Category Archives: Insights

Are The Days Of The High Multiple Exits Coming To An End?

Everyone in the food industry is aware of some of the big multiples paid for early stage branded food companies over the last few years. Exit valuations as high as 6- or 7-time sales have been seen. This has caused a large number of entrepreneurs and funders to create companies searching for these exit valuations. I have noticed some recent developments that will make these high-priced exits more and more difficult. They are as follows:

  • Big food companies struggle when managing a portfolio of mid-size specialty brands rather than billion dollar plus brands. Even when a specialty and better for you company grows significantly, it often will not attain the volumes required by big food company infrastructures to efficiently manage.
  • The traditional product development no longer works. Large food companies used to bring a new product to market by developing a new product internally over a number of years with millions of dollars invested in market research and product testing. This strategy does not work in the high change, short product life cycles in today’s market.
  • It isn’t paying off. To compete in this new marketplace, large food companies began acquiring early stage growth companies for very high valuations putting most of their financial and organizational resources behind a couple of big bets. This strategy has actually paid off in only a few instances and misses are very expensive.
  • Today, the more sophisticated large food enterprises are developing the same fast fail methods that the start ups have been using for years. They work closely with an increasing array of sophisticated co-packers that can both develop and scale new products rapidly. A company can often bring 10 to 15 new items to market in this way for the same cost and far faster, without having to buy an early stage company.
  • The ones that do not gain traction, they kill early. The ones that look successful they rapidly expand with the co-packer. They do not want to build their own production capacity as a successful new food item generates many copiers in a very short period of time, making an acceptable return on new production capacity problematic.

You may still see some very high valuations for companies like the Impossible Burger. But these will increasingly be companies that develop entire new markets with very heavy R&D and start up production costs often in the 9 figures before the first dollar of revenue. Think lab-grown meat as future new market segment for environmentally sound and clean label real meat. The development cost for this project may approach a billion dollars before reaching the market.

So, where does this leave a startup food company in today’s market?

Is your goal to significantly grow a start up food company over a short period of time? To never make money and hope for sufficient funding and a high value exit? I would caution against it.

Do you want to build a food company for the long haul with distinctive products in multiple channels, including both retail and food service? Is your goal to reach breakeven as quickly as possible while financing your growth with a mix of internally generated funds and traditional bank lending? Then I would say let’s get started.

In this environment, a traditional PE firm can develop a very profitable strategy around hitting 6-8 out of ten doubles rather than 1 out of 10 home runs. Family offices with their longer investment horizon and flexible financing structures should thrive. This would leave the search for the next unicorn with the increasingly heavy front-end investments to the true venture capital firms that are structured on big risk big reward strategies.

A final note. Whenever I would discuss future trends with my late father, Angelo, he often ended the conversation with the same phrase “It could be and then again….maybe not”. Always something to keep in mind when predicting the future.

John Geocaris
Managing Director
New Food Strategies

Protein Power: More Consumers Choosing Quality Over Quantity

According to a recent Nielsen study and a report from Progressive Grocer, consumers are beginning to choose higher quality and cost meats over more inexpensive, lower quality products.

2018 data shows an increase in year-over-year dollar sales of 3.1% paired with a decrease in volume of 1.5% It seems consumers are paying more for less in the meat department. What are consumers getting for their extra cash? An increase in fresh meat sales, paired with an increase in sales of meat alternatives. Much of the spike in alternative meat sales is coming from the frozen section.

Burger

The growth in the fresh meat section was driven by marked gains in chicken sales, with beef becoming less popular across the board. Organic meat sales gained a healthy 5.8%, while offering a $1.18/lb. premium over conventional products, on average.

These figures align with broader consumer trends, showing a gradual transition towards more sustainable and organic products. The growth of alternative meats in particular is primed to accelerate, as formulas are perfected and brand names like Beyond Meat and Impossible become household names.

Supermarkets that offer full service meat departments are seeing benefits from their investments. The majority of groceries polled feature a professional butcher and offer full-service, often to-order meat products. Specialty cuts that come with a friendly word of advice on preparation and cooking help consumers try new dishes.

The combination of greater reliance on butchers and fresh meat products, and frozen meat alternatives seems to be coming into style. Perhaps consumers see a trade off of frozen convenience for something better for the planet and their own health. Contrast this trend with inexpensive products like ground beef becoming less popular.

The improved sales in alternative meats warrant close examination. Some grocers are responding by actually stocking “fresh” alternative meats like the Beyond Burger in the meat service case. Non-animal protein power is expanding throughout the outer aisles as well as the frozen section. Savvy marketers, grocery buyers, and CPG innovators would do well to keep an eye on this trend and make their alternative meat move soon.

For more insights, news and analysis from New Food Strategies, subscribe to our monthly newsletter.

Managing a High Growth Food Company

Building the Organization

At New Food Strategies we focus on food companies that are growing rapidly, from early stage to mid-size. We offer experience and knowledge in managing a high growth food company at this important moment of expansion.  A brand in a sales range of roughly $1M in annualized sales, which is primed to grow to well over $100M, is at pivotal moment.  This is where a company transitions from a highly flexible entrepreneurial one, to a sustainable, long-term organization.

Companies entering this stage have a product that has been accepted in the market, a marketing plan geared for rapid growth, and funding to support it.  However, there is often not sufficient attention paid to the most critical element of all, which is building and staffing the organization in a way that can effectively manage a company through a challenging scale up process.

When New Food Strategies works with companies entering this stage of growth, we have them focus on three primary areas of organizational development.  These are People, Process and Planning.

People

When bringing people into a high growth food company there are a number of critical characteristics that will allow them not only to survive but actually thrive in a high change, high stress environment.  Some of these characteristics are as follows:

  • Someone who is challenged by rapid change and the fast pace of decision making
  • An individual that can be both highly collaborative and independent when the situation calls for one or the other
  • Someone who has a good idea as to how to build out the structure of their department for the long run, while fighting fires in the short run
  • The ability to function at a high level without a lot of structure and process in a very hands on manner
Growth over time.

One way to screen for these behaviors is to designate current employees who are successful in a high change environment and use them to screen job applicants for the cultural attributes desired.  They often can pick up on those individuals who say that want a high change environment but really do not understand what it requires to be successful in such a company.

Process

The amount of change and keeping up with both internal and external demands in a high growth food company makes highly detailed operating processes both difficult, and in some cases counter-productive.  However, this does not mean that everyone goes off in their own direction with no way to coordinate their activities.  It is critical to develop a regular structure around the internal communications of the company.  In its early high growth stage, Dell had a weekly video conference for all senior managers at the same time each week.  No excuses were accepted for missing it.  At this call, each manager was asked the three same questions each week.  They were:

What is new? Where are you stuck? and How can we help? 

A manager in a high growth company in almost every case has a job too big for them to do on their own.  They need to coordinate internal and external resources to make sure tasks they are responsible for occur on time.  Regular communication with their team members is critical to keeping the rapid pace controlled to a reasonable extent. In these situations, trying to cover up the fact that you are falling short of a target is the worst thing you can do.  Needing help from time to time is expected and raising your hand to ask for it is encouraged.

Planning

In a high growth food company the planning cycle is highly compressed.  Looking out more that 18 to 24 months is not a very valuable exercise in most cases.  It is necessary to have a general picture of where the company is headed long term, but the execution plan is often no more than 12 months.  90 day, rather than annual objectives, make more sense in this environment, with a new set of objectives being created on a quarterly basis.  12-month financial budgets do make sense here, but they must be updated on at least a bi-annual basis, if not quarterly.

planning is key

Building a food company from an early stage to a mid-size company requires skills that are not generally found in the average person.  The ability to deal with ambiguity, while at the same time making decisions with limited information or resources is as much an art as a science. There is not a check list you can pull out and follow to ensure success.  However, by hiring the right people, maintaining a regular communication structure and planning often and for short time frames will give you a great chance for success.

These three keys, People, Process, and Planning, can set you on the right track for rapid growth in the food industry. Subscribe to our newsletter or contact John directly for more tips on growth in the food business.

From Our Newsletter: Leading a Fast-Growing Food Company

Being the leader of a fast-growing food company is truly a unique experience. Nothing really prepares you for the pace of decision making in an uncertain environment. I learned this lesson myself in running a food company that saw 30% year over year growth for 25 years.

When to be flexible and when to build structure? Do I hire executive talent or good executors? Do I make my products myself or use a co-packer? These are among the many questions that need to be answered as a leader of a fast-growing food company. The main challenge is not only that these questions are difficult to answer, but that the answers are also changing constantly.

Here are a couple of key concepts that may help: Continue reading

Scaling an Early Stage Food Business – Part 4: Financial

Often a Founder of an early stage food company gets so focused on raising money they lose sight of what they need to do to efficiently manage the funds an investor is putting in the company. You have convinced an investor in the value of your product, management team, and marketing plan. Now you need to hit your growth objectives with the funds provided.
There are a few simple tools that will keep you on track towards increasing your company valuation before an exit or the next round of funding without running out of money. They include: Continue reading

Scaling an Early Stage Food Business – Part 3: Sales Strategy

Developing an effective Sales Strategy to grow your company from its early stage $1,000,000 annual sales level to $10-25,000,000 and beyond is not an easy task. As you grow you will greatly expand the number of competitors while simultaneously entering new markets and channels of distribution that often have conflicting requirements. You will also be building out a sales and marketing function within your own company as the requirements in this area quickly outgrow your ability to manage them. Continue reading

From Our Newsletter: What Drives Valuation in an Early Stage, Branded Food Company?

What drives valuation in an early stage, branded food company?

What does an early stage investor look for in a growing food company when they attempt to put a value on a potential investment? Many food entrepreneurs think it is the rate of growth in sales that drives valuation. That is partially true but does not tell the whole story. I have found the following to be the key factors in valuing early stage high growth food companies.

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Scaling an Early Stage Food Business – Part Two: Supply Chain

Managing your supply chain as your food company grows from early stage to mid-size is both complicated and a great opportunity. As your volume increases you can reduce your product costs as much as 30%. Purchasing raw materials at higher volumes along with production economies of scale drive this reduction. However, if not managed well your supply can kill your business quickly. Running short on raw materials, quality issues in finished products, and uncontrolled costs from out of code product are some of the many issues that can cripple a growing early stage food company. These issues can come up whether you use a co-packer or make the product in-house When planning your growing supply chain, you should consider the following:

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Scaling an Early Stage Food Business – Part One: Organization

As a food company begins scaling the organization required to run it changes dramatically.  The external factors driving this are many.  The most important ones are:

  • Selling to larger more complicated customers
  • Distribution going from local to regional and national
  • Greater regulatory scrutiny
  • More partners and increased financial reporting requirements
  • Multiple production locations
  • Aggressive growth projections

Continue reading