Either side of Christmas, General Mills turned to M&A to try to inject some growth into its business. On 23 December, the company announced a move to buy Brazilian yoghurt maker Carolina to bolster its operations outside the US. Last week, General Mills swooped again, this time domestically, snapping up fledgling US meat snacks firm Epic Provisions, another sign of the attractiveness of protein, snacks and sustainability for food majors. However, the Cheerios maker will have to be judicious in the way it manages the new asset. Dean Best reports.
Almost a year on from Hershey’s acquisition of up-and-coming US jerky supplier Krave, another major name in the country’s food sector, General Mills, has moved to add muscle to its domestic business through the purchase of a meats snacks maker.
General Mills last week announced the purchase of the privately-owned Epic Provisions, a company that creates bars, bites and snack mixes through various combinations of meat and fruit. Its products include a beef, habanero and cherry bar, chicken meat bites, with currant and sesame barbecue and a coconut carnivore trail mix that contains beef and coconut flakes.
The ingredients Epic uses appeal to US consumers interested in issues like sustainability and animal welfare. The beef, for example, comes from cows that are grass-fed; the coconut flakes are organic.
General Mills said Epic, set up just three years ago, had created “an entirely new, natural, snacking category”.
Terms were undisclosed but Epic has been reported to have seen sales hit around US$20m last year. Epic’s products are sold primarily in the US natural channel including at Whole Foods Market and Sprouts Farmers Market. The company says it has listings at sporting and hiking shops including REI, as well as at some conventional grocers.
Texas-based Epic will operate under General Mills’ natural and organic business Annie’s, which the Cheerios maker acquired in 2014. John Foraker spent a decade as Annie’s CEO and has continued with the business when it joined General Mills as the president of the division.
“Meat snacking is a huge category at more than $2.7bn and is growing very rapidly,” Foraker said last week. “The category is also highly incremental for General Mills. Epic is a unique brand with dominant leadership position in its categories and current channels. All these facts line up to support a strong business case for this acquisition.”
The growth in the category appears to be being shared across the sector. ConAgra Foods said last month its Slim Jim brand had seen “significant” growth during the quarter to 29 November. Athlos Research principal Jonathan Feeney estimates Slim Jim’s sales are likely to be more than $500m.
What can a brand like Epic bring to General Mills? Tom Vierhile, innovation insights director at Canadean, says Epic may be “more niche” than Krave but points to the ingredients used in its products. “Epic uses fruit as an ingredient for many of its meat snack products. Most companies do not do this and the addition of fruit not only helps create an improved health profile relative to other meat snacks, but it can also open up new marketing possibilities. It is possible an ingredient like fruit can help Epic and by extension General Mills extend meat snacks into other dayparts like breakfast or pre-lunch snacking,” Vierhile says.
“Another major point-of-difference for Epic is the authenticity of the brand when compared to mass-market meat snack offerings. Consumer interest in how the animals behind animal-based products are raised bodes well for the brand, given its position on the use of antibiotics. The brand also uses grass-fed meat as an ingredient, another positive statement on animal welfare.”
Foraker sought to emphasise what he sees as the wider impact a company like Epic can have on the industry. He said he saw similarities with Annie’s. Given executives at an acquirer normally call attention to the potential for sales growth or synergies, Foraker’s comments caught the eye.
“I believe that Epic will continue to be successful financially but beyond that it’s a business that is important because of the impact and influence it can have in the broader industry. Their focus on product quality – grass-fed, organic, sustainably farmed – and on cultivating and supporting producers that are committed to holistic land management and grassland renewal, offers a ton of promise to leverage significant positive impact as this business grows.”
In a move becoming increasingly common when a fledgling company is taken over by a US major, Collins and Forrest posted a message on social media explaining the decision to sell. Their comments seemed to try to pre-empt concerns among those who buy Epic products about the prospect of one of the largest names in the industry owning the business.
Collins claimed Epic had changed “the landscape of the food industry” through its work on how animals are raised, land is used and on making “healthy, wholesome animal protein” available. However, he said: “Along this journey, Katie and I have always been determined to grow Epic as big as we could, as fast we could. We believe in our heart the time for change is now. We can’t wait. We have to hit the gas pedal, we have to go as hard as we can, heads down. These guys are 100% in alignment with our core values, our fundamental principles. Nothing’s going to change with the brand. The integrity is going to be exactly what it is.”
Unsurprisingly, the reaction on social media to the sale of Epic to General Mills has not been entirely positive, prompting the pair, who are staying on at the business, to post another video. “We’re only about to further accelerate Epic’s positive impact on the world,” Collins insisted. He said Epic would continue to work with The Savory Institute, a body that promotes restoration of grasslands. “2016 is going to be ridiculous, we’re going to go so deep with the Savory Institute, holsitic land management, really make a meaningful impact.”
When a small business focused on ethical concerns sells up to a larger, mainstream player, there is almost always going to be criticism and social media gives disgruntled consumers the ability to voice their concerns. One Facebook user replied to the second video to say Collins and Foster were “delusional and greedy”.
The most immediate impact a sale to a larger business can have on a fledgling firm is the possibility of wider distribution and it is highly likely that will happen at Epic.
“Meat snacks have been one of the most dynamic categories in the entire snack market, so General Mills has a compelling story for retailers which should help the brand gain distribution. Grocers that tend to be more active in the natural and organic space like Wegmans or Safeway may be the most likely to be receptive,” Vierhile says.
Nick Fereday, executive director for Rabobank in the US, agrees. “Until very recently such products might have been restricted to the natural food channels with Whole Foods as the Holy Grail. But in today’s world all the main retailers are looking for new and interesting natural/organic brands to help differentiate their products offerings and make them more interesting to consumers, even mainstream ones.”
However, Foraker insisted he and the Annie’s team shared an interest with Epic’s founders – Taylor Collins and Katie Forrest – to “cultivate a killer mission-driven brand in the portfolio of a major mainstream company like General Mills”. He said: “If we are successful, as I think we can be, we will drive lots of positive impact that consumers will care about. This will help undermine the big-is-bad narrative in food and position General Mills favourably for the future with the growing numbers of consumers who demand positive impact from the companies and brands they support.”
The comments from Foraker, Collins and Foster show how aware they are about the possible negative impact on sales and it would be too simple to think the criticism and lost customers could be offset by new, major listings.
“As Epic builds distribution in mass, it may lose distribution in some natural and organic supermarkets that helped establish the brand, so there is a bit of a balancing act for this move,” Vierhile says. “I like the approach they are taking with Epic to run it out of Annie’s as an independent operation so that the brand can have the final call on critical decisions like ingredients. Already, brand fans are calling out Epic on Facebook to express concern about the possible use of GMO ingredients going forward, so there is some recognition at General Mills that this is a delicate process It’s tricky when huge multinational companies buy smaller, upstart brands known for advocacy and authenticity. Quite often, the smaller upstarts lose some of that magic during the transition and end up alienating brand fans that helped make the brand a hit in the first place. Kellogg’s experience with Kashi and the GMO fiasco is an example of what can happen when a brand rubs its biggest fans the wrong way.”
General Mills, with 60% of its turnover from its US retail division, is pursuing a number of initiatives to try to inject growth into its domestic business from product renovation and innovation to M&A. It has been linked to businesses larger than Epic, like Hain Celestial and WhiteWave Foods, but the jury is out on whether it should pursue such deals. Some industry watchers believe a US-centric business like General Mills should be looking for more deals outside the US and would have been interested to see the deal for Brazilian yoghurt firm Carolina.
However, the move for Epic has been well-received, albeit with the notes of caution about how to protect the identity of the new business and to assuage concerns among some consumers. The changing landscape of the US food sector mean such considerations will be increasingly common, Fereday argues. “This is a change in the structure of the food industry where companies have to accept the end of the era of big one-size-fits-all brands and move to a world of smaller brands appealing to a more diverse – and fussy – consumer base.”