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Small FaB companies in sweet spot

Monday, December 19, 2016   (0 Comments)
BizTimes
Ben Stanley
 
 
 
The food and beverage industry is dominated by global conglomerates with annual sales that have reached dizzying heights. In 2015, Mars Inc. posted $33.5 billion in sales; General Mills: $17.6 billion; and ConAgra Foods Inc.: $15 billion.

But in recent years, the changing tastes of American consumers toward certain types of specialty food items, such as non-GMO, organic and whole grain products, have opened a window of opportunity for small food manufacturers to scale or make themselves attractive for acquisition.

These types of specialty food items make up a growing niche that massive food corporations, because of their large, well-established supply chain and production infrastructures, have been slow to penetrate.

In Wisconsin, a few companies have been taking advantage of that opportunity. Among them: Gorilly Goods, Angelic Bakehouse and Kangaroo Brands.


Gorilly Goods is an organic snack-maker based in the Village of Jackson in Washington County that was launched in 2012. Cudahy-based Angelic Bakehouse, a non-GMO sprouted grain bakery, was founded in Waukesha in 1969 as Cybros Inc., but underwent a name and product line change after it was purchased by new owners in 2009.

Milwaukee-based Kangaroo Brands Inc. has been making and selling pita bread since 1979, but launched a successful new product line of pre-made sandwiches called Sandwich Bros. of Wisconsin in 2012.

Each of these three companies is in the midst of a major expansion, and two of them were recently acquired by much larger companies with deep enough pockets and distribution networks to help them scale.

"The trend is our friend in a lot of the specialty areas,” said Brad Rostowfske, director of innovation and finance at FaB Wisconsin. "Gluten-free and non-GMO, predominantly. The millennials are starting to vote with their dollars. There’s a lot of positive energy around these unique, new craft brands.”

Sprouted-grain products move through the Angelic Bakehouse production line in Cudahy.
Sprouted-grain products move through the Angelic Bakehouse production line in Cudahy.
FaB Wisconsin, formerly FaB Milwaukee, is a cluster organization formed by the Milwaukee 7 and the Metropolitan Milwaukee Association of Commerce in 2010 to stimulate growth in the food and beverage industry. The organization launched an accelerator program in 2015 for small-to-mid-sized food companies to help them scale and has been keeping a close eye on industry trends and opportunities to facilitate growth.

Rostowfske said Wisconsin’s history of dairy and agricultural production have put it in a unique position to accommodate growth among both new and old food and beverage industry companies.

"Just look at the vertical of dairy,” Rostowfske said. "We’ve got the infrastructure, not just of the milk plants and cheese plants, but of enzyme manufacturers, legal structures, technology, accounting, logistics … We are uniquely positioned to keep leveraging that business model we have with dairy across brewing, across meat, across organics.”

Family-owned Kangaroo Brands, located at 7620 N. 81st St., has added 70 employees over the past 12 months, and plans to convert another 30 to 40 temporary positions to full-time. The company also is searching for a second, 75,000-to 100,000-square-foot manufacturing plant to use in addition to its current 55,000-square-foot facility that will help facilitate its recent growth, driven primarily by its Sandwich Bros. line.

"There’s a lot of food manufacturers in Wisconsin,” said Kangaroo Brands president Salem Kashou. "A lot of dairy, a lot of cheese. We have tons of food partners really close to our facility. It reduces our food miles. It’s beneficial across the board, not just for our business – for the world at large. Another benefit: it’s centrally located in the country, so it’s easier to ship to both coasts.”

Gorilly Goods, founded by husband and wife Stephen and Chris McDiarmid, has nine employees in a 6,500-square-foot facility and recently sold a 51 percent stake in its company to Canadian firm Nature’s Path, the largest organic food company in North America.

"Consumers are getting much more savvy to reading labels,” Stephen McDiarmid said. "There’s been such a great movement on getting better and cleaner nutrition.”

McDiarmid said he thinks increased access to information through social media and the Internet have changed the business model of the food industry, particularly in terms of marketing, by flipping the flow of information. Instead of large food corporations telling consumers which products they should buy, consumers are telling food corporations what they should sell.

"They have two choices,” McDiarmid said of the larger food companies. "Either try to adjust and stay abreast of things, or they acquire and work with smaller companies already in those spaces.”

He said being located in Wisconsin has a lot of pros; namely, its strong logistical infrastructure for food distribution, its geographic location in the center of the country near an abundant source of freshwater and its vast food industry network.

"Wisconsin is really positioned well to capitalize on our strengths in the food and beverage industry,” he said.

Angelic Bakehouse was purchased by husband and wife James and Jenny Marino in 2009, who moved the company from Waukesha to Cudahy and over the past seven years, expanded it from eight employees to 55 full-time and 20 temporary employees with an annual revenue of about $12 million. The Marinos sold the company in November to Ohio-based Lancaster Colony Corp.

"We never thought of this as a legacy business,” Angelic Bakehouse chief executive officer Jenny Marino said. "It was not something we were building to pass on to our children. The exit came significantly earlier than we thought it would’ve. We were on a 10- to 15-year plan and we did it in seven.”

Jenny Marino is a member of the FaB Wisconsin executive board.

"Anecdotally, just from our peers in this space, natural and organic foods and great entrepreneurial brands are being acquired constantly,” she said. "There’s a huge demand for it. It’s easier for these (large) companies to do an acquisition than to start from scratch.”

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