M&A Strategies are Evolving in Small Brand Acquisitions

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Big CPG companies have been focusing on growth through acquisitions the past few years. They see small brands as an opportunity to tap into a growing customer segment that they currently have little access to. However, the transition from a small brand into the big company structure can lose the “craft,” and “authentic” feel that makes those brands so successful. 2018 is the year when mergers and acquisitions teams will evolve and apply tactics that ensure the small brand keeps its quality and authentic feel.

How are Mergers & Acquisitions Tactics Evolving?


M&A teams are finally noticing that some of the small brand’s most loyal consumers see these deals as the brand “selling out to the man.” These loyal customers matter, because are typically the people that helped the company grow so fast. It is important for big CPG companies to keep brands “local” and maintain the product’s integrity after an acquisition. M&A Teams are focused on the following to keep small brands authentic feel:

  • Keep the founder and initial innovator to maintain the appearance of a healthy marriage. This is important to building continued trust with loyal customers.
  • Basing the purchase price on post-sale performance as well as making small investments in multiple small brands.
  • Allow small brands to continue to operate independently by not buying them outright. Look at Mars’ recent investment in KIND.
  • As soon as the sale is complete, both companies should be working together to tell the future plans for the brand. Look at how General Mills and Annie’s accomplished this over the years.

These Relationships are About Maintaining the Look and Feel

Risks in M&A exist for both the buyers and sellers. The small brands fear that the large company will ignore their mission and vision in pursuit of profits, and big companies fear they will never recoup a return on their investment. The M&A teams are telling both parties to focus on maintaining the look and feel of the brand. Keep the price the same, keep the packaging the same, keep the ingredients the same, at least for a little while. The bottom line here is if it ain’t broke, don’t fix it.

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Small Manufacturers Are Experiencing Large Growth

Although almost $3 billion in losses took place in U.S. retail during the first quarter because of a shift in the timing of Easter as well as changing consumer preferences, growth is not impossible. Contrary to what the numbers show, a few small food and beverage manufacturers are thriving during an unexpected time. Only five years ago, the largest food and bev manufacturers represented one-third of all dollar sales. However, to date, they account for only 31%, and smaller manufacturers (which exceed $100,000 in sales annually) have gained the two percentage points of market share, valuing at about $2 billion. Currently, nearly 16,000 companies, which make up the smallest manufacturers, are responsible for 19% of dollar sales and are also experiencing over half of the growth (53%).

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Transparency is Now Key to Consumer Approval

Research put into the shift of growth in the U.S. retail industry shows that transparency is winning. Small manufacturers place a significant portion of their focus on health as well as the need to provide a transparent environment for consumers. At the same time, they do well to maintain an exceptional price point that retailers love!

Clean Labels Gaining Popularity

A “clean label” refers to a product that does not contain any artificial sweeteners, preservatives, colors, and flavors, as well as antibiotics and hormones in beverage and food categories. These products also typically make marketing label claims on their packaging to entice consumers.

As shown in a worldwide ingredients survey conducted by Nielsen, consumers have a tendency to keep a close eye on the details of products―actually, nearly three-quarters of survey participants said they felt positively toward businesses dedicated to honesty regarding their product sourcing; 68% were willing to spend more money on beverages and food free of ill-favored ingredients; 64% of the diets of consumers forbid specific ingredients. The longing for clean labels stems from the growing desire for company transparency.


Clean label products are now responsible for 30% of sales in the market, which has grown by 5.6% over the last five years. Small manufacturers dominate large competitors regarding clean label sales and growth. This past year has shown that small manufacturers sold the most share of clean label products in comparison to their other sales. Small manufacturers led with 40% of their sales coming from clean labels, followed by middle-sized manufacturers at 38%, private-label manufacturers at 27%, and lastly, large manufacturers at 24% of their sales coming from clean label products.

Small manufacturers take the lead in premium price tiers as well. Recently, premium-priced sales made up 44% of small producers’ sales, a significant difference when compared to the premium price of the sale of large manufacturers, recorded at 39% and below.

During the last five years, both medium- and small-sized manufacturers have upped their distribution throughout regions, resulting in a greater amount of space inside stores. Out of the roughly 900 beverage and food items that have been stock on store shelves since 2013, 88% came from medium- and small-sized companies. Retailers are giving small manufacturers an opportunity to sell their products to customers more frequently than ever before.

Increasing Sales with Promotion

Due to a larger variety and connection to real consumer desires, smaller and private manufacturers are finding sales success while also spending less on the promotion of their offerings. Larger corporations, on the other hand, have spent much more money than average on trade promotions. As of April 2017, sales based on advertising are accredited to 40% of large manufacturers’ sales, compared to 27% of small manufacturers’ sales.


As the demand for clean label products increases, more and more people will be willing to buy them, whether or not there are promotions. To adapt to the smaller manufacturers taking advantage of this trend, retailers and marketplaces must provide more space in order to account for the consumer demand. The long term success of this trend is still undefined. We will see how large brands respond. The most consistent way to adapt for large companies is through the acquisition of small manufacturers.

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Small Rivals Assaulting Big CPG Brands for Market Dominance

Gone are the days when owners of traditional consumer packaged goods (CPG) brands can sleep well at night. With small brands gaining traction today, brands like Nestle, Procter & Gamble, General Mills and Unilever are experiencing problems they didn’t see coming. The rise and dominance of small brands between 2011 and 2015 caused large conglomerate food companies to lose nearly 3% of their market share in the United States.  In the study conducted by data provider IRI and Boston Consulting Group, emerging local competitors are now being considered as threats to big multinational companies.

The Rise of Smaller Competitors

Why are large CPG companies suffering from decline? Marketing experts believe that size has something to do with it. One of the challenges of giant companies is their centralized decision-making processes and their consolidation of manufacturing processes. With the popularity of the brands themselves, companies have to spend millions of dollars in advertising and shelf placements at retailers.

On the other hand, advertising is also changing through time. TV advertising is no longer effective according to Nik Modi from RBC Capital Markets. With the rise and relevance of social media, it has provided an avenue for small brands to market their products to many people. In fact, hundreds of small brands have benefited from the rise of e-commerce as online sales have increased over the past five years.

Fast-Changing Market for CPG Brands

Many multinational giants find it hard to keep up with the fast-changing market trends. For instance, many people tend to patronize local companies producing essential products.  Ali Dibadj of Sanford C. Bernstein research firm pointed out that in many developing countries, middle-income consumers assume that Western products are superior therefore expensive; instead, they opt for local products that are cheaper but are just as effective.

In China, for instance, the sale of a local toothpaste manufacturer Yunnan Baiyao Group rose from 10% to 45% which indicated that the small local brands are being patronized instead of the branded consumer packaged goods (CPG).

Another interesting thing about small brands is that most consumers trust small brands more than the established ones. In the survey conducted by consultancy firm Deloitte, 10% of the respondents said that they are willing to pay more for the “craft” or “artisan” version of products than the mass-produced ones from large enterprises. This is one of the reasons why there is a rise of small companies that market the idea of “artisan,” “craft,” and “organic.”

Small Brands Remain Competitive

The market situation has provided an excellent opportunity for smaller brands.  These brands have contributed to the introduction of new products in the market. In America, for instance, more than 4,000 craft brewers have emerged over the last ten years as well as thousands of small brands using real, organic, and non-GMO ingredients.

What are big companies doing to address the problem? Aside from merging with other big companies to create better versions of their products, many are also backing smaller rivals. For instance, companies like Campbell Soup and Hain Celestial have helped small consumer packaged goods companies to manufacture organic baby foods.

The market remains strong for giant CPG companies, but they will have to pay closer attention to their nimbler, smaller counterparts. We will see more and more companies acquire small brands to fill their voids in market trends.

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