BOULDER — If the expectations of leaders in the Boulder area’s natural and organic food industry play out, don’t expect the wave of food-industry giants buying local companies to slow down anytime soon.
Big food companies and large grocery chains alike, those leaders say, are taking note of the shift in consumer demand that’s happening not only in Boulder County but around the country.
Similar to the tech industry, where large, established players often innovate through acquisition rather than their own research and development, large food companies are starting to take the same approach as it relates to growing their own natural and organic lineups.
“It’s just such a seismic move as people are trying to eat healthy,” said Vince Love, who cofounded natural and organic foods investment firm Sunrise Strategic Partners with Boulder Brands founder Steve Hughes earlier this year.
Love was speaking at BizWest’s CEO Roundtable on the natural and organic foods industry at the Boulder law office of Berg Hill Greenleaf & Ruscitti LLP on Wednesday. The CEO Roundtable is sponsored by the law firm and EKS&H LLLP, a regional accounting firm.
Boulder Valley companies such as WhiteWave Foods, Justin’s, Boulder Brands and Lucky’s Market have all seen major national players over the past year or so acquire them or at least take significant equity stakes.
The benefits, of course, flow both ways. Growth, after all, particularly for smaller companies such as Justin’s, comes at a steep price.
“I think that’s the advantage of having someone acquire you is you gain a lot of real estate in a hurry,” said Susan Graf, former vice president of finance for Bhakti Chai and now vice president of regional development for New Resource Bank.
While some might be upset about their favorite local brands “selling out” when they’re acquired, Carlotta Mast, president of industry group Naturally Boulder, pointed to Justin’s founder Justin Gold’s view that “It’s not us selling out; it’s them buying in,” referring to large food companies shifting their own values.
“The acquirers are being much more careful with the acquisitions,” Mast said. “Rather than changing those companies, they’re looking at how those companies can help them change.”
Of course, it remains to be seen if those ideals hold true as some of the acquisitions play out. Made in Nature CEO Doug Brent said there’s been a big shift in large food companies wanting to change, but those companies also have large corporate structures that they have to deal with that can often affect the cultures of acquired companies. On the positive side, he said some of those same large companies are creating “silos” for their organic brands to operate in more independently to try and preserve the mindsets that made the small companies stand out in the first place.
“Big food is getting a jolt right now,” Brent said.
There can be negatives of large conglomerates getting into the natural and organic foods space, said Sylvia Tawse of Fresh Ideas Group. Among others, those can include acquired brands losing core talent as the company cultures shift.
But, said Arron Mansika, managing director of Naturally Boulder, there’s been some shift in thinking among many hoping to impact the overall food system in the idea that it might take some of those big companies buying in to really effect the greatest amount of change.
“The big is bad mentality, we all know it,” Mansika said. “But I think it’s shifted. Big is bad sometimes. But big is beautiful and often necessary sometimes.”
Amid a wave of acquisitions in the craft beer industry by big players such as Anheuser Busch InBev, there is often worry among craft brewers about the lines between craft beer and mega brewers being blurred, particularly if the mega brewers wind up watering down the recipes and quality of ingredients in the craft brands they buy.
But Love said he’s not concerned about that in the natural-foods industry. If, for instance, Hormel were to “ruin” a brand such as Justin’s by changing recipes, Love said millennials and other consumers would see through it and buy something else. And, he said, “there’s a whole host of entrepreneurs who will come up and fill that void.” So it incentivizes the large companies to keep those acquired brands as they find them.
Small not bad either
Boulder Granola president Jody Nagel noted the difficulty for small food companies to grow to a certain size and reach profitability, with Mast adding that some 85 percent of food and beverage startups shut down within three years. Nagel said her company “went all out” on growth last year, hiring a copacker in Denver so she would have more time and money to attend trade shows and focus on increasing sales.
“We doubled in sales,” said Nagel, noting that Boulder Granola is profitable. “I looked at my numbers at the end of the year and said, ‘I don’t want to do this next year.’”
Tawse said that as Boulder and the Front Range grows as a natural-foods mecca, part of sustaining that atmosphere with more and more companies sprouting up is for companies to accept different degrees of success and know that it’s OK for not all to exit via major acquisition.
“Some of the expectations (of entrepreneurs entering the industry) are just greedy,” Tawse said. “I don’t see that as an essential part. I don’t want that for our industry. I want there to always be that triple bottom line. … Not everything is swift.”
Participants in Thursday’s CEO Roundtable included: Arron Mansika, managing director, Naturally Boulder; Doug Brent, CEO, Made in Nature LLC; Carlotta Mast, president, Naturally Boulder and VP of content, New Hope Network; Susan Graf, VP/regional development manager, New Resource Bank; Vince Love, partner/chief operating officer, Sunrise Strategic Partners; Jody Nagel, president, Boulder Granola; Sylvia Tawse, chief fresh officer, Fresh Ideas Group. Sponsors: Jim Cowgill, EKS&H; Jack Storti, Berg Hill Greenleaf Ruscitti; Heidi Potter, Berg Hill Greenleaf Ruscitti; Jared Crain, Berg Hill Greenleaf Ruscitti; Mark Changaris, Berg Hill Greenleaf Ruscitti. Moderator: Christopher Wood, BizWest.