Keith Nunes

A confluence of events led to the burgeoning number of small food and beverage companies in today’s marketplace. These companies’ products compete for space on retail shelves and in menu selections, often on a local basis, and they are seeking capital to gain scale. As the market evolves, a symbiosis is developing between small companies and their larger counterparts.

The food and beverage industry continues to experience the ramifications of the 2007-09 Great Recession. The effects may be seen in the industry executives who were laid off as the recession took hold and are now using their experience to lead smaller players. Adding to the confluence was the number of manufacturing plants that ceased production as part of supply chain optimization initiatives, sold and later restarted by operators offering their services as contract manufacturers.

With experienced leadership and a manufacturing base in place, many entrepreneurial food and beverage companies can thrive in this era of democratized data, where the insights generated by such market research firms as Information Resources, Inc., Nielsen, etc., are available to those who purchase a subscription to access the data. The slimmed-down decision trees of smaller companies give them advantages in terms of the speed with which they may respond to insights, develop a product and get it to market.

Variety always has been a central driver of consumer demand for foods, and over the last couple decades consumers have increasingly tended to view new products from large food companies as homogenized, especially compared to edgier entrepreneurial introductions, often in tune with and initially aimed mostly toward trend setting niche groups.

This entrepreneurial zeal has attracted venture capitalists looking to invest early in companies with perceived growth prospects. The positive end results of these endeavors may be seen in the multiples paid by larger food companies for such brands as Annie’s, Applegate and Bai, to name a few. These brands may be outliers, but their successful and lucrative evolution from start-up to mainstream brand is a beacon for attracting more innovators and investment to the food and beverage market.

The small companies that do attract outside investment to support growth face many challenges. A recent survey of emerging companies by the investment firm Rabobank found that challenges to growth for many in the United States are access to capital, supply chain management and attracting additional talent, particularly around regulatory compliance, sales and marketing.

Over 90 per cent of the emerging companies interviewed by Rabobank said access to capital was a key challenge. Notably, many of those interviewed said access to “smart capital,” investors with some knowledge of food and agriculture, and “patient capital,” those investors that do not have an aggressive timeline, was especially hard to find.

Many large food and beverage companies, including the Kellogg Co., Tyson Foods and Campbell Soup Co., to name a few, have developed venture or incubator funds to invest in emerging companies. These funds are managed by people who understand the industry and it is hoped may offer the smart, patient capital necessary to allow the invested companies to develop and grow. This synergy may eventually provide one element of market growth that so many large food companies find so elusive today.