New National Brands Drive CPG Innovation, Inspire M&A; Edible-Alpha™ Insights 4-27-2017
Infographic by CB Insights
Welcome to Edible-Alpha™ Insights, our twice monthly roundup of the best food and beverage finance news, events and resources about business model insights, raising capital, consumer packaged goods (CPG)/national brands, market trends, deals/M&A, and industry events.
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Your insights this week…
Financing food businesses is getting more complicated, with national brands/CPG producers having to raise millions to support their growth. However, large, established food companies are often slow to innovate and this provides an opportunity for those companies to make a strategic investment in up-and coming brands, if those brands prove themselves in the market. Many entrepreneurs who don’t want to make the leap into being a national brand can follow other business models, though raising money, usually from multiple sources, is still a challenge, even if these businesses stay small.
And now, our roundup of the best food and beverage finance news, events and resources from around the web…
Business Model Insights
- Three innovative models accelerating access to healthy food (New Hope Media) – “The Chef Ann Foundation is bringing healthy, cooked-from-scratch meals to schools using community food trucks. FoCo Cafe has disrupted the traditional soup kitchen model by creating a volunteer run cafe that serves delicious organic food. Mesh Exchange is connecting the supply chain and retailers with outlets to redistribute food that would otherwise go to waste.”
- Looking to Start Your Foodservice Business? Begin with a Pop Up Restaurant Instead (RealFood MBA) – “A pop up restaurant is a temporary location to test out your menu, drink items, and overall concept. It’s also a great opportunity to get feedback from the community. If you’re considering opening a brick-and-mortar location, the money you earn and the reputation you develop from your pop up can be very helpful in attracting investors.”
- 5 Reasons Why You Should Open a Food Truck Instead of a Regular Restaurant (POSist) – “1) Low Initial Investment, 2) Low Operating Cost, 3) Attracts More Customers, 4) Mobile Location, and 5) You Can Build (Or Expand) A Brand.”
- Why selling your company doesn’t have to mean selling out (New Hope Media) – “For many, the question, ‘who can I trust?’ is at the forefront of the decision-making. It’s hard to judge character across the table of a boardroom. It’s hard to know who you’re getting married to. But these partnerships are much like a marriage.”
- The Most Active Investors In Ag Tech (CB Insights) – “Corporate venture arms play a big role in the ag tech space and some VCs are specializing in the area.”
- Convertible Loan Note: Guidance for Founders (SOSV) – “A Convertible Loan Note (“CLN”) is essentially a form of debt which has the ability to either be repaid or be converted to equity, generally a class of Preferred Stock, at some future date in accordance with the terms of the Note itself. The CLN is commonly used in financing rounds when the valuation of the company is unknown or uncertain and dependent on a number of factors. The Note can reward investors who come on board early without causing valuation issues for the startup.”
- 5 Common Mistakes of CPG Startups (Collaborative Fund) – “1) Moving into mass/conventional retail too quickly, 2) Paying high slotting fees, 3) Me-tooism (launching products that have been market validated), 4) Not paying enough attention to unit economics (manage your margins), and 5) Benchmarking to tech products (inflating your valuation based on unrealistic assumptions).”
- How to use packaging design to win eyes, hearts and minds of consumers (New Hope Media) – “Write everything down about your brand and then develop a hierarchy of messaging to prioritize reaching your target consumer. Win the eyes w/contrast; win the heart w/expression; and win the mind w/clear messaging.” Be the red apple in the sea of green.
- Signs Your Small Food Business Is Ready For Big Box Retailers (Small Food Business) – “1) The market has responded well 2) You have the financial resources lined up to support your growth 3) Distributors are interested in your products 4) Customers are asking about your product.”
- 6 obstacles to mass market success for natural brands (New Hope Media) – “1) Inadequate customer service, 2) Lack of awareness 3) ‘Musical formats’, 4) Poor competitive pricing, 5) Merchandising decisions, and 6) Misunderstanding natural demographics.”
- 12 Trends to Watch at Natural Products Expo West (New Hope Media) – “Savvy brands are changing that dynamic by working to build trust through everything they do, even as they enter climate change discussions as victim, villain and solution. Wellness has evolved from prevention to optimization, consumers, faced with seemingly infinite choices, they are looking beyond individual products to the companies behind them.”
- Want to know the future of Ag? follow the money (Ag professional) – “Investors are betting against the current status quo in how food is purchased, consumed and viewed by consumers. A majority of this “seed” money is not going direct to improving production. Instead, it’s improving the “consumption” experience of food itself.”
- Why Big Brands Couldn’t Stop Chobani From Winning the Yogurt War (Bloomberg) – “Shifting consumer trends are catching the established food giants flat-footed. They’ve become, their critics say, too complacent about perennial product lines and too plodding to react with innovative, moneymaking products of their own.”
- Do Tasting Rooms Support Market Growth? (Brewers Association) – “In 2016, 9.4% of sales from small and independent brewers occurred at the brewery—up from 7% in 2015. That increasing percentage may cause some concerns from distributor partners, but there is growing evidence that the halo effect of tasting rooms helps brand building in the marketplace.”
- The Product Launch Fallacy Of Big CPGs (CB Insights) – “The widespread demand for authentic, high-quality products from small brands is too powerful for big CPGs’ rate of innovation to reverse their market share erosion. Big CPGs are turning to small brands to bring in-house the innovation they’re failing to produce themselves, by buying brands once they’ve shown some traction and proven themselves in the market.”
- Food and beverage deals expected to pick up pace in 2017 (Food Business News) – “In 2016, there were about 600 food and beverage deals worth a total of $56.6 billion. This compared to roughly the same number of deals totaling $119.3 billion in 2015, including the $54.5 billion mega-merger of Kraft Foods and H.J. Heinz Co. You have the slower growing legacy brands of some of the publicly traded companies under constant pressure by shareholders to keep growing. Some of these bigger food businesses are just not that nimble in the way they innovate, so a lot of innovation is coming out of the middle market, and that’s where they’re looking.”
- Visualizing Where Food & Beverage Investment Is Going (CB Insights) – “While some of the most well-funded startups in the space focus on beverages, the majority of deals have gone to food brands. Within food, startups producing condiments & spices have attracted the most deals.”
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