Corporate finance expert: 'We’re seeing a widespread rejection of traditional foods and brands and it’s leading to a seismic shift in some categories'

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By Elaine Watson+

01-Dec-2014
Last updated on 01-Dec-2014 at 18:55 GMT2014-12-01T18:55:19Z

Mike Burgmaier: 'Mainstream retailers need to stock kombucha because if they don’t, it’s not that they’ve lost $10 or $15 in one consumer’s basket, they’ve lost the entire basket'
Mike Burgmaier: 'Mainstream retailers need to stock kombucha because if they don’t, it’s not that they’ve lost $10 or $15 in one consumer’s basket, they’ve lost the entire basket'

While it used to take years for a food & beverage start-up to build a national presence, the explosive growth of brands such as Suja Juice and Way Better Snacks show that with the right product, the old rules no longer apply, says one corporate finance expert.

Mike Burgmaier is managing director of Silverwood Partners , a specialized investment bank that provides M&A, private placement, and advisory services, and has worked extensively with natural and organic food companies.

He told FoodNavigator-USA: “When we look at clients we typically like to see at least $5-10m in trailing 12-month sales. But occasionally there are brands in the $1.5m to $3m range, where you can just see from their velocity, how their sales are trending, how they could get from $2m to $15-$30m in a really short space of time.

“Take Suja [which sells premium cold pressed juices at up to $8.99 a bottle]: With a retail price like that and a product designed for immediate consumption, where people might buy several a week, as opposed to something that’s going to sit in your pantry for months, you can grow very fast. And if your brand can travel, extend to different products, sub-brands, and sizes, and sell in multiple places in the store, that’s also going to make a huge difference.”

‘Mainstream retailers need to stock kombucha because if they don’t, it’s not that they’ve lost $10 or $15 in one consumer’s basket, they’ve lost the entire basket’

But regardless of the category, new companies in natural and organic can now scale up more quickly than in the past simply “because there are more consumers for these types of products”, while social media can also help small brands punch above their weight and gain a following among younger consumers in record time, he said.

Revenues at Suja Juice have grown from zero to more than $40m in less than three years

 “With Millennials you are seeing a widespread rejection of traditional foods and brands and it’s leading to a seismic shift in some categories such as frozen entrees, a category that’s in strong decline, but there are brands in there that have taken off like crazy.”

 From a distribution perspective, meanwhile, the old model - whereby brands had to prove themselves for years in the natural channel before Kroger and Safeway would take a look at them - has also changed, he said.

“You often still have to work your way up through natural, as things like kombucha don’t start in mainstream. But now the mainstream retailers are picking up on these trends much faster because they know they need these products in their stores.

“They need to stock kombucha because if they don’t, it’s not that they’ve lost $10 or $15 in one consumer’s basket, they’ve lost the entire basket.”

Natural and organic brands can make it in conventional channels first now

And for some natural and organic products, it’s now possible to scale up in natural and conventional channels at the same time, or even start in conventional, he said. 

You can achieve scale so much more quickly that way. Think of brands like Yasso [frozen Greek yogurt bars] and KRAVE [gourmet jerky] that essentially bypassed natural and went straight to conventional, and now are kind of back-tracking and creating special products for natural retailers such as Whole Foods.”

KRAVE Jerky founder Jon Sebastiani

Another reason the game is changing relates to the profile of entrepreneurs entering the market, he said.

While there are still people with no background in the industry that have a Eureka moment and go on to make megabucks, there is also a new breed of entrepreneurs such as Jim Breen, the ex Hain Celestial executive who founded Way Better Snacks, that are able to leverage their experience and progress more rapidly - with the right product, he said.

We’re seeing more of these people that have had their training in a traditional food company or a large natural food company, as well as more experienced entrepreneurs from other industries, and fewer of the ‘My daughter is allergic to this so I made this for her in my kitchen, gave it to my friends and it all grew from there’ kind of people.  You don’t see that so much anymore.”

It’s reached that tipping point where it’s not niche anymore, it’s mainstream

In general, he said, it’s a pretty exciting time to be investing in natural foods and beverages, despite the risks involved, because this is where the growth is.

“There is definitely increasing interest in food and beverage investment opportunities especially in healthy, natural, organic and functional. That industry has been growing 15-20% a year on average for more than 20 years so it’s reached that tipping point where it’s not niche anymore, it’s mainstream.  

“Some strategics used to say we won’t look at anything [as an acquisition target] unless it has sales of $50m. But now they are saying, well this company went from $10 to $20m last year with limited distribution and no marketing, whereas our brands are declining 15% year over year and there seems to be nothing we can do to change that.”

Investor types

As for who’s putting money into food start-ups, he said: “It’s never easy to find investors who will fund early stage food and beverage businesses, but there are more angel investors interested in the food space now.

Door to Door Organics has shown that it is possible to make money out of online grocery shopping, says Burgmaier

“People that made their money in technology are also interested in investing in natural and organic brands, partly because they are interested in the lifestyle, but also because they can see an investment opportunity; they are not going to do it unless they think there is a return.”

He added: “There’s really a convergence now between technology and food. If you look at online grocery, for example, attitudes are also changing.

"While there are a bunch of companies that have burned  through an incredible amount of money and don’t have much to show for it, there are also companies such as Door to Door Organics [which has just raised $25m in series B funding], Full Circle Farm and Winder Farms that have proven that you can grow profitably.”

2 comments (Comments are now closed)

GMO corporation mentality can't keep us in the dark.

Those corporations bent on selling us what they want to sell us versus what a food-educate person wants to eat can't keep us in the dark forever - despite the quieting effect they've had on the corporate-owned media. Eventually the truth gets out by word of mouth. I patronize non-GMO and organic brands and those retailers who promote them, while doing my utmost to educate as many people as possible on the real (versus corporate bought) science of nutrition.

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Posted by Ron
06 December 2014 | 03h032014-12-06T03:03:32Z

GM food education is the main reason

Resistance from the traditional food companies like Kellogg, General Mills, and grocers like Safeway to GM labeling has angered the entire population. That is the main reason for the shift. All are having revenue problems for the first time ever. If Monsanto and friends had just said, "Our GM foods are great and we want them on labels", this movement may not have happened so fast.

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Posted by George Johnson
02 December 2014 | 15h492014-12-02T15:49:46Z

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