Legacy CPG companies are a goalpost for food industry entrepreneurs – they acquire, help to accelerate or on occasion, partner up with emerging concepts. The backing of Big Food can be a mark of success, while providing startups both the infrastructure and financial security needed to scale.
For conglomerates, tapping into the entrepreneurial ecosystem is an exercise for growing against trends and mining shareholder value through innovation – either via M&A or corporate venture. But that dynamic may be shifting as large corporations struggle to succeed under their existing weight and keep pace with rapidly changing demands and external pressures.
In the post-COVID era, these companies have been forced to look inward, shifting strategies from acquisitions to divestments, winding down venturing arms and, in more than a few cases, executing large-scale restructurings.
“The reality for big food conglomerates is that they are squeezed,” said Peter McDonald, a former leader at General Mills and founding partner of consultancy firm McDonald Strategy Partners.
“In contrast, you have this cohort of innovators who have a very robust ecosystem of opportunity to start and scale meaningful CPG food businesses… [Emerging brands] are uncovering and serving need gaps in the marketplace that, for whatever reason, big companies either aren’t uncovering or they’re choosing not to serve.”
Taking Inventory
Changing consumer demands are contributing to a broad swath of these pressures: from the adoption of GLP-1 drugs, to growing pushback against ultraprocessed foods and their associated ingredients.
Those dynamics – coupled with elevated food pricing, tighter consumer budgets, supply chain challenges due to everything from the impact of climate change and bird flu to trade wars and tariffs – follow an economic period of enduring inflation while the country teeters on the edge of recession.
At the same time, some big ticket mergers and acquisitions have failed to live up to their original valuations, including the now-unraveling $45 billion combination of Kraft and Heinz in 2015. Kellogg recently broke up and sold its parts to privately held companies as snacks surged and cereal slumped while Unilever spun off its ice cream business and is said to be considering larger actions to move away from food.
Conagra and Hain Celestial have been retooling and siphoning off underperforming brands, but PepsiCo has clung to the old school growth approach – shelling out billions to acquire two entrepreneurial brands this year even as its operating margins spiked 13.1% between 2023 and 2024 and its share price fell 20% during 2024.
But McDonald noted that while the pipeline for a strategic acquisition may currently be clogged by each conglomerate’s own unique conditions, M&A is still happening – it’s just “a reshuffling game, and there’s a lot of capital being deployed to that reshuffling.”
“If you do a big transaction – that puts leverage on your balance sheet,” McDonald said. “You’re looking at two, three, maybe even in some cases, four years, to unwind all of that. You might have capacity to do some smaller deals, but the goat has to move through the python before you can start doing even the kind of deals that we did at General Mills with Annie’s.”
As a reminder, Annie’s sold to General Mills in 2014 for about $820 million, a dwarfed sum in comparison to PepsiCo’s purchase of Poppi ($1.95 billion) and Siete ($1.2 billion) this year.
An Exception To The Rule
In its latest earnings, Kraft reported that Primal Kitchen’s net sales rose 24% during the second quarter, outpacing the growth of its flagship Heinz ketchup (+17%). The better-for-you condiment company, which sold to Kraft for $200 million in 2019 has remained a bright spot in a portfolio that has failed to meet growth expectations since its 2015 merger.
Morgan Buehler Zanotti, co-founder of Primal Kitchen, believes her business’ integration – or lack thereof – with the broader conglomerates’ operations may have been key to its continued success.
“They were very intentional when they acquired us and stuck to their word, really letting us continue to guide the strategy,” Zanotti explained. “They never pushed us to question our brand values, or do the things that consumers think Big Food does when they acquire an emerging brand [like] ‘you might want to consider blending in canola oil to get your COGs down’ – it was never a conversation.”
Zanotti, who stayed to lead the company for five years post-close, noted that the original Primal team has also remained intact. Maintaining an upstart brand’s authenticity after an acquisition is essential to its success within a larger organization, she emphasized.
“When there’s a lack of innovation from larger corporations, it comes from the reality that they don’t have a brand that can authentically enter that space,” Zanotti said. “The authenticity of entrepreneurial, founder-led smaller brands is magic-in-a-bottle, and not something that’s going to disappear and it’s hard to replicate.”
M&A Revival?
By dividing up the business, Kraft is now seeking to unlock “immediate value” by creating two smaller, focused entities, McDonald explained. The soon-to-be Global Taste Elevation Co (condiments and sauces) is said to be valued at $15.4 billion while North American Grocery Co (grocery staples) generates around $10.4 billion.
With a smaller portfolio, the opportunity for smaller deals multiplies, McDonald explained, noting the large companies are after growth accretion and the smaller they are, the more M&A can have a positive impact on their shareholder return model.
“If I’m a $20 billion company and I’m buying a small company that’s growing at 20% [and]… if that company is only $100 million – that’s not a lot of growth accretion; It’s $20 million on a $20 billion base, it’s like 10 basis points, it doesn’t do much for me,” McDonald explained. “But if now all of a sudden, I’m a $10 billion revenue company, well, that $100 million company is giving me double the accretion.”
Zanotti and McDonald both believe that over the next three to five years, the opportunity for smaller-scale, bolt-on M&A by strategics will return once the current period of portfolio revolution and reshuffling has run its course.
“Innovation whitespace drives M&A – you’re in a place where legacy brands don’t have a reason to exist, and so they have to acquire that type of authentic capability,” Zanotti emphasized.
AI For The Next Evolution
At the time of Primal’s acquisition, corporate venturing and accelerators were an in-vogue growth approach. PepsiCo introduced its Greenhouse Accelerator in 2018, the same year Kraft Heinz opened up its Springboard program, followed by Mars, Inc’s SEEDS of CHANGE Accelerator.
That was only slightly pre-dated by the establishment of General Mill’s venture arm 301Inc in 2015, which then evolved with Gold Medal Ventures and incubator studio G-Works. With the exception of PepsiCo’s Greenhouse, those programs have all since been abandoned. According to McDonald, Big Food venturing has largely wound down and likely won’t be these companies’ return ticket to unlock shareholder value.
“Venturing is an investment business – that’s not the business these companies are in,” he emphasized. “That’s a very particular type of investing that has a risk profile to it that isn’t the risk profile of big companies. It’s a little bit of a misfit to what they do and many of them found that it was an exercise in majoring in minor things… lots of small bets on the hope that one of them’s gonna hit big.”
But a fourth, unproven pathway to quickly grow through innovation – without involving an entrepreneur – has emerged as a possible contender for the industry: Artificial Intelligence.
Kraft Heinz entered this space ahead of the rush, executing a joint venture with Chilean food tech firm NotCo in 2022 to iterate an array of its hero products with plant-based varieties. A handful of startups, including Fila Manila and Starday are also using AI to circumvent the traditionally lengthy and expensive R&D process.
But this week, NotCo unveiled it has moved beyond repurposing existing offerings into vegan-friendly fare, naming a new partnership with Unilever spinoff The Magnum Ice Cream Company (TMICC); the company is also working with Coca Cola, PepsiCo, Mondelez, Ferrero and others. Its venture with TMICC will tackle all types of innovation, enabling the corporations to quickly execute against the next viral trend or shifting consumer interest.
“Today’s consumers are looking for indulgent products that also balance evolving priorities around portion sizes, nutrition, sustainability, flavor, format and ingredients,” said Zbigniew Lewicki, chief research, design and innovation officer at TMICC. “From calorie efficiency to plant-based innovation and navigating rising commodity costs, there are complex challenges that require new tools.”
