Lots of food entrepreneurs, at least here in the Midwest, want to grow their food companies slowly, without outside money. Sometimes this is because they are debt or investor averse, whether because of the fear of the cost of capital or fear of giving up some control. Sometimes this is because they don’t want to bite off more than they can chew and growing slowly, in their minds, is growing responsibly.
While established food companies can grow slowly and still be profitable, this is much harder, if not impossible, for emerging food companies. Food companies, because they deal in physical products often produced from a long and complex supply chain, grow in stair steps, not incrementally, in order to reach the right scale to be profitable. And, these companies often have to quickly leap up each step so they don’t run out of money, often with the help of outside capital.
Let’s take food companies that need a physical retail space, for example: opening a retail space requires raising enough capital to get the right space, whether that space is owned by the entrepreneur or is built out and leased with the landlord. This is in addition to working capital needed to pay staff and cover other parts of the operation before sales begin and until sales are sufficient to cover costs. Most food entrepreneurs don’t have this kind of money on hand and can’t generate it with their current sales alone.
On our podcast this week, Marie and Matt Raboin of Brix Cider, a hard cider company in southern Wisconsin, talk about their stages of business development and the steps they had to climb to get there. This included taking the step to legally sell their product by moving production out of their basement and into a local winery with extra capacity. Now that they have started generating sales, their next stage to get the business to be profitable for the long term is to open their own tasting room. Increasing production by partnering with that winery required outside capital to give Brix the “boost” to make that first step. They will also need outside capital to find and optimize the retail space that makes sense for them for the next “step” they have to climb in their business.
To grow quickly enough to compete in today’s marketplace, food companies have to make the “leap” to their next stage of business, usually quickly and with outside capital. Sometimes this leap up the steps can feel more daunting than simply “taking the next step” and more like perilously riding a motorcycle off the edge of a cliff. But, with the right plan and the right capital structure, aspiring food entrepreneurs can make the leap towards profitably on the other side.
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And now, our roundup of the best food and beverage finance news, events and resources from around the web…
Business Model Insights
- What California’s State Data Indicates About Brewery Business Models (Brewers Association) – “The much stronger case versus keg trend again suggests that the effect of changes to the on-premise environment—such as brewery taprooms or rotation nation—on regional craft brewers in distribution may be overstated. Yes, they are facing stiffer competition from the proliferation of microbreweries, but that is hitting off-premise as much, if not more, than it is on-premise.”
- Unlocking growth in a competitive environment (Food Business News)
- Why a Major Crisis Can Be Your Greatest Investment (Entrepreneur)
Raising Capital
- Founder’s Delusion & The Investor’s Lens (Intertwine Group) – “I encourage every young brand to prepare to raise capital whether, at that moment, they need to or not. It will make you a stronger business and here is why. When you are preparing to raise funds, there are questions that must be asked and answered, numbers that will need to be developed and reviewed, and data to analyze.”
- The 3 things you should be doing to support your company’s growth (New Hope Network)
- Where food investments are going, according to investors (FoodNavigator-USA)
CPG/National Brands
- Prime Day promises to bring pain – but also opportunity – to grocers (FoodDive) – “Prime Day promises to be another Amazon sales bonanza that puts added pressure on competing retailers. For supermarkets, the worry is that not only will deals divert traffic away from their stores, but that they will spur a host of new Prime members, thus strengthening the loyalty program that has become Amazon’s main leverage point since it bought Whole Foods last summer.”
- Report reveals private brands making big comeback (Refrigerated & Frozen Foods)
- While National Brands Dominate Grocery Sales, Private Labels Increasingly Play a Key Role (Food Institute)
Market Trends
- Brick-and-Mortar, E-Commerce Play Key Roles for Grocery Consumers (Food Institute) – “Brick-and-mortar stores continue to earn consumers’ trust because they deliver choice, fresh quality and connection. There is no clear evidence that the average shoppers’ online grocery orders take away from the total number of trips that the shopper makes to the store, leaving the opportunity for brick-and-mortar retailers to retain a substantial share of these consumers’ wallets through in-person engagement and inspiration, the study noted.”
- More Americans are turning down restaurants in favor of their own kitchens (FoodDive)
- Every U.S. region seeing growth in natural food and beverage sales (New Hope Network)
Farming And AgTech
- What is IoT in Agriculture? Farmers Aren’t Quite Sure Despite $4bn US Opportunity (AgFunderNews) – “The breakdown shows farmers are most interested in data management and connectivity, placing more emphasis on the ‘internet’ and less on sensors, or the ‘things.’ This is consistent with farmers’ common request for technology that delivers actionable insights and not simply more data.”
- US farmers could take a significant hit from trade war (CNBC)
- Is Now The Time to Buy That Land Next Door? (Compeer Financial)
Deals/M&A
- Venture capital investing in food accelerating (Food Business News) – “They’re looking to start-ups that can offer them these new, healthier, more personalized products that they can also sell online, use direct-to-consumer subscription distribution, helping these big food companies start to prepare for a more online world … and to not be so reliant on the traditional grocery, brick-and-mortar retail channels.”
- Behind Conagra’s $10.9B Deal For Pinnacle Foods: Why the Frozen Food Aisle Is Suddenly So Hot (Forbes)
- Where food investments are going, according to investors (FoodNavigator-USA)
Industry Events
- Dairy Food Plant Safety Workshop (Innovation Center For US Dairy) – Free, 8/14 – 8/15
- GMA Leadership Forum (Grocery Manufacturers Association) – $, 8/16 – 8/17 in Colorado Springs, CO
- Expo East (New Hope Media) – $, 9/12 – 9/15 in Baltimore, MD
- Ag Tech Day (Wisconsin Golden Angels) – $, 10/2 in Johnson Creek, WI
- ACT Growth and Innovation Summit (Hartman Group) – $, 10/10 in San Diego, CA
- Esca Bona (New Hope Media) – $, 10/22 – 10/23 in Austin, TX
- Winter Nosh Live (Project Nosh) – $, 11/29 – 11/30 in Santa Monica, CA
