The social media reaction was both swift and expected last year when news broke that Oreo-maker Mondelez International acquired Enjoy Life Foods, the Chicago-based manufacturer of health-conscious foods free of common allergens.
After all, Mondelez is a Big Food giant known for its processed foods. Think Chips Ahoy, Wheat Thins, Cadbury chocolates and, of course, Oreos. Enjoy Life Foods, by comparison, is a young company successfully catering to the fast-growing market of health-focused consumers.
The two companies couldn’t be more different.
“People, quite frankly, were like ‘Can’t believe you sold out. They’re going to change everything,'” said Enjoy Life Foods CEO Scott Mandell.
“What we told our consumers was, ‘Listen, we hear you, No. 1, but No. 2, Mondelez bought us because of our brand promise, not in spite of it. This brand promise is not going to change.'”
Such corporate marriages are becoming increasingly common in a changing food landscape, where large, traditional food companies are gobbling up smaller, nimbler firms already established in the coveted realm of food considered to be natural, organic and healthy. The authentic product stories and trusted brands that resonate with health-focused consumers often are easier to buy than to create in a lab. Put simply: If you can’t beat ’em, buy ’em.
And wary of screwing up a good thing, large food manufacturers are often giving the smaller companies they acquire freedom to operate independently, along with access to abundant resources in sales and distribution. For companies like Enjoy Life, the impact of such deals can be transformative.
In the next few months, Enjoy Life will be moving production from two plants in Schiller Park to a new 200,000-square foot facility in Indiana, while retaining its corporate headquarters in Chicago. Most of the Schiller Park workforce, which fluctuates between 90 and 130 nonunion employees, will be laid off as Enjoy Life hires new in Indiana, Mandell said.
With more room to grow and increased ability to sell its products globally, Enjoy Life is poised to grow from its projected $50 million in sales this year to a $500 million business within 10 years, Mandell said.
For Deerfield-based Mondelez, a $30 billion global snack food powerhouse, the deal is more about long-term growth strategy. For a purchase price of about $81 million, Mondelez bought a pioneer of the growing “free from” category. Enjoy Life’s products — primarily cookies, bars and baking chocolate — are known for being free of the eight most common allergens: wheat, dairy, peanuts, tree nuts, egg, soy, fish and shellfish.
“We used to kid that we’re the leader in a category that didn’t exist,” said Mandell, 45, father of three and a former banker. “And then ultimately, the category did exist.”
Enjoy Life Foods operates as a wholly owned subsidiary and makes its own business decisions — an arrangement stipulated by Mondelez, not the other way around, Mandell said.
“We’re keeping Enjoy Life separate to nurture its entrepreneurial spirit while offering back-office support and global resources to help Enjoy Life to grow faster than it could otherwise,” Valerie Moens, a Mondelez spokeswoman, said in an email.
The arrangement between Mondelez and Enjoy Life Foods aims to strike the delicate balance of keeping a small company true to its roots while pumping it full of resources to make it grow. But it’s an arrangement that has been tried, with mixed results, by other food makers. Consider, for example, Kellogg’s purchase of California cereal company Kashi in 2000, a success story that turned into what many food industry insiders consider to be a cautionary tale on the importance of autonomy.
In the eight years that followed the acquisition, Kashi continued to operate as an independent company but with much more resources. Sales grew exponentially. As the years progressed, though, Kellogg started to “treat Kashi more like a brand rather than its own separate entity,” said Jeff Grogg, a product development executive with Kellogg who worked on the Kashi team until 2009.
Beginning in 2007, Kellogg folded Kashi sales into the larger corporate business and in 2013 moved Kashi to Battle Creek, Mich., where Kellogg is headquartered. Such changes, combined with other corporate decisions and economic factors, led to a precipitous drop in sales.
Now back in California, the Kashi business remains a turnaround in progress. In a quarterly earnings call earlier this month, Kellogg executives said Kashi performance was improving, despite a decrease in sales compared with the same period a year ago. In the early going, it’s been smoother sailing for General Mills, which paid $820 million for Annie’s, a business known for its organic macaroni and cheese, in 2014.
Annie’s, still based in Berkeley, Calif., operates independently and calls its own shots, said Steve Young, Annie’s vice president who oversees natural and organic business initiatives for General Mills.
The thinking, Young said, was: “Let’s not break what’s not broken.”
Since the acquisition, Annie’s has expanded into other categories, such as cereal, soup and yogurt — business decisions made by Annie’s leadership but assisted by the vast resources and distribution network of General Mills, Young said. Sales are growing by double digits, he said.
“How do you keep the spirit of the small and complement it with the power of the big?” Young said. “We’re constantly looking hard at how that might be done better.”
For large food companies trying to get with the times, the playbook extends beyond traditional mergers and acquisitions. General Mills has established a venture capital fund called 301 INC, intended to invest in food startups when they’re still small. The fund allows General Mills to keep up with the latest in food trends, while also establishing an inside track on deals in certain cases, Young said.
Campbell’s Soup Co. has a similar venture fund, called Acre Venture Partners. Other companies may soon be following suit, as the pressure’s on to move faster in identifying trends.
Companies also are trying to make what’s old new again. ConAgra Foods, the food manufacturer known for brands like Slim Jim, Chef Boyardee and Reddi-Wip, has been working to “renovate” its existing brands with “modern attributes” that appeal to today’s consumers, said ConAgra Chief Growth Officer Darren Serrao.
Case in point: ConAgra announced Wednesday that its Alexia frozen potato products will be sourced from nongenetically modified ingredients by the end of 2016; Alexia also launched two new organic products that will be sold exclusively at Whole Foods Market.
Acquisitions remain key, though. Last May, ConAgra, which is in the process of moving its headquarters from Omaha to Chicago, bought Blake’s All Natural Foods, a New Hampshire-based purveyor of pot pies made from mostly organic ingredients, adding to ConAgra’s existing quiver of pot pie brands, which include Marie Callender’s and Banquet.
“It’s very difficult to create new brands,” Serrao said. “It’s expensive and the odds of success are very low.”
Consumers are less likely to embrace a brand created by a large company as authentic, said Victor Friedberg, managing director of the Chicago-based venture capital fund S2G Ventures, which specializes in food investments.
Many better-for-you brands start from some personal story or a sincere belief that appeals to shoppers, Friedberg said.
“The challenge is, as these small companies grow, as the acquisitions take place, can the mission remain front and center in how they operate and what values they adhere to at scale?” Friedberg said.
In other words, can you sell the business without selling out?
Mandell thinks so. He and co-founder Bert Cohen — who’s no longer with the company — launched Enjoy Life in 2002 after developing the plan together at Northwestern University’s Kellogg School of Management.
Enjoy Life quickly grew along with consumer demand for products free from gluten and common allergens. But more capital was needed to take it to the “proverbial next level,” Mandell said. In fall 2014, Enjoy Life hired an investment banker and talked to several large food companies before striking the deal with Mondelez.
In the not-so-distant future, shoppers in Europe and other markets throughout the world might be staring at a grocery shelf, deliberating between Enjoy Life cookies and Oreos.
But Enjoy Life has no intention of changing its recipe for success.
“That’s really what they were buying. It’s trust in that brand,” Mandell said.
gtrotter@tribpub.com
Twitter @GregTrotterTrib
