What Gives a Brand Acquisition Energy with Amrit Richmond

0:00So I think a strong founding team in the first year, even the day zero of a brand is how much can that team do before they hire other teammates and agencies. can they design some facebook ads themselves can they create packaging as cheaply but thoughtfully as possible to give the brand a chance in that first year do they understand how the industry works honestly like do you do you know what a upc code is or or how to position something for retail do you know what drives people to subscribe to something online maybe it's what you did in the past um i really admire founders that used to work in advertising because i come from that world too And this new brand that they're creating is a kind of a blank canvas for unsuppressed creativity that maybe they've never had in their careers.

0:52And I find that they kind of run through walls and can do all these different get the brand off the ground things that make a huge difference in their business. Hello, I'm your host, Mike Gelb, and this is the Consumer VC podcast brought to you by Propeller Industries, the leading strategic finance and accounting partner for venture stage companies. On this show, we discuss the intersection of venture capital and consumer innovation. If you're enjoying this show, please subscribe on YouTube or wherever you're listening, Spotify, Apple. And if you want the full experience, I highly recommend checking out the newsletter at theconsumervc.com.

1:32you'll receive all the latest fundraising updates you'll also receive every time a new episode drops it's great that's at the consumer bc.com all content episodes are for informational and entertainment purposes only and is not investment advice i am delighted to have on my friend amrit richmond on today's episode you might know her from indy cpg she also is the founder of supermercado insights where she studies the past and future of the industry for clients and her own curiosities since 2017. If you're in the world of consumer brands, I would be stunned if you haven't heard of her or at least seen her research online.

2:08IndieCPG helps support brands through community content and intros to collaborators. I highly recommend learning more at indiecpg.com. And recently, Omrit joined the board of SecureCPG. SecureCPG is building the founder-forward approach to product insurance. Well, we focus this conversation on the road to the exit, what probably every founder wants. But what gives a food or drink brand in today's market acquisition energy? What are the different profiles of acquires today? Why acquire emerging brands? For all the answers, and without further ado, here's Amrit.

2:48amrit thank you so much for joining me here today how are you you're welcome i'm good how are you i'm doing great thank you so you've produced incredible research um and i love i love um all of your uh all the posts that you create that i think is so so helpful for for founders and and folks, particularly in the, uh, in the CPG industry. And I know that we were talking last fall about, um, acquisitions and how maybe the acquisition landscape has changed over the past few years. And, um, and thought we had, you know, an awesome conversation. And so really excited to kind of dive into this more on this, uh, on this episode.

3:34Yeah. I'm, I'm excited too, especially because you study the space like a sport, like I do. So it's always fun comparing notes when we catch up. That's kind. I mean, your notes are incredible. Let's start from the basics. Why does a company acquire another company in the CPG space? Sure. I think the thing that's changed the most is acquiring something for an opportunity versus a threat. In the past, if we look at some of the first acquisitions and the better for you space, like in Annie's mac and cheese or kettle chips, the people that acquired them had similar products, but these were the organic, slightly healthier versions of them.

4:19And those brands are still on the shelf. I think they're great case studies. But now it's more about acquiring an opportunity. Maybe the brand has access to a new customer base or a way to engage with that customer base that the corporation just doesn't have the expertise around. Obviously, IP is something that's very defensible against the other smaller brands when you're comparing potential acquisitions, but also that gives this corporation a new tool in their tool belt or something defensible that says this is a really special product and we're the only corporation that has something like it.

5:00So I think corporates in Food and Bev are thinking about companies their size as threats versus these smaller companies now. And it's cool to see CVCs making more investments, making more distribution partnerships as part of their investments. They're making a lot more effort to be active in the earlier stage ecosystems. Someone like Mondelez has Snack Futures program, and it gives them a chance to support brands that they may or may not invest in or acquire in the future. but helps them understand where all of this is going. And I think it's positive for the ecosystem that there's over 70 corporates investing in food and beverage companies.

5:46I love this concept of now corporates are looking at, when they're thinking about the M &A landscape in terms of what to acquire, they're more thinking about opportunities rather than threats. And I really appreciate how you laid that out for us. But how does it actually, in terms of the opportunity sides, what do you think about this kind of new landscape? What kind of comes to mind and what are the different levels or maybe checkboxes per se that has to have a corporation interested or a company maybe needs to have that the corporation would think, hey, this is an opportunity for us? Sure. So there's table stakes things that we all think about.

6:36It's most likely that the company has national, possibly international retail distribution. I think in the supplement space, a brand could only live online and get acquired if it's something that people buy on repeat on subscription. But if we're talking about fast-moving food and beverages where someone buys a single unit at Whole Foods or Target, it, that retail distribution is going to be really important. And the corporates are much smarter about retail at scale than we are. That's one of their core competencies. A lot of them even dictate what goes on in their particular aisle because they're responsible for a third of it across all of their core brands.

7:16So by partnering with them through an investment or acquisition, they can now distribute your product onto their aisle or the adjacent aisle. And that's super powerful when you think about the long-term partnership that happens after an acquisition. So they're looking for brands that can fit into the retail stores that they have the closest relationship with. Huge bonus if you're already selling in those. But it's also important that your brand understands how to play online. Mike, you and I talked a little bit about how a team that might be getting new jobs at this acquirer is really important, especially if that corporate is looking to have that team maybe incubate some new entirely new brands with them or some collaborative products so we saw mondelez they they bought grenade snack bars they're high protein and they did an oreo flavor that's a perfect example of taking a nostalgic product that that everybody loves and pairing it with something that that's high protein I like to call that functional nostalgia.

8:20Obviously low education, it makes us smile just like we are now, but it gives Oreo access to an audience that maybe hasn't had that flavor in a while. That's a great example. And also, I mean, a really interesting kind of way to collaborate with the brand that you've actually acquired as well and actually bring some of the brands that you're known for the incumbent brands actually into the fold, which I think is really cool. Yeah. I'm holding out for a cookies and cream who kitchen bar. I really want to who kitchen cookies and cream flavored bar. That'd be my dream acquisition collaboration. Well, I mean, you know, in the last, like, you know, five, 10 or maybe 10, 15 years, what to you were specific acquisitions that stuck out that you thought, Hey, this is actually, maybe an insight into how corporations are behaving.

9:19I'll go back to Annie's and Kettle Chips and Justin's. Those founders were my heroes when I was growing up. And we had their products in our house. More recently in the last decade, of course, RX Bar, Liquid IV, or more recently Cliff Bar. But then there were brands in 2014, like late July and Gardein, and those founders are now building new brands, which I think is super cool. So the founder of late July is building Nixie Sparkling Water. Gardein, he's created a new frozen vegan sushi brand called Conscious Foods. I think I've bought it four or five times. It's incredible. Um, so it's cool to see this life cycle of a, a healthy brand that we all looked up to.

10:08They get acquired now that that founder is built, building something new and standing alongside you in a, in a booth at, at Expo West. And, um, it, it, it's something that gets me really excited about this industry because people don't want to stop building. Yeah, no, that's, um, uh, that's awesome. I think how, how also, um, in your mind, because obviously like a lot of brands, part of the goal or is, is to be acquired. Um, I know that, yeah, I'm sure you talk to many brands that, that, that they kind of say they, um, uh, that they, um, that, that the goal is for an acquisition, um, down the line.

10:52Um, I certainly talked to brands that, that say that they're, that the goal is, is, is, is to be, uh, successfully acquired. What gives, um, a fast, what gives a fast moving brand acquisition energy? So, so we talked a little bit about the, the defensibility of having good distribution. And that also tells the potential buyer that your brand has a stronger hold on that region or that aisle than the other brands of similar size to you that are still indie. Of course, a mass appeal product platform. I talk a lot in my content about low education, low priced products. And low price doesn't mean$1.99 for a soda.

11:37It just means this is a price that people can add to their cart, ideally every time or every other time they're at the grocery store. I've also written a lot about the connection between a customer listening to a song or having a favorite band and the products that they buy at the grocery store. You want people to kind of listen to your snack or your beverage on repeat. You want them to tell their friends about it, whether it's on Instagram or in person. But even if they tell nobody about it, if it's just this secret connection that they have to your product because it aligns with their fitness diet and they're angry when you're out of stock at the store, that's the kind of energy that you need to get acquired.

12:26And when you can do that, sometimes you can do that even in your third year of business. if you can keep up that connection with your customers, what you launch next, kind of like launching your next album, they're going to trust it. They're going to want to buy it. They're going to want to listen to it. They're going to want to eat it. But that trust takes time. One of my favorite brands is Bonza. I love their pasta when they launch pizzas. I bought those, haven't tried the waffles yet, but I know they're going to be good because I like the taste and texture and nutrition panel of their other products.

12:58Um, so they've, they've done that trust consistency really, really well. Yeah, I know. I mean, I also, I mean, I'm, I love Bonta too. I think also their, uh, also their Mac and cheese is incredible. Um, uh, it's, it's so good. How, well, how, how do you define and think about, um, mass appeal for example? Um, and, um, and, And if a brand actually does have mass appeal within your research? As an industry, we talk about nostalgia a lot, but I think it can go beyond that. I like to think about functional products as how does it fit into someone's day? Does it help them wake up? Does it help them get through that slump right after lunch?

13:43Is it something that they relax with in the early evening? Can they share it with friends? Does it help them sleep? There's four or five moments in someone's day that your product should fit in at least one of them. So going back to Bonza, most of their products were lunch and dinner oriented. Now they have waffles. Their customers could be eating their product more than once a day. And that's part of the appeal factor for me. Part of that is also low education or as low as possible. If you see something for the first time at a store, even if it's in the yogurt aisle, but you have no idea what that yogurt is made out of, that's a problem.

14:23And it doesn't mean you can't build a successful business or that you won't get acquired. It just means that you're going to get less turns on the shelf and you're going to have to do more demos and spend more on the Instagram ads and marketing versus using ingredients that people understand. And at the same time, over the last year or so, I've seen brands put more emphasis on the flavor of their products in the front and the function in the back. I've had some sodas where I looked on the back and I read that there was magnesium in it and I didn't know. And I was relaxed. I was happy. But it wasn't so...

14:58In your face. Or that was the main selling point, that there was magnesium in the beverage. Yes. And honestly, it was delicious. and I would drink it again, but they sold me on the flavor of it first. So to me as a CPG strategist, they want to appeal to as many potential customers as possible versus saying, only drink this when you're stressed. Are you finding that more and more in terms of brands today when it comes to some of the marketing tactics in that maybe tying it more so to an emotion or how you would be feeling, for example, instead of saying we have this ingredient or we have, or something along those lines.

15:50Yeah, and earlier, like 2019, 2020, we were seeing a lot of focus on this product is for you if you're stressed. And now it's much more focused on Calm. Recess has done that really well. They don't remind you why you're drinking it. They just invite you into their world. What I thought was really interesting in your research, and Elsa said, was also on the PE side of it, how you have this kind of new type of PE investors when they're PE, but also operators too. They're kind of acquiring brands. And maybe traditionally they would only acquire, you know, they would only be investors in the brands, but they're actually now kind of acquiring the brands, but they, um, but they have, they have like the operational expertise.

16:36They, they, um, they were entrepreneurs and were able to kind of exit and, and had, um, successful exits that they actually have kind of come back. Um, even though they still invest in brands, they also as well, um, run brands too, which I think like a little, a little bit of a hybrid type where in traditional P like you have like your own kind of operations team and it's like it's different yeah and we're still seeing traditional pe um some of the the bigger exits were alcatatine um buying kodiak cakes tpg growth buying smart sweets um and then we've also seen some some new kind of house of brands or holding companies be pretty active late lately um there's one called created the that bought basis clean hydration camp mac and cheese, a functional beverage called Dune.

17:25Human Co. I know that they made it. Yeah, Human Co. So they're launching their own brands. They're acquiring them. Love what they're doing. So again, as you and I are looking at this document while we're on video together, when we look at this, these are a couple dozen first-time buyers in the last four years, where traditionally before COVID, It was the usual buyers of these brands. And I actually think to the founders listening, who buys your brand might still be building their business right now. It might be one of these, what we would consider a unicorn in CPG that's managed to stay in business 12 or 15 years, that's later stage, that has the ability to acquire you either for cash or meaningful equity in their business.

18:25And then one day you might get acquired together. So similar to how the food and beverage corporates are thinking about what could we potentially acquire or partner with today that isn't a threat, that's an opportunity. These later stage brands that are platforming through acquisitions are thinking the same way. They make a snack. Maybe they own their own production facility. What else could we be making in this facility? Maybe we do an equity deal with those brands. Maybe we acquire 25 % of them. we give them line time, everybody wins. We need more of that right now. Yeah. And I think to your, to your point as well, you know, in terms of what you, what you acquire, it's in maybe in the adjacent markets in terms of what you currently have.

19:14Adjacent markets. Yes. But I still think any buyer, large or small should, should have a checklist of what can we teach this company? you know, why are, why are we acquiring it? Yes. It has Mazepil. Yes. They have distribution. Yes. It's a, it's a product that people listen to on repeat, but what, how are we going to make an impact on this brand so that we can get a return on our time and investment also? So it might be the same way in investors looking at a brand and only investing in, in founders and products that they feel like they, they could make an impact on. It, that they, everybody needs to look in the mirror and say like, can we really make something meaningful together?

20:05Otherwise you're wasting your time. Right. Yeah. That's a great, like how, in terms of how can we, how can we also like add value? Like could, if we went through, you know, our distribution, for example, and, and, um, and got them into maybe a different type of retailer as well to expand their distribution, would that actually be valuable to, or would they actually appeal to that type of customer as well? Yes. So imagine your food brand gets acquired, you reduce your COGS by 20%, and you get into your dream retailer, not with a broker, but through the DSD of your new parent company, that can dramatically change your business.

20:52Huge. I wanted to also touch on Cox for a second because I remember that when it came to the criteria now when it comes to being attractive, if a company has acquisition energy, uh when it the the cogs or the supply chain needs to be um needs to be maybe uh more simple that's more attractive and not as complex um how do you then think about innovation not to say that the most complex supply chain means that you're the most innovative but at the same time, if there is complexity that maybe is that you're producing something that's fairly different to what maybe what was already in market, for example, that maybe there is more complexities to it.

21:53How do you think about, you know, like if you're a brand and you're really trying to innovate and you're trying to be pretty cutting edge and produce a product that is very different and you actually, your cogs are going to be a lot higher than the incumbents. How do you kind of think about and manage when it comes to innovation? And then of course, also wanting to also be acquired or be attractive to acquirers. Going back to what we were just saying, post-acquisition, what impact could a corporate make on the business. If your cogs are higher than you want them to be, but they're not putting you out of business, that could be a problem your new parent company can help solve.

22:40They might be buying a double digit percentage of the chocolate, let's say, in the industry or in the country, or just have access to suppliers that you don't know about that only work with corporations. So I don't think that the most important thing is COGS or the big profitability word. It's important for sure. But it also depends on what kind of conversation you're going into when you're getting acquired. Are people approaching you because they see that you've created something super valuable? Are you trying to sell your business? There's different negotiating levers about your cogs and your valuation in those situations.

23:33Sometimes a company gets acquired and the supply chain changes significantly because it needed to or because the new company wanted to do it their way. and that's a that's that's a moment when you really have to consider the customers because the the customers of these organic natural better for you products we are smart we read labels maybe because it's our diet or because of allergies but also we bought these products because of the supply chains and because they're ethical so um there there has to be a certain consideration when you when you reduce the cogs and you scale a product post acquisition to, to not take away what made people fall in love with it.

24:15Yeah, no, that's a great, it's a great point. Um, I remember when I had on Mark, the founder of Zico, he was saying that when Coke bought Zico, they actually changed the formula to make it, um, uh, to make it a lot more cost effective for Coke. And, and I remember like their competitors kind of pounced on that too. Cause they knew. And so I think that also when you do get, you know, acquired, I think that it's also important to know as well.

24:59If, if the product would actually change too, right. and making sure that if you obviously believe in the product and you obviously built the product and making sure that that is still kind of consistent in terms of the ethos of the company that you originally created. I think there's also ways that a corporation can make a product better post-acquisition. They might have access to certain equipment or, again, certain ingredients that just aren't on the market for these earlier stage brands or the quantity or scale of them. They might have incubated an innovation that no one knows about and they launch it through this younger brand that they've acquired because that brand can play in retailers and spaces that maybe they're not in also.

25:50So again, going back to that value exchange, when either you're working towards an acquisition, you're looking at people who might acquire you, really think about who can add value and who would benefit from what you've created versus who has a product exactly like my chip or my chocolate bar or whatnot. To say, hey, potential acquirer, together we could be more defensible in the market. And here's a slide or two about what our product roadmap is if we were to partner up in this way, if any of this resonates, this could be a really great path for both of us. So that alignment is really important, and I think understated when founders are putting together that M &A history slide in their fundraising decks.

26:49I love helping friends and founders with, with those. You guys can reach out if you just want a quick list of acquisitions in your space.

27:00There, there, there should be some wild cards on there to say this corporation is, is diversifying outside of what you might expect them to, to acquire or, or partner with, you know, with certain brands. I want to get close to them. Do you, potential investor, know that corporation? Did any companies in your portfolio sell to that corporation? Because I really, really want to work with them. And kind of reverse engineering how you might get in touch with some of these buyers or just better understand them. If that's really your goal, I think it's better to have a wish list in mind versus saying, My goal is to get acquired one day and I'm not really working towards a specific company or specific type of company, if that makes sense.

27:55This episode is brought to you by Propeller Industries. If you run a high growth business and you're focused on profitability, extending your runway and improving your operational efficiency, you probably need a finance and accounting whiz that will grow with you. Well, instead of hiring someone full-time, what would be cost-effective is working with Propeller Industries. Propeller Industries is a leading strategic finance and accounting partner for venture stage companies and has partnered with over 1 ,000 startups and high-growth businesses across consumer products, consumer tech, and enterprise.

28:25Some of the brands that they've worked with are Liquid Death, Olipop, Hymns, Farmer's Dog, Away, MoviePass, and Giphy. Propeller also provides specialized support for fundraising and M &A with transaction advisory services. Propeller's TA team of former investment bankers and investors can step in on more of a project basis when pursuing full-scale financing and M &A. There's a link to Propeller Industries in the show notes if you want to learn more information. In terms of actually creating the wishlist, so if you're a brand and you're looking to get acquired, or maybe this is down the line, but maybe you have your wishlist in terms of who you would love to acquire a brand.

29:06How do you create that wishlist and maybe what are some of the, what should be like your own criteria for that, for that wishlist and maybe what, what can brands get wrong? So for my clients and my own curiosities, actually, I want to write a book one day about the history of food and beverage in natural products. So this is a lot of ongoing research, but I've built a model that shows me the grocery aisles or attributes of products that corporations have the most concentration in, but also what we might consider to be their blind spots. So something like, let's say they're historically a pantry oriented corporation.

30:00My column for pet acquisitions is irrelevant. I hide it when I'm looking at that corporation's history because unless it was a food topper for pets, it's really unlikely that they're going to acquire a pet product. But I try to think about, okay, they've made a lot of sauce acquisitions or seasonings. I think about like what else might either might be in that basket or what else is in that aisle? Because again, these corporations have really strong relationships with the big retailers and their aisle. Yeah, if you go down the pantry aisle, look at how many facings Campbell's Soup has. Obviously, they're smart about soup, but they've been growing into other areas through acquisitions as well.