Why are so many big brands scooping up smaller ones?
Forget tech startups—microbreweries are the hottest thing to acquire these days. On both sides of the border, beer industry giants are snapping up makers of craft suds. Labatt Breweries—the AB InBev-owned Canadian staple—has been particularly active, buying up Toronto’s Mill St. in October and Vancouver’s Turning Point a month later.
The frothy market for microbreweries is part of a broader trend of large conglomerates buying up niche brands. Blame millennials and their desire for “authenticity,” that branding buzzword that means some combination of a compelling backstory, irreverent marketing and anti-consumerist values. “There tends to be a naive freshness to these brands,” says Thomas Pigeon, chair and founder of Pigeon Brands. “They have a surprising look to them—they sure as heck don’t follow all the branding conventions. There’s a special magic dust of excitement.”
Established companies like AB InBev can’t manufacture or develop that kind of connection with young consumers on their own. So they buy it instead. “They’re largely vested in brands built up over decades, with conventional advertising and relationships with consumers,” says Pigeon. “The marketplace is getting turned upside down so fast in so many categories that it’s pretty hard for some of these big brand owners to turn the ship fast enough to respond.”
Acquiring an upstart provides a path into hot, niche markets and a ready-made product to service them, which a conglomerate’s R&D and marketing systems would need years to reproduce.
Here’s a look at five “authentic” brands that were bought out by giants, and how they fared post-acquisition:
PETE'S FINE FOODS
When: October 2015
Acquired By: Sobeys Capital
Price: Undisclosed
What Made it Special: “It’s a smaller operator with an extraordinary culture and brand,” says Phil Otto, CEO of branding and marketing firm Revolve, which has worked with Pete’s for many years. “They’re all about entertainment, freshness, and knowledge. They were never set on ‘best price,’ but they were busy as heck—and still are.”
Reaction: Thanks to his larger-than-life personality and frequent TV appearances, founder Pete Luckett is a popular figure in Nova Scotia. Customers appear to see Luckett selling out as a just reward.
What’s Happened Since: I think that
MISS VICKIES
When: February 1993
Acquired By: Frito-Lay
Price: Undisclosed
What Made it Special: “Miss Vickie was a very real person who produced provocative and interesting flavours that were different than offerings from the conventional bigger brands of potato chips,” says Pigeon. “
Reaction: The new owners left Bill and Vickie Kerr in charge of the arm’s-length company and consumers barely noticed.
What’s Happened Since: “Great brand acquirers fully understand what they’re buying,” says Pigeon. “We were involved in the first design modification after Frito-Lay acquired the business. It wasn’t designed to completely redefine the brand. It was designed to just fine-tune the styling, colours and visual language of the brand so it was a little more appealing and differentiated at shelf-level.”
BEN & JERRY'S
When: April 2000
Acquired By: Unilever
Price: US$326 million
What Made it Special: “Until Ben and Jerry’s, ice cream was this indulgent dessert product that you would buy at your local grocery store that had wonderful, appetizing images on it,” says Pigeon. “Ben Cohen and Jerry Greenfield had this wacky, irreverent style with their crazy cows on the package.”
Reaction: The unusual terms of the deal won praise. They included maintaining the company’s donation of a percentage of pre-tax profits to charity and giving Cohen US$5 million for a VC fund in low-income communities.
What’s Happened Since: Instead of changing to suit the conglomerate, Ben & Jerry’s seems to have accelerated a shift that was already underway at its new parent company. Unilever launched a Sustainable Living Plan in 2010, and has made social good one of its explicit business objectives.
BURT'S BEES
When: October 2007
Acquired By: Clorox
Price: US$927 million
What Made it Special: “It’s a big sustainability and natural brand,” says Kim Koster, a brand strategist at Koster Strategy. Burt Shavitz, an outdoorsman and beekeeper who was the company’s namesake, played into that brand. “The crusty old guy with his beard is a fantastic symbol for what they’re trying to stand for—someone who’s a bit off the grid, he’s so natural.”
Reaction: Dozens of customers called Burt’s Bees corporate offices to accuse the brand of selling out.
What’s Happened Since: Being acquired by a company known for its artificial chemical-based cleaning products actually helped make Burt’s more natural, thanks to a 50% boost to its R&D budget. “When a company like Clorox brings in a company like Burt’s Bees and is open to learning from the acquisition, that transparency is good for their brand authenticity,” says Koster.
BRUICHLADDICH DISTILLERY
When: July 2012
Acquired By: Rémy Cointreau
Price: $92 million
What Made it Special: The distillery, located on the isle of Islay in Scotland, still uses much of the original equipment installed by the founding Harvey brothers in 1881. It was re-opened by private investors in 2000 after a lost half-decade. The new incarnation was hailed as one of the more exciting and innovative distilleries in the industry.
Reaction: Distilleries change hands relatively frequently, so Bruichladdich’s sale didn’t cause much of a stir.
What’s Happened Since: Bruichladdich posted revenues of $26 million for the 2014 fiscal year, up from $5 million the previous year. Once the upcoming construction of six maturation warehouses is complete, the distillery will have an annual output of 1.5 million litres per year, double its capacity at acquisition. It’s now Islay’s biggest employer.
This article first appeared on ProfitGuide.com