What’s your story?
“What’s the price” always is asked by customers, financiers and the general public, joined by “How was this made?” in the new era. “What’s your story?” is a more recent query, and “I cater to people with food sensitivities” or “We’re saving the planet” are more compelling answers than “I’m Tony the Tiger.”
Resist the temptation to dismiss the thousands of new and emerging food companies as specialty niche pip-squeaks catering to the food fad du jour. Can they realistically take share from major corporations with 11-figure annual sales? They not only can, they are.
Among the largest publicly traded companies on Food Processing’s Top 100 list, one third reported sales declines in 2014, and most of the others registered modest improvements. Aggregate sales declines totaled more than $1.7 billion, a 2.2 percent drop from the prior year. The losers include some of the most venerable names in consumer packaged goods.
Investors are frothing to get in bed with startups. Institutional investors that typically favor middle-market firms are scrambling to keep up with venture capitalists and angel investors with bigger appetites for risk who are buying into food startups. Many of them believe food production is undergoing fundamental change, and they want in. They are grafting a Silicon Valley funding model onto the food industry, betting that a fail fast/succeed fast approach can put a handful of winners with enormous upside potential in their portfolios.
Tech billionaires are well represented. One example is Ali Partovi, who provided $1.7 million in 2015 seed funding last year to Clara Foods, a plant-based protein developer, after a $23 million investment in Hampton Creek, the creator of Just Mayo, the pea-protein salad dressing that promises to revolutionize the American diet by providing cheap, healthful and flavorful food.
Capital availability isn’t limited to firms committed to healthier eating. “We are bombarded every week by bankers, venture capitalists and other lenders,” says Doug Renfro, third-generation president of Renfro Foods Inc. in Forth Worth, Texas. Likewise, in Canada, bankers who might not have taken Kevin Stemmler’s calls a decade ago were more than happy to compete over terms when he approached them last year to underwrite a major expansion for Stemmler’s Meat & Cheese, Heidelberg, Ontario.
“Food companies are very stable, and our profit margin has been very good,” says Stemmler, a second-generation company president. Revenues are up sharply and, he reasons, a recession-proof business like food processing is attractive to financiers.
Product innovation has helped both Stemmler and Renfro grow. High protein meat sticks with low sugar, salt and fat content are helping Stemmler participate in a school lunch program for Ontario’s 1 million school children. Renfro’s salsas were pioneers in the use of ghost peppers, one of many salsa innovations the 76-year-old firm has introduced.
But Renfro also has a story to tell. “Some buyers are only interested in price,” he allows, “but there’s a growing segment who like the chance to talk with a real person with a real story. They want to see someone named Renfro, not just jars on a truck.”
Jerky to the stars
Instead of tales from the old days, companies that trace their roots to the 21st Century need to spin a different tale. For Jon Sebastiani, the story revolved around “artisanal” jerky and the celebrities who eat it.
A fourth-generation scion to a Sonoma winemaking family, Sebastiani launched Krave Pure Foods in 2009, attracting a coterie of celebrity investors like trainer and “Biggest Loser” coach Jillian Michaels. Last year Hershey purchased Krave for $218.7 million.
The serial entrepreneur now has launched Sonoma Brands, an incubator for emerging small firms backed by Velocity Made Good (VMG) Partners, a private equity group. VMG typically invests in mid-sized, well established firms, but the partnership with Sonoma Brands will troll for early-stage companies with proven concepts but lacking know-how in areas such as copacker negotiations and slotting allowances.
Greg Steltenpohl’s back story has a Horatio Alger glow. In 1980, he and other founders of Odwalla juice squeezed oranges in a backyard shed and sold the beverage from a van. Nutritionally rich and unpasteurized, Odwalla was a progenitor of the fresh juices now inundating the market. After 16 years (and the introduction of flash pasteurization following an E. coli O157:H7 outbreak), the brand was sold to Coca-Cola for $181 million.