Kraft Heinz agrees to buy paleo company Primal Kitchen

Kraft Heinz agrees to buy paleo company Primal Kitchen

We have seen a growing number of food and beverage companies acquiring businesses to help reposition their offering to include healthy, natural and good for you food. Kraft Heinz is joining a group that includes Hershey, Kellogg, PepsiCo, and Coca-Cola among others as they look to rise the tailwinds associated with our Clean Living investing theme.

With the Kraft Heinz purchase of Primal Kitchen, we’d note the valuation of 4x sales, which helps explain why Kraft Heinz is also launching a venture arm, Springboard, that will work with food start-ups that we suspect will also be in tune with our Clean Living investing theme.

Kraft Heinz said Thursday it plans to buy paleo condiment and dressing company Primal Kitchen for about $200 million, as the ketchup maker looks for a platform to help compete against upstart brands.

Primal Kitchen is expected to generate about $50 million in revenue this year, Kraft Heinz said. The deal is expected to be completed in early 2019.

Primal Kitchen was founded by food blogger Mark Sisson, who started “Mark’s Daily Apple” in 2006 and has written a number of diet and exercise books. The company makes paleo-friendly products including mayo, avocado oil and dressings. It says its products are without processed or artificial ingredients, added sugars, soybean or canola oils.

Paleo diets focus on foods that were available in the Paleolithic era, like nuts, seeds, lean meats and vegetables. The idea, which has gained a strong following in recent years, is that the human body is best suited to eat the foods that early humans ate rather than the modern diet, which includes processed foods.

Kraft Heinz has begun to follow the playbook written by many of its peers seeking growth as eating habits change. For most Big Food companies, it is hard to duplicate the innovation and culture necessary to create the same success seen by younger brands like Kind Bar.

As such, Kraft Heinz joined other Big Food brands this year in launching a venture arm, Springboard, to partner with food start-ups.

Using Primal Kitchen as a platform would also echo a strategy that others have employed, to varying degrees of success. Kellogg has said it wants to use its $600 million acquisition of RXBar as a platform and Hershey is looking at its acquisition of Amplify Brands as a platform for its growing suite of snack brands.

Source: Kraft Heinz agrees to buy paleo mayo and dressing company Primal Kitchen

Weekly Issue: We aren’t out of the woods just yet

Weekly Issue: We aren’t out of the woods just yet

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Cannabis-infused beverages catch growing attention, including Coca-Cola’s

Cannabis-infused beverages catch growing attention, including Coca-Cola’s

Cannabis is catching a lot of attention this week following the news that even Coca-Cola is considering cannabis-infused drinks. While Coca-Cola isn’t the first company to consider tapping into the increasingly legal market, much like the tobacco company Altria (MO), home of Marlboro cigarettes, it is facing a waning market for its core sugary and artificially sweetened beverages as more consumers embrace healthy and better for you beverages and products that are part of our Clean Living investing theme. In recent months, we’ve seen a flurry of M&A activity as companies look to ride that Clean Living tailwind. Starbucks has taken to promoting its lower-calorie Cold Brew and tea products and is bringing its own kombucha product into its stores.

In some respects, Coca-Cola and Altria are looking to trade one Guilty Pleasure for another, while tapping into a new growth category that is benefitting from growing legalization of cannabis.

We are still in the early innings of the cannabis market, and odds are there will be much M&A activity to be had as those legal barriers continue to fall. If history holds, it means larger companies with the scale and scope to bring national distribution if not the international distribution will be those left standing in the coming years.

Coca-Cola Company is closely monitoring the rapidly growing marijuana-infused drinks market with the goal to take an entry to intensify its efforts to moving away from sugary sodas. This is part of Coca-Cola’s attempts to tap into markets outside its signature fizzy drinks in a bid to associate the brand with healthier options.

Earlier this week, Coca-Cola responded to a BNN Bloomberg report mentioning the company’s talks with Canada-based cannabis producer Aurora Cannabis to develop cannabidiol-infused beverages. Cannabidiol (CBD) is a non-psychoactive chemical present in marijuana.

Both Coca-Cola and Aurora denied sharing any specifics, but expressed their interest to enter the infused beverage market.

Coke isn’t the first beverage maker to notice the potential of cannabis-infused drinks. The constant change in consumer preferences has made the beverage industry look for new options, and cannabis-infused drinks attracted their attention too.

The inclination toward healthier drinks has made soda sales drop to its lowest level in more than 30 years in the United States, according to a Bloomberg report.

According to a report by BDS Analytics, sales of cannabis-infused drinks hit $35.6 million in 2017 across Colorado, California, Washington and Oregon with many states reporting rapid growth. This fast-growing segment of beverage industry bets on the health benefits of cannabidiol.

According to the American Cancer Society, CBD reduces inflammation and pain treats seizures and even inhibits rapid spread of cancer.

As more consumers switch their sodas for cannabidiol-infused beverages, it makes the segment extremely lucrative. Many brewing businesses such as Heineken HEINY-owned Lagunitas Brewing Company, Molson Coors Brewing Company TAP and Corona beer maker Constellation Brands STZ are coming up with variants of marijuana-infused drinks to emerge as the biggest players in the new industry.

Source: Coke Eyes Cannabis-Infused Beverages, Will Others Follow?

Soft and hard seltzers gaining share and quenching consumer thirst

Soft and hard seltzers gaining share and quenching consumer thirst

When companies ranging from PepsiCo and Coca-Cola add aggressively to their product portfolio it likely means we are at or near an inflection point in terms of consumer preference. That is what we are seeing with flavored seltzers given PepsiCo’s 2018 introduction of its bubly Sparkling Water, its more recent acquisition of SodaStream and Coca-Cola testing its Dasani PureFill machine. Those perusing the shopping aisles may have noticed the influx of seltzer flavors but the observant shopper probably noticed the growing number of hard seltzers being offers from Spiked Seltzer, Nauti, and others. One has to wonder how long it will be until these Guilty Pleasures catch the eye of companies like Molson Coors and Constellation Brands.

 

While sparkling water on the whole has seen impressive growth, canned sparkling water in particular has emerged as a huge contributor to category performance. Nielsen reference data by package type shows that while bottled sparkling water commands the majority of dollar sales (64% of all sparkling water sales were from bottled varieties), canned sparkling water has performed exceptionally well this year, up 43% from last year to reach sales of over $803 million. And the week ended Aug. 18, 2018, saw sales of over $21 million for canned sparkling water, up 39% compared to the same week last year, whereas bottled sparkling water is up 11% during the same period. Above and beyond the effects of rising aluminum prices, growth in canned sparkling water is driving the category’s profits.

Stretching across the store, hard seltzers is a category on the rise in the alcohol market. Within the last 12 months ended July 14, 2018, sales of hard seltzers are up 177%. In fact, hard seltzers now represent about 10% of all flavored malt beverage (FMB) sales.

Renewed interest in sparkling waters is yet another reflection of consumers’ ongoing shift toward opting to make healthier choices. The sparkling water category across traditional beverage and alcohol beverage categories taps into several health and wellness trends popular with Americans today, such as the appeal of a low carbohydrate and low calorie option would could potentially be seen as a low guilt beverage and an offering that is gluten free. Beyond the potential health benefits consumers see, these drinks can be refreshing, provide interesting flavors and, within the beverage alcohol market, its versatility could appeal thanks to its ability to be part of a cocktail mix.

 

Source: No Signs of Fizzing Out: America’s Love of Sparkling Water Remains Strong Through August

SodaStream to help Pepsico ride the Clean Living slipstream

SodaStream to help Pepsico ride the Clean Living slipstream

From reducing salt and fats from its snack business to the introduction of Bulby, its own line of flavored seltzer waters, PepsiCo continues to transform its business in line with shifting consumer preferences that are reflected in our Clean Living investing theme. With the acquisition of SodaStream, Pepsico takes several steps forward as it not only gains entrance into the home market but with a solution that is plastic bottle free and further shifts it away from sugary products and introduced healthier alternatives.

This move follows the recent introduction of healthier beverages at Starbucks and Coca-Cola testing vending machines offering clean, water-based drink alternatives.  While we may not be in the wee-early innings of this Clean Living transformation, we are still quite far from anywhere near the 7th inning stretch. We expect more M&A activity of publicly traded clean(ish) companies, as well as private ones in the coming quarters as entrenched food and beverage companies, look to ride the Clean Living tailwind.

 

Beverage and snack giant PepsiCo announced plans Monday to acquire at-home carbonated drink maker SodaStream for $3.2 billion.

Purchase, New York-based PepsiCo agreed to pay $144 per share in cash for SodaStream’s outstanding stock, a 32 percent premium to its 30-day volume weighted average price.The deal gives PepsiCo a new line through which it can reach customers in their homes rather than through stores.

It comes as U.S. grocers are in a state of transformation, with 70 percent of shoppers expected to buy groceries online by 2025, according to Food Marketing Institute and Nielsen. Meantime, retailers are squeezing brands on price and giving increasing shelf-space to upstart and private label brands.

“We get to play in a business — home beverages — where we don’t play,” PepsiCo CFO Hugh Johnston told CNBC.With this move, PepsiCo is doubling down on its drinks business, which has struggled in North America as consumers move away from sugary, carbonated beverages. It also seemingly addresses the challenge that buying new drink brands risks cannibalizing its legacy beverages.

Tel Aviv-based SodaStream makes a machine and refillable cylinders through which users can make their own soda or carbonated water drinks.

PepsiCo has made its own efforts at sparkling water, launching Bubly earlier this year to help fight against LaCroix.

Source: PepsiCo to buy SodaStream for $3.2 billion

Starbucks taps kombucha to pivot from sugary drinks and recapture consumers

Starbucks taps kombucha to pivot from sugary drinks and recapture consumers

First Cold Brew and now kombucha is being added to the beverage fold at Starbucks as it, much like Coca-Cola and PepsiCo, are contending with the increasing consumer preference for healthier beverages, snacks, and food. In other words, less sugar as evidenced by the consumer wane for high calorie, high margin Frappucinos, and sugar soda as well as diet soda. While kombucha is a growing market, it’s not quite as mainstream as the Frappuccino was, which likely means it is part of larger salvo to be had by Starbucks as it looks to reposition its beverage portfolio to meet consumer tastes. Never an easy feat, and one that probably means trial and error.

 

Starbucks is brewing up some kombucha.The coffee chain announced it’s going to sell its own line of the trendy fermented tea. Starbucks (SBUX) is offering six flavors of kombucha under its Evolution juice brand and said the drinks have started shipping to stores in select cities.

Why kombucha? The cold-pressed drink is hot right now because of its probiotic punch and zingy flavor. Sales of the fermented tea totaled $1.2 billion last year, skyrocketing nearly 40%. Starbucks says “consumer interest” also spiked the same amount in 2017.

Tapping into the booming drink could help Starbucks reverse its fortunes. Recently installed CEO Kevin Johnson said customers have soured on sugary drinks, like the Frappucino, and he wants the brand to sell more healthy drinks. Evolution’s kombucha is low in calories and has 3 to 7 grams of sugar depending on the flavor.

Source: Starbucks’ new menu item: Kombucha

Coca-Cola: turning free water machine into a cash stream?

Coca-Cola: turning free water machine into a cash stream?

As part of our Clean Living investment theme, we’ve seen case volumes of not only sugary beverages but also those laced with artificial sweeteners come under pressure as consumers shift to healthier alternatives, including a variety of waters both still and sparkling. Existing soda giants, such as Coca-Cola have been expanding their beverage offering in recent years adding a water, teas, sports drinks and even milk to their global line up, but those still come in a can or plastic bottle.

Looking to more fully embrace the shift to Clean Living and potentially shun plastic bottle, Coke is sampling what it is calling Dasani Free that lets a consumer use their own reusable water bottle for free water or pay for added bubbles and flavors, but NO sweeteners or other ingredients are available. That sure does sound like Coke looking to pivot from its legacy business but it’s not as extreme as the move made by Cott Corp. when it sold its entire soda business.

This is a twist on its Coke Free-Style Machine, but it marks a huge shift in mentality for the company. Perhaps one day we may wind up calling reusable water bottles something like reusable beverage bottles… it could happen, look how the war on straws is forcing change, and yet all those plastic cold cups at Starbucks still remain…just saying.

 

The world’s largest soda maker is testing a fountain that lets people fill reusable water bottles with free, filtered water — but also offers the option of paying to add bubbles and fruity flavors. It’s an example of how the maker of Fanta, Sprite and Powerade is searching for new ways to make money as Americans cut back on traditional sodas.

For now, Coca-Cola is testing just one “Dasani Purefill” machine on the campus of Georgia Tech, across the street from its headquarters in Atlanta. It says it plans to expand the test on a rolling basis this fall to 20 machines on campuses in 15 states, though it did not specify locations.

The concept: You can have filtered water for free, or swipe a credit card to add bubbles or flavor for 5 cents an ounce, plus a 15-cent transaction fee. So filling a 20-ounce bottle with bubbles and flavor would cost $1.15.

You can’t get sweeteners and other ingredients.

The idea hitches a trend that has no sales potential for Coke (reusable water bottles) to one that does (sparkling, flavored water such as La Croix). If it catches on, it would help Coca-Cola squeeze money out of an increasingly popular habit that could otherwise hurt its business.

Source: Coke hopes to turn free water machine into a cash stream

 Our Clean Living theme hitting Frappuccino sales at Starbucks

 Our Clean Living theme hitting Frappuccino sales at Starbucks

The war on sugar has hit companies like Hershey Foods (HSY), forcing it to pivot its snacking M&A strategy to better meet shifting consumer preferences for healthy, natural and organic snacks.

We’ve seen a prononced shift for waters and seltzers that is driving companies like National Beverage Corp. (FIZZ), home of LaCroix, and Cott Corp. (COT), a now pure play company on water, coffee, tea and filtration, as consumers increasingly reach less frequently for sugary sodas or ones that have artificial sweeteners.

In other words, Hershey, Coca-Cola (KO), PepsiCo (PEP) are contending with the headwind associated with our Clean Living investing theme, while National Beverage and Cott are rising the tailwind.

Now we are seeing consumers balk at the sugar laden Frappuccino that has become a staple at Starbucks (SBUX) complete with seasonal specialites. While this is the latest thorn in the side of Starbucks, it has the potential to not only hit it on the profit line but also force an accelerated re-think on its beverage and even its food offerings.

 

Frappuccino sales are struggling, and concerns about how much sugar the slushy drinks contain may be among the reasons.Starbucks says sales from the drinks that mix coffee, ice, syrup and milk are down 3 percent from a year ago, and is blaming the “health and wellness” trend for the dip.”These are oftentimes more indulgent beverages — higher in sugar, higher in calories,” Starbucks CEO Kevin Johnson said during a presentation to investors Tuesday.

A 16-ounce Cupcake Creme Frappuccino has 400 calories and 63 grams of sugar. A Triple Mocha Frappuccino has 390 calories and 51 grams of sugar. That’s with 2 percent milk and whipped cream.

Peter Saleh, restaurant analyst for BTIG, notes that interest in healthy eating isn’t new: “It’s not something that popped up out of nowhere.”

Another problem may simply be “people not wanting to consume full-price Frappuccinos…” A medium Frappuccino costs between $4 and $5. Exactly how many calories the drinks deliver varies.

Source: Starbucks claims Frappuccino sales down due to ‘health and wellness’ trend | Fox News

With soda getting left in the cold, PepsiCo trots out Bubly sparkling water

With soda getting left in the cold, PepsiCo trots out Bubly sparkling water

 

Over the last decade, sugary soft drink volumes have been under pressure, but until recently soda companies have seen their case volumes bolstered by diet beverage that incorporate alternative sweeteners to deliver zero calories. With consumers becoming more health conscious as well as preferring healthier and good for you ingredients as part of our Food with Integrity investing theme, diet soda case volumes have also come under pressure and this is pushing companies like Coca-Cola, Dr. Pepper Snapple, Cott Corp., and PepsiCo to deliver new formulations and offer healthier alternatives. One of the biggest pushes is in flavored sparkling water, and now PepsiCo is joining the fray with Bubly, going head to head with not only La Croix, but also Coke’s line of flavored sparkling water under its Dasani brand.

 

PepsiCo is introducing Bubly, a new brand of sparkling water that comes in eight flavors, including apple, strawberry and mango, in brightly colored cans with lowercase lettering and greetings on the pull tabs. (“Hey u!” “yo!”)Bubly marks the most direct attack yet on LaCroix, a brand of flavored sparkling waters that has, in recent years, seen sales soar as it developed a near cultlike devotion among millennials.For PepsiCo, Bubly is a big bet. The beverage and snacks giant will put its formidable marketing and distribution machine behind the rollout. Bubly will land on shelves this month, and two ads will appear during the Oscars broadcast on March 4.PepsiCo executives say Bubly, with no artificial flavors, sweeteners or calories, fits into its broader corporate initiative to offer consumers healthier snack and beverage products.Continue reading the main storyRELATED COVERAGELETTER OF RECOMMENDATIONLetter of Recommendation: LaCroix Sparkling Water MARCH 3, 2015‘Lady Doritos’? Pepsi Wants a Do-Over FEB. 6, 2018But it is also an acknowledgment that sales of carbonated soda are falling as consumers increasingly shun sugary drinks in favor of healthier options, including water.

Source: PepsiCo Dips Its Toes Into the Sparkling Water Market – The New York Times