Look Out Coca-Cola and Kellogg’s. Consumers Want Something New.

August 2, 2022


COVID and the cur­rent eco­nom­ic cri­sis have been a boon to big food and bev­er­age com­pa­nies.

Many peo­ple went back to com­fort foods dur­ing the pan­dem­ic, and the big brands did great. Now we’re fac­ing a poten­tial reces­sion, and there are a lot of advan­tages in scale and reach dur­ing times like this. Coca-Cola deliv­ered strong results in 2021, with rev­enues up 17% on the year. Gen­er­al Mills also report­ed strong growth, with net sales up 21% and a 16% increase in prof­its. After drop­ping sharply as COVID took hold, the S&P Food & Bev­er­age Select Indus­try Index fin­ished 2020 up near­ly 20%. Most small­er, bet­ter-for-you food and bev­er­age com­pa­nies have strug­gled fac­ing these same chal­lenges: com­plex sup­ply chains, mar­gin pres­sures, and lack of cap­i­tal and many will fail.

But the trend toward health­i­er food isn’t going away. In fact, some­thing inter­est­ing is hap­pen­ing that’s chang­ing the food land­scape that’s been in place for more than 75 years.

The food sys­tem in this coun­try has gone through some dra­mat­ic shifts in the last cen­tu­ry, but none so trans­for­ma­tion­al as what hap­pened in the post-WWII years. The ink was bare­ly dry on the truces in Europe and the Pacif­ic before sud­den­ly hun­dreds of thou­sands of young men were return­ing home from the war, set­tling in then-new sub­ur­ban com­mu­ni­ties, and enjoy­ing the boom years that came with it.

Overnight, the food sys­tem had to evolve to feed all of these peo­ple. And it did, deliv­er­ing calo­ries afford­ably and at scale to the grow­ing U.S. mid­dle class.

But cheap and acces­si­ble don’t equate with healthy and nutri­tious, which are increas­ing­ly what today’s con­sumers demand (and need). And it cer­tain­ly is not help­ing our cli­mate chal­lenges. That’s why our the­sis at Pow­er­Plant has always been that the big food brands – includ­ing their big sup­pli­ers like  the Cargills and ADMs of the world – would even­tu­al­ly have to start deliv­er­ing the bet­ter-for-you prod­ucts that peo­ple want. Giv­en that they strug­gle to inno­vate them­selves, they would be forced to tap the healthy and grow­ing ecosys­tem of small food and bev­er­age com­pa­nies in order to make that hap­pen through acqui­si­tions. The writ­ing has been on the wall for years, and it has begun to hap­pen, with 305 food and bev­er­age M&A trans­ac­tions clos­ing in 2021 worth more than $28B. That was up from 299 indus­try trans­ac­tions in 2020.

But COVID and our cur­rent eco­nom­ic cri­sis have put a pause on this as the major strate­gic play­ers in the food and bev­er­age mar­ket have pulled back on their own acqui­si­tions. They’ve even gone so far as to sell off brands (and we’ve bought a few, includ­ing ZICO and Chameleon Cof­fee!).

As they’re clear­ly not inter­est­ed in man­ag­ing hun­dreds of small, niche brands under their exist­ing umbrel­las – we’re start­ing to see roll up com­pa­nies fill the void. Before long, I expect there will soon be a new group of pub­lic, mul­ti-brand com­pa­nies that take over and fill this void.

After all, this is the free mar­ket in action.

Today, most of the major food com­pa­nies have one or two brands in their port­fo­lio that are mas­sive suc­cess sto­ries. Coke, Pep­si, Frito-Lay, Kellogg’s, etc. But those days are end­ing. We’re not going to see many more $10B-$20B brands in this space. Con­sumers today want more spe­cif­ic, more unique, more relat­able and per­son­al and even cus­tomized prod­ucts, so the future is going to be in aggre­ga­tors that can pull togeth­er and man­age prof­itably five, 10, or 20 brands that are any­where from $100M up to $1B each.

We’re here to help guide founders and investors through this time of change.

Over the com­ing months I’ll be shar­ing a series of arti­cles break­ing down the major trends we’re see­ing in food and bev­er­age and what Founders, CEOs and teams of emerg­ing brands need to do to win going for­ward. What’s the new math of growth vs. prof­itabil­i­ty? Is it pos­si­ble to bring more con­scious­ness into our food sys­tem and make a social and envi­ron­men­tal impact even dur­ing dark eco­nom­ic times? What will exits look like in this new world and how do you keep your mis­sion and impact intact?

Because, at the end of the day, health and well­ness trends aren’t going away. The need for impact invest­ment isn’t going away, either. But, at the same time, the strate­gic play­ers have made it clear that nei­ther are like­ly a pri­or­i­ty this point. It’s time for us as entre­pre­neurs, investors and humans to fig­ure this out for our­selves and stake a claim to this mar­ket. The lega­cy play­ers aren’t going to like what’s com­ing next. It’s time to be the future we want to see: a bet­ter food sys­tem for all.

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