Q: What do you look for when evaluating a consumer food brand as a potential investment?
Hadley Mullin: TSG focuses on brands that deliver a strong value proposition to the consumer. And by value, I don’t necessarily mean the lowest price—often far from it. Consumers are more discriminating than ever when evaluating options and will often pay for brands that deliver attributes they’re looking for. Some of the most important trends we’ve observed are natural and better-for-you positioning; convenience and portability; and, increasingly, environmental sustainability. In addition, we look for brands that have a distinct reason for being. In order to compete with the larger consumer packaged goods companies, earlier-stage and middle-market food brands need to deliver something truly unique—be it a proprietary formulation that offers distinctive taste and functional benefits to consumers or patented technologies that other brands can’t replicate. Smaller, evolving brands can never outspend large companies’ advertising budgets, so they need to deliver best-in-class products with a defensible point of difference.
What trends are you seeing around consumer tastes and preferences and how have they influenced your investment decisions?
HM: Consumers are savvier today about ingredients and nutrition and far more discerning about what constitutes healthy eating. Ten to 20 years ago, “healthy eating” largely meant a low-calorie and low-fat diet, while today it encompasses a much wider set of consumption choices. Food companies need to pay more attention than ever when formulating products. It’s not just a matter of producing palate pleasers or products that hit a certain calorie or fat count—products must deliver great taste and a host of other nutritional (and emotional) benefits. One important trend we’ve observed is a throwback to simplicity. Consumers want ingredient panels with words they understand (and can pronounce!), and they want to see “whole” foods over processed foods. We now see packaging that lets consumers view the actual product on the shelf (e.g., transparent wrappers) and more emphasis on raw ingredients and food imagery in marketing materials.