In recent years, there has been a significant shift in consumer preference towards healthier products, giving rise to a surge in small to medium-sized food businesses focused on the “better for you” segment. These dynamic businesses offer a broad range of products tailored to cater to specific health-conscious benefits. Whether it's organic, low in sugar, plant-based, “free from” (e.g. gluten or nuts), high in protein, low in carbs or more, the market is full of options to support a healthier lifestyle.
The growth of this segment has not only attracted more established, traditional food manufacturing businesses actively searching for targets to build out their product portfolio, but has also created an opportunity for consolidation among smaller enterprises.
Despite the industry's promising growth, there have been numerous challenges. Supply chain disruptions and labour shortages have created obstacles for businesses, in particular smaller to medium sized businesses that often rely on outsourced production, co-manufacturers or co-packers, who undertake the cooking, processing, packaging and labelling of food products. This reliance sometimes leads to thin profit margins, and rapid growth may require significant working capital. Pricing dynamics with supermarkets add an extra layer of complexity.
Navigating these challenges requires strategic planning and a keen awareness of market dynamics.
Throughout 2023, the sector saw a notable increase in the number of insolvencies, impacting well-known names like cheesecake manufacturer Sara Lee, ASX-listed Halo Foods and protein product business Bounce Foods. However, among these challenges, there is a silver lining.
Having successfully overseen the sale of two healthy snacking businesses from formal insolvency processes during 2023, we’ve seen a significant demand from potential acquirers. We have interacted with over 100 interested parties with a keen interest in branded food products aligned with growing consumer demand for healthier products.
For struggling businesses, the key takeaway is clear: timing is crucial. Early intervention by advisors is important to maximise value and provide the best options for shareholders. We believe in proactive involvement before a business reaches insolvency, ideally during the growth phase. This ensures a strategic and proactive approach to navigating the complexities of the ever-evolving food and beverage landscape.
If you're ready to explore possibilities for your business or would like to discuss interest from acquirers in the sector, please don’t hesitate to reach out.
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