ANAHEIM, CALIF. — Emerging brands in the natural and organic marketplace continue to capture the attention of hungry investors. As conventional food brands lose share to start-ups, the pace of investment has accelerated, and the models of investment are evolving, said Bill Tuohig, senior vice-president and market leader, NEXT at New Hope Network.
"Certainly, there's a lot of capital chasing this space," Mr. Tuohig said during a presentation at Natural Products Expo West, held March 8-11 in Anaheim. "There is a lot of growth and excitement in this industry."
Between 2009 and 2014, the largest packaged food companies in the United States lost an estimated $19.1 billion in revenue to small and medium-size competitors, Mr. Tuohig said.
"There is a lot of growth and excitement in this industry." — Bill Tuohig, New Hope Network
"A study from Nielsen showed that 74% of the growth (in the U.S. food and beverage industry) that we can measure between 2012 and 2016 was driven by the smallest 20,000 companies," he said. "And thinking just about natural and organic food and beverage, specifically, that subsector is going to grow 75% between 2014 and 2019 to $108 billion."
As competition increases, brands and investors must place bets earlier and earlier, he said. He and Eric J. Pierce, vice-president of business insights, NEXT at New Hope Network, identified which market trends are most attractive to investors and consumers. Among them are clean, wholesome nutrition, plant-based foods, mission-driven brands and trust and transparency.
"Consumers are looking to more whole food, clean, simple, clean label ingredients," Mr. Pierce said. "This whole food phenomenon is born out of this broader context of growing consumer awakening and erosion of consumer trust."
Digestive health is another area of interest among consumers and investors surveyed by New Hope Network, as new functional formats and formulations pop into the market.
"We’re seeing opportunities in supplements continue to grow, but we’re also seeing the migration of this conversation about gut health to being something much more about holistic human health," Mr. Pierce said. "We’re seeing evolution of fermented foods as well as probiotic functional foods coming into the marketplace. Lots of innovation is happening both in the prebiotic and probiotic space. Everyone is really quite bullish on this."
A desire for foods with functional ingredients, such as mushrooms or hemp, also is driving innovation and investor interest, Mr. Tuohig said. Punching up the nutrition in a pantry staple such as jelly with the inclusion of chia seeds, for example, is gaining favor over enriched or fortified foods that today's consumer may perceive as overly processed or unnatural.
Brands seeking investment must thoroughly understand the business, market, consumer and customer, Mr. Tuohig said.
"You may have the most passionate idea, but if it doesn’t make sense to investors or if investors can’t get excited about it, then you’re going to run out of gas, so to speak," he said. "If investment or capital is the gas that fuels the engine, you’ve got to make sure you have access to gas."