It’s no longer a matter of big CPG companies growing a new brand from concept to shelf or striking behemoth merger and acquisition deals. The most valuable thing a large food company can be is nimble, and integrating startups into their portfolios is proving to be the most successful course of action, according to Marla Kurz, former director of global change efforts at Sara Lee and current principal at Kotter, a strategy execution and change management firm.
“These big organizations have grown up through acquisition and integration so it’s almost their natural tendency to take a brand, integrate it, and then try to keep it on life support, and really what they’re not doing is listening to the
market,” Kurz told FoodNavigator-USA.
“It’s really an exciting time for the food industry in particular because the typical innovation track of these food companies in the past has been either incubating innovation from within or going down this private equity route -- And it hasn’t fared particularly well for the bigger companies to really incubate innovation.”
FoodNavigator-USA asked Kurz a few more questions on the emerging VC [venture capital] investment trend taking place in the food industry and in particular, what big food companies and startups must ask themselves when looking to collaborate with one another.
What is the advantage for companies like Kraft Heinz, General Mills, and Campbells to pursue VC integration? Are stakeholder expectations easier to manage this way?
“The approach of the venture capital is an interesting one because what it does, it really allows big CPG, to enter into more of an apprenticeship model with these businesses [because they are doing 50% ownership or less].”
The timeline for turning around results is also longer going with the VC route as opposed to pursuing an M&A type deal, Kurz added.
“[With a VC approach], they usually have about five to seven years to do it. With an M&A or private equity approach you need to start realizing results very quickly.
What an immediate M&A doesn’t always solve for is a very future oriented view around staying on trend and expanding their [big food companies’] swim lanes. The VC approach can always flip into an M&A and they can have many [food startups] vs. just one – It allows them to diversify.”
In what ways do large food firms benefit from VC integration?
“There’s definitely mutual benefit to this exchange. The benefit of larger companies of integrating smaller companies is multi-fold. One is it’s a risk issue, because they’re investing 50% or less, there’s less at risk from a fiscal perspective and that’s important especially when it comes to shareholder expectations.”
It also helps inject some outside innovation into their portfolios by collaborating with startups that have typically found a niche market and consumer base already, Kotter added.
“What attracts these bigger companies to the smaller companies is their passion, their drive, their experimentation. When you have an infusion of startups, it helps to inoculate complacency within the bigger brands, which is the absolute enemy of growth of innovation. It shows them what’s happening in the market place what the trends are, what the preferences are, new ways of working, how we want to get our food, and the taste of our food.
The upside to nurturing a startup is it’s already somewhat proven in a certain market with a certain consumer base and then it becomes just a question of where else can we penetrate, where else can we take this?”
What do startups get in return?
“They’re helping these smaller, fledgling brands and companies and startups not make some of the same mistakes that these bigger brands are certainly very experienced and deeply entrenched in. They can extract expertise from their big brands such as marketing expertise, supply chain expertise, and scale, and help infuse that into these smaller brands.”
What’s the ideal working relationship between a big food company and a startup?
“The balance that they’re going to need to strike and perhaps the healthy tension that they’re going to need to create is one where they leave a little bit of those [startup] brands to themselves. Meaning, many of these more entrepreneurial startups are very purpose driven brands and we as consumers like that. However, we don’t feel that way when see Kraft Heinz or General Mills; they certainly don’t strike us as purpose-driven brands.
The tension that they’re going to need to strike is to retain the culture, the identity of these smaller brands without gulping them down. Leave these brands and what they stand for and their purposes alone. If they can strike to a balance to help them scale their brand in an agnostic way, that might be and could be the magic recipe. That’s why that upfront collaboration of deciding what’s not in scope and what’s in scope.”