Articles & Alerts
Attributes that Inspire Investor Interest in Packaged Food Companies
Investments in packaged food and beverage companies have been focused on the same areas for the past few years with perhaps an increasing focus on alternative protein sources as well as social impact (excluding the impact of the pandemic on dining at home and home delivery). Companies that possess at least five of the following will typically raise capital at average multiples of revenues. Companies that possess 7-8 of the following are likely to get a premium valuation and those with nearly all of these attributes may approach “unicorn” status where multiples can vary widely depending on the competition among suitors for that particular brand.
- Better for you – Do consumers believe the product is better for their health and wellness? Is there brand extendibility, meaning if it is marketed to a specific consumer base (say keto advocates, for example), it also appeals to others outside of that niche? Additionally, brands will usually fit at least two of these criteria:
- Lower sugar/carbs – in particular “unsweetened”*
- High protein – in particular “Paleo”, “Keto” and/or “plant-based”**
- Any medicinal properties (i.e. functional beverage)***
- All Natural and non-GMO
- Social Mission/Impact – Do consumers believe your brand is sincerely interested in improving the planet and in raising people’s standard of living? (Companies will usually need to demonstrate 2-3 of these or more):
- Show support of farmers
- Pay higher than minimum wage
- Donate to environmental causes and/or be a Certified B corporation
- If protein-dense, protein comes from non-animal sources
- Demonstrate commitment of the Founders/CEO in key areas, such as authenticity, inclusion and diversity
- High Growth Potential – The product resonates with specific demographic(s) with high growth potential such as certain ethnic markets or parents of young children.
- Kitchen Friendly – Products are well suited for at-home consumption.
- Safe and Snackable – Products are well suited for snacking and/or are kid-friendly.
- Great Taste – Regardless of how many of the above are applicable, the product must taste good as well. Consumers are not willing to sacrifice taste entirely to get the above attributes.
- Thoughtfulness around expansion of distribution – Companies have demonstrated consistent success in at least one prominent channel. If they have an omni-channel presence, assurance is needed that they have done so thoughtfully and are not prioritizing quantity of distribution channels over quality.
- Brand Equity – Consumers want to feel good about the brands they purchase. The brands with multiple suitors often have an authentic founder’s story, a clear mission and a loyal following of consumers who feel passionately about the brand. These factors can make it more difficult for other brands to compete and, ultimately, win share.
- A strong, visionary leader and management team – The founders and leadership of successful brands bring energy, passion, deep knowledge and an entrepreneurial hustle. They build talented teams and inspire achievement.
- Profitability – The era of investors funding “growth at any cost” is over. Potential investors/acquirers want to look at businesses that have reached or are quickly approaching self-sustainability.
While there is no exact “recipe for success,” investors in the food and beverage and overall branded CPG industry are savvy and recognize progress and potential in key areas such as these.
