Insights from the 2017 Capital Roundtable: Trends in growing your food and beverage business

As a middle-market business owner in the food and beverage industry, the path to increasing revenue and consistent growth seems wide-open and clear: quality product, faithful buyer base, and robust brand loyalty. Sounds easy. So why are some in the food and beverage industry struggling to take advantage of growth opportunities? Opportunities for growth seem bountiful — but that might be the problem.

Recently, Plante Moran, along with TriVista and CBRE Food Facilities, sponsored a Capital Roundtable event with insights from 20 experts about investing in the food and beverage industry. The big question of the day: Are middle-market food and beverage companies setting up their businesses for success? Put another way, are they doing all they can to ensure steady growth, brand authenticity, and smooth company operations? It turns out, rapid, unchecked growth can be a business’s biggest challenge and, more often than not, strategic buyers are watching. Here are some highlights from the day.

Good growth at the right pace

Are you growing at the right pace? This is a key question that stymies many middle-market and family-owned businesses. Pursuing growth seems intuitive, but rapid expansion is not always the best strategy. In many cases, startup and middle-market companies fail to keep an eye on gross profit margin, paving the way for rapid, unchecked top-line growth; this is not a best practice. Companies should ensure that any progress makes a positive contribution to their gross margin and bottom line.

Rapid expansion can pose undesirable consequences at the operational level as well. Some startups grow so fast that they outpace their infrastructure, and others don’t know when to invest in capital equipment, increase their marketing and advertising budget, or invest in the “right” people. The challenge? Determining how and when to make the appropriate investments in your company, all while managing good, steady, and profitable growth.

Understanding your customer value proposition is key

When companies aren’t faithful to their brand, consumers can tell. Business owners should understand their core competencies, and many times stick with them — otherwise, they run the risk of losing their existing customer base. Changing course to push the wrong product can be harmful –– especially for a young company. Consumers have a pulse on brand authenticity and quality; a drastic change in quality and taste, for example, could come with a harsh fallout, especially in light of the ease with which consumers communicate (via social media, for example).

What’s more, strategic buyers and financial investors will take note of this. Any premature departure from product or brand messaging may give rise to skeptical customers and significantly impact a company’s valuation — something those looking to buy your business will notice.

Many buyers don’t want to buy your problems

What makes a company attractive to strategic buyers? When it comes to selling, simpler is often better. As buyers and large CPGs look for profitable acquisitions, they tend to stay away from complex organizations. Why? Because a well-known brand and market strategy sells. Complex companies often come up short in strategy for growth and operations.

Here are a few “simple” ideas to help companies prepare for a successful exit:

• Demonstrate a clear value proposition to strategic buyers. Large CPGs are often looking for companies with branded products that fit into niche markets and have significant room for growth. Brand authenticity and consumer value propositions are key.
• Keep core competencies top-of-mind. Pinpoint what you do best, and stick with it. A strong customer base will make you more attractive to buyers.
• Establish a strong senior leadership team. Good strategy sells; having strong leadership early on often helps lead to a successful exit.

Business owners today should have the tools and resources necessary to ensure their company is primed for success. Sometimes, that requires more than careful thinking and effective strategy. Challenges and opportunities take many different shapes; in order to address them head-on, you have to be able to proactively recognize them and be in a position to capitalize on the situation.