Small is beautiful: Why smaller firms have an edge in the food and beverage industry
Donald Snyder, HLB USA
One field in which smaller firms have an advantage over their larger rivals is the food and beverage industry.
It all comes down to simple economics: Owing to economies of scale, bigger firms must make bigger investments if they are to sell products on a larger scale. For this reason, larger companies have often lagged behind smaller competitors in producing high-quality products.
“Traditional food and beverage companies are acquiring natural food brands, and a number of them are putting together venture funds (for example, Kellogg’s, Campbell Soup, and General Foods) to invest in natural food companies,” notes Chris Mann, Chief Executive Officer of Guayakí Sustainable Rainforest Products, Inc.
“That way they can quickly enter an established market. They are also bringing in talent that is knowledgeable about water usage and reducing carbon footprints.”
When it comes to sourcing ingredients, smaller firms are at a distinct advantage. It’s easier to source and buy small quantities of a high-quality ingredient than to buy in bulk. And costs can be passed to consumers willing to pay extra for high-quality products.
“Acquisition is the road to revenue expansion for large companies,” Mann explains. “One reason for that is climate change. There may be big swings in raw materials costs due to climate change, which could really affect a big company.”
He also notes that the industry faces challenges arising from deforestation and other environmental issues.
“At Guayakí, we saw that our raw materials grew in the rainforest, and protecting that was going to take us wherever we wanted to go,” Mann says. “We have been at this for 21 years, and we have grown from selling loose tea in bags to a ready-to-drink product.”
Further, large companies may take longer to develop sustainable products due to the cost of establishing supply chains. It took General Mills several years, for example, to incorporate whole grains into their cereals.
“The grocery space is changing,” Beyond Meat’s Vice President of Finance Aaron Hicks adds. “Consumers have sustainability demands and are raising their voices via social media. We are listening to what our customers and other consumers are interested in, which is that they care about what they are putting in their mouths.
“That is a catalyst for continuing innovation.”
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