It should come as no surprise that big-name food companies want to buy small brand names that are selling well in stores. The more market value that new food revolutions obtain, the more umbrella companies look to either buy trendy food producers or create their own brands to get their slice of the market.
Gluten-free foods
The Institute of Food Technologists predicts that the gluten-free food market in the United States will reach $7.6 billion in value by 2020, nearly triple the 2013 value of $2.6 billion. These numbers refer only to intentionally gluten-free packaged foods, leaving out accidentally gluten-free packaged foods and naturally gluten-free meat, fruits, vegetables and grains. For comparison, the overall packaged foods market value is predicted to reach $421.2 billion in value by 2020.
The gluten-free food trend began when Celiac disease started to be recognized by the broader medical community in the early 2000s (before this, most doctors simply did not have the knowledge or equipment to test for it). Recent clinical trials also indicate that this increase in Celiac disease diagnoses may be partially due to more widespread sensitivity to genetically modified wheat.
One of the first companies to exclusively produce gluten-free packaged foods was Boulder Brands Inc. in 2006. As shown in the chart below, the stock for Boulder Brands enjoyed a good run, trading up to $17.5 per share in 2014.
However, in 2016, the small-cap company was bought out by Conagra Brands Inc. (CAG, Financial), along with its parent company, Pinnacle Foods. The small brand’s independence was not to last. After acquiring Pinnacle and Boulder, Conagra staved off an industry-wide stock price drop for a couple of years longer than many of its competitors.
Another company that produced gluten-free foods early on was Whole Foods Market, which launched its Gluten Free Bakehouse line of gluten-free cookies in 2004. At that time, Whole Foods had a market cap of approximately $4.1 million, taking up a much smaller market share that it does at present.
As time passed and eating gluten-free transcended from a medical necessity to food fad status, General Mills Inc. (GIS, Financial) issued its first gluten-free product in 2008 by altering the ingredients for its Rice Chex cereal. Since then, the company has created or acquired more than 300 products labeled gluten-free.
Fake meat
It’s impossible to talk about food fads without mentioning fake meat. Although John Kellogg created the first fake meat, the peanut-based Nuttose, in 1896, it wasn’t until Boca Burger began its $4 million ad campaign in 1999 that the idea began rising in popularity, prompting competitors Worthington Foods and Gardenburger to spend $5 million and $18.2 million marketing their own fake meat products.
After turning hefty profits in the years following these ad campaigns, Gardenburger lost to its competitors and filed for bankruptcy, after which it was purchased by Kellogg (K, Financial) in 2017. Gardenburger’s loss to Boca Burger may be, in part, attributable to the fact that The Kraft Heinz Co. (KHC, Financial) bought Boca in 2000, giving the soy-based burger access to superior marketing funds.
The future of food fad brands
Considering this history of large companies acting quickly to either buy out trending brands or create similar products of their own, it seems likely that we will see similar instances in the future.
For example, the biggest new name in the fake meat industry is Beyond Meat Inc. (BYND, Financial), a California-based company founded in 2009 which exclusively produces vegetable products that taste like meat. It currently has a market cap of $7.44 billion, down from its high of the year at $14.12 billion this past July.
Given the growing popularity of plant-based diets and recent studies suggesting that meat production has more of a negative environmental impact than agriculture, we may see the fake meat industry continue to increase in value. However, we do not know how long the share price of Beyond Meat will be able to benefit from the increase in market value before a larger company buys it out.
Disclosure: Author has no positions in any of the stocks mentioned.
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