Placing funds into the wrong hands
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.”
According to Mr. Tuohig, the biggest packaged food companies in the US lost an estimated $19.1 billion in revenue to smaller and medium-sized rivals between 2009 and 2014.
“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.”
Brands and investors need to start betting earlier and earlier as the rivalry heats up, he said. Together with Eric J. Pierce, vice-president of business insights at New Hope Network’s NEXT, they determined which market trends appeal to consumers and investors the most. They include plant-based diets, clean, healthful nourishment, brands with a purpose, trust, and transparency.
“Those who buy something are turning to more entire nourishment, simple, and labeled components,” added Pierce. “This whole food issue emerged out of this wider backdrop of growing public awareness and loss of public faith.”
As more functional forms and formulations enter the market, investors and consumers polled by New Hope Network expressed interest in digestive health as well.
“We’re witnessing chances for vitamins keep expanding, but we’re additionally witnessing an evolution of this discussion about gut health to being anything much more about overall human health,” said Pierce. Foods made with fermentation are evolving, and probiotic-functional meals are becoming available in stores. Both the probiotic and prebiotic industries are experiencing a great deal of development. Everyone is genuinely extremely optimistic about this.”
According to Mr. Tuohig, investor interest and innovation are also being driven by the desire for meals that contain useful components like hemp or mushrooms. For example, adding chia seeds to jelly, a pantry staple, boosts its nutritional value and is becoming more popular than enriched or fortified goods, which today’s consumers may view as excessively processed or artificial.
According to Mr. Tuohig, brands looking for investment need to have a deep understanding of the industry, consumer, business, and customer. “You may have an incredibly impassioned concept, but if it fails to make sense to buyers or if financiers can’t get enthusiastic about it, then you’re likely to run out of gas, so to talk,” he stated. If capital or investment is the gasoline that powers the machine, you must ensure fuel is available to us.”