Small Food Comes of Age Mary Ellen Kuhn | September 2017, Volume 71, No.9

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According to the U.S. Small Business Administration (2016), only about half of small businesses survive 10 years or longer, and other sources put the failure rate even higher. “It’s really hard,” says Lenhardt, who started her elderberry business in 2011 and operates it along with her consultancy. “A lot of entrepreneurs get started from a place of passion,” she notes. “It’s not enough. … At the core of it, the biggest problem is finding product market fit—which means you have to build a product that the market wants.”

Cooperhouse of the Rutgers incubator has a similar perspective. “First of all, you need to have a great idea,” he emphasizes. “You need to make something that is consumer-driven, value-added, and differentiated … distinctive.” From there, an entrepreneur needs to have proof of concept, which is supporting evidence that the concept and business model are sound, as well as a plan to successfully scale up the business. Without all of the preceding in place, a company is unlikely to attract significant investment.

“You have to have a path for an investor to get a return. If you don’t have that path, you’re not going to get a lot of meetings,” said Andy Whitman, managing partner with packaged goods investment firm 2x Consumer Products Growth Partners, who spoke this spring at the Good Foods Conference and a Specialty Foods Assoc. (SFA) event in Chicago. For Whitman, the two key indicators of a company’s potential are gross margins and velocity (i.e., how products are moving at retail). The latter is more important than distribution, he said, because even with decent distribution, weak sales don’t bode well for business success. And without strong margins, a company won’t have the cash to reinvest in the business, Whitman said at the SFA event.

Entrepreneurs also need to think carefully about what they want from an investor, Whitman said, noting that in some cases an investor will expect to be involved as a business advisor, and if the entrepreneur isn’t looking for that level of involvement, it won’t be a good fit. Speaking at the Good Food Conference, he noted that start-up owners need to read the fine print before signing on to a deal that cedes eventual acquisition rights or an overly large share of ownership. “For a couple of million dollars, they shouldn’t have a path to ownership,” he stressed.

Luke Saunders, who founded prepared salad company Farmer’s Fridge in 2013, has been through several funding rounds, and this spring, he exchanged some company equity for a $10 million influx of capital from Danone Ventures and investment firm Cleveland Avenue. “We’re venture-backed, which makes sense for our business,” says Saunders. But he too advised entrepreneurs to proceed carefully as they seek funding sources. “I always tell anyone who asks that the first thing you should do is spend all of your own money. You really want to get your business far enough along that it’s investable. … If it’s not clear that your product is actually going to work in the marketplace, you can certainly get money, but it’s usually very expensive money. In other words, they want to buy a lot of your company for not a lot of money.”

On the other hand, it’s not uncommon in the current entrepreneur-friendly environment for a giant food company to make a major investment to scoop up a small food or beverage brand. Hormel Foods spent $286 million to acquire natural and organic nut butter company Justin’s last year, and Unilever acquired specialty condiment company Sir Kensington this spring. “Companies like Kraft Heinz or Unilever, they really struggle with innovation … to create and bring new products to market in the way that a start-up can do, so their strategy really is to acquire them,” says Lenhardt. “And they’re willing to pay a lot of money to participate in the clean ingredients, better-for-you food space.”

Another indicator of the strength of the entrepreneurial movement may be the quality of the employees it is attracting. Lebovich says he’s been pleasantly surprised at how easy it’s been to bring smart young talent into the fold at Chicago-based PRE Brands. “There are all these huge CPG companies in Chicago,” he says. “Those CPG companies are chock full of Millennials … who are, I think, a bit disenchanted with what they do, the companies they work for, and the products they represent. I have interviewed over the past couple of years certainly hundreds of people, and a common theme is, ‘I want to do something that agrees with me not just financially but also emotionally.’”

“I think entrepreneurship is a pretty sexy career these days,” says Lenhardt. “There’s a strong labor force looking to get involved in start-ups.” At Farmer’s Fridge, staff members have degrees from prestigious universities like Northwestern and MIT, and Saunders himself is a graduate of elite Washington University in St. Louis.

Where the Market Is Headed
It’s clear that small companies will continue to play an ever-bigger role in the food industry. Small manufacturers now account for 19% of food and beverage dollar sales, an increase of two percentage points over five years ago, which represents about $2 billion in sales volume, according to recently released Nielsen data (Nielsen 2017). And small companies are driving more than half (53%) of the sales growth, according to Nielsen. It’s clear who is losing ground. Over the same time frame, the largest manufacturers’ share of sales declined from one-third of the market to 31%, Nielsen reports.

Let’s take a look at five young entrepreneurs whose companies are contributing to these shifting market dynamics. Their approaches to market, decisions about funding, educational backgrounds, and business philosophies vary, but they have some commonalities—commitment, persistence, the willingness to ask questions, and of course, big ideas.


IFTNEXT Competition Will Challenge Entrepreneurs
Calling all food science and technology entrepreneurs with big, bold ideas. A brand-new competition, the IFTNEXT Food Disruption Challenge, will officially open on January 8, 2018, offering early stage entrepreneurs the chance to win a $20,000 prize at the IFT18 annual event in Chicago next July.

The challenge was developed because there is a need to engage passionate, creative, and future-thinking individuals who can provoke and disrupt global innovation in the science of food and its related fields, explains IFTNEXT Food Disruption Challenge project director Jagruti Bhikha.

The deadline for submitting applications is February 16, 2018. Judges will narrow the pool of entrants to a group of 25, each of whom will be invited to make a five-minute pitch presentation to a group of judges. Eight finalists will be chosen from that group and will enter a six-week mentoring program, preparing them for the final pitch presentation before a panel of judges and a live audience. Winners, including a Judge’s Choice winner and a People’s Choice winner, will be announced on-site at the annual event.

For more information on the IFTNEXT Food Disruption Challenge, visit ift.org/fooddisruption.


IFT’s IFTNEXT initiative is a heightened, purpose-driven commitment to bringing provocative ideas and discoveries together to inspire thoughtful, important conversations that challenge conventional approaches with the goal of informing global issues related to the science of food.