<strong>As major manufacturers add smaller brands to their portfolios, they can either use them to boost their potential or contribute to their demise</strong>
It’s long been considered smart business practice to surround one’s self with people who make them look good.

Many food and beverage manufacturers are applying this philosophy to their portfolios by aligning themselves with brands that appeal to today’s health-conscious consumer. These better-for-you companies benefit from strong “health halos,” or consumer perception that they are more authentic and nutritious than other companies.

Many legacy brands are angling to capture some of that halo for themselves, sparking a wave of natural and organic brand acquisitions by industry power players. Dr Pepper Snapple recently acquired enhanced water manufacturer Bai Brands. In 2015, Hormel Foods bought Applegate Farms, a leader in natural and organic meats, and General Mills picked up Annie’s Homegrown the year before that.

Chris Konyk, business consultant at Salient Management Company, believes that it’s pivotal for major food and beverage brands to change their image because many consumers associate these companies with unhealthy, sugary products.

“These companies finally got the message that people are looking to improve their health and are monitoring what they purchase for their families and eat or drink daily. They need an image makeover,” he told Food Dive. “The key will be how quick these manufactures can react and reposition themselves. The quickest way to realign to consumers and change their image is build their portfolio with items the consumers are seeking.”

Christina Papale, vice president of strategy and director of innovation for branding agency CBX, said the “better-for-you” trend has grown, both in interpretation and cultural demand.

“What was once considered a small pillar of a conventional portfolio is now a mass-culture table stake with consumers willing to pay more for options with cleaner ingredients and higher health benefits,” she told Food Dive. “The key is preemptively identifying cultural trends, scooping them up early on, then leveraging their core consumer base to further build and expand on the brands.”

As consumer demand for healthier products increases, better-for-you brands are becoming more attractive to major food and beverage manufacturers as acquisition targets.

“Consumers are changing the way that they eat, trading unhealthy items like sugary beverages and fast food for water and whole foods. Additionally, they are looking for healthier versions of the packaged foods they love (e.g., pretzels and cookies), like those containing whole grains or added nutrients,” Beth Vallen, associate professor of marketing and business law at Villanova School of Business, told Food Dive. “And it’s not only demand that is driving the trend, it’s the fact that people are willing to pay more for these foods that is driving the acquisition of these brands.”

Vallen said that adding a better-for-you brand to a portfolio can create a halo effect for other, less healthy brands by association.

Marie Chan, a partner at brand consulting firm Vivaldi, said that when companies acquire better-for-you brands, it’s important that they carefully consider what the acquisition will do.

“With portfolio strategy, the BFY brand should have a clear role — meeting a different need-state, catering to a different consumer, offering different functional features/benefits, playing in a new daypart and/or new channel — to minimize cannibalization and brand overlap,” she told Food Dive by email. “Brand architecture is equally important. You must give consideration as to how much or how little emphasis will be placed on the corporate brand.”

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<strong>Consumer attitude is everything</strong>

Developing a brand, as a rule, may take a large company one to two years to get a product off the ground. With this timeframe, the manufacturer could already be beaten by a smaller, more nimble competitor.

“Acquisitions are the quickest and easiest way to cut that time down,” Konyk said. “A company’s success is their speed to market. Some companies that seem to have the speed and dexterity to beat out competition are Preferred Popcorn with K &amp; W Popcorn acquisition, Danone acquiring WhiteWave, and Kashi with Pure of Holland.”

Mondelez also acquired a brand with a health halo when it purchased allergen-free manufacturer Enjoy Life Foods in 2015. The hope was that it could help the company attract new consumers to its products.

General Mills drove an early entry strategy by acquiring small natural brands. It started in 1999, acquiring Small Planet Foods and bringing brands like organic produce pioneer Cascadian Farms into its fold.

Chan said that PepsiCo has also done a great job at diversifying its portfolio with better-for-you brands. She said the soda and snacking giant used its acquisitions to recognize that many consumers have different needs, tastes and wants.

“You may want to start your day with a healthy breakfast from Quaker, but re-energize in the afternoon with Mountain Dew. Either way, PepsiCo has the products to fit your life,” she said. “What makes PepsiCo successful is that it’s segmented its portfolio into Fun for You, Good for You and Better for You, so that brands have a clear role to play in the portfolio and are afforded the right focus and resources.”

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<strong>How acquisition can help — and hurt — better-for-you brands</strong>

Filiberto Amati, a partner at branding firm Amati &amp; Associates, said that when a conventional food or beverage producer buys a better-for-you brand, it usually is hoping to tap into a profitable niche where it would typically have no credibility to operate.

“Normally, they keep the brands separated, albeit they leverage their distribution muscle and product supply efficiency as catalysts for growth of the acquired brand,” he told Food Dive. “This may not do anything for the image, but it certainly does a lot for the pockets.”

In many better-for-you acquisitions, Chan said, there is little to be gained from telling consumers about the acquisition upfront — like a label on products indicating animal welfare standard bearer Niman Ranch is a part of Perdue, or that organic and mission-based Annie’s is now a part of General Mills. In both cases, however, consumers benefit from greater distribution access and new products as a result of joining a much larger company.

By partnering with deep-pocketed corporations, smaller brands can expand the regions they serve, the lines they offer and the number of retailers that carry their products. They also get some big money behind them, which can help with marketing and any unforeseen challenges that arise.

Still, this strategy doesn’t come without consequences. While the appeal of having deeper pockets and a larger reach could be mouthwatering to a startup or small brand, once a deal goes through, the better-for-you brand could suffer if the parent company treats it like the other brands in its portfolio.

“It could lose its street credibility and put off customers by following traditional promotional routes,” Amati said. “However, if a brand stays true to itself, then the acquired brand image is immune to the effects of being associated with a larger manufacturer.

Kellogg's acquisition of organic cereal company, Kashi, did not give the company the exposure it wanted and led to a 35% market share loss to newer upstarts.

Analysts say many consumers supported these better-for-you brands in the first place because they weren’t large food companies. These smaller companies offered products that placed values above profit. If these brands jump aboard with multinational megacompanies and private equity, devotees could view their favorite brands as compromising those values.

“Many of these brands started out as small, independent brands, and consumers may be skeptical that quality, ingredients and overall product healthfulness will remain after an acquisition of this type,” Vallen said. “This is especially true if the acquiring company is not known for healthy food brands.”

Papale noted the impact depends on the type of acquisition and how the cultures of both companies mesh together. While some companies keep the brands and business intact, running as-is with existing leadership and changes that are “invisible” to its employees or day-to-day operations, others are executed more publicly with massive implications from the top down.

“However way these acquisitions are played out, it becomes clear pretty quickly who the new sheriff is and how that’ll affect staff rationalization, brand spend, product changes etc.,” she said. “As such, it is imperative that companies are as transparent as possible when it comes to their actions, motives and goals moving forward with all brands.”

Konyk has seen large companies acquire smaller ones and destroy any value the new company would have provided. Additionally, over the years, he’s witnessed acquisitions of a smaller company and never heard, saw or read anything of the larger brand they represented.

Orangina, a popular European brand made with a juice blend and lightly carbonated water was purchased by Dr Pepper Snapple in 2006. Once part of the larger company's portfolio, it became obscure and less popular in the U.S. Odwalla, a smoothie brand, also lost most of its traction with consumers once rolled into Coca-Cola’s product line.

Sabra, makers of hummus spreads, is jointly owned by PepsiCo., and Israeli company Strauss. Eugenio Perrier, Sabra’s chief marketing officer, said he didn’t feel that PepsiCo interferes in Sabra’s operations at all. He also didn’t think the association with Pepsi reflected badly on Sabra — although understands that his brand helps Pepsi add more better-for-you products to its portfolio.

“It has definitely given them [PepsiCo] openness to another part of the store—the perimeter of the store with our fresh offerings,” he told Food Dive. “We got with Pepsi the support of a company that was willing to advance growth. It’s a company that is in a good position to help us with distribution and management support.”

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<strong>Should companies advertise BFY acquisitions or keep quiet?</strong>

An acquiring company needs to assess its objectives when deciding how to get the word out about a new BFY brand, Vallen said. If the objective is to grow sales of the acquired brand, care should be taken to ensure that association with the parent company does not erode consumer trust or perceptions of product healthfulness.

Some manufacturers will issue a press announcement while others will keep it quiet. Papale said this can be a sensitive decision. Regardless of the action the larger manufacturer decides to take, consumers can still see it negatively.

“No matter what is done, it’s important to try to communicate as authentically and truthfully as possible about the acquisition,” she said. “Packaging is a unique way for brands to signify the new merger, helping to tell a new story both to retailers and consumers. With new ownership often comes distribution, so creating some excitement in a tangible way the consumer will interact with is a good option.”

In a perfect world, an acquisition helps both parties, Amati said. Ben &amp; Jerry became truly global after the ice cream brand’s acquisition by Unilever, allowing the company to share its message on a larger scale.

“Ideally, the acquisition is a win-win situation for all, allowing for wider distribution, the ability to leverage brand equity on both sides and an overall increase in consumer awareness,” he said.

Originally published in <a href="http://www.fooddive.com/news/a-balancing-act-does-getting-acquired-tarnish-the-health-halo-of-better-fo/441050/" target="_blank" rel="noopener noreferrer">Food Dive</a>
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