“There were more than 165 exits of private CPG companies in 2015, a sharp increase over 2011, when there were less than 50 CPG exits.” – CB Insights
Big Food is on a tear, acquiring smaller, craft brands at a quickening pace. It’s a seemingly sensible strategy aimed to counteract the $18 billion of market share the top 25 US food and beverage companies have lost since 2009.
If the acquisition trend continues to be an important growth driver of growth for big food, does big food eventually become a mere infrastructure platform for small brands? Can big food justify the risk of cultivating new brands that connect with the modern consumer when they can simply buy the best small and mid sized companies?
BIG FOOD ACQUIRES SMALL FOOD
From a small food brand point of view, one of the biggest motivations for being acquired (aside from the cash) is to tap into the enormous production, distribution and marketing infrastructure a big food company can offer. Margins improve through more efficient production and sourcing, products can easily slip into existing distribution routes and the brand gets access to a pool of creative agency and media resources from the mother ship.
On the other hand, the big brand pays a premium, but gets a vetted brand that’s earned trust from a progressive consumer base, and mostly avoids the messy, expensive process of trying to start a new brand from scratch.
The big plays to its strengths (infrastructure) while the small does the same (consumer trust, product innovation).
BIG FOOD: THE AWS OF FOOD PRODUCTS
What if in the future big food companies simply existed to act as infrastructure for smaller brands? In tech, Amazon Web Services (AWS) is the de facto server standard for smaller companies to quickly get going and scale up. You’d be crazy to try and manage all your own server infrastructure as a startup, because it’s just so easy to build your business on AWS.
In the food startup world, incubator kitchens and co-packers provide the infrastructure for small food brands to get going. But the landscape of these resources are fragmented and don’t typically scale easily. It’s a byzantine process, for sure, and an AWS of food in sorely needed.
How might a big brand set up a gateway for smaller brands to tap into the infrastructure that it has to offer without the big brand investing or acquiring the smaller brand? Is there an easier way for smaller brands to tap into the production resources of a bigger company?
If larger companies’ resources could become much more user friendly and accessible in the same way resources like Hot Bread Kitchen or the Rutgers Food Innovation Center, the barriers to entry for smaller food brands would continue to lower. Lower barriers to entry could mean more ideas make it to market, more consumer choice and better products for everyone.
To read the full article by Mike Lee, go to Foodtech Connect.
Daniel Karsevar, Founder & Chief Problem Solver at SOLUTIONTOPIA & is also a Mentor at TheBrooklyn FoodWorks and Advisor to many CPG brands. SOLUTIONTOPIA provides turn-key solutions, product development, and operational scaling solutions for food start-ups and national brands in the natural foods CPG space.