FREMONT, CA: Brands in the food and beverage industry that command high multiples have six core attributes in similarity. These functional benefits are the key ingredients for increasing the value in a capital raise scenario.
1. Strong sales velocity: Sales velocity is measured as units sold per SKU per store per week, is among the significant parameters that validate the performance of the product/company at the point of sale. A label generating high sales velocities, more than that of its competitive set, is an active performer. With the combination of high velocity and significant distribution, the acquirers are compelled towards whitespace.
2. Brand equity: Consumers purchase those brands, which have an authentic founder’s story, a high valuation, and a clear mission. Such brands have a loyal following of customers making it more difficult for other brands to compete and, ultimately, win shares.
3. High margins: Brands and products, which have been categorized methodically, often command superior gross margins. Although each category is different, investors like to see margins higher than 40 percent for food and beverage companies. A high marginal gross value is an indication of the uniqueness of the brand and a value-add to the retailer. A brand or a product that has high value is accretive to a strategic buyer and is viewed as favorable.
4. Power SKUs: Brands have been known to focus on core power SKUs before expanding into other product differentiations. It not only demonstrates the proven record of the core but also informs a cleaner story, sorted, and attractive for a strategic buyer. The visualization of focus on the near-term core product with a long-term product roadmap can ignite conviction among buyers about the bigger, broader market opportunity.
5. Unique product differentiation: brands and products are termed one-of-a-kind because of the combination of factors like taste, flavor, quality, nutritional profile, ingredient profile, form factor, feeling-in-the-mouth, packaging, portability, convenience, and shelf-life or production process which is difficult to replicate
6. Active growth profile: Big food and beverage companies have stunted growth in the market due to the decline in the sales of legacy brands as most industry-wide growth is contributed mainly by emerging brands. Instead of focusing on R&D of a new, stronger product, legacy companies are switching to acquisitions of the smaller, emerging companies. The newer brands, which achieve staggering growth, are attractive to high valuation, ultimately depending on the price factor.